Crown Estate Bill [HL]

Baroness Vere of Norbiton Excerpts

3rd reading
Monday 18th November 2024 Lords Chamber

[Lord Wigley (PC)]

My Lords, I thank the Minister for having made a bit of progress with regard to Wales in the Bill. Having the nominated person is a step in the right direction. It does not deliver everything that we and the noble Lord, Lord Hain, were pressing for, but I hope we will return to this. I have coming up for Second Reading a Private Member’s Bill on the devolution of the Crown Estate to Wales, as Scotland benefits from, but I thank the Minister for a small step in the right direction.

[Baroness Vere of Norbiton (Con)]

My Lords, the core objectives of this Bill were of course supported by all sides of your Lordships’ House, and there has been a bit of progress on so many fronts. There are a number of issues where I still have some concerns, and I know that there is some unease on these Benches. I hope that the Government will deliberate further.

I note the improvements relating to environmental concerns that were raised by the noble Baroness, Lady Hayman. They were somewhat addressed by the Government. I am sure that she would have liked them to go further, but it was progress none the less. I hope that the Government do not seek to reverse the changes relating to salmon that were spearheaded by my noble friend Lord Forsyth.

I remain disappointed that sensible checks on unconstrained borrowing did not make it into the Bill. They garnered significant support from these Benches, but sadly we did not get that vote over the line. I appreciate the Minister’s comments about the sale of certain assets, particularly the seabed, which all noble Lords should be concerned about.

I am grateful to the Minister, his Bill team and all noble Lords who participated on the Bill. On a personal note, after more than 3,000 spoken contributions in eight years, this is my last outing at the Dispatch Box. I look forward to serving your Lordships’ House from the Back Benches.

[Lord Livermore (Lab)]

My Lords, I thank all noble Lords who have spoken today. My noble friend Lord Berkeley will know that only the King’s consent is required for this Bill. Once again, I thank all noble Lords for their efforts on the Bill and thank the noble Baroness, Lady Vere, for all her exchanges from both sides of this Dispatch Box over the past year. She has always been ferocious in this House but friendly outside it, which has been the perfect combination. I wish her well in what she does next.

Bank Resolution (Recapitalisation) Bill [HL]

Baroness Vere of Norbiton Excerpts

3rd reading
Tuesday 12th November 2024 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I also thank the officials and other noble Lords, the Minister and, notable among those who did most of the heavy lifting, the noble Lord, Lord Vaux, and the noble Baronesses, Lady Vere and Lady Noakes. This Bill contains useful measures improved by amendments but is notable for diverting private bank money to addressing a matter of public interest in place of public funds. For that reason, I hope that the Government will reflect on the wisdom of keeping the amendment limiting the mechanism to small banks.

[Baroness Vere of Norbiton (Con)]

My Lords, I am pleased that this Bill leaves your Lordships’ House to wend its way to the House of Commons for further consideration. The Bill has widespread support and has been somewhat improved by the deliberations in your Lordships’ House over the last few months.

I am extremely grateful to the core crack team pulled together specifically for this Bill: my noble friend Lady Noakes, the noble Baroness, Lady Bowles, and the noble Lord, Lord Vaux, whose expertise—far greater than mine—ensured that the roughest edges were smoothed away. I am also grateful to my noble friend Lady Penn, who so skilfully stepped up for Second Reading, and to the new opposition research team for their support.

Last but certainly not least, I am enormously grateful to the Minister and his officials, who were as accommodating as they felt able to be in improving the Bill. All noble Lords will share my hope that this mechanism is never, ever used but if it is, the statutory framework is now there to support one or more small banks through the resolution process and ensure that the first port of call is not taxpayers’ funds.

[Lord Livermore (Lab)]

I thank again all noble Lords who have participated in debates on the Bill. I look forward to working together in the future on similar issues.

Crown Estate Bill [HL]

Baroness Vere of Norbiton Excerpts

Report stage
Tuesday 5th November 2024 Lords Chamber

Moved by

[Baroness Vere of Norbiton]

1: Clause 1, page 1, line 26, at end insert—
“(3) The Secretary of State must limit any borrowing by the Crown Estate under this Section by regulations made by statutory instrument, and these regulations may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.(4) The first set of regulations made under subsection (3) must limit borrowing to a net debt to asset value ratio of no more than 25 per cent.”Member's explanatory statement
This amendment would limit the amount the Commissioners may borrow by regulations subject to the affirmative procedure for statutory instruments.

[Baroness Vere of Norbiton (Con)]

My Lords, I thank my noble friend Lord Howard of Rising for his support on the amendment and for his very wise counsel in our discussions to ensure that the change that is proposed is both reasonable and rational. The Official Opposition have made a clear and consistent argument for the insertion of essentially two things: parliamentary approval to borrow up to 25% of net debt to asset value, and a second and simple check from the Government of the day when the borrowing is forecast to increase over that higher ratio.

This two-step process is quite important. The initial use of the power would ensure that Parliament and your Lordships’ House can take into account a revised business case. I am incredibly grateful to the Minister for publishing a business case that sets out the rationale as to why the Crown Estate needs this borrowing. Unfortunately, it does not include the partnership with GB Energy. Noble Lords will know that this partnership was announced with great fanfare, and one must assume that it is significant. Therefore, I believe it would be appropriate for the business case to be revised in due course and that that would be expected. I am sure that the Minister will agree that that will happen. However, on the basis of that business case, I think it is important that Parliament and your Lordships’ House can then say that it is wise for the Crown Estate to seek the borrowing required.

The second use of the power—which according to current forecasts, which I am sure the Minister would probably agree with, will not be needed for many years—to go beyond 25% of net debt to asset value based on the current total assets of the Crown Estate would mean going above a borrowing requirement of about £3 billion. That is a significant amount of money, and the Crown Estate is not forecasting that it will need that amount of borrowing, so the further use is for much further down the road. In terms of the initial use, our view is that it is appropriate to put that check in place now to ensure that all information is considered as the Crown Estate is given this new power to take on borrowing.

I am grateful to the Minister for his engagement to date on this important matter. I know he has had some useful conversations with myself and my noble friend Lord Howard of Rising. Underpinning all of this and many of the amendments before your Lordships’ House today is that the assets held by the Crown Estate are absolutely critical to the national, cultural and environmental importance of our nation. Not only are the assets incredibly important, but the Exchequer receives a very handy income from the Crown Estate, which then supports the nation’s public services. We must not put either of those things at risk unduly.

I believe that some form of parliamentary oversight is critical here. It is right that, under this Bill, there is a lessening of that oversight, as Parliament, particularly the House of Commons, will no longer need to approve the salaries and expenses of the commissioners of the Crown Estate. Given that reduction in parliamentary oversight, ensuring the correct financial structure of the Crown Estate is, to my mind, critical. Doing that on the basis of the new business case is also incredibly important.

This is a simple amendment. It is in two stages: one would have to happen quite soon, and one would happen many years hence, but I think it is right that we not only address the financial situation of the Crown Estate as it is now, following the partnership with GB Energy, but ensure that the Crown Estate does not risk the temptations of excessive borrowing in the future, which would therefore put our nation’s assets at risk. I hope noble Lords will be able to support the amendment.

[Lord Howard of Rising (Con)]

My Lords, I support my noble friend. In Committee, the Minister was good enough to agree that controls on borrowing by the Crown Estate must be in place and that they would be set out in a memorandum of understanding between the Crown Estate and the Treasury at a loan-to-value ratio not to exceed 25%. This figure is more than I would have wished for, and using asset value rather than capital reserves in the definition allows a still greater level of borrowing. Nevertheless, I am grateful that the Minister acknowledges that there should be a limit on borrowing. However, there must be a tighter control than a memorandum of understanding. Amendment 1 proposes an affirmative statutory instrument to achieve this. It requires the Government to limit borrowing to net debt-to-asset value of no more than 25%, purposely copying the wording of the Minister’s comment in Committee.

Should His Majesty’s Government need more flexibility in the future, this statutory instrument would provide for that. It would be better if the limit on borrowing were in primary legislation, but in seeking a solution which His Majesty’s Government might find acceptable, the amendment would be a fair compromise, retaining any flexibility that the Government might need while providing a stronger safeguard than a memorandum of understanding. As the Minister said, this limit is unlikely to be of concern to the present Government. Therefore, I hope he will accept this very modest suggestion to safeguard the Crown Estate for the future.

--- Later in debate ---

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

My Lords, I am grateful for the contributions from all noble Lords on this group of amendments. As I set out in Committee, the Government recognise that the matter of controls on borrowing is an important consideration for noble Lords.

I listened carefully to the concerns raised at previous stages of the Bill. I found the arguments put forward by the noble Baroness, Lady Kramer, to be particularly compelling. As such, I committed to sharing the underpinning memorandum of understanding, which sets out the parameters and controls relating to the power to borrow, as well as the original business case and the framework document. Following on from my commitment, these documents were shared with noble Lords and have been deposited in the Library. I am grateful to the noble Baroness for her words just now.

The memorandum of understanding set out that borrowing by the Crown Estate will be limited to a maximum of 25% loan to value, defined as net debt-to-asset value, and that any borrowing within that limit can be undertaken only with the consent of the Treasury.

The framework document will be amended, as I have shared, to include references to borrowing powers, and the original business case produced by the Crown Estate makes the argument for the Crown Estate being able to borrow with the consent of the Treasury, in line with its peers, to ensure that it can continue to operate sustainably and drive maximum returns to the Exchequer.

I trust that having sight of these documents has been useful for noble Lords and has provided an additional opportunity for scrutiny of the proposed borrowing. Let me be clear that the Government agree that controls on borrowing must be in place. As I have set out previously, borrowing can be undertaken only with the consent of the Treasury and, as outlined in the memorandum of understanding, borrowing is not to exceed 25% of loan to value, defined as net debt-to-asset value. This is a clear and carefully chosen guard rail to ensure that sufficient limits are in place. The proposed powers will enable the Crown Estate to draw on its cash holdings first and, as such, it is not envisaged that these borrowing powers will be used in the short term.

Amendment 1, tabled by the noble Baroness, Lady Vere, and supported by the noble Lord, Lord Howard, would require the Secretary of State to limit borrowing by the Crown Estate by affirmative regulations, and for the first set of regulations to set the limit at 25% net debt-to-asset value.

As debated in Committee, the principle here is whether a specific cap should be in statute. The Government’s view remains that the limit is better placed outside of legislation. The primary control, set out in the Bill, is the requirement for Treasury consent to be obtained prior to undertaking any borrowing. In addition to this important safeguard, we are retaining the requirement for the Crown Estate commissioners to maintain and enhance the value of the estate, while having due regard to the requirements of good management as set out in the 1961 Act.

Taken together, these two elements maintain and strengthen the existing and important fiduciary duty of the commissioners not to take decisions that could endanger the estate. The Government believe that these safeguards and the limits set out in the memorandum of understanding provide clear guard rails to the powers set out in the Bill.

The 1961 Act also contains a power of direction. This power is not altered by the Bill. It remains open to the Government to use in extremis; if, for example, there were concerns that the commissioners were endangering the core statutory purpose of the Crown Estate.

As I have set out previously, the Crown Estate is a commercial business, independent from government. It operates for profit and competes in the commercial markets for investment opportunities. To ensure that it can compete effectively, it needs the ability to borrow as its competitors can. Imposing a legislative cap on borrowing would likely place additional restrictions on the Crown Estate that its competitors in the private sector do not face. This would not be consistent with the Government’s vision for the Crown Estate: to ensure that it has flexibility to invest in activities that will drive increases in its revenues and, consequently, its returns to the public purse.

As set out in the Crown Estate’s original business case, which I have shared with noble Lords, the limit of 25% loan to value is consistent with its peers. I hope this demonstrates to noble Lords that these plans have been considered carefully.

Let me also be clear that any request by the Crown Estate to draw down on debt will be carefully considered by the Treasury in the context of the fiscal position and in line with our fiscal rules. As the Chancellor set out in the Budget, the Government have set out our robust fiscal rules alongside a set of responsible reforms to the fiscal framework to improve certainty, transparency and accountability. The stability and investment rules will put the public finances on a sustainable path while allowing the step change needed in investment to drive long-term growth.

I hope that these explanations are useful and reassure the House that the Crown Estate’s power to borrow will be carefully monitored and controlled within these parameters. I hope I have provided some clarity on the Government’s position and that as a result the noble Baroness, Lady Vere, feels able to withdraw her amendment.

[Baroness Vere of Norbiton (Con)]

My Lords, I am grateful to the Minister for his response and to the noble Baroness, Lady Kramer, although I am sorry to hear that she will not be able to support the amendment. Noble Lords will not be surprised to hear that I do not agree with her.

While I agree with the noble Baroness’s assessment of the documents that were published by the Minister—it was helpful to see the memorandum of understanding, the draft framework and the business case—that is not really the point, because they do not go far enough. Those documents can be amended by this or any future Government. As the Minister referred to, and as I tried to explain in my opening remarks, this is the original business case, but there is no business case that currently sets out what the relationship with GB Energy looks like and what it will do to borrowing.

GB Energy is going to invest billions of pounds. How much of that is going to come from GB Energy and how much from the Crown Estate? No one knows. It is important that we make sure that it is impossible for the Crown Estate to ramp up borrowing without at least some oversight from Parliament. The Minister said, “It’s okay—the maximum is 25%”, but of course this Government or any future Government can change that unilaterally.

The Minister mentioned that competitors somehow do not have any caps on borrowing. Of course they do; they are commercial businesses, so the caps on their borrowing will be set by their banks. If the Minister looks at the original business case that he shared with us, he will see that all the competitors sit around the same sort of level of loan to value.

To go back to the original point, this is a sensible, simple and reasonable amendment. It would put in place just two checks: first, whether the Crown Estate should be borrowing now, and up to 25%, with the assessment done on a new business case, including GB Energy; and, secondly, another check, at some point long in the future, if ever, should the Crown Estate ever want to go above 25%. I think our nation’s assets need that sort of protection, and I therefore wish to test the opinion of the House.

--- Later in debate ---

Moved by

[Baroness Vere of Norbiton]

2: Clause 2, page 2, line 11, at end insert—
“5A The Chair of Commissioners may not be appointed until the appointment has been scrutinised by the Treasury Committee of the House of Commons, or any successor committee.”Member's explanatory statement
This amendment would require the appointment of the Chair of Commissioners of The Crown Estate to be subject to scrutiny by the Treasury Select Committee.

[Baroness Vere of Norbiton (Con)]

My Lords, I will speak to Amendments 2 and 14 in my name.

On Amendment 2, I am incredibly grateful to the Government for their engagement on the importance of pre-appointment scrutiny for the Crown Estate commissioners. However, I recognise that my initial amendment in Committee was a bit ambitious and have restricted the amendment before your Lordships’ House today on Report to the chair of the Crown Estate commissioners. It is important, as I mentioned in the first group, as there is a decrease in parliamentary oversight. It is not uncommon for the chairs of the boards, or equivalent, of such significant public sector bodies to at least have some form of questioning prior to taking up their role.

I note that, in his letter yesterday, the Minister said:

“The Government has not tabled an amendment on this matter because there is already an established process by which roles such as this are added to the Cabinet Office’s pre-appointment scrutiny list. The Treasury will work with the Cabinet Office to progress this matter”.


I am grateful to the Government for their assurance that the chair of the Crown Estate commissioners could be added to the Cabinet Office’s pre-appointment scrutiny list; we will be holding the Government to account as this is progressed.

Amendment 14 is, again, related to the importance of the assets for which the Crown Estate is responsible. It has the stewardship of billions of pounds-worth of very important assets for the benefit of the nation. Some of these assets are on land, some make up the seabed, some are incredibly important thoroughfares in our main urban centres, and others might be important agricultural land across the nation. I can see very few guardrails to prevent the Crown Estate commissioners deciding to sell those assets. Indeed, there have been quite significant asset sales over recent years, and I was not really able to find any information as to what has been sold.

We made this argument in Committee, and I am grateful to the Government for their assurance that they will bring forward an amendment or some sort of process by which the seabed might be protected. However, my understanding is that the law in this area is very complicated, so I am somewhat concerned that a process could not be found that is seabed-specific. Nevertheless, I welcome the Government’s engagement and their recognition that selling off elements of our seabed in perpetuity would not be wise and should not be done without some form of transparency.

However, as I said previously, it is not just about the seabed; I also remain concerned about other important assets owned by the Crown Estate. My Amendment 14 simply proposes that, should the Crown Estate sell more than £10 million-worth of assets—I am happy to look at a different figure—there would be some form of transparency to Parliament, such that noble Lords and colleagues in the other place could see the assets being disposed of and make at least some assessment of whether that is the right course of action for the Crown Estate.

[Lord Berkeley (Lab)]

My Lords, I wish to speak to Amendment 15 in my name, which is in this group. I tabled the same amendment that we debated in Committee because my noble friend had not yet been able to respond in his promised letter; but, of course, he has now responded, and I presume all noble Lords have seen the letter. I found it very helpful, and I thank him for it. However, my amendment provides an opportunity to debate what is in that letter and issues that affect quite a lot of people—not only in the Isles of Scilly but in some of the other places related to the ownership of the Duchies or the Crown Estate. There are a few principles I would like to discuss and see where we get to.

What I found most interesting was that my noble friend’s letter was quite clear that both Duchies are private estates—I do not think there is any debate about that now. The Duchy has been saying this for a long time, and it is in his letter from the Treasury. I am also grateful for the explanations about the finance and the involvement, or not, of the Public Accounts Committee in the other place, the National Audit Office, et cetera. But then we get into rather more interesting and difficult territory. In his letter, my noble friend says:

“Crown bodies … are not bound by the enfranchisement legislation”


that your Lordships’ House debated over many months earlier this year. I question how a private estate cannot be bound by legislation such as that—why should the Duchy be exempt?

We then get into an even deeper mystery about what are called “excepted” areas. There is a distinct lack of transparency here. I will not go into great detail about the problems faced by the tenants on the Isles of Scilly because noble Lords can read material from the previous year or two. During the legislation at the end of the last Parliament, the then Chief Whip, the noble Baroness, Lady Williams, read out a parliamentary undertaking that attempted to differentiate between what they call “non-excepted” and “excepted” areas. So my first question to my noble friend the Minister is: what is an excepted area, and who decides? Is it Parliament, the Government or the landowner—in this case the Duke of Cornwall—who decides what should or should not be included in legislation? That is interesting for a private sector company, and it needs debating.

Given that, last weekend, there was a lot of publicity in the media, including the Sunday Times, you start wondering what “private” means in this context. Presumably, all private bodies should pay tax—that is pretty fundamental to our life here—including income tax. The Duchy and His Majesty say that they pay tax, but it is voluntary. I would love to pay voluntary tax and to decide how much it was, as I am sure many other noble Lords would, but that is not what it is all about. They do not pay corporation tax, capital gains tax or inheritance tax. They get all that rental income, which noble Lords may have read about in the Sunday Times, from ambulances parking on their land, with the National Health Service being charged and paying the Duchy of Cornwall, I think it was. This seems to be a bit of a recycling of the cash that the Duchy claims it needs to charge people. This comes back to the Duchy claiming credit—I see this on the Isles of Scilly—for allowing bodies to use its land and charging them for it.

One example is that the farmers on the Isles of Scilly want an abattoir built so that they do not have to transport animals to the mainland, which I think is a good idea. The Duchy said, “You can have the land”. Many of us think that it does not own the land anyway, but, leaving that to one side, if it allocates land to an abattoir, it will then charge the farmers for using it. Is that right, when the land does not really belong to it and it is not contributing to the cost? That is another debate that we need to have on this.

Perhaps what is wrong is that the Duchy needs the money, but given what is in the rest of the Bill, it will result in His Majesty and other members of the family getting quite a lot more. One could surmise that they do not need the money and that it might be better if they paid their taxes and invested properly in an estate, like many large estate owners in this country already do. Noble Lords will have heard me speak about the appalling transport services between the Isles of Scilly and the mainland, where a single fare by ship or plane usually costs the best part of £100. The Duchy could contribute to that—it would just be small change.

--- Later in debate ---

I hope that these explanations have been helpful and that I have provided some clarity on the Government’s position in relation to these matters. I hope that as a result, the noble Baroness, Lady Vere, feels able to withdraw her amendment and that the noble Lord, Lord Berkeley, will not press his.

[Baroness Vere of Norbiton (Con)]

My Lords, very briefly on Amendment 2, I am grateful to the Minister for his words and his engagement on that, and I am content on it.

On Amendment 14, obviously, should I decide to test the opinion of the House, it will come slightly later in proceedings. However, I want to respond briefly to my noble friend Lord Lansley. I do not propose at all that the Crown Estate would not get best consideration; this is merely an obligation to report to Parliament and to get the consent of the Treasury. On the original business case—I do not know about the new business case because we have not seen it—the Crown Estate is planning £1.4 billion-worth of disposals of assets. That is quite a lot; I would be interested to know whether that is very important heritage assets or seabed, and at the moment I have no way to find out. That is an important element for noble Lords to be aware of. Therefore, I will take this away and consider my position on Amendment 14 in due course. However, I beg leave to withdraw Amendment 2.

Amendment 2 withdrawn.

--- Later in debate ---

[Lord Forsyth of Drumlean (Con)]

My Lords, I rise very briefly to speak to Amendment 5 in the name of the noble Earl, Lord Kinnoull. This is an entirely sensible proposal that I cannot imagine for a moment the Government would wish to resist, and which respects the autonomy of the devolution settlement. If I were a commissioner on the Crown Estate in England or the Crown Estate in Scotland, I would very much welcome this provision, and I congratulate the noble Earl on his ingenuity in tabling an amendment that would enable us to deal with this lacuna. I entirely understand why the Liberal Benches would not want to be accused of doing anything that undermined devolution. The noble Earl has found an elegant way of dealing with this, and I very much hope that the Government will support it.

[Baroness Vere of Norbiton (Con)]

My Lords, I entirely agree with my noble friend Lord Forsyth. In tabling Amendment 5, the noble Earl, Lord Kinnoull, has hit upon something here; it is a report that would be worth doing. When I was having discussions about the Bill between Second Reading and Committee, I spoke to people in the port sector and they were very concerned that, if there is to be investment in ports in one part of the country, that investment should be equally likely to happen in another part of the country—namely, Scotland. It is an important opportunity, and I am sure that the Minister will respond in a positive fashion, as far as he can.

Turning to government Amendment 3, I am grateful to the Minister, who listened to concerns from all sides of the House about ensuring that sufficient information is forthcoming about the relationship between Crown Estate and Great British Energy. I am somewhat disappointed that we never saw the partnership document. I still suspect that that is because it does not exist, so I am not entirely sure what the partnership is; but let us put that to one side. I am looking forward to seeing information come through on the results of this partnership as we go forward.

I note what the noble Earl, Lord Russell, said about the intention behind his Amendment 8. Any noble Lord who has looked at the Crown Estate annual report will know that it is already quite detailed, and I appreciate that a lot of work has been put into sharing information about the organisation with stakeholders. I suspect that his amendment is too detailed to be wholly useful, but I am sure that he has picked out various elements that the Crown Estate will no doubt take note of and include in future reporting.

[Lord Livermore (Lab)]

My Lords, I thank all noble Lords for their contributions to this debate. Let me once again say that I am particularly grateful to the noble Baroness, Lady Vere, for her constructive engagement prior to today in relation to Amendment 3, tabled by the Government. It is important that certain details on the partnership between the Crown Estate and Great British Energy are publicly available on an ongoing basis, and I trust that this amendment meets the concerns raised on this matter by the noble Baroness and others across this House.

Amendment 8, tabled by the noble Earl, Lord Russell, would create a new reporting requirement on the Crown Estate commissioners, requiring them to publish an annual report, to be sent to the Environmental Audit Committee of the House of Commons, which must consider the commissioners’ activity in the contribution to supporting local communities and economies, the achievement of the United Kingdom’s climate and environmental targets, the relationship with Great British Energy, a just transition to green energy, a jobs and skills transition into the green economy, the promotion of animal welfare in aquaculture on the Crown Estate, the protection of the foreshore on the Crown Estate and the protection of the seabed in the Crown Estate. It would also require the commissioners to appear before the Environmental Audit Committee if requested.

I thank the noble Earl for his constructive engagement on this matter prior to today. I agree with him that these are important areas and, as a result, we have agreed with the Crown Estate that we will make a further update to its public framework document to clarify that its annual report must continue to include a report on the Crown Estate’s activities in terms of sustainable development, covering the impact of its activities on the environment, society and the economy.

It is important that this Bill stands the test of time and that, as new, relevant areas of concern on the environment, society and the economy emerge over the coming decades, these are covered in the Crown Estate’s annual report too. The proposed changes to the framework document, which also directly address other concerns, have been made deliberately broad in an attempt to cover the wide range of specific concerns the House has raised, including those raised by the noble Earl. On Great British Energy specifically, as I have set out, the Government have also now tabled an amendment that creates a reporting requirement for the Crown Estate to cover in their existing annual report a summary of its activities in relation to Great British Energy.

I turn next to Amendment 5, tabled by the noble Earl, Lord Kinnoull. This amendment would require a report to be laid before Parliament within 12 months of the day on which this Act is passed, assessing any differences between the provisions made by this Act for the management of the Crown Estate in England and equivalent provisions for the management of the Crown Estate in Scotland. I am grateful to the noble Earl for his engagement on this matter. He has also raised specific concerns about ensuring that the Crown Estate and Crown Estate Scotland are in analogous positions should this Bill pass.

As I set out in Committee, Section 36 of the Scotland Act 2016 inserted a new Section 90B into the Scotland Act 1998. Subject to certain exceptions, Section 90B provided for the devolution in relation to Scotland of the commissioners’ management functions relating to property, rights or interests in land in Scotland, and rights in relation to the Scottish zone. Devolution occurred on 1 April 2017 under, and in accordance with, the Crown Estate Transfer Scheme 2017. The relevant property, rights and interests are now managed separately by Crown Estate Scotland under the Crown Estate Scotland (Interim Management) Order 2017 and the Scottish Crown Estate Act 2019, as enacted by the Scottish Parliament. They do not form part of the Crown Estate as currently managed by the Crown Estate commissioners.

I share the noble Earl’s commitment in this area, and I would like to make that clear. The Crown Estate and Crown Estate Scotland hold similar operational priorities, and, naturally, the chief executives of both organisations must be, and are, in regular contact. There is also significant collaboration between the two organisations, for example on the offshore wind evidence and change programme, which is an initiative led and funded by the Crown Estate and in which Crown Estate Scotland is a key partner. The programme aims to de-risk and accelerate the delivery of offshore wind projects by funding research and data collection. Both organisations contribute to and benefit from research projects that address knowledge gaps and support the offshore wind consenting process. At a project level, Crown Estate Scotland was a partner in the predators and prey around renewable energy developments project. That focused on Scotland, particularly the Moray Firth and the Firth of Forth and Firth of Tay regions, but the project had broad relevance for the whole of the UK. The improved understanding gained from the project informs marine spatial planning and guides future offshore wind development.

The two organisations also share data on offshore activities through their partnership with the Marine Data Exchange, a digital platform established by the Crown Estate to provide a more comprehensive and integrated understanding of the UK’s seabed. Founded by the Crown Estate in 2013 as the first resource of its type, the Marine Data Exchange provides a world-leading digital platform for gathering and disseminating vital information on a wide range of offshore activities. It currently holds one of the world’s largest collections of freely available data relating to the seas around England, Wales and Northern Ireland and, thanks to the partnership with Crown Estate Scotland, is now extended to cover Scottish waters.

The two organisations also hold frequent discussions through the carbon capture utilisation and storage collocation forum, which is a collaborative effort run by the Crown Estate with input from Crown Estate Scotland and other stakeholders to explore the potential for collocating carbon capture and storage with offshore wind projects. If there are further areas of potential co-operation, I know that the Crown Estate will be more than willing to discuss them with its counterparts in Crown Estate Scotland. The Treasury is, of course, open to any request for a meeting from the Scottish Government and Crown Estate Scotland to discuss this Bill, and we are more than happy to share any policy thinking to help inform any changes they may wish to propose in the Scottish Parliament. I hope these explanations have been helpful and have provided some clarity on these points. I hope that the noble Earls, Lord Russell and Lord Kinnoull, will not press their amendments as a result.

--- Later in debate ---

[Baroness Hayman (CB)]

My Lords, it is a pleasure to follow the noble Earl, Lord Russell. He clearly set out the reasons why in Committee, we, along with the noble Baroness, Lady Young of Old Scone, who I am sure we all wish a quick recovery, were very concerned to ensure that the Crown Estate, given its potential influence in these areas, plays its part in achieving the Government’s statutory commitments under the Climate Change Act and the Environment Act. Across the Committee, there were contributions that supported that view.

Of course, in some ways I would like the amendment that has just been moved to be put in the Bill. Here, I should declare my interest as chair of Peers for the Planet. Like others, I thank the Minister and his officials for the time, care and effort they have put into trying to resolve the issues that would arise if the full amendment were included in the Bill. From my point of view, it has been an exemplary process. The noble Baroness, Lady Kramer, made this point as well, as have many other noble Lords. The care and transparency that the Minister and his officials have provided throughout the passage of this Bill have been extremely welcome.

In Committee, when we were debating the amendment then in my name, the Minister made two things absolutely clear. One was the Government’s commitment to achieving the same ends by ensuring that the Crown Estate is a good citizen in respect of these events, and that is also manifested in what the Crown Estate is doing and the way it is reporting on its activities. So I think there is a shared objective between the amendment proposed by the noble Baroness, Lady Young of Old Scone, which we just heard spoken to, and the Minister and the Crown Estate. It is certainly shared by me.

Concerns have been articulated about the importance of safeguarding the prime objectives of the Crown Estate and not putting the detail into the Bill. I think we have come up with a solution that will achieve, certainly from my point of view, the vast majority of what I was looking to achieve in my original amendment. Amendment 10 would implement the climate and nature objectives by inserting in the Bill an obligation on the Crown Estate to conduct its affairs in a way that ensures sustainable development. That, of course, is a much wider and not very precise term that covers economic, environmental and social issues. Mind you, there has been a lot of debate this afternoon about the importance of the Crown Estate covering exactly those issues and taking them into account.

In a sense, having placed that in the Bill, we then have a paving amendment on to the framework agreement. I was very reassured by the letter we all received on 4 November, stating that the specific concerns about two aspects of the Climate Change Act—mitigation and our net-zero obligations, and the importance of adaptation to existing climate change and the nature protection objectives under the Environment Act—would be spelled out in the framework agreement and reported on publicly in the annual report, so that we can judge the contribution made to achieving those objectives through the publication of the framework agreement. Such reporting is another theme that has run through today’s debate.

In my view, it is better to achieve 80% of what we achieve in legislative terms than to have 100% judged by this House, which I am not at all sure we would win on. What matters is the endgame and the results, not whether my phraseology or the noble Earl’s goes in the Bill. What matters is the impact we have and how much we have shifted the dial in terms of what the Crown Estate achieves in support of the Government's climate and nature objectives. So, I am very pleased to be able to propose Amendment 10 and I am grateful to the Minister for adding his name to it.

I will say only one other thing, which is that I have spent the last four and a half years putting provisions like this into individual Bills as they go through this House. I hope the Government will recognise that, when they say that climate and environment issues are for everybody and that all departments, private industries and public bodies are affected and ought to be looking at the implications, they act on that realisation and do not rely on Back Benchers making Ministers’ lives miserable because they have been missed out. The Government should cut out all that argument and do it for themselves by including those issues in Bills. They were not included in the first place in this Bill, which was silent on the climate and nature. Now they are included, albeit in slightly convoluted but, I hope, effective way.

I end by saying once again how grateful I am to the Minister and his team for the constructive way in which they have handled this issue.

[Baroness Vere of Norbiton (Con)]

I rise only briefly to say that we on these Benches want to see the Crown Estate taking action to improve our environment, and we share the concerns of other noble Lords in this area. We note that the Government have expressed their support for the amendment in the name of the noble Baroness, Lady Hayman. I agree with her that it is all about outcomes in these circumstances. We agree that this is a sensible amendment and that it deserves the Government’s support.

[Lord Livermore (Lab)]

My Lords, I am very grateful to all noble Lords who have spoken in this debate in response to the amendments tabled by my noble friend Lady Young of Old Scone and the noble Baroness, Lady Hayman. Before I respond to the amendments relating to the environment, I reaffirm my strong support for the intention behind them. As I set out in Committee, it is right that the public and private sectors make every contribution they can to achieving our climate change targets. The Crown Estate should continue to be a national trailblazer in this regard.

The Crown Estate’s commitment to becoming a net zero carbon business by 2030, aligning with a 1.5 degree trajectory, and its commitment to prioritising activities that help enable a reduction in a national carbon emissions, such as building net-zero homes, transitioning its holdings to sustainable agricultural practices, and working in partnership with government to meet the national renewable energy targets, speaks to how seriously it is already committed to these goals.

Budget: Taxes and Borrowing

Baroness Vere of Norbiton Excerpts

Monday 4th November 2024 Lords Chamber

[Lord Livermore (Lab)]

I 100% agree with my noble friend. It is incredibly striking that, in everything we have heard from the party opposite, not once has it apologised for the record we inherited. One of the reasons this is a once in a generation Budget is that we have had to simultaneously repair public finances and rebuild public services. That is why it is such a historic Budget. My noble friend is absolutely right that what we have not heard from those in the party opposite is an alternative. Would they not have repaired the public finances? Would they not have prioritised working people? Would they now cut funding to the NHS and schools?

[Baroness Vere of Norbiton (Con)]

My Lords, the Labour Government are taking money from pensioners this winter, taxing family farms on the death of a loved one, and hiking taxes on the hospice and care sectors, all while handing out inflation-busting pay rises to train drivers with no strings attached. Can the Minister confirm that this practice will stop and that there will be no more above average inflation pay rises without an agreement on productivity improvements and reform?

[Lord Livermore (Lab)]

I can. We said exactly that in the Budget.

Bank Resolution (Recapitalisation) Bill [HL]

Baroness Vere of Norbiton Excerpts

Report stage
Monday 4th November 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

My Lords, I too thank the Minister for the recent letters and documents he published in relation to the Bill. It was incredibly helpful to have them for the House to scrutinise the Bill properly. I am also grateful for these sensible amendments, which clarify the persons to whom the Bill’s measures apply as they relate to expenses. They are a bit technical, but they are improvements to the Bill and I am particularly pleased that the Minister has listened to concerns from across the House, including from my noble friends Lady Noakes and Lord Moylan.

I listened with great interest to the points raised by my noble friend Lady Noakes, and I urge the Minister to note what she said. I hope that some of these issues might be resolved in some way, either through the code of practice or by other means, as she seemed to me to make an awful lot of sense. However, on this basis, we support the Government’s amendments.

[Lord Livermore (Lab)]

My Lords, I am grateful to noble Lords for their contributions today and, as I said previously, in Committee. As I said at the start of this debate, the purpose of the Government’s amendments is to clarify whose expenses may be covered under the mechanism in the Bill. I hope that noble Lords will be able to accept the amendments, and I am grateful to both noble Baronesses for saying that they will.

I will respond to the points raised by the noble Baroness, Lady Noakes. As she said, I wrote previously to the noble Lord, Lord Moylan, on this matter. I will briefly repeat some of the points I made to him. In relation to litigation being brought against the authorities themselves, the Bill allows the Bank of England to request that funds from the Financial Services Compensation Scheme cover expenses that have been incurred by it or by the Treasury, a bridge bank or an asset management vehicle in connection with the recapitalisation or the use of the stabilisation power. This may include litigation costs arising from the recapitalisation or use of the stabilisation power, such as from challenges to decisions made by the authorities.

Any decision to request Financial Services Compensation Scheme funds for these purposes would be a decision for the Bank of England to take, but I stress that, in making this decision, the Bank of England would consider all relevant factors, including the fact that the alternative may be to use public funds. I note what the noble Baroness, Lady Noakes, said on that point. A decision to use insolvency depends on whether the conditions for resolution action are not met. If the conditions for action are met, public funds would be the alternative for covering these costs instead of FSCS funds.

I hope that the points I have made demonstrate that the Government have engaged in good faith with the concerns raised by noble Lords and have sought to address them where it has proved possible to do so. These amendments put beyond doubt which parties’ expenses may be covered by the new mechanism, and I hope that noble Lords will support them.

--- Later in debate ---

Moved by

[Baroness Vere of Norbiton]

2: Clause 1, page 1, line 20, at end insert—
“(2A) The Bank of England must not require the scheme manager to make a recapitalisation payment if it has directed the financial institution to maintain an end-state Minimum Requirement for Own Funds and Eligible Liabilities (MREL) exceeding minimum capital requirements.”Member’s explanatory statement
This amendment seeks to prohibit the use of FSCS funds to recapitalise large financial institutions, defined as those which have reached end-state MREL.

[Baroness Vere of Norbiton (Con)]

My Lords, throughout the passage of this Bill, the issue of the size of the bank for which this new mechanism can be used has attracted significant comment and debate. In a letter to all noble Lords introducing the Bill, the Minister stated: “This Bill enhances the resolution regime to respond to the failure of small banks”. Yet that is not what the Bill does. The regime in the Bill is not restricted to small banks or even to small and medium-sized banks; it can be used for all banks, even the very largest. Despite the letter from the Minister on introduction, the Government have maintained their position that the mechanism should be available for use for the resolution of a bank of any size, including the very largest.

Using this mechanism in those circumstances would be astonishingly costly for banks and their customers, not only in the year in which the levy is first implemented but for many years thereafter, adding to a long-term and significant burden on the banking sector and its consumers. I concede that the Government clarified in a policy statement that the mechanism would be used for the largest banks only in exceptional circumstances, but the mechanism being given a statutory footing by the Bill will only ever be used, on a bank of any size, in exceptional circumstances. Therefore, I take only a small amount of comfort from the published statement.

As the noble Baroness, Lady Bowles, said in Committee, there is no differentiation in the Bill on bank size. It should be limited by a defined measure. My amendment, supported by the noble Baronesses, Lady Bowles and Lady Noakes, and the noble Lord, Lord Vaux, seeks to deliver that definition by making it clear that the Bill does not apply to banks that have reached end-state MREL—that is, the very largest banks in the UK. It would mean that only small and medium-sized banks, and those on the MREL glide path, can be supported by the mechanism. I believe that was the Government’s original intention.

My amendment is fairly simple. It does what it says on the tin. I will listen very carefully to what the Minister has to say when he comes to wind up.

[Lord Vaux of Harrowden (CB)]

My Lords, I add my support to Amendment 2 tabled by the noble Baroness, Lady Vere. From the outset of this process, the Bill was intended to cover only small banks. That was made clear in almost the first paragraph of the original consultation. It was then extended and now covers all banks, regardless of size. I thank the Minister for making sure that the draft code of practice was published by the Treasury before Report; it has been incredibly helpful in this process, and we are all very grateful for that. The draft code of practice is clear that the resolution mechanism is designed primarily to support the resolution of small banks and that the Bank of England will not assume use of the new mechanism when setting a preferred resolution strategy of bail-in and the corresponding MREL requirements of a large bank.

So why does the Bill cover large banks? The argument from the Government seems to be along the lines of, “Well, it might be useful to have this flexibility”. That does not seem a very strong argument. As we have heard, larger banks are required to hold additional capital resources, known as MREL, effectively to ensure that they are able to bail themselves out—a process known as bail-in. If the Government are not confident that the MREL regime is sufficient for those larger banks, they should be looking to strengthen that regime rather than extending a measure that is designed specifically for smaller banks whose failure would not create systemic risk, to act as a further insurance policy for the big banks.

I am afraid that unless the Minister can come up with a stronger argument than he has so far, I will be minded to support the noble Baroness, Lady Vere, should she decide to test the opinion of the House.

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, I am grateful to all noble Lords, and to my noble friend Lord Eatwell for the points that he made. The scope of firms in relation to which the mechanism can be applied has been a key issue in all our deliberations to date. I am very grateful to noble Lords for their engagement on this topic since Grand Committee.

As I stated then, the Government’s policy intention is for the mechanism provided by the Bill to be used primarily to support the resolution of smaller banks. We have reaffirmed that intention by including it in the updates to the special resolution regime code of practice, drafts of which have now been published and shared with noble Lords. The Bank of England must have regard to the code of practice when exercising its resolution powers, and this is set out in statute.

The Treasury is involved in the exercise of any resolution powers, either by being required to provide a response to consultation or by consent. Nevertheless, the Government maintain that it is right for the Bill to contain some flexibility for the Bank of England to be able to use the mechanism more broadly in some circumstances. That is because firm failures can be unpredictable and there could be circumstances in which it would be appropriate to use the mechanism on other firms. To repeat the example I gave in Grand Committee, this may be especially relevant in situations where a small bank has grown but is still in the process of reaching its end-state MREL requirements. Firms in this position would have at least some MREL resources to support recapitalisation, but the new mechanism could be used to meet any remaining shortfall if judged necessary. Without the proposed mechanism, there will be a potential gap in this scenario, creating risks to public funds and financial stability.

There is, of course, a counterargument here that the scope could instead be constrained, such that firms on the glide path to their full MREL requirement remain in scope of the mechanism but firms that have met their end-state MREL are excluded. The Government note that this is the desired intent of the noble Baroness’s amendment and it is an argument that we have considered carefully.

Ultimately, noting what has been set out in the code of practice and the strong expectation that the mechanism will be used on small banks, the Government’s view is that it is still right for the tool to have additional flexibility for unpredictable circumstances. To narrow the scope would constrain the Bank of England’s optionality, particularly where it might be necessary to supplement the resources bailed in with additional capital resources.

I note that these are considered unlikely outcomes, rather than a central case. However, given the uncertainty and unpredictability of a crisis scenario, the Government consider it important to avoid constraining that optionality.

None of the Bank of England’s other stabilisation powers are constrained for use on a specific type of in-scope firm and that the choice of stabilisation option used remains a decision for the Bank of England to take, having considered the resolution conditions and objectives. The Government believe that it is right for a similar approach to be taken in relation to the new mechanism. To be clear, the Government’s clear view remains that this mechanism should be intended for smaller banks and that the Bank of England should not assume the use of this mechanism for larger firms. In that regard, I agree with the noble Baroness on the crux of the issue she is raising. The Government simply do not wish to hard-wire that principle into the Bill.

Since we last debated this issue in Grand Committee, the Bank of England has published a consultation on proposed changes to the MREL regime. These proposals include the removal of the additional MREL requirement associated with the transactional accounts threshold for being set to the transfer strategy, given the availability of FSCS funds under the mechanism in the Bill as an alternative. There are currently only a limited number of firms with a transfer strategy, and firms with such a strategy would typically be expected to have a relatively small balance sheet. As such, the proposed change to the MREL regime is modest, consistent with the policy intention for the Bill mechanism to be intended primarily for smaller banks and it has the additional benefit of seeking to ensure that the MREL regime is proportionate for growing firms.

I reiterate the message delivered in the Written Ministerial Statement I made on the day the Bank of England’s consultation was published. As I have already said, the Government and the Bank of England agree that the Bank should not assume use of the new mechanism when setting a preferred resolution strategy of bail-in and corresponding MREL requirements for larger banks.

Recognising the level of interest rightly expressed in Peers being able to scrutinise the changes to the code of practice before the Bill begins its passage in the other place, the Government published updates of that document on 15 October. Notably, on the issue of scope, these updates to the code of practice explicitly state that the Bank of England will not assume use of the new mechanism when setting a preferred resolution strategy of bail-in and the corresponding MREL requirements for a large bank. Those updates to the code also made it clear that the Bank of England is still expected to abide by the so-called 5% and 8% rules in the case of larger banks.

I hope the explanations I have given have been helpful. Throughout the commitments I have given today and in Committee, in publishing draft updates to the code of practice, in the Written Ministerial Statement and in the engagement I have had with noble Lords, I have sought to reassure noble Lords on the question of scope, the primary intention for the mechanism in the Bill and the importance of maintaining flexibility for the Bank of England to act in the public interest. I recognise that I may not have been successful and that strong views remain, but I hope that the noble Baroness may feel able to withdraw her amendment as a result.

[Baroness Vere of Norbiton (Con)]

My Lords, I am grateful to all noble Lords who have contributed to this debate, particularly those who have spoken in favour of my amendment. This has been the subject of numerous discussions with the Minister. I listened carefully to what he had to say, and I still cannot quite understand why the Government will not accept this amendment and are unfortunately still using terms such as “It is the strong expectation that it would be used for X, Y, Z-type of bank”, or “It’s primarily for smaller banks”. That does not give me comfort, as we may be storing up significant challenges for the future. Therefore, I am not encouraged by the Minister’s response, and I wish to test the opinion of the House.

--- Later in debate ---

[Lord Sikka (Lab)]

My Lords, a wise man once said that history repeats itself, first as tragedy and secondly as farce. So it is with successive Governments’ obsession with going easy on the banking industry. We are sleepwalking into the next financial crash, but this modest amendment seeks to check some of the moral hazards by imposing personal costs on bank directors through a possible clawback of their remuneration.

History shows that moral hazards give rise to heavy economic and social costs. The secondary banking crash of the mid-1970s forced the state to bail out banks and insurance and property companies. We have had a banking crisis every decade since the 1970s but Governments continue to indulge the City of London. The big bang, the Financial Services Act 1986 and the Banking Act 1987 formalised light-touch regulation. Then came the banking crash of 2007-08. The obedient state dutifully provided £133 billion of cash and £1,029 billion of guarantees to bail out banks. It also provided £895 billion of quantitative easing to support capital markets.

The reforms that were introduced after the crash have been gradually reversed and the race to the bottom is accelerating. The regulators once again have the secondary objective of promoting the growth and competitiveness of the industry. The Bank of England has watered down the capital requirement rules that were meant to shock-proof the banking system from another 2007-08 style crash. Banks would now have to increase their current capital buffers by less than 1% to abide by the Basel 3.1 standards. That is down from the previous proposal for a 3.2% rise last year, as the Government are now more interested in getting the banks to help to promote growth.

Research by my colleagues at Sheffield University shows that between 1995 and 2015 the scandal-ridden finance industry made a negative contribution of £4,500 billion to the UK economy. No questions have been asked about that, and Governments have done their best to conceal the criminal activities of banks. Documents relating to the 1991 closure of the Bank of Credit and Commerce International are still a state secret. No one has explained why in 2012 the Chancellor and the regulators urged US authorities to go easy on HSBC after it admitted in writing to “criminal conduct”, along with money laundering for criminals. To this day, no Statement about that has been made to Parliament. However, in Committee on the Bill, the Minister urged the House to trust the regulators.

Due to the absence of personal sanctions, there is no urgency for dealing with banking fraud. Thousands of people suffered from frauds at HBOS; these date back to 2003. The Government washed their hands of the matter and left it to Lloyds Bank to investigate its own failures. Dame Linda Dobbs was appointed by Lloyds Bank in 2017 and a report was promised by 2018. To date, no report has been published and no regulator or Minister has inquired into the reasons for the delay or done anything to help the victims of those frauds.

Despite warnings, swathes of banking remain unregulated. The shadow banking system, which is now bigger than retail banking and is enmeshed with the regulated sector, remains unregulated. The cap on bankers’ bonuses has been abolished and bankers are free to be reckless as they pursue personal riches. This Bill ensures that the banks will be bailed out, therefore there are even fewer incentives for the directors to behave in a responsible way. There are virtually no pressure points on directors to curb predatory practices and it takes years to disqualify any company director. Prosecutions for predatory practices are rare and the Government say that the prisons are already full, so we cannot send these people to prison either.

On 5 September, in opposing my amendment during Committee, the Minister said that

“it is a key principle of the resolution regime that natural and legal persons should be made liable under the civil or criminal law in the UK for their responsibility for the failure of the institution. This is delivered by Section 36 of the Financial Services (Banking Reform) Act 2013, which provides for a criminal offence where a senior manager of a bank has taken a decision which caused the failure of a financial institution”.—[Official Report, 5/9/24; col. GC 41.]

Following that exchange, on 12 September 2024 I tabled a Written Question to the Ministry of Justice. The reply on 23 September said:

“The Ministry of Justice Court Proceedings Database has not recorded any prosecutions under section 36 of the Financial Services (Banking Reform) Act 2013 since its introduction”.


There is no pressure on directors; they are not prosecuted —although they may get some honours.

I am not really persuaded that there are sufficient pressure points upon bank directors to curb predatory practices. I urge the Government to accept my modest amendment. The Government can stand up to the banking industry or perhaps, one day, they may well have to pick up the tab from the next banking crash. I beg to move.

[Baroness Vere of Norbiton (Con)]

My Lords, I thank the noble Lord, Lord Sikka, for bringing his amendment and for explaining it so well. We on these Benches are concerned that a statutory requirement to make assessment of potential clawbacks of executive pay may simply hinder the efficient use of the recapitalisation mechanism, which of course usually has to be done in a very timely fashion. Having considered his amendment, we feel that it would not be an improvement to the Bill and will not be supporting it.

[Lord Livermore (Lab)]

My Lords, the amendment tabled by my noble friend Lord Sikka replicates the one he tabled in Committee. I hope that my noble friend will therefore forgive me for repeating some of the points that I made when we discussed this amendment then.

Amendment 3 seeks to ensure that the Bank of England and the Financial Services Compensation Scheme consider whether there should be a clawback of executive pay and bonuses from a failed firm before using the new mechanism. Although the bank resolution regime does not set out powers allowing the Bank of England to claw back money from management, it does provide it with an extensive and proportionate set of powers to impose consequences on the management of a failed firm in resolution.

First, we expect that any existing shareholder equity would be cancelled or transferred when a firm is placed into resolution. This ensures that the firm’s owners bear losses, which is an important principle of the resolution regime. In many circumstances, this will affect directors and management who hold shares or other instruments of the failed firm.

--- Later in debate ---

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I think that everything that needs to be said about these amendments has probably already been said. I have added my name where I could; one came in very late, so I could not. I congratulate the noble Baroness, Lady Noakes, on her diligence in getting the committee name in properly so that everybody knows where to go, with all these hundreds of people who are going to be reading this legislation. Nevertheless, we are an institution, as it were, so it is good to see our name there.

I also congratulate the noble Lord, Lord Vaux, on his diligence in hounding to a conclusion the final report, because it is, as he said, very important. In the meeting we had recently, those present from the Bank of England wondered why we might want this and suddenly nodded when I said, “Because otherwise Parliament may never find out what really happened”: that is what it is all about. They might think we do not want to know, many years on, if it is a long period. The sorts of people who sit on these committees do want to know, because we are the ones who have to learn and have to ask the questions, to make sure that it is not going wrong again. It is very important, and I hope the Minister will accept it. If votes are called, these Benches will be supporting the noble Lord, Lord Vaux.

[Baroness Vere of Norbiton (Con)]

I am enormously grateful to all noble Lords who have spoken today. I too add my thanks to the noble Lord, Lord Vaux, for tabling his amendment. This group epitomises what is so good about your Lordships’ House: a lot of movement has happened to date on these issues from the Minister, and we are grateful for his engagement and for the fact that we have been able to get a little further down the road. However, like terriers with very sharp teeth, noble Lords are not quite willing to let it go just yet, and I too support the amendments in the name of the noble Lord, Lord Vaux, and of course those of my noble friend Lady Noakes, who has also done a fantastic job in ensuring that the issues she raised, and which most noble Lords agreed with in Committee, come to the fore. Helpfully, the noble Lord, Lord Vaux, has tabled Amendment 9, which plugs a big gap, and I hope the Minister will accept that and the amendments in the name of my noble friend Lady Noakes.

[Lord Livermore (Lab)]

My Lords, this large group includes a number of the Government’s proposed amendments to the Bill. I begin by responding to the amendment from the noble Lord, Lord Vaux, which is intended to ensure that there is transparency about the Bank’s use of the new mechanism. It does this by creating a requirement for the Bank to report to the Chancellor of the Exchequer within 28 days on certain matters where a recapitalisation payment is made, and for the Chancellor of the Exchequer to lay these reports in Parliament.

I assure noble Lords that the Government recognise absolutely the importance of transparency and accountability regarding the new mechanism and appreciate the strength of feeling in the House. The debates at Second Reading and in Committee were helpful and constructive and have informed the Government’s approach. The Government therefore agree that there should be an explicit requirement for the Bank of England to report to the Chancellor when it uses the new mechanism. To that end, government Amendment 8 means that the Bank of England must report to the Chancellor about the use of the mechanism in any circumstances where it is used.

The Government’s amendment outlines two elements to reporting. First, it would require the Bank of England to produce a final report at a time to be specified by the Treasury. This is intended to be a comprehensive account of the use of the new mechanism and to include an assessment of the relative costs to insolvency. Secondly, the amendment would require the Bank to provide an interim report within three months of using the mechanism in the event that a final report has not been provided within that time. This would ensure a prompt initial public justification for the use of the new mechanism, even if further details would follow later.

Government Amendment 14 would require the code of practice to include guidance on what should be included in the reports. Taking these points together, the Government’s approach has a broadly similar intent to that of the noble Lord’s amendment. However, there are some points of detail where the Government have taken a different approach in order to avoid unintended consequences. In particular, while recognising the importance of clear reporting arrangements, the Government believe that it is critical that the timing and content of any reports do not complicate a successful resolution.

I would highlight two challenges with the approach set out in Amendment 5 from the noble Lord, Lord Vaux. First, the Government believe that requiring an initial report as soon as 28 days after using the mechanism is likely to be too soon. As noble Lords know, the complexity of firm failures mean that they may not always be fully resolved within a short period of time. This is particularly the case when using the bridge bank tool, which is anticipated to be an interim step before an eventual sale. It is possible that a resolution process remains ongoing 28 days following a firm failure. It is therefore important that sufficient time is allowed so that the Bank can focus on its primary function of maintaining financial stability through managing the failure of the firm, before turning to the process of reporting. The Government therefore believe that providing an interim report within three months is a more proportionate approach to take, allowing the Bank more time to ensure that an interim report is as meaningful as possible while still ensuring that the Chancellor and Parliament are updated on use of the mechanism in short order.

This takes me to my second point, which is that disclosing certain information too early in the resolution process, especially information relating to the relative costs of different options such as insolvency, risks complicating a resolution because such information is either incomplete or highly sensitive. Regarding the noble Lord’s proposal to require an initial report to disclose certain costs, it is worth noting that when conducting the resolution conditions assessment, the Bank of England would make an assessment of the costs that the Financial Services Compensation Scheme may incur if the firm was placed into insolvency. However, by virtue of necessity, this would be only an initial assessment based on the information available at the time. It is therefore important that the Bank of England’s assessment of relative costs is reported on only once the resolution is fully complete. This will ensure that the Treasury, Parliament and industry are provided with a comprehensive and accurate account.

In addition, if the firm was in a bridge bank, as it may well be after just 28 days, the early disclosure of this interim financial information could complicate negotiations regarding a sale, especially if it was subsequently revised. It may also be market sensitive and increase speculation about the failed firm during a period of heightened sensitivity. Ultimately, therefore, the Government see risks in requiring the Bank to report too early and in too much detail during a highly unpredictable and sensitive situation. This is in part why the existing reporting provisions within the Banking Act in relation to resolution require reports as soon as reasonably practicable only after a year has passed.

The Government have sought to reconcile these different issues in our proposed amendment, while recognising the important substantive point of principle raised by the noble Lord, Lord Vaux. First, the Government have proposed an interim report to be provided within three months. While it is possible that a resolution process may not have concluded by this point, as the FSCS is likely to levy firms within this timeframe, it seems reasonable to expect the Bank to provide a public justification of the decision to use the new mechanism by this point. I note that, alongside the notification requirement covered in government Amendment 10, which I will turn to shortly, this will ensure that the Treasury and Parliament have a prompt explanation of why resolution has been undertaken.

Secondly, the Government’s amendment means that the Bank of England must provide a separate final report, in the event that this has not already been provided within three months of using the mechanism. This final report is where the Bank would outline its assessment of the relative costs of different options. This reflects the points that I have already made, namely that the Government believe that the key reporting obligation should fall once the resolution process has concluded. This reduces the risk that disclosure frustrates that process and ensures that any report can be meaningful.

To support this approach, the Government have also tabled an amendment requiring guidance on the content of such reports to be included in the code of practice. This will ensure that there is clear public understanding of the key issues that any interim or final report is expected to cover. As I have noted, both interim and final reports would be expected to provide a justification for the use of the mechanism, and as set out in the current draft of the code of practice, the final report would need to set out an assessment of the costs if the firm had entered insolvency. The current draft updates to the code of practice also make clear that the Government expect to require the Bank of England to provide an explanation of why ancillary costs were considered reasonable and prudent.

I am grateful for the helpful engagement that I have had with the noble Lord, Lord Vaux, who has rightly emphasised the importance of the Bank of England providing a comparison of the expected and actual costs in its final reports. I am happy to reassure the noble Lord that the Government intend to request that the Bank of England include this in final reports and will ensure that the final updates to the code of practice reflect this.

The noble Lord, Lord Vaux, has also tabled Amendment 9 to require the Bank to produce a report three months after the resolved firm has been sold or otherwise closed. I understand that the intent of this similarly reflects a desire to ensure that the Bank of England is compelled to report after a resolution process has fully concluded and provide an assessment of how the expected impacts of its actions compared to the actual events that took place in resolution. The Government of course appreciate the importance of the Bank of England reporting promptly. Reflecting on the noble Lord’s proposal, the Government intend to further update the code of practice to make clear that, where feasible and appropriate, the Treasury would expect the Bank of England to report soon after the sale or closure of the resolved firm.

The Government believe that it would be preferable not to put this expectation into legislation. This reflects the point I have already made: that the Bank of England should be required to provide final reports with the more detailed assessments only at the appropriate moment. While the Government do expect, as I have said, the Bank of England to be in the position to report soon after the end of the resolution process, this cannot always be guaranteed. For example, in the case of selling a firm, it may not have been possible in all cases to complete the full post-resolution independent valuation process within three months of a sale. I believe the Government’s approach still captures the intent of the noble Lord’s amendment, which is to ensure that full reports following the conclusion of a resolution process are presented expediently, with some discretion for the Treasury to ensure that reports are still provided only at the right moment.

I hope that, taken together, the Government’s amendments address the noble Lord’s concerns on both the timing and the content of reports, while retaining the flexibility necessary to avoid unintended consequences. On the specific additional point raised by the noble Lord’s Amendment 9, I agree of course with his intention and I will be happy to update the code of practice to this effect. However, the Government believe it would be preferable not to put this into legislation. I would be happy to consider this matter further and discuss it with my honourable friend the Economic Secretary to the Treasury, but I cannot give any firm additional commitments at this stage.

Turning to government Amendment 10, on notifying Parliament when using the power, I note that both the noble Baroness, Lady Noakes, and the Government tabled similar amendments on the theme of parliamentary scrutiny. I am extremely grateful to the noble Baroness for raising this issue and for her engagement on the matter; I am especially grateful to her for agreeing to withdraw her original amendment. The Government’s amendment reflects the point made by noble Lords in Grand Committee concerning parliamentary notification and the creation of the Financial Services Regulation Committee in your Lordships’ House as a result of passing the Financial Services and Markets Act 2023.

Building on that innovation in parliamentary scrutiny and accountability, the Government’s amendment seeks to harness the role played by that committee, as well as the Treasury Select Committee. It requires the Bank of England to notify the chairs of both committees as soon as reasonably practicable after the new mechanism under the Bill has been used. It includes provisions to future-proof this requirement following use of the new mechanism, such that if the names or functions of those committees change, the requirement for the Bank of England to notify the relevant committees by which those functions are exercisable would still stand.

The noble Baroness, Lady Noakes, has rightly argued that the Government’s amendment requires some tweaking, in particular to refer to the Financial Services Regulation Committee in the House of Lords by name. I am grateful to the noble Baroness for bringing this to my attention, and I note her amendments to the Government’s amendment—Amendments 11, 12 and 13—which attempt to address this point. I am of course very happy to agree to those amendments being made.

I hope that the Government’s approach across all the issues debated in this group demonstrates that the issue of accountability to Parliament is being taken seriously, ensuring that there will be transparency in use of the new mechanism. In particular, I hope that the Government’s amendments on the new reporting requirements address the noble Lord’s concerns on both the timing and content of the reports, while retaining the flexibility necessary to avoid unintended consequences. On the basis of these points, I hope noble Lords will be able to support both the Government’s amendments and those tabled by the noble Baroness, Lady Noakes, and I respectfully ask the noble Lord, Lord Vaux, to withdraw his amendment.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I will speak briefly in support of Amendment 7 in the names of the noble Baronesses, Lady Bowles, Lady Noakes and Lady Vere, but I am not as minded to support Amendment 16 for the following reasons. Some in this House will know that I dislike intensely the competitiveness and growth objective that has been attached to the PRA and the FCA. If you were going to set out a pattern to repeat the crash of 2007-08, those two objectives would be essential paving stones on that route, so I do not look to attach that particular amendment to the Bank of England in its overall resolution role in, for example, setting MREL. It should be setting MREL to reduce risk, not to follow the lowest common denominator in the international banking arena.

Ironically, if you take the growth and competitiveness secondary objective and just apply it to recapitalisation, it turns on its head and becomes a risk-reduction tool, because it basically limits the ability of the collapse of one bank to then infect all the other banks within the system. That seems to me to be a risk-reduction strategy, so I am very much in favour of the way in which it has been crafted under Amendment 7. I say that to reassure others in this House who may be afraid that playing fast and loose with the competitiveness and growth agenda is always a risk-increasing agenda rather than a risk-reduction agenda. In this narrow role, it works in the opposite direction.

[Baroness Vere of Norbiton (Con)]

I rise briefly to speak to Amendment 7 in the name of the noble Baroness, Lady Bowles of Berkhamsted, and Amendment 16 in the name of my noble friend Lady Noakes.

On Amendment 7, I will not reiterate the points raised. I deeply appreciated the explanation by the noble Baroness, Lady Kramer, as to how she got to her supportive position. From our perspective, we feel that Amendments 7 is a reasonable objective that would ensure the Bank facilitates the international competitiveness of the UK economy and economic growth in the medium term—that is very clear. It also has the ability to look at the level of risk within the banking sector over the medium term. Given the Government’s stated objective of focusing on economic growth, I am very interested to hear the Minister’s view on these amendments.

Amendment 16 in the name of my noble friend Lady Noakes, which I have signed, seeks to minimise the net costs recouped from the banking sector via this mechanism. Again, it is a very sensibly drafted amendment that would improve the Bill, and I look forward to hearing the Minister’s response.

[Lord Livermore (Lab)]

My Lords, I start by noting that the Government fully understand the concerns raised by noble Lords regarding the objectives the Bank of England should adhere to when taking resolution action.

Amendments 6 and 7 tabled by the noble Baroness, Lady Bowles, seek to ensure that the Bank of England considers growth and competitiveness when using the new mechanism, by introducing a new objective that the Bank of England would need to consider. In the case of Amendment 6 this would be alongside the existing special resolution objectives, while in the case of Amendment 7 it would be a secondary objective. This objective would be to facilitate the competitiveness and growth of the UK economy, subject to aligning with relevant international standards.

I appreciate wholly the intent of the noble Baroness’s amendments. The Government have reflected carefully on this issue in the weeks running up to Report. Growth and competitiveness are, of course, fundamental priorities for this Government. The Government are resisting these amendments because, while we understand and appreciate their intent, they would pose challenges within the specific context of this Bill. I intend to make three main points—about the wider context of the Bill; the particular challenges a new objective may pose in the case of the new mechanism; and the steps the Government are taking to ensure that costs to industry are properly considered.

First, I note that the aim of the Bill is to enhance the resolution regime, but in a way that avoids making more fundamental changes to the regime or to the way in which the Bank of England exercises its resolution powers. This reflects a key conclusion from the Government’s consultation, which is that the regime already broadly works well. This was demonstrated by the successful resolution of Silicon Valley Bank UK.

As noble Lords are aware, the resolution regime has been developed over a number of years to align with international best practice. The relevant authorities have invested considerable time and energy in contingency planning to use the existing powers within their existing framework of objectives. As it stands, the regime therefore reflects a carefully calibrated judgment about the key priorities that should be considered in what is an emergency, firm-specific failure scenario.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

I wholeheartedly support the noble Lord, Lord Vaux, in his work in this area. Over the course of our scrutiny of the Bill, we have had some happy and quite nerdy discussions around this amendment. It is clear to me that it is a complicated situation. There is clearly an issue to be solved, but unfortunately the issue may not be exactly the same for each case of resolution that one might be addressing, so it needs further thought.

I am pleased that we will not be voting on this, but I impress upon the Minister that if there is something we can do in this area, whether that be in the code of practice or by other mechanisms, it is important. It is unconscionable to me that, because a particular entity goes down the route of resolution rather than insolvency, certain creditors could be significantly better off. That cannot happen and we must do something about it.

[Lord Livermore (Lab)]

My Lords, the amendment tabled by the noble Lord, Lord Vaux, seeks to give the Financial Services Compensation Scheme rights with respect to the recapitalisation payment, in the event that the firm in resolution is subsequently placed into insolvency or wound up, by then requiring it to be treated as a debt. It also seeks to grant the Financial Services Compensation Scheme super-preferred status in the creditor hierarchy with respect to that debt, enabling it to recover that claim in an insolvency process before other unsecured creditors, uncovered depositors and shareholders.

I am grateful to the noble Lord for the constructive engagement that I have had with him on this matter prior to this debate, and I am especially grateful for his time and expertise on it. I assure him that my officials and I have spent considerable time considering the concerns that he raises, and I shall set out the Government’s position.

The Government’s concern about the amendment is that it could frustrate the primary intention of the Bill to achieve recapitalisation in a way that restores financial stability and, as such, could potentially result in the resolution failing. The Government’s view is that the amendment could create uncertainty as to how such a payment would be perceived by the market when a firm was operating, rather than only in the unlikely circumstance of the firm winding up.

The effect of the amendment would be to create a shadow claim on the recapitalisation. Potential purchasers, investors and unsecured lenders to the firm would be aware that in the event of insolvency a new debt would materialise above them in the creditor hierarchy. Indeed, the shadow claim would follow the firm in perpetuity for as long as it was a going concern, even after the resolution was complete and the firm had been sold to a buyer.

It would also follow the firm even where the original shareholders and creditors were no longer involved with the business, creating a series of risks. That raises a number of potential issues. First, it could inhibit the sale of the firm in resolution. While the insolvency position would not be a primary consideration for potential buyers, it would naturally be part of the potential purchaser’s due diligence to understand the risk to its investment in a subsequent failure. That risk may be substantially greater with the existence of this debt, which may in turn impact potential interest in purchasing the firm and any purchase price.

Secondly, both while the firm was in the bridge bank and once it had been sold, current and potential future creditors and investors in the firm could be deterred from investing in and engaging with the firm for similar reasons. That would frustrate a key goal of the resolution, which is to maintain continuity. For example, uncovered depositors would have an additional incentive to withdraw deposits as they may perceive a potential risk to the seniority of their claim in insolvency. Thirdly, it could potentially undermine restoring market confidence in the resolved firm.

As a result of the issues that I have outlined, the amendment could make it more expensive to run the firm, putting it at a competitive disadvantage. It may perpetuate the circumstances that the resolution is intended to address; namely, uncertainty around how and to whom potential future losses would fall. It may also make it difficult to secure the agreement of directors, who may not be comfortable running a firm under such a shadow while it was in a bridge bank.

In addition, existing legislation means that instruments may currently be classified only as common equity tier 1, the highest form of capital, if they are not subject to any arrangement, contractual or otherwise, that enhances the seniority of claims in insolvency or liquidation. The noble Lord’s amendment would mean that a capital injection arising from a recapitalisation payment under the Bill may not count as the highest form of capital, as it creates a seniorised claim for the Financial Services Compensation Scheme in the event of a subsequent insolvency. That brings into doubt whether it would have the desired effect of restoring market confidence in the firm.

Overall, the effect of granting the Financial Services Compensation Scheme a super-preferred claim over the recapitalisation payment, even if only at the point of insolvency, would be to increase the risk of the resolution not achieving its objectives. Therefore, while the Government absolutely understand the noble Lord’s concerns, we have concluded, for the reasons I have outlined, that the amendment may end up doing more harm than good.

I appreciate that this is a matter that the noble Lord feels extremely strongly about, but I hope this explanation has provided some clarity over the risks attached to the amendment and that as a result he feels able to withdraw it.

Employment: Tax Policy

Baroness Vere of Norbiton Excerpts

Thursday 31st October 2024 Grand Committee

[Baroness Vere of Norbiton (Con)]

My Lords, it is a great pleasure to follow the noble Lord, Lord Razzall. I agreed with some of what he had to say, which is a bonus for me today, so I am enormously grateful for his contribution. I am also grateful to my friend Lord Leigh for tabling this debate. Who knew that it was going to be so well timed? Like many others, I too will fall into the trap of focusing on the Budget because it is top of mind at the moment, and not in a good way.

I have to say, from listening to my noble friend Lord Leigh’s opening remarks, that he brings extraordinary expertise of commerce and the private sector, as of course do many other speakers in this short debate today, notably my noble friend Lord Petitgas and of course the noble Lord, Lord Bilimoria. Unfortunately, that is more than can be said of the current Chancellor and indeed the wider Cabinet—I think some analysis has been done, and private sector experience is somewhat lacking—so I hope that the suggestion made by the noble Lord, Lord Davies of Brixton, that some of the Labour Peers are promoted to positions of greatness such that they can share their private sector expertise, is taken up. It is definitely the case that there is private sector expertise on the Labour Benches; it just does not seem to have got up to the top levels.

Yesterday the new Labour Government raised the tax burden to the highest level in our country’s history. Despite making an outright promise not to raise taxes on people, they raised taxes on working people. In hiking the employers’ national insurance contributions—NICs for short—to raise a headline figure of £25 billion, the Government have committed a straightforward breach, according to the IFS, of their manifesto. Furthermore, there are numerous examples of the now Prime Minister and Chancellor promising before the election not to hike taxes. Can the Minister give the Committee any insight into how the discussions went when drafting the section of the manifesto about no increase in taxes on working people? Was it a cunning sleight of hand that left the words “national insurance contributions” unencumbered by the “employees’” qualifier, or was it just incompetence?

The noble Lord, Lord Bilimoria, made an excellent contribution. I appreciate his comments about the last Government. As a Conservative, I can say that no one wants to see taxes go up—it is just not in our DNA.

I remember many debates when I was a Treasury Minister and the noble Lord, Lord Livermore, in opposition, would slam me for tax rises. I was going to come up with various quotes today about the number of times he has previously slammed me for tax rises, but I thought that would be really cruel.

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

Could the noble Baroness not be bothered to do so?

[Baroness Vere of Norbiton (Con)]

No; my speech is already six minutes long, but I will do it next time.

Of course, at that time, we were dealing with the pandemic and its fallout, and the fallout from the energy price support we had given. Therefore, we had a very firm footing on which to raise taxes.

The Minister will try to bring out his fictitious black hole; I sincerely hope that he will not, given what the OBR has now said about it—I am starting to feel a bit embarrassed for him. Plainly and simply, promises have been broken, and we need to now think about what we can do to ensure growth in the private sector. The views of the private sector on this are now well known. Can the Minister share with me whether anyone in the private sector thinks the rise in employer NI is a good idea?

I want also to look at what the OBR has to say in its economic and fiscal outlook. My noble friend Lord Elliott is right. It is like beer, which is going down by 1p in a pint—that is huge, is it not?—and wine: the more you tax it, the less you get. The noble Lord, Lord Razzall, was very helpful in this regard. If you tax the film and creative industries less, they grow more. Unfortunately, we have seen taxes go up, so—surprise, surprise—the labour supply is forecast to come down by 0.2%. I do not know whether the Minister is happy with this, but I wonder what the Government will do to mitigate for those people who would otherwise have been in a good job.

But it is worse than that. Real earnings will then stall in 2026 and 2027, as firms rebuild their margins and pass on the costs of higher employer NICs. Real wages are not expected to resume growing in line with productivity until beyond the forecast horizon. What interventions will the Minister set out in terms of increasing productivity such that we can get some sort of real wage growth going?

It is not just the OBR that has an issue here; it is also HMRC, which reflects that 940,000 employers will lose an average of £800 per employee. This is not good news for employment, and it is not good news for growth. Labour’s No. 1 mission is to secure the highest sustained growth in the G7. I am an optimist, but this Budget literally has the forecasts for growth coming down. I cannot see how that is compatible with Labour’s No. 1 mission.

The noble Lord, Lord Razzall, asked for alternatives. I will give him two that are still on the table. First, if we increased productivity to pre-pandemic levels, we would get £20 billion a year. Secondly, reforms to adult welfare would save £34 billion a year. That was our plan; we did have a plan but, unfortunately, we were not able to put it in place.

[Lord Livermore (Lab)]

My Lords, I congratulate the noble Lord, Lord Leigh of Hurley, on securing this debate and on his opening speech. I thank all noble Lords for their contributions.

The manifesto this Government were elected on promised to invest in our public services and prioritise working people. Keeping those promises was at the core of yesterday’s Budget. Many noble Lords focused today on specific tax decisions made in the Budget, and the impact and analysis of those decisions as set out by the independent Office for Budget Responsibility. It may be helpful to noble Lords if I begin by explaining the background to the decisions we made.

First, in July, as the noble Lord, Lord Leigh of Hurley, kindly mentioned, the Chancellor exposed a £22 billion black hole at the heart of the previous Government’s plans—a series of promises they made but had no money to deliver. This Government yesterday published a line-by-line breakdown of that £22 billion black hole, and the OBR published its own review of the circumstances surrounding the Spring Budget forecast.

For the benefit of the noble Baroness, Lady Vere, the OBR’s report says that the previous Government “did not provide” them “with all the information” that was available and that, had the OBR known about these

“undisclosed … pressures that have since come to light”,

its spring forecast would have been “materially different”.

Secondly, the country inherited not just broken public finances but broken public services too, with NHS waiting lists at record levels, schools literally crumbling, and rivers filled with waste. Yet, since 2021, there had been no spending review—no detailed plans for departmental spending set out beyond this year.

Thirdly, the previous Government had failed to budget for costs which they knew would materialise, including funding for compensation schemes for the infected blood scandal and the Post Office Horizon scandal.

Put together, these three things—the black hole in our public finances, the compensation payments which they did not fund and their failure to assess the scale of the challenges facing our public services—meant that, in order to meet our first fiscal rule, yesterday’s Budget needed to raise taxes by £40 billion.

So, we had in yesterday’s Budget some very difficult decisions to take in order to rebuild our public finances and our public services. In doing so, we made an important choice: to keep every single commitment we made on tax in our manifesto. We did not raise taxes on working people—their income tax, their national insurance or VAT—and we were able to go further, by not increasing fuel duty and by not extending the last Government’s freeze of income tax thresholds, which hit working people so hard, as the noble Lord, Lord Bilimoria, mentioned.

Of course, in the circumstances I describe, any responsible Chancellor would need to take difficult decisions to raise the revenue required to fund our public services and to repair our public finances. So, in yesterday’s Budget, the Chancellor announced an increase in employers’ national insurance contributions by 1.2 percentage points to 15% from April, and that the secondary threshold would be reduced from £9,100 per year to £5,000.

We know that it is particularly important to protect our smallest companies, so we also increased the employment allowance from £5,000 to £10,500, meaning that 865,000 employers will not pay any national insurance at all next year, and over 1 million will pay the same or less than they did previously. In the Budget, we also increased the lower rate of capital gains tax from 10% to 18%, and the higher rate from 20% to 24%, which means that the UK will continue to have the lowest capital gains tax rate of any European G7 country.

Alongside these changes to the headline rates of capital gains tax, we are also maintaining the lifetime limit for business asset disposal relief at £1 million, to encourage entrepreneurs to invest in their businesses. Business asset disposal relief will remain at 10% this year before rising to 14% in April and 18% from 2026-27, maintaining a significant gap compared with the higher rate of capital gains tax.

We also published a Corporate Tax Roadmap, which confirms our commitment to cap the rate of corporation tax at 25%—the lowest in the G7—for the duration of this Parliament, while maintaining full expensing and the £1 million annual investment allowance and keeping the current rates for research and development reliefs to drive innovation.

The Budget also set out additional tax measures, including reforming inheritance tax and measures on tobacco duty, vehicle excise duty, air passenger duty and alcohol duty.

We also delivered on our other commitments, which some noble Lords addressed during this debate: to abolish the non-dom tax regime and replace it with a new residence-based scheme; a new approach to the way carried interest is taxed; reforms to the stamp duty land surcharge tax for second homes, and to the energy profits levy; and we introduced VAT on private school fees. In total, these changes—alongside our measures to tackle tax avoidance—will raise over £9 billion to support our public services and restore our public finances.

We are asking businesses to contribute more, and the Chancellor acknowledged in her speech that the impacts of this measure will be felt beyond businesses, too, as the OBR has set out and as noble Lords raised in today’s debate. In addition, as my noble friend Lord Davies of Brixton observed, the employment rate will increase by 1.2 million over the forecast. These are, however, very difficult choices, and not ones that the Chancellor took lightly. But, in the circumstances we inherited, we believe they are the right choices to make.

Several noble Lords mentioned growth, and it was of course welcome that the OBR was so clear: this Budget will permanently increase the supply capacity of the economy, boosting long-term growth. However, there is of course much more to do.

It is important that we also consider in this debate the purpose of the difficult decisions we have taken on tax, which enable us not just to repair the public finances but to begin to rebuild our public services. It is worth noting that, in this debate, some noble Lords spoke in favour of some of this investment, but without supporting the taxation necessary to fund it. Because of the difficult decisions the Chancellor has taken on tax, day-to-day spending from 2024-25 onwards will grow by 1.5% in real terms, while total departmental spending, including capital spending, will grow by 1.7% in real terms.

In this, the first phase of the spending review, the Chancellor has prioritised day-to-day funding to deliver on our manifesto commitments. We will increase the core schools budget by £2.3 billion next year to support our pledge to hire thousands more teachers into key subjects; to triple investment in breakfast clubs to put them into thousands of schools; and to provide an additional £300 million to our further education colleges, while taking steps to transform the apprenticeship levy into a more flexible growth and skills levy.

We will deliver a real-terms funding increase for local government next year, including £1.3 billion of additional grant funding to deliver essential services and £200 million to tackle homelessness and rough sleeping. We are also providing funding to support public services and drive growth across Scotland, Wales and Northern Ireland, with the largest real-terms funding settlement since devolution delivering an additional £3.4 billion to the Scottish Government, £1.7 billion to the Welsh Government and £1.5 billion to the Northern Ireland Executive in 2025-26.

Finally, we are fixing the NHS after years of neglect. Because of the difficult decisions the Chancellor has taken on tax, which we are debating today, and because of our commitment to a new investment rule, yesterday’s Budget announced that we are now able to provide a £22.6 billion increase in the NHS budget over two years. That is the largest real-terms growth in NHS spending outside of Covid years since 2010. Many NHS buildings were left by the previous Government in a state of disrepair, so we will provide £1 billion of health capital investment next year to address the backlog of repairs and upgrades across the NHS estate. To increase capacity for tens of thousands more procedures next year, we are providing a further £1.5 billion for new beds in hospitals across the country and more than 1 million additional diagnostic tests, as well as new surgical hubs and diagnostic centres, so that the people waiting for treatment can get it as quickly as possible. Because of this record injection of funding, the thousands of additional beds that we will secure and the reforms that we are delivering in our NHS, we can now begin to bring waiting lists down more quickly and move towards our target of an 18-week waiting time by delivering our manifesto commitment for 40,000 extra elective appointments a week.

The difficult decisions on tax that we made in yesterday’s Budget, which have been debated here today, were made for a purpose. We made choices to rebuild the public finances and our public services, to invest in the national interest and to keep our manifesto commitment to prioritising working people. It is perfectly possible to make different choices, of course, but noble Lords should keep in mind that, at the last election, the country voted for change. They did not reject the previous Government so overwhelmingly because they thought the choices they had made were the right ones; they gave this Government a mandate to fix the foundations of our economy and to deliver the change they voted for.

As the noble Lord, Lord Razzall, observed, we did not hear very much about any credible alternative during this debate. We believe that any responsible Chancellor would have had to take action in the circumstances we faced, but, of course, it was possible to choose not to act. Some noble Lords may think that it would have been better to choose the path of irresponsibility and ignore the problems in the public finances altogether. If that is their choice, they should say so. I believe that the choices the Chancellor set out at the Budget are the right choices for our country, to repair our public finances, to protect working people, to fix our NHS and to rebuild Britain.

Other choices could have been made, of course, but let me be clear: not making the choices that we have made would make it impossible to protect working people; not funding public services in the way that we have would mean cuts to schools and hospitals; not supporting our investment rule would mean delaying or cancelling thousands of projects that drive growth across our country. We have made our choices—the only responsible choices—to protect working people, to fix the foundations of our economy and to invest in Britain’s future.

[Baroness Vere of Norbiton (Con)]

Before the Minister sits down, if I may say so—he has a minute left—I am concerned that he is answering the wrong exam question, as he did not seem to mention employment. However, he did mention the NHS and the £22 billion for it. How much of that sum is the RDEL compensation for the public sector, which will not have to pay employers NI?

Also, I would like the Minister to write, if possible, to cover the question from my noble friend Lord Petitgas about any sector-by-sector analysis of the impact of this tax policy on employment.

[Lord Livermore (Lab)]

I am very happy to write. I did mention employment: I set out that there would be an increase of 1.2 million over the course of the forecast. That is the question I was asked.

Fiscal Rules

Baroness Vere of Norbiton Excerpts

Tuesday 29th October 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

My Lords, over the next 24 hours the Chancellor is likely to break promises that she made to the British people in the run-up to the election, and I am in no doubt that that was always going to be the plan. This is why the Treasury team magicked up a fictional black hole—a black hole which, rather incredulously, contains spending decisions made by the current Government. This fictional black hole will be invoked once again at the Budget Statement tomorrow, to act as a fig leaf to cover tax rises which will put more juice into the phrase “taxing people until the pips squeak”. It is an audacious strategy, given its utter predictability, but my concern is for the people and businesses across the country who are just trying to get by and who will bear the brunt of Labour’s tax plans.

Tax rises are only part of the plan. The second part of the Chancellor’s plan is to increase borrowing—but how could she, given the fiscal rules? These are the fiscal rules that the Chancellor explicitly said she would not change. She stated that she would not “fiddle the figures” to get different debt figures. She confirmed that an incoming Labour Government

“will use the same models the government uses”.

Now the Chancellor has performed a screeching U-turn and broken her promise not to—in her words—fiddle the figures. The Chancellor has announced a £50 billion change to the UK’s fiscal rules; she announced this important change at a conference in the United States, not to Parliament. Can the Minister confirm that the announcement at a conference in the United States was made in haste to reassure the bond markets?

More worryingly, the country currently has new fiscal rules but no knowledge of what they actually are, because the Chancellor has failed to outline any details of what that new rule change involves. She also chose to make this announcement without an accompanying OBR report. I am sure the noble Lord, Lord Livermore, will remember that the very first Act passed under this Labour Government was one which gave more power to the OBR to scrutinise the Government’s actions. Does he agree that these actions with respect to the fiscal rules do not abide by the spirit of what was in that first Act passed under this Government? We are left in a situation in which the UK does not have an operational definition of public debt. Can the Minister explain what definition of public debt the Government are currently providing to lenders?

There is a debate to be had about whether these changes to the fiscal rules make things better or worse, but what is absolutely clear is that fiddling with the debt rule does not magic up free money. Indeed, the independent Institute for Fiscal Studies has specifically warned that changing the UK’s debt rule to allow for higher borrowing is not free money. The IFS has cautioned that the Government’s new fiscal rule will cease to be a constraint on borrowing. Can the Minister explain how much new borrowing the Government intend to take on under these new rules, and how much the annual interest cost of that debt will be?

I have no doubt at all that this is all part of a plan dreamt up long before the general election, and the next episode in this sorry tale is to be released tomorrow.

[Baroness Kramer (LD)]

My Lords, we on these Benches have long called for vital investment into infrastructure, not least to fix our crumbling hospitals and schools, to tackle the failings and gaps in our transport system, and to deliver the affordable housing needed by so many. Infrastructure investment, including private investment, must be scaled up to drive sustainable economic growth across the nation, including the green energy revolution. But fiscal responsibility remains crucial.

These Benches have argued before for the use of the public sector net fiscal liabilities as the appropriate measure to sit behind a borrowing rule, because it allows productive investment to be considered separately from day-to-day spending. I tried without success to persuade the noble Lord, Lord O’Neill of Gatley, to look more closely at this issue during the Conservative Government.

Changing the measure also means reshaping the borrowing rule and the guard-rails to make them appropriate to that new measure. This Statement so far offers only the vaguest language, so I hope very much that we will hear a proper discussion of the rules and the guard-rails tomorrow in the Budget. Will the draft charter for budget responsibility, which I understand should contain much of that, be among tomorrow’s documents?

There also seem to be a number of referees to oversee the rule and its implications, from the OBR to the national infrastructure and service transformation authority, an office for value for money and the NAO. How does this fit together and what oversight will be before Parliament?

We cannot have a repeat of the Truss mini-Budget, which nearly wrecked the public finances with £40 billion in unfunded tax cuts. Does the Minister agree that the Budget must be credible to the markets, the interest burden on our public finances must be tackled and, at the same time, we must make good our infrastructure deficit—investing to fix hospitals and schools but also driving economic growth? None of it is easy, but all of it is necessary.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

Does the Minister agree that the Labour Party manifesto was, in essence, just smoke and mirrors? There are smoke and mirrors surrounding not only the fiscal rule—I am still trying to understand his sentence about changing your own fiscal rules, but I will leave that there—but what a “working person” is. When one writes a manifesto, one does not do it such that one can get things round the British people; one should do it with clarity. I suspect that there is a certain lack of clarity in the Labour Party manifesto.

[Lord Livermore (Lab)]

I fully sympathise with the noble Baroness that she struggles to understand the concept of keeping manifesto commitments. She will see in the Budget tomorrow that we will keep every manifesto commitment we made to the British people.

Crown Estate Bill [HL]

Baroness Vere of Norbiton Excerpts

Committee stage
Tuesday 22nd October 2024 Lords Chamber

[Earl Russell (LD)]

My Lords, this amendment would simply require the Secretary of State to review the impact of this Act on the size of the sovereign grant. I have tabled it as I feel that, as part of our consideration of the Crown Estate Bill, it is important to look at the direct link between the future planned growth of Crown Estate activities and the increase in profits that will result directly from the partnership with GB Energy, and the interlinked direct impact these changes will also have on the practical workings of the Sovereign Grant Act 2011.

The Sovereign Grant Act came into force on 1 April 2012 and changed the arrangements for funding Queen Elizabeth’s official duties. It consolidated four separate sources of funding into one new sovereign grant. The grant is intended to be a more permanent system than the previous one, which was reign specific. The sovereign grant is paid annually by His Majesty’s Treasury at a value indexed as a direct percentage of the revenues from the Crown Estate. It was initially set as an indexed percentage of 15%. The percentage is reviewed every five years by the royal trustees, made up of the Prime Minister, the Chancellor of the Exchequer and the Keeper of the Privy Purse. The level of the grant is protected by law from decreasing because of falling Crown Estate profits, as there were during the Covid pandemic. With annual accounts published by the Keeper of the Privy Purse and audited by the National Audit Office, the process promised to be more accountable. The level of the grant has risen in recent years to help fund, in part, a £369 million refurbishment of Buckingham Palace, which was approved by Parliament. After King Charles III’s accession to the Throne, the new King approved a statutory Order in Council to allow the existing sovereign grant provisions to continue throughout his reign.

This is all very well but, to come to the heart of the matter, my concern is the direct link between the profits that the Crown Estate makes and the calculation of the amount of the sovereign grant going forward. My request is that the direct link is discussed today, and I call on the Government to consider amending it. My amendment calling for an annual review was the closest wording I was able to table on this matter.

There is a world of difference between the direct binary link that we have now, where a set percentage of the Crown Estate’s revenues is used as the only calculation basis in determining the size of the sovereign grant, and the system that I would prefer, where the Government pay due regard to the Crown Estate’s revenues as part of the process of determining the size of the sovereign grant.

I have five areas of concern about the future of these arrangements after this Bill passes. First, my personal feeling is that the present calculation is somewhat obtuse and that the Sovereign Grant Act is not a particularly helpful or appropriate way of determining how, and at what level, we fund the Royal Family. The trouble with all this is that the attempt to link royal funding to the profits of the Crown Estate is a conjurer’s trick; it is an accounting sleight of hand. The two are not related at all. The Crown Estate’s profits are, and always have been, government funds.

I am not here to have a conversation about the role, purpose or future of the Royal Family; I am not anti-monarchy. Nor do I wish to discuss the appropriate levels of funding, as none of this is relevant to the Bill. Before us is a Bill that will see the Crown Estate allowed to borrow from the Treasury, subject to approval, and if all goes well this will result in rapid investment in, and growth at, the core of the Crown Estate’s business, that of leasing seabed plots for offshore floating and offshore wind developments. When the Crown Estate is at the heart of a rapid green energy revolution, and the sovereign grant is calculated as a percentage of revenue profits and reviewed only every five years, it is only sensible for us to take a moment to examine the potential impacts that this rapid growth will have on the calculation of the grant.

My second concern is that this rapid and exceptional period of Crown Estate growth was not foreseen when the 2011 grant Act was passed, and this makes future calculations more difficult.

Thirdly, I am worried that it may potentially put the King personally in a difficult position. Your Lordships should note that, in January 2023, the Keeper of the Privy Purse, speaking on behalf of the King, asked the Government to reduce the percentage used to calculate the sovereign grant so that the total did not include the income from new offshore wind leases, calculated to be worth £1 billion annually to the Crown Estate. The request was made by the King, out of his desire that the money described as a “windfall” could be best used for “wider public good” instead of funding the Royal Family during a cost of living crisis, which he had referred to only weeks earlier. In July last year, with further Crown Estate profits, the Government announced that the grant would be changed to 12% in the following year, down from 25%, while maintaining the same level payable.

It is my understanding that a further reduction is planned to come in through primary legislation following 2026-27. In the words of the Report of the Royal Trustees on the Sovereign Grant Review 2023,

“The Crown Estate’s Net Revenue Profits are expected to increase significantly in future years”.

The trustees’ projected figures show an increase from £442 million in 2022-23 to £1.05 billion in 2024-25. With predicted exceptional linear growth forecast for the foreseeable future, will we see newspaper headlines every year to the effect of “Exceptional growth in Crown Estate’s green energy brings huge profits to the King: the King kindly wishes that these are used for the public good”?

My fourth point is that the five-year review is inadequate in this period of exceptional continuous growth. I call on the Government to amend the 2011 Act to make the review annual.

My fifth and final point relates to what is a complex and confusing system that is not only poorly publicly understood but a hostage to fortune. The system is ripe for exploitation by those who are either against the energy transition, are supportive of the old energy architecture or simply wish to use the politicisation of the energy transition to spread disinformation and propaganda. This is my biggest worry. From the challenges to well-established basic climate science to deliberate attempts to undermine the transition to heat pumps and electric vehicles to miscalculations of costs, propaganda is, sadly, ever present. A system that can all too easily be used to link the green energy transition to extra funding to the Royal Family is ripe to be manipulated by those who wish to argue that the green transition will cost you more because all the benefits are funding the Royal Family. A highly effective government communications strategy that works in partnership, wins hearts and minds, extols the benefits and lower bills is essential to support the transition, and this link does not help with that.

The move to green energy and the financial support received by the Royal Family are uneasy bedfellows. I foresee this as an opportunity that will be exploited by those aimed against the transition. My humble opinion is that the calculation of the sovereign grant as a direct percentage of Crown Estate profits represents a weakness in the system that leaves us vulnerable to interference as we transition our power generation. My wish is simply that this Government consider amending the direct nature of this link and conduct an annual review of the sovereign grant during this period of rapid growth. My amendment is here simply to allow this conversation to take place. I look forward to hearing the opinion of your Lordships and the Minister’s response on these issues. I beg to move.

[Baroness Vere of Norbiton (Con)]

My Lords, I rise to speak briefly on this group. I note that the noble Lord, Lord Berkeley, is not in this place and so was unable to speak to his amendment. I understand why the noble Earl, Lord Russell, has tabled his amendment, and I am grateful to him for his exposition of the background to it. On these Benches, we recognise the unusual role that the Crown Estate has in the stewardship of the assets held in the right of the Crown. We recognise, too, that the revenues from the assets do not belong to the sovereign, nor is any part of them payable directly to the monarch.

The issue here is one of communication. It must be—it is absolutely essential—that there be no perception of any direct financial link between the sovereign and any amounts received under the sovereign grant and the amount of revenue generated by the Crown Estate. Upon the announcement of the partnership with GB Energy, there was a perception from some of the more excitable end of the media that the sovereign was somehow party to, and specifically approving of, the arrangement. I encourage the Minister and commissioners of the Crown Estate to ensure that information in the public domain about the operation of the Crown Estate, but also any further partnerships that may come down the track, cannot possibly suggest any direct involvement from the sovereign and, therefore, that there should be no undue benefit accrued.

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

My Lords, I am grateful to the noble Earl, Lord Russell, for his amendment and I will seek to address some of the points that he has raised. This amendment would require the Government, within one year of the passing of this Act and annually thereafter, to lay before Parliament a report into the effect of this Act on the size of the sovereign grant. The Government agree that it is important that there is transparency in how the sovereign grant is affected by changes in Crown Estate profits. Indeed, the Sovereign Grant Act 2011 includes a number of requirements that provide for regular effective review and reporting to Parliament.

As the noble Earl observed, under the Act, the grant for each financial year is set by reference to the profits of the Crown Estate. In broad terms, under Section 6 of the Sovereign Grant Act it is currently the higher of 12% of the Crown Estate profits two years previously or the previous year’s grant. For example, the level of the grant for 2025-26 will be set at 12% of the profits the Crown Estate reported in its annual accounts for 2022-23, published in July.

Section 7 of the Sovereign Grant Act provides for regular reviews of the percentage used in calculation of the grant to ensure the grant remains at an appropriate level. These reviews are conducted by the three royal trustees—the Prime Minister, the Chancellor of the Exchequer and the Keeper of the Privy Purse. The trustees must lay a copy of the report of their review before Parliament. The last review concluded in July last year and concluded that the reference rate should be reduced from 25% to 12%, reflecting an expected increase in the Crown Estate’s profits. The next review will commence in 2026, with a view to making any change to the grant calculation for 2027-28 onwards. As with previous reviews, it will consider both the future funding needs of the Royal Household and the likely future path of Crown Estate profits—including, of course, the effect of the Crown Estate Bill that we are debating today on those profits—to determine the appropriate percentage to use.

I should note in this context that the grant for 2026-27 will include the final tranche of funding for the current 10-year programme of reservicing of Buckingham Palace’s infrastructure. The percentage for 2027-28 onwards will therefore need to reflect the significant downward adjustment to the household’s funding requirements. The Sovereign Grant Act currently restricts the level of the grant itself being reduced from one year to the next. That provision was written into the Sovereign Grant Act to reflect the view that many of the duties of the Head of State cannot be abruptly stopped, and therefore it would not be appropriate to significantly reduce funding in response to a sudden drop in Crown Estate profits. That will, however, constrain the ability to reduce the grant by the likely appropriate amount once the reservicing of Buckingham Palace is complete. In 2016, when the previous Government agreed to provide funding for the resurfacing programme, they noted an intention to bring forward legislation to reset the level of the sovereign grant to an appropriate level once the reservicing works have been completed. I can confirm that it is also the intention of this Government.

Those statutory reviews therefore provide Parliament with a report of the impact of this Bill on the sovereign grant. They also provide a mechanism to ensure that additional Crown Estate profits do not lead to excessive funding for the Royal Household. Where that is not possible under the Sovereign Grant Act, the Government will legislate accordingly.

On reporting requirements, the Sovereign Grant Act also requires two further reports on the grant to be produced and laid before Parliament each year. First, Section 5 requires the royal trustees to produce a report annually stating the level of the grant for the following financial year and how that has been determined in line with a prescribed method set out in Section 6 of the Act. This report must be laid before Parliament. Secondly, Section 2 requires the Keeper of the Privy Purse to produce annual accounts relating to the Royal Household, including the use of the sovereign grant. In common with other central government bodies, the accounts are prepared in accordance with an accounts direction issued by the Treasury, audited by the National Audit Office and laid in Parliament. The Crown Estate Act 1961 also contains a requirement for the Crown Estate to produce an annual report and accounts.

The Government therefore agree that it is important that there is regular reporting to Parliament on how the changes in this Bill will impact the sovereign grant. As I have detailed, there is already a considerable set of statutory requirements in this respect and beyond.

Independent School Fees: VAT

Baroness Vere of Norbiton Excerpts

Monday 21st October 2024 Lords Chamber

[Lord Livermore (Lab)]

The noble Lord asks about the assumptions we are making. As I said, we will set out our assessment of the expected impacts of this policy in the normal way by publishing a tax information impact note at the time of the Budget. At that point he can judge those assumptions for himself.

[Baroness Vere of Norbiton (Con)]

According to the Government, VAT is a tax on consumption and therefore falls on the parents. Yet the Minister keeps saying that this consumption tax will be absorbed by the producer—the schools. Many noble Lords have pointed out today that schools cannot simply magic up lots of cash to mitigate against this consumption tax on the parents. Has he considered that he is undermining what a tax on the consumer actually is?

[Lord Livermore (Lab)]

The noble Baroness will know that how schools will fund this additional cost is a commercial decision for each school. Some schools have already announced a very wide range of fee increases, from zero to 5%, to 10%, up to, for example, Eton at 20% above the average expected VAT liability. This reflects the Government’s expectation that private schools will take steps to absorb a significant proportion of the new VAT liability.

Crown Estate Bill [HL]

Baroness Vere of Norbiton Excerpts

Committee stage
Monday 14th October 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

My Lords, I am enormously grateful to all noble Lords who have spoken before me in this debate today. Predominantly, this is obviously around the devolution of powers over the Crown Estate in Wales to the Welsh Government. On these Benches, we have thought long and hard about this, and I hear the concerns of some noble Lords about how the devolved powers differ between Wales and Scotland and, indeed, Northern Ireland. But this is not a unique situation and I have concluded that I would encourage the Minister to resist any change at this time.

A number of noble Lords have raised certain challenges as to why this might be a good or a bad idea, and I look at this in a purely practical sense. If I look at the documents that have been provided and are available not only for the Crown Estate but also the Crown Estate’s relationship with GB Energy—the enormous commitment that the Crown Estate has made in terms of the amount of seabed licences it wishes to grant to enable energy generation by 2030—I agree with the noble Baroness, Lady Kramer, that change is coming and coming very significantly for the Crown Estate. In 10 years’ time, it is not going to look the same as it does now. Therefore, I think that we would introduce risk into what is already a very ambitious target set down by the Government to develop offshore wind should we be sidetracked by the desire to devolve limited powers over the Crown Estate at this time.

It is also worth bearing in mind that the Crown Estate is very clear in its documents—and I think the Committee will discuss this a bit more later—that it is an independent business and competes against the private sector. Splitting it at this time and taking out a chunk of the assets and going through all the procedures as to how you recognise those assets—as pointed out by the noble Lord, Lord Berkeley—and how you think about which revenue streams go where would be a sideshow.

I note the point made by the noble and learned Lord, Lord Thomas, but I am going to run with it slightly. At the moment, the Labour-run Welsh Government do not have the best record of governance. Of course, that might improve in the future and progress may well be made, so I conclude by saying that we encourage the Minister to resist these amendments and we believe that they would be unwise at this time.

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

My Lords, I am very grateful to all noble Lords who have spoken in this debate in response to the amendments from the noble Lords, Lord Wigley and Lord Hain, and the noble Baronesses, Lady Smith and Lady Humphreys. I hope to be able to explain the Government’s rationale for retaining the existing structure of the Crown Estate.

First, let me set out how the Crown Estate currently operates and why the Government believe this remains the best approach. The Crown Estate Act 1961 requires the Crown Estate commissioners to manage the Crown Estate as a commercial enterprise to enhance long-term value and generate profit and to do so with due regard to the requirements of good management. A key purpose of the 1961 Act was to repeal various detailed statutory provisions that had built up over 150 years previously which were hampering the effective management of the estate. By focusing the commissioners’ duties on enhancing the estate’s value and the returns generated, the commissioners have a clear objective for which they can be held to account.

While the Crown Estate has goals which under its own strategy align with wider national policy objectives, the 1961 Act provides the Crown Estate with independence and autonomy to set and achieve its goals. The Government believe that the Crown Estate should continue to operate in this way, as a commercial business independent from government, because it has shown itself to be a trusted and successful organisation, with a proven track record in effective management.

The Crown Estate is multibillion-pound public corporation, which is required to pay its profits into the UK Consolidated Fund each year, worth more than £4 billion over the past decade. Those revenues are then allocated to public service priorities by the Government, subject to the usual parliamentary controls. That is a valuable outcome, which we need to be careful not to undermine.

I turn to the amendments that deal with devolving the Crown Estate in Wales. I fully recognise that there are now two Labour Governments in the UK. While I believe that there is greater benefit for the people of Wales and the wider United Kingdom in retaining the Crown Estate’s current form, I shall of course continue to discuss these issues with the First Minister and the Secretary of State for Wales to ensure that Wales sees the full benefits of the Crown Estate and other forms of investment.

In response to the arguments made by noble Lords during this debate, I make a number of points. First, devolving the Crown Estate to Wales would most likely require the creation of a new entity to take on the role of the Crown Estate in Wales. This by definition would not benefit from the Crown Estate’s current substantial capability, capital and systems abilities. As my noble friend Lord Hain and the noble and learned Lord, Lord Thomas, referred to, this would indeed further fragment the UK energy market by adding an additional entity and, as a consequence, it would risk damaging international investor confidence in UK renewables and disrupting the National Energy System Operator’s grid connectivity reform, which is taking a whole-systems approach to the planning of generation and network infrastructure. That reform aims to create a more efficient system and reduce the waiting times for generation projects to connect to the grid. The cumulative impact of these effects would likely delay the pathway to net zero by decades.

Furthermore, the Crown Estate’s marine investments are currently made on a portfolio-wide basis across England and Wales. To devolve to Wales would disrupt these existing investments, since they would need to be restructured to accommodate a Welsh-specific entity. Let me give two examples. The first is the Crown Estate’s £50 million supply chain accelerator, which will match-fund early stage projects related to offshore wind leasing round 5, and the £50 million investment in the offshore wind evidence and change programme, which brings together government bodies, the industry and key stakeholders from across the UK to better understand environmental impacts of offshore wind.

--- Later in debate ---

I hope that we can make some progress on this. With the finances that we have, there is almost no way that anybody in this House could come up with the right set of ratios or constraints. We do not have a business plan or enough detailed forecasts. We really need the Treasury to put that in front of us.

[Baroness Vere of Norbiton (Con)]

My Lords, this group of amendments on the investment and borrowing powers in the Bill for the most part seeks to put in place limits on borrowing by the Crown Estate. I am grateful to the noble Earl, Lord Russell, who introduced the group, and I agree with him that there should be a limit on the borrowing powers that the Government intend to extend to the Crown Estate commissioners.

I also associate myself with the comments made by both the noble Earl, Lord Russell, and the noble Baroness, Lady Kramer, about the absence of the business case and the draft framework agreement. This is not the first Treasury Bill where accompanying documents have not appeared, but this is a new Government.

I am also grateful to my noble friend Lord Howard of Rising for his Amendment 8—I understand that the Committee will come back to his Amendment 9 separately—which seeks to probe the Government’s intention on borrowing. My noble friend made his points clearly: it is not just about this current Government, or the subsequent Government, but any future Government under whom there may need to be checks and balances in place to prevent the overleveraging of a very important group of national assets run by an independent company or organisation.

Extending the borrowing powers was planned by the previous Conservative Government, and we absolutely support the principle of the Bill. As I said on the previous group, the Crown Estate will be a very different organisation in 10 years and so has to do a lot of things very quickly. It is going to need money and there is an opportunity here. However, I am struggling to figure out how its relationships with GB Energy, on which I still lack clarity, and—one step removed—the national wealth fund, which I understand does not have as much money as was originally planned, will all fit together. Therefore, to protect the integrity of the Crown Estate it is important that a borrowing limit is put in place.

Previously, the Crown Estate commissioners were constrained by the 1961 Act, but we support other noble Lords who have spoken today on considering what the mechanism might be. Different noble Lords have proposed different mechanisms. I appreciate that the noble Earl, Lord Russell, picked a number, and I accept that that might be an outcome, but of course it is not really inflation-proofed; it would be in the Bill and therefore it might not be helpful in due course. I went away and thought about having 2% of total assets as the limit. If one looks at the portfolio as it stands for 2022-23—£15.5 billion—one sees that a 2% cap would represent a cash limit of around £310 million. That would be a more generous cap than that proposed by the noble Earl, Lord Russell, but it is broadly equivalent to the “hundreds of millions”—I think that was the phrase—envisaged by the Minister. We are just trying to be helpful here, by putting a statutory footing underneath the Minister’s intention in any event.

Another thought I had was not only doing this as a percentage of total assets but giving Parliament some sort of say over a five-year horizon. I think this was the point that the noble Lord, Lord Macpherson, was making, but in a separate way. I was not actually aware that borrowing forecasts appear in documents relating to the Crown Estate—maybe they do, and in any event it would be worthwhile to have a look at them. There is a significant loss of parliamentary oversight in this Bill. There is very little parliamentary oversight at all of the Crown Estate anyway, despite it holding some of our national assets, but the Bill takes even more of that parliamentary oversight away, which I will come to in a subsequent group.

I believe that there is an opportunity to add some oversight, and therefore I came up with the idea that Parliament should be required to pass regulations that set out, by year, a five-year borrowing cap. Parliament could do that every year quite simply. That would obviously give flexibility, and it would enable debates to happen about the Crown Estate and whether it was heading in the right direction. The Treasury could be challenged about its involvement—apparently there is a transparent relationship between the Treasury and the Crown Estate, although I have found no notes relating to that which would indicate such transparency. That was my other idea.

There are many ways that the House might decide on Report to put a limit on borrowings. I am happy to hear the views of the Minister; I very much hope that he will appreciate that many noble Lords are trying to help.

Briefly, my Amendment 10 picks up the point made by my noble friend Lord Howard about the situation where the Treasury is going to be lending to the Crown Estate, and that will be down as an asset, and then that money could circulate back and go into day-to-day government spending. To me, that seems slightly odd. It would be good to get some sort of commitment to ensure that that sort of mechanism is somehow broken.

I am grateful to all noble Lords, especially my noble friend Lord Holmes of Richmond. I might come to his element about additionality when we come on to the reporting of the investment strategy of the Crown Estate in a later group.

[Lord Livermore (Lab)]

My Lords, I am grateful for the contributions from all noble Lords on this group of amendments. I recognise that the issue of controls on borrowing is an important consideration, and I hope to offer some reassurance. I agree with very many of the points raised during this debate, in particular that controls on borrowing by the Crown Estate must be in place. I assure noble Lords that such controls will be set out in the memorandum of understanding that will be in place between the Crown Estate and the Treasury, and will be set at a loan to value ratio not to exceed 25%.

--- Later in debate ---

Moved by

[Baroness Vere of Norbiton]

12: Clause 2, page 2, line 11, at end insert—
“5A The Chair of Commissioners and each Commissioner may not be appointed until the appointment has been scrutinised by the Treasury Committee of the House of Commons, or any successor committee.”Member's explanatory statement
This amendment would require the appointment of the Chair of Commissioners of The Crown Estate to be subject to scrutiny by the Treasury Select Committee.

[Baroness Vere of Norbiton]

My Lords, my Amendments 12 and 36 focus broadly on the governance and management of the Crown Estate. Amendment 12 in my name seeks to introduce a process by which Parliament can scrutinise the appointment of new Crown Estate commissioners. If passed, the Bill will increase the number of commissioners from eight to 12. The Government have not given a clear reason for this change, arguing merely that the new number will bring the number of commissioners in line with best practice for modern corporate governance. Further information and thoughts on that from the Minister would be welcome. It would be interesting to hear what problems this change will solve, what particular skills he feels the Crown Estate is missing and why those additional four commissioners will deliver the change needed.

As many noble Lords have remarked already in Committee today, the Crown Estate bears the most enormous responsibility as the custodian of many of the nation’s important assets. That responsibility is significant, yet the level of parliamentary oversight—over not only the activity of the commissioners but their stewardship of these billions of pounds’ worth of incredibly important assets—is weak and has been further weakened by the Bill.

My Amendment 12 would give Parliament a role in scrutinising commissioner appointments to ensure that candidates were qualified for the role that they are anticipated to play. That would include the new commissioners who will be introduced after the Bill becomes law, as well as the chair of commissioners, for which I believe a recruitment process is currently under way. The chair of the commissioners will be an incredibly important role. Again, I believe it would be beneficial and reassuring to all parliamentarians if a committee—for example, the Treasury Select Committee—had the opportunity to question the candidate for that role before they took up the reins.

The amendment in the name of my noble friend Lord Young of Cookham identifies a specific issue when it comes to oversight. Commitments are made on behalf of the Crown Estate but there is no mechanism to ensure that those commitments are implemented. Therefore, I hope that the Minister will listen carefully to what my noble friend has to say, and will agree that the amendment in my noble friend’s name would improve the Bill.

Amendment 36 also seeks to improve parliamentary scrutiny of the governance of the Crown Estate, by ensuring that the disposal of assets owned by the Crown Estate is reported to the Treasury and then to Parliament. The Minister will know that I was concerned about this, as I asked in a meeting what restrictions there were over sale of assets. I did not receive a satisfactory response at all. Again, I note that the Crown Estate owns some of our most important landmarks. These are valuable pieces of land, buildings or indeed seabed, but they are not just valuable; they are iconic.

There is limited transparency to the decisions of the Crown Estate beyond the annual report. This measure is simply designed to ensure that Parliament has some visibility in the decision to dispose of assets. In this case, I picked an amount of £10 million, but it could be higher than that. This seeks to discourage the commissioners from taking inappropriate short-term decisions about the ownership of national landmarks, and indeed the natural environment, for short-term gain.

I am grateful to my noble friend Lord Holmes of Richmond for his amendments in this group about creating public good, and I will listen with great interest to the response from the Minister. The spirit of my noble friend’s Amendment 19 aligns closely with my Amendments 37A, 37B and 37C in a later group, and will touch on that there.

Finally, I was interested to note the proposal from the noble Earl, Lord Russell, to grant the Crown Estate commissioners the power to grant leases in exchange for full or part ownership of any project. Again, that is something the Minister may wish to consider.

I hope the Minister will look carefully at these constructive amendments, and specifically confirm to the Committee whether he agrees that Parliament should have a greater role—or indeed, in my view, any role at all at this stage—in scrutinising the work of the Crown Estate. I beg to move.

--- Later in debate ---

[Lord Livermore (Lab)]

It is a very good question, and I shall endeavour to find the answer and write to my noble friend.

[Baroness Vere of Norbiton (Con)]

I am grateful to all noble Lords. That was an excellent debate and a lot of ground was covered. My favourite line of the debate came from the noble Baroness, Lady Kramer. She put her finger on it when she said that the Crown Estate was not a “cuddly organisation”. It does not need to be—it does not report to anybody, apart from its commissioners, and that is at the heart of the issue that I think many noble Lords are grappling with. The noble Baroness, Lady Kramer, was pleased with my recent conversion to pre-appointment scrutiny. I cannot guarantee that that will continue. I understand a new leader is in the offing in my party, so who knows what will happen?

The amendment that I put down was a useful way of probing some thinking around why the number of commissioners had to go from eight to 12. The response from the Minister was the sort of management jargon I used to learn at business school about 25 years ago. I am not much the wiser, but I will go back to Hansard and study his words carefully. Pre-appointment scrutiny, for the chair in particular, would be a very small but important change, particularly as we are dealing not with a cuddly organisation but with one which happens to own and manage some very important and valuable national assets. Therein lies the tension, and that is my concern.

Turning to the points raised by my noble friend Lord Young, it was a forensic analysis. I am sure many noble Lords learned much from it, not least how to structure a really good argument, which has stumped the Minister. I am pleased that he is stumped because I am sure that he will go away and look at it—indeed, I implore him to do so, such that we do not have to return to this, at length, on Report.

I hope that my noble friend Lord Holmes feels satisfied by the Minister’s response to his amendments. On the point raised by the noble Earl, Lord Russell, I presume that both he and I are pleased that the Crown Estate can already do what he wants it to do. I agree with him that it sounds completely obvious.

I am afraid that I am not happy with the Minister’s response on the question of disposals; in fact, I am probably more concerned by his response than I was beforehand. I am not sure that the nation would expect the complexion of the assets held by the Crown Estate to significantly change, so we may well come back to that. In the meantime, I beg leave to withdraw the amendment.

Amendment 12 withdrawn.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I will just make two very quick comments. First, there has been a clear message to the Minister that, in one way or another, this Committee feels strongly that we should have in statute an expression of the climate change, environmental and nature issues. That should not be seen as a criticism of the Crown Estate as it is today but simply says that this is so important that the Crown Estate should not be given the freedom to change its mind on those issues without the intervention of Parliament.

I do not want to put the Minister on the spot, but my second brief issue concerns a previous answer, when there may have been some confusion between the memorandum of understanding and the framework agreement. I do not ask him to do this now, but could he go back and look at those two rather different things, as we need to approach them both differently? That would be exceedingly helpful, but I do not want to put him on the spot at this moment.

[Baroness Vere of Norbiton (Con)]

My Lords, I will speak briefly to this group on the objectives and duties of the Crown Estate. Many of the amendments relate to climate change and nature, and many noble Lords have spoken who are much more knowledgeable about these topics than I am, so I do not propose to add further to those points. As set out in today’s list, one must follow the rules, but I look forward to hearing the thoughts of the Minister on that.

My Amendments 37A to 37C look at another important aspect of potential disruption caused by investments by the Crown Estate, which is to local economies and national economies when it comes to shipping. I am looking to the Minister to reassure me and your Lordships’ House that very important local and national economic activities are considered appropriately by the Crown Estate, and that it does not look at what it does in a narrow and short-term way but thinks about making the cake bigger for everybody over the longer term.

The noble Lord, Lord Berkeley, made several points about the impact on commercial fishing: it should be quantified, consulted on and mitigated where possible, and I say the same for commercial shipping. Some 90% of our goods arrive by sea, and ports are often quite specialised in the goods they handle. Sadly, you cannot move a port, so you have to be quite careful not to obstruct well-established shipping lanes and ensure that the proximity of offshore developments does not cause excessive risk to vessels, particular larger vessels, were they ever to get into trouble. Comments on that would be greatly appreciated.

I did not put down an amendment on this, but it is strongly related. Where ports want to expand and they are surrounded by Crown Estate land, the balance of power is sometimes a little one sided. I would like some reassurance that the Crown Estate will act not only in its self-interest for short-term gain but will think about the longer term and growing the pie for the whole economy and the Crown Estate within that. I do not propose to add anything further at this point, and I look forward to hearing the views of the Minister.

[Lord Livermore (Lab)]

I thank all noble Lords for their powerful arguments made during this debate. I will address the amendments tabled by the noble Lords, Lord Holmes, Lord Teverson and Lord Young, the noble Baronesses, Lady Hayman, Lady Young and Lady Vere, and the noble Earl, Lord Russell, which all seek to make changes to the Crown Estate’s objectives and duties.

Before I move on, I will address two specific questions from the noble Lord, Lord Teverson, which I may not pick up in my subsequent remarks. He asked about conflicts of interest with leasing rounds. Under UK habitats regulations, the Crown Estate is deemed to be a competent authority for offshore wind leasing rounds. As such, it has a legal obligation to carry out a plan-level habitats regulation assessment for planned activities such as an offshore wind leasing round. It could be challenged through legal action if it fails to do this in line with the prescribed requirements.

The noble Lord also asked about the marine delivery route map’s interaction with the offshore wind report. The marine delivery route map gives the holistic context across sectors and sea users to support and inform individual sector delivery planning, while the offshore wind report offers technical insights and data, with both working in concert to ensure that offshore land development is efficient, sustainable and aligned with national and environmental goals.

The noble Baroness, Lady Kramer, also asked about a point of clarification. I will go away and check the questions she raises. Obviously, I apologise if I have inadvertently confused the two things she mentioned.

Amendments 14 and 28, tabled by the noble Lords, Lord Holmes and Lord Teverson, and the noble Earl, Lord Russell, seek to introduce new duties for the Crown Estate to protect the condition of the seabed. Amendment 14 would require the Crown Estate commissioners to take steps to protect the seabed, which forms part of the Crown Estate, and would include a prohibition on all activities, business practices, leisure pursuits and other actions that permanently or temporarily cause damage to the seabed.