(2 years, 7 months ago)
Lords ChamberMy Lords, last week, the Government objected to the £4.3 billion figure quoted in various news reports. In many senses, we would be delighted if the extent of fraud arising from the Government’s coronavirus support scheme was smaller than first thought. Is the Minister able to provide a more accurate or precise figure today? If not, how will the department calculate this and when can we expect to see the correct sum?
In looking ahead to this UQ last Thursday, the Minister did not answer my question about fairness. Is he able to comment today on why the Government expect working people to cancel out these losses? That would be bad enough in normal times, but is surely worse when families face an unprecedented cost-of-living crisis.
I thank the noble Lord for his important question. I am here to defend the Government’s record in the deployment of counter-fraud measures over the last two years or so. However, I will only be able to do that in part. The assertion made by the Economic Secretary to the Treasury in the Commons debate last week that the priority was speed of distribution of funds is absolutely correct, but what has followed has been nothing less than desperately inadequate. Given the time available, I will focus on one or two emblematic failures, but these issues run far wider.
The oversight by both BEIS and the British Business Bank of the panel lenders of the BBLS has been nothing less than woeful. They have been assisted by the Treasury, which appears to have no knowledge of, or little interest in, the consequences of fraud to our economy or society. Much store has been given to the extra money allocated to HMRC, but it took a year to happen, and this department was already the most competent and well-funded in that discipline; whereas at the beginning of Covid, BEIS had the grand total of two counter-fraud officials on its staff, neither of whom were experienced in the subject. They refused to engage constructively with the counter-fraud function that sits in the Cabinet Office, has considerable expertise and reports directly to me.
Schoolboy errors were made: for example, allowing more than 1,000 companies to receive bounce-back loans which were not even trading when Covid struck. They simply failed to understand that company formation agents hold in stock companies with earlier creation dates. I have been arguing with Treasury and BEIS officials for nearly two years to get them to lift their game; I have been mostly unsuccessful.
We move now to a new and dangerous phase: banks’ ability to claim on the 100% state guarantee for non-payment. We do this without implementing a standard bar of quality assurance on what we expect as counter-fraud measures; we know that we have serious discrepancies. For example, three out of the seven main lenders account for 87% of loans paid out to companies already dissolved. Why is the ratio so skewed? Two of the seven account for 81% of cases where loans were paid out to companies incorporated post-Covid, as I referred to a moment ago. One of the seven accounts for 38% of the duplicate BBL application checks that were not carried out after the requirement was enforced. Bizarrely, it took six weeks to get the duplicate check into place, during which time 900,000 loans, or 60% in total, were paid out, bearing in mind that some £47 billion has been paid out.
If only BEIS and the British Business Bank would wake up, there is still time to demand data and action on duplicate loans. Why will they not do it? Despite pressing BEIS and the BBB for over a year, there is still no single dashboard of management data to scrutinise lender performance. It is inexcusable. We have already paid out nearly £1 billion to banks claiming the state guarantee. The percentage of losses estimated to be from fraud rather than credit failure is 26%; I accept this is only an early approximation, but it is a very worrying one. I will place in Hansard a copy of my letter to the chairman of the British Business Bank, sent on 16 December, addressing some of these points. I have still not received an answer.
I have at least four differences of opinion with Treasury officials: first, on urgent improvements in lender performance data, I simply want the bar to be set at what the best of the panel banks can deliver—to repeat, there is not even a common definition of fraud to trigger the payment of the guarantee; secondly, far greater challenge of lender banks when we uncover inconsistency in data; thirdly, educating Treasury officials as to why reliance on audits is far too reactive and generally happening well after the horse has bolted; fourthly, a failure by Treasury or BEIS officials to understand the complete disjunction between the level of criminality—probably hundreds of thousands of pounds—and enforcement capability. For example, NATIS, a specialist agency, can handle around 200 cases a year; local police forces might double that.
Noble Lords can see that it is my deeply held conviction that the current state of affairs is not acceptable. Given that I am the Minister for counter-fraud, it feels somewhat dishonest to stay on in that role if I am incapable of doing it properly, let alone of defending our track record. It is for this reason that I have, sadly, decided to tender my resignation as a Minister across the Treasury and Cabinet Office with immediate effect. I would be grateful if my noble friend would pass this letter to the Prime Minister at his earliest convenience. It is worth saying that none of this relates to far more dramatic political events being played out across Westminster. This is not an attack on the Prime Minister, and I am sorry for the inconvenience it will cause. Indeed, I think any Prime Minister should be able to reasonably expect that the levers of government are actually connected to delivering services for our citizens.
I hope that, as a virtually unknown Minister beyond this place, giving up my career might prompt others more important than me to get behind this and sort it out. It matters for all the obvious reasons, but there is a penny of income tax waiting to be claimed here if we just woke up. Total fraud loss across government is estimated at £29 billion a year. Of course, not all can be stopped, but a combination of arrogance, indolence and ignorance freezes the government machine. Action taken today will give this Government a sporting chance of cutting income tax before a likely May 2024 election. If my removal helps that to happen, it will have been worth it.
It leaves me only to thank the noble Lord, Lord Tunnicliffe, for his courteous but attentive role as shadow Minister of my portfolio, and to thank noble friends, many of whom I know will carry on their scrutiny of this important area. Thank you, and goodbye.
(2 years, 7 months ago)
Lords ChamberMy Lords, on behalf of my noble friend Lord Foulkes of Cumnock—who is self-isolating, according to law—and with his permission, I beg leave to ask the Question standing in his name on the Order Paper.
My Lords, the Chief Secretary to the Treasury is responsible for the Treasury’s relationship with the devolved Administrations and last met their Finance Ministers a week ago, on 12 January. The devolved Administrations provide the Treasury with information on their spending every month to support the management of the public finances. It is for the devolved Administrations to allocate their Barnett-based funding across their devolved responsibilities. They are accountable to their respective legislatures for their decisions.
My Lords, the Minister is aware, as he says, of the billions of pounds that are transferred to the Scottish Government under what is known as the Barnett consequentials, but does he know where it is spent? The Scottish Government seem remarkably reluctant to tell the Scottish Parliament and the Scottish people how that money is spent. What does he think of the fact that, at the moment, the Scottish Government are starving Scottish local authorities of money, thereby forcing them either to put up council taxes or cut services?
My Lords, as I said in my opening Answer, the Scottish Government are accountable to their electorate and to the Treasury here for how they spend their money. They have had a very generous settlement in the SR—an additional £8.7 billion went to the devolved Administrations, of which £4.6 billion per year has gone to Scotland. I encourage the noble Lord to keep his scrutiny up.
My Lords, does my noble friend realise that there has been a series of major financial scandals in Scotland, such as two ferries for the price of five? There is a whole series of examples of complete mismanagement of public money, and there seems to be no consequence. Following on from the point made by the noble Lord, Lord Robertson, about the Barnett formula, the Scottish Government have the gall to blame Westminster for cuts in the health service where they fail to spend the Barnett consequentials on health that they have been given. There is no transparency. Surely the Treasury has a responsibility to ensure that transparency is given.
I agree with my noble friend that any wastage in government is extremely distressing, certainly to me. In October of last year, we reached an agreement with the Scottish Government to jointly commission an independent report covering the block grant adjustment arrangements. The independent report will inform a broader review of the Scottish Government’s fiscal framework later this year.
My Lords, the Scottish Government have a Minister for consular affairs. Does the Minister believe that this is consistent with the delivery of devolution? Following up on the intervention by the noble Lord, Lord Forsyth, would the Scottish Government not better serve the people of Scotland if they concentrated on protecting and delivering public services and developing a strong economy, instead of fiddling in a way that has had a disastrous effect on the economy and job losses?
My Lords, in 2005, the then Labour Government agreed to allow the Scottish Government to have international development involvement. To my knowledge, they are involved in three countries—Rwanda, Malawi and Zambia. I can only come back to my earlier point that it is for the Scottish electorate to decide whether that is a good use of public funds.
My Lords, my noble friend mentioned the discussions which are happening and the report that will come later this year. Will it be clear that there will be more transparency on how the money is spent? It is not the money going from here but how the money is spent in Scotland that is so opaque.
My Lords, we are certainly keen to see more transparency. At the moment, the Treasury receives monthly reports on expenditure—but I accept that more transparency would be useful.
My Lords, the Scottish Government have a unit committed to making the case—or more correctly, preparing the case—for independence. Does the Minister think that that is a proper expenditure for the people of the United Kingdom to have to bear?
My Lords, as someone who is very against the independence movement in Scotland, I would agree. We have also to accept that an increasing amount of revenue is raised in Scotland for the Scottish Government. For example, from 2017-18 Scottish income tax rates were entirely devolved, and all revenues from Scottish income tax are retained. Likewise, in 2015, stamp duty was devolved to the Scottish Government. So there is a rising percentage that is in their own gift and I can only assume that some of that is being used for what is, in my view, a mistaken approach.
My Lords, perhaps I might take a moment to remind the House that, as well as Scotland, Wales has a devolved Government. I believe transparency there is of an order of which we could all be proud. I want to pick up on a point made yesterday by the noble Lord, Lord Forsyth, during a Question about the Barnett formula. In his opinion—and in the opinion of many of us—it needs to be looked at in a radically new way for a new age. The Answer from the Dispatch Box yesterday was, quite simply, that there was no prospect of such a review. Is the Minister today, who is refreshingly different from the Minister yesterday, of the same mind?
My Lords, I think we all know that the Barnett formula was something of a fudge, put together many years ago. It is an extremely complicated thing to try to unravel. We know that the amount of funding that goes to individual citizens is favourable to the devolved regions, but the formula is not necessarily satisfactory—so I would encourage the noble Lord to keep up his campaign to push for a review.
My Lords, given the Minister’s dislike of waste in government, could he comment on the article earlier this month by the Comptroller of the National Audit Office, Gareth Davies? He criticised the lack of any formal process for evaluating both the efficiency and delivery of cross-government projects. He said that there was very little information on
“what difference is made by the billions”
spent by government. What does the Minister think of that?
I think the noble Baroness makes a very good point. I will suggest to the relevant Ministers that the work on the fiscal framework, announced in October, includes a review of the points raised.
My Lords, building on that point, is not the problem that the UK Government are in no position to lecture others—whether it is the National Audit Office, influential think tanks or others? We regularly hear of cases where Ministers have exercised poor judgment when spending public funds. The most recent example was the quiet announcement that the Treasury does not intend to chase down an estimated £4.3 billion fraudulently claimed from coronavirus support schemes. Why did the Government not listen to Labour’s warning about potential fraud earlier in the pandemic, and why will family units have to pay the price for the actions of fraudsters through upcoming tax increases?
The noble Lord raises a very good point. I believe that I will be coming back on Monday to deal with an Urgent Question on this specific subject. I would remind noble Lords that these schemes were stood up at an incredibly fast pace to protect the productive capacity of this country. Yes, the fraud losses are extremely frustrating but, if we had not got that money to the business community as quickly as we did, we would have seen a lot more damage to our economy.
My Lords, to what extent do the UK Government make clear in the publicity in the devolved Administrations the amounts of money that come from the UK Government to those Administrations?
My noble and learned friend is right that we need to remind Scottish citizens that a great deal of the funding that goes into Scotland comes from here. We now have a Minister for the Union, Michael Gove, and his job is to keep reminding all the devolved Administrations that we are one union. A very senior civil servant, Sue Gray—of whom some of you may have heard—is the Permanent Secretary for the Union, and we are encouraging engagement at, for example, local authority level on a much more frequent basis.
My Lords, we are talking about the spending of government money, and I congratulate the Government on the fact that, on 26 December 2021, although it did not get a lot of press, they decided to spend £360 million—for which I and others had been asking—on homeless prevention grants, so that people were not put out because they had lost their job due to Covid-19.
I thank the noble Lord for his support. Homelessness is one of society’s most complicated problems and we are very committed to trying to minimise it.
(2 years, 7 months ago)
Lords ChamberTo ask Her Majesty’s Government what plans they have, if any, to commission an independent assessment of the scale of money laundering in the United Kingdom.
My Lords, the UK money laundering regulations require the Government to make an assessment of the UK’s money laundering and terrorist financing risks and to keep this assessment up to date. The Government accordingly published a national risk assessment in 2015, 2017 and 2020. Assessments detailing specific threats are published by UK law enforcement more regularly, including by the National Crime Agency’s National Assessment Centre and the National Economic Crime Centre.
I thank the Minister for his Answer, but is he not curious about the effects of transnational kleptocracy by British professional service providers such as HSBC and Mishcon de Reya, which enable crooked elites to launder their money and reputations? Would he condemn, as does the recent Chatham House report, the lawyers and PR agents who make quasi-libel defamation cases against journalists and researchers researching money laundering and then go on to deter the ill-resourced regulators, who can be bought off, as in the recent Mishcon case?
I am sure the noble Lord will be aware that a number of very substantial fines have been levied for breaching money laundering regulations over the last few years. In 2020, Goldman Sachs was fined £48 million; in 2019, Standard Chartered was fined £102 million; and, even in the last few weeks, NatWest was handed a fine of £264 million. This just emphasises our commitment to dealing with this whole area.
My Lords, having had the dubious privilege of being one of those who helped to draft the anti-money laundering directives in Brussels, and thereby finding himself described by friends as an expert in money laundering, may I enquire about the word “proportional”, which appears in the directive? Does my noble friend feel that that word is being properly applied by our financial institutions to small investors and those who will never be engaged in money laundering? Does he think that that is balanced and fair and that we have the right approach?
I would certainly defer to my noble friend as someone who is an expert in this area, which I am not. It is extremely difficult to get the right balance in these things, because what one person would consider an intrusion, another would consider a protection. We have to remain alert and sensitive to the different forces, but what is most important is that we have a coherent system which is clamping down on an extremely complex and fast-evolving crime.
My Lords, in last year’s parliamentary debate on the Church Action for Tax Justice report Tax for the Common Good, the Minister assured us that progress was being made on reducing money laundering and financial fraud in our British Overseas Territories and Crown dependencies. Would he be able to update the House on this? If he cannot do so now, would he please write to me with information on the progress we are making?
It is important to remind the House that the overseas territories are independent entities and that we cannot just force them to comply with our own regulations. But we have an ongoing dialogue with them. For example, we have a very useful exchange of information through the exchange of notes arrangements, and they have agreed to introduce publicly accessible registers of companies’ beneficial ownership. The discussions are very much ongoing and I respect the right reverend Prelate’s concern.
My Lords, at the anti-corruption summit in 2016, the Government committed to producing a register of overseas owners of British properties. In 2018, they produced a draft Bill on that which has still to become law. Could the Government say whether they are in fact committed to stopping this sort of overseas activity in the UK?
My Lords, I can assure the House that we are absolutely committed to stopping that. I accept that the introduction of the Bill is taking too long, but active discussions are going on at the moment about a new economic crime Bill and I hope that we might see its introduction within the next few months.
My Lords, the Minister’s colleague, the noble Viscount, Lord Younger, said during our proceedings on the NICs Bill:
“In the last three years, we have recovered over £550 million from the proceeds of crime, charged over 100 people with money-laundering offences, and seen over 75 people convicted for money laundering.”—[Official Report, 10/1/22; col. GC 113.]
That is a pathetic figure—or at least it feels like one. In his original Answer, the Minister indicated that assessments had been made over three recent years. What he failed to do was tell us what the answer was. Could he provide the answer so that we can judge the success so far and see whether the right resources and energy are being devoted to this issue?
My Lords, if we were to go the very top-down figures, which are ultimately the most important, I would look at the tax gap, which we have been very successful in closing over a number of years. In 2005-06, the gap was 7.5%; in the last year for which figures were available, 2019-20, it was down to 5.3%. That is of course against the enormous headwinds of the build-up of hot money around the world. I would therefore be more optimistic and say that we are making good progress.
My Lords, it is the turn of the Liberal Democrats. The noble Lord, Lord Jones of Cheltenham, wishes to speak virtually. I think this is a convenient point to call him.
My Lords, the Royal United Services Institute suggests that the scale of money laundering in the UK is “too big to measure”. Transparency International has had a stab at it and says that the problem may be causing £325 billion-worth of harm to the UK economy each year. Why has the UK become such a magnet for this illegal activity, which damages the vital financial services sector and our reputation as a safe place to do business?
My Lords, as I am sure the noble Lord will be aware, the City of London is one of the largest financial centres in the world and therefore the flows of money going through our economy, particularly in the City, are enormous. However, we lead the world in our attempts to reduce bad activity. I refer the noble Lord to the Economic Crime Plan, which lists some 48 action points to tackle the whole spectrum of money laundering and financial crime. We are in good shape in implementing those, and we are committed to an economic crime plan 2.0 that will be announced this autumn.
My Lords, to take us back to the question on resources, there is some evidence that where banks refer cases to the police, such cases are not high on their agenda. Do the police have sufficient resources to tackle this crime and to investigate it thoroughly?
My Lords, we have the National Crime Agency as the main crimefighting force in anti-money laundering. It is an extremely effective organisation, and it is well funded. Of course, one could always say that more money is needed, but I can assure my noble friend that we believe that we have adequate resources.
The Minister has mentioned some fines in respect of a limited number of banks, but much money laundering is in respect of property transactions, particularly in London. Since the passing of the Sanctions and Anti-Money Laundering Act 2018, how many prosecutions have there been of professional people who facilitate money laundering: the estate agents, the solicitors and others?
My Lords, more than 97,000 organisations are monitored for money laundering in this country and some 54 anti-money laundering inquiries are open with the FCA at the moment.
My Lords, the Minister has referred to the work of the Assets Recovery Agency. Paramilitary organisations have undertaken considerable money laundering over many years throughout the UK. Can the Minister provide us with a detailed assessment, including figures, of the amounts that have been laundered by paramilitary organisations? I am thinking in particular of Northern Ireland, where it has had an insidious impact on society.
I share the noble Baroness’s concern about money laundering getting into the hands of serious organised crime groups, but we are very much aware of such concerns. I do not think that one can put a figure on it, because, if we knew what it was, we would be able to stop it. We have created a large umbrella structure to oversee all these organisations. It is overseen by the Chancellor and the Home Secretary. Underneath that sit a number of organisations; for example, the Office for Professional Body Anti-Money Laundering Supervision. A whole range of such agencies are now working and sharing intelligence. I believe that we are getting better all the time.
(2 years, 8 months ago)
Grand CommitteeThat the Grand Committee do consider the Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2021.
My Lords, the Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2021 among other things support the implementation of the remaining Basel III standards and the investment firms prudential regime, the IFPR.
As I am sure noble Lords will recall, the Government legislated, through the Financial Services Act 2021, to enable the Prudential Regulation Authority to update the UK’s capital requirements regime to implement the remaining Basel accords. These standards were developed following the 2008 financial crisis, which highlighted major deficiencies in international financial regulation.
Now that the UK has left the EU, we must implement many of these standards domestically for the first time. Parliament has approved the implementation of these standards by expert independent regulators, alongside an overarching accountability framework. In September, this House approved the Capital Requirements Regulation (Amendment) Regulations 2021, made under the Financial Services Act, which revoked the provisions in the UK capital requirements regulation, or UK CRR, necessary for the PRA to make these updates. The Financial Services Act 2021 also enabled the Financial Conduct Authority to introduce the investment firms prudential regime, or IFPR, which is the UK’s new tailored prudential regime for FCA investment firms. This regime carves FCA investment firms out of the UK CRR. The combination of these two prudential packages requires consequential changes to the statute book. This instrument ensures that these changes mesh appropriately and provide a complete, functioning legal regime for firms.
I now turn to the instrument in detail, first in respect to changes that implement the Basel standards. Many of the measures contained in this instrument update references in existing legislation to the UK CRR, so that they now relate to the new rules made by the PRA, known as the CRR rules. In addition, this instrument revokes the reporting and disclosure requirements for the leverage ratio. I remind noble Lords that the leverage ratio is a capital backstop that prevents banks from becoming excessively leveraged. I reassure noble Lords that the PRA was already able to set leverage-based capital requirements through PRA rules. The UK leverage ratio framework has been, and continues to be, set by the Financial Policy Committee, which has indeed reviewed it in its entirety recently.
This instrument also removes a legacy equivalence determination on Article 132 that was tied to an equivalence regime that was revoked as part of the Capital Requirements Regulation (Amendment) Regulations 2021 earlier this year. This is therefore a tidying up. This instrument ensures that firms do not have to reapply for permissions where the relevant article of the UK CRR is revoked and replaced with PRA rules.
I turn to the changes in relation to the implementation of IFPR. Some of these changes are straightforward—for example, removing now defunct terminology due to changes stemming from IFPR. Two others are more substantive. First, this instrument extends the Securitisation Regulation’s due diligence requirements to all FCA investment firms. This ensures that all FCA investment firms buying securitisations must conduct due diligence, thereby helping to safeguard the integrity of the UK securitisation market. The second removes FCA investment firms from the UK resolution regime. This reflects the Government’s view that the FCA’s existing toolkit, along with the measures the FCA will implement in future through IFPR and the investment bank special administration regime, are more appropriate ways of managing such firms’ failure. FCA investment firms currently use existing rules and go into insolvency proceedings anyway, rather than going into resolution. Therefore, keeping them within the resolution regime only serves to create administrative cost for these firms for no benefit.
This instrument contains a savings provision and a transitional provision for the IFPR. It enables the FCA to continue to modify, revoke or amend IFPR-relevant technical standards. It provides for transitional provisions that support the functioning of the UK securitisation market by extending the existing risk retention requirements for one year to allow time for firms to transition their approach. The risk retention requirement ensures that firms retain an economic interest in a portion of the risk that is being sold on to investors.
Finally, this instrument addresses a small number of deficiencies arising from the withdrawal of the UK from the EU which have been identified during the process of making these Basel and IFPR amendments.
In conclusion, the Treasury has worked closely with the Bank of England, the PRA, FCA, industry and, in relation to the resolution change, the Banking Liaison Panel in the drafting of this instrument.
I hope that noble Lords have found my explanation helpful. In short, this instrument plays an important functional part in preparing UK legislation for the important Basel III implementation and IFPR packages. I would like to inform noble Lords that a correction slip has been issued in relation to a typographical error in this draft instrument. There is an incorrect cross-reference in the title of Regulation 38. The operative provisions in that regulation are correct. As a result, the error has no legal effect, and noble Lords can be assured that this change is minor. I beg to move.
My Lords, I declare a possible interest as a trustee of the Parliamentary Contributory Pension Fund. I want to put this on the record, as we are getting wide briefings at the moment. I also have some experience of the friendly society movement as a former chairman of the Tunbridge Wells Equitable Friendly Society and two Invesco investment trusts.
I particularly draw attention to paragraph 7.8 of the Explanatory Memorandum, which is key. It says that
“the framework in its current form does not appropriately cater for the differences between credit institutions and investment firms and can be disproportionate”
and “burdensome”, et cetera. That seems crucial. It then goes on to mention the consultation that has been carried out. When my noble friend winds up, could he make it clear whether all parts of Part 9C rules have been produced and circulated to the interested parties, or not? Certainly, implementation on 1 January 2022 does not fill me with enthusiasm. It is after Christmas and less than a month away, so I hope he will say that they have been produced, and when.
I am sure that my noble friend and all noble Lords would feel that there are some deficiencies in UK-retained law. I seek reassurance that we are confident that those deficiencies have been removed.
The other dimension I raise relates to paragraph 12.3. It will not surprise my noble friends that, once again, I feel very strongly about impact assessments and statements from Her Majesty’s Treasury that it considers that the net impact will be less than £5 million and very limited. Paragraph 14.1 says that
“the number of small businesses in scope is low.”
They may be small businesses, but they are important businesses to whoever is running them—and we are talking about financial firms.
It is always helpful to have a review of any legislation, particularly legislation relating to our coming out of the EU. That may not be proportionate in the judgment of the Treasury, but I do not know how many firms we are talking about. If my noble friend has that information, that will be helpful. I suppose that if we are talking of only three or four, that may be right, but I do not believe that that is the number—from my experience in the City, from some of the presentations we have recently had and, indeed, from some of the publicity about what is happening in the financial sector at the moment.
Is my noble friend absolutely confident that those firms do not want the SI reviewed after a period? If they all say no—that they do not want a review and are comfortable—fine, but my judgment is that, in life, it is helpful to have a review at some point.
My Lords, I am grateful, as ever, to the Minister for introducing this latest set of Treasury regulations. These are not the first changes to arise from the Financial Services Act 2021, but this SI represents the biggest amendments to and revocation of the capital requirements regulation—the CRR—since that parent legislation passed. Many of the changes are to facilitate the implementation of certain Basel III standards from 1 January 2022. As the Minister and the Explanatory Memorandum noted, the UK played an active role in negotiating this reform package.
As we discussed at length during the passage of the parent Act, the Prudential Regulation Authority—the PRA—has taken responsibility for updating parts of the CRR through its regulatory rules. That such changes are being made at arm’s length might still rankle with some—the noble Baroness, Lady Kramer, reinforced that point—but that was the Treasury’s determination and it is the framework that we must operate under.
Other changes made by the instrument are designed to facilitate the implementation of the investment firms prudential regime—the IFPR—by the Financial Conduct Authority. That new system will ensure tailored regulation of non-systemic investment firms outside the scope of the CRR. The Explanatory Memorandum notes that although the FCA has introduced most of its IFPR rules, some more are required before the regime goes live on 1 January 2022. Can the Minister confirm whether these additional rules have been finalised and published since the SI and EM were laid? If not, does the FCA have an estimate of when they will emerge?
Could the Minister also outline what parliamentary engagement has been undertaken on the CRR and the IFPR reforms? Given the highly technical nature of these regulations and the various regulatory rules that must be read alongside them, is the Minister confident that everything is present and correct? This might at first glance feel like a trivial question but, as a veteran of dozens of EU exit SIs, it is vital that we have confidence in this process.
Moving on, the Treasury has, in its Explanatory Memorandum, pointed to the existence of accountability frameworks for the PRA and the FCA. However, in doing so, it neglected to mention the unease that has been expressed about this by several colleagues across your Lordships’ House. At the time, it was suggested that concerned colleagues may find comfort in the ongoing future regulatory framework review process. Some has indeed been found in the proposals outlined in measures 6 and 7 of Command Paper 548 to introduce statutory requirements for the PRA and FCA to notify relevant parliamentary committees of their consultations and provide written responses to any representations made. If adopted, these steps would mirror several of the key asks in our previous amendments. Nevertheless, as always, the devil will be in the detail. While it may not be strictly relevant to this SI, can the Minister outline the anticipated timescale for the review? When is the Treasury likely to come forward with the resulting legislation?
Another concern around CRR and IFPR rule-making was the extent to which the regulators would have regard to the steps needed to tackle the climate crisis. The Government eventually conceded that the PRA and the FCA should have regard to the 2050 net-zero target, but this requirement takes effect only on 1 January —that is, after most of the rules have been published and at the same time as they enter into force. Can the Minister outline what steps, if any, have been taken by the regulators to ensure that green issues have been considered as part of the current exercise, in so far as it is possible within the Basel III framework? Can he also explain how he envisages the new duty operating in practice? What kinds of regulatory changes would he expect to see as a result of that concession having been made?
There is a perception—I have outlined my concerns before—that while the Chancellor likes to talk green, he is somewhat less keen on acting accordingly. Many firms in the financial sector are cognisant of the need to make their business practices more sustainable. Some have acted as outriders, setting ambitious targets and creating interesting schemes for change. However, more needs to be done. A voluntary approach to things such as investment in fossil fuels will get us only so far. Some will do the right thing but others may see opportunities to gain competitive advantage. If, by the time we get to the next financial services Bill, these kinds of issues have not been adequately addressed by the PRA and FCA, can the Minister commit the Treasury to taking action?
Implementing Basel III and IFPR is one thing, and we do not oppose these regulations’ small part in delivering those reforms. However, meeting the challenges of the future is another matter and it is not yet clear that we are on the right course.
I thank noble Lords for their contributions today. Some important points have been raised during the debate. I will attempt to answer them but there may be one or two where I will have to write.
To start, my noble friend Lord Naseby asked about impact assessments. A de minimis impact assessment has been published alongside the instrument. As the equivalent annual net direct cost is less than £5 million, the only direct costs to businesses in scope of the instrument will be approximately £900,000. This is for provisions relating to the securitisation regulation.
Regarding the amendment to Article 2(12)(g) of the securitisation regulation, including all the FCA investment firms in scope of due diligence requirements, the net impact to firms is expected to be £900,000 per annum, based on the relevant firms investing in 20 securitisation positions per year. This figure represents the aggregate compliant costs for firms that are being brought within the scope of the due diligence requirements. This figure has been calculated from information provided by the FCA and industry; the calculation is based on the type of investment firms on which the amendment has an impact, the estimated number of such firms and the estimated cost of complying with the due diligence requirements.
The noble Baroness, Lady Kramer, asked about future regulatory reform and parliamentary oversight. The Government and the regulators are committed to ensuring that Parliament has the opportunities it needs to scrutinise the PRA’s rules and respond to anything raised. The Government consider that Parliament has a wide range of powers to request information and conduct effective scrutiny of the regulators, including through the Select Committee system. To support this work, the Government have proposed formalising through statute the mechanisms through which the regulators provide information to Parliament to ensure that it has the information it needs to undertake this scrutiny.
The noble Lord, Lord Tunnicliffe, asked me to outline what parliamentary engagement has been undertaken on both the CRR and IFPR reforms. Ultimately, it is Parliament that sets the regulators’ objectives. It is of course right that Parliament has an appropriate opportunity to scrutinise the work of the regulators and their effectiveness in delivering the objectives that Parliament has set them. The regulators committed to sending their consultations and draft rules on Basel and the IFPR to Parliament during the passage of the Financial Services Act earlier this year.
Consultation on these changes started in December 2020, so there has been plenty of time for Parliament to review and report on it, including through the Select Committee process. The PRA and the FCA also published their near-final rules over the summer to provide ample time for familiarisation well in advance of this debate. As part of the ongoing future regulatory reform, as I have mentioned, we have proposed formalising through statute the mechanism through which regulators provide information.
The noble Lord, Lord Tunnicliffe, and my noble friend Lord Naseby asked whether the detail of this instrument and the accompanying rules set by the regulators are present and correct. The answer is yes. Treasury officials have worked extensively with their counterparts at the regulators to ensure that the changes mesh and make a cohesive whole. Where appropriate, both the Treasury and the regulators have consulted on the measures implemented through this statutory instrument. The noble Lord and my noble friend also asked whether the IFPR rules have been finalised and published since the SI and EM were laid. I can confirm that the FCA has now published all the IFPR rules, including the final outstanding set of rules, which were published on 26 November.
I thank the noble Lord, Lord Tunnicliffe, for his assertion that two of the measures in the recent financial future regulatory framework review consultation provided him with some comfort on the question of the regulators’ accountability to Parliament. He also asked about the timescales of the review. The Government published their consultation on 9 November, with a closing date for responses of 9 February next year. We will bring forward further detail on our approach to implementing the proposals in the review in due course.
The noble Lord asked me to outline what steps, if any, have been taken by regulators to ensure that green issues have been considered as part of their rule-making processes. He is of course correct to say that the Financial Services Bill 2021—now an Act—was amended to include
“have regard to the net-zero carbon target”,
which will apply after 1 January next year. This means that the PRA does not need to have regard to climate change considerations in making the Basel III rules, nor the FCA in making the IFPR rules, for 1 January. This was done to ensure that there is no delay in implementing the Basel III and IFPR reforms. It will be for regulators to determine how the new duty will operate in practice. The Government anticipate that it will function in much the same way as other similar obligations did during the PRA’s implementation of the Basel III standards, such as the need to have regard to the ability of firms
“to continue to provide finance to businesses and consumers in the UK”.
The PRA and the FCA are aware of the need to respond to the potential risks posed by climate change. For example, on 28 October, the PRA published its second climate change adaptation report, finding that under the existing regulatory capital framework there is scope to use capital requirements to address certain aspects of climate-related financial risks. This and future work will no doubt feed into how the PRA sets its rule from 1 January 2022.
(2 years, 9 months ago)
Lords ChamberThat the Regulations laid before the House on 1 November be approved.
My Lords, this Government recognise the threat that economic crime poses to the UK and are committed to combating money laundering and terrorist financing. Illicit finance causes significant social and economic costs, through its links to serious and organised crime. It is a threat to our national security and risks damaging our international reputation as a fair and open rules-based economy. It also undermines the integrity and stability of our financial sector and can reduce opportunities for legitimate business in the UK. That is why we are taking significant action to combat economic crime, from introducing the economic crime levy to progressing the Government’s landmark economic crime plan. We are working closely with the private sector and our international partners to improve the investigation of economic crime, strengthen national standards on corporate transparency and crack down on illicit financial flows.
The money laundering regulations support our overall efforts. As the UK’s core legislative framework for tackling money laundering and terrorist financing, they set out various measures that businesses must take to protect the UK from hostile actors. Under these regulations, businesses are required to conduct enhanced checks on business relationships and transactions with high-risk third countries. These are countries that have strategic deficiencies in their anti-money laundering and counterterrorism financing regimes, and could pose a significant threat to the UK’s financial system.
This statutory instrument amends the money laundering regulations to update the UK’s list of high-risk third countries. This is to mirror lists published by the Financial Action Task Force, the global standard-setter on anti-money laundering and counterterrorist financing. As the Financial Action Task Force carries out its periodic reviews and regularly updates its public lists of jurisdictions with strategic deficiencies, we also need to update our own. Updating our list shows that we are responsive to the latest economic crime threats and ensures that the UK remains at the forefront of global standards on anti-money laundering and terrorist financing.
This amendment will enable the money laundering regulations to continue to work as effectively as possible to protect the UK financial system. It is crucial for protecting our national security and the UK’s international reputation, while securing businesses and the financial system from money launderers and terrorist financiers. Therefore, I beg to move.
My Lords, on the face of it, the regulations before us are very straightforward. The Financial Action Task Force has updated its list of high-risk countries, and we are mirroring those changes in our legislation. We have supported such instruments in the past and will continue to do so.
Paragraph 3.3 of the Explanatory Memorandum outlines the usual justifications for this instrument being laid under the “made affirmative” procedure. We accept the arguments, but it is a pity that the urgency in laying these SIs is not always matched when it comes to the Government’s wider efforts to crack down on money laundering. Although it is true that the task force has given the UK a good rating in general terms, we know that concerns have long been expressed about the UK’s supervisory regime. As my colleague Pat McFadden said in the Commons, the Treasury itself has conceded that FATF sees our systems as “only moderately effective” and that the international body also believes that there are
“significant weaknesses in the risk-based approach to supervision”
in the UK.
The UK is understandably a target for illicit funds, given the size and global status of our financial services sector. The Magnitsky case is a well-known example of funds being funnelled through UK institutions, but we know it is not the only one: that much has been seen with the recent publication of the Pandora papers. The Financial Conduct Authority is reportedly running several active investigations in this area. We wish it well with those probes and hope that any wrongful behaviour is punished in an appropriate way.
The Minister said yesterday that, despite the lack of criminal convictions secured through FCA action, the body is nevertheless taking robust action. He pointed to the imposition of a number of major fines in recent years, such as those against Standard Chartered. However, it is not clear that these punishments are changing behaviour or preventing the recurrence of bad practice. On Monday, Minister Whately outlined some of the limited examples of government action. We welcome the allocation of funds to this fight, but it is hard to take seriously her claim that everything possible is being done to make the UK
“a hostile place for illicit finance and economic crime”.—[Official Report, Commons, 16/11/21; col. 532.]
Many of the initiatives cited have been announced and re-announced without meaningful action following. For example, Companies House has been given an additional £63 million of funds to assist with its reform, but there is little sense that the changes being made will empower that body and lead to better outcomes.
Minister Whately also failed to provide clear justification of the UK Government not classifying countries such as Russia and Afghanistan as high risk. It is true that this instrument is designed solely to administer the task force list, but does the Treasury not see a case for taking action of its own where UK interests are at stake? We await with interest the outcome of the task force’s ongoing analysis of recent events in Afghanistan. It will be interesting to see whether that country is added to the list when we consider the first of these SIs in 2022 but, on Russia, I will simply repeat one of Pat McFadden’s questions: do the Government really not judge Russia to be as big a risk as some of the countries listed in these regulations?
As I said earlier, we are privileged to have a significant financial services sector in this country. Lots of talented people, both regulators and people in the sector, work night and day to detect and stop economic crime and obviously we support them in their endeavours. However, the fact remains that, despite the efforts of individuals, the UK Government’s regulatory framework of choice is seen by the international community as insufficient. As a global leader in financial services, we have a responsibility not only to replicate international initiatives but to lead them from the front. I hope the Minister can outline today exactly how the Treasury intends to do this.
I thank noble Lords for their contributions and I will try to answer the queries raised.
I turn first to the noble Lord, Lord Purvis, and the register of overseas entities’ beneficial ownership. The Government remain absolutely committed to these reforms. When implemented, this register will be an important new tool in our wider efforts to tackle economic crime and will be complemented by the broader powers we are now proposing for Companies House. Once implemented, the register will be one of the first of its kind in the world. That is good news for the UK, maintaining our global leadership role on corporate transparency and enhancing our already strong reputation as an honest and trusted place to do business. The Bill will reflect the pre-legislative committee’s recommendations to ensure that the legislation is as effective as possible in tackling the use of UK property for the purposes of money laundering. I cannot give the noble Lord a precise date, but I am the counter-fraud Minister and I am pressing hard to get that commitment, because I share his concern on this important additional weapon in our arsenal.
I turn to the number of important points raised by the noble Lord, Lord Tunnicliffe, and will try to address as many of them as possible. In terms of the views of FATF, the UK has achieved the best ratings of any country assessed so far in this round of its evaluations, outperforming other states who are at the forefront of tackling money laundering and terrorist financing. I must stress that we are not complacent, and I take the noble Lord’s challenges and criticisms very seriously. The Government will continue to enhance our response to illicit finance as new risks and methodologies emerge.
The UK continues to be guided by FATF standards in our domestic response to money laundering and terrorism financing. Our strategy for combating these crimes is set out in the Economic Crime Plan. This plan contains 52 actions, and its comprehensive agenda will ensure that the UK maintains its global leadership. Key actions include the reform of the suspicious activity reporting regime and improving the supervision of anti-money laundering compliance in the regulated sector. We have made progress in delivering on the Economic Crime Plan, with 24 of the actions complete and a further 10 implemented and being undertaken as an ongoing activity.
In terms of the weakness in the RBA to supervision, the FCA is changing its risk-based approach to anti-money laundering supervision by implementing new data-driven analytical tools and a targeted modular supervision model. This means it will be better placed to balance the two perennially competing aspects of any regulatory oversight regime—depth and breadth—to make the supervisory approach more bespoke, flexible and targeted. The FCA expects firms to implement their obligations effectively and has taken meaningful and impactful enforcement action against firms who failed to implement effective systems. As committed to in the Economic Crime Plan, the Treasury is undertaking a review of the UK’s anti-money laundering regulatory and supervisory regimes. The review will consider the structure of the UK’s supervision regime and the role and powers of the Office for Professional Body Anti-Money Laundering Supervision. We will publish a report setting out the findings of the review and intended next steps in June 2022.
I turn to Companies House reform. The Government have issued their response to the corporate transparency and register reform consultation of last September and set out their plans to reform Companies House and strengthen the UK’s ability to combat economic crime. The reforms are significant and will deliver alongside other broader reforms to clamp down on the misuse of corporate entities. They will deliver more reliable information on the companies register via verification of the identity of people who manage, control or set up companies. There will be greater powers for Companies House to query and challenge the information submitted to it, and the removal of technological and legal barriers to allow enhanced cross-checks on corporate data with other public and private sector bodies.
The noble Lord specifically asked about Russia and Afghanistan. The high-risk third countries list is only one of the tools that the Government have to signal to the private sector which jurisdictions are currently at risk. We also have the national risk assessment of money laundering and terrorist financing, which advises firms where they should take extra caution in building business relationships, given cross-border money laundering risks. The money laundering regulations require firms to consider geographical risks so, regardless of listing, firms have to be nuanced and risk-assess their business relationships taking into account credible sources.
In the FATF assessment of Russia, the judiciary’s lack of independence and corruption were both highlighted. For example, FATF noted that levels of corruption are high in Russia. This is why we are at the forefront of global actions spanning operational policy and diplomatic communities to target the money launderers and the enablers who underpin corrupt elites and serious organised crime. To go back to the point made by the noble Lord, Lord Purvis, there is a horrible interconnection with what is happening with the migrant boats. If they get 50 people on to one of those boats at £2,000 each, that is £100,000 and it probably costs them £1,000 to buy the boat, so the noble Lord is completely right. That is why we are not in any way complacent about this.
Some of our response will be visible through law enforcement policy and international engagement. Other options will be less visible but no less impactful. Our response continuously evolves with the threat. In relation to Afghanistan, our engagement with the private sector tells us that there is already a very high level of scrutiny of money laundering, terrorist financing and sanction evasion risks. The presence of sanctions entities in Afghanistan and its potential money laundering and terrorist financing risks have been well-publicised, with alerts from UK supervisory bodies and other credible sources available for the regulated sector to draw on to assess the risks.
The noble Lord asked how we intend to lead the fight from the front. We are trying to lead by example and our freely accessible public register of company beneficial ownership is one of the most open and extensively accessed company registers in the world. The UK has been at the forefront in delivering greater corporate transparency. We have led international reform efforts. This year, we used our G7 presidency to agree landmark commitments to implement and strengthen beneficial ownership registries, securing commitments from countries such as the US, Canada and Japan which had not previously been made.
(2 years, 9 months ago)
Lords ChamberTo ask Her Majesty’s Government what assessment they have made of (1) the levels of compliance with money laundering regulations by banks in the United Kingdom, and (2) the steps being taken by the Financial Conduct Authority to prevent money laundering.
My Lords, the Financial Conduct Authority is the designated anti-money laundering supervisor for banks in the UK. The FCA uses data-led supervision programmes to assess its target firms. It issues guidance so that supervised entities understand the AML risks they are exposed to. The Treasury’s 2019-20 supervision report found that 86% of the 177 financial institutions subject to FCA active supervision were compliant. In instances of non-compliance, the FCA takes robust action to deter future breaches of the regulations.
My Lords, the FCA has secured only one criminal conviction of a bank for money laundering, which was actually volunteered. Numerous leaks, such as the Pandora papers and the Paradise papers, show that UK banks are involved in illicit financial flows, yet the FCA is missing in action. What prevents the Minister commissioning an independent inquiry into the involvement of banks in illicit financial flows?
My Lords, the noble Lord tells only part of the story. A number of major fines have been imposed on financial institutions in the last few years: Deutsche Bank, £160 million in 2017; Standard Chartered, over £102 million in 2019; Commerce Bank, £37 million in 2020; and Goldman Sachs, £48 million in 2020. We have rigorous oversight and we continue to review it the whole time.
My Lords, earlier this year we held a debate on the Church Action for Tax Justice report Tax for the Common Good. When we discussed British Overseas Territories, we looked at the whole issue of tax havens and were assured that this was being addressed, yet the latest Pandora papers reveal that they are still used by shell companies to hide property sales and to avoid tax. Would the Minister agree that, since we are responsible for the defence of these territories, they have a duty to stop siphoning this money off from the UK?
My Lords, the right reverend Prelate is right to raise the issues in the Pandora papers and the jurisdictions he refers to, but we are making steady progress in closing the tax gap. Indeed, we have closed it by nearly a third in the last 15 years. In 2005-06 it was estimated at 7.5% and in the last year, 2019-20, it was down to 5.3%. In the last 10 years we have collected some £250 billion that would have been lost if these measures were not in place.
My Lords, I declare my technology interests as set out in the register. Does my noble friend the Minister agree that it is time we got real about AML and KYC? Does he agree that we need a digital ID, not just for individuals but for corporate and other entities, and to further increase work on digital currencies, not least a potential Britcoin? If we did this, it would go at least some way towards “laundering out, safety and security in”, and “laundering out, social and economic growth enabled”.
My noble friend is right to be concerned about the vigilance we need to deploy in this area, because it is a fast-moving target. We are always reviewing the situation. In July this year we published a call for evidence, which closed only a few weeks ago, in October. We will respond by June next year, looking at the issues my noble friend raised.
In a recent speech on money laundering, the FCA’s executive director of enforcement highlighted the emerging risk to consumers of online offers from unauthorised companies, investment scams and other too-good-to-be-true propositions. The FCA warning list of such firms has doubled in just over a year. Can the Minister assure the House that there are no plans for regulatory easing of money laundering post Brexit? Will the Government increase the resources of the Serious Fraud Office and the National Crime Agency so that they can enforce legislation effectively and protect the high number of consumers now at risk?
My Lords, as the noble Baroness will probably be aware, in 2018 we created a helpfully named quango oversight group called OPBAS, the professional body supervision group. It produces an annual report, which is always hard hitting on any failures—as indeed its most recent one was. This illustrates that we are entirely self-critical, to ensure that we are watching these developments carefully.
My Lords, in assisting the World Alliance of International Financial Centers, I have found that while we may not think that the UK, as a non-EU financial centre, is a money laundering hub, apparently the rest of the world does. Might inconsistent definitions globally between regulators, legal jurisdictions and international law about who or what is a money launderer be a major part of the problem? As a financial centre, we should ensure the same levels of compliance for all industries, including the property sector, to dispel the notion that money launderers’ illicit money or investments can be under cover here.
My Lords, it is a harsh judgment to say that we are a honeypot for international money launderers. We are one of the largest financial centres in the world, so the volume of money passing through our system is colossal. We have been judged by the FATF as one of the most effective regulators of this area in the world. We have the second- highest level of fines so far. As I mentioned in response to earlier questions, we continue to review the situation carefully. For example, at the moment we are looking at Companies House legislation to make sure that registrations there are more carefully vetted.
My Lords, 10 December 2021 will be the fourth anniversary of the Government’s United Kingdom Anti-Corruption Strategy, which in 2017 committed to bringing forward a draft Bill in that Session of Parliament
“for the establishment of a public register of beneficial ownership of overseas legal entities.”
Are Her Majesty’s Government still committed to such a Bill? If so, when will we see it?
My Lords, we are certainly committed to that. I am afraid I cannot give a date yet. As the noble Lord will know, we are trying to put a huge amount of legislation through both Houses, but we recognise that it is a priority. In February this year the economic crime plan was set out. It listed seven priorities, and dealing with the issues he referred to is included there.
My Lords, any money launderer worth his or her salt is no longer going through the banks. They are basically engaged in Web3 and using decentralised finance, known as DeFi for short. Does the Minister understand that this makes even more critical the kind of register the noble Lord, Lord Tunnicliffe, just described, but also a register of the beneficial owners of property in the UK, which is frequently the way in which criminals, dictators and others choose to wash out their money?
My Lords, I refer again to OPBAS, whose role is to oversee all the regulators for supervision in this area, including those that the noble Baroness refers to. We will continue to be vigilant.
My Lords, in 2018 the National Economic Crime Centre was launched to tackle fraud and money laundering. Has it brought a single prosecution? We read reports of banks having potentially forged customers’ signatures on court documents to repossess homes and businesses. Have the NECC or the FCA brought a single investigation? Is the Minister content with this state of affairs?
My Lords, the National Economic Crime Centre leads and co-ordinates the UK’s response to economic crime. Prosecutions for economic crime are pursued by the National Crime Agency and other enforcement partners. Annually, some 7,900 investigations, 2,000 prosecutions and 1,400 convictions take place in connection with money laundering-related activities.
My Lords, I take the prevention of money laundering as an important imperative. However, I am not sure the banks are dealing with it sensibly. I have had calls from banks asking about my monetary transfers. One bank, which I will not identify, could not contact me as I was away, so it wrote to me in what I regard as a threatening manner, saying, “If we have not received this information about transfers by” a particular date, then three days hence, “we will have to restrict access to your accounts. This will mean you will not be able to withdraw money or make mortgage payments or other standing orders and direct debits.” I am aware of business customers placed in dire financial straits without fault because their accounts have been frozen for so-called security reasons. Does the Minister agree that disrupting normal business commerce just to increase numbers of checks is unacceptable and that the banks need to get the balance right?
My Lords, it is extremely difficult to get the balance right, because the banks are damned if they do and damned if they do not. I am sorry the noble Lord had personal difficulties in that situation, but if it had been a fraudulent transaction with large sums lost, I think he would have been even more upset. We have to err on the side of caution. The banks need to improve their ways of intervening and use artificial intelligence to be more effective and not go after false alarms.
My Lords, the time allowed for this Question has elapsed.
(2 years, 9 months ago)
Lords ChamberI beg leave to ask the Question standing in my name on the Order Paper and in doing so declare my technology interests as set out in the register.
My Lords, designation of the United Kingdom’s critical national infrastructure is sensitive and as such is not made public. However, the Government have committed to legislating to protect access to cash and to ensure that the UK’s cash infrastructure is sustainable for the long term. The Government recently concluded a consultation setting out proposals for new legislation which seeks to ensure that people only need to travel a reasonable distance to pay in or take out cash.
My Lords, does my noble friend agree that, whether for the financial inclusion of individuals or the overall resilience of the UK economy, until we have high-speed reliable digital connectivity and high levels of universal digital inclusion, cash still matters, and it matters materially?
I agree with my noble friend; he is completely correct. It is worth pointing out as some reassurance that over 79% of adults over 65 have made a payment using contactless in the last year and 84% of adults over 65 have used online banking, so I think the digital revolution is spreading to all parts of our society.
My Lords, the Minister’s answers seem to indicate that the Government are very keen that we end up as a cashless society, with everything done with cards and so on. Is he aware that Sweden has stopped this move because of fears of a covert attack? In which case, if we were cashless and had a covert attack which disabled everything, we would be a moneyless society.
The noble Lord makes a good point—though perhaps he meant “cyber” attacks—and it is certainly part of our responsibility to ensure that the banking system is resilient to attacks. We have convened the banking system and ensured that operational resilience is a key part of protecting the UK’s financial system, institutions and customers.
My Lords, is there not a levelling-up issue behind my noble friend’s Question, in that areas that are left behind have more people without bank accounts and fewer ATMs? Will this be addressed in the forthcoming levelling up White Paper?
My noble friend is right that access to cash can be more difficult for those less well off. However, as he will be aware, LINK has committed to protect free-to-use ATMs more than one kilometre away from the next nearest free ATM or post office and free access to cash on high streets. It remains a priority of this Government to ensure that cash is available.
My Lords, I wonder if I can press the Government, because the Bank of England is looking closely at a central bank digital currency. Many have suggested that this will be the substitute for cash in the future, but its characteristics are quite different, in many ways, from cash. Can we have an assurance from the Government that they will keep in place a cash infrastructure running alongside—if they choose it—a digital sterling?
My Lords, we are certainly looking at a digital system, but I reassure the noble Baroness that cash remains a key part of the ecosystem.
My Lords, as a former member of the Select Committee on Financial Exclusion, so ably chaired by the noble Baroness, Lady Tyler of Enfield, I first endorse what the noble Lord, Lord Young of Cookham, said about levelling up. Even though the statistics show a reduction in the number of those needing cash, people still become at the mercy of ruthless illegal moneylenders and others, and this is destroying lives. Can the Minister assure the House that he will keep pressure on the banks to ensure that there are effective and accessible services that allow these people access to the financial system, so that they can avoid all this desperation and the criminality that flows from it?
My Lords, basic bank accounts are one requirement of the banking system; the nine largest account providers are required to provide this to customers, and there are some 7 million basic accounts open with these providers. They are easier to open than ordinary bank accounts, and that facility remains available.
I first draw attention to my interests as set out in the register, particularly as an independent director of LINK. Does my noble friend the Minister have an indication of when the fundamental review of financial services regulation will be concluded? Given that the pressure on cash infrastructure is now so acute, what news is there of the work the FCA is overseeing with the banks on developing a much-needed plan to protect cash infrastructure?
My noble friend asks important questions. On access to cash, as I said in earlier answers, the Government are committed to legislating to protect access to cash and ensuring that the UK’s cash infrastructure is sustainable in the long term. In answer to my noble friend’s second question, the Government are undertaking a wider financial services future regulatory review, which aims to build on the strengths of the UK’s existing framework as set out in the Financial Services and Markets Act 2000. An initial consultation exploring these issues and a proposed approach was published by the Treasury in October last year, and we had 120 responses. We will publish a second consultation with detailed proposals shortly.
My Lords, the noble Lord, Lord Holmes of Richmond, is right to keep up the pressure on this important issue. The problem to date has been the lack of ownership, with the Treasury urging action from a variety of regulators and public bodies, none of which has a whip to crack when providers leave town. The recent consultation sought to place overall responsibility with the Financial Conduct Authority. Is this still the Treasury’s preference? If so, when and how will this be enacted?
My Lords, the Government’s consultation set out proposals for the Financial Conduct Authority to become the lead regulator for oversight of the retail cash system, including having responsibility for monitoring and enforcing new legislation and cash access requirements. In adopting this approach, the Government intend that the Payment Systems Regulator and the Bank of England continue with their existing functions with regards to cash. Co-ordinated actions by the FCA and PSR on cash as part of the Covid response have shown that joint working between the regulators at both strategic and operational levels is working.
My Lords, following on from the questions from the noble Lords, Lord Hunt and Lord Tunnicliffe, will the Government commit to giving the Financial Conduct Authority responsibility to start tracking trends in cash acceptance levels among UK businesses to help understand what action might be required to prevent that problem worsening? Separate from the legislation—it will be great to get a timetable for when it will be introduced—what specific measures will the Government take to ensure that people, particularly those who rely on cash, can continue to use cash to pay for goods and services?
My Lords, as part of the FCA’s role in monitoring and enforcing cash access, the Government consider that it should be given responsibility for ensuring that access points provide reasonable access. In terms of recent activity, since the passing of the Financial Services Act, retailers now have the ability to offer cashback without purchase—I think it was from 29 June—and we are already seeing some take-up of that. Indeed, PayPoint, which operates terminals in several thousand outlets across the country, has committed to provide that extension to its service.
Will my noble friend give an assurance that there will continue to be access to cash in rural areas? Could he please define what, in his view, is a reasonable distance to travel to pay in or take out cash?
My Lords, to reassure the noble Baroness, the provision of cash access across the UK remains extensive. As of March this year, 95% of the population were within two kilometres of a free cash withdrawal point.
(2 years, 9 months ago)
Grand CommitteeThat the Grand Committee takes note of the economy in the light of the Budget Statement.
My Lords, the Budget and spending review that the Chancellor set out last week delivers a stronger economy for the British people. It shows what this Government are about: investment in a more innovative, high-skilled economy, better public services, backing business, help for working families with the cost of living, and levelling up. It does not draw a line under Covid but it begins the work of preparing for an invigorated economy beyond Covid.
There are reasons for optimism. The Office for Budget Responsibility says it now expects our recovery to be quicker. It forecasts the economy to return to its pre-Covid level at around the turn of the year, several months earlier than it thought last March. In July last year, at the height of the pandemic, unemployment was expected to peak at 12%. The OBR now expects unemployment to peak at 5.2%. That is some 2 million fewer people unemployed than originally feared. Wages are rising. Compared to February 2020, they have grown in real terms by almost 3.5%. In the depths of the worst economic crisis on record, the Government set out a Plan for Jobs. The OBR forecasts confirm that the plan is working.
The Chancellor said last week that he made four fiscal judgments in the Budget and spending review: first, that the Government will meet our fiscal rules with a margin to protect ourselves against economic risks; secondly, that we will continue to support working families; thirdly, that as well as helping people at home, our improving fiscal position means we will meet our obligations to the world’s poorest, with forecasts showing that we are scheduled to return to spending 0.7% of our national income on overseas aid in 2024-25; and, fourthly, that there will be a real-terms rise in overall spending for every department, with an increase in total departmental spending over this Parliament of £150 billion.
At the start of this Parliament, resource spending on healthcare was £133 billion. Last week’s spending review confirms that by the end of this Parliament it will increase by £44 billion to over £177 billion a year. The extra revenue we are forecasting to raise from the health and social care levy is going direct to the NHS and social care, as promised.
As well as funding to deliver the Prime Minister’s reforms to social care, we are providing local government with new grant funding over the next three years of £4.8 billion. We are investing more in housing and home ownership, with a multiyear housing settlement totalling nearly £24 billion.
Last week’s Budget funds our ambition to recruit 20,000 new police officers. It provides an extra £2.2 billion for courts, prisons and probation services. It commits £3.8 billion to the largest prison-building programme in a generation.
We are delivering on our commitment to schools, with an additional £4.7 billion by 2024-25 for the core schools budget in England, over and above the 2019 spending review settlement for schools in 2022-23. Taken together, this is broadly equivalent to a cash increase of over £1,500 per pupil by 2024-25 compared to 2019-20.
As we level up public services, we are also levelling up communities—restoring the pride people feel in the places in which they live. To do that, we are providing £560 million for youth services, over £200 million to build or transform up to 8,000 community football and multiuse sport pitches across the UK, and the funding to turn more than 100 areas of derelict land into new green spaces. The first round of bids from the levelling-up fund have now been allocated. There is £1.7 billion to invest in the infrastructure of everyday life in over 100 local areas, with £170 million in Scotland, £120 million in Wales and £50 million in Northern Ireland.
Levelling up is also about protecting our culture and heritage. This is why we are investing £850 million to protect museums, galleries, libraries and local culture, and why over 100 regional museums and libraries will be renovated, restored and revived.
This is a Budget and spending review for the whole United Kingdom. Through the Barnett formula, last week’s decisions increase Scottish Government funding in each year by an average of £4.6 billion, Welsh Government funding by £2.5 billion, and funding for the Northern Ireland Executive by £1.6 billion. This delivers, in real terms, the largest block grants for the devolved Administrations since the devolution settlements of 1998.
The whole of the United Kingdom will benefit from the UK shared prosperity fund. Over time, we will ramp up funding so that total domestic UK funding will match EU receipts, averaging around £1.5 billion a year.
As we come out of the worst economic shock we have ever seen, the Government must choose whether to retrench or to invest. This Government choose to invest. Infrastructure connects our country and drives productivity. That is why our national infrastructure strategy is investing over £130 billion in economic infrastructure such as roads, railways, broadband and mobile. To connect our towns and cities, we are investing £21 billion in roads and £46 billion in railways. The Prime Minister promised an infrastructure revolution, and this Budget delivers one.
Investment in our infrastructure is just the first step. We will invest more in innovation. The Chancellor last week confirmed that we will maintain our target to increase R&D investment to £22 billion. Combined with tax reliefs, total public investment in R&D is increasing from 0.7% of GDP in 2018 to 1.1% by the end of the Parliament. Our net-zero strategy, meanwhile, is also an innovation strategy, investing £30 billion to create the new, green industries of the future. Innovation comes from the imagination, drive and risk-taking of business.
The Chancellor last week announced that we will consult on further changes to the regulatory charge cap for pension schemes, unlocking investment that will improve member outcomes, while protecting savers. He increased the British Business Bank’s regional financing programmes by over £1.6 billion, expanding their coverage and helping innovative businesses get access to the finance they need across the whole United Kingdom.
If we want greater private sector innovation, we need to make our research and development tax reliefs fit for purpose. The reliefs need to reflect how businesses conduct research in the modern world. The Chancellor last week expanded the scope of the reliefs to include cloud computing and data costs.
Last year, companies claimed UK tax relief on £48 billion of R&D spending. Yet UK business investment was around half that, at just £26 billion. This is unfair on British taxpayers. It puts us out of step with places such as Australia, Canada and the USA, which have all focused their R&D tax reliefs on domestic activity. From April 2023, we are going to do the same and incentivise greater investment here at home.
As well as investing in infrastructure and innovation, there is one further part of our plan for growth that is crucial: providing a world-class education to all our citizens. Higher skills lead to higher regional productivity, and higher productivity leads to higher wages. The Budget and spending review invest in the most wide-ranging skills agenda this country has seen in decades. We are increasing skills spending over the Parliament by £3.8billion—a cash increase of 42%.
We are expanding T-levels, building institutes of technology, rolling out the Prime Minister’s lifetime skills guarantee, upgrading our FE college estate, quadrupling the number of places on our skills bootcamps and increasing funding for apprenticeships. The Government have also announced a new UK-wide numeracy programme, Multiply. Worth £560 million, Multiply will improve functional maths skills to help change people’s lives across the whole United Kingdom.
The Prime Minister said last month:
“We are not going back to the same … broken model with low wages, low growth, low skills and low productivity, all of it enabled and assisted by uncontrolled immigration”.
Achieving greater productivity is not just a job for government. It is a collaborative effort, with the Government providing the infrastructure, employers moving away from relying on low-paid staff from abroad and employees embracing the opportunity to upskill. This Budget commits the Government to delivering on their part of the bargain.
We want this country to be the most exciting and dynamic place in the world for business. For that reason, the Chancellor announced a series of other changes to our tax system, including reforming our tonnage tax regime to make it simpler and more competitive and reducing air passenger duty for domestic flights from April 2023 to support the union. From April 2023, there will be a new ultra-long-haul band in air passenger duty, covering flights of over 5,500 miles, with an economy rate of £91. Less than 5% of passengers will pay more, but those who fly furthest will pay the most.
Our approach to corporate taxation strikes a responsible balance between funding public services and encouraging the investment that we need for a stronger economy. For that reason, the Chancellor announced that the £1 million annual investment allowance will not end in December as planned but be extended to March 2023. He also announced that we will retain the bank surcharge within corporation tax of 3%, meaning that the overall corporation tax rate on banks will, in 2023, increase from 27% to 28%.
Business rates are receiving a significant overhaul. The system will be fairer and timelier with more frequent revaluations occurring every three years. We are introducing support to encourage businesses to adopt green technologies such as solar panels and a new business rates improvement relief. The Chancellor announced that next year’s planned increase in the multiplier will be cancelled—a tax cut for business worth around £4.6 billion over the next five years. To help businesses hardest hit by the pandemic, he announced, for one year, a new 50% business rates discount for eligible businesses in the retail, hospitality and leisure sectors up to a £110,000 per business cap—support worth almost £1.7 billion.
The Budget takes a number of other important steps. It includes the most radical simplification of alcohol duties for over 140 years. This includes a further freeze to all alcohol duty rates for the coming year. The cancellation of the planned rise in fuel duty means a saving over the next five years of nearly £8 billion. It announced that public sector workers will see fair and affordable pay rises across the whole spending review period, as we return to the normal, independent pay-setting process. It takes action to help the lowest paid by accepting the recommendation of the Low Pay Commission to increase the national living wage by 6.6% to £9.50 an hour, meaning that a full-time worker will receive a pay rise worth approximately £1,000 a year. Finally, to make sure that work pays, it cuts the universal credit taper rate by 8%, from 63% to 55%. Because the Budget also increases the work allowance by £500 per year, this is an effective tax cut worth over £2 billion next year. Nearly 2 million families will keep, on average, an extra £1,000 a year.
To conclude, this Budget and spending review begins the work of preparing for a new economy post Covid. It helps with the cost of living; it levels up to a higher-wage, higher-skill, higher-productivity economy; and it builds a stronger economy for the British people. I beg to move.
My Lords, it is a privilege to close this debate on behalf of the Government. Let me thank noble Lords for the many insightful and considered contributions that we have heard today. Given the number of speakers and the time that I am allocated, I will try to respond to as many of them as possible, but forgive me if I do not cover everybody.
On the economic and fiscal picture, the noble Lord, Lord Fox, raised the issue of inflation. The Bank of England is responsible for controlling inflation, and CPI inflation has averaged around its 2% target rate since the Bank became responsible. The Government are taking targeted action worth more than £10 billion over the next five years to help families with the cost of living, and the Plan for Jobs is helping people get into work and gain the skills they need to progress, which is the best approach to managing the cost of living in the longer term.
The noble Lord, Lord Tunnicliffe, is worried about real wage growth. Wages have continued to grow since the start of the pandemic, which, frankly, none of us would ever have conceived even if we go back a year, but they are now 4.4% higher compared to February of last year.
Looking at the labour market more broadly, the OBR has revised down the unemployment rate peak on at least two occasions, to 5.2% for the end of this year, which is down from 6.5% in the March 2021 forecasts and from 7.5% in the November 2020 forecasts—that is 460,000 fewer people expected to be out of work than in only March this year.
My noble friend Lord Lamont asked about the approach to the quoting of debt figures for the Bank of England. The Government have chosen to focus on public sector net debt excluding the Bank of England because excluding the Bank’s contribution to public sector net debt—for example, through the QE programme —reflects the impact of government decisions. The IFS has said that
“it is often appropriate to focus on debt excluding the Bank of England when evaluating the fiscal situation.”
Public sector net debt is falling and by a larger amount again over the forecast horizon. It peaks at 98.2% of GDP this year and then falls in every year of the forecast to reach 88% in 2026-27. The Treasury will continue to monitor public sector net debt excluding the Bank of England, providing a better overview of the public finances.
The noble Lord, Lord Londesborough, asked about supply shortages exacerbating inflation. The Government are working hard with international partners to tackle this problem. We must acknowledge that this is not a local issue; it is happening across the world. When the whole world has woken up from Covid, the enormous suppressed demand combined with the huge fiscal interventions, with money in people’s pockets, means that people are bursting back into spending much quicker than anyone could have imagined.
We are trying to support those at the more vulnerable end with increases in the national living wage and the Household Support Fund. The fund is ring-fenced so at least 50% will be spent on households with children. The fund has been set at a level that will allow local authorities in England to support, for example, 3 million to 4 million vulnerable households with an average payment of £100 each.
The noble Lord, Lord Eatwell, asked about the increased holding of gilts leading to higher interest rates. Given that I have heard from the noble Lord, Lord Turnbull, that the noble Lord is one of the cognoscenti, I must be careful in how I respond. As I understand it, while debt is forecast to fall over the medium term, it will remain significantly above pre-pandemic levels. That means that we are vulnerable to shocks, which means that we would be spending a lot more money on debt servicing. A 1% increase in both inflation and interest rates would increase spending on debt interest by around £22 billion in 2026-27, which is almost twice the impact than if it had been in 2014.
The noble Lord, Lord Davies of Oldham, and my noble friend Lady McIntosh are concerned about energy prices. Ofgem’s energy price cap has protected consumers during the recent fluctuation in gas prices. Millions of low-income households will be supported with the cost of essentials through the warm home discount scheme, which helps 2.2 million low-income households with their energy costs, and the winter fuel programme, which provides £200 towards energy bills for households with a member at or above state pension age and £300 for households with a member at or above 80 years of age, a significant £2 billion contribution to winter fuel bills.
The noble Lords, Lord Fox, Lord Desai, Lord Turnbull, Lord Rooker and Lord Tunnicliffe, and the right reverend Prelate the Bishop of Newcastle are all concerned about universal credit and I very much hear their concerns. However, the Government have always been clear that the £20 uplift was a temporary measure to support households whose incomes and earnings were affected by the economic shock of Covid. The taper means that 1.9 million working households will be able to keep substantially more of what they earn. That effectively represents a tax cut worth around £2.2 billion a year in 2022-23 for the lowest-paid in society.
Linked to that is the concern of the noble Lord, Lord Tunnicliffe, that there are many people on universal credit who are not in work. This comes back to the whole jobs revolution. We seem to forget that it is an extraordinary position to have so many vacancies in our economy. The Government are building on the success of the plan for jobs with a total of £6 billion over the SR period providing targeted additional support to help these at-risk groups to find work, including those coming off furlough, younger and older age groups, the long-term unemployed and people with disabilities.
The national living wage is increasing by 6.6% to £9.50 an hour in April next year, which will benefit 2 million people. Since its introduction in 2016 the national living wage has increased the pre-tax earnings of a full-time worker by over £5,000 a year. This increase is consistent with the Government’s target to go even further and raise the national living wage to two-thirds of median earnings for over-21s by 2024, provided that economic conditions allow.
The noble Lords, Lord Davies of Oldham and Lord Londesborough, and the right reverend Prelate the Bishop of Newcastle asked about educational recovery. The SR21 reaffirms and expands the Government’s commitment to helping the most disadvantaged pupils recover learning lost due to the pandemic, bringing total investment to specifically support educational recovery to £4.9 billion since the academic year 2020-21. It provides more than £3.2 billion over the SR period. This includes a £1 billion recovery premium for the next two academic years for schools. Primary schools will continue to benefit from an additional £145 per eligible pupil, while the amount for eligible pupils in secondary schools will nearly double. In broad terms, this will mean an average secondary school could attract around an additional £70,000 a year.
Many noble Lords mentioned skills. I want to provide a bit of detail on the Multiply scheme that I touched on briefly in my opening speech. This will provide £560 million across the SR to give people the opportunity to develop their numeracy skills. We are targeting around half a million adults. What is important about this is that adults with poor numeracy are more than twice as likely to be unemployed at the age of 30 as those with competent numeracy. Getting these numeracy skills is one of most valuable things we can do to help people get on. It is the equivalent of a level 2 numeracy standard. Statistics show that this will increase wages by an average of 14% after seven years, compared with 4% for that wider cohort.
This is one example of dealing with productivity, which the noble Lord, Lord Londesborough, and many other noble Lords raised. Our highest priority is to unlock the addiction we have had in this economy to low wages. I am optimistic that we will, because the ability to take the easy way out by bringing in cheap eastern European labourers will no longer be available. Noble Lords will know that, until a couple of years ago, employers were not even advertising jobs in the UK; they were just using agencies in eastern Europe and bringing people over wholesale. That has now stopped.
Some £1 billion will be invested across the SR to help children and young people get the best start. This includes £500 million for start for life services and family help, including new family hubs, investment in maternity services and infant and perinatal health, and a £200 million increase in funding for the existing Supporting Families programme to reach 300,000 families. There will be 300 new youth facilities as part of the £560 million funding for youth services.
I turn to net zero. The noble Lord, Lord Eatwell, and the noble Baroness, Lady Kramer, raised concerns. The fiscal consequences of the transition to net zero will need to be managed in line with the Government’s broader fiscal strategy. As the economy recovers from the pandemic, borrowing will be reduced to sustainable levels.
On the concerns raised by the noble Baroness, Lady Kramer, that there were not many initiatives in the Budget, I want to put a few of them on record. For example, there is a much more ambitious focus on nuclear energy, with £1.7 billion direct investment to enable a large-scale nuclear project. We confirmed a £120 million future nuclear enabling fund. There was £155 million for critical nuclear infrastructure; a £385 million advanced nuclear fund; £380 million for the offshore wind sector and for putting in place a more efficient approach to connecting offshore windfarms; and a doubling of the spending on energy innovation with confirmation of a total of £1.3 billion in energy innovation funding. There are similar items on buildings and transport, but I do not have the time to deal with all of them. I think that that we have led the G20 in our carbon reductions in the last 15 years and I feel that the noble Baroness, Lady Kramer, is being a little bit hard on us.
The noble Lord, Lord Eatwell, and my noble friends Lord Naseby and Lady Noakes worried that, even though we are increasing taxation, we will not restore health spending levels to the 2010 inflation-adjusted rate. To fund the significant increase, the Government have taken the very difficult decision of the new 1.25% health and social care levy. We have also increased the rate of dividend tax by 1.25% to support that package. This will allow for around £13 billion average annual investment over the next three years to tackle the elective backlog in the NHS as it recovers from Covid. Alongside this, the Government have reaffirmed their commitment to 50,000 additional nurses and 50 million primary care appointments. We have already seen number of nurses increase by 21,000 since June 2019.
While the Government have taken the difficult decision to raise taxes, the health and social care levy is a progressive way to raise the money for households which will benefit from further investment. Analysis from the Resolution Foundation and the Government shows that our policies are set to boost incomes for those at the bottom of the distribution and that higher taxes will mostly impact middle to higher-income households.
The noble Lord, Lord Fox, had some queries about levelling up. Levelling up means making sure that people’s opportunities are not limited by the areas in which they live. Put simply, we are trying to bring opportunities to talent, which is something this country has been very poor at in the past. We are doing this via targeted action worth more than £10 billion over the next five years, which I referred to earlier. We are spreading opportunity and improving public services by investing £3.8 billion in skills over the Parliament by 2024-25 and providing funding for at least 100 community diagnostic centres. We are boosting living standards by launching the new £1.4 billion global Britain investment fund, which will help spread economic opportunities more evenly across the UK. We are empowering local communities and leaders, for example through the UK shared prosperity fund, which is worth more than £2.6 billion over the spending review period, to help people access new opportunities in places in need, working in partnership with local leaders. The levelling up White Paper will set out further detail on how the Government are levelling up in the UK.
The noble Lord, Lord Razzall, asked about the impact of EU trade. The Chancellor has been clear in his view that the agility, flexibility and freedom provided by Brexit will be more valuable in the 21st-century global economy than just proximity. As noble Lords will know, we are already in discussions with Australia and New Zealand, which form an important part of the CPTPP trade bloc. We aspire to join that trade bloc, which is growing far more quickly than any activity in the EU.
The noble Lords, Lord Fox, Lord Sikka and Lord Londesborough, and my noble friend Lord Risby asked about investment for business. The Government are putting our plan for growth into action. The Budget and SR provide support to the UK’s most innovative firms, leveraging private sector investment and driving innovation to boost productivity across the UK. This includes providing £2.5 billion for Innovate UK core funding and launching the scale-up, high potential individual and global business mobility visas to attract highly skilled people. It also includes funding the delivery of Help to Grow schemes, which will enable more than 100,000 small and medium-sized businesses to boost their productivity, supporting the Made Smarter adoption programme to boost the productivity of manufacturing and SMEs and the £1.4 billion global Britain investment fund, which will support new investment in manufacturing industries.
On R&D tax reliefs, in this SR the Government are increasing direct spending on R&D to record levels, providing £20 billion per year across the UK in 2024-25. On the concerns about Horizon, in the event that the UK is unable to associate to Horizon Europe, the funding allocated to the Horizon association will go to UK government R&D programmes, including those to support new international partnerships.
It is also worth reminding noble Lords that the tax relief granted for EIS investments has become a significant way of investing in early-stage businesses. In 2015-16, around 3,500 companies raised funds from that mechanism, and that rose to 4.200 in 2019-20—which is just under £2 billion for those years.
On tax and business rates, the noble Lords, Lord Fox, Lord Turnbull and Lord Davies of Oldham, and my noble friends Lord Flight and Lady McIntosh of Pickering are concerned that people will be worse off because of tax measures such as the new levy. The highest-earning 15% will pay more than half of the revenue for the new social care levy, while 6.1 million people earning less than the primary threshold—that is £9,880 in 2022-23—will not pay the levy. If we had used income tax rates as the base for the levy, rates would have had to rise by more than 1.25% and therefore the impact on individual taxpayers would have been higher.
The decision to maintain the personal allowance and the higher rate threshold at 2021-22 levels out to 2025-26 was a progressive approach to fund good-quality public services and rebuild the public finances after the huge intervention of the Covid crisis. Nobody’s take-home pay will be less than it is now as a result of this policy, and for most taxpayers any real-terms losses are small next year. The average basic rate taxpayer will be around £75 worse off in real terms in 2022-23.
The Government have raised the personal allowance by nearly 50% in real terms in the last decade. It is the highest basic personal tax allowance of all countries in the G20 and remains one of the most generous internationally. A typical basic rate taxpayer will still be more than £600 better off in 2025-26 than they would have been if the Government had not taken this action to increase the personal allowance above inflation since 2010-11.
We have spent more than £350 billion on Covid mitigation, and freezing indexation is part of the way of addressing this. The income tax system is still highly progressive, with the top 5% projected to pay nearly 50% of all income tax in 2021-22 and the top 1% projected to pay more than a quarter of all income tax in that year. Even with maintaining income tax threshold levels, around 80% of income tax payers will pay no more than the basic rate.
The noble Lords, Lord Fox and Lord Shipley, and my noble friend Lord Flight asked about business rates. The business rates review provides £750 million-worth of support over the next five years for businesses to improve and decarbonise their properties, supporting them to become greener. The review commits to changes to improve the business rates system, such as more frequent revaluations to make business rates more adjustable to economic change and hence fairer for small businesses in the longer term. From 2023, the Government will introduce a new business rates improvement relief, so no business will face higher business rate bills as a result of qualifying improvements to a property they occupy for 12 months. This will enable businesses to adapt to meet rising demand and make improvements to their premises that support net zero and enhance productivity as employees return to the workplace.
On the APD, we have decided to introduce a new reduced domestic band to support regional connectivity. The noble Lord, Lord Balfe, spoke about supporting the industry. Domestic aviation accounted for less than 1% of the UK’s total emissions in 2019, and we have taken considerable action to support decarbonisation of the sector, including investment of £180 million at SR21 for a competition to support the commercialisation of sustainable aviation fuel plants in the UK, the launch of the Jet Zero Council and the inclusion of aviation within the UK emissions trading scheme.
To wrap up, in this debate the Government have been criticised by noble Lords—I was going to say “opposite me”, but we are in a mixed economy today. The noble Lord, Lord Tunnicliffe, is right that I have not been met with universal adulation, but we all know that we do not go into politics for gratitude. My noble friend Lord Balfe and the noble Lord, Lord Rooker, made the very important point that the piece often missing in these debates is how well all this money is spent. If it is spent well, both sides will be wrong; if it is not spent well, everyone will be right and our citizens will lose out twice over, once from the taxes they have had taken and once from the failure of the services to improve.
We have a huge job of work to get the enlarged state to spend money properly. Too often, the default setting is simply to call for more money, not to spend what is available better. If someone can tell me with a straight face, as happened to me a week ago, that it is perfectly reasonable to spend £25,000 moving, not buying, furniture in and out of an office about the size of a one-bedroom flat, we have a problem. Noble Lords know all about test and trace, which was raised by my noble friend Lady Noakes. The total sum spent there in 15 months exceeded what has been spent on building new schools over the past 10 years. We all know that individuals spending their own money almost always achieve far more with it than the state does when spending other people’s money, so my call is to all noble Lords to help play their part in scrutinising the organs of government to ensure that money is spent effectively. The Treasury cannot do it on its own.
I thank noble Lords again for their constructive contributions. As the Chancellor said last week, notwithstanding my comments:
“Employment is up, investment is growing, public services are improving, the public finances are stabilising and wages are rising.”—[Official Report, Commons, 27/10/21; col. 273.]
This is a Budget and a spending review which builds the economy for a new age of optimism. Above all, it is a Budget which delivers a stronger economy for the British people.
(2 years, 9 months ago)
Lords ChamberMy Lords, I would like to make a few short remarks. The Bill builds on the Financial Services Act 2021, which gave the FCA powers to oversee the orderly wind-down of a critical benchmark, such as Libor. In particular, it allows the FCA to ensure the continued publication of a benchmark, using a synthetic methodology. The Bill plays a vital role in supporting a smooth and orderly wind-down of the Libor benchmark, by providing legal certainty for contracts that rely on Libor beyond the end of this year, and a narrow immunity for the administrator of Libor, where it is publishing synthetic Libor as required by the FCA.
It has been a privilege to have engaged in these discussions. I thank noble Lords for their rigorous examination of this highly technical Bill, both in formal debate and in the various technical briefing sessions that I have held. I am confident that the Bill has been thoroughly examined by the House. All those involved have brought significant experience and insight to this process.
I am particularly grateful to my noble friends Lady Noakes and Lord Blackwell for raising this important issue during the passage of the Financial Services Act earlier this year. Once again I put on record my thanks for their work on this matter.
In our discussions, we have covered the issue of the FCA’s methodology for the synthetic rate. We have considered the importance of legal certainty, which the Bill delivers, and we have highlighted the work that the FCA is doing on the wider Libor transition. This includes its work to ensure that synthetic methodology is fair and aligned with the global consensus.
We have talked about the work that the FCA has been doing alongside the Bank of England and the industry-led risk-free rate working group. This will support and encourage a voluntary transition away from Libor prior to the end of this year wherever possible—an effort which has been successful in significantly reducing the number of contracts that will need to rely on the synthetic rate both here in the UK and globally. Throughout, your Lordships have had a particular interest in protecting consumers and maintaining the integrity of UK financial markets.
As we have discussed, the UK has one of the most open, innovative and dynamic financial services sectors in the world. As the home of Libor, we have a unique and crucial role to play in minimising global financial stability risks and disruption to financial systems from the wind-down of Libor. The Bill forms part of a significant programme of work by the Government and the regulators to support the global market-led transition away from Libor. It supports the integrity of financial markets and consumer protection. In doing so, it underlines our reputation as a custodian of a global financial centre.
I conclude these brief remarks by thanking the Economic Secretary to the Treasury, his officials, and the clerks in the Public Bill Office, who have worked so diligently to support the passage of this Bill. I also thank FCA officials for the technical briefings that they have provided. I beg to move.
My Lords, as I was so kindly namechecked by my noble friend, I will just say that I thank the Government very much for responding to the real concerns expressed by the financial services industry in respect of tough legacy Libor contracts. The Bill does not deliver everything that the industry wanted but it delivers a great deal, and I am very grateful to the Government.
(2 years, 10 months ago)
Lords ChamberMy Lords, I start by thanking the noble Lord, Lord Bird, for bringing this debate. I know that tackling the causes of poverty and homelessness has been his life’s work and we should all acknowledge his great impact. I also thank noble Lords who have spoken today; each has made their case with great conviction. For my part, I welcome the opportunity to speak out on behalf of the Government on this important subject, ensuring people have a secure home and a steady income is a matter of the utmost importance to us.
The action we have taken to shield people from the full economic force of coronavirus over the last 18 months is evidence of this. The noble Lord, Lord Bird, feels that the Government have been tinkering with problems, but I would respectfully disagree. Decisions taken by the Government mean that direct support for the economy has totalled around £400 billion over the last year. Much of this has protected the productive capacity of our economy, which in turn provides the ability to support the most vulnerable in our society.
It is perhaps important to remind the noble Lord, Lord Bilimoria, that we have handled this differently from the way India has. We have been one of the most generous countries in the world in our interventions. We have spent some £69 billion protecting nearly 12 million jobs across the UK through the furlough scheme. The self-employment income support scheme benefited 2.9 million people with assistance worth over £27 billion. We have safeguarded businesses, thanks to loan schemes worth £79 billion, in addition to cash grants, VAT cuts and business rate reliefs. Those most affected by the coronavirus economic shock have been supported by a temporary uplift to welfare payments.
These measures have been effective. Increasingly, the evidence shows that our economic recovery is under way. Our gross domestic product has bounced back to near pre-crisis levels. Forecasts have revised upwards their expectations for growth this year. In its latest forecast, the OBR expects growth of 6.5%, up from 4% in its previous forecast. That is a 50% increase compared with only a few months ago. GDP is expected to return to its pre-crisis level by the turn of the year.
Unemployment has fallen for eight consecutive months. It is now expected to peak at less than half the levels predicted at the start of the crisis, meaning over 2 million fewer people out of work than we originally feared. The number of employees on payrolls has risen to above pre-pandemic levels, while job vacancies are at a historic high. This increasingly positive economic picture shows we were right to counteract an unprecedented crisis with unprecedented intervention.
However, this has meant that in the last year our borrowing costs have risen to a peacetime high. Clearly, to continue to borrow on this level would not be sustainable. Now that the economy has reopened, we must shift our focus to supporting people into work. I will cover this in greater depth a little later.
While this change in approach means winding down the pandemic emergency support, it does not mean we are turning our back on those most in need of help—far from it. To reassure the noble Lord, Lord Tunnicliffe, we are spending more than £4.2 billion a year in targeted support to help households manage the cost of living.
I turn to housing, about which the noble Baroness, Lady Pinnock, is concerned, and I will address some of the measures that we have in process. The noble Baroness, Lady Thornhill, and the noble Lords, Lord Tunnicliffe and Lord Bird, spoke of the need to help people stay in their homes and for the stock of affordable housing to improve and increase. We agree. That is why this year we are maintaining the increase to the local housing allowance rates for private renters on universal credit and housing benefit. The support provided by this measure is substantial. Last year, more than 1.5 million households received extra sums averaging £600.
We will continue to provide discretionary housing payments to the most vulnerable households through £300 million of funding during the next three years. These payments assist individuals in a range of situations, including those experiencing shortfalls between welfare payments and their rent, and tenants who need deposits to secure a home in which to live. This is part of a wider package, including the household support fund, which provides £500 million to help vulnerable families with essentials such as food, energy and water costs. It can also be used for rent arrears at a local authority’s discretion. Some £100 million is also available for discretionary housing payments and uplift to local housing benefits.
We have announced £65 million in additional funding to support low-income renters at risk of eviction due to the impact of Covid. Some 70,000 vulnerable households will be supported. This measure follows our ban on evictions and the introduction of extended notice periods to protect renters during the pandemic.
The noble Baroness, Lady Thornhill, and the noble Lord, Lord Desai, raised the issue of affordable housing. Yesterday, we committed to an £11.5 billion investment for 180,000 new homes, of which 50% will be under shared ownership schemes.
The noble Baroness, Lady Pinnock, raised the question of the overall housing stock. Of course, new housing stock has to reflect the needs of society, but the overall number of new houses is important, too. In the year preceding the pandemic, more than 240,000 new housing units were built, compared with around 129,000 in 2009-10.
My noble friend Lord Young asked about the White Paper on renting. The Government are consulting stakeholders at the moment and a timetable will be announced shortly.
More broadly, we are continuing to invest in homelessness prevention activities through the homelessness prevention grant. We are providing support to those who find themselves homeless through multiple programmes such as the rough-sleeping initiative, which invests in locally led interventions. The noble Lord, Lord Tunnicliffe, and my noble friend Lord Young expressed interest in this. Our £28 million Housing First pilots have supported more than 1,000 of the most vulnerable rough sleepers across 23 councils. We have committed £1.9 billion in resource funding to homelessness and rough sleeping in the spending review, and £109 million in capital investment.
I turn to wider cost of living support. Beyond the assistance I have outlined, we are helping low-income households manage the cost of living with other support. To that end, we have given local authorities £670 million of additional grant funding this year to help those struggling with council tax bills. We are helping disadvantaged families with the higher food costs they may face outside school terms through the £200 million holiday activities and food programme. We have increased the value of Healthy Start vouchers, available to help pregnant women and parents with children under four with food costs.
On top of this, at the Budget the Government took action to make work pay for those on the lowest incomes. By 1 December, in just over four weeks’ time, we are reducing the universal credit taper rate from 63% to 55% and increasing universal credit work allowances by £500 a year. While the noble Lord, Lord Desai, may feel that this does not go far enough, it represents an effective tax cut worth £2.2 billion in 2022-23 and means that nearly 2 million households will keep, on average, an extra £1,000 a year. In April next year the minimum wage is rising by 6.6% to £9.50 an hour, which is more than £1,000 a year for a full-time employee. Since its introduction in 2016, the national living wage has increased the pre-tax earnings of a full-time worker by more than £5,000 a year.
The noble Lords, Lord Tunnicliffe and Lord Bird, and other Peers mentioned that £20 is a significant sum for these vulnerable people. I completely understand and accept that, but this figure alone shows that we have enabled some of the most vulnerable to see income earnings of around £100 a week. My noble friend Lord Young raises the point that these schemes are rather fragmented and he is probably right, but the Government’s overriding ambition is to get more people into decently paid work. The reduction of the universal credit taper announced yesterday is a major part of that. I will also address some of our training schemes in a moment.
I turn to energy. The Government recognise that the impact of rising energy costs is a significant issue for vulnerable households. The energy price cap has saved 15 million customers on default tariffs up to £100 a year on their bills since it was introduced in 2019. We continue to ensure that the most vulnerable receive help with their energy bills through a range of other measures, including extending the warm home discount to an extra 780,000 households and providing seasonal cold weather payments to eligible welfare recipients. State pensioners can benefit from the winter fuel payment worth up to £300. Since last year, we have invested £1.5 billion in helping low-income households to improve energy efficiency and cut their bills. We are expanding the energy company obligation scheme that focuses on tackling fuel poverty and carbon emissions. I also remind the House that in recognition of the fact that petrol and diesel is a major cost for households and businesses, we have frozen fuel duty for the 12th year in a row.
I turn to jobs. While government support is important, we believe that work is the best way of preventing poverty and improving living standards. Over a year ago we launched the plan for jobs to protect, support and create employment opportunities for people across the country. I am delighted to say that the plan is working. As the Government enter the next stage of our plan for jobs, we are committing a total of more than £6 billion to DWP over the next three years. This will help give everyone a chance to have a fresh start and develop the skills they need for the modern workforce. The Kickstart scheme is one example. It is creating and fully funding hundreds of thousands of jobs for young people at risk of long-term unemployment. Nearly 95,000 young people have started a Kickstart job so far. They encompass a wide range of opportunities, providing foundations for careers in such areas as IT, media and engineering.
The long-term unemployed will receive intensive, tailored support and be helped to find work through the three-year restart scheme. Last year, the Government doubled the number of work coaches to 27,000 in just over eight months. We have committed to an additional 170 job centres, of which around 100 are already open. We are continuing to invest more than £900 million for each year of this SR on work coaches to ensure that universal credit claimants receive the best support to find employment.
Getting people into jobs is one thing, but improving skills is equally important. We have heard today of the importance of skills, and we agree. The single most effective way to increase living standards is to enable wages to rise through gains in productivity, as the noble Lord, Lord Bilimoria, correctly pointed out. That is why we are giving people the opportunity to gain a level 3 qualification for free if they do not hold one already, through our lifetime skills guarantee. Adults who want to retrain in in-demand sectors such as digital, cybersecurity, construction and engineering can benefit from flexible skills bootcamps that last up to 16 weeks. We are tripling the number of traineeships for 16 to 24 year-olds and awarding employers £3,000 for every apprentice of any age they hire. These steps are all designed to address the key issue of productivity. Indeed, early data emanating from the skills bootcamp shows that around 50% of participants are going on to higher-paid jobs.
Yesterday, the Chancellor announced a new scheme to assist particularly with numeracy, which is a major problem among older people. Around 6 million adults in this country have a numeracy age of under 10 and it is holding back their earning capacity. We have announced a scheme to address this over the next three years. These measures are proof that this Government do not shy away from their responsibilities. We will continue to fight poverty, combat homelessness and focus on the most vulnerable. We are committed to giving people in every part of the country the right opportunities to build a better, more prosperous future for themselves and their families.