Listed Investment Companies (Classification etc) Bill [HL]

Earl of Effingham Excerpts

3rd reading
Friday 13th December 2024 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I shall say a word in support of the noble Baroness, Lady Bowles, before we wave this Bill goodbye. The investment trust movement is a proven success story in this country but has been uniquely caught up in the PRIIP regulations. For three or four years we have been trying to find a way through that thicket.

I appreciate that the noble Lord, Lord Livermore, and the Government have produced some temporary forbearance regulations that are now in effect, but that is only a quarter of a loaf. To rebuild the sector, we need new investment trusts, but no one will launch investment trusts with only temporary relief that might at any moment be withdrawn. Therefore, while of course the industry is grateful to the Government for what they have done, it is only a sticking plaster.

The worrying aspect is that, now that we have forbearance relief, there will be no pressure on the regulators to make their mind up and the hitherto glacial progress will proceed even more slowly. I hope the Minister might take the noble Baroness’s Bill, stick it in his back pocket and say, “It has no commencement date but, if you don’t get on and sort your mind out, we’ll put a commencement date on it and bring it in”.

[The Earl of Effingham (Con)]

My Lords, I thank the noble Baroness, Lady Bowles of Berkhamsted, who has argued so cogently and cohesively for the Bill.

Finding ourselves in this position appears to be a mistake, and it is essential that we take the right steps to ensure that disclosures relating to closed-end listed investment companies are presented accurately. This is not merely a point of minute detail. As the noble Baroness has argued so diligently, the current situation has led to the loss of tens of billions of pounds of potential investments, resulting in economic damage to our country.

The Government tell us repeatedly that they want growth, and therefore the British people expect them to take the right steps to foster that growth. Indeed, as the Minister highlighted at Second Reading, EU-derived legislation related to retail disclosure is not fit for UK markets. We understand that the Government have committed to making changes to address and resolve these issues, and His Majesty’s Official Opposition greatly hope that the Government will continue to listen to the noble Baroness in a co-ordinated and collaborative effort to foster the growth that is essential if we are to deliver optimal outcomes for everyone across the country.

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

My Lords, I congratulate the noble Baroness, Lady Bowles, on her Bill, and I thank her for her engagement on this issue so far. The Bill seeks to address an important concern for the sector, and I am grateful for the work of the noble Baroness and other noble Lords to raise awareness of the issue. As she has rightly identified, the previous legislation relating to retail disclosure was not fit for purpose. That is something on which the Government, the Financial Conduct Authority and many Members of this House agree, and it is an area in which this Government have already taken forward action to address industry concerns.

Only last month, the Government passed legislation to replace the package retail and insurance-based investment regulations with a new framework for consumer composite investments. That has provided the FCA with the appropriate powers to deliver a new disclosure regime that is more proportionate and tailored to UK markets and firms, including for investment trusts.

The Government also heard concerns from industry that the cost disclosure requirements have had an unintended consequence for the investment trust sector and its ability to fundraise. As a result, the Government took exceptional action to temporarily exempt investment trusts from cost disclosure regulation, with legislation passed last month to that effect.

Given that investment trusts offer their products to retail investors, it is right that they must provide tailored disclosure on costs, risks and performance to support consumer understanding. Together, the instruments that the Government have already passed will enable the FCA to holistically reform cost disclosure, addressing issues with current disclosure requirements. Ensuring that retail investors can make informed investment decisions is a key component of healthy UK capital markets.

I am grateful to the noble Baroness for her continued championing of the investment trust sector and for bringing her concerns to the Government’s attention. I hope she will recognise the genuine difference that her campaign has made. However, given the Government’s legislative interventions to resolve this issue, I am afraid I must express reservations on behalf of the Government on the Bill.

UK Economy: Capital Gains Tax

Earl of Effingham Excerpts

Wednesday 9th October 2024 Lords Chamber

[Lord Livermore (Lab)]

Obviously, I am happy to confirm that growth is our number one priority. That is exactly what the forthcoming Budget will be about: fixing the foundations of our economy so we can deliver on our mandate for better public services and higher living standards. Investment is absolutely crucial to that, which is why we are committed to removing the barriers to private investment and also to measures such as the industrial strategy that the noble Baroness mentions.

[The Earl of Effingham (Con)]

My Lords, it is critical that we help first-time home buyers for a multitude of reasons. Please can the Minister confirm that stamp duty for these buyers will remain at current levels?

[Lord Livermore (Lab)]

The noble Lord knows full well that I am not able to comment on speculation about any specific tax. What I will say is that we must rebuild our public finances, including by addressing the £22 billion black hole inherited from the previous Government.

Public Spending: Inheritance

Earl of Effingham Excerpts

Tuesday 30th July 2024 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. Of course, at the end of the day, civil servants advise and Ministers decide. We have full confidence in the Treasury and all civil servants in the way that they do their jobs. She is absolutely right that part of the problem was the continual delay to hold a spending review; the last spending review was in 2021. That sits behind so many of these problems: that budgets were never adjusted to account for any of the decisions that were taken subsequent to that spending review.

The Chancellor announced yesterday that she has commissioned the OBR to deliver a full economic and fiscal forecast, which will be presented alongside a Budget on 30 October. She also announced that the Government have launched a multi-year spending review to conclude in spring 2025, setting budgets for at least three years of the five-year forecast period. As part of this, final budgets for this year and next year will be set alongside the Budget on 30 October. The Government are also committed to holding a spending review every two years, which will set departmental expenditure limits for three years, to avoid uncertainty for departments and bring stability back to our public finances.

[The Earl of Effingham (Con)]

My Lords, cost of living crises are created by inflation. There was a generational shock to global supply chains during and after the pandemic, followed by the war in Ukraine, which together caused a serious spike in global energy, food and goods prices. Those factors caused inflation and the ensuing cost of living crisis, not the Government at the time. Therefore, what is the Minister’s assessment of the clause in the Statement which says that people were already being hurt by the previous Government’s cost of living crisis?

[Lord Livermore (Lab)]

I am grateful to the noble Earl for his question. He is absolutely right that the origins of many of the shocks that the British economy experienced were global; however, the UK suffered worse and for longer than many comparative countries. Inflation stayed higher for longer in this country than I think in any other comparative country. The reason for that is the decisions taken by the previous Government, and there were three in particular: austerity, which choked off investment; a badly handled Brexit deal; and the Liz Truss Budget, which crashed the economy and sent mortgage rates spiralling.

Bank of England (Economic Affairs Committee Report)

Earl of Effingham Excerpts

Thursday 2nd May 2024 Lords Chamber

[The Earl of Effingham (Con)]

My Lords, I would like to thank my noble friend Lord Bridges of Headley for securing this important debate. I would also like to congratulate my noble friend Lord Moynihan of Chelsea on his excellent maiden speech. I have already enjoyed several discussions with him, and I am very much looking forward to all his future contributions. I should also highlight my entry in the register of interests.

I count myself extremely lucky to have worked in financial markets for 25 years, during which time I have had the privilege of working with some of the brightest individuals in the country, including a former employee of the Bank of England. It was essential in my role to understand and be able to explain currency forecasting in both the short, medium and long term. As anyone who has been involved in currency forecasting, or indeed any other type of economic modelling will know, it is notoriously difficult. Alan Greenspan, when he was chairman of the Federal Reserve in the 1990s, set his researchers the task of examining foreign exchange rates and, having number-crunched 30 years’ worth of data, they concluded that it was impossible to predict. It was therefore of interest to me that the committee report suggested that a lack of intellectual diversity at the Bank contributed to a misdiagnosis of recent inflationary pressures, as well as inadequate forecasting and modelling techniques. I agree with the report wholeheartedly: it is incredibly important to have a diverse range of personalities, backgrounds and experiences of both women and men that runs true in any business and board of directors.

However, as I hope I have demonstrated briefly to your Lordships, economic forecasting is challenging at the best of times. Even if you did have a different membership make-up, which is a key recommendation of the report and should happen regardless, the likelihood of forecasting outsized shocks to the system may increase only marginally.

It is a fact that many central banks other than the Bank of England did not see inflation coming as aggressively as it did. That is confirmed by Ben Bernanke’s review, published last month, when he said:

“A comparison of forecasting performance shows that virtually all forecasters—both in central banks and outside—failed to anticipate in a timely way the dramatic economic consequences of the post-2019 shocks”.


Therefore, on the basis that it is extremely difficult to forecast economic outcomes correctly, it would be highly beneficial if the Bank could provide the public with regular and alternative scenario analyses, aside from its main forecast, potentially as well as a dot plot. Primarily, it would demonstrate that the Bank is aware of and preparing for a variety of different shocks and, as a result, is sparking diversity of thought within the organisation and addressing preventive measures. Additionally, given that financial markets hate uncertainty, it provides those participants with the necessary information to apply a more balanced approach to their own potential future exposure models in different asset classes. Lastly, it encourages a more regular two-way dialogue and relationship between the Bank and its external stakeholders, which is critical. It is essential to build that relationship, communicate openly and challenge constructively where appropriate.

I will also briefly highlight stress testing within forecasting. Last Wednesday, the headline on the front page of the Financial Times read:

“Lenders are in the dark over private equity risk, Bank of England warns”.


The article continued:

“Exposure stress tests lacking … BoE regulator … said yesterday that lenders should routinely stress test their exposure but ‘hardly any banks do it well’”,


referring to private equity exposure. It is of course entirely correct to say that firms should routinely stress-test their exposure; it is best market practice. But it is also essential because so-called black swan events are no longer a rare occurrence. Since the global financial crisis, we have seen the ensuing Eurozone crisis, the unpegging of the Swiss franc, Brexit, the pandemic, the war in Ukraine, the September 2022 fiscal event and heightened geopolitical risk in the Middle East. Financial risk is omnipresent.

However, the Economic Affairs Committee report referred to Dr Bernanke, who found that:

“Some key software used in preparing the forecasts is out of date and lacks important functionality”


because

“insufficient resources have been devoted to ensuring that the software and models underlying the forecast are adequately maintained”.

If we follow the Bank’s premise that everyone must stress test well, which we should, it is vital that the Bank itself allocates sufficient resource and headcount to guarantee that it is employing up-to-date software and models.

Finally, the Bank plays a crucial role for every person in this country. That is an extremely powerful office of authority. It is right that it should be independent to ensure financial stability and confidence in the UK economy, which has multiple ancillary benefits to the population. However, as the report notes, that power is concentrated among a small group of individuals. I suggest that the Bank is as powerful as and has more responsibility than any of the largest listed companies in the UK, but they are answerable to shareholders. In this case, the shareholders of the Bank are the people of the UK who are, in turn, represented by elected government officials. While we must retain the independence of the Bank in setting monetary policy, we must also ensure that it is accountable to its shareholders.

I therefore ask my noble friend the Minister whether the Government will encourage the Bank, as a matter of urgency, to replace its out-of-date software and functionality for forecasting and stress testing. Will they ensure that the Bank allocates resource internally to provide the public with both more regular and supplementary forecasting scenario analyses? Lastly, will they encourage the Bank to complete, within an agreed fair and reasonable timeframe, the recommendations that came out of Dr Bernanke’s review?

Start-up Companies: Tax Incentives

Earl of Effingham Excerpts

Monday 29th April 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

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

[The Earl of Effingham (Con)]

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

[Baroness Vere of Norbiton (Con)]

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

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

Buy Now, Pay Later: Regulation

Earl of Effingham Excerpts

Wednesday 7th February 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I disagree with the noble Lord. Obviously, we have received a large amount of stakeholder feedback to the consultation on the draft regulations. We are considering that feedback and it is very varied. In many cases, when provided affordably and used responsibly, interest-free credit can be incredibly helpful to people trying to balance certain payments from month to month. The average outstanding balance of buy now, pay later is £236. These are relatively small amounts of money that can be shifted from month to month, and it is proving incredibly useful to a number of people.

[The Earl of Effingham (Con)]

My Lords, buy now, pay later works for people who can manage their finances, but unfortunately, there are many who struggle with that management. What are the Government doing to make financial education a pillar of the school curriculum?

[Baroness Vere of Norbiton (Con)]

I agree with my noble friend that this is at the heart of it. Any credit facility, be it interest-free or not, has to be understood by those who use it. To that end, the national curriculum has included financial education since 2024. In primary schools, children learn about the uses of money. In secondary school, they go on to learn about budgeting and managing risk, which is of course incredibly important in the credit markets. They learn about financial products and services and raising and spending public money. We have put those elements in place.

UK Economy: Growth, Inflation and Productivity

Earl of Effingham Excerpts

Thursday 29th June 2023 Lords Chamber

[The Earl of Effingham (Con)]

My Lords, I thank the noble Lord, Lord Eatwell, for raising this important debate. Although sentiment was buoyed slightly on Tuesday by the news that shop price inflation fell to 8.4% in June, core inflation remains stubbornly high, suggesting that higher interest rates are here to stay. If the tool of low interest rates will not be available to us for some time to stimulate growth and the outlook is weak, we have to focus on alternative means by which economic growth and productivity can be increased and improved.

I refer to the comment made by Andy Haldane, the former chief economist at the Bank of England, that economic growth improves health, wealth and happiness. I would say that health is wealth. If we have a fully functioning, healthy workforce, our economic growth and productivity numbers will rise dramatically. The number of working days lost in the UK to sickness or injury was an estimated 185 million in 2022, which represents a new record high. We know that the six best doctors in the world are sunshine, air, water, exercise, diet and sleep. We should be placing a huge focus on educating people on this and encouraging them to follow a nationwide gold standard which can only lead to enhanced performance and productivity at work. Education is key. We have all been told to drink lots of water and to sleep well, but the facts are that if an individual drinks two litres of water a day and achieves eight hours of sleep, their cognitive performance can increase by between 10% and 30%. That 10% to 30% improvement in performance will feed into economic growth and productivity.

As for exercise, sport and physical activity can change lives and, most importantly for this debate, sport and physical activity benefit both national and local economies. People will feel good, they will work harder and faster, consumer confidence will be higher and they will spend money. That will result in economic growth and increased productivity. When it comes to diet, having a fit and healthy population is essential to reducing pressure on the NHS and supporting the economy. It is a concerning statistic that obesity currently costs the NHS £6 billion per year, which is set to rise to £10 billion per year by 2050. By trying to solve obesity, we secure a two-pronged attack on reducing the NHS funding requirement and getting people back into the workforce.

None of these problems is easily solved, but they should be achievable with increased levels of local authority participation, education and funding. The House of Lords National Plan for Sport and Recreation Committee’s report recommended the establishment of a new ministerial post with a responsibility for sport, health and well-being. I hope this is something the Government will reconsider.

Department for Transport investment into walking and cycling has huge benefits for public health and the economy, but the active travel budget was recently cut. I ask the Government to consider ring-fencing a certain amount of funding for this investment.

The Government recently introduced new calorie labelling laws under which it is now a legal requirement for large businesses—those with more than 250 employees —to display calorie information on non-prepacked food and soft drinks. It would be helpful if the Government could encourage and help businesses with fewer than 250 employees to do the same, so that we have the full picture wherever we are eating. We need to do more to help people understand healthy eating. At schools, we need more parent communication and cooking demonstrations—whatever we can do to send the message to children and adults alike. This will form the base for their future and the economy’s future growth and productivity.

These are a small number of the ways in which we can tackle this issue. On the basis that we currently do not have the ability to pull the traditional economic levers, we must look for alternatives. I truly believe that improving the health of the nation is a key solution not just for the short term but for the long term and for future generations. Health is wealth. Through it, we will achieve economic growth and increased productivity.

UK-EU Relationship in Financial Services (European Affairs Committee Report)

Earl of Effingham Excerpts

Wednesday 17th May 2023 Grand Committee

[Earl Effingham (Con)]

My Lords, I thank the noble Earl, Lord Kinnoull, for raising this debate. I also highlight my interest, as noted in the register, as an employee of Birchstone Markets.

The UK holds a unique global position in financial services due to its time zone. Sitting in London, it is possible to capture the end of the Asian trading day, all of the European trading day and most of the American trading day. Notwithstanding an early start and a late finish to one’s work, no other financial centre in the world has the ability to provide that with relative ease. This puts the UK in pole position to help clients and win business on the global stage. It is an enviable position, which we need to do everything we can to maintain.

It is, of course, fair to say that far fewer jobs have moved to Europe from the UK than was envisaged in a worst-case scenario for the sector. However, it is important to note that the job transfer may not be over yet and to remind ourselves that, simply because the numbers are much lower than the worst-case estimates suggested, that is no reason to think that everything is fine and that we do not need to be vigilant. We should still be trying to maximize every opportunity available to us to ensure that the UK financial services sector remains competitive and attracts world-class talent and business, as it always has.

Indeed, when you look at the types of roles that have moved, it can be the sales and trading roles, or the client-facing banking roles, which are regarded as important within the sector and are one of the many types of roles that we would ideally like to keep here in the UK as part of our talent pool.

In a post-Brexit world, where banks and financial services firms were required in some cases to materially bolster their European operations from what may have previously been a small operation to a European hub, the ongoing movement of staff from the UK to Europe is likely to be required. The ECB has made it clear that it expects the highest levels of governance and risk management in third-country subsidiaries and that operations cannot and should not work on insufficient staffing levels. A little over a year ago, the ECB announced that 21% of the firms assessed by it in this category warranted targeted supervisory action. The ECB will continue to monitor the way that banks operate post Brexit and will require a strong local presence. This will continue to impact operating models and maintain the pressure to have key staff based locally, not in the UK.

It will also come as no surprise to your Lordships that many support jobs in banking and finance have already been transferred out of the UK and into Europe. This had already happened prior to 2016 as a result of companies being able to employ qualified professionals in Hungary, Poland and other European countries at a more competitive cost than in the UK. However, we could now well find ourselves in a situation where support jobs that may have also been destined for the UK find themselves being allocated to the centres in Europe. This will have a detrimental effect on our world-class financial services support businesses, which are located all around the country, be it Bournemouth, Birmingham or Glasgow, to name but a few places.

ESG is an area where there is a great opportunity for the UK to lead the way. Given the nascent rise of the sector and industry, the regulatory framework is constantly evolving and the UK can play a key role in shaping its future. We have all read with great interest the work being done to agree a mutual recognition arrangement for financial services with Switzerland. This could be the first of many and I hope that the Government can use it as a benchmark for agreements with other European states.

I believe the UK financial services sector is one we should all be proud of. I look forward to working with noble Lords on this important area.