Crown Estate Bill [HL]

Earl of Kinnoull Excerpts

Report stage
Tuesday 5th November 2024 Lords Chamber

[Lord Livermore (Lab)]

My Lords, I will address other noble Lords’ amendments in this group during my closing speech, after listening to the debate.

I have listened to the arguments and concerns put forward at Second Reading and in Committee by the noble Baroness, Lady Vere, on how the new partnership between the Crown Estate and Great British Energy will work and the difference it will make. The Crown Estate is of course keen to ensure that details of this partnership are publicly available on an ongoing basis, and the Government therefore propose an amendment to require the Crown Estate to include, in its existing annual report, a report on the activities of the commissioners during that year under the partnership with Great British Energy, and any effects or benefits during that year resulting from activities of the commissioners under the partnership.

I am grateful to the noble Baroness, Lady Vere, for her engagement on this matter, and to other noble Lords who have raised similar concerns, and I trust that this amendment meets those concerns. I hope that noble Lords feel able to support this amendment as a result. I beg to move.

[The Earl of Kinnoull (CB)]

My Lords, I will speak to Amendment 5, which stands in my name. I thank the Minister and his Bill team for their time in what is always the busiest period of the Treasury’s life. He was happy to give time, and I am very grateful for that and for the sensible discussion that we had.

The amendment is designed to be the gentle pencil in the back, as I put it in Committee, in order that the Crown Estate Scotland be afforded the same freedoms and flexibilities that the Crown Estate will have following the passage of the Bill. I described in Committee how the Crown Estate Scotland had advised me that the Scottish Government were keen that it has those. I know that the UK Government are keen that it does so, as is the Crown Estate itself.

There are many opportunities for collaboration, particularly for energy projects in the North Sea at the moment, but there will be other opportunities as well for aquaculture. There is the ability to copy the good and avoid the bad, given that a number of copycat transactions might be done using Crown Estate property going forward. This is of course in all our interests, because ultimately this is very much part of the net-zero agenda, and the more the two Crown Estates can be aligned the better it will be for everybody in the long term.

The amendment is, as I said, a gentle pencil, designed to ensure that the UK entities do not down tools following the passage of this Act but carry on enthusiastically to ensure that Crown Estate Scotland benefits from the same freedoms and flexibilities. I therefore ask my only question of the Minister: does he share this aim of ensuring that those freedoms and flexibilities are afforded, and does he feel that this amendment is a proportionate way of going about it?

[Earl Russell (LD)]

My Lords, I rise to speak briefly to all the amendments in this group, all of which relate to reporting.

Beginning with government Amendment 3, I am grateful to the Minister for this important concession and welcome his listening to the concerns expressed across the House and his open engagement and willingness to look again at this issue. If he will forgive my saying so, we have come quite a long way since Second Reading, when the Government’s response was that the partnership with Great British Energy was not really a key part of the Crown Estate Bill. We support the clean energy mission—this is so important not only for our net-zero goals but in providing for our own energy security. Great British Energy promises to unlock £60 billion of private investment, and the Government themselves have committed £8.3 billion over the course of this Parliament. We have the third-best wind resources in the world, and we should be making best use of them to bring down the cost to bill payers and ensure that we have security of our own supply.

By 2030 this will, I hope, have led to the generation of enough electricity for the equivalent of 20 million homes. Everyone across the House has broadly welcomed this, but collectively we have wanted broader and greater scrutiny of the Crown Estate and the work it does. It is a long time since the 1961 Act came in, and simply updating the borrowing powers without updating any other measurements did not feel like the complete picture for providing that security going forward. We have campaigned for greater transparency and the Government have listened. I am grateful to them and welcome this.

We are happy to support Amendment 5, tabled by the noble Earl, Lord Kinnoull, but with one small caveat. It is very important that Crown Estate Scotland goes along with the energy transition and is fully invested. The noble Earl’s amendment is carefully worded, simply calling for a report to be laid before Parliament. Devolution is an important issue for us on these Benches: it is not for this Parliament to be telling devolved Parliaments what they should do or how they should act, although we recognise that the noble Earl’s amendment does not do that.

Equally, as I said, we support the amendment and would like to see progress made on this issue, just as we would like to see Scotland fully engaged with the Great British Energy partnership and contributing to our green energy. As the noble Earl said, the amendment is a pencil in the back. I have written down “a gentle nudge”, and they are probably similar things. We welcome the amendment, which puts down a marker to the Minister and the Government to continue their negotiations and conversations with their equivalents in the Scottish Assembly, the Scottish Government and Crown Estate Scotland so that progress can be made.

Finally, my Amendment 8 was tabled as a compromise, from my point of view. There has been a feeling around the House that we need greater scrutiny, and noble Lords have raised numerous issues that they feel should be subject to such scrutiny. The Minister responded by saying that under the original 1961 Act, too many legal powers were constraining the Crown Estate’s ability to act freely in the interests of the state. He consistently argued throughout the various stages of this Bill that he did not want to reimpose those conditions on the Crown Estate’s ability to operate. The idea behind my amendment is that, simply by putting chapter headings in the Crown Estate’s annual report, which goes before Parliament, there would be greater opportunity for the issues that have been raised collectively in this House to be scrutinised in Parliament, so that, in exchange for giving the Crown Estate greater borrowing powers and a greater role, there would also be greater scrutiny.

I have aimed to cover a lot of the issues that have been raised across your Lordships’ House. It is quite a simple amendment that simply asks for these topics to be covered. However, I doubt whether the Minister will respond positively to it.

--- Later in debate ---

[Viscount Trenchard (Con)]

My Lords, I support my noble friend Lord Forsyth of Drumlean in bringing back his excellent and very necessary amendment. I supported his identical amendment in Committee and had intended to add my name to this one too, but I was beaten to it by the noble Baroness, Lady Jones of Moulsecoomb, and the noble Lord, Lord Sikka, who is not in his place. Nevertheless, I entirely and whole- heartedly support this amendment.

I remember that the Minister told your Lordships’ Committee:

“The Government wholeheartedly support the objectives”


behind my noble friend’s amendment. But he clearly did not think it is necessary and has not tabled his own amendment. However, he did acknowledge that the intent of the existing regulations

“is not currently being achieved”.—[Official Report, 22/10/24; col. 565.]

My noble friend Lord Forsyth has rightly tabled this amendment again and has so well explained the serious damage caused to the Atlantic salmon population by open-net salmon farms in Scotland, many of which are not adequately regulated. In particular, my noble friend has drawn your Lordships’ attention to the harm cased by the toxic chemicals used to treat the infestations of sea lice and the damage caused to the wild salmon’s DNA, which is specific to each river system, by interbreeding with escaped salmon from the open-net farms.

It is true that apart from one salmon farm in Northern Ireland, open-net salmon farms are at present confined to Scottish waters. However, we absolutely do not want them in England. I strongly support my noble friend in bringing back this amendment. I should also declare an interest as a salmon fisherman on the River Tamar in Devon. I strongly support the noble Earl, Lord Devon, in bringing up the problem of the oyster farming in the south-west river estuary systems.

Before I finish, I will ask the Minister again the question I asked in Committee concerning the unnecessarily restrictive licences issued for the shooting of cormorants which prey on wild salmon. Does he know how many gamekeepers are employed by the Crown Estate and how many cormorants they are licensed to shoot each year? I look forward to other noble Lords’ interventions and the Minister’s reply.

[The Earl of Kinnoull (CB)]

My Lords, I want to make two very short points relating to the reasoning the Minister gave in response to these amendments earlier. I should also say that my sympathies lie with my noble friend Lord Devon, in that I wish this were a wider aquaculture thing, and that the commissioners were able to consider the environment for all of aquaculture, for the reasons I gave in Committee; I will not repeat them.

The first logical problem I had with the Minister’s response was in relation to how many salmon farms there are and the intention of the current commissioners of the Crown Estate not to do any salmon farming. The difficulty I have is that salmon was an incredibly common thing to be fed to people in Victorian times. We are able to legislate on the Crown Estate for only the first time in 63 years, so if we are legislating for 63 years’ time, I feel that logically we need to think a bit more about protection further than however far out the current commissioners look, which, I imagine, is something like five years.

I feel that we are going to have to improve aquaculture around our waters because of the lack of calories that we are producing for our population. Therefore, it is poor logic to say that we do not need to legislate for salmon because we are not interested in salmon farming at the moment. I hope the Minister might address that in his remarks.

My second logical problem is that the Minister was able helpfully to list a number of statutory instruments in Scotland setting out the rules for salmon farms, but those all apply to salmon farms that have already been established. The problem I was told about by Crown Estate Scotland is that, because it is not really able to look at economic benefit, sometimes it might let through licence holders of lower quality that then create the problems. Then, as the noble Lord, Lord Forsyth, said so eloquently, they are not being held to account by these complicated rules because there is not really a police force. In any event, there is no one to fine, because often the reason that things have gone wrong is that the small entity that owned the farm has gone bust, even though it was, in fact, a subsidiary of a very big entity. That entire list is irrelevant. What matters is not what happens after you have established a salmon farm but the decision to establish it in the first place. I would be very interested in any help the Minister can give on those two logical issues.

Crown Estate Bill [HL]

Earl of Kinnoull Excerpts

Committee stage
Tuesday 22nd October 2024 Lords Chamber

[The Earl of Kinnoull (CB)]

My Lords, I declare my interests as set out in the register and in particular as a trustee of the Blair Charitable Trust. I will make two brief points, but generally I feel very supportive of both Amendments 37 and 37G.

The first point begins with the Defra food security statistics, as updated in October 2023, where it is noted that the production-to-supply ratio in the UK is 75%. That is essentially a measure of the number of calories that we produce on these islands that we need to eat. We need to import, therefore, a quarter of all the calories at least that we eat. In fact, it is more, because we export some of what we produce as well. No new land is being produced and we are chipping away at the existing farmland with forestry, development and a certain amount of rewilding, and the population is growing, so the number of calories is going up. Aquaculture is therefore a very obvious way of improving the situation and, while I fully accept all of the many problems that we heard about so powerfully from the noble Lord, Lord Forsyth of Drumlean, earlier on, we are going to have to face up to the fact that aquaculture is something that we will need if we are going to try to narrow the gap of the production-to-supply ratio.

As the Minister said in his Second Reading speech— I am sorry that I was not there—the Crown Estate is very rarely here in this Chamber; it last came in 1961. So it is important to prep the Crown Estate and do some future-proofing of it, and much of the Bill is about getting on top of energy and prepping it for energy as well. Again, we are going to need to grapple with the issues that the noble Lord, Lord Forsyth, raised, but on this visit to the House I think we must prep it for aquaculture as well. That means that we are going to have to have some amendments that are along the lines of Amendments 37 and 37G. I slightly prefer the width of Amendment 37G, but there are good things in both of them.

I move to my second point. There is a lot to learn from the experiences of Scotland in aquaculture, and English commissioners will certainly and inevitably face the problem faced by the trustees of the Blair Charitable Trust that a high financial offer for the use of something may come from a riskier and lower-quality bidder. The effect of Amendments 37 and 37G would be to give those commissioners an easier ability to turn down somebody who has offered a larger amount of money but has lower environmental standards and to say clearly, “No, your bid is not there, it is not in the overall interests of managing the land”—on behalf of all of us, I may say. That is a very important point.

A few years ago, I went to stay with some friends near Oban and they took us down to visit a bankrupt fish farm. I do not know whether anyone else has visited a bankrupt fish farm recently, and I know that “desert” is the wrong word when one is talking about a sea loch, but “desert” is quite a good word for describing what we saw. It was awful, and of course it goes a long way beyond all of the netting arrangements. It was dead and horrible and it smelled and there was waste everywhere and our friends told us of the great difficulty in working out who was going to clear it all up and who was going to pay for the clear-up, because Crown Estate Scotland had not put in place bonding arrangements —something those in construction would do because, if the construction company goes wrong, you can finish off the problem. It usually happens with shipbuilding, although not with Scottish ferries, but bonding arrangements are extremely important and they had not been put in place. I am glad to say that I went back a couple of years later and the area has improved, but it is not perfect. I therefore have direct experience of the horrors of things if you do not get it right, and I suspect there are many war stories—so if aquaculture comes, as I know it will, to England and Wales and Northern Ireland, people can learn from their Scottish cousins.

On my experience of charitable trustees worrying about potential land users, I went back and looked at some trustee board papers, and the process we actually follow in real life when we are considering letting land users on to the Blair Charitable Trust, which is quite big, is very similar to the two processes set out in Amendments 37 and 37G. That process has been going on for a long time on what is a very old-established plot of land. I therefore feel that these are tried and tested routes to something as well, and that they are very good. They have a long-term view built into them, as well as the fact that you must look to the whole environment, as we do at the Blair Charitable Trust. These amendments are therefore vital, and they will make the job of the Crown Estate commissioners much easier.

[The Earl of Caithness (Con)]

My Lords, this has been a fascinating debate to listen to. I had not intended to partake in it, but I was prompted to do so by the last two speeches, by my noble kinsman Lord Thurso and by the noble Earl, Lord Kinnoull. This is clearly a much bigger problem than just salmon. From listening to the debate, it seems that we all want the offshore energy—we need it—and, undoubtedly, as the noble Earl, Lord Kinnoull, said, we will need aquaculture in the future in a much more abundant way than we have it at the moment.

It strikes me that it is very odd that those who operate our farms and our energy on land face very different hurdles to those who operate at sea. Can the Minister, who has quite a lot to take away and think about from this well-informed debate, look at this whole question? This is a rare opportunity for us to try to get this right for future generations. We do not want to solve a problem now by creating a further problem for the future. Let us get this right so that we take a holistic view of development at sea, whether it be fish farming, agriculture or energy, so that the right environmental standards and precautions are put into place before and after an event. As the noble Earl, Lord Kinnoull, said, at the moment it is all too easy for fish farmers to put themselves into liquidation and leave a mess for others to clear up. That cannot be allowed to happen in the future.

--- Later in debate ---

Moved by

[The Earl of Kinnoull]

37D: After Clause 2, insert the following new Clause—
“Report on differences between provisions of this Act about the Crown Estate in England and equivalent provisions in ScotlandThe Secretary of State must, within 12 months of the day on which this Act is passed, lay before Parliament a report assessing any differences between the provisions made by this Act for the management of the Crown Estate in England and equivalent provisions for the management of the Crown Estate in Scotland.”

[The Earl of Kinnoull (CB)]

Amendment 37D is a simple amendment that allows us the opportunity to discuss the lack of symmetry after the passing of this Bill. I should just say that, following the last grouping, I think I have the answer to the Minister’s question about why things are inadequate at the moment.

I discussed in the previous group how I view this Bill as being an opportunity to prep the Crown Estate for energy and agriculture. Clearly, it will improve things here, but not in my native land at the same time. I have had the benefit, in preparing this amendment, of quite a few discussions with the chair of Crown Estate Scotland and had help from his team, and I thank them for that.

--- Later in debate ---

[Baroness Kramer (LD)]

I will not try the patience of the Committee for very long on this issue. It is fairly rare that I do not support amendments that are moved by that powerful combination of the noble Earl, Lord Kinnoull, and the noble Lord, Lord Vaux; but, on this occasion, I am rather troubled by this amendment. I believe that we have to defend the principle of devolution. There are many who want the devolution in name but not in actual fact. I am afraid that when I heard the noble Earl, Lord Kinnoull, use the word “symmetry”, every antenna was raised. I have already argued in earlier phases of this Bill that we should have devolution of the Crown Estate to Wales—that is fundamentally important—and it is important that we reinforce and understand the importance of a genuine devolution of the Crown Estate to Scotland as established in current law. That is in our collaboration, partnership, sharing practice—

[The Earl of Kinnoull]

I am so sorry. I probably did not make it clear that the reason that I was talking to the Crown Estate Scotland was because it contacted me. It is very keen to have the symmetry, and I understand through the Crown Estate Scotland that the Scottish Government is also pretty keen to have it. I am not proposing anything that is not consented to by all parties. I am just worried that the parties will get busy doing other things and will not get on with it. The idea of the pencil in the back is to get consenting adults to get on with it.

[Baroness Kramer (LD)]

I appreciate that intervention from the noble Earl because I now understand his position better, but I do not think that is how this clause would be used. It would create a level of dissent, with each side saying, “We do it better than you do”, and “You need to copy us”. We can see the kind of constant pressures that come to—I am losing language; it is just so late—dilute the power of devolution.

On that basis, I do not support this language. Co-operation, partnership, looking at best practice—all those things are extremely positive, but let us be absolutely clear: the Crown Estate Scotland falls under the Scottish Government. Interestingly, it is often much more regulated than the Crown Estate back in England. I hope we learn from the Scottish experience not that each needs to mirror the other by rote, but that devolution works and should be extended to Wales.

[Lord Livermore (Lab)]

My Lords, Amendment 37D, tabled by the noble Earl, Lord Kinnoull, would require the Secretary of State to lay a report before Parliament within 12 months of the day this Act is passed that assesses any differences between the provisions made by this Act for the management of the Crown Estate in England, Wales and Northern Ireland, and equivalent provisions for the management of the Crown Estate in Scotland.

It is possible now to provide such an assessment, and I am happy to set that out. Section 36 of the Scotland Act 2016 inserted a new Section 90B into the Scotland Act 1998. Subject to certain exceptions, Section 90B provided for the devolution in relation to Scotland of the commissioners’ management functions relating to property, rights or interests in land in Scotland and rights in relation to the Scottish zone.

Devolution occurred on 1 April 2017 under, and in accordance with, the Crown Estate Transfer Scheme 2017. The relevant property, rights and interests are now managed separately by Crown Estate Scotland under the Crown Estate Scotland (Interim Management) Order 2017 and the Scottish Crown Estate Act 2019, as enacted by the Scottish Parliament. They do not form part of the Crown Estate as currently managed by the Crown Estate commissioners.

The relationship between Crown Estate Scotland and the Scottish Government is governed by a public framework document which sets out a broad framework within which Crown Estate Scotland operates, and certain financial aspects. Any changes to that framework document or the wider legislation that underpins it are a matter for the Scottish Government.

I turn to the principal differences and similarities. The Bill grants the commissioners of the Crown Estate a power to borrow with Treasury consent and provides the Treasury with the power to issue loans and financial assistance to the commissioners, including out of the National Loans Fund. The Bill also specifies that the Treasury may determine the rate of interest on any loan and requires the Treasury to pay any sums received in respect of the loan into the National Loans Fund.

In comparison, Part 2, Section 1.1 of the framework document for Crown Estate Scotland explains that

“Scottish Ministers may make grants and loans to Crown Estate Scotland”

and such grants and loans are

“subject to such conditions (including conditions as to repayment) as the Scottish Ministers may determine”.

Part 2, Section 2.1 requires that:

“All borrowing by Crown Estate Scotland … shall be from the Scottish Ministers in accordance with guidance in the Borrowing, Lending & Investment section of the”


Scottish Public Finance Manual.

On investment, this Bill clarifies the commissioners’ existing ability to invest by inserting into the 1961 Act that:

“The powers exercisable by the Commissioners in the discharge of their functions under this Act include powers to do anything which is calculated to facilitate, or is conducive or incidental to, the discharge of those functions”.

It also omits subsection (4) from Section 3 of the 1961 Act, which will broaden the commissioner’s investment powers.

In comparison, Part 1, Section 3.2 of the framework document for Crown Estate Scotland explains that Scottish Ministers are responsible for

“approving Crown Estate Scotland’s Corporate Plan”,

which includes their investment strategy. Part 2, Section 7.3 requires Crown Estate Scotland to

“undertake investment in line with its legislative duties”,

which are set out in the Scottish Crown Estate Act 2019, principally in Part 3, across Sections 7 to 21.

On the constitution of the commissioners, the Bill increases the maximum number of commissioners from eight to 12 and omits the requirement that the second Crown Estate commissioner, if any, be deputy chairman. It also simplifies the legislative process by which commissioners are paid, such that the commissioners’ salaries and expenses are paid directly out of the income of the Crown Estate, rather than out of money provided by Parliament, which comes from the return made by the commissioners to the Government each year.

In comparison, under Part 1, Section 3.5 of the frame- work document for Crown Estate Scotland, the board membership is limited to nine members, including the chair. On remuneration, Section 7 of the Crown Estate Scotland (Interim Management) Order 2017 makes it clear that

“Crown Estate Scotland … must pay each member such remuneration and allowances (including expenses) as the Scottish Ministers may determine”.


The differences between these two organisations reflect the fact that the organisations have formed in different ways. The 1961 Act, which, as I have set out, is the legislative basis of the Crown Estate in its current form, was fulfilling a recommendation of the government Committee on Crown Lands—as set out in its report presented to Parliament in June 1955—to appoint an independent board of commissioners to manage the Crown Estate, with provisions designed to enable Parliament and the Treasury to know how it is discharging its responsibilities. To briefly quote from the 1955 report:

“The board should be a public authority, but not a government department in the sense of an organ of executive government. … We do however respectfully advise that the board should be more, not less, independent than the present Commissioners and that they should be given defined powers and duties as trustees and allowed to work them out with the minimum of direction and control.”


In comparison, Crown Estate Scotland was created by the Scottish Crown Estate Act 2019, which makes specific provisions about the management of the Scottish Crown Estate and followed on from a process of devolution established by the Scotland Act 2016. Crown Estate Scotland is specifically required to align its aims and objectives with the Scottish Government’s published programme for government, and Scotland’s economic strategy and national performance framework.

I hope this assessment was helpful and that I have provided some clarity on the points raised.

[The Earl of Kinnoull (CB)]

It is very interesting that the Minister has not mentioned—unusually, because he is always incredibly well briefed—the Crown Estate Transfer Scheme 2017, which was the scheme under Section 90B of the Scotland Act, under which this was transferred. Schedule 4 of that is headed, “Protection of UK-wide interests”, which is quite a thing, and the subject we have been talking about this afternoon. I wonder whether he would comment on that and how it affects the assessment that he has just made.

[Lord Livermore (Lab)]

I am happy to write to the noble Earl on that point. In the meantime, I hope he will feel able to withdraw his amendment.

[Lord Livermore (Lab)]

What I read out was a response to the amendment tabled, which asked for exactly that; that is why I read it out. The noble Lord raises profound constitutional questions which I may not be the right person to address them to.

[The Earl of Kinnoull (CB)]

I asked a question as well: is the Minister going to afford every assistance to what is going on? This is something worth discussing. There is a danger here, and it is in the interests of all of us, as sub-owners of the Crown Estate, that the position is regularised. I am sorry if symmetry is too strong a word because they are differently enacted, but it is important to be in a position where they have very similar powers. It is in the interests of everyone in these islands that the two things can work together when required and that they have similar powers, so they can engage in the same energy deals and the same things in aquaculture.

--- Later in debate ---

[The Earl of Kinnoull (CB)]

That will be a matter for the noble Lord. On that basis—and I very much appreciate the spirit and the smile on the Minister’s face as he said that—I beg leave to withdraw the amendment.

Amendment 37D withdrawn.

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

Earl of Kinnoull Excerpts

Wednesday 17th May 2023 Grand Committee

Moved by

[The Earl of Kinnoull]

That the Grand Committee takes note of the Report from the European Affairs Committee The UK– EU relationship in financial services (1st Report, HL Paper 21).

[The Earl of Kinnoull (CB)]

My Lords, on 23 June last year the European Affairs Committee published our report, The UK-EU Relationship in Financial Services. The Government responded in August and we are debating this important subject nine months later. I regret this structural time lag for committee reports, but warmly thank the Senior Deputy Speaker and the Chief Whip for their efforts in trying to address this and in getting our debate today.

Before I begin in earnest, I thank our staff Nick Boorer, Dominic Walsh, Tim Mitchell, Kutumya Kibedi, Sid Gurung and Louise Shewey, as well as the committee’s specialist adviser on this report, Professor Sarah Hall. We are lucky in this House with our committee staff in particular and on the EAC especially. I know that the whole committee felt that they were hugely hard-working and skilful in everything they did to help to settle this report and in the evidence process that underpins it.

We took evidence between February and March last year on the state of the UK-EU relationship in financial services, covering four main areas in the sector: first, the impact to date of the UK’s exit from the single market; secondly, the impact of the absence of a framework for UK-EU regulatory co-operation; thirdly, equivalence; and, fourthly, regulatory form and divergence, and agreements with third countries. I am going to focus on a few themes that the committee felt were especially salient, starting with the impact of Brexit on the UK financial services sector, as we then found it.

The sector employs 2.3 million people and makes up 10% of total UK tax receipts. It comprised 19.1% of all UK services exports. The EU is a very significant trading partner in this sector, making up 37% of total UK financial services exports in 2019. I note that, in the latest ONS “Pink Book”, those numbers are broadly similar. We are all reminded that the sector, although it is traditionally associated closely with the City of London, is well established across the UK. In fact, two-thirds of those employed in the sector are outside London. Our witnesses were generally optimistic about the sector’s future, with many fewer job moves to the EU than anticipated—the EY Brexit tracker, which has now ceased, recorded just 7,000—but we warned against complacency, as it is not clear whether the full impact has yet played out.

The Government’s response provided further details on the steps they were taking on the future of financial services, with reference to the Financial Services and Markets Bill and the State of the Sector 2022 report, both of which were published in July last year, a month after our report. The interesting State of the Sector report provided scant detail about how the Government intend to support financial services outside London, however.

In addition, neither the Government’s response nor the inaugural State of the Sector report engaged with the committee’s recommendation that the report include

“for at least the next five years a section dealing expressly with the UK-EU relationship in financial services”.

My first questions are to ask the Minister to provide further details on how the Government intend to support financial services outside London, when this year’s State of the Sector report will be published and whether it will contain the information that we requested, specific to the UK-EU relationship on financial services.

Moving on to regulatory co-operation, our report also examined the fate of the UK-EU memorandum of understanding, or MoU, for regulatory co-operation on financial services. The UK and the EU concluded technical negotiations on that MoU almost two years ago, yet it has still not been signed or entered into force. We noted

“the widespread view that the MoU has become a casualty of”

wider difficulties in the UK-EU relationship and concluded that, although the non-finalisation was not causing major problems, it

“would still have value as a mechanism for strategic dialogue”.

That is, I am afraid, committee code for conferring a mutual benefit on both the UK and the EU. Following the surfacing of the Windsor Framework, a European Commission spokesman indicated that the Commission was ready to start work on the so-called finalisation of the MoU on financial services. Two and a half months on, what discussions have the Government had recently with the EU on that MoU?

I turn to equivalence. As highlighted in our report, the UK

“has issued positive determinations for EU … states in 28 of the 32 areas identified for the equivalence process”,

whereas

“the UK holds just one, time-limited equivalence decision from the EU”,

on central counterparties. This contrasts with the multiple equivalencies that other jurisdictions, including the US and China, enjoy from the EU. Witnesses to our inquiry suggested that the decision by the EU to withhold equivalence from the UK

“is political rather than technical”.

However, although we expressed regret at the state of affairs, we concluded that this a unilateral decision for the EU and that

“it would be misguided to base the UK’s future strategy for the sector on something that is not in the Government’s gift and that currently seems unlikely to be forthcoming”.

We also concluded that

“the low number of equivalence decisions is not seen within the sector as a matter of fundamental concern”.

The Government’s response indicated some agreement with this analysis, although it provided little detail in respect of the committee’s request to

“set out the extent to which it believes there to be a competitive disadvantage as a result of the imbalance in equivalence decisions”

from the EU for the UK compared with other countries. Have there been any further discussions between the Government and the EU on equivalence in the past six months, in particular in the period since 27 February and the surfacing of the Windsor Framework agreement?

I come to regulatory reform and divergence. I noted at the start of my remarks the size and importance of the sector. In essence, during our inquiry, the Government and the Bank of England were finishing a thorough and sensible analysis of the regulatory environments; it was sensible because the UK had moved from a one- size-fits-28 environment to a one-size-fits-one environment. The analysis involved a substantial number of reviews and consultations; its key elements are set out in table 1 on pages 42 and 43 of our report. The analysis was to lead to legislative change. The largest part of that—the Financial Services and Markets Bill—is before us in this House now. The final stage will be the implementation of the whole new environment.

Although the Government’s response provided, as requested, some further details on their plans for regulatory reform, it was clearer on regulatory changes that were already planned or under way—particularly those included in the Financial Services and Markets Bill—than it was on the future direction and regulatory plans for UK financial services. Our report noted that, under the Government’s plans, greater powers will be moved downwards towards the regulators, in particular the Financial Conduct Authority and the Prudential Regulation Authority. Although we are supportive of this, we emphasised absolutely the need to establish “appropriate mechanisms” for parliamentary scrutiny and accountability of regulators and recommended that the Government facilitate this. Their response was non-committal in this regard; indeed, this has been much debated during the passage of the Bill and will, I suspect, be voted on when we come to Report stage.

Another controversial proposal was the new secondary competitiveness objective, which will be included in the financial services regulators’ remit. The Government are now taking this forward; it is another thing that has been much debated during the passage of the Bill and one that the committee was keen should include regulators being “responsive, consistent, and proportionate”. Indeed, this was covered in one of the amendments to the Bill that I put down.

Divergence will also be driven by changes in the EU, as well as in the UK. In the context of possible changes to EU legislation, the committee raised concerns about the Government’s apparent unwillingness, as we saw it, to actively seek to influence the EU in the UK’s interest and request clarification. The Government’s response described a

“proactive strategy of engagement with the EU institutions and Member States”.

Naturally, that will continue to interest the committee.

Can the Minister provide further details on the specific steps that the Government intend to take to support greater parliamentary scrutiny of the regulators, in recognition of their increased powers? Does she feel that regulators should be responsive, consistent and proportionate?

In closing, I come to the opportunities. Our report also examined areas of opportunity for the financial sector, particularly in novel areas where there is little regulation in place, such as fintech and green finance. We welcomed the Government’s approach to regulatory innovation and the Government have since announced that they plan to publish an updated green finance strategy this year. The committee also welcomed the Government’s pursuit of a mutual recognition agreement with Switzerland. Since then, the Swiss Government have said that the two parties expect this to be concluded by the summer of 2023. Finally, the committee welcomed the Government’s general approach of openness to the outside world and non-reciprocity in our financial services sector. Can we expect publication of the UK’s updated green finance strategy shortly and, if so, when? Do the Government still expect the mutual recognition agreement with Switzerland to be concluded by this summer?

I lived with this report for several months and it was an exceptionally interesting time; we met many very able people in our financial services sector. I very much look forward to the debate that we are about to have. I beg to move.

--- Later in debate ---

[The Earl of Kinnoull (CB)]

My Lords, for once I find myself hoping that the noble Lord, Lord Callanan, will be on his feet for a very long time, but I will not. I thank everyone who has taken part in a most thought-provoking debate all round; what a lot of expertise has been shown. I also thank and praise the Minister, who managed to answer all eight of my questions in one way or another, which was a remarkable achievement. I thank her for that.

I welcome the noble Lord, Lord Livermore. I think we will very much enjoy his expertise in this House over the next period. His speech was jolly good. I thank him for his kind words about our report.

I must finally thank my committee, which was really helpful on what was a very difficult report. Many of the committee were not terrifically experienced in financial services but took to it all round. I will privately thank the noble Lord, Lord Liddle, afterwards for his very kind words.

A lot of very good points were made. I will not repeat them all, of course, but I will highlight three things that came out of the debate. The first was the theme of complacency. Although in the period into which the committee was inquiring it found, slightly to its surprise, that only 7,000 jobs had moved—unfortunately, EY has now stopped doing that particular survey, so it is not possible to see with any certainty what has happened—we need to watch very carefully. If things are seen that are wrong, the Government will have to be very nimble to deal with whatever problems come up. I note that that was mentioned by almost everyone: the noble Lords, Lord Liddle, Lord Bilimoria and Lord Desai, the noble Viscount, Lord Trenchard, and the noble Earl, Lord Effingham, were all keen on this topic.

The second thing was a really good point about divergence risk, made by the noble Lord, Lord Liddle. We are engaged in this three-stage process, as I said: analysis, legislation and implementation. We are almost at the end of the legislation bit of that. The divergence risk remains really important to watch, and that balance between a bit of change to help our differently shaped financial services industry and whatever risk that comes with will be very important to watch as well. That was a very sharp point and I associate myself with those words.

I have labelled the final of the three themes I was going to highlight “workforce”, but it includes visas and the regulatory clearance point. I have heard stories similar to the nine-month thing. Everything that can be done to improve access to talent and to get the processes smooth for visas in financial services would be enormously good in assisting our prize industry and would not cost the Government anything. I hope this will be a theme. The noble Lords, Lord Hannan, Lord Bilimoria and Lord Holmes, majored on that. I thank them very much.

I look forward very much to our discussions about the secondary competitiveness objective. We asked almost all our witnesses about that over the three months and a worrying number of different ideas as to what it actually meant came back. I cannot say that I particularly understand it. There have been lots of amendments to try to give it a bit of shape. We will discuss that again. I was very encouraged by the good words that the Minister just said on the scrutiny of the House.

All that said, I beg to move.

Motion agreed.

Financial Services and Markets Bill

Earl of Kinnoull Excerpts

Committee stage
Wednesday 1st February 2023 Grand Committee

Moved by

[The Earl of Kinnoull]

45: Clause 24, page 38, line 19, at end insert—
“(4B) The FCA must monitor and measure to what extent it has advanced the competitiveness and growth objective in various ways, including but not limited to—(a) the PRA’s responsiveness to entities that are regulated or seeking to become so,(b) its consistency of approach to entities that are regulated or seeking to become so, and(c) the proportionality of its approach to the regulation of entities that are regulated or seeking to become so.”Member’s explanatory statement
This amendment seeks to provide some measurable ways in which the competitiveness and growth objective can be monitored and subjected to scrutiny.

[The Earl of Kinnoull (CB)]

My Lords, in moving Amendment 45 in my name, I will speak also to Amendment 63. I apologise for being unable to contribute at Second Reading; the opening speeches were at the same time as a major evidence session for the European Affairs Committee. However, I sat through much of the debate and have my well-thumbed copy of Hansard here. I declare my relevant interests, as set out the register, as a shareholder of Hiscox Ltd and Schroders plc and a director of Alpha Insurance Analysts.

In my commercial career, I was a director, chief executive or chair of regulated financial services businesses in eight different major jurisdictions. I dealt with the regulators in those jurisdictions and regulators in other EU jurisdictions because of the passporting regimes, and with regulators in places where we decided not to set things up.

However, this amendment has nothing to do with that. Its genesis was in the report of the European Affairs Committee from June last year, The UK-EU Relationship in Financial Services. That report was a major piece of work; we took evidence from a galaxy of stars, including two of the four deputy governors of the Bank of England. The report was settled in the usual House of Lords way, on a unanimous basis.

Paragraph 145 of our report begins a section titled “A competitiveness objective”. In considering this, the committee was trying to form a better view on four real issues: first, the wisdom or otherwise of a competitiveness objective; secondly, what it actually meant; thirdly, how a regulator might implement such a thing; fourthly, how Parliament might scrutinise it. We will come to the fourth issue when we discuss later amendments, particularly those to Clause 36.

We put the problem of the competitiveness objective to our galaxy of star witnesses, including both of the deputy governors of the Bank of England. It was quite difficult for us to form a view on the wisdom of it because, throughout our evidence generally, there were considerable differences among all the witnesses as to what a competitiveness objective amounted to. That difference in the set of views, which were honestly held, was quite difficult for us to reconcile. While the committee generally felt that it was a good idea, it was a bit like how I took the mood of the Second Reading debate to be. There was an interesting set of differences in what it meant; if you do not know what it really means, it is jolly difficult to implement it consistently across a regulator. How will you do that not only between regulators but within a regulator when the FCA has several thousand employees? We were a bit dubious about that. In terms of scrutiny, if it is all unclear above you, scrutinising it is jolly difficult.

The committee tried to assist in this. We wrote various descriptive paragraphs; in paragraph 151, the first of our two conclusive paragraphs on this—not on actual scrutiny—we said:

“The Committee notes that, as a result of the Future Regulatory Framework Review, the Government is considering introducing an additional, secondary ‘competitiveness’ objective for the Financial Conduct Authority and the Prudential Regulation Authority. However, it is equally important for the UK’s overall economic competitiveness for the Government and regulators to work together to develop a broader regulatory culture that is responsive, consistent, and proportionate”—


I emphasise those words.

Noble Lords will have noted that the words “responsiveness”, “consistency” and “proportionality” appear in Amendments 45 and 63. These amendments are designed to give effect to what we as a committee wanted to do, which was to give some directional help to regulators as to how they would be able to implement a competitiveness thing and to have measurable things before them. I must say that I have played the refrain of “responsiveness, consistency and proportionality” to various market associations since the report and I have heard nothing but a feeling that that is at least a start in finding a way of being able to help to define this elusive thing of the competitiveness objective.

It is worth quoting our second paragraph of conclusions:

“We ask the Government, in its response to this report, to explain in further detail how a secondary ‘competitiveness’ objective would be applied by the regulators in practice and how success will be measured.”


The Government’s response to our report was, in general, a very good one. I worked out that I have been in receipt —either as a committee chair or member—of well over 50 government responses, and I can promise noble Lords that this one was pretty good. On this particular bit, however, it was very weak. The response on this area had a quite a lot of paragraphs, but most simply repeated the question. The operative sentence is:

“The regulators will be responsible for operationalising their new objectives.”


I must say that my spellcheck is not modern enough for “operationalising”, so I am not quite sure what that means. But I am sure that the Government are washing their hands of that, which I feel is a mistake.

I submit that the European Affairs Committee’s view on this—remembering, of course, that the committee is cross-party and this was, as usual, an entirely unanimous report—is that there are three benefits to having clarity in this area. First, as a client—either an existing client or a prospective new client who wants to come in to be regulated in the United Kingdom—it provides some clarity. It is jolly good, let me say, if you are thinking of moving capital or business to a jurisdiction, to feel that the regulator will be responsive and consistent and will take a proportionate view of things. Those are all things that are directly relevant to any decision to set up in that jurisdiction or to maintain yourself in that jurisdiction.

Secondly, it is good for the regulators, because they will then know what they are meant to be doing. As I said, we asked regulators about that in our evidence sessions and we heard different answers as to what the thing meant. Thirdly, it is good for scrutineers. We, as scrutineers—I have jumped over the fence now; I am a solid scrutineer and do not do any business at all—will be able to ask the right questions and to have metrics given to us to see whether the regulators are doing a good job. That, I would submit, is a win-win-win scenario.

These two amendments build faithfully on the work of a major committee of this House and should, I feel, properly be part of this Bill. I beg to move Amendment 45.

[Lord Naseby (Con)]

My Lords, I will not repeat what the noble Earl has said, but I thank him for the depth of his proposal and the work that he has done in tabling these amendments.

I remind the Committee that I have chaired two quoted companies. I have been chairman of one friendly society and seen through both Houses the Mutuals’ Deferred Shares Act, so I think that I have some heritage, in particular in the mutual movement, which I think is really important to our society and our economy. I take a deep interest in that mutual movement and, indeed, I know that my noble friend on the Front Bench and the Government are particularly concerned about helping the mutual movement move forward. This group of amendments is there to help that.

For me, these two amendments are central to the Bill. I have said this before and will say it again: growth in financial services is dependent on, and an extension of, what is happening in the financial world. There are some really exciting new developments happening, but they need help and occasionally a little persuasion. The FCA has a major challenge on its hands. I welcome that, as I am sure it does, but there is an understandable danger that having an increased spectrum of activities is new to the FCA. It should be reminded to look around the corner, do a little investigation and find out what is happening underneath and therefore what is coming forward. I am sure it will do that, but it needs prompting and these amendments do that.

I say finally to my noble friend on the Front Bench that the mutual movement, both the friendly societies and the credit unions, is looking for new ways to raise capital. That is fundamental to both those mutuals. I therefore hope the Government will look at the noble Earl’s amendment with an open mind and accept it.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I take serious note of the comments of the noble Viscount, Lord Trenchard, because they reflect my fear that the amendments in the names of the noble Earl, Lord Kinnoull, and the noble Baroness, Lady Noakes, and the first amendment in the name of the noble Lord, Lord Holmes, could easily be interpreted as pressure to raise the international competitiveness objective and the growth objective very close, if not equal to the financial stability objective. Frankly, that should be a major concern to us all. I do not want to put the regulators on the back foot when they prioritise financial stability.

In many ways, that is how it was in the 1980s and the 1990s, and we saw how the industry responded to that set of priorities and arrangements. The industry was blithe about risk as long as it generated short-term profit. In discussing the new international competitiveness and economic growth objectives, I have heard from many in the industry that they want them not only to be given greater weight but even to be primary objectives and to stand entirely equal with financial stability. That is such dangerous territory.

At Second Reading, I quoted Paul Tucker, a former deputy governor of the Bank of England, who lived through all that turmoil of 2007-08 and after, who urged Parliament not to give the regulators—particularly the PRA—an international competitiveness objective, praying in aid former governors of the Bank of England, who knew the very soul of the industry and knew that that would be dangerous and unadvisable. Those were not his exact words—his were more excoriating.

Risk in the financial sector is asymmetric, as we saw in 2007. The profits of risky behaviour go to the leading figures in the industry, and they typically keep those proceeds, despite the failure of the sector and the organisation and, in many cases, despite the fact that if you were to go back and unpick it, one could say that such proceeds were based on false profits.

The taxpayer then had to come in and rescue the sector with £137 billion in 2007-09. Much of that has been recouped, but what has not, even to this day—and which we and the country live with—is the damage to the wider economy. We had more than a decade of austerity, and it is a price we are still paying to this day. At our peril do we put ourselves in a position where there is increased likelihood of a repeat of that cycle.

I remember from his memoirs that Alistair Darling was shocked that banking chiefs uniformly showed no gratitude for the massive rescue package that kept their businesses afloat after the 2007-08 crisis. I sat on the Parliamentary Commission on Banking Standards, but have yet to find one to take any significant responsibility, not only for their institution but for the broader sector.

On competitiveness, let me quote from the report of the Parliamentary Commission on Banking Standards, because this was central to its findings of why the industry had become so out of control and behaved as it did:

“There is nothing inherently optimal about an international level playing field in regulation. There may be significant benefits to the UK as a financial centre from demonstrating that it can establish and adhere to standards significantly above the … minimum. A stable legal and regulatory environment, supporting a more secure financial system, is likely to attract new business.”


That was the consequence of nearly two years of taking evidence.

I turn to other amendments. Those in the name of the noble Lord, Lord Tunnicliffe, in this group focus the need for mutual and co-operative financial services. I wholly support that. I very much support the proposals of the noble Lord, Lord Holmes, on the establishment of regional banks. Local services focused on geography or a specific group are often treated as an afterthought or a Cinderella part of the sector today in the UK, but they can be the best way to deliver opportunity to ordinary people, including those presently excluded, and to help small businesses, especially in difficult times. We shall return to some of these issues in later amendments that we will discuss today.

I also support the amendments of the noble Lord, Lord Holmes, which, in essence, are on efficiency. They seem to mesh very well with the amendments of my noble friend Lady Bowles, which are about transparency and mechanisms to evaluate the performance of regulators.

I return to my additional theme: I introduced a discussion on financial stability, almost out of shock that we now have such an intense focus on enhancing international competitiveness and economic growth—as if, somehow, financial stability were not the absolutely fundamental delivery that we expect from our regulators. Without that, frankly, everything else is worth nothing.

[The Earl of Kinnoull (CB)]

Before the noble Baroness sits down, I would just like to ask her a question about her very interesting speech. This also allows me to say that, in Amendment 45, the first “PRA” should read “FCA”—a good spot by the noble Viscount, Lord Trenchard. But I do not quite understand how financial stability is threatened by a regulator being responsive, consistent and proportional. Could the noble Baroness explain that again?

[Baroness Kramer (LD)]

The noble Earl may find that this is already a requirement of the regulator, but this is not about that. If the amendment were taken in the way that I suspect the noble Earl reads it, I might feel reasonably comfortable with it. However, as we listened to the discussion, we saw where this was going. The noble Viscount, Lord Trenchard, captured that: the industry is looking at these kinds of amendments as a mechanism by which it can find leverage to enhance the status of the international competitiveness and economic growth objectives. If we could find a balance, in asking for the kind of language that the noble Earl, Lord Kinnoull, is after, but making sure that that does not become weaponised and potentially raises those objectives to an equal status to financial stability, I would feel much more comforted.

--- Later in debate ---

[Baroness Penn (Con)]

As the noble Lord himself noted, proportionality is already within the regulators’ objectives and operating principles. It is a concept that the Government support in how the regulators undertake their business. I believe that it is provided for within the current framework.

I hope, therefore, that the noble Earl, Lord Kinnoull, will withdraw his amendment and that other noble Lords will not move theirs.

[The Earl of Kinnoull (CB)]

I thank the Minister. It has been a fascinating hour and 20 minutes on reporting requirements. The common themes, I think, have been clarity and independence. I associate myself with the remarks of the noble Lord, Lord Bridges, and his very good way of expressing the problems with the Bill. Coming from the insurance industry, I was of course very worried by what the noble Lord, Lord Ashcombe, had to say about the number of insurers being set up in Bermuda versus the number being set up here. Bermuda overtook the UK in 2004 in size of market; we remain number two but we are going backwards, and this needs to be addressed.

I feel that many of the amendments in this group need to be discussed with the Minister. I hope I will see her nod her head. My amendments derive from a big committee of this House which thought a long time and took a lot of evidence on this. The amendments tabled by the noble Lord, Lord Holmes, have a lot of merit in them as well. When we sit down, we will certainly hear the warnings issued by the noble Baroness, Lady Kramer, in our ears, but I hope that she agrees to discuss those well before Report so that we attain some additional clarity and some independence for the data that comes to whatever it is that will scrutinise all this. In the meantime, I beg leave to withdraw the amendment.

Amendment 45 withdrawn.

Crown Estate Transfer Scheme 2017

Earl of Kinnoull Excerpts

Thursday 23rd March 2017 Lords Chamber

[The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)]

My Lords, this instrument seeks to ensure that it is Scottish citizens who benefit from the revenues raised from the wholly-owned assets of the Crown Estate in Scotland. That was a specific recommendation made by the Smith commission agreement in its report on the further devolution of powers to the Scottish Parliament. We have worked closely with stakeholders to make sure that we are ready to implement it, and to transfer the management of the Scottish assets efficiently. The draft scheme has been agreed with the Scottish Government.

Allow me to clarify two important aspects of the provisions in this scheme: first, the nature of the change and, secondly, the important protections it incorporates. Under this draft scheme, all rights and liabilities connected to managing these Scottish assets will be transferred to Crown Estate Scotland (Interim Management). Revenues will henceforth go to the Scottish Consolidated Fund and the commissioners currently managing these assets will have no further role in doing so. Assets will, however, continue to be managed on behalf of the Crown and maintained as an “estate in land”, which ensures that any sale receipts must be reinvested. This is in accordance with the Scotland Act 1998.

I should also be clear that the assets include both rural and urban holdings, and mineral and salmon fishing rights. This includes an area that incorporates around half of the coastal foreshore and almost all of the sea bed, covering all the Crown Estate’s activities up to the 200 nautical miles limit. Your Lordships will recall the amendment proposed by the noble and learned Lord, Lord Wallace of Tankerness, during debate on the Scotland Bill to ensure devolution of aspects of the management of the Scottish assets to the island authorities. As my noble friend Lord Dunlop said at the time, we believe that the devolution of management responsibilities will be quicker, simpler and come with fewer practical difficulties if the UK Government devolve these responsibilities in a single transfer to Crown Estate Scotland (Interim Management). This is what the transfer scheme delivers.

A consultation is now under way by the Scottish Government to consider the long-term management of the Scottish assets. The Government will make a Written Ministerial Statement to Parliament six months after the transfer of the assets. This Statement will outline the progress that the Scottish Government have made on the onward devolution of these assets.

I now turn to the second point, the important protections set out in this instrument. One of the key considerations is that this scheme ensures the continued safety of citizens across the UK by ensuring that the transfer is not detrimental to defence or national security. The Scottish assets are key to delivering strategic capabilities for the defence and security of the whole of the UK. It is prudent to ensure that there are powers which the Secretary of State for Defence can exercise where there is an overriding public interest to do so. These powers will enable the UK Government to protect all of their citizens both now and in the future. It also protects other UK-wide interests, such as maintaining a consistent approach to telecommunications throughout the UK and keeping pipeline rental increases at market value so as not to hold back our oil and gas industry.

Lastly, the draft scheme protects the rights of existing members of staff as they transfer to Crown Estate Scotland (Interim Management). Provisions are in place to cover dismissal, contract variation and pensions. They will ensure that the arrangements for transferred staff will be no less favourable than those that they currently enjoy.

We are now in a position to make this transfer of powers to Scotland smoothly on 1 April 2017. I beg to move.

[The Earl of Kinnoull (CB)]

My Lords, I thank the Minister for her usual eloquence in explaining the transfer scheme. However, I ask her for help on a number of matters in relation to the scheme. I should say that I am not in any way wanting to object to the devolution contained in the Scotland Act 2016, of which this forms a part and which was the statutory embodiment of the Smith commission agreement of November 2014. I emphatically feel, however, that where these precious assets are concerned, we must be very careful to go no further than the Smith commission agreement, especially in relation to their status.

The framework document between the Treasury and the Crown Estate puts the status of these assets well. It is,

“a trust estate, independent of government and the Monarch”.

These assets are not therefore available for political uses. The first issue I will ask the Minister about is that of the onwards devolution which she spoke about a moment ago. Paragraph 33 of the Smith commission agreement saw this onward devolution going to named local authorities and to other authorities that ask. We debated this at length. As the Minister pointed out, the noble Lord, Lord Dunlop, made a ministerial undertaking in respect of the report six months after the transfer. In making the commitment, he also said that the UK Government would continue to press the Scottish Government on this issue. Can the Minister can update us on what progress has been made on that issue?

The Crown Estate is governed by the Crown Estate Act 1961, which sets out the duties and powers of the Crown Estate Commissioners and the general environment under which the assets are held. In her remarks, the Minister went some way towards this, but can she confirm that these provisions remain fully in force, now and in the future, over the Scottish assets that are transferring and the only real change is in the people and institutions who will be involved in the management of those assets?

The Treasury and the Crown Estate have a framework document, which I have already referred to. It is four pages of common sense in plain English. It contains two further important phrases:

“The Crown Estate ... is not an instrument of government policy”,


and, when referring to ministerial direction:

“A direction may be given only within The Crown Estate’s statutory duties”.


Can the Minister tell us whether a similar framework document is ready for 1 April in Scotland, given its importance in underlining the independence of the Crown Estate commissioners and providing clarity?

Lastly, I turn to the Scottish Government’s Crown Estate consultation document. The noble Baroness referred to the consultation, which started in January and finishes on 29 March. The document is 70 pages and contains, early on, a “Way forward” statement which says:

“The Scottish Ministers intend to introduce legislation which puts in place a new legislative framework for management of Crown Estate assets in Scotland”—


then, the part I emphasise—

“that ensures … alignment with Scottish policy objectives”.

Later on, it says:

“After the transfer, the Scottish Parliament will have the power to legislate on the new framework for managing Crown Estate assets in Scotland”.


Then there is the part that I would emphasise:

“This will include the ability to depart from the Crown Estate Act 1961”.


Could the Minister comment on those two assertions as well?

[Lord Wallace of Tankerness (LD)]

My Lords, as the Minister indicated, I moved an amendment on Report, and possibly also in Committee, on the Scotland Bill, which the noble Earl, Lord Kinnoull, has already referred to. The Minister has already answered one of the questions I was going to ask, which was whether it was still government policy to have a statement after six months. I am delighted to hear that it is, and we look forward to the statement.

The noble Earl has asked the second question, which is a request for a bit of colour and flavour to the commitment made by the noble Lord, Lord Dunlop, when he was replying to the debate on my amendment and said that the Government would continue to press the Scottish Government to deliver what was promised to the island communities and other communities in the Smith agreement: some detail as to what the Government have been doing to “hold the feet of the Scottish Government to the fire” on this matter, which I think were the words used during the debate. This is a welcome first step in fulfilling the intention of the Smith commission and we hope that onward devolution will become a reality sooner rather than later.

--- Later in debate ---

[Baroness Neville-Rolfe]

If I may, I will answer the other questions that have been raised, and we will see if we can get an answer for the noble Lord.

The noble Earl, Lord Kinnoull, asked a number of questions following on from the debates in this House at an earlier stage. Devolution, as he knows and as I have said already, is a matter for the Scottish Parliament to determine. The Scottish Government are currently consulting on the long-term management arrangements.

On the question of whether Scottish Ministers will adopt the Treasury Crown Estate framework, particularly regarding the independence of the Crown Estate commissioners, Scottish Ministers will make their own arrangements for the oversight of Crown Estate Scotland interim management, consistent with the Scotland Act and the Smith commission agreement. The Crown Estate commissioners will not be involved in the management of Scottish assets once they are transferred. This will have no impact on the independence of the Crown Estate commissioners, who will continue to manage Crown Estate assets in the rest of the UK.

The Scotland Act 2016 will enable the Scottish Parliament to legislate for the management of Scottish assets. Section 1 of the Crown Estate Act will not apply since this makes provision for the giving of directions by UK government Ministers to the Crown Estate commissioners. Scottish Ministers are currently consulting on the long-term management arrangements, as I have already said. On the management of assets, the ownership will remain with the Crown.

To respond to the noble Lord, Lord Adonis, we will ensure fiscal neutrality by making a block grant adjustment, ensuring that the Scots do not profit from the transfer.

Finally, the noble Lord, Lord Davies, asked me about the process for resolving disputes between the UK and Scottish Governments and how independent experts will be chosen. In the current draft of the scheme, we have ensured that dispute resolution processes will be carried out by an independent person. Where there is a dispute about market value, an appropriate independent person with specialist expertise will be appointed by agreement between the interested parties, or between Treasury and Scottish Government Ministers, as the case may be, and in the event that agreement cannot be reached, the Royal Institute of Chartered Surveyors can be asked to nominate an appropriate person instead.

This is an important transfer of powers to the devolved Administrations. We want the administration to be seamless and to take effect, as I said, from 1 April.

[The Earl of Kinnoull]

I am not sure I have quite had an answer on the simple issue of whether the assets can now become political footballs: whether the Crown Estate Act absolutely applies, or whether the Scottish Government can depart from the Act or order the managers of the Crown Estate assets in Scotland to ensure alignment with Scottish policy objectives. Those are critical points—certainly for me.

[Baroness Neville-Rolfe]

Those points were considered. The order before us today reflects what was agreed during the passage of the Bill. We have consulted and come forward with these arrangements. I have reassured the House that the Scottish block grant will be adjusted to take them into account, so the Scottish Government will not be getting extra funding from the UK and Scottish taxpayers will continue to contribute to the sovereign grant. It is paid out of the Consolidated Fund, to which all taxpayers contribute and is calculated with reference to the Crown Estate revenue, but not paid directly out of it.

Brexit: Financial Services (European Union Committee Report)

Earl of Kinnoull Excerpts

Thursday 9th February 2017 Lords Chamber

[The Earl of Kinnoull (CB)]

My Lords, it is a pleasure to follow the noble Lord, Lord Dykes, with his lovely clarity of expression and thinking all round. I declare my interests as set out in the register, particularly in respect of Hiscox insurance group and Schroders plc. I warmly join in the many congratulations for the noble Baroness, Lady Falkner of Margravine, and her committee and staff on producing in double-quick time a carefully thought through and thought-provoking report.

I will confine my remarks to three high-level areas and not descend into the detail. The first is people. There has been a lot of debate and comment from all parts of the House about the 3 million people from the EU 27 who are here in Britain. A strong moral case has been made, saying that the uncertainty they are living with should be made certain.

There are probably two other things relevant to this debate to think about, the first being the need to engender a good atmosphere as we begin the negotiations. I should also have said that I am a Member of the European Union Select Committee, and in that capacity visited Strasbourg a couple of weeks ago for three days. We met 17 MEPs from more than 10 countries and were able to talk about a lot of issues, both on and off the record. What was interesting was how many of these people had friends and relatives living in the UK and how they too felt the uncertainty, in a slightly vicarious way. It would be good to address that, which would help to engender the very positive atmosphere we will need at the start of what will be complex and long-lasting negotiations.

The second and possibly harder-hitting point is the old City adage that capital follows talent. In my commercial career, I have seen that adage acted out time and again. The Minister has a tremendous commercial career behind her too, and a wonderful, sharp and seasoned brain. I am sure many here are thinking what I am thinking: that it is jolly good news that she has appeared at this time for our country in this role. She will be a great help. I have managed financial services businesses, including in continental Europe, for a number of years, using passports of course, and in Bermuda using the equivalence regime. Everything that one did was about trying to manage the talent and keep them attracted to and retained in the business, and when new talent was needed, to attract it. Anything that damages the ability of businesses to attract and retain talent is definitely not in our national interest, and I worry enormously that the uncertainty that people from the EU 27 in the financial services sector are living under at the moment is doing just that. That therefore needs to be coped with, and I would very much welcome the Minister’s comments on that line of thinking.

The second line of thinking, again born out of my business experience, concerns the mindset we should have going into the negotiations. Our mindset should be very much about having regard to the interests of the 500 million in the EU 28—including the United Kingdom—rather than to the narrow interests of the 65 million in the UK. In my experience with repeat order customers—the EU 27 are most certainly repeat-order customers of UK plc—at the end of every transaction one needs to achieve equity in the consideration that has passed between the parties. Everything is about communication, and again, it would be extremely helpful to make sure that our own people who are engaged in the negotiation at every level have that mindset.

I saw as well during our three days in Strasbourg that a number of what one might call macho statements by political commentators and politicians were being reported through the British press and other media. The lingua franca in Strasbourg and Brussels is of course English, so everyone reads the British press and watches the BBC and CNN, for example. Those statements were being faithfully reported, and it is not helpful to the sentiment there if it is seen that we are not having regard to the 500 million but solely to the 65 million. Again, I would appreciate some comments on that.

When we come to the negotiation, there are certain sectors where we have an incredibly strong hand, and we should not play that hand ungenerously. One is the reinsurance sector, which I am very familiar with, where we have the strongest hand. So we should act generously and be seen to be doing that, because that will help us in sectors where possibly we have a weaker hand.

The third area I want to talk about is the cliff edge and the very helpful paragraphs in the report about that, beginning at paragraph 100, and the transitional arrangements. Again, I am happy to report from Strasbourg—where the cliff edge came up—that there was a generally warm feeling towards the transitional arrangements on the part of MEPs. They are just MEPs, but I do feel that their warmth is probably reflected in their countries. I am going to mix metaphors in an appalling way now, but there was certainly a feeling that the cliff edge cuts both ways. They too felt that this was important.

I want to sound a warning bell, again born out of business experience. As the noble Lord, Lord Butler, said, businesses hate uncertainty. Using just an interim arrangement, with the ability to push a horrible negotiation down the road for two or three years, is possibly damaging to business as well. We should try to sort out everything we possibly can in these two years, putting into a transitional arrangement only those things that have to be put there. If we do not, we will cause damage to business.

I cannot resist talking about optimism, because others have. Regarding the bits that I know—the insurance sector and to a lesser extent the fund management sector—I am in the Butler camp. For those sectors, good and sensible deals can and probably will be done, and I feel reasonably optimistic. I do not at all underestimate the very many hard yards ahead. I commend again the noble Baroness, Lady Falkner of Margravine, for her tremendous report.

Queen’s Speech

Earl of Kinnoull Excerpts

Thursday 4th June 2015 Lords Chamber

[The Earl of Kinnoull (CB)]

My Lords, it was indeed heartening to hear, both in the gracious Speech and in the admirable and fluent maiden speech from the noble Lord the Minister, such a clear and prominent statement of intent about the reduction of regulation for small businesses, the “small and the brave”, which are the bedrock of our nation’s prosperity today and a foundation for its future prosperity tomorrow. I am going to concentrate only on this.

The last Administration made a good start in attacking the problem. The Regulatory Policy Committee, revamped in 2012, the Red Tape Challenge and the one-in, two-out rule have each contributed in their own way and continue in force. However, I hope that there will at least be a brief review of those three things to see whether they could be tweaked in any way to become yet more effective. I particularly feel that the one-in, two-out rule could do with some simplification and perhaps even the deletion of some of the exceptions, and I would be very grateful for the comments of the noble Baroness the Minister on this.

In preparing for today, I have been in touch with the British Insurance Brokers’ Association—BIBA—which has 1,500 members with 10 or fewer employees. Here I declare my interests as set out in the register, having worked for 25 years in that industry, but never as a broker. I have also been in touch with the Federation of Small Businesses, with its 200,000 or so members. I have two points that I want to put to the noble Baroness the Minister.

First, I urge greater action on the gold-plating that has arisen out of older EU directives—the emphasis is on the “older”. BIBA members are regulated by the Financial Conduct Authority, the FCA, which—or, more accurately, its predecessor the FSA—has platinum-plated the insurance mediation directive of 2002. According to BIBA’s independently commissioned research, the direct cost of regulation for UK insurance brokers is by far the highest in Europe, being a factor of two higher than second-placed Luxembourg and more than 10 times that in France and Germany. The CEO of BIBA commented to me: “Our peer associations in other European nations like France and Germany are shocked by the cost added by our regulator, and Karel Van Hulle, the recently retired European Commission head of insurance, referred to UK gold-plating by the FCA as ‘sauce anglaise’”. I understand that the FCA wants to stretch its lead at the top of the league table of cost in Europe and appears to be looking for an 8% rise next year in what it charges the insurance brokers it regulates. That must be wrong.

That is just one example of the well-appreciated gold-plating problem. I accept that, certainly since July 2011 and arguably somewhat earlier following the Davidson Review, great care has been taken to try to prevent gold-plating on new, fresh EU directives. Nevertheless, there is a lot of gold-plating around in older regulations made before that date and there is no satisfactory comprehensive mechanism for the automatic review of these older regulations. As part of the efforts to reduce the regulatory burden, will the Government review these older EU-derived regulations to seek out the gold plate, or sauce anglaise, and procure change for the better?

My final point is to do with the attitude of regulators up and down the land. I have had experience of regulators in quite a few countries in my 25 years in the insurance industry. Oddly, it is not a bad generalisation to say that they fall into two distinct camps in attitude, either being remote, severe and unhelpful or being akin to Dixon of Dock Green. Too many UK regulators tend towards the former category, where the regulator is feared rather than seen as a potential source of knowledge and assistance. The chairman of the Federation of Small Businesses summarised the issue to me as follows:

“When setting out to tackle the burden of red tape, it’s important not only to identify obstructive regulations, but also to look at how regulation is enforced. Poor enforcement or excessive monitoring requirements can turn straightforward regulations into costly and disruptive burdens … We would like to see more partnership working between regulators and businesses with regulators focusing on proactively providing guidance to assist and encourage rather than an emphasis on enforcement”.


The “small and the brave” particularly need regulators with a helpful and collaborative approach to prosper. Will the noble Baroness the Minister confirm that the Government will seek to address this issue, which, in all probability, would require no legislation? The “small and the brave” need our help. I urge the Government to be big and bold in providing it.