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

Debate between Baroness Vere of Norbiton and Lord Livermore

Tuesday 26th March 2024 Grand Committee

[Lord Livermore (Lab)]

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

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

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

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

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

[Baroness Vere of Norbiton (Con)]

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

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

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

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

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

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

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

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

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

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

HMRC Self-assessment Helpline

Debate between Baroness Vere of Norbiton and Lord Livermore

Tuesday 26th March 2024 Lords Chamber

[Lord Livermore (Lab)]

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

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

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

Credit Card Invoices

Debate between Baroness Vere of Norbiton and Lord Livermore

Tuesday 26th March 2024 Lords Chamber

[Lord Livermore (Lab)]

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

[Baroness Vere of Norbiton (Con)]

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

Electronic Payment Devices

Debate between Baroness Vere of Norbiton and Lord Livermore

Tuesday 19th March 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

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

[Lord Livermore (Lab)]

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

[Baroness Vere of Norbiton (Con)]

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

Bank of England Levy (Amount of Levy Payable) Regulations 2024

Debate between Baroness Vere of Norbiton and Lord Livermore

Tuesday 27th February 2024 Grand Committee

[Lord Sharkey (LD)]

My Lords, it is obviously unacceptable that the Bank of England should be making a loss on its supervisory activities regarding the banking sector. We are happy to support this SI’s correction of that situation.

Before we allow the Bank to charge companies more, should we not ask ourselves whether there are any efficiencies that could or should be made in the Bank’s supervisory routines and systems? Could the Minister say whether the Bank has asked itself that question? If it has, perhaps the Minister could tell us what the answer was and how it was arrived at. If it has not asked the question, why not?

We note that the consultation on the levy produced only one relevant response—from, we assume, UK Finance. This response made five points; the Bank addressed four. The first was the rate of selldown of the Bank’s gilt portfolio. The concern appeared to be that this selldown would significantly increase the Bank’s costs and therefore the levy required. The Bank seemed to think that this was not an issue, but its explanation seemed very complex. May I ask the Minister for a “beginner’s guide” explanation? Is the industry right to worry about the levy increases potentially arising from a gilts selldown and, if not, why not?

The second point raised in the consultation response seemed the most important. The respondent suggested that the non-bank financial institutions, NBFIs, could in future be added as eligible levy-paying institutions in Schedule 2ZA to the Bank of England Act 1998. These NBFIs certainly seem large enough to be added. At the Managed Funds Association Global Summit in Paris in May last year, it was estimated that NBFIs now represent about 50% of global financial assets.

Addressing this point, the Bank simply says that the formal review referred to in paragraph 14.1 of the EM

“is expected to include assessment of which institutions are regarded as eligible to pay the Levy”.

I note the words “is expected to”. I also note that this review is five years away. Is not the growing size of the NBFI sector a reason for the Bank’s supervisory oversight to be much more extensive? Is it not simply unfair that NBFIs should get a free supervisory ride?

The third issue raised in the consultation and addressed by the Bank was the desirability, for planning purposes, of a five-year budget plan to help institutions plan their own budgets. The Bank has agreed to consider what is a perfectly reasonable request, but can the Minister say when it will have a substantive response to that comment from the consultation?

The fourth issue concerned the reference period; the Minister has mentioned this. The Bank concluded that the proposed reference period—the same period used for the PRA levy—is the appropriate one. Speaking of the PRA, can the Minister explain to us how the Bank of England levy and the PRA levy work together, as well as how double-charging is avoided?

Finally, why does this SI contain no coming-into-force date or commencement provisions?

[Lord Livermore (Lab)]

My Lords, we fully support the replacement of the current cash ratio deposit and the proposed mechanics of the levy. We therefore support this statutory instrument.

I have only one question, related to the timing of this measure. As I am sure the Minister would agree, providing the banking sector with certainty is essential to securing the confidence needed to incentivise investment in the real economy. Can she therefore provide clarity on when this SI will come into force?

[Baroness Vere of Norbiton (Con)]

I am grateful to noble Lords for sharing their thoughts on this SI. It is a simple switchover from one scheme to another, but I recognise that there are points that deserve a bit more insight. I hope that, by the end of my closing speech, I will have an answer to the question about the coming-into-force and commencement date, including why that has not happened.

I turn to the comments from the noble Lord, Lord Sharkey. He made good points about the amount of money that will be spent on these policy functions. I asked the same question. It is clear to me that the Bank of England is independent and sets its own budget but does so in a prudent way. Each year, as I said in my opening remarks, the Bank determines the scope of the policy functions that should be funded and, therefore, what the total levy will be. However, the Bank’s policy costs to be recovered through the levy will require approval by the Bank’s Court of Directors, which is a bit like its board, I suppose, and which is responsible for the efficient use of funds—not only those raised by the levy but across the whole of the Bank’s budget.

The levy will also feature as part of already established arrangements for regular discussions between the Bank and the Treasury covering the Bank’s financial position. The Bank continues to be accountable to Parliament in respect of its finances and budget in various ways, including but not limited to through its annual report and accounts—some significant detail about this will be set out its report and accounts—and through regular public appearances by governors and members of the court before the Treasury Select Committee.

I will now embark on a guide to the cost of transition; let us see how we do. When the Bank moves from the CRD scheme to the levy, institutions will get their deposits back as there is no longer a legal basis for the Bank to hold deposits. Through this, a total of £13 billion in cash ratio deposits will be returned to firms. They will be returned as remunerated reserves as the Bank intends to hold on to the gilt portfolio that it has purchased under the scheme and allow this to roll off naturally. This is the most appropriate course of action; I suspect that that also means it is the cheapest. It means that, during a transition period, the Bank will need to pay a bank rate on the remunerated reserves. This is a policy cost that will be covered by the levy. The cost of the transition between the CRD scheme and the levy per year will depend on the rate at which the legacy CRD gilts mature or are sold. This is because the income available from the legacy CRD gilt portfolio will reduce the amount being recouped by the Bank under the levy.

Social Security (Contributions) (Limits and Thresholds, National Insurance Funds Payments and Extension of Veterans Relief) Regulations 2024

Debate between Baroness Vere of Norbiton and Lord Livermore

Tuesday 27th February 2024 Grand Committee

[Lord Livermore (Lab)]

My Lords, in the 2022 Autumn Statement, the Chancellor announced that national insurance contribution thresholds that are in line with income tax will be fixed at their 2023-24 levels until 2027-28. As the Office for Budget Responsibility pointed out at the time, the freeze to national insurance thresholds and limits meant that

“all the main personal tax thresholds are now frozen in cash terms across our entire forecast period”

through to 2027-28.

Those freezes to allowances, limits and thresholds provide the context for the debates that we now frequently have about the rising tax burden. As Paul Johnson from the Institute for Fiscal Studies said, the changes made at the 2023 Autumn Statement

“won’t be enough to prevent this from being the biggest tax-raising parliament in modern times”.

The fact is that, after 25 tax rises in this Parliament alone, the tax burden remains on course to reach its highest-ever level at least since the Second World War. One of the central reasons for that is the freeze on income tax and national insurance thresholds through to 2027-28. This fiscal drag means that, on average, personal taxes will go up by £1,200 per household even after the 2% cut to national insurance.

To take one example, the impact of the Government’s freezes to thresholds on low and middle earners is stark. As the noble Lord, Lord Sharkey, mentioned, consumer finance expert Martin Lewis recently said that, even with the reduction in national insurance, people on incomes of between £12,500 and £26,000 will be worse off, looking at this year in isolation, as a result of threshold freezes and fiscal drag. Does the Minister agree with Mr Lewis on that point?

The Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations set the annual rates of working tax credit and child tax credit and the weekly rates of child benefit and guardian’s allowance for the coming financial year. Amid a damaging cost of living crisis, we support the increases, as any help for people who are struggling in the face of persistently high energy, food and housing costs is particularly needed. It is welcome that these social security payments are being uprated by the usual amount, September’s inflation figure. Months of uncertainty about the Government’s plans caused enormous anxiety at a time when household budgets were stretched to breaking point.

My noble friend Lady Lister spoke expertly about child poverty, as she always does. We know that 8 million households received their final means-tested cost of living payment this month. That support has been critical for millions across this country, including many children. I would therefore be grateful if the Minister could say what assessment the Government have made of the impact that the end of the cost-of-living payment will have on levels of child poverty.

[Baroness Vere of Norbiton (Con)]

I am grateful to all noble Lords who have taken part in this short debate today. I will try to get through as many questions as possible—there are definitely one or two to which I do not currently have the answer, but I will do my best.

Turning to the points raised by the noble Baroness, Lady Lister, I recognise that she has been working in the field of child poverty, child benefit and child benefits more broadly for a long time and brings with her an awful lot of expertise. She focused very much on child benefit. I would say that child benefit is just one of many interventions that the Government can and do make to help families. There is a range of different supports, and she will have seen that at spring Budget 2023, the Chancellor announced that the Government will extend the free hours offer so that eligible working parents in England will be able to access 30 hours of free childcare per week for 38 weeks per year from when their child is nine months old to when they start school.

So it is not only about cash payments which come in the form of child benefit; and it is also the case that, looking at where we are now compared with where we were back in 2010, for example, we have made progress on poverty. The Government feel that the best way to get people—and children in particular—out of poverty is by living in homes where people are able to work. We know that there are now just under 1 million vacancies, and our approach is very much to try to get people into work, particularly full-time work, to reduce the risk of poverty. That is why our intervention in childcare is so important. We know that in 2021-22, children living in workless households were five times more likely to be in absolute poverty after housing costs than those where all adults worked. The latest available data shows that in 2021-22, there was only a 5% chance of children being in absolute poverty after housing costs where both parents worked full time, compared with 52% where one or more parents in the couple was in part-time work only. That is why our focus on all sorts of different interventions to support the family is really important.

The latest statistics show that, in 2021-22, there were 1.7 million fewer people in absolute poverty after housing costs compared with 2009-10, including 400,000 fewer children. We are heading in the right direction but, of course, we must continue to do further work in this area. I welcome the work that the Government have done on universal credit: it is a very good set of reforms that endeavours to support people when they need it most to help them back to work.

The noble Baroness, Lady Lister, mentioned the high-income child benefit charge. I am pleased that she agrees about the principle of individual taxation—I know that many people would like to put it on household income, but that would mean a change of thinking at the Treasury about how one taxes individuals. The adjusted net income threshold of £50,000 ensures that the Government support the vast majority of child benefit claimants. I will write to the noble Baroness if I have information about how many lower-rate taxpayers have been pulled into that area—but we are talking about a threshold of £50,000, which is a fair amount of money.

The noble Lord, Lord Sharkey, asked a number of questions, some of which I caught but some of which my brain did not quite catch. I will write to him, but, on the Treasury grant, as I said in my opening remarks, the Government are just being prudent by including it in the statutory instrument. At this moment, the Government Actuary report forecasts that the balance of the NIF will be £80.9 billion at the end of 2024-25, which is a significant surplus.

The GAD also projects that the NIF will be in overall surplus until at least 2028, but the balance can fluctuate because it will depend on economic factors and policy changes—for example, what might happen with increases to the state pension. The Government have increased the state pension by 8.5%, in line with inflation and the highest element of the triple lock. So I will write to the noble Lord on the threshold at which the Treasury would intervene—but we are not expecting to at this moment in time. We monitor the balance of the NIF very closely and we stand ready to include a top-up grant, should we feel that the forecast for that particular year gives the impression that it might be needed.

The noble Lord talked about veterans. The Government obviously keep all taxes and reliefs under review. We have decided to extend this for another year, and the cost of that extension is approximately £5 million for the next year. But it is also fair to say that the Government regularly conduct research and evaluation as part of their role in keeping policies such as this relief under review. When an evaluation is complete, it will be published in due course and decisions can then be taken at that point.

The noble Lord, Lord Livermore, mentioned the current economic climate, without mentioning the unprecedented economic shocks that the UK economy has had to weather. Of course, the response to this was often deemed to be insufficient by the party opposite, so I am not entirely sure where we would be had it been in power. I suspect that we might be in an even more sorry economic state, because we are now turning a corner. We are absolutely seeing really positive change in our economy, and I believe that will continue.

It is worth looking at the broader impact of the freezing of the NICs threshold, alongside income tax. Quite frankly, when many people get their payslips, they just look at how much money they gave the Government. They do not necessarily focus on whether it is NICs or tax; it is just money they do not have and cannot spend because the Government are spending it for them.

But, since 2010, the Government have improved the lot of lower-earning people. We have nearly doubled the personal allowance since 2010, and it is 30% higher in real terms. That ensures that some of the lowest earners do not pay income tax. Indeed, around 30% of people do not pay income tax at all. This has also meant that it is estimated that over 3 million people will be taken out of tax by 2023-24, compared with the threshold rising in line with inflation from 2010-11. So the Government have increased the thresholds by more than inflation over a very long period of time, which has really benefited the lowest earners.

Given these unprecedented economic shocks, the Government have had to take difficult decisions, which I believe are bearing fruit. I hope that other noble Lords can recognise that. It remains the case that a UK employee can earn more money before paying income tax and social security contributions than an employee in any other G7 country. Let us not fall into the trap of thinking that we are massively overtaxed in this country.

As I say, we see the economy turning a corner and inflation falling. We hope that we can return some money to taxpayers, because I agree that it is not a comfortable feeling knowing that, in the past, we have had to raise taxes to help the nation get through the unprecedented economic shocks that we have weathered. However, now that we are in slightly sunnier uplands, I hope we will be able to do more in future. I will write with further responses to questions which I have not covered but, for the meantime, I commend this instrument to the Committee.

UK Economy

Debate between Baroness Vere of Norbiton and Lord Livermore

Wednesday 21st February 2024 Lords Chamber

[Lord Livermore (Lab)]

My Lords, the UK’s growth forecast was recently downgraded for every single year for the next three years. Debt is set to surpass £3 trillion for the first time ever. We are seeing the biggest ever fall in living standards and the tax burden is set to reach its highest ever level. Now, the ONS has confirmed that Britain has fallen into recession, with GDP per capita falling in every single quarter of the past year. Yet the Chancellor says, “Our plan is working”. Was it part of the Government’s plan, having spent 14 years in the economic slow lane, to now put our economy into reverse?

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

I absolutely believe that our plan is working. It is critical that we continue along the path that we have set out. One of the biggest challenges we have faced in this country over recent months is high inflation. That is the biggest barrier to growth and that is why halving it is still our top priority. Thanks to decisive action, supported by the Government, inflation has fallen. If one looks at what happens when inflation falls, one sees that interest rates can also fall, which will also mean that growth will begin to rise. The noble Lord mentioned growth. It is the case that the Government have very clear policies for growth. Noble Lords will discuss them with me shortly, as we debate the Finance Bill.

Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024

Debate between Baroness Vere of Norbiton and Lord Livermore

Tuesday 13th February 2024 Grand Committee

[Lord Livermore (Lab)]

My Lords, we support this SI. It is a common-sense approach to ensuring timely updates to the UK list of high-risk countries, and it retains the flexibility needed to ensure that other countries can be added via affirmative SI if that is deemed appropriate. I note that the Minister mentioned that letters will be placed in the Libraries of both Houses, but what mechanisms will exist under this new regime if noble Lords wish to raise questions or concerns about high-risk countries, should they have them?

I note that we debated the latest update to the list only a few weeks ago and that this SI does not make any further updates to the list of countries. I therefore have no additional questions.

[Baroness Vere of Norbiton (Con)]

My Lords, I am very grateful to both noble Lords for their support for this SI, which I believe is entirely sensible. One of the things that I was unable to bring out in the opening statement as to why I think it is so sensible is that one of the key things about us being aligned to FATF, and the timing of a country being listed by FATF and immediately going on to the list here, is that we can act globally and in a co-ordinated manner so that the international community can ensure that it acts together to magnify the preventive effects.

The noble Lord, Lord Sharkey, mentioned Russia. It is true that Russia is not currently on a FATF list as, of course, a cycle of mutual evaluations needs to be gone through. However, Russia is obviously subject to extensive sanctions by the UK. I think there is sometimes a little confusion about the money laundering regime and the sanctions regime. In the money laundering regime, you are regulated under the money laundering regulations. Therefore, as a regulated person you must do certain things. However, everybody needs to be aware of sanctions, sanctioned individuals and sanctioned organisations. Obviously, for Russia, that is quite significant.

That brings me on to notification. As committed to, we will place a letter in both Houses with a summary of the plenary and whether any countries have gone on or off any list. Perhaps we will provide a reminder to noble Lords as to who is currently on the two lists.

The noble Lord, Lord Livermore, asked how he could raise questions. I suggest that, in the first instance, I would write to the Minister. Obviously, one could use Parliamentary Questions, but a letter would be better and probably elicit a fuller response. If not, there is always the opportunity to request a meeting with the Minister. It is a very important issue and I do not think that there would be any reason at all for us not to agree to do that.

That is about keeping Parliament informed, but then, of course, the regulated organisations need to be kept informed as well. If, as a regulated organisation, you do not have a process for checking who is on or not on a FATF list, I am afraid you are not a particularly well-run regulated organisation. All sorts of different organisations are regulated, but they will have to have controls and processes in place. We would put a notice up, as we always do, in a specific place. Two things would then happen: the regulated organisation itself would see the update—I know that many thousands of them do—but the supervisors, who are the overarching body of the different types of regulated organisations, would also send out reminders to those organisations about any changes. So there are two lines of attack, but, frankly, it should be beholden on the organisation as a regulated body to keep itself in the loop.

With that, I commend the regulations to the Committee.

Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2024

Debate between Baroness Vere of Norbiton and Lord Livermore

Tuesday 13th February 2024 Grand Committee

[Lord Sharkey (LD)]

My Lords, we support this pensions dashboard SI, just as we supported the pensions dashboards project during the passage through the House of what became the Pension Schemes Act 2021. We continue to believe that the dashboards should deliver more information to the consumer in a comprehensive and easily understood way, and that this will make it easier to make better choices.

We understand that providing these dashboards, both for MaPS and for commercial suppliers, is a very complex undertaking. We were not terribly surprised by the delays the project has suffered but we would like some reassurance about progress from the Minister. The new connection date is set for 31 October 2026, but some services may be available before then. Could the Minister tell us when we may now expect the MaPS dashboard to be available to consumers, when we may expect commercial variants to be available and what services short of a full dashboard may be available sooner?

It would also be very helpful if the Minister could tell us when she expects the FCA rules that she mentioned, which were previously consulted on, to be published. It is hard to see commercial enterprises being able to finalise their own dashboards without sight of and understanding of the new FCA rules.

During the debates in the House on what is now the Pension Schemes Act 2021, many of us thought that the MaPS version of the dashboard should be allowed at least a year of operation before commercial versions were allowed to enter the market. Can the Minister tell us whether there is likely to be a period when the MaPS version runs alone?

We also debated the issue of allowing consumers to make transactions via commercial dashboards. Can the Minister say what the current position is? Will transactions be allowed?

The mechanics of the SI before us seem entirely straightforward and are clearly vital to consumer protection. We have no issues with either its purpose or its mechanism. We do have a couple of very minor and tangential questions. First, we are curious about the date of the SI coming into force. Why is it 11 March? Does that date have any particular significance?

The second question relates to the final sentence of paragraph 7.4 of the Explanatory Memorandum, which reads:

“Operating a dashboard may include taking regulatory responsibility for any third parties involved in connecting to MaPS digital architecture on their behalf”.


I would be very grateful if the Minister could unpack that a little. Perhaps she could give an example of such an arrangement. What circumstances would trigger the assumption of responsibility?

[Lord Livermore (Lab)]

My Lords, this SI makes good on a commitment given during the passage of what became the Financial Services Act 2021 to ensure that entities running a pensions dashboard will have to be authorised and regulated by the FCA. This is an important safeguard for pension holders and we welcome the SI, even if it has taken longer than expected to arrive and is not quite the final piece of the pensions dashboard puzzle.

In an age of scams, uncertainty about AI and increasing consumer concern about online safety, perhaps I might ask the Minister about technical safeguards that providers are expected to put in place. I understand that dashboards themselves will not store data, so there is no risk of mass collection. But if an app is not secure and someone is using a device infected with malware, for example, could bad actors still be able to view and therefore exploit data such as account names, numbers and balances? It would be helpful to know what specifications private providers will have to meet—or, indeed, whether the Government or the FCA will be setting any technology specifications at all.

Paragraph 7.1 of the Explanatory Memorandum to this SI states that the regulated entity will be responsible for the actions of third parties connecting to the Money and Pensions Service digital architecture on their behalf. In recent years, there has been a number of examples of websites or apps using plug-ins to process logins which it then turned out had been infiltrated and customer data breached. Are the Government satisfied that the FCA and dashboard providers will be on top of these issues and that they will go to the Information Commissioner if needed?

Although more guidance is being issued about pensions dashboards, it is still not clear when the Government expect the first products to be operational. Does the Minister have a specific target date in mind?

Finally, when this SI was debated in the Commons, the shadow Economic Secretary asked the Minister whether he could confirm whether pensions dashboards would be using the Government’s OneLogin service. The Economic Secretary said he would write on the matter but, as far as I am aware, has not yet done so. Does the noble Baroness have an answer to that point in her brief and, if not, whether she will commit to copying the Economic Secretary’s reply, when it comes, to the participants in this debate today?

[Baroness Vere of Norbiton (Con)]

My Lords, I am very grateful to both noble Lords for their contributions to this short debate on a topic of great interest to all of us pensioners. I, for one, am looking forward to being able to see whether I have any lost pensions that suddenly pop up on my dashboard and it turns out that I am a multimillionaire. I am not holding my breath.

However, I think all noble Lords recognise that it is an incredibly complex undertaking, and it is right that we take the time to ensure that it is done to the level that consumers will expect—particularly given the amount of data available out there relating to pensions. It must be safe and secure; pensions dashboards will allow users to search their pensions and view their data, and they will be connecting to potentially thousands of schemes offered by technologically advanced organisations in some circumstances, and in others, frankly, organisations that are not quite so advanced. It is those laggards that we need to make sure are up to scratch.

Essentially, we expect the digital architecture to facilitate the search of more than 71 million pensions records held by thousands of pension schemes and providers. Each of those—or many of them—will have different IT systems and ways of calculating values. Pulling all of that together is the complex thing behind this, but, as the noble Lord, Lord Livermore, rightly pointed out, we also have the issue of identity verification to consider, and various other critical elements of the ecosystem. Around that sit things such as standards and guidance to pension schemes, in order for them to be able to connect.

The timelines at the moment are that the DWP’s amending regulations came into force in August 2023. That set out a new connection deadline for schemes of October 2026. At the moment the DWP is engaging extensively with industry and has been since last year. It will issue guidance on a connection timetable in spring 2024.

The reason for the delay is that it is a slightly more complex technical issue and solution than initially anticipated. This became apparent once we were able to speak to industry stakeholders to find out how they store their data and present it to their pension holders. But I am convinced there will be a point when we get to the dashboard available point—DAP—at which stage the dashboard will be made publicly available. However, before the DAP can be reached, the Secretary of State for the Department for Work and Pensions will have to issue a notice. He or she will do so only after having regard to whether there is sufficient coverage on the dashboards, that the service is working effectively and that the overall user journey on the dashboard is positive. This will be informed by extensive user testing to ensure the success of the pensions dashboards services from the outset.

I think that it was the noble Lord, Lord Livermore—forgive me, I cannot remember—who asked whether MaPS would be first and then others would follow. In fact, it was the noble Lord, Lord Sharkey. It is too early to say now. Certainly, MaPS will be first, but we are not yet clear whether there will be other private sector providers ready to go at that time. There will not be a rush to try to get private sector providers there because, of course, the FCA is still working on its rules, and we will allow private sector providers only once the FCA has published its final rules. The applicants would need time to prepare accordingly, the dashboard architecture would need to be complete and the private operators would then have to have applied to the FCA, which would have gone away, checked the business model and looked at its usability—all of those things—before it would also be allowed to sit alongside MaPS. So it is too early to say whether a private sector provider would be launched at the same time.

Self-employment: A1 Forms

Debate between Baroness Vere of Norbiton and Lord Livermore

Monday 12th February 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

It is not entirely right that costs incurred in the EEA should be offset against UK tax; that would seem slightly odd. However, I reassure the noble Lord that of course some of the costs will be tax deductible: for example, if a group were to hire a conductor from the US and use that conductor for performances in the UK. Obviously, we have to make choices in this area. We are content with where we are headed in terms of removing EEA activity from the orchestra tax.

[Lord Livermore (Lab)]

My Lords, the A1 form is required for each travelling worker, for each trip and for each EEA country they intend to visit. Industry bodies tell us that this represents a significant burden for their members, particularly for those who are self-employed or work for small organisations. Given that HMRC processes are increasingly digitised, do the Government believe that there is scope for simplifying the application process, such as moving from paper to digital certificates, or allowing people to use previously completed applications as a template for their next submission?

[Baroness Vere of Norbiton (Con)]

As I explained in my opening remarks, the forms are now digital.

[Lord Livermore (Lab)]

The certificates.

Buy Now, Pay Later: Regulation

Debate between Baroness Vere of Norbiton and Lord Livermore

Wednesday 7th February 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I do not believe so, because, as I said, it is not a huge amount of debt. The average balance for younger people aged 25 to 34 is just £185. One experience that I think many users have of buy now, pay later is that they may, once, have a late fee—I know that my children certainly have—and then they learn, and they do not do it again. Those fees are not particularly expensive, but Experian, for example, would say that 99% of agreements were settled on time in January and February. We cannot shut off access to a form of interest-free credit which has saved consumers more than £100 million. It is really important that we get the balance right.

[Lord Livermore (Lab)]

My Lords, in February 2021, the Government promised to act swifty to regulate buy now, pay later. Three years later, legislation is nowhere in sight. While the Government have delayed, leaving millions of consumers unprotected, Labour has set out plans for regulating the sector. That includes a requirement for clearer information, while ensuring the same protections for consumers as they get when using a credit card. To move things along, will the Government now adopt Labour’s plan, which has received broad support from all major buy now, pay later providers?

[Baroness Vere of Norbiton (Con)]

I have to be honest with the noble Lord in saying that I have not read Labour’s plan, but he talked about clarity of information. It is worth pointing out that it is not just the FCA that looks at advertising and financial promotion. We have the Consumer Protection from Unfair Trading Regulations 2008; we have the Consumer Rights Act, and then we have the UK advertising code. In terms of information, it is clear that consumers have a number of recourses, but I return to what I said at the outset: the consultation closed in April 2023; the Government have reiterated our position that regulation must be proportionate. I am quite surprised that the Labour Party thinks that it has a solution that has been backed by all buy now, pay later firms, because it is a very complex area and we need to achieve a balance.

Climate Risk Models

Debate between Baroness Vere of Norbiton and Lord Livermore

Thursday 25th January 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

No, I do not quite agree with my noble friend, because the Bank of England has a responsibility to look at all risks. He pointed out many risks that are not climate related. However, underlying all of this is that all those risks—and, indeed, climate risk—are interdependent. One cannot single out one at the expense of others; one has to consider them all in the round. That is why we make it clear when we correspond with the Bank of England and the independent regulators that climate risk is just one of the many risks to our financial system that need to be considered.

[Lord Livermore (Lab)]

My Lords, the Government have made a series of important commitments relating to forest risk commodities. Those commitments, including in the Financial Services and Markets Act to carry out a review of the adequacy of financial regulation in tackling illegal deforestation, rely on the laying of regulations under the Environment Act. Can the noble Baroness tell us when those regulations will be laid and, once they are, how long the review will take?

[Baroness Vere of Norbiton (Con)]

I am well aware of the Government’s work on forest risk commodities, which is under way, as it falls within my portfolio. I cannot give the noble Lord any further timings at this moment, but suffice it to say that we are working on it.

Financial Services Act 2021 (Overseas Funds Regime and Recognition of Parts of Schemes) (Amendment and Modification) Regulations 2024

Debate between Baroness Vere of Norbiton and Lord Livermore

Tuesday 23rd January 2024 Grand Committee

[Lord Livermore (Lab)]

My Lords, I am grateful to the Minister for introducing this statutory instrument. We support these regulations, as they will provide smoother market access for overseas funds that have been determined to be equivalent to the UK’s in relation to consumer protection. This SI is part of a wider set of measures to bring the overseas funds regime, or OFR, online. The regime will apply to funds from jurisdictions that the Treasury has deemed “equivalent”, so the OFR will become operational only once those decisions by the Treasury have been made.

When this SI was debated in the Commons, my honourable friend the shadow Economics Secretary asked the Minister when the Secretary expected to take the equivalence decisions that would enable overseas funds to utilise the streamlined approach envisaged under the new overseas funds regime. In his answer, the Minister was able only to say, “very soon, I hope”. Given this, is the Minister able to go any further in providing greater clarity on the timing of these equivalence decisions? Is she able to provide any indication of how many equivalence decisions the Treasury expects to make in the first instance?

[Baroness Vere of Norbiton (Con)]

I am grateful to all three noble Lords for their contributions to this brief debate. On the matter of timing, both of the laying of the SI and where things will go in the future, the laying of the SI is being done now because there is parliamentary time. The assessment of equivalence is still under way, and therefore there is no urgency about this. As the noble Lord, Lord Sharkey, pointed out, the consultation took place a little while ago. The only real rationale is that the technical changes need to be made by the time that the funds are recognised under the overseas funds regime. Obviously, there is a lead-in time required for an assessment to be undertaken of any countries, or indeed territories.

The noble Lord, Lord Sharkey, pointed out that there is an ongoing assessment of the EEA. I can go no further than the Economic Secretary did in the other place. It is right that the ongoing assessment does its work effectively. As noble Lords will know, it started in autumn 2022, but we cannot possibly commit to timelines at this stage, as it is key that the work is done well. However, the overseas funds regime remains a government priority and we are working at pace to finalise this assessment. The temporary arrangements are in place until 2025, so there is a little time available.

The noble Lord, Lord Sharkey, mentioned the consultation. A significant amount of consultation went on prior to the primary legislation that was put in place. He asked some specific questions about consumer protections and the absence of FOS cover. I will write to him with further information on that.

The noble Lord, Lord Jones, spoke about the “big bang”. I joined the City slightly after that. It introduced an element of simplicity—that is clear—but, sadly, the City is now a different place and complexity has crept back in. This includes sub-funds, which are basically funds that sit under an umbrella fund, each of which may have different investment objectives. This is just to make sure that, if somebody has invested in a sub-fund, it can be reflected properly in their accounts in Wales and that the laws on the disclosure of spent convictions apply.

I cannot go further on timings but I am grateful to all noble Lords. As I said, I will write with further details on a couple of other things, in particular the measures around consumer protections that were mentioned by the noble Lord, Lord Sharkey.

Pension Investments

Debate between Baroness Vere of Norbiton and Lord Livermore

Tuesday 23rd January 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I would be more than happy to take lots of debates on this issue because it is incredibly important, and the Government are making great strides in this area. For example, on local government pension schemes, hundreds of billions of pounds has been invested for employees’ longer-term pensions. They are invested in pots that are too small; they need to be bigger, so we have set a deadline of March 2025, when we want to see local government pension schemes consolidate into fewer asset pools of greater than £50 billion. We expect that, by 2040, those pension schemes will be invested in pools of around £200 billion. With that sort of money, it is really easy to diversify.

[Lord Livermore (Lab)]

My Lords, when the Labour Party sought to amend the Financial Services and Markets Bill to encourage pension funds to invest in high-growth businesses, the Government opposed our amendment, so the Chancellor’s recent announcement that he is now following our lead was most welcome. However, the Mansion House compact does not, as many noble Lords have said, ensure that the unlocked capital is invested in UK equities, rather than finding its way overseas. What steps will the Government take to incentivise pension funds to put their wealth into the British economy by backing UK assets?

[Baroness Vere of Norbiton (Con)]

I am not aware of the detail of the amendment to that Bill tabled by the Labour Party, but we are taking a very measured approach to market intervention. It is clear to me that we need to do this and, as I said previously, it is evolution not revolution. However, there are many ways in which the Government are focusing on UK high-growth companies in particular. I point the noble Lord to LIFTS, or long-term investment for technology and science—investment vehicles tailored to direct contribution schemes. The Government will coinvest in or support those schemes up to £250 million. The bids have already been submitted, and we expect those funds to be operational and investing in UK growth companies by mid-2024.

Data Reporting Services Regulations 2023

Debate between Baroness Vere of Norbiton and Lord Livermore

Wednesday 10th January 2024 Grand Committee

[Lord Livermore (Lab)]

My Lords, I am grateful to the Minister for introducing these two grouped SIs, both of which we support.

The Explanatory Memoranda accompanying these regulations note that the repeal of retained EU law remains subject to the entry into force of commencement regulations in order to ensure that there is no overlap or gap between the two different regimes. How soon is commencement expected once this package of SIs has been debated and passed?

I note that the consultations and reviews underpinning these regulations were held in 2021. Although the industry has commented on drafts of the SIs, not all feedback was incorporated and, in some specific areas, the regulators’ rules are still being finalised. Is the Minister satisfied that the changes in timelines have been communicated adequately to the relevant entities? Does she believe that any further communication needs to take place before commencement?

The Explanatory Memorandum for the first of these SIs notes, as did the Minister in her introduction, that

“there is no consolidated tape provider in the UK”.

Apparently, the MiFID II framework “attempted” to bring one about but the requirements for running a tape were thought to have made it “commercially unattractive”. The EM goes on to outline new measures contained in the SI aimed at facilitating a UK consolidated tape, including giving the FCA the power to run a tender exercise based on revised governance arrangements.

I wish to ask the Minister three related questions. First, what practical impact is the lack of a UK tape having and what alternative data sources are being used? Secondly, what is the timescale for the tender process? Thirdly, what will the Government do should there be no suitable bids or if concerns around the governance of a tape remain?

The Explanatory Memorandum for the second of these SIs notes that the FCA will have the power to review and modify its securitisation rules for specific purposes. When is the next overall review of securitisation expected?

[Baroness Vere of Norbiton (Con)]

My Lords, I am grateful to both noble Lords for their consideration. I will definitely have to write. I am grateful to the noble Lord, Lord Sharkey, for all his questions; I am just not clever enough to listen, write them all down and come up with a response at the same time. Had he given me fair warning, I would have come very well prepared and been able to answer all his questions. I am sure I can, but I will have to do so in writing.

I take issue with the premise behind many of the noble Lord’s comments about where Parliament sits in all this. He asked why we are not discussing the very detailed rules around what sits at what is in essence the back end of the market, to ensure that it functions in an appropriate way. Independent regulators fulfil many different roles within our society. Obviously, the FCA and PRA do many of those within the financial services sector. We entrust to them the role of making the detailed rules. That was agreed when FiSMA was passed by your Lordships’ House last year.

I reflect on my recent experience as Aviation Minister, when I worked with the Civil Aviation Authority all the time. I did not expect to take to Parliament detailed rules about how to build a safe aircraft. It was agreed with FiSMA that we hand over certain elements to the independent regulators. Part of the reason for handing over the regulation of the back end is to improve the agility and proportionality of regulation and to respond to changes to the market. There is a feeling that we are not particularly agile at the moment, and we could do much better. Clearly, we want UK financial services to maintain their place at the very top of the global financial services sector. That is my overarching response to some of the questions raised by the noble Lord in regard to both SIs.

I turn to the tender process for the consolidated tape. I mentioned in my opening remarks that we intend to remove the 15-minute requirement and the requirement to have a per-user charge. However, we have given the FCA the power to run a tender process for a consolidated tape. It has chosen the bond markets first, and the process for developing that is now well under way. We expect the tape to be in place by 2025, if all goes well. Between now and a tape being in place, it will be for the FCA to decide what the tender looks like, given the data in the market now, the market players, what the technology looks like and what information is required by whom, at what price and when. The FCA will do that detail; it is certainly not within my skill set to be able to scrutinise that.

That is the power we are giving the FCA. It may well be—who knows?—that all sorts of things are included as part of that tender process. We have taken out the requirement to make data free after 15 minutes, but that does not necessarily mean that this would not be in the final tender or the winning bid. It is all about providing agility. Previously, people tried to set up or thought about doing consolidated tapes on a commercial basis, and it just does not work. As it has not worked, the industry feels that the best way to do it is via the FCA process. We have now given the FCA the powers to do that. It will move from bonds on to equities next.

The noble Lord mentioned some issues around enforcement powers, and I will have to write to him about that. Indeed, on many of the other questions, I will probably write with further information.

On the issues raised by the noble Lord, Lord Livermore, the industry has been extensively consulted on both of these instruments. Draft SIs have been published. We believe that the industry is fully aware of where things currently stand, and we communicate regularly with it. Of all the industries that I have worked with, financial services are fairly on the ball about what is happening in government and do not necessarily always need to be nudged into responding to consultations or looking at draft statutory instruments. I am content with the amount of interaction that we have had with the financial services sector.

Returning to the impact of the consolidated tape, the practical impact of not having one would be very difficult to quantify, but one might imagine that it would cause our markets to be slightly less efficient and, as all good economists know, efficient markets are happy markets. That is why we think it would be a positive step for the UK to start to have consolidated tapes—we expect there to be one for each asset class.

I feel that was a slightly substandard response, but I will write with more information.

Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No. 2) Regulations

Debate between Baroness Vere of Norbiton and Lord Livermore

Wednesday 10th January 2024 Grand Committee

[Lord Livermore (Lab)]

My Lords, I am grateful to the Minister for introducing the latest iteration of the list of high-risk countries from the Financial Action Task Force. As she outlined, this is a routine piece of secondary legislation and one that we are pleased to support.

I note that often there is only a relatively small number of countries added or removed from the list but that, on this occasion, there are significantly more countries involved. Specifically, Albania, Cayman Islands, Jordan and Panama have been removed.

In past debates, the Government have said that UK institutions do not necessarily stop enhanced due diligence just because a country is removed from the list. However, the impact assessment accompanying this SI states that if no action were taken to update the list, firms would have to continue undertaking enhanced due diligence on Albania, Cayman Islands, Jordan and Panama, which have rectified the systemic deficiencies identified by the Financial Action Task Force, leading to unnecessary costs for UK firms. These two statements might potentially be contradictory, and I would be grateful if the Minister could clarify exactly what the appropriate level of due diligence is for a country removed from the list. Is it defined anywhere, or are firms simply able to determine their own levels?

Finally, I note that Gibraltar remains on the list, despite previous assurances that the authorities there are making good progress on implementing the Financial Action Task Force’s recommendations. Can the Minister provide an update on Gibraltar’s progress and indicate whether she sees Gibraltar coming off the list in the near future?

[Baroness Vere of Norbiton (Con)]

I am grateful to both noble Lords for their contributions to this short debate. I will try to answer as many questions as possible. The noble Lord, Lord Sharkey, has already asked for a letter; I am very happy to provide him with one because I absolutely do not have the information that he requires on the steps that we will be taking in order to improve the data in the impact assessment.

There are some important elements raised by both noble Lords, Lord Sharkey and Lord Livermore, around whether we will make an independent—non-FATF—adjustment to the list. At the moment, we have no intention of doing so. The rationale is that there are of course many other routes to ensuring an appropriate level of due diligence, and we would therefore expect regulated firms to pursue those instead or in addition.

That raises the point that the noble Lord, Lord Livermore, talked about: if a country is removed from the list, what then? Does it come out of the naughty corner, off the naughty step, and back to being exactly the same as everybody else? Of course, that is not the case because there is a much more nuanced way of looking at it. It is good to follow FATF because one of the big benefits of that is that the enhanced measures are implemented in a co-ordinated manner by the international community. If the UK puts a country on the FATF list, then many other nations will do so too, which therefore magnifies the preventive effect.

However, the list is just one of the many measures to prevent illicit finance entering the UK. The money laundering regulations also require enhanced scrutiny in a range of situations that present a high risk of money laundering, including geographic risk. This is the case not just for those on the list of high-risk third parties; individual organisations will take their own view about the risks they perceive in a particular region and, indeed, in a particular sector in a particular region. Regulated firms will take into account credible sources where they identify the risk of money laundering, terrorism and designated entities operating in a country or significant levels of corruption. Noble Lords will know that regulated firms devote significant resources to this because it is in their interests to ensure that they do not support illicit finance. This means that, regardless of the listing, firms would still need to be nuanced. As is always the case in money laundering regulations, one cannot be too prescriptive because the circumstances are different for most of the regulated firms.

On the latest estimates of the amount of money laundering going on, when I took up this role in mid November, my first question was: how do we know it is £100 billion? Of course, we do not; it is an estimate. We will endeavour to provide estimates going forward, but it is a known unknown, and it is very difficult to establish the amount of money laundering going on because if we knew it was there, we would try to stop it, but we can certainly look to do that in future.

I recognise that the impact assessment has an element of certainty that perhaps does not exist. It is a very difficult thing to do, which is why there was a slight delay to laying this SI. Noble Lords will note that the impact assessment itself states that there is

“low to medium confidence in the accuracy of the overall quantitative conclusions”.

We will write to set out the steps we are taking to understand the impact of changing the list. It is the case that complying with money laundering regulations is an expensive business, but it is necessarily so to protect the integrity of the UK financial services sector. However, I will write with further information.

I will write to the noble Lord about what progress has been made in Gibraltar. My understanding is that it has made very good progress against its action plan, and we continue to work with it on this. We expect Gibraltar to be removed from the list soon due to the improvements in its illicit finance regimes. It is worth mentioning that we work closely with the overseas territories to ensure that they get the benefit of our expertise because they are treated as independent nations. They are members of a FATF-style regional body themselves. Part of the rationale behind FATF is to share understanding and make sure that we lift people to the highest possible standard in terms of stopping illicit finance.

NatWest: Account Terminations and Branch Closures

Debate between Baroness Vere of Norbiton and Lord Livermore

Wednesday 10th January 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

The noble Baroness is absolutely right. That is why we are putting this voluntary provision on a statutory footing. The Treasury has the power to designate not only banks but the operators of the cash access co-ordination services—Cash Access UK—to do the banking hubs, so they must then follow the requirements set out in the legislation.

[Lord Livermore (Lab)]

My Lords, the average house in the UK now costs nine times average earnings—the most expensive ratio since 1876. Living standards are seeing their biggest ever fall and families remortgaging since the Government’s disastrous mini-Budget have seen their monthly payments rise by an average of £220. Given this, does the noble Baroness agree with the comments of the chair of NatWest last week that it is currently “not that difficult” to get on the housing ladder?

[Baroness Vere of Norbiton (Con)]

No, I think those comments were very ill advised and I rather wish he had not made them—as I am sure he does. The key to a thriving housing market is ensuring that interest rates come down. To do that, one has to reduce inflation, and that is exactly what this Government are doing.

HMRC: Tax Returns

Debate between Baroness Vere of Norbiton and Lord Livermore

Wednesday 10th January 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

That is an incredibly good question. I think I was probably waiting for about 20 minutes. Of course, I had no problem with that because I was able to do other things. Had I been online, I might have been googling as well, so I think there is a case to be made for ensuring that calls are triaged such that we can prioritise those customers that we need to get through the system as quickly as possible. As I say, HMRC hopes to be able to address the issues of 120,000 more people than it would otherwise have been able to do.

[Lord Livermore (Lab)]

My Lords, the Government’s decision to freeze national insurance and income tax thresholds for six years will cost taxpayers an additional £45 billion, equivalent to a 10 percentage point increase in the main rate of national insurance. This fiscal drag means that 4 million more people will now pay income tax. How many additional taxpayers will be required by HMRC to complete self-assessment tax returns in the next five years as a result?

[Baroness Vere of Norbiton (Con)]

HMRC is well aware and has forecasts for how many people will be filling in tax returns or required to pay tax. It is prepared and has the workforce ready to do so. But I would ask the noble Lord how many more HMRC advisers it will take to collect the tax for the £28 billion a year that Labour intends to spend.

Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023

Debate between Baroness Vere of Norbiton and Lord Livermore

Wednesday 13th December 2023 Grand Committee

[Lord Livermore (Lab)]

My Lords, overall, we agree with these regulations. When the first of these two grouped SIs was debated in the House of Commons, my honourable friend Tulip Siddiq, the shadow Economic Secretary, posed two questions to the Minister. Unfortunately, he did not address either of them in his response, so I will ask them again today. Of course, the noble Baroness is welcome to write with an answer, if that is preferable.

The two questions are on changes to capital requirements. First, given that the Prudential Regulation Authority is proposing to remove the SME supporting factor when it confirms its final rule, are the Government not reintroducing a measure that the PRA plans subsequently to abolish? Secondly, if the PRA goes ahead with its plan, what reassurance can the Government provide that the UK’s SME lending market will not be left at a significant competitive disadvantage against its European counterparts due to the increased cost of capital?

The noble Lord, Lord Sharkey, asked about the reintroduction of a discount factor, which was mentioned by the Minister in her opening remarks. I note that the discount factor was previously “unintentionally” removed from the relevant regulation in both the UK and the EU. I also note that the discount factor was removed from UK law in January 2022, and that this was identified as an issue only 18 months later, in July 2023. However, apparently, the factor was reinstated by the EU into its own laws four months prior to it being unintentionally removed from UK law back in September 2021. As the noble Lord, Lord Sharkey, observed, it is odd that a mistake was introduced in the UK after it had already been corrected in the EU. The Minister is clearly correct to note that the UK does not mirror changes to EU law post Brexit, but does she think that keeping up to date with developments in the EU, where parallel measures remain part of UK legislation, could help to ensure that avoidable errors such as this do not occur?

[Baroness Vere of Norbiton (Con)]

Once again, I am grateful to both noble Lords for their contributions to this short debate. I will write further on what the noble Lord, Lord Sharkey, said about the formula—it is not that complicated; I am an engineer by training, and it is not beyond the wit of man to understand this. But we might provide a little more explanation in due course.

I am not sure I can say much more about the timing of the removal and reintroduction of the discount factor. It is not a particularly widely used element within the system, and therefore the industry took a while to notice that the change had happened. Obviously, there are lessons to be learned in these circumstances, and we moved to reintroduce it as quickly as we could. Of course, the regulators are well aware of what happened. I am grateful to noble Lords that we are able to get it back on to the statute book today.

That brings me on to the various discussions we have with the EU, as close trading partners. The noble Lord, Lord Sharkey, asked what changes will be next. There will be potential changes to the third-country benchmarks regime, but that is in the context of much wider changes within the smarter regulatory framework, so the repeal of each piece of retained EU law will be commenced once appropriate arrangements are in place with the UK rules—or, as I said in my opening remarks, when the Treasury has determined that no replacement is needed. Alongside that, we are delivering our smarter regulatory framework in order to replace retained EU law as necessary.

It will be a carefully planned and phased approach. We believe that we have given ourselves sufficient breathing room by making the transitional period last until 2030. It may be that we need all that time, or it may not, but we want to make sure that it fits into the wider reform of the programme to ensure that we prioritise those things that we feel are needed first in order to benefit our very successful financial services sector. Of course, we continue to have enduring and sensible dialogue and co-operation with other jurisdictions, including the EU. For example, on 19 October, the Treasury hosted the first joint EU-UK financial regulatory forum, which welcomed participants from not only the European Commission but UK and EU regulators to discuss common issues. It is clear that the UK and the EU regulatory frameworks will change over time and ultimately remain the autonomous concern of the respective parties, but it is also important that we discuss changes for the benefit of sharing our understanding.

The noble Lord, Lord Sharkey, asked about the risks from the benchmark extensions. It should be noted that systemically used benchmarks pose the greatest risk. These benchmarks are subject to UK benchmark regulation because they are administered in the UK. They might be subject to another jurisdiction’s benchmark regime or be created by a third country’s central bank. That also means that there are some benchmarks that do not fall into those categories—these are possibly the lesser-used ones. But it is the case that UK benchmark regulation places additional requirements on the users of benchmarks that continue to apply where they use third-country and domestic benchmarks. These requirements include, for example, robust fallback provisions in the contract should the benchmark become unavailable for whatever reason, or fail—so there are protections there. As I noted in my opening remarks, we recognise the risks and also the benefits that those benchmarks have in underpinning a very significant part of our financial services sector.

The noble Lord, Lord Livermore, asked about the questions raised by his colleague in the other place. I will write with more information. I have lines here on the Prudential Regulatory Authority, Basel III et cetera, but his question deserves a fuller answer about how we see this transitioning into that regime.

Motion agreed.

Financial Stability: Private Equity Firms

Debate between Baroness Vere of Norbiton and Lord Livermore

Wednesday 13th December 2023 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I have not been following those interventions from the former governor, the noble Lord, Lord King, but I shall certainly look at them.

[Lord Livermore (Lab)]

My Lords, the Bank of England has recently warned of the risks to financial stability posed by artificial intelligence and machine learning, with the bank’s Financial Policy Committee identifying the potential for system-wide risk, herding behaviour and increased cyber risk. Does the Minister believe that regulators have sufficient powers, and that existing powers are sufficiently future-proofed, to deal with emerging risks to financial stability from rapid technological advances, including but not limited to AI?

[Baroness Vere of Norbiton (Con)]

I accept that the AI regulatory system is still in development, but that is not unique to the United Kingdom. The AI summit convened by the Prime Minister made good steps in the right direction.

Banking Hubs

Debate between Baroness Vere of Norbiton and Lord Livermore

Monday 11th December 2023 Lords Chamber

[Baroness Vere of Norbiton (Con)]

In many circumstances banking hubs have a private room where community bankers can meet customers to discuss their financial requirements. Cash Access UK, the partnership that sets up banking hubs, publishes a list showing where community bankers are available. I should also point my noble friend to other interventions that some banks are using, such as mobile banking services, pods and pop-ups. There are a lot of ways to have face-to-face contact with consumers.

[Lord Livermore (Lab)]

My Lords, the latest figures from the British Retail Consortium show that shopping with cash has risen for the first time in a decade, as household budgets are increasingly stretched. At the same time, almost half of bank branches have closed, while the rollout of banking hubs has been much delayed. Will the Minister agree to match the Labour Party’s commitment to work with banks and, where necessary, bring in additional powers for the FCA to guarantee face-to-face banking services, beginning by prioritising areas that currently have no high street banks?

[Baroness Vere of Norbiton (Con)]

I think what the noble Lord has just set out is exactly what the Government are doing. The FCA consultation goes into an awful lot of detail on the criteria that will need to be met for banking services to continue. We accept that, while the use of cash has declined over time, it has possibly reached a plateau. But I reassure noble Lords that, for example, 97% of the urban population is within 1 mile of a free-to-use cash access point.

Payment and Electronic Money Institution Insolvency (Amendment) Regulations 2023

Debate between Baroness Vere of Norbiton and Lord Livermore

Wednesday 6th December 2023 Grand Committee

[Lord Livermore (Lab)]

My Lords, we also support these regulations. I would like to ask the Minister a couple of questions. First, on how the FCA’s significantly expanded remit will be delivered in practice, can she set out what the Government are doing to ensure the FCA’s greater powers are accompanied by greater accountability? Can she also tell us what steps the Government are taking to ensure that the additional FCA requirements on payment firms and EMIs are proportionate, and explain how the Government will ensure that these requirements do not hamper innovation in the UK’s payment sector?

Secondly, as is often the case with financial services regulation, there seems to have been a significant gap between the consultation, which took place in December 2020 and January 2021—three years ago—and the statutory instrument being brought forward. Can the Minister tell us the reason for this delay?

Finally, I note there is a requirement for this new regime to be evaluated after two years, with a decision then made on whether the regulations should continue to have effect. Can the Minister set out the criteria by which the regime will be evaluated? I thank her in advance for her answers to these questions.

[Baroness Vere of Norbiton (Con)]

My Lords, I can hear much flapping of papers behind me, so I have no doubt that I will not be able to answer all the questions in full, but I will do my best. I am grateful to the noble Lord, Lord Livermore, for giving me advance sight of some of his questions, which was very helpful. The noble Baroness, Lady Kramer, mentioned that she might ask me a few questions. None of them were difficult—well, one of them was a little difficult, but we will give it a go.

I thank all noble Lords for their consideration of this draft instrument. It is all about taking an established regime and ensuring that it operates everywhere that it should across the United Kingdom by applying to all organisations in Northern Ireland and to limited liability partnerships in Scotland.

Both noble Lords mentioned the timing and why the Government were unable to bring forward all the regulations at the same time. We took the opportunity to bring through the England and Wales regime before the regulations being debated today because it was slightly easier to do so and we wanted to get the regime in place as soon as possible, having done the consultation. There are some quite significant differences in insolvency law. We therefore took a little extra time carefully to consider the legislation before applying this to Scotland and Northern Ireland. In doing so, we worked extensively with the devolved Administrations in both those areas. There was no sort of tension or opposition, and the rules underpinning this regime will have to be set out by those Administrations in due course anyway.

Herein is the slightly tricker question from the noble Baroness, Lady Kramer, which is her “hard bar” question. I will certainly write. One observation I have about these sorts of payment systems is that consumers tend to be much more actively engaged in them. I would have thought it would be slightly easier to get in contact with them because it is a much more immediate system. However, I will definitely write and set out exactly what we are doing to achieve the balance that she rightly set out. It is not our intention to cut anybody off; it is our intention to get money to consumers as soon as possible because, as we know, time costs money and, unfortunately, delays mean that consumers sometimes get back less than they would otherwise.

Turning to the points raised by the noble Lord, Lord Livermore, about the FCA’s greater powers, accompanied by greater accountability, these regulations directly affect only firms that have entered the insolvency process. They have no effect on firms in normal circumstances. It is also worth stressing that the special administration regime is ultimately a process led by an insolvency practitioner and administrator, not by the FCA. However, the FCA does have a role to play in the regime, including a power to direct an insolvency practitioner, but this power can be used only subject to a number of objectives being met.

More broadly, the Government are committed to the operational independence of the financial services regulator, but increased responsibility for the regulators must be balanced with clear accountability, appropriate democratic input and transparent oversight. I am sure the noble Lord is aware that during the passage of the Financial Services and Markets Act 2023, we included a package of measures to increase the accountability of the regulators, including the FCA, to Parliament when exercising their regulatory powers.

On the proportionality of the FCA requirements, the Financial Services and Markets Act 2000 requires the regulators to take into account eight regulatory principles when discharging their functions, including making rules. The second of these is the principle that restrictions should be proportionate to the benefits that are expected from the imposition of that restriction.

The noble Lord made a good point about whether the requirement would hamper innovation. Clearly, this is an area where innovation has been significant in recent times. The payments are essential to the UK economy but are also a major source of the UK’s competitive growth, at the heart of our financial services sector. In July, the Government commissioned an independent review into the future of payments and specifically asked how to catalyse innovation in UK payment systems.

The regulations being discussed today are all about protecting consumers. Our view is that they will strengthen confidence in the sector by improving customer and market outcomes. In addition to the independent review, the Financial Services and Markets Act 2023 includes a new secondary objective for the FCA to facilitate growth and competitiveness. The Government are taking this through across all sectors to achieve that balance between growth and competitiveness and effective and robust regulation.

I think I may have covered the gap between the consultation and this SI. It is all about the differences in law and just taking the opportunity to bring it in as soon as we could, at least for England and Wales. We brought that in during 2021, which is not bad after a consultation which ended in January 2021, so that is a minor pat on the back. I accept that we would have loved to have brought it in at the same time, but a significant amount of additional work needed to happen.

On the review of the regulations and the criteria to evaluate them, under the Banking Act the Treasury is required to conduct a review of this regime. This is due for completion in 2025 and will be an independent review covering whether the regime is meeting insolvency regulation objectives and whether the regulations should continue to have effect. As ever, once completed a copy of the review will be laid before Parliament. We will set out further details of the review in due course.

Destitution: Low Median Wage

Debate between Baroness Vere of Norbiton and Lord Livermore

Thursday 23rd November 2023 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I absolutely agree with my noble friend. It is an absolute turning point. It is about the long-term decisions that have to be made, and that is about investing not only in businesses but also in our people. From a business perspective, the full expensing has been widely welcomed across the economy. It will add an extra £3 billion of new investment. We already have the lowest corporation tax in the G7 and now, with full expensing, that will bring in the investments that my noble friend Lord Johnson really needs to see.

[Lord Livermore (Lab)]

My Lords, I join others in again welcoming the noble Baroness to her new role. Yesterday’s Autumn Statement saw growth down and inflation up every year for the next three years, debt rising every year for the next three years and the tax burden rising every year for the next five years, making this the biggest tax raising Parliament ever. Even after yesterday’s announcements, households are £1,900 worse off. Against this backdrop, what advice does the Minister have for the 11 million people with barely any savings as they now try to withstand the biggest ever fall in living standards since records began?

[Baroness Vere of Norbiton (Con)]

Yesterday did bring out some very important statistics, as indeed has the entire year. The noble Lord will know that, in terms of growth, it is true that the forecasts have been revised down. However, the actual assessment of the size of the economy has been revised up; indeed, it has been revised up by 2%, which is an enormous amount—that is the equivalent of the aerospace industry. On inflation, the OBR was absolutely clear that the discretionary fiscal policy measures introduced in the Autumn Statement do not have a material impact on the path of inflation. We have already halved inflation and by 2025 it will be at 2%. On tax, the noble Lord may have forgotten, but this Government intervened enormously during Covid, including £400 billion to support lives and livelihoods and, in our support for cost of living, £100 billion to support households through some very difficult economic shocks. Those things have to be paid for, but the things we introduced yesterday in terms of tax brought down the tax burden by 0.7%.