Taxation (Post-transition Period) Bill

Lord Agnew of Oulton Excerpts

2nd reading & Committee negatived & 3rd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords & 3rd reading (Hansard) & 3rd reading (Hansard): House of Lords & Committee negatived (Hansard) & Committee negatived (Hansard): House of Lords
Wednesday 16th December 2020 Lords Chamber

Moved by

[Lord Agnew of Oulton]

That the Bill be now read a second time.

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con) [V]]

My Lords, the Bill was introduced in the other place on 8 December.

At the end of this year, the United Kingdom will leave the European Union’s legal jurisdiction and this country will recover its economic and political sovereignty. The measures in the Bill play an important part in those preparations. It sets out a new framework for the UK’s customs, VAT and excise systems following the end of the transition period, so that there are clear rules in place for goods moving in and out of Northern Ireland. It upholds our pledge to protect the UK’s internal market by ensuring that Northern Ireland goods have unfettered access to Great Britain.

I first turn to measures relating to the Northern Ireland protocol. This Government are committed to providing unfettered access for Northern Ireland businesses to the UK’s internal market. That means no tariffs or customs formalities for Northern Ireland goods arriving in Great Britain. Northern Ireland is and remains part of the UK’s customs territory. For goods deemed to be “at risk” of moving into the EU, the Bill introduces a framework for charges on goods arriving in Northern Ireland, both from Great Britain and from the rest of the world. The Bill will allow us to put in place decisions made by the joint committee on goods “not at risk” of entering the EU, ensuring that they do not have to pay the EU tariff. It also imposes a charge to UK customs duty on goods that enter Great Britain from Northern Ireland and are not qualifying Northern Ireland goods. The Bill also includes anti-avoidance rules on the use of unfettered access to ensure that it is not legitimate for goods to be routed to Great Britain via Northern Ireland in order to avoid the UK’s customs border.

For VAT, the Bill includes mechanisms to ensure that, in so far as is possible, VAT will be accounted for in the same way that it is today in Northern Ireland. Noble Lords will be aware that Northern Ireland is and will remain part of the UK and its VAT system. However, it will continue to align with the EU VAT rules in respect of goods but not services. This is to ensure that trade is not disrupted on the island of Ireland and allows us to meet our commitments under the Belfast/Good Friday agreement. HMRC will continue to be the tax authority for the whole of the UK. While the ECJ will continue to have a limited role where EU directives apply in Northern Ireland, the rules will continue to be policed by HMRC. Businesses will continue to have only one UK VAT registration number and to complete one VAT return each period for all supplies. In implementing the Northern Ireland protocol, the Government have sought to minimise changes to how the rules will operate in practice, as far as possible.

The Bill amends current legislation for excise duty to be charged when excise goods such as alcohol and tobacco are removed to Northern Ireland from Great Britain. This does not necessarily entail additional costs for Northern Ireland businesses and consumers. A credit of the duty already paid on the goods in Great Britain will be set against the duty arising in Northern Ireland, meaning that in almost all cases there will be no further duty to pay. In many cases, businesses move goods in duty suspension, meaning that there is no duty to pay in any case until the goods are released for consumption.

Some further taxation measures in the Bill need to be implemented before the end of the transition period. The Bill introduces a new system for collecting VAT on cross-border goods. This includes moving VAT collection on certain imported goods away from the border and involving operators of online marketplaces at the point of sale. UK consumers will now be able to see a VAT-inclusive price at the point of purchase, making pricing more transparent. In addition, measures in the Bill will remove the VAT relief on imported low-value items, meaning that VAT will be due on all consignments, irrespective of their value. This relief has been subject to long-standing abuse and removing it will build on government efforts to further level the playing field for UK businesses by protecting our high streets from VAT-free imports.

The Bill also includes provision for an increase in the rate of duty on aviation gasoline, which will apply across the UK. Otherwise known as avgas, the fuel is a form of leaded petrol, predominantly used in leisure flying. The Northern Ireland protocol requires that Northern Ireland continues to comply with the EU’s energy taxation directive following the end of the transition period. This directive sets a minimum level of duty in euros on leaded petrol used for propulsion. The Government have chosen to apply the change to the whole of the UK to ensure consistency between Great Britain and Northern Ireland. This avoids burdens on business and reduces compliance risks for HMRC. The change made by the Bill will increase the avgas rate by 0.5p to 38.2p per litre from 1 January next year.

To prevent insurance premium tax evasion, the Bill also includes a clause to ensure that HMRC has access to the same anti-evasion tools, regardless of whether an insurer is based in an EU member state. Overseas insurers are liable to pay insurance premium tax where they supply general insurance for UK-located risks. Occasionally, overseas insurers do not pay the insurance premium tax that they owe, so it is important that HMRC has access to tools to deter and tackle IPT evasion. The changes made by Clause 8 remove references to “member states” in current legislation, and allow notices to be issued in the case of a non-compliant insurer based in a member state, without mutual assistance arrangements in place. We do not expect that HMRC will issue liability notices frequently but the ability to issue notices acts as an important deterrent.

Finally, the Bill introduces new powers that will enable HMRC to raise tax charges under the controlled foreign companies legislation for the period from 2013 to 2018. In order to recover state aid in line with a European Commission decision, the changes will enable additional CFC tax charges to be raised for the years 2013 to 2018. The Government are pushing for the decision to be annulled. In the event that it is, Schedule 4 requires the Treasury to make such regulations as are necessary to restore all affected taxpayers to their original position.

The Bill gives businesses throughout the UK certainty about the arrangements that will apply from 1 January next year. It plays a part in safeguarding the unity and integrity of this country and will help to protect our high-street retailers. I beg to move.

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[Lord Agnew of Oulton (Con) [V]]

My Lords, thank you for your thoughtful contributions to this debate. I shall try to address the issues raised but first, I shall briefly review the achievements of this Bill.

At its heart, the legislation seeks to ensure that businesses across the United Kingdom can continue to trade unhindered after the end of the transition period. The Government are determined to uphold the commitments to the people of Northern Ireland under the Northern Ireland protocol and to protect the progress made under the Belfast/Good Friday agreement. The Bill will help support these commitments by providing legal certainty for the customs, VAT and excise systems in Northern Ireland after the end of the transition period. It enables us to put in place decisions made by the Joint Committee on goods not at risk of entering the EU.

I start with the noble Lord, Lord Hain, who asked about the “notwithstanding” provisions. The UK Government set out on 17 September that Parliament would be asked to support the use of provisions in Clauses 44, 45 and 47 of the United Kingdom Internal Market Bill and any similar subsequent provisions in a Finance Bill only in circumstances where the fundamental purposes of the Northern Ireland protocol would be undermined. These clauses were introduced as reasonable steps to create a safety net so that the Government would always be able to deliver on their commitments to the people of Northern Ireland in the event that a negotiated outcome could not be reached in the Joint Committee. However, following intensive and very constructive work over the past few weeks by the UK and the EU, we now have an agreement in principle on all the issues in relation to the protocol on Ireland and Northern Ireland. As we have mutually agreed solutions, the Government have not included these elements in the Bill.

The noble Lord, Lord Hain, and others asked about agri-products. The Government have outlined in their Command Paper that there are no plans for any new bespoke customs infrastructure in Northern Ireland or at ports in GB to implement the protocol. We have always acknowledged that there would need to be some additional controls on agri-food movements between GB and Northern Ireland to reflect the island of Ireland’s existing status as a single epidemiological unit, but we have also been clear that these new processes could never be allowed to put food supplies to Northern Ireland at risk. That is why the deal we have reached with the EU and the support we have put in place do what is necessary to protect and preserve GB-NI agri-food trade from 1 January.

The noble Lord, Lord Hain, also asked about a US trade deal. It was always going to be a complex thing to implement, which is probably why the EU has not achieved it yet, but we will of course continue to pursue it with vigour.

The noble Baroness, Lady Kramer, asked about the complexity of the Northern Ireland VAT rules. In implementing the Northern Ireland protocol, the Government have sought to minimise changes to how the rules will operate in practice as far as possible. There will be very few practical changes for the vast majority of traders in Northern Ireland, and this is clear from the HMRC guidance on VAT under the protocol which was first published on 26 October. Businesses will continue to use their current VAT number, HMRC will continue to administer the VAT system for the whole of the UK, and businesses will continue to complete their single VAT return and account for VAT in the same way as they do today, including where they sell goods between GB and NI.

On authorised traders, the Government have consistently underlined the importance of specific solutions for authorised traders, such as supermarkets, which have stable supply chains, comprehensive oversight of warehousing and distribution operations and move prepackaged products for retail sale solely into Northern Ireland. In particular, it is essential to take account of the time it will take for those operations to adapt to the SPS requirements of the protocol, including the required certifications and authorisations. This has been a priority throughout discussions with the EU, and the arrangements that have been agreed provide a sensible, phased solution. This means that authorised traders, such as supermarkets and their trusted suppliers, will benefit from a grace period through to 1 April 2021 from official certification for products of animal origin, composite products, food and feed of nonanimal origin and plants and plant products. The UK Government and the Northern Ireland Department of Agriculture, Environment and Rural Affairs will engage in a rapid exercise to ensure those traders are identified prior to 31 December, so they can benefit from the grace period. The Government will not discriminate against small suppliers or between companies in implementing these practical measures.

My noble friend Lady Altmann asked about tax-free VAT for visitors—indeed, a number of other noble Lords asked the same question. The Government have been clear that they recognise the contribution that the VAT retail export scheme, or VAT RES, has made to international tourism and retail in the UK. However, there was not a choice to maintain VAT RES as it is today. The choice was between extending the scheme to EU residents or removing it completely, as WTO rules specify that goods bound for different destinations must be treated in the same way. Fewer than one in 10 non-EU visitors to the UK use VAT RES, and it is not a policy for discussion in this debate. The rules on VAT RES are not contained in the Bill.

The noble Lord, Lord Bruce, asked about small-value online sales in Northern Ireland. The Northern Ireland protocol means that Northern Ireland will continue to align with the EU VAT rules in respect of goods but not services. However, Northern Ireland is and will remain part of the UK’s VAT system. Changes to accounting for VAT on goods supplied to Northern Ireland are in most cases identical to the changes for supplies in Great Britain. Businesses selling goods to a GB or NI customer will see little if any difference in accounting for their VAT. Low-value consignment relief, the important VAT relief for goods valued at £15 or less, will be removed in both GB and Northern Ireland.

The noble Baroness, Lady Ritchie, asked for assurance that there is consistency between the Bill and the Northern Ireland protocol. The powers in the Bill allow us to implement the Northern Ireland protocol in a way that is consistent with our obligations. She also asked about fish landings. There will be no new SPS requirements for UK-flagged vessels with their port of registration in Northern Ireland when landing fishery products into Northern Ireland or into EU ports. This will be the case regardless of the location from which such products are caught.

On enforcement and anti-avoidance between NI and GB, HMRC will enforce these provisions through risk-based checks and random spot checks. HMRC will also conduct behind-the-border intelligence-led investigations, focusing in particular on high-risk traders and high-risk commodities. It will have the power to prosecute anyone who tries falsely to claim unfettered access for their goods. Wrongly claiming goods status is a form of tax evasion which HMRC will treat as seriously as any other.

The noble Baroness also asked about the EU presence in Northern Ireland. We have reached an agreement with the EU on practical working arrangements which will enable EU officials to exercise their rights under Article 12 of the protocol. These arrangements recognise our position that there should be no permanent EU mini-embassy in Northern Ireland, nor any concept or perception of joint controls. All processes required under the protocol would be carried out by UK authorities. We will ensure that these principles are fully upheld as the arrangements are put into practice from the end of the transition period.

The noble Baroness asks about the certainty that HMRC will have systems ready for 1 January. HMRC has committed to having systems in place to deliver the protocol and facilitate the flow of trade between Great Britain and Northern Ireland. That will include ensuring that electronic declarations for both fiscal and regulatory purposes can be received and processed, while high-risk internal delivery is on track to deliver a functioning model by the end of the transition period.

The software system for the Customs Declaration Service is live and can accept all import and export declaration types. Its minimal viable product has been successfully delivered, all critical core functionality is embedded and it is fully compliant with the union customs code legislation. The CDS has been scaled to be able to process Northern Irish protocol declarations, including GB traders, to move across. The vast majority of additional delivery for the Northern Ireland protocol for CDS is in a live-testing environment. Feedback from our delivery partners has been positive on functionality, although they continue to flag that end-user readiness for the end of December remains extremely challenging. That is why the Government have established the trader support service. It is worth adding as a little further reassurance that the CDS system has been in existence for some time; it is not in any way a brand new system. The changes that are being added are to deal with the dual tariff system under the Northern Irish protocol.

The noble Baroness, Lady Suttie, asked about non-qualifying goods. The Government are delivering unfettered access in two phases. In the short term, our priority is continuity for trade groups. Therefore, the current definition for Northern Ireland qualifying goods is expansive and includes any goods in free circulation in Northern Ireland. In the long term, our priority is to focus the benefits of unfettered access on Northern Irish businesses. Therefore, we will lay a new definition of Northern Ireland qualifying goods that includes only goods moved by businesses established in Northern Ireland. In the long term, additional protections will be in place for Northern Irish agricultural goods.

In the agri-sector, the rules ensure that our Northern Ireland qualifying goods can have unfettered access into GB; all other goods will have to undergo standard UK import processes, regardless of what route they take. The Secretary of State for Agriculture, Food and Rural Affairs is working with the Northern Ireland Executive to design additional protections for Northern Ireland’s farmers and other agricultural businesses. These will be designed with the consent of the sector and involvement of the Northern Ireland Executive.

The noble Baroness, Lady McIntosh, asked about the issue of temporary equivalence on phytosanitary measures. There will be no equivalence of SPS standards after the transition period between the EU and the UK, including for GB goods entering Northern Ireland. All agri-food goods will require an export health certificate, which must be verified by a veterinary practitioner before goods arrive at the border control post for full SPS border checks.

The noble Baroness was also concerned about the abolition of free VAT. I think that I have addressed it, but I can add some additional information. We consulted on the change and specifically asked for evidence on the impacts of withdrawing the scheme. This evidence was assessed alongside the fiscal and economic impacts and balanced against the policy objectives in the area. HMRC has also published a tax information impact note. The OBR, the fiscal watchdog that reports to Parliament, has now published its independent and up-to-date assessment for fiscal effects, which confirms the Government’s conclusion that withdrawal of VAT relief will raise a significant amount of revenue for the Exchequer, with a limited behavioural response and negligible impact on visitor numbers.

The noble Baroness, Lady McIntosh, also asked about the UK global tariff. The Government have today taken the necessary steps to bring into legal effect the UK global tariff, having just earlier this afternoon laid the relevant statutory instrument before Parliament as part of a wider legislative package. The UK global tariff will replace the EU’s common external tariff as the UK’s most favoured nation tariff from 1 January 2021. It is simpler to use, greener and cuts red tape and other unnecessary barriers to trade. It is also tailored to the needs of the UK economy, backing British business to compete on the world stage.

The noble Lord, Lord Fox, also asked about the removal of VAT relief. Just to build on my earlier comments, the OBR has forecast that these changes will raise over £300 million a year over the next five years—that is £1.6 billion over the scorecard period. Approximately two-thirds will come from improving collection and tackling non-compliance through the new VAT treatment of cross-border goods. The final third of the revenue comes from the removal of low-value consignment relief, which will end widespread abuse of this relief.

The noble Lord also asked about the rules on duty suspension. We have kept the rules in relation to the movement of excise goods and duty suspension between GB and NI as close as they are now, to reduce the burden on excise businesses and maintain the important controls that we have in place to prevent excise fraud.

A number of noble Lords asked about the role of the trader support service, or TSS, in Northern Ireland. I can provide some level of reassurance that we now have nearly 20,000 traders registered with it; that splits almost half and half between NI-based and GB-based businesses. We always calculated that there would be around 12,000 NI businesses that would need these services, so we are now at a very high proportion of those. They are receiving weekly bulletins from the TSS on readiness. The TSS call centre is rapidly standing up: it commits to have around 700 people—one noble Lord thought it was 800, but it will not be quite as many as that—and all offers have been made, and the numbers are arriving on a weekly basis. The current number working this week is something in the order of 250, with more arriving rapidly; I shall ask officials to correct me if I am wrong on that number. They will also be able to assist with advice on the complexities arising from the joint committee agreements that we have recently made, but we are encouraged by the progress being made.

The noble Lord, Lord Tunnicliffe, asked a number of questions. On the timings and sequencing of forthcoming regulations, the EU-UK joint statement made last week sets out that an agreement has been reached in principle regarding the implementation of the Northern Ireland protocol. As part of that statement, this agreement is in principle, and the resulting draft texts will be subject to respective internal procedures in the EU and the UK. Once this is complete, a joint committee will be convened formally to adopt them. Further details, including regulations, will be set out in due course, before the end of the transition period.

The excise statutory instruments covering Northern Ireland will be laid in Parliament as soon as possible following Royal Assent. Those statutory instruments will come into force from 11 pm on 31 December and apply from that point onwards. Any new excise change that arises as a result of the excise clauses in this Bill will apply from that point onwards.

The noble Lord asked about forbearance. On customs, we recognise that mistakes happen, even when a business has taken care to meet its obligations, particularly in a new environment. HMRC will be taking a supportive approach and will not charge a penalty if a business has taken reasonable care to get its tax right. Where honest mistakes happen, HMRC will be stepping in to help customers put things right, but taking tougher action on deliberate, fraudulent behaviour. Financial penalties will generally be reserved for those who are able to comply but deliberately choose not to. HMRC will also take a supportive approach on excise. We will not charge a penalty if a business has taken reasonable care to get its excise tax right. Again, where honest mistakes happen, HMRC will step in to help customers put it right, while taking tougher action on deliberate fraud.

The noble Lord, Lord Tunnicliffe, asked about progress on the recruitment of customs agents. Building on my earlier comments, when thinking about readiness it is helpful to think about the capacity to make declarations, instead of the actual number of staff involved. A number of customs intermediaries have invested in improving their computer systems over the past year. We have made financial assistance of some £80 million available to them; we are still allocating grants at the moment. The sector is varied and made up of a number of business models, including specific customs brokers, freight forwarders and fast-parcel operators, all of which will require different numbers of staff to complete declarations and provide their services.

I am conscious of time. The noble Lord, Lord Tunnicliffe, asked about the proportion of businesses regularly moving goods between Northern Ireland and GB. He correctly pointed out that over 18,000 firms have registered. The TSS outreach is ongoing; the call centre I referred to a few moments ago is outbound in conversation with traders daily. He also asked about fleshing out the detail of the Joint Committee. The agreement we have reached in principle means that we can establish arrangements which protect internal UK trade from tariffs, regardless of whether we have a wider free trade agreement or not. Further details on implementation will be set out in due course.

I finish by welcoming my noble friend Lord Sharpe to the House and thank him and the noble Baroness, Lady Pidding, for their picture of optimism. I know that is a minority view in this House, but I share it; I believe that we have huge opportunities to take. The noble Baroness, Lady Bennett, asked for concrete examples: one is the reform of rules on procurement, on which we published the formal consultation yesterday. This allows us to completely replumb—to use the terminology of the noble Lord, Lord Fox—the way this country carries out public sector procurement, which is worth some £290 billion a year. It will enable us to ensure that SMEs and areas not normally given preference in the UK can have a much fairer crack of the whip.

I have sought to answer noble Lords’ questions to the best of my ability. As is regularly the case, many of the expert interventions illustrate the significant value of the ongoing scrutiny of this House. If I have missed a point of substance in my closing remarks, noble Lords should contact me and I will respond in the normal way.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.

Customs Safety and Security Procedures (EU Exit) Regulations 2020

Lord Agnew of Oulton Excerpts

Thursday 10th December 2020 Grand Committee

Moved by

[Lord Agnew of Oulton]

That the Grand Committee do consider the Customs Safety and Security Procedures (EU Exit) Regulations 2020.

Relevant document: 36th Report from the Secondary Legislation Scrutiny Committee

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, we are here to discuss a further statutory instrument that is part of the Government’s package of SIs to prepare for the end of the transition period. This instrument concerns safety and security declarations, as did the SI debated here and in the other place last month. This statutory instrument was debated and agreed in the other place earlier today. If there is disruption at the border after the end of the transition period to which the Government have to respond, these powers will allow the Government to manage those issues. Noble Lords will be aware that the Secondary Legislation Scrutiny Committee reported the regulations as an instrument of interest in its 36th report, published on 3 December.

Allow me to set out the context of the current regime for managing the safety and security risk of goods entering and leaving the UK. The UK subscribes to the World Customs Organization’s SAFE framework of standards, which sets out minimum requirements for participating customs administrations to regulate, monitor and secure the international supply chain. Customs authorities are required to collect and risk-assess data on consignments of imported and exported goods for security purposes. The UK does this through safety and security declarations, which goods carriers are required to submit.

These declarations are currently required under the Union customs code and are retained in law in the UK after the end of the transition period by the European Union (Withdrawal) Act 2018. While part of the EU, the UK required safety and security declarations only for goods leaving or entering the EU. From the end of the transition period, the default position is that carriers will be required to complete safety and security declarations for goods moved into and out of Great Britain where those goods are moving to or from the EU, as well as the rest of the world.

As we announced in June, the Government are staging in controls at the border after the end of the transition period. As part of that we have introduced a six-month waiver on the requirement to submit entry summary declarations for goods imported from the EU into Great Britain. The requirements for entry summary declarations for goods imported from the rest of the world will not change. That waiver will allow businesses affected by Covid-19 additional time to prepare to meet their requirements for safety and security, and the full range of customs controls, at the end of the staging-in period. While the Government have waived the safety and security requirement for imports from the EU and other countries where they are not currently completed until 1 July 2021, the requirement for safety and security declarations for exported goods is in place from 1 January 2021.

Before goods leave the country, carriers are required to submit safety and security data to HMRC for risk assessing. As well as managing safety and security issues, this data is also used to meet other international obligations, such as controls on the movements of live animals. This data is normally contained in a customs export declaration. Where there is no requirement for a customs export declaration—for example, in the case of the movement of an empty truck—the safety and security requirements are met through the submission of an exit summary declaration.

This SI gives the commissioners of Her Majesty’s Revenue & Customs the time-limited power to waive, by public notice, the requirement for the submission of safety and security information for goods exported from Great Britain. The deadline for the pre-departure submission of this information could also be altered by public notice. Any waiver would be introduced only where necessary to preserve the flow of goods at the border. Prior to any use of this power, the Government would consider risks such as border security and manage them against risks posed by the border disruption. Without this power, in some scenarios traders may be left with no option to compliantly export goods from Great Britain if they are unable to collect and submit the appropriate data to current time limits.

These powers are limited so that they can be used only if necessary to mitigate border disruption, and only within the first six months after the end of the transition period. Within this, any mitigation can be further limited; for example, by time, location, sector of trade or type of goods. Measures could therefore be applied depending on need. The Government will update Parliament as appropriate when introducing the waiver.

The Northern Ireland protocol means that there are no safety and security requirements for goods moved between Northern Ireland and the EU. The protocol applies EU UCC rules in Northern Ireland, and therefore the public notice powers introduced by this instrument would not affect goods movements into or out of Northern Ireland. Goods moved between Northern Ireland and the rest of the world will continue to be subject to safety and security requirements.

The Government continue to work with stakeholders to support their readiness for the end of the transition period. Introducing these powers is an important step in preparing for every eventuality after the end of the transition period. They will give the Government some capacity to intervene in safety and security requirements for exports, if necessary. These powers would be used only in exceptional circumstances, where it was absolutely necessary to ensure that goods could continue to move across the border. The powers would be used only after due consideration of the risks arising from the waiving of these requirements. I beg to move.

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[Lord Agnew of Oulton (Con)]

I thank noble Lords for their contributions. I am grateful for the chance to respond to the points raised.

The noble Lord, Lord Bradshaw, asked about the impact on the country’s security of this statutory instrument which, to reassure the noble Lord, is for the export of goods, and so, in that direct context, is not of concern. However, the powers contained within SIs can be limited to apply only to certain types of goods. This has been provided for to allow targeted mitigation and to minimise security risks by providing a waiver only where necessary. Movements of prohibited and restricted goods are controlled by information contained in the customs export declaration and other licences, and the powers in this SI relate only to the safety and security declaration requirements. Even if a waiver were put in place that covered all goods, Border Force would continue to have access to additional intelligence to control border risks. It is also worth noting that we do not currently collect any safety and security data on exports to the EU, so any waiver here would not result in an increase in risks.

The noble Lord also spoke about this being a cut-and-paste solution. Safety and security declaration data is not currently gathered on all exports to the EU, so a waiver of these movements would retain the status quo. These powers could also be used to waive requirements for exports for the rest of the world if needed, but associated safety and security risks are minimal, since these goods are leaving Great Britain.

The Government intend to use these powers only where absolutely necessary to mitigate border disruption. Any waiver would be limited—for example, by time, location, sector of trade or type of goods—allowing targeted mitigation. Prior to any use of the power, the Government would consider the safety and security risks and manage them against the risks posed by the border disruption.

The noble Lord, Lord Moynihan, asked specifically about the movement of horses. The use of a public notice is the only method that would allow the Government to react as swiftly as may be needed to any disruption at the border after the end of the transition period. Without these powers, traders may be left in an unacceptable situation, where they are unable to compliantly export goods from Great Britain. The tripartite agreement to which the noble Lord referred is a specific agreement and, as I understand it, discussions are ongoing, but I will write with further information.

The noble Baroness, Lady Ritchie, asked about security and the risks of enabling increased criminality. I reassure the noble Baroness that the Government take border security extremely seriously and would use these powers only where absolutely necessary and within limits to alleviate border disruption. The Home Office would be consulted and would continue to be involved in the event that the powers were used to ensure that risks were kept to a minimum. Border Force would also continue to have access to other intelligence. The noble Baroness asked about the application to the whole of the UK. Just to be specific: while this is UK legislation, these powers could be used only to apply to goods moving out of Great Britain.

On publicising the use of the powers, this would be published as an online notice in the first instance, and Parliament would be updated as appropriate. We would also support the introduction of any measures with other methods of communication to ensure that traders were made aware as quickly as possible. The noble Baroness asked about causes of disruption. A waiver could be for exports to any country or any cause of disruption. This is necessary to be able to manage different scenarios. Equally, the powers allow for a waiver to apply only to certain exports. In the event of any use of these powers, we would need to weigh up the associated risks and take the appropriate action. The powers are restricted to the first six months of next year, since they are intended specifically to tackle border disruption as a result of the new safety and security requirements.

As to the question of how quickly it would take us to issue the notice, powers allow for a public notice to be published implementing a change in less than two days. A notice would last for a maximum of six months, for the first half of next year. However, the powers would also allow for the notice to be put in place for a shorter period of time within that to ensure that we have the maximum flexibility to manage these risks appropriately.

The noble Lord, Lord Tunnicliffe, asked how HMRC will use this contingency measure. We have established a process to ensure that we are able to assess any need for this contingency and balance risks. The process includes evidence-gathering and consultation with other departments, including the Home Office. We have been clear that these powers will be used only where absolutely necessary to avoid border disruption, and the Government will update Parliament in the event that we use the powers.

The noble Lord asked about any extension to the sunset clause. I reassure him that the powers can be used only within the first six months of next year and only to mitigate disruption. The Government have no plans to extend this contingency beyond the first six months of next year, as we do not anticipate that there will be any risk of disruption, as a result of the safety and security requirements on exports after that period. The Government could consider extending these powers further, but this would require a further statutory instrument which would be subject, as this one has been, to the appropriate parliamentary scrutiny.

I hear and understand the noble Lord’s concerns about the cliff-edge nature of the negotiations. I would like to offer a little more optimism in that, behind the scenes, a great deal of agreement has been achieved. There are some outstanding issues, but I remain confident that we will secure a deal with the EU in the next few days.

The Government are introducing this SI as a step towards being as prepared as we can be for all possible scenarios at the end of the transition period. We have been clear that these powers will be used only with due consideration of the risks, and only as is necessary to ease potential disruption at the border within the first six months of next year. I commend these regulations to the Committee.

Motion agreed.

[The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)]

That completes the business before the Grand Committee this afternoon. I remind Members to sanitise their desks and chairs before leaving the Room. The Committee is adjourned, and I wish you all a nice weekend.

Committee adjourned at 4.25 pm.

Spending Review 2020

Lord Agnew of Oulton Excerpts

Thursday 3rd December 2020 Grand Committee

Moved by

[Lord Agnew of Oulton]

That the Grand Committee takes note of the spending review 2020.

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, a spending review is a significant moment in the life cycle of any Government. It is an opportunity to deliver on the priorities of the British people, and, despite the most challenging of backdrops, that is what this spending review achieves.

Given the circumstances, this year’s review sets out departmental resource spending and capital spending for the next financial year—2021-22—and devolved Administrations’ block grants for the same period. It includes multi-year funding certainty for some key existing projects and priority commitments, including health, schools and defence. Its immediate aim has been to protect people’s lives and livelihoods, but it also delivers stronger public services—including new hospitals, better schools and safer streets—and a once-in-a-generation investment in infrastructure.

In their response to the pandemic, the Government have sought to prioritise jobs, businesses and public services. This support has come in many forms, including the furlough scheme, support for the self-employed, grants, loans and tax cuts. There has also been additional funding for councils, schools, the NHS, the charity sector and the cultural sector. This year, the Government are providing £280 billion to help get the country through the coronavirus.

Next year, we will be allocating an additional £18 billion to fund programmes on testing, vaccines and personal protective equipment. We will also be providing, among other things, £3 billion to support NHS recovery, more than £2 billion in subsidies to the rail network to keep the country moving and more than £3 billion to local councils. Much of our response to the pandemic has been nationwide, but we are also providing £2.6 billion to support the devolved Administrations in Scotland, Wales and Northern Ireland. In total, public services funding to tackle coronavirus next year will be £55 billion.

Your Lordships will appreciate that the economic picture is very challenging. The Office for Budget Responsibility forecasts that the economy will contract by 11.3% this year, the largest drop in at least 300 years. The OBR expects that, as restrictions are lifted, the economy will start to recover, growing by 5.5% next year, 6.6% in 2022, then 2.3%, 1.7% and 1.8% in the years following. Economic output, however, is not expected to return to pre-crisis levels until the fourth quarter of 2022. Long-term scarring means that, in 2025, the economy will be roughly 3% smaller than expected in this year’s March Budget. The dual impact of the virus and our necessary response has resulted in a significant increase in our borrowing and our debt. The UK is forecast to borrow the equivalent of 19% of GDP this year, a total of £394 billion. Borrowing is projected to drop to £164 billion next year, £105 billion in 2022-23 and then to remain at around £100 billion, approximately 4% of GDP, for the rest of the forecast.

Noble Lords may well consider this a high price to pay, but the price had we not taken the steps we have would have been much higher. The Government understand that this situation is unsustainable over the medium term and that there is a responsibility to return to a more sustainable fiscal position once the economy recovers. Importantly, we have been able to act in this way because the country entered the crisis with strong public finances. Our actions have proved to be right. Indeed, the OBR, the Bank of England and the International Monetary Fund have all said that our economic response has protected jobs, supported incomes and helped businesses stay afloat.

We have three priorities, the first being to protect health and jobs. I have already noted that the Government’s immediate priority in the spending review is protecting lives and livelihoods. We are doing more to build on the existing plan for jobs, launched in the summer. Nearly £3 billion in additional funding will be made available to deliver a new, three-year Restart programme to help more than 1 million people who have been unemployed for more than a year find new work.

Protecting jobs is also about taking tough, prudent decisions. The reality is that coronavirus has deepened the disparity between public and private sector wages. In the six months to September, private sector wages fell by nearly 1% compared to last year. Over the same period, public sector wages rose by almost 4%. Given that context, the Government cannot justify a significant across-the-board pay increase for all public sector workers. Instead, to protect public sector jobs while ensuring fairness between the public and private sectors, the Government are pausing pay rises in the public sector next year—with two important exceptions. Taking account of the pay review body’s advice, we will provide a pay rise to more than 1 million nurses, doctors and others working in the NHS. Meanwhile, the 2.1 million public sector workers who earn below the median wage of £24,000 will be guaranteed a pay rise of at least £250. The Government are also accepting in full the recommendations of the Low Pay Commission to increase the national living wage by 2.2% to £8.91 an hour, to extend this rate to those aged 23 and over and to increase national minimum wage rates. Taken together, these minimum wage increases should benefit around 2 million people.

I hope noble Lords will agree that the Government have been right to protect lives and livelihoods now, but it is also a spending review for the future. Next year, total departmental spending will be £540 billion. Over this year and next, day-to-day departmental spending will rise, in real terms, by 3.8%—the fastest growth rate in 15 years. In cash terms, day-to-day departmental budgets will increase next year by £14.8 billion. Crucially, those increases will apply across the entire country. In fact, the spending review increases Scottish Government funding by £2.4 billion, Welsh Government funding by £1.3 billion, and funding to the Northern Ireland Executive by £900 million.

Our second priority is stronger public services. This spending review recognises the priorities of the British people. In the case of the National Health Service, it honours the historic, multiyear commitment the Government have made. Next year, the core health budget will grow by £6.6 billion, allowing the delivery of 50,000 more nurses and 50 million more GP appointments. We are also increasing capital investment in health by £2.3 billion for new technologies and new hospitals. Indeed, the Government are funding the biggest hospital building programme in a generation—building 40 new hospitals and upgrading 70 more.

The Government are also investing in social care. The spending review allows local authorities to increase their core spending power by 4.5% and grants them extra flexibility for council tax and the adult social care precept which, together with £300 million of new grant funding, gives them access to an extra £1 billion to fund social care. This is all on top of the extra £1 billion social care grant provided this year, which will be maintained into next year.

The spending review also prioritises a better education for the country’s children. The Government are increasing the schools budget next year by £2.2 billion, in line with our commitment of an extra £7.1 billion by 2022-23. Every pupil will see a year-on-year funding increase of at least 2%. We are also funding the Prime Minister’s commitment to rebuild 500 schools over the next decade. Education does not end when a child walks through his or her school gate for the final time. This is why the spending review provides £291 million to pay for more young people to go into further education, £1.5 billion to rebuild colleges, and £375 million to deliver the Prime Minister’s Lifetime Skills Guarantee. We are taking steps to extend traineeships, sector-based work academies, and the national careers service, as well as improving the way the apprenticeship system works for businesses.

The people of this country also expect their Government to keep our streets safe. Next year, funding for the criminal justice system will increase by over £1 billion. We are providing more than £400 million to recruit 6,000 new police officers—well on track to recruit 20,000—and £4 billion over four years to provide 18,000 new prison places.

I have said that this Government are willing to take tough, prudent decisions. During what is a fiscal emergency, when we are seeing the highest peacetime levels of borrowing on record, it is difficult to justify spending 0.7% of our national income on overseas aid. The Government will continue to protect the world’s poorest: spending the equivalent of 0.5% of our national income on overseas aid in 2021, allocating £10 billion in this spending review, which will mean that we remain the second-highest aid donor in the G7. It is our intention to return to 0.7% when the fiscal situation allows.

There are many ways that the UK plays a constructive role in the world. This spending review includes more than £24 billion investment in defence over the next four years, the biggest sustained increase in 30 years, allowing us to provide security not just for our country but around the world. This settlement reaffirms the UK’s position as the largest European defence spender in NATO, and the second largest in the alliance. It includes an ambitious package of reform to ensure that we remain ready to meet ever-changing needs.

The third priority of the spending review is investment in infrastructure. Capital spending next year will total £100 billion—£27 billion more in real terms than last year. Indeed, our plans deliver the highest sustained level of public investment in more than 40 years. The Government are introducing a £7.1 billion National Home Building Fund, on top of the £12.2 billion Affordable Homes Programme. We are delivering faster broadband for over 5 million premises across the UK, as well as better mobile connectivity with 4G coverage across 95% of the country by 2025. We are undertaking the biggest ever investment in new roads, upgraded railways, new cycle lanes and over 800 zero-emission buses. We are also delivering the Prime Minister’s 10-point plan for climate change, and making the UK a scientific superpower with almost £15 billion of funding for research and development.

Finally, the Government have announced a new levelling-up fund worth £4 billion. This will allow local areas to directly bid for project funding for what the Chancellor has called

“the infrastructure of everyday life”—[Official Report, Commons, 1/12/20; col. 151.]

such as libraries, museums and galleries, and upgraded railway stations. All of that capital investment will help to spread opportunity, create jobs and drive economic growth in every part of the country.

This spending review has taken place at a time of great challenge, but by focusing on three key priorities—protecting health and jobs, stronger public services and investment in infrastructure—it delivers what the British people expect of this Government. The job now is to implement our plans. That is what I and my colleagues in the Government are determined to do in the months and years ahead. I beg to move.

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

My Lords, I have listened with great interest to the many learned contributions, the extent of which are testament both to the expertise of noble Lords and to the importance of this spending review.

Crucially, a spending review is not an abstract policy exercise; it is about making decisions with real-world, long-lasting impacts. The immediate aim has been to protect people’s lives and livelihoods, but it also delivers stronger public services, including hospitals, better schools and safer streets. I will try to address as many of the points raised as possible but, as noble Lords, will know, there have been a great number of contributions. I will try to get to all of them in the time available.

The noble Lord, Lord Razzall, asked about the ability to carry on borrowing if interest rates remain low. The OBR has set a range of scenarios for the outlook of the public finances. In all scenarios, borrowing costs continue to be low, driven by interest rates that are low by historical standards, making the cost of servicing the current debt, and the projected increase in debt, affordable. Over time, and once the economic recovery is secure, the Government will take the necessary steps to ensure that borrowing and debt are on a sustainable path. The current high levels of uncertainty mean that now is not the right time to set out a detailed, medium-term, fiscal strategy. It is still too early to judge the full impacts of the Covid-19 epidemic and the unprecedented fiscal support that has caused the necessary increase in borrowing. However, as I have said, borrowing costs remain low. The OBR forecasts that spending on debt interest will fall further this year to just 1.1% of GDP, compared to 2.4% in 2010.

The noble Lord, Lord Horam, asked about modern monetary theory. The Government have provided one of the largest and most comprehensive packages of measures in the world, with targeted support for public services, workers and businesses. Since March, the Government have announced a total of over £280 billion of support measures.

The noble Baroness, Lady Warsi, asked about the impact of Brexit. The OBR’s central forecast assumes that the UK’s future trading relationship with the EU follows a smooth transition to a typical free trade agreement at the end of the year. In that forecast, the unemployment rate peaks at 7.5% in the second quarter of next year then starts to decline.

The noble Lord, Lord Kirkhope, asked about better reporting and monitoring of spending. I strongly support the noble Lord in this. There is a significant change in the way that the Treasury will monitor spending in future. It has created a public value framework, which improves governance and focuses on high-quality evaluation. We have gathered the outcomes for every department, alongside departmental settlements and metrics, through which these will be monitored, and this will be published shortly.

The noble Baroness, Lady Bennett, asked whether austerity has returned. We do not, of course, agree with that statement, but it is in the context of the huge amounts of borrowing that we have had to undertake this year—£394 billion. The spending review announced another £38 billion of support for public services in 2021, bringing the total made available this year to over £113 billion. The spending review provides £100 billion of capital investment next year, a £27 billion increase in real terms, compared to last year.

The noble Lord, Lord Bilimoria, asked about certainty on measures until March next year and a route out of tiering. To support businesses to retain their employees and protect the UK economy, the Chancellor has extended the coronavirus job retention scheme, which has helped to pay the wages of some 9.5 million jobs across the country. This has protected jobs that might otherwise have been lost. The self-employment income support scheme has had some 2.7 million claims and will continue until April 2021. Our responses are designed to complement each other, and the measures adopted with the Covid-19 winter plan. Our package will remain the same as we move out of national lockdown into a tiering system.

The noble Baroness, Lady Uddin, asked about equality impacts. The policy decisions taken by Ministers are subject to parliamentary scrutiny. There is no legal requirement to publish equality impact assessments in respect of the public sector equality duty. The legal requirement is to consider a policy’s impacts and to have due examples between the different groups. The equalities annex provides illustrative examples of what the spending review is doing for those sharing protected characteristics. The list focuses on the characteristics most likely to be disproportionately affected by decisions taken: age, disability, race and sex.

I come to the three priority areas that I set out in my opening comments, starting with health and jobs. The noble Lords, Lord Hain and Lord Tunnicliffe, the noble Baroness, Lady Kramer, and others were concerned about the public sector pay freeze. We have approached this in a very careful way. We will protect those public sector workers who most need their pay to be protected: that is 2.1 million with pay rises—those earning under £24,000—which is actually 38% of the public sector workforce. For everyone else, there will be a temporary pause on pay rises, but performance pay, overtime, pay progression, pay rises and promotion will continue. This is estimated to be worth more than 1% of pay.

It is worth restating that the pension structures for public sector pay are attractive. No one is suggesting that they are not deserved by public sector workers, but it is extremely important that they are considered when comparing the overall remuneration package between private sector pay and public sector pay. Public sector employer contributions average more than 20%. For the teachers’ pension scheme, those contributions went up from something like 16% to 23% only last September. The noble Lord, Lord Davies of Brixton, asked about pensions; I hope that I have dealt with that.

The noble Baroness, Lady Humphreys, was concerned about Welsh farmers and funding. We are delivering on our commitment to maintain the funding available to farmers and land managers in every year of this Parliament. This totals £1.1 billion in support for farmers and land managers across the UK, with £240 million going to Welsh farmers in 2021-22. This funding ensures that farmers and land managers in Wales will receive the same total funding in 2021-22 that they received in 2019. This funding is on top of the remaining EU finding that farmers and land managers in Wales will receive for agri-environmental and rural development projects.

The noble Baroness, Lady Goudie, asked about reporting on gender pay. The public sector will accord to any legal duties set out in legislation as an employer.

Several noble Lords, including the noble Baronesses, Lady Bowles and Lady Kramer, and the right reverend Prelate the Bishop of Portsmouth asked about welfare, low incomes and universal credit. The Government have supported those on low incomes through a wide-ranging package of support, of which the temporary increase of £20 a week and the working tax credit basic element forms one part. It would be wrong to make a decision now in place of extending the temporary uplift, which is place until April 2021. As we have done throughout this crisis, we will continue to assess how best to support the economy, which is why we will look at the economic and health context in the new year.

To illustrate, extending the £20 increase by a further 12 months would cost more than £6 billion a year—the equivalent of adding a penny on income tax. As it stands, spending on working-age welfare this year is more than £100 billion and already set to be at its highest level on record, both in real terms and as a percentage of national income. Additional welfare measures that the Government have introduced include the suspension of the universal credit minimum income floor to support self-employed people on low incomes. The local housing allowance rate for universal credit for the 30th percentile means that more than 1.5 million households have benefited from just over £600 per year on average in additional support. We are keeping the LHA at the same cash level in 2021-22 to ensure that the claimants continue to benefit from this increase.

The noble Lord, Lord Hain, asked about cuts to public investment for plans. The Government have expanded statutory sick pay so that employees can claim if they are asked to self-isolate. We have also changed the rules so that SSP is payable from day one rather than day four. SSP is a statutory minimum, and many employers pay more than that in occupational sick pay. More than half of employees receive more than SSP when they are off sick, so many people will not see any fall in income during their isolation period. People who are instructed to self-isolate by NHS Test and Trace and are on a low income, unable to work from home and who will lose income as a result, may be entitled to a payment of £500 from their local authority.

The noble Lord, Lord Goddard, is concerned about public sector pay. We absolutely recognise the contribution that public sector workers make and, indeed, have made this year. The temporary pausing of pay awards for the majority of the sector allows us to protect public sector jobs and investment in services, as coronavirus continues to impact the public finances. The vast majority of care workers are employed by private sector providers, which ultimately set their pay, independent of central government. Local authorities work with care providers to determine a fair rate of pay based on local market conditions. We are providing councils with access to an additional £1 billion for social care.

The noble Lord, Lord Bilimoria, and the noble Baroness, Lady Warsi, asked about our plan for jobs and support for those who have lost their jobs. The Government are taking unprecedented steps to support unemployed people; we are building on the plan for jobs, providing £3.6 billion additional funding in 2021-22 for DWP to deliver employment support to those who need it most, from helping the recently unemployed to swiftly find new work to offering greater support for people who will find that journey harder.

On support for the recently unemployed, we are investing £1.4 billion to build on the plan for jobs commitment, increase capacity in Jobcentre Plus and double the number of work coaches, who are the first point of contact when someone loses their job, providing valuable personalised support to all unemployed claimants. We are also investing around £200 million in other job-search support measures, including the job-finding support offer, which we will launch in January to provide support to those unemployed for less than three months.

The Government also recognise that young people are particularly at risk, and the £2 billion Kickstart scheme will provide young people at risk of long-term unemployment with fully subsidised jobs to give them experience and skills. All young people on universal credit will also benefit from an expanded youth offer, which provides extra support as they search for work. We have also announced a new three-year, £2.9 billion Restart programme, which will provide intensive and tailored support to more than 1 million unemployed universal credit claimants across England and Wales and help them to find work, with approximately £400 million of investment in 2021-22. A programme delivered by expert providers will offer up to 12 months of intensive employment support to universal credit claimants who have been unemployed for over a year, with some additional places available to claimants whose work coaches believe that they could benefit from this extra support.

The noble Lord, Lord Bilimoria, asked about the strategy for mass testing. It is absolutely a top priority of the Government, which is why we are investing some £15 billion in NHS Test and Trace next year, so we can maintain the testing capacity that we have built up this year, keep the transmission of the disease down and keep the economy open, which is absolutely fundamental. This is in addition to the £22 billion for NHS Test and Trace already provided this year. As the Prime Minister confirmed on 23 November, the Government are rapidly rolling out weekly or more frequent testing to all NHS staff and care workers, and in universities, to enable students to return safely home for Christmas, and in high-risk work places, such as prisons and food factories.

The noble Lord, Lord Sheikh, asked about the rise in mental health issues, which many have experienced in the past nine months. We have provided the NHS with a further £3 billion next year, which includes up to £500 million that can be used to boost access to NHS mental health services. We will be finalising arrangements in the coming weeks. This funding will address waiting times for mental health services, following the drop in referrals in the first wave. It will give more people the mental health support that they need.

The noble Baroness, Lady Kramer, expressed concern about public sector workers. The majority of public sector workers will see a pay increase next year. The Government have announced unprecedented support for the public sector: for example, the Treasury has provided £31.9 billion to support health services, much of it for wages. The public sector award was already 7% ahead of the private sector before the coronavirus. If we carried on with blanket, across-the-board pay rises, the existing gap between the public sector and the private sector award would widen significantly. That is why we believe it is right to temporarily pause while the economy recovers.

On stronger public services, the noble Lord, Lord Reid, is concerned, as many noble Lords are, about aid cuts and the armed services. I will deal with those issues together, because there is a lot of overlap. Many noble Lords expressed concern about the cuts to the aid budget. They included the noble Baronesses, Lady Ritchie, Lady Uddin, Lady Sheehan and Lady Kramer, my noble friend Lady Warsi, the noble Lords, Lord Sheikh, Lord Oates and Lord Reid, and my noble friend Lord Bourne, to name but a few. It is important to place on record some of the milestones of our commitment to overseas aid. In 2019, the US spent only 0.16% of GNI on ODA, Japan spent only 0.29% and France spent only 0.44%. All things remaining equal, the UK will be the second most generous ODA spending country in the G7 as a percentage of our national income in 2021. We will still be ahead of France, Japan, Canada, Italy and the US.

We are one of the few countries to meet the NATO 2% target as a percentage of income in the UK. We are also the world’s largest donor to the COVAX Advanced Market Commitment, the global initiative supporting the access of developing countries to Covid-19 vaccines. The UK is also the top donor to the World Bank’s lending arm for the poorest countries. The Government have committed £1.65 billion in funding over five years for Gavi, the vaccine alliance. The Prime Minister committed in 2019 to double the UK’s public international climate finance support to at least £11.6 billion between 2021 and 2025.

Various noble Lord asked about our increases in spending on defence. There is a tremendous overlap here. For example, we are currently the fifth-largest contributor to the UN peacekeeping budget. The UK has recently deployed six UN missions with nearly 600 troops and staff officers to South Sudan, the Democratic Republic of Congo, Somalia, Mali, Libya and Cyprus, and we continue to provide training for around 11,000 peacekeepers annually on the African continent. I feel that this reaffirms our commitment to overseas aid and that the big increase in defence spending will support that.

My noble friend Lady Buscombe asked for more rigour in defence procurement. As I mentioned in answer to an earlier question on the issue of value in the spending of public money, this is receiving a great deal more attention. We are investing in a long-term programme of modernisation and there will be increased accountability in how the money is spent.

Various noble Lords asked about the long-term association with Horizon. The Government are committed to enhancing the UK’s position at the forefront of global science collaboration. Negotiations over our future relationship with the EU, including Horizon, are ongoing, but of course leaving the transition period will provide options for other solutions if that does not come about.

The noble Earl, Lord Clancarty, asked about Erasmus. The Government have allocated funding to prepare for a UK-wide domestic alternative to fund global education mobilities, in the event of the UK no longer participating in Erasmus. The Government will outline further detains in due course.

The noble Lord, Lord Shipley, asked about council tax. The Government are providing local authorities with additional funding to tackle Covid-related pressures, and giving local authorities the flexibility to raise council tax. Local authorities need the ability to raise additional revenue to continue to deliver local services. However, they will need to consider the burden of tax on their ratepayers. To give local authorities additional flexibility in making these decisions, we will allow them to defer up to 3% of the ASC precept for 2022-23.

It has been flagged up to me that I am running out of time. I apologise to noble Lords whom I have not been able to answer in detail in this debate. I will follow up with written answers to those questions that I have not been able to address.

Motion agreed.

Wales: Customs Sites

Lord Agnew of Oulton Excerpts

Wednesday 25th November 2020 Lords Chamber

[Baroness Humphreys]

To ask Her Majesty’s Government what progress they have made in (1) finding potential, and (2) establishing new, lorry customs sites that are close to ports, in particular Holyhead, and near strategic road networks in Wales, before 31 December.

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, for January 2021, HMRC decided that Warrington and Birmingham inland border facilities will provide interim transit facilities for goods requiring inspection through Holyhead. Holyhead will also have a limited facility for ATA Carnets. Neither Birmingham nor Warrington is near capacity; they are on the strategic road network for traffic using the mainland as a land bridge. For July 2021, an enduring site has been identified, and we are moving towards completion as quickly as possible.

[Baroness Humphreys (LD) [V]]

Given that we now know that the border in the Irish Sea will be moved temporarily from Holyhead to Warrington and Birmingham, in a move described by an industry expert as a recipe for smuggling, and, given that Holyhead has been described as a “soft spot” for people trafficking, how will the movement of goods and people be monitored on the 100-mile journey to Warrington, or on the 175-mile journey to Birmingham, for their customs checks?

[Lord Agnew of Oulton (Con)]

My Lords, we absolutely accept that Warrington and Birmingham will be interim solutions to the challenge of having these facilities much nearer to Holyhead, and we are working at pace to deliver that.

[Baroness Altmann (Con)]

My Lords, does my noble friend share my disappointment that it has not been possible to find a site local to Holyhead for customs checks, which clearly will be needed when shipments come in from the Republic of Ireland and could create jobs and boost the economy on Anglesey and the surrounding areas?

[Lord Agnew of Oulton (Con)]

I am pleased to tell my noble friend that yesterday we agreed verbal heads of terms for a site on the island of Anglesey. It is not a done deal by any means, but I am confident that we will do that deal, and that it will give the answers that my noble friend is asking for.

[Lord Loomba (CB) [V]]

My Lords, uncertainty about how Holyhead as a major gateway out of the European Union will operate raises concerns about jobs and livelihoods for local people. Can the Minister say if the levelling-up agenda applies to Wales, too, or is it just for Northern Ireland? Does he agree that this is an opportunity to help the local economy and Wales as a whole by ensuring that customs checks are carried out on the island, as well as alleviating security concerns inherent in checks done as far away as Warrington and Birmingham?

[Lord Agnew of Oulton (Con)]

I agree with the noble Lord, which is why we have made the decision to move at pace to acquire the site on the island of Anglesey. That will bring jobs to the island and will ensure that security checks are as close to the port as possible.

[Lord Tunnicliffe (Lab) [V]]

My Lords, at all stages of the Brexit process we have urged the Government to formalise their engagement with the devolved Administrations, for example by putting the Joint Ministerial Committee on a statutory footing. Ministers said that this was unnecessary, yet the Welsh Government say that Whitehall made a formal approach regarding an inland site to serve Holyhead only in August. Why do the Government find it so hard to work constructively and proactively with others? Does it stem from the Prime Minister’s recent and very damaging comments on devolution?

[Lord Agnew of Oulton (Con)]

My Lords, I want to reassure the noble Lord that we have had extremely collaborative and constructive discussions with the Welsh Administration; indeed, it was only yesterday that I agreed with the Welsh Minister to go for the site for which we agreed the verbal heads of terms yesterday. I gave that choice to the Welsh Minister and I was delighted when he agreed with the proposal that we put forward to him. So we are working very closely with the devolved authorities, and, as I say, with Wales in particular I have had a very constructive relationship.

[Baroness Randerson (LD) [V]]

Yesterday the French border control started trialling new controls, and immediately a five-mile lorry queue built up on the M20. If lorries to Holyhead have to travel via Warrington or Birmingham, how much longer do the Government believe the additional journey is likely to take, and what estimate have they made of the percentage increase in food costs as a result?

[Lord Agnew of Oulton (Con)]

My Lords, if 100% of the Holyhead traffic had to go to Birmingham, it would take up 40% of Birmingham’s capacity. If it had to go 100% to Warrington, it would take up 20% of its capacity. So we are very unlikely to see any congestion at those two interim inland ports. In terms of distance delay, the Warrington site is located for those trucks going to the eastern ports and the Birmingham site is located for those going to the short-straits ports, so we do not anticipate delay or cost in relation to that.

[Lord Wigley (PC) [V]]

My Lords, I am sure the Minister accepts that Warrington is totally inappropriate, and I am glad that a location has been found on Anglesey and hope that it moves forward very quickly. But perhaps I may press the Minister on another question. As I understand it, the digital infrastructure for border checks at Holyhead from 1 January still has not been fully tested, and, if things go wrong, it will have massive implications for the flow of trade and for local congestion. What urgent measures are being taken to deal with that scenario?

[Lord Agnew of Oulton (Con)]

My Lords, I can reassure the noble Lord that we are on track to have the digital infrastructure up and running by 1 January. I completely accept that we are running on a very tight timetable, but if we take, for example, the GVMS system—which I think is the one that he is referring to—that has been available for testing by hauliers and carriers since September and will be released to all hauliers on 8 December.

[Lord German (LD)]

Putting aside the issue of having to drive 100 miles or 175 miles in order to have your load checked, meaning that you have to go to one of two places, I am interested to know the Minister’s answer to the question that was put to him earlier about working at pace. Am I right to understand that the first communication on the siting of a potential site on the Isle of Anglesey was yesterday; and, if so, is that what the Government call working at pace?

[Lord Agnew of Oulton (Con)]

I can reassure the noble Lord that we have been working on this solution for some time. There was an alternative proposal several months ago that most people were in favour of, which was RAF Mona, but unfortunately that was not acceptable to the local community. But, no, we have not just started work on this this week. In terms of the inland sites, to reassure the noble Lord, not every lorry has to go to them. About 2% of loads will be diverted for formal checks. So, although I accept that in the interim, before the enduring site is created on the island, there will be some inconvenience, it will be only for a very small number of loads.

[The Earl of Clancarty (CB)]

My Lords, following on from the question asked by the noble Lord, Lord Wigley, concerns were raised this month about the readiness of IT systems, including the Customs Declaration Service, in oral evidence to the EU Select Committee’s EU Goods Sub-Committee. Is it the case that key personnel for developing the CDS are still being recruited? Does the Minister agree that, the rest of the UK aside, the particular problems facing Wales will be compounded if IT systems are not ready on time?

[Lord Agnew of Oulton (Con)]

My Lords, the CDS is the system that is being rolled out specifically for Northern Ireland from 1 January, because that is the one that enables a dual-tariff mechanism. The development is well under way. We have one or two more upgrades to make to it, with the last one on 21 December. I am not going to pretend that that is not tight, but the development is moving at pace, and the most recent upgrade enabled the dual-tariff operating model to work. The CSPs—the community service providers that provide the link into the CDS for traders and hauliers—are working at pace. The main one, the Trader Support Service, is working at particular pace, and I am confident that the system will be connected by the due date.

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, further to the questions from the noble Lord, Lord Wigley, and the noble Earl, Lord Clancarty, the head of Stena Line’s head of UK Port Authorities told the BBC yesterday that it was preparing for no deal and was confident that it was in the right place for that. As far as I am aware, the Government are still looking for a deal. That means that big companies such as Stena, and also small companies, will have to deal with the uncertainty, with 36 days to go. What help is being provided to enable small independent businesses, in particular, to interact with that extremely late-arriving IT system?

[Lord Agnew of Oulton (Con)]

My Lords, the difference for the vast majority of traders between a deal and no deal is simply the level of tariffs that will have to be put into the HMRC and DIT systems. So their readiness needs to be at the same level, whether it is a deal or no deal.

[The Lord Speaker (Lord Fowler)]

My Lords, the time allowed for this Question has elapsed. We now move to the third Oral Question.

Customs Safety, Security and Economic Operators Registration and Identification (Amendment etc.) (EU Exit) Regulations 2020

Lord Agnew of Oulton Excerpts

Thursday 19th November 2020 Lords Chamber

Moved by

[Lord Agnew of Oulton]

That the draft Regulations laid before the House on 21 October be approved.

Relevant document: 32nd Report of the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, we are here to talk about a statutory instrument that is part of the Government’s package to prepare for the end of the transition period. The instrument relates to safety and security declarations as well as the process for registering for an economic operators registration and identification number, or EORI number. The instrument supports businesses’ preparations for the end of the transition period and corrects a deficiency in retained EU law. Noble Lords will be aware that the Secondary Legislation Scrutiny Committee reported the regulations as an instrument of interest in its 32nd report, published on 29 October.

First, I shall set out the context of the amendment that we wish to introduce for managing the safety and security risk of goods entering and leaving the UK. The UK subscribes to the World Customs Organization’s SAFE framework of standards, which sets out minimum requirements for participating customs administrations to regulate, monitor and secure the international supply chain. Customs authorities are required to collect and risk assess data on every consignment of imported and exported goods. The UK does this through safety and security declarations, which goods carriers are required to submit. These declarations are currently implemented through the Union customs code and are retained in law in the UK after the end of the transition period by the European Union (Withdrawal) Act 2018.

While part of the EU, the UK required safety and security declarations only for goods leaving or entering the EU. From the end of the transition period, the default position is that carriers will be required to complete safety and security declarations for goods moved into and out of Great Britain where those goods are moving to or from the EU as well as the rest of the world. This SI deals with a temporary waiver for safety and security requirements for imports. The Government are introducing additional secondary legislation—laid this Monday, 16 November—to introduce contingency powers relating to safety and security requirements for exports, should they be needed.

In June, the Government announced the “staging-in” approach to controls at the border after the end of the transition period. As part of this approach, the Government are introducing this SI to waive safety and security entry summary declarations for six months on goods from the EU from 1 January 2021. The temporary waiver is necessary to address the adverse impact of Covid on businesses’ ability to prepare for new safety and security requirements. During the waiver period, there will be no requirement for entry summary declarations for goods imported into GB from territories where the UK does not currently require such declarations. Declarations will be required only from 1 July 2021. The waiver introduced by this instrument applies only to imports on which the UK does not currently receive declarations. Border Force will continue to undertake intelligence-led risk assessments of goods movements into this country from the EU, as it does now. Entry summary declarations will continue to be required for goods imported from the rest of the world. As a result, there is no increased security risk to the UK from this approach in the short term.

Secondly, the instrument amends a list of locations currently in the retained legislation that are granted shorter timing requirements for the submission of safety and security declarations for maritime movements. Safety and security declarations are required to be submitted within certain time limits before arrival or departure. These time limits vary by mode of transport.

Within the retained legislation, drafted with the geography of the EU in mind, there is a list of territories for which safety and security declarations can be submitted within a shorter time limit for movements by sea. This is to account for the practicalities of these shorter journeys, where the default time limits are unnecessarily onerous and challenging for carriers to meet. This list currently includes places such as Morocco, with very lengthy timings for journeys to Great Britain. Given the length of journeys from these places to Great Britain, there is no need for these movements to be offered the shorter time limits.

Conversely, this list currently does not include some of our closest neighbours and trading partners. For these journeys, which include channel crossings and goods moved to and from the Atlantic coast of Spain and Portugal, the default timing requirements are impractical for these well-established trade routes. This instrument updates the territory list in the retained legislation, removing territories that border the EU and no longer need the shorter timing requirement and adding to the list those territories that now require this consideration. This change will prevent industry being unnecessarily burdened for the shortest crossings and helps to update retained legislation to reflect our new status as an independent customs regime.

Thirdly, the instrument updates the governance of the economic operators registration identification in retained law. An EORI is a unique registration number given to businesses to interact with customs authorities, so that HMRC can identify them effectively. EORIs are necessary when applying for customs simplifications or facilitations, when making customs declarations or in any other interactions with the customs authority. All existing EORIs issued by the UK, known as UK EORIs, will continue to remain valid for use in Great Britain after 31 December 2020 and will continue to be prefixed with the letters “GB”. From 1 January 2021, individuals or businesses established in Great Britain or other territories outside the EU who want to trade with the EU and do not already have a UK EORI will need to obtain one. Persons that are not established in Great Britain but wish to lodge a declaration or request a customs decision in Great Britain will also require a UK EORI.

This instrument ensures that Great Britain has a functioning EORI system by replacing references and terminology in the retained EU law that will no longer apply to Great Britain. It will also maintain a registration requirement on those where such a requirement is set down in national law. This instrument does not impose any additional requirements to those already imposed under EU law.

The safety and security aspects of this instrument do not apply to movements of goods between Northern Ireland and Great Britain, or Northern Ireland and the rest of the world. Under the Northern Ireland protocol, goods moved between Northern Ireland and the EU will not be subject to safety and security requirements. Goods moved between Northern Ireland and the rest of the world will be subject to safety and security requirements. The EORI aspects of this instrument will not apply to traders in Northern Ireland, who will continue to register under the UCC.

By introducing a temporary entry summary declarations waiver and amending the declaration submission deadlines, this instrument strikes the right balance between giving traders time to prepare for new arrangements with the EU while still maintaining the safety and security of the UK. It also makes technical amendments to allow businesses that will require an EORI to continue to register as they currently do. I beg to move.

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

My Lords, I thank the House for this debate. I will seek to address the questions that have been asked. If I do not give enough detail, I ask noble Lords to feel free to write to me because this is an extremely complicated area and I certainly do not pretend to be across every detail.

I shall start with my noble friend Lady Altmann, who asked about the number of stages of requirements. There are simply two stages, one from 1 January and one from 1 July. It may be that my noble friend has something else in mind, so if she wants to seek clarification, I ask her to write to me. HMRC is standing up approximately 7,000 new customs officers for this process, around 6,000 of whom are already in place. The bulk of the others are either in training or under offer, so I am reasonably confident that we will have enough. I get a weekly report on that information.

A number of noble Lords asked about the Northern Ireland protocol. It is a very complicated international agreement, made more so by the fact that we do not have everything nailed down yet. I share the frustration of many noble Lords who wish to see certainty. However, the Trader Support Service has been established to support traders in Northern Ireland and has already started sending out bulletins to traders in Northern Ireland who have registered. As of last week, 2,800 Northern Ireland businesses had registered and at least 2,000 GB businesses are looking to trade with Northern Ireland. That figure is changing daily and going up quite quickly. They will link into the computer system that will operate in Northern Ireland, the Customs Declaration Service, which will operate only in Northern Ireland initially because it is capable of managing a dual-tariff system. I will talk more about systems later on.

My noble friend Lady Wheatcroft asked about delays on the other side of the channel. She is right that it is not something we can have a great deal of control of, but we are engaging substantially with all the EU countries that trade with us and we see from surveys that awareness is going up weekly. However, this is of course made more complicated by Covid.

The noble Baroness asked why we could not provide longer-term waivers in this SI. The practical limit is that under the international customs rules one cannot make these things permanent, but we believe that the six-month delay will give businesses a chance to adjust. The noble Baroness also asked about the number of businesses that have registered for an EORI number: it is a bit over 260,000 and they are still coming in.

The noble Baroness expressed concern about complexity. It is absolutely our intention and aspiration to operate the most efficient border in the world by 2025, as we have stated. We are not able to do that straightaway, and I fully accept that there will be complexity and arcane rules that we would like to remove now but cannot necessarily remove in the next few weeks or months. However, we are absolutely committed to improving the system.

My noble friend Lady McIntosh also asked about the Trader Support Service. I assure her that it is standing up at a rapid rate. It is led by Fujitsu, a large computer company that has been working with HMRC on other systems for a number of years. One of its consortium members is the software company Descartes, which is going to link to CDS. I am in very regular contact with the HMRC teams on the implementation of that work.

Businesses have been able to sign up since 28 September and, as I mentioned, those that sign up now receive bulletins. However, we are concerned that not enough Northern Irish traders have registered. We continue to communicate as assertively as we can with trade bodies and hauliers in Northern Ireland. The noble Baroness asked about one-off costs. We expect that importers will face some increase in costs as a result of the declaration requirements, but they are very variable. We do not know how importers will choose to manage the declaration, which is often just one part of a wider customs process. Because of this uncertainty, the estimate on the admin burden is not currently available. As noble Lords will know, the negotiations with the EU on an FTA are ongoing. That is why we cannot be crystal clear for traders. As I have said, it is frustrating, but I have personally pushed HMRC to get out all the decisions that it can as quickly as possible, to remove the uncertainty that traders face.

My noble friend Lord Naseby asks whether trade associations and hauliers were consulted on the changes to the timing of the notification of the ENSs. It is worth clarifying that this change was requested by stakeholders. It gives flexibility to hauliers and carriers to pick the route nearer to the time of departure. They do not have to submit the information on that timescale; they can put it in earlier if they know what route they are taking. We consulted with 40 trade associations and business representatives on this, and that is why we have made these changes. My noble friend also asked about communication with hauliers, referring to his old constituency. We have created 40 advice and information pop-up sites across GB. In the last week or two, 7,000 hauliers have visited them, as they collect information and increase their level of familiarisation.

Many noble Lords asked about IT readiness. There are a lot of systems, so I will not go through each one in detail. The main one, CHIEF, the existing system, is tried and tested, and has been upgraded to take the higher volume of transactions. Regarding congestion, particularly around the short straits, we have created a facility, “Check an HGV”, which will enable hauliers to answer a simple questionnaire before they go into Kent, to ensure that their paperwork is in order. That has been in beta testing with a number of hauliers over the last few weeks. Noble Lords have mentioned costs. We have provided support of £80 million to the intermediaries sector—customs intermediaries, freight co-ordinators and so on—to uprate their businesses. That money is still going out. Not all of it has been claimed by grants, and this week we widened the criteria to give more flexibility. Noble Lords will also be aware of the port infrastructure fund which closed on 31 October, and which again was well received by the port sector. It will probably be oversubscribed, but it will provide substantial capital to enhance the sector’s facilities.

The noble Baroness, Lady Kramer, asked a number of questions, some of which I hope I have answered. She asked particularly about small business support. We have made efforts to support the small business sector. HMRC has introduced a number of support mechanisms around such things as duty handling, where we have provided an accelerated system for the deferral of duty. That process is under way, but I absolutely accept that this is going to be a period of change and a lot of learning for all parts of the sector.

The noble Lord, Lord Tunnicliffe, asked thoughtful questions, as normal. He asked whether this is a response to Covid or a matter of lack of readiness on the part of the Government. We have listened very carefully to carriers, who have been emphatic that the challenges raised by Covid have required that we make this particular easement. Businesses specialising in cross-border trade have been significantly impacted by the pandemic. This disruption has prevented them preparing the introduction of customs controls at the end of the transition period, and it is really in response to those challenges that we announced the staging in. The introduction of a temporary waiver for entry summary declarations was a necessary measure to address the adverse impact of Covid while balancing the safety and security needs of the country.

The noble Lord asked about the employment of 50,000 customs agents. There may be a misunderstanding of terminology on my part, but I think the number he refers to relates to the customs intermediaries industry, not to civil servants, Border Force or suchlike. That figure was a bit of a finger in the air, to be honest: one simply extrapolated the number of customs forms from the volume increase. The reality is that the grants we have given to the sector—a moment ago I mentioned around £80 million—have been available to increase capacity, not just through hiring more people but covering IT training and innovation, basically. Our intelligence suggests that the sector is ready for the big increase in transaction numbers from January. As I mentioned a moment ago, we have just widened the criteria of the grants facility to give a wider range of eligibility.

The sector is varied, as I mentioned. It includes customs brokers, freight forwarders and fast-parcel operators, and the increase in capacity goes beyond simple increases in the numbers of staff. The Government continue to work closely with industry stakeholders to ensure that they have the capacity required. We will continue carefully to monitor preparations, bearing in mind that there will be a big jump in January and then another jump in July. Therefore, we will keep a careful eye on capacity.

The noble Lord asked about the timing requirements. I hope I dealt with that in an earlier answer, but there is a basic requirement, because Border Force needs time to collect and risk-assess data, with the practical considerations about what information the industry is able to provide and when without being overly burdensome. Of course, this varies by mode of transport, and the shorter timing requirement that this SI extends to the territories list reflects the reality for short sea movements, such as those from Calais to Dover. The change offers a more practical requirement for the submission of these declarations for businesses involved in maritime trade on historic, busy and significant trading routes. We will continue to assess feedback from the industry on how the customs system works for them and keep the requirements under review.

The noble Lord asked about the cost of the impact of the S&S requirements. As I mentioned earlier, we expect there to be some additional costs, but we have not been able to quantify them.

The noble Lord asked whether we can reassure the House that trade requirements are being considered more widely beyond the question of imports. My noble friend Lord Naseby asked a similar question. We continue to work closely with industry to ensure that it is engaging with the new requirements and can take the necessary steps to prepare. We are using a public information campaign. I accept that for some people that might sound irritating but, to a certain extent, it needs to be irritating for people to take notice of it. My right honourable friend the Chancellor of the Duchy of Lancaster is having regular Zoom conferences with stakeholders to hear their issues at first hand, as indeed, am I. I hope that addresses the questions. I think I will be back here again on future SIs and I am sure will be subjected to ongoing scrutiny. If noble Lords want to write to me on any particular issues, they should feel free to do so.

To sum up, the Government are introducing this SI as an important part of the process of updating retained legislation to support our status as an independent customs regime. By providing extra time for businesses affected by Covid to prepare to meet their safety and security requirements, we are listening to businesses and supporting them at this challenging time.

Motion agreed.

Future of Financial Services

Lord Agnew of Oulton Excerpts

Wednesday 11th November 2020 Lords Chamber

[Baroness Kramer (LD) [V]]

My Lords, I declare my interests as listed in the register. I agree with the Chancellor that financial services are fundamental to Britain’s economic strength. However, I recommend that anyone looking to assess their future ignore the hype in the Chancellor’s statement—he seems to have drunk the moonshot Kool-Aid—and look at reality. Our failure to negotiate mutual recognition, or at least equivalence-plus, with the EU is a serious problem. If only the Government had taken as much interest in this area as they do in fishing or, as Catherine McGuinness of the City of London Corporation is quoted as saying in today’s Times, finance risks being

“the neglected child of an acrimonious divorce”.

Over £1 trillion in assets have already transferred from the UK to the EU. Last year, Ministers seemed to think that half the financial services business with EU clients, which is about 15% of total UK financial services, had left or was in the process of leaving, including swathes of insurance and asset management. Is 15% still the number, I ask the Minister? The size of these asset transfers suggests that the actuality is well above those expectations. Job transfers are unclear because of Covid, but we do know that, even in 2019, the recruitment of graduates who do not have EU passports had pretty much collapsed for anything except retail banking.

The EU, which I once thought had a 10-year strategy to remove, slice by slice, most EU and euro-related financial services back to the 27, seems to have accelerated that programme. For example, Mr Dombrovskis has cautioned EU businesses to shift a significant portion of their clearing activity out of the UK in the next 18 months. Without dominance in clearing euro-denominated derivatives, the UK’s global role is seriously at risk. Does the Minister agree?

On fintech, many firms have made it clear that they will have to move EU business if we cannot agree on the rules that govern data. Where are negotiations on this, because at the last look they were pretty dire, with the UK determined to please the United States by watering down data protection?

I am delighted that we are finally going to issue a green sovereign. We may be a leader in green finance now, but every single significant financial centre is committed to the green agenda. I note that the EU is expected to issue €200 billion in green bonds as part of its Covid recovery fund, none of which will be issued through London. But will the Government replace the Green Investment Bank? The noble Lord, Lord Tunnicliffe, mentioned it; it was sold off in part because, along with the British Business Bank, it was associated with Vince Cable, but that was also a deliberate act of environmental vandalism. Will it be replaced?

We are entering a period of regional economic blocs. The United States has actively repatriated a great deal of dollar financial services. China and Asia generally, contrary to the expectations of George Osborne, are using Hong Kong and Singapore rather than London, even with all the disruption in Hong Kong. India is developing Mumbai, so I caution the Government not to misread the potential of dialogue with India. We are now outside all the regional blocs. We have capacity and skills in financial services, but everyone else has the clients and issues the major currencies. You can move capacity and skills, but you cannot move the clients. London will remain a global centre but, I fear, one of gradually less significance. Will the Government give us a reality check on the future of this crucial industry and a proper assessment of the damage that their hard-line Brexit is delivering?

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

I thank the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Kramer, for their thoughtful contributions. I will try to answer the questions as fully as I can.

Unlike the EU, the UK’s equivalence assessment of the EU’s regime was conducted on a proportionate basis, recognising that the UK and EU have the same rulebook. The EU sent us over 1,000 pages of questionnaires—not in a timely manner, with the last 248 pages arriving by 25 May, which is why we were not able to return them within a week, as I think the noble Lord, Lord Tunnicliffe, mentioned. We responded to the questions fully and comprehensively, with over 2,500 pages of response going back at the beginning of July. The EU has not come back with any questions on these responses.

In the absence of clarity from the EU, the Chancellor announced the package of decisions on Monday, which are in the UK’s interest and seek to support UK firms and ongoing cross-border activity with the EU. I assure both the noble Lord and the noble Baroness that we remain open and committed to a continuing dialogue with the EU about their intentions. The Government have taken all reasonable steps to co-operate in good faith with the EU throughout the equivalence process.

The noble Lord asks whether we feel that the EU is holding back, pending the progress of the Financial Services Bill. The measures in the Bill are consistent with a mutual equivalence outcome, and a number of cases actively support it. The UK played an instrumental role in the introduction of a lot of the EU’s regulation, particularly the investment firm regulation and directive, for example, so it is very supportive of the intended outcomes.

The noble Lord asked about TCFD. The UK is the first major country to go beyond comply or explain, or as far as able requirements, and our proposals contain a requisite level of prescription, supervision and enforcement mechanisms to mandate meaningful disclosure. The approach confirms the UK’s position as a global leader on robust climate-related financial disclosures that help investors to make informed decisions. We believe that the timelines set out in the road map provide the right balance between showing ambition and allowing businesses, investors and asset owners enough time to prepare to disclose meaningful information. Initial steps towards introducing TCFD-aligned disclosures have already been taken in respect of certain listed companies, banks and building societies. The FCA consulted in March on comply or explain rules for premium listed companies.

The noble Lord asked about green gilts. The UK’s sovereign green bond will identify specific government green projects that its proceeds will be used to finance, as per the International Capital Market Association green bond principles. These proceeds will then be tracked and reported in a regular and transparent manner to provide clarity to the public and investors.

The UK Government have always remained open to the introduction of new debt-financing instruments but needed to be satisfied that any new instrument would represent good value for money to the taxpayer. We have been regularly reviewing the case for introducing a sovereign green bond, as well as closely monitoring how the green and other ESG bond markets have developed over recent years. The noble Lord asked why we were slow. We have been watching the evolution of this market; indeed, Germany issued its first equivalent only in September this year.

The noble Lord and the noble Baroness asked about a Green Investment Bank mark 2. The Government are committed to ensuring that businesses and infrastructure projects continue to have access to the finance that they need. The UK has a number of existing tools available and we committed, in March last year, to an infrastructure finance review. We still intend to respond to that within the next few weeks.

The noble Baroness asked about asset transfers and the future role of the City. One of the advantages of leaving the EU’s regulation is that it gives us the opportunity to launch a number of initiatives. For example, we will review Solvency II. We will have a call for evidence on the overseas regime, some parts of which have not been reviewed since 1986. We are carrying out a task force on future listings given that there is, for example, quite a big discrepancy between the minimum size of a prospectus in this country and in the US. We are carrying out a consultation on the UK funds review to look at ways of making this country more attractive for international funds.

I remain more optimistic than the noble Baroness that there is a good future. She also asked about fintech and its role. We are a major player in the fintech market. We are developing an ecosystem that supports fintech firms to grow and reach scale. We are fostering partnerships between fintechs and incumbents to enable mainstream adoption of innovation. Being a large economy, we provide the opportunity for high levels of domestic demand; the British public tend to be early adopters of the opportunities that fintech throws up. We have the third-largest number of tech unicorns in the world, with 77 companies valued at over $1 billion. We are absolutely committed to supporting the growth of that market.

[The Deputy Speaker (Lord Faulkner of Worcester) (Lab)]

We now come to the 20 minutes allocated for Back-Bench questions. I ask that questions and answers be brief so that I can call the maximum number of speakers. The first speaker is the noble Baroness, Lady Hayman.

[Baroness Hayman (CB) [V]]

My Lords, I declare my interest as co-chair of Peers for the Planet. I very much welcome the emphasis in the Statement on green recovery and the ambition to lead the world in green finance. I have a couple of questions on TCFD and the decision to mandate climate disclosures. Could the Government not be a little bit more ambitious on the 2025 deadline, given the number of companies that are already taking on these responsibilities and have acted on disclosure? In the run-up to COP 26, will the Government take this as an exemplar and persuade other countries to act in a similar fashion so that we can have an even playing field across countries?

[Lord Agnew of Oulton (Con)]

The noble Baroness asks important questions. I certainly take on board her desire to try to accelerate the mandatory implementation date. I will feed that back to the Chancellor and see if it can be done. It is always a matter of balance between doing these things too quickly and being slow-footed. The TCFD is a key component of our international efforts at the G7, which we are hosting, the G20, COP 26, which the noble Baroness mentioned, and the Coalition of Finance Ministers for Climate Action. Making this announcement will mean that we can set this as an example for other countries to emulate and harmonise approaches on disclosure.

[Baroness Altmann (Con)]

My Lords, I, too, declare my interests as set out in the register and welcome the launch of green gilts and the aim of a green recovery.

I shall ask my noble friend two questions. First, I welcome the equivalence decision that the Government have taken unilaterally, but which areas in particular will we have equivalence for, and will there be the same sort of short-notice withdrawal for equivalence as exists in the EU?

Secondly, could my noble friend clarify the welcome statement in the document released by the Chancellor about UK pension funds directing more of their capital towards our economic recovery and setting up a long-term asset fund? Utilising the money in long-term pension schemes to boost recovery directly is an excellent idea, but could we have a little more detail on the plans?

[Lord Agnew of Oulton (Con)]

I thank the noble Baroness for her question. In relation to the equivalence announcement, we are taking on board 17 equivalence rules. In the interests of brevity, I shall not go through all of them, but I shall ask that they are entered into Hansard. The point the noble Baroness makes about the early or perfunctory removal of equivalence is something we have taken on board. Indeed, other countries have expressed this as one of the EU’s problems, and it will be our intention to have a more transparent process that gives those countries the ability to respond to issues and have a more iterative dialogue.

In relation to the noble Baroness’s points on pension fund assets allocation, I touched on this yesterday in the Statement in relation to local government pension funds, and it is certainly a priority for us to try and steer some of these assets, on a low-risk basis, into infrastructure development.

[Lord Sikka (Lab) [V]]

My Lords, the finance industry has been engaged in bribery, corruption, money laundering, tax avoidance and mis-selling of numerous products. The victims of RBS and HBOS frauds are still awaiting compensation. In July this year, the Intelligence and Security Committee said some aspects of the finance industry were also a threat to national security. I ask the Minister and urge the Government to appoint an independent inquiry into the finance industry, as that would be a good way of promoting public confidence in the industry.

[Lord Agnew of Oulton (Con)]

I do not accept the noble Lord’s harsh criticisms of the sector. As in any sector, one gets miscreants, but is important to remind the noble Lord that this industry employs over 1 million people in this country and contributes £130 billion to our national economy and some £75 billion in tax receipts.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I refer to my interests in the register.

A lot of time was used up seeking equivalence, and now it is right to move on with reforms and new matters. But what is the overall timeline, and will there be more democratic oversight than mere devolving of power? I welcome the unilateral equivalence decisions the UK has made. Many of them show that equivalence can benefit the granter; it is not all about benefits to those receiving equivalence.

I would also like to pursue the matter of pension funds investing in infrastructure. It is something we have envied in Australia and Canada for a long time. Has the Treasury considered how much more could be unleashed if there were not a systemic obsession of regulators with risk-free, liquid investment in government bonds? Post-Covid, is that not an even more outdated comfort blanket, which robs both public and pensioners?

[Lord Agnew of Oulton (Con)]

To reassure the noble Baroness, full disclosure will be made on any further progress with equivalence. The new Finance Bill, just starting its progress through both Chambers, will give opportunities to noble Lords to contribute.

On the issue of pension fund asset allocation, I agree that we have been too focused on pushing too many assets into government gilts or equivalent instruments and that enormous opportunity exists for investment in UK infrastructure.

[Baroness McIntosh of Pickering (Con)]

My Lords, I take this opportunity to welcome the Statement from my noble friend today, in particular the part relating to the issuing of the green sovereign bond. Among my interests on the register, I am vice-president of the Association of Drainage Authorities. I urge him to consider that a fundamental shift of thinking is required on environment issues at the heart of the Treasury, relating to spending on environmental projects and more especially flood defences, which will increasingly become a challenge given the threat of climate change. Will the Government ensure that revenue and maintenance activities receive a greater balance of spending than those on capital work? So often when flood defences fail, it is due to the lack of maintenance. Given the pressure of climate change, I hope that my noble friend will agree to review this urgently.

[Lord Agnew of Oulton (Con)]

I take on board my noble friend’s comments. In relation to flood defences, I must declare an interest: my farm runs down to the sea and I have some three miles of coast, which is under continual attack by the elements. But we have increased the commitment of funding for flood defences; I think it was in the Budget in March, and it certainly recognised that this is a major element of our national infrastructure. In terms of seeing an allocation into these kind of assets, this falls partly into the previous question about ensuring that we get a wider allocation into infrastructure and of course into sea defence and indeed flood defence.

[Viscount Waverley (CB) [V]]

My Lords, if fluency in fintech will define the future prosperity of the UK, policy alignment and regulatory equivalence are essential with the EU and global counterparties. Does the Minister agree that a key goal is to encourage digital trade, and then to help our SMEs access global markets? I refer to my declaration in the register. The range of financial interventions from Governments and regulators has expanded in an unco-ordinated fashion, underlining the need to strengthen regulatory co-operation. What incentives and assistance will be available to promote standardisation, reusability and rationalisation of technology to standardise taxonomies, document digitalisation, implementation of distributed ledger technology and artificial intelligence?

[Lord Agnew of Oulton (Con)]

My Lords, we absolutely acknowledge the role of fintech in the economy. It generated some £11 billion in 2019 and employed more than 76,000 people. The 2020 report has highlighted the UK as a global leader. Likewise, in the payments landscape, we are also highly innovative because we again are a large economy. In 2018, more than 230,000 faster payments were sent every hour, compared to fewer than 3,000 10 years earlier. The noble Viscount is concerned about regulation. The financial regulators continue to provide a platform that facilitates innovation in this space. For example, the Financial Conduct Authority has accepted a significant number of DLT-based projects into its regulatory sandbox to enable the adoption of this technology to deliver better financial services with appropriate consumer safeguards.

[Baroness Neville-Rolfe (Con)]

I refer to my interests in the register. Unlike some others, I congratulate the Chancellor and my noble friend on getting ahead and providing as much certainty as possible in financial services, despite the ongoing difficulties with the EU. We need this innovative £130 billion industry, especially as we start to pay for Covid. How does my noble friend think that this package will help the large number of smaller financial services providers—and indeed the businesses they serve—outside London and outside the leading-edge areas of fintech and green finance, which will of course take time to grow?

[Lord Agnew of Oulton (Con)]

My Lords, we absolutely accept that small businesses are the backbone of the wealth-creating part of our economy. One of the answers I gave earlier was looking at the listing rules in this country to see whether we can make it more accessible for smaller firms. I mentioned that I think that you have to issue a full prospectus for anything in excess of €8 million, whereas in the US it is $50 million, so we certainly will be looking at that.

On a slightly unrelated element, but connected to SMEs, the rules reform that we are working on now, post transition, on procurement opens up an enormous opportunity for SMEs, because it will allow us to set our own rules and not be controlled by the EU regime. That covers some £290 billion-worth of government expenditure each year, and we will be making sure that SMEs get a good slice of that.

[Lord Bhatia (Non-Afl) [V]]

[Inaudible.]

--- Later in debate ---

[Baroness Wheatcroft (Non-Afl)]

My Lords, I declare my interests as listed in the register. The Treasury papers say that it will give audit equivalence to the EEA states and approve as adequate their competent authorities. It is important that investors should be able to have confidence in audits provided by EEA auditors for overseas operations of UK businesses. However, does this also mean that EEA auditors will be able to continue practising in the UK after the end of the transition period, while UK auditors will be excluded from EEA markets? If this is the case, can the Minister say what the cost will be of this lack of reciprocity?

[Lord Agnew of Oulton (Con)]

I am not able to give specific answers to the noble Baroness, Lady Wheatcroft, on those subjects at the moment. They will, no doubt, be included in the ongoing negotiations. If we receive clarity on that in the next few weeks, I will happily write to her.

[Lord Flight (Con) [V]]

My Lords, I apologise that my screen has gone wrong while waiting. I first declare my interest. [Inaudible.]

--- Later in debate ---

[Lord Bilimoria (CB) [V]]

My Lords, we look forward to the Ron Kalifa report on fintech. The trade credit insurance guarantees making a real difference. Would the Government agree it should be extended until June 2021? Will the Government consider instituting a new 3i-type funding to help provide equity finance for funding, recovery and scale-up? Will the Minister clarify if the Government will consider reinstituting a Green Investment Bank—a question that has been asked before? Finally, will the Minister agree that getting an EU deal with make equivalence much easier to resolve?

[Lord Agnew of Oulton (Con)]

The noble Lord asks a lot of questions: I will take the last one first. Of course, getting a deal will make the whole relationship far more constructive. We remain cautiously optimistic that this can be achieved. I think the Government are broadly sceptical about creating an equity distribution fund or a fund that makes equity available. As I am sure the noble Lord will know, the private equity industry has some $1.5 trillion-worth of dry powder available for investment around the world, including this country. I believe that we should be accessing that rather than using taxpayers’ money.

[Lord Gadhia (Non-Afl) [V]]

My Lords, I welcome the content of this Statement and the recognition of the significant contribution of financial services to our economy. However, could I press my noble friend on equivalence? For those following the trajectory of our approach to securing continuing market access, we have been on a ski slope for mutual recognition to enhanced equivalence to equivalence and now to unilateral equivalence—which, by definition, involves no reciprocity. Does this Statement effectively signal we have abandoned hope for a substantive financial services chapter in the UK-EU trade deal? How does that reconcile with the ambitions set out in paragraphs 35 to 37 of the political declaration?

[Lord Agnew of Oulton (Con)]

My Lords, we have certainly not abandoned any aspirations of mutual equivalence. As I said earlier, we cannot start from a position of almost perfect equivalence, and it is disappointing that the EU has not seen it appropriate, at this stage, to engage on a more collaborative basis. We had to provide clarity to UK-based firms and show that we were ready for business on 1 January, whatever the EU’s attitude. We continue to engage with the EU proactively.

[Lord Mackenzie of Framwellgate (Non-Afl) [V]]

My Lords, I thank the Minister for repeating the Chancellor’s Statement. It quite rightly emphasises the high regard that the United Kingdom is held in throughout the world for its financial services, which, as he said, bring £130 billion to the Exchequer. We are also renowned for our gold standard legal system, which, again, attracts many high-value disputes in our courts, and we rightly take pride in our word being our bond. Therefore, does the Minister agree that, as we leave the European Union, our enviable reputation is tarnished by an open admission by a Minister of the Crown in another place that we will place on the statute book an Act which, on his own admission, will breach international law?

[Lord Agnew of Oulton (Con)]

My Lords, the UKIM Bill is there as a precautionary instrument in the event that we do not achieve a deal at the end of this year, to protect the interests of this country.

[Lord Jopling (Con) [V]]

My Lords, some years ago, when the European Union was trying to negotiate the TTIP agreement with the United States, one of the United Kingdom’s principal aims was to include financial services in that deal. But when we went to Washington on a Select Committee visit, the United States Treasury was totally—even aggressively—opposed, saying that it was totally unacceptable to include financial services in a trade agreement. Does the Minister agree that there has been no change in the American attitude, and that it will be almost impossible to get a satisfactory and acceptable new trade agreement with the United States in the short term? To suggest that it will be simple and swift is some way from the truth.

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

My Lords, I am not involved in the intricacies of the trade discussions between the US and ourselves. There is a very simple principle with any trade agreement: the more you try to agree in one go, the harder it is. If you include something as complex as financial services, then it will be very difficult. I am sure that that is why the EU has still not been able to negotiate its own deal with the US. However, we will continue to engage with it as practically as we can.

[The Deputy Speaker (Lord McNicol of West Kilbride) (Lab)]

My Lords, that is all we have time for in the 20 minutes.

Economy Update

Lord Agnew of Oulton Excerpts

Tuesday 10th November 2020 Lords Chamber

[Baroness Kramer (LD) [V]]

My Lords, last week the Minister was not a bit keen on my call for an extension of the 80% furlough scheme to June. Now it looks as though I will get that until at least April, unless there is a poison pill in the January review—though I suspect, quite frankly, that the Government would not dare. I also called on the Government to feed the kids. What a difference a week makes. I am glad they have finally faced up to the realities and have U-turned on quite a range of issues.

They should still do more for the self-employed, whose income support grant ends at the close of December. They cannot be left out in the cold at the turn of the new year. Again, not a thing has been done for the 3 million excluded. The clue is in the name: excluded. There is no point in the Minister quoting programmes that these people cannot access and use. Letting them down is unacceptable.

On the same day the Chancellor made the furlough announcement, the Bank of England announced another £150 billion of QE, which will bring its holding of government debt to over £900 billion. There is a widespread market sentiment that this policy has come to the end of the road. Will the Government comment on that and the implications of negative interest rates, which are now being explored by the Bank? Are we really saying that savings are worth nothing, and that ordinary people need to take increased financial risk in a time of such uncertainty, created by not just Covid but an imminent economic Brexit?

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

I thank both noble Lords for their comments. I will first address the noble Lord, Lord Tunnicliffe.

The Government have always made it clear that economic support would continue past the end of October and had announced the Job Support Scheme to do just that. Extending the CJRS, or furlough, responds to the latest economic conditions and the national lockdown in England and similar restrictions in the devolved Administrations. The Government have acknowledged that they have not been able to support everyone in the exact way they would want, but they have been proactive in addressing gaps in the scheme where possible. This partially addresses the points of the noble Baroness, Lady Kramer; for example, under the second SEISS grant, self-employed traders facing reduced demand or who are temporarily unable to trade due to Covid were made eligible. It has not been practically possible to include certain groups without introducing unacceptable fraud risks.

The vast majority of the British public has come together, followed the law and helped to prevent the spread of the virus. We are confident that communities will rise to the next challenge and play their part as we come together to fight the second wave this winter. The noble Lord asked about compliance. To ensure that people can continue complying, we have introduced a comprehensive package of support, including extended SSP to employees when they are asked to self-isolate, and for workers on low incomes a one-off payment of £500 under the self-isolation support payment scheme.

Individuals who are asked to self-isolate by NHS Test and Trace because they have tested positive for coronavirus, or been identified as a contact, may be eligible for the test and trace support payment provided that they meet the other criteria. If individuals are identified as a contact by the NHS Covid-19 app but they have not been contacted by NHS Test and Trace, they cannot currently apply for the scheme. App users are anonymous, which means that the local authorities that administer the payment scheme cannot confirm that they have been asked to self-isolate. Further work is ongoing to determine if the scheme can be extended to individuals who have been identified as a contact only through the app, while adhering to data privacy requirements.

We have legislated to prevent employers from requiring workers, including agency workers, subject to the duty to self-isolate to attend work. Employers who breach this are subject to a £1,000 fine, rising to £10,000 for repeat offences.

The noble Baroness asked about the potential for negative interest rates. I cannot predict the future, but the noble Baroness will know that we are very against that at the moment. I hope that it can be avoided. I share her concern that negative interest rates put pressure on savers beyond that which has existed over the last 10 years of very low interest rates. It is illustrative of the balancing act that the Government must take between support for people during this crisis and the long-term impact on the Government.

[The Deputy Speaker (Baroness Morris of Bolton) (Con)]

My Lords, we now come to the 30 minutes allocated for Back-Bench questions. I ask that questions and answers be brief so that I can call the maximum number of speakers.

[Lord Robathan (Con)]

My Lords, last week a Cabinet Minister said that there had been no impact analysis done on the effect on the economy of the various rate restrictions, the previous lockdown and the current lockdown, which is a pity, because I would have thought that was rather important. I will not ask the Minister to give me an impact analysis today, because that would be rather unfair, but can he tell me whether the Government have worked out how long it will take for our children to repay the humungous debt that we are running up? Will it be one decade, two decades, three decades or longer?

[Lord Agnew of Oulton (Con)]

I share my noble friend’s concern about the huge impact of indebtedness that has gone on to the country’s balance sheets over the last few months. He is entirely right that the burden of this will be borne by the next generation, not by those of us sitting in this Chamber. That is why we are so anxious to do everything possible to avoid these national lockdowns, which have the huge costs of supporting people and which throttle economic growth. We are seeing the largest fall in economic activity in my lifetime certainly—and maybe even longer. We must come together to regrow the economy as quickly as possible, because only growth will pay down this debt.

[The Lord Bishop of Portsmouth [V]]

My Lords, I welcome the Government’s desire to protect jobs and livelihoods, but can the Minister confirm that the extension of the furlough scheme until March—a full five months—is based on the assumption and expectation that those jobs, or at least the vast majority of them, will be ready to return to unchanged? That is a bold assumption. If it is not the case, what strategy do the Government have now for addressing the transitional challenges for those whose jobs will disappear? This Statement was made late, in haste. Tackling the jobs issue in March is tackling it too late.

[Lord Agnew of Oulton (Con)]

I share the concerns of the right reverend Prelate about jobs. The honest answer is that we do not have enough visibility on the impact to the economy beyond March. Coming out of lockdown, we saw a steady reduction in the number of people using the furlough scheme. It dropped every month from July to August to September. I do not have all the information yet, but hopefully it will be published shortly. The key is whether we can avoid extending this awful lockdown beyond 2 December. I am confident that if we can avoid that, we will see a rapid pick up of the economy, which will hopefully reduce the number of job losses that the right reverend Prelate is so concerned about.

[Viscount Waverley (CB) [V]]

My Lords, could the Minister set out the vision from the perspective of his department as to how the various help initiatives, including the job retention and self-isolation schemes, can impact UK trade in delivering a sustainable economy at national and international level, given that our economy is in the eye of a perfect storm of incomplete Brexit-related negotiations, a changing of the guard in the US, direct and indirect consequences of Covid, including supply chain complications, and a worsening employment situation?

[Lord Agnew of Oulton (Con)]

I agree with the noble Viscount that we face an unprecedented storm of events, and I share his concern. On the role of the Treasury and, indeed, my other department, the Cabinet Office, we are doing a great deal to try to ameliorate some of this. For example, project speed, on which I deputise for the Chancellor, has brought together a number of initiatives to pump prime the economy—and we have published our first initiatives on that. We have a further possible 80 projects, which will be used to pump prime the economy, dealing with blockages to infrastructure, speeding up infrastructure, the commitment to building additional schools and accelerating the building of 40-odd hospitals. We have announced through the IPA some £37 billion of infrastructure, and I hope that we will announce around the time of the spending review the national infrastructure strategy, which will show further the investment that the Government are making.

[Baroness Altmann (Con) [V]]

My Lords, I welcome the extension of the economic and job support schemes and congratulate the Chancellor on his willingness to adopt flexibility and have the courage to change tack when the economy and public health winds changed. However, I have to say that I regret that a new lockdown was deemed necessary and believe that the damage caused to public health and the economy as a result needs to be much more thoroughly analysed.

Does my noble friend agree that the job support measures that have been introduced have been facilitated by the Bank of England’s quantitative easing policy? In combination with the job support measures, it is rather like helicopter money or people’s QE. What impact do Her Majesty’s Government expect it to have on UK defined benefit pension schemes? Would not it be better for the economy to encourage companies and pension schemes to invest directly in the economy to boost growth rather than encouraging them to buy more fixed income, as interest rates continually fall?

[Lord Agnew of Oulton (Con)]

The noble Baroness is right that QE is providing a level of financing for the interventions that the Government are taking at the moment. I think that she will understand that those interventions are having to be made extremely quickly to protect lives and livelihoods across the whole country. Long term, I absolutely agree with her that we need to get businesses to invest more in the economy. One initiative that I am exploring is to try to encourage local government pension funds to allocate a greater proportion of their investments to infrastructure; at the moment, it is a very low figure. I am sure that there is more we can do to loosen the rules without, of course, putting those pension assets at undue risk.

[Lord Bird (CB)]

I declare my interest as a founder of a social business, which is on the register. From where I am sitting, I am very impressed with this Government, who have pushed aside all the austerity measures that we were expecting. I think most of us expected that we would return to a Cameron-type, Clegg-type austerity. That involved laying the stones, filling up our hospitals and cutting social support to such an extent that, when we arrived at Covid-19, 85% of our hospitals were full of people who were troubled, poor and broken, largely because of the effects of austerity.

I am a self-appointed historian. I was born in 1946 and I stopped paying for the Second World War in 2007, when Mr Blair signed a cheque for the last time. Did your Lordships know that in 1832 we raised £30 million to pay off the people who had to give up their slaves? We only finished paying that off last February. This generation is paying for previous generations, and those generations paid for generations before them. If this generation turns its back on its responsibility and does not do as the IMF said—spend, spend, spend, and keep the receipts—then we will have no economy and no society, and we will have an enormous amount of problems.

I am really blessed. I am grateful for the bounce-back loan and for the chance of having the furloughs so that I can look after my staff and still help those people who I have appointed myself to help on the streets of the cities of Great Britain.

I shall end on another problem. I know many self-employed people, including my brother, who cannot find their way through the intricacies of what is being offered by the Government; some 3 million to 5 million people are falling outside it. I suggest that we need to fine-tune ways of how we can help those people. News came through yesterday that 1 million people, the backbone of Britain, doing all their self-employed jobs, are now giving up on self-employment and trying to find jobs. That is because they are not getting the support that the Government are offering.

[Lord Agnew of Oulton (Con)]

I thank the noble Lord for his supportive comments. I completely agree with him that intergenerational solidarity is vital as we come through this crisis. I worry about the cliff edge of debt that we are generating, but I accept his point that we need to be here today for all those very vulnerable people who we have tried to help over the past six months. I hear what the noble Lord says about the complexity of eligibility. I am pleased to confirm to him that we are working to make clearer eligibility criteria. They have been introduced for the third SEISS grant, and we have committed to there being a fourth grant early next year.

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, I join the noble Baroness, Lady Kramer, and the noble Lord, Lord Bird, in focusing on the self-employed, particularly those who are missing out on help altogether. In figures out this morning, the LSE Centre for Economic Performance found that one-fifth of self-employed people anticipate quitting altogether, rising to 58% of those under the age of 25. The right reverend Prelate the Bishop of Portsmouth referred to the conditions of uncertainty that we are going to see in the new year. What will the Government do to enable the self-employed to rebuild their careers and their lives and to give them security as a foundation to do that? An unconditional payment, such as universal basic income, could be such a foundation. Will the Government consider it?

[Lord Agnew of Oulton (Con)]

The noble Baroness knows that this Government certainly do not support a universal basic income, but we are very aware of the vulnerability of many self-employed people. We have tried to close as many of the gaps as we can. As I mentioned in my answer to the noble Lord, Lord Bird, we have clarified the criteria in the latest round. The noble Baroness will know that we have made the entitlement more generous and extended it not just to November through until January.

[Baroness Warsi (Con) [V]]

My Lords, I welcome the Government’s decision to provide clarity and stability by extending the furlough scheme to March. I also draw the House’s attention to my entry in the register of interests. Can my noble friend provide some clarity for those businesses that took out coronavirus business interruption loans and bounce-back loans, many of which were taken out around April this year and therefore will be coming up to the anniversary in April next year? Has any thinking been done in government about what will happen to those loans, such as when repayments will start, what rates of interest are likely to be incurred and whether there will be an extension of the interest-free period to enable businesses to stabilise before those payments start?

[Lord Agnew of Oulton (Con)]

No firm decisions on that have been made, other than what was announced a few weeks ago, which was to extend the payment period of the bounce-back loans to 10 years and to confirm that those businesses that took out less than their 25% eligibility up to the £50,000 cap could return to top up to the full amount. We will of course keep under close review how the economy reacts as we come out of this pandemic, as we hope, and how quickly businesses are able to recover from it.

[Lord Mackenzie of Framwellgate (Non-Afl) [V]]

My Lords, I welcome the new economic measures announced by the Chancellor last Thursday in another place, but, like other noble Lords, I continually hear of cases of thousands of fellow citizens who, not because of fecklessness or negligence, are falling between the cracks—photographers, event organisers, dividend earners and the like, who have taken risks and built high-earning businesses, who are now prevented from earning a living or paying their debts and are being driven to despair through no fault of their own. In the light of the new quantitative easing measures, will the Government please have another look at support for these innocent victims of this pandemic?

[Lord Agnew of Oulton (Con)]

I share the noble Lord’s concern for those who have fallen through the cracks. We have issued a number of initiatives over the last few weeks and months to try to close the gap. For example, for the arts sector, there is some £1.5 billion of support, some of which will be available to vulnerable groups which have not been able to be part of the traditional self-employed schemes. We have also made funding available to local authorities, which are able to use discretion in the allocation of some of that money for vulnerable self-employed people.

[Lord Bilimoria (CB) [V]]

[Inaudible]—will be crucial. The news of the Pfizer/BioNTech vaccine is very welcome. Does the Minister agree with the recommendation of the CBI, of which I am president, about the creation of an economic recovery commission, uniting government, business and unions? It would be a vital step, as would the urgent rollout of affordable, regular mass antigen testing—with the Liverpool pilot, thankfully, having been started and now in full swing—along with investment in job-creating projects, with a focus on digital skills and green jobs. To reinforce what the noble Baroness, Lady Kramer, said, what can the Government do to help the 3 million excluded from the huge amount of government support that has been made available so far, for which we are all grateful?

[Lord Agnew of Oulton (Con)]

My Lords, the Government are in constant contact with the business community. They absolutely accept that the wealth creation engine of our economy is vital for us to recover from this pandemic. I share the noble Lord’s optimism about the vaccine. Of course, we need to be careful—we are not through the last hurdle yet—but it is certainly nice to have a little bit of good news occasionally. I have answered the point about the self-employed, raised by several other noble Lords. It is perhaps worth reminding the noble Lord that we have improved the universal credit system to try to provide a little more protection at that end of the system. We have also confirmed that those on mortgage holidays can extend to six months without any impact on their credit file.

[Lord Lea of Crondall (Non-Afl) [V]]

Three weeks ago, the Minister agreed with my remark—first made by the noble Baroness, Lady Kramer, I believe—that we have to integrate our employment assistance policy in relation to jobs that are affected by Covid-19 and jobs that are affected by Brexit. This task is becoming increasingly urgent. Looking forward, we will be in another crisis in which we are behind the curve. Will the Government commit to following up the Minister’s reply when I last raised this point and agree that there should be at least a White Paper or a Green Paper arising from the important talks in which, as the noble Lord, Lord Bilimoria, said, the TUC and the CBI agreed with the Government? Would it not be a good tripartite agenda for them to examine why there has been so much difference in how jobs have been affected by Covid-19 and how jobs have been affected by Brexit? The situation will be dreadful by the time we next have a Statement, as it is likely that Dover-Calais will shut down for many hours if we do not get a settlement, which is unlikely at this stage.

[Lord Agnew of Oulton (Con)]

The noble Lord raises a number of questions. Perhaps I may reassure him that the Government are in constant dialogue with business at all levels. He is right that we face some uncertainty on 1 January with the emerging exit from the transition period. It will certainly be helpful if we can get some kind of clarity within the next couple of weeks. However, he should also understand that, whether we get a deal or not, we are leaving on 1 January and we will be out of the customs union. The only real difference for businesses will be the tariff structures that exist and their preparedness for that. We are doing an enormous amount of work to support businesses in being ready for that, including work at the ports and inland sites to ensure that the disruption that the noble Lord is concerned about is minimised.

[Lord Hamilton of Epsom (Con) [V]]

My Lords, are my noble friend Lord Robathan and I alone in worrying about the accumulated national debt? How much will this furlough scheme cost if it lasts until the end of March? By how much will the national debt increase as a percentage of GDP, and at what stage does the national debt as a percentage of GDP become unsustainable? Let us face it, this lockdown may not even be necessary, based as it was on bogus statistics, and imposed at a time when the incidence of coronavirus was decreasing both in hospitals and in the numbers of people being infected.

[Lord Agnew of Oulton (Con)]

My noble friend asks about the cost of this current extension of furlough. I am not able to give him the answer to that yet simply because we do not know how many firms and employees will take advantage of it over the next few months. During the last lockdown we saw a very dramatic reduction in the numbers claiming each month as the economy opened up again. We have built in the flexibilities that we did not include initially in the first lockdown so that employees and employers can work as flexibly as possible to protect both businesses and their employees. I share my noble friend’s concern about the overall costs of this and the risk to our balance sheet.

House adjourned at 5.52 pm.

Covid-19 Lockdown: Economic Support

Lord Agnew of Oulton Excerpts

Wednesday 4th November 2020 Lords Chamber

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, we are very aware of the pressure on self-employed people at the moment, and it is important to remind the House of the level of support that we have given. Up to 19 July, there were 2.7 million claims for SEISS, totalling £7.8 billion. On the second grant, up to 22 October, we had 2.3 million claims of up to £5.9 billion. We keep under review the whole issue of trying to protect those who have fallen through the cracks. As the noble Lord will know, in relation to the universal credit system, yesterday we announced that the removal of the minimum income floor has been put back until April, which will help. In relation to his very specific questions about linking the isolation payments to NHS Test and Trace, I will have to write to him, which I will do as soon as possible.

[Baroness Kramer (LD) [V]]

My Lords, the Minister did not answer the question on the 3 million people excluded, who are largely self-employed and just seemed too complicated to deal with last spring but surely could be provided for now? Will he specifically address that? Businesses are under extreme pressure: they are being asked to cope with constant stopping, starting and change in support schemes. Will the Minister now commit to extend 80% furlough and related schemes until the end of June, when we expect a vaccine, so that any business that will be viable, if it can survive the pandemic, can cope with the short-term constraints and closures?

[Lord Agnew of Oulton (Con)]

As the noble Baroness will know, we have no certainty about when a vaccine will be available in quantity. She mentioned June next year, which is a possibility; it might be sooner or later. That is why we are not able to make long-term commitments. I tried to answer the questions that the noble Lord, Lord Tunnicliffe, asked about support for the self-employed and mentioned various mechanisms. She will know that, if they are businesses that have their own premises, we are providing support at £3,000 a month to go towards fixed costs like rates and running costs.

[Lord Lucas (Con) [V]]

My Lords, my noble friend the Minister will know that I have written to him about a local business that I am sure is not alone in that, since the beginning of lockdown, its business, which is in exhibitions, has shrunk by 90%. It does not see any business coming back until autumn next year. It has taken out loans, made redundancies and done everything sensible, but the business rates keep having to be paid month on month on month, and that is getting extremely hard for it. What can the Government do to help businesses in that sort of circumstance?

[Lord Agnew of Oulton (Con)]

I share my noble friend’s concern about small businesses: it is absolutely ghastly for all these people. I want to explain to him that all eligible businesses in retail, hospitality and leisure will pay no business rates in England for 12 months from 1 April 2020 until March next year. This support is worth almost £10 billion to business, and an estimated 735,000 retail, hospitality and leisure properties will be included in this over that period. There is no rateable value threshold on the support; businesses large and small can benefit. In addition to the business rates holiday, the Government have announced further measures in response to the second lockdown: as I mentioned to the noble Baroness a moment ago, cash grants of up to £3,000 a month, and the extension of the Coronavirus Job Retention Scheme until 2 December.

[The Lord Bishop of St Albans [V]]

My Lords, there has been a particular problem in the rental market, whereby renters and landlords have suffered as a result of these latest measures. Given the temporary protection from eviction for those living in tier 2 and 3 areas, could the Government confirm whether an eviction ban will now be extended across the country and whether they will now develop a strategy to help tackle arrears brought on by Covid to avoid a tragic spike in homelessness?

[Lord Agnew of Oulton (Con)]

My Lords, we will keep all these issues under review. As the right reverend Prelate will probably be aware, we have extended payment holidays on mortgages and certain consumer credit products to take pressure off individuals. In relation to his rental suggestions, we will keep them under review and will keep the House notified.

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, yesterday in the Commons, the Chief Secretary to the Treasury responded to repeated questions from all sides of the House about whether the furlough scheme would continue at 80% in Scotland and Wales after 2 December if there was a continued lockdown. He said:

“the Government will always be there to provide support to all parts of the United Kingdom.”—[Official Report, Commons, 3/11/20; col. 166.]

We know that the Government will always be there, but will they provide support at 80% if the lockdown continues beyond 2 December? Will they provide that support not just in Scotland and Wales but in the north of England if the lockdown continues as it is at the moment?

[Lord Agnew of Oulton (Con)]

My Lords, as I am sure the noble Lord knows, we have provided some £14 billion of funding to the devolved authorities. That is important because £1.3 billion was announced on 9 October. It is there to support businesses: in Scotland, for example, we have been able to support nearly 1 million jobs, some 6,500 businesses and 240,000 people in employment. I am aware of no proposal to change the 80% furlough either in England or in Scotland.

[Lord Caine (Con)]

My Lords, I welcome the economic support being provided by the Government, which is unprecedented in our peacetime history. Despite that, is it not the case that, as we approach Christmas, very many individuals and businesses face an uncertain future, particularly in retail, hospitality and leisure? Therefore, does my noble friend agree that, for the economic health and well-being of our entire nation, it is vital that the second lockdown does not extend a moment beyond 2 December?

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

I absolutely agree that it is a top priority that we do not stay in lockdown for a day longer than we have to. It was done with great reluctance because of the very rapid expansion of the virus across parts of England, which had not seen it accelerating at the pace that it has in the last week or so. Nobody wins from a lockdown, but we are also very aware of the pressure on health services and need to ensure that the NHS is able to cope with the surge that is inevitably coming at us, as we know from the data we have now. This is one of the advantages that we have over the first lockdown: we see this tsunami of infections approaching a little further ahead than we did six or nine months ago. Therefore, we are trying to react to that, but I absolutely agree that we do not want to stay in lockdown for a moment longer than we have to.

[Lord Wigley (PC) [V]]

My Lords, when the Government put England into a new lockdown, it was announced that the furlough scheme would be extended for England. When the Prime Minister was challenged whether this would likewise be the case for Scotland, he said of course it would, so why did the UK Government refuse the Welsh Government’s original request that furlough be available for businesses in Wales at those times when Wales is in lockdown, thereby ignoring the pressing needs of business in Wales and causing unnecessary uncertainty?

[Lord Agnew of Oulton (Con)]

As the noble Lord will be aware, we have made very substantial payments to the devolved authorities over the last few months and increased those payments in October by £1.3 billion. We are all in this together, as my right honourable friend the Chief Secretary said yesterday. We keep all these situations under continual review.

[Lord Inglewood (Non-Afl) [V]]

My Lords, some firms are facing considerable difficulties in obtaining CBILS loans; I speak as chairman of the Cumbria Local Enterprise Partnership. This appears to be because some banks are reorganising their own internal arrangements in response to the crisis, while some are reluctant to deal with businesses that are not regular customers. What are the Government doing to ensure that these problems will be resolved and that the CBILS arrangements work as intended before the potential borrowers’ money runs out?

[Lord Agnew of Oulton (Con)]

My Lords, my honourable friend the Economic Secretary is in constant dialogue with the banks on how all these schemes operate; he continues to try to help to improve them. If the noble Lord would like to write to me on the specific concern he mentioned, I will ensure that it gets the proper attention.

[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

My Lords, the time allowed for this Question has elapsed. I apologise to the noble Baronesses, Lady Redfern and Lady Uddin, who were not able to put their questions.

Covid-19: Economy Update

Lord Agnew of Oulton Excerpts

Tuesday 27th October 2020 Lords Chamber

[Baroness Kramer (LD)]

My Lords, this feels like déjà vu. Once again, the Government are forced to revise and increase their support for businesses. We need them to give up their bravado and recognise the depth of the economic crisis coming both from Covid and from the harmful economic realities of Brexit, undercutting investment and jobs, even with a deal. Frankly, we desperately need a new OBR forecast, even if without a Budget. While I understand the Government choosing just a one-year spending review, we should be getting open kimono on the long-term issues and choices for discussion in this House and elsewhere. This is not the time for secret spells cooked up in No.10. The situation that we face is far more dire and needs the resources of everybody’s minds and energy.

I want to make two pleas to the Government. First, feed the kids. I know that we have just taken a PNQ on that subject but the money provided to local government under the local authority welfare assistance fund and others was never intended to cope with the present scale of demand, when much of the country is necessarily closed down again, many people are facing redundancy at the end of the month in just a few days’ time, homelessness is rising, and mental health and other demands on local services are increasing exponentially. Many Liberal Democrat, Labour and Conservative councils have stepped in to provide food vouchers to children on free school meals, but that is at the price of financing other needs. Families who qualify for free school meals have by now exhausted any savings, borrowed anything that a respectable lender will let them have and tapped out family and friends. Please will the Government put in place a voucher system to at least carry us over to next Easter?

Secondly, will the Government finally step in to help the 3 million excluded people? They consist primarily of self-employed contractors with personal service companies but also include a range of other people in the self-employed arena. There has, by now, been plenty of time to set up appropriate schemes. The Government argued from the beginning that the issue was complicated, but there has been time to sort it out. As the Resolution Foundation pointed out, and as the noble Lord, Lord Tunnicliffe, described, the SEISS has been badly targeted. The self-employed have suffered an even bigger market shock than employees, and with so many people facing redundancy and needing to look to self-employment for any future income, it is absolutely crucial that proper support is put in place for the self-employed, under whatever arrangements they have established.

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

I thank the noble Lord and the noble Baroness for their comments. I shall try to deal quickly with the issues that they raised.

I completely accept that we are dealing with a fast-moving and difficult situation. The noble Lord, Lord Tunnicliffe, feels that we did not move quickly enough, and he made similar comments the last time we discussed this subject. However, we have moved quickly. We have acknowledged that, given the rolling lockdowns occurring across the country, we need to do more, which is why we are supporting more extensively businesses that have been forced to close as part of the lockdown. We are paying rate relief, which will include a portion of the rent of those businesses that are forced to close. Those that remain open but are affected by a fall-off in trade are receiving a great deal of extra support as well.

It might be worth summarising the extent of extra support announced since I was last here. The government contribution to payment of salaries has increased from 22% to 49%. The employer contribution has fallen from 22% to 4%, and the minimum-hours requirement has fallen from 33% to 20%. The noble Baroness asked about support for the self-employed. It has been a complicated group to support but we have essentially doubled the level of support with the recent announcements, taking the figure up from 20% to 40%. We will continue to monitor the situation.

The noble Lord asked about evictions. There are already provisions with lenders to ensure that they are handling those processes in a sensitive and reasonable manner, but, again, we will of course keep the situation under review.

It is extremely difficult to know how much longer this horror will continue. However, on the point made by the noble Baroness, Lady Kramer, about a more strategic response to the crisis, it is worth reminding her and the House that we have put into the system an unprecedented level of support over the past nine months—some £158 billion of direct fiscal support. That includes £69 billion for employment support, and £51 billion for public service spending, funding for charities and support for vulnerable people.

[The Deputy Speaker (Lord Bates) (Con)]

My Lords, we now come to the 30 minutes allocated for Back-Bench questions. I ask that questions and answers be brief, so that I can call the maximum number of speakers.

[Lord Forsyth of Drumlean (Con) [V]]

My Lords, does my noble friend not think that perhaps the time has come for us to have a UK-wide plan for education, employment, housing and welfare that will enable us to live with this virus? Should the Government not consider inviting the opposition parties to be part of this plan and involving local authorities in its creation and execution?

[Lord Agnew of Oulton (Con)]

My noble friend raises an important point. This country now has a more devolved structure. We have tried to keep the devolved and mayoral authorities involved in decisions at every point. We have given some £13 billion to the devolved authorities to react to the issues that we are facing. I accept that it might be easier if we could operate on an entirely national basis, but unfortunately that is not the present reality of our constitution. I assure my noble friend that we are doing everything possible to talk to the devolved authorities at all times.

[Lord Bilimoria (CB) [V]]

My Lords, we welcome the latest support measures from the Chancellor, especially the new Job Support Scheme. It is miles better than the one he announced a few weeks ago. Can the Minister tell us when the rapid 15-minute, affordable antigen coronavirus test will be available to businesses, universities and schools across the country so that regular testing can take place to enable the economy to fire on all cylinders? When we will be able to open up airport testing to allow tourist and business travel?

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

The noble Lord asks an important question. I do not speak as a health expert, but a lot of these tests are simply not reliable enough. The worry is that we would create a false sense of security which could then cause further problems. I might be incorrect but, as I understand it, some of these tests cannot pick up the infection when it is still gestating in the gut of an asymptomatic person. I am aware that a number of universities and employers are taking their own decisions and using their own technologies. It is much easier for independent organisations to do this, knowing the risks, and they can respond accordingly.

[Baroness Blackstone (Ind Lab)]

My Lords, tier 3 restrictions are hugely disruptive to the economy and will lead to the collapse of yet more businesses. In these circumstances, as many Conservative MPs in these areas now say, it is imperative to provide clear information about the exit route from tier 3 so that businesses can at least try to plan for the future. Will the Minister tell the House what measures will be used and how will they be weighted when the decision to exit is made?

[Lord Agnew of Oulton (Con)]

I agree with the noble Baroness that tier 3 has a devastating impact on businesses and on people’s lives, but it is how we are trying to control the spread of the virus. We see what is happening in Spain at the moment. That is the nightmare that we are seeking to avoid. As I understand it, the overriding way of monitoring whether an area can come of out of tier 3 is when the percentage of those being tested for the virus falls below a certain threshold. This information gives some indication to businesses that they may be coming out of this nightmare.

[Lord Fox (LD)]

My Lords, in answer to an earlier question, the Minister reeled off a whole range of government measures. I do not think he mentioned the Bounce Back Loan Scheme. In September, the BEIS annual report stated that losses from non-repayment bounce-back loans would be in the range of 35% to 60%. I note that this would buy a lot of school meals. Meanwhile, we know that banks are hiring debt recovery specialists to reclaim those loans. With his Treasury hat on, can the Minister tell the House which route the Government favour? Do they favour greater use of debt recovery services to reduce the overall level of loan defaults or do they accept that there will be widespread default? In either case, what level of default is the Treasury modelling?

[Lord Agnew of Oulton (Con)]

It is important to differentiate between default and fraud. As the noble Lord will know, there are no repayment requirements on bounce-back loans for a year. The idea that banks are now hiring debt recovery firms to go out collecting is probably inaccurate. They are increasing their resources to deal with fraud because this has been a problem. I am concerned about this both as fraud Minister and as a Treasury Minister. No repayments are due on BBLs for 12 months from drawdown and we have recently extended the repayment period to 10 years.

[Lord Hamilton of Epsom (Con) [V]]

My Lords, on the “Today” programme this morning, my right honourable friend Nadhim Zahawi said that the Government had to strike a balance between combating the virus and damaging the economy. In the light of those remarks, have the Government ever carried out a cost-benefit analysis before taking these quite dramatic decisions on lockdown, both nationally and regionally?

[Lord Agnew of Oulton (Con)]

I am not aware of an analysis of this kind. We have to be realistic. It is easy for people sitting in a dark room with spreadsheets to say how many deaths we are prepared to accept for the balance of the economy. Frankly, it is extremely difficult. So far, we have had more deaths than other European countries, which has brought us a great deal of criticism. It is extremely difficult to balance lives against livelihoods. I might have a completely different view from that of Members opposite. We have to try to strike what we consider to be a reasonable balance—protecting lives where we can, but also protecting livelihoods.

[Lord Berkeley of Knighton (CB) [V]]

My Lords, it would be churlish and wrong not to salute the efforts made by the Chancellor to boost the arts, and indeed I do. I also understand that not every job or venue can be saved. In Sunday’s Observer, Simon Rattle articulated the real worry that freelance musicians and artists at the workface could be so depleted that the cultural life of this country and its significant contribution to the economy could be seriously curtailed—especially if, as the Chancellor has suggested, considerable numbers leave the profession and retrain. Have the Government assessed this potential damage, given that their own figures found that out of 187,000 creative freelancers only 64,000 were eligible for and accessed SEISS? Will the Government look at this and the remaining 65% who fell outside the package?

[Lord Agnew of Oulton (Con)]

I am not aware of the specific figures. It is clearly very worrying that we could lose the creative capacity of our economy and our society. We are in the most unprecedented situation, certainly in my lifetime and probably going back to the end of the Second World War. Whenever this crisis ends, there will have to be a period of rebuilding and regeneration. I absolutely affirm the Government’s support for this very important part of our society.

[Lord Liddle (Lab)]

My Lords, I declare an interest as a member of Cumbria County Council, and it is a Cumbria point I want to make. One of the welcome features of the Chancellor’s Statement was the introduction of a grant scheme for businesses impacted by tier 2 restrictions, even though they are not legally closed. Cumbria is in tier 1 but most of its businesses, such as hotels, boarding houses and restaurants, serve people who come from tier 3 areas in the north-west. There has been a dramatic fall in bookings, with lots of cancellations in the last week or so. These businesses are going to go bust unless they receive the help that tier 2 is getting. Can the Minister offer them some hope that, despite being in tier 1, they might receive some help?

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

My Lords, the Job Support Scheme Open is available to all small businesses experiencing difficulties in this crisis. They are eligible for the figures that I gave earlier to the noble Lord, Lord Tunnicliffe, as are large employers of more than 250 employees that can demonstrate a negative impact on their turnover from Covid.

[Lord Taylor of Goss Moor (LD) [V]]

My Lords, the Government have been pretty supportive of retail and other business tenants, with the rates holiday, VAT help, the furlough scheme and the moratorium against enforcement by landlords. I have little doubt that these will be extended for as long as coronavirus issues continue, but have the Government seriously considered how they will be unwound for tenants, in particular the moratorium on rents? As soon as it is lifted, some landlords will seek enormous backdated rents, all owed at once, which themselves would bankrupt businesses that have been unable to trade for a significant period. Either government support or some unwinding of the moratorium is needed to avoid these bankruptcies.

[Lord Agnew of Oulton (Con)]

My Lords, a great deal of thinking is going on, but this matter might be worth some pragmatism. If landlords collectively behaved in the way suggested by the noble Lord, there would be a mass exit from commercial buildings when the point comes. Doing that would surely be shooting themselves in the foot.

[Baroness Jones of Moulsecoomb (GP) [V]]

My Lords, as other Peers have pointed out, there does not seem to be much strategic thinking embedded in the Statement. For example, the Government could have focused on companies committed to a zero-carbon future, or picked companies that are not handing out dividends and bonuses, or those that are registered in the UK to pay tax. Did the Government do any thinking of this kind?

[Lord Agnew of Oulton (Con)]

To answer the noble Baroness, as I mentioned earlier, a huge range of initiatives has been announced over the last few months, particularly for some of the sectors referred to. On 30 June, the Prime Minister announced substantial infrastructure commitments, partly from new money and partly from acceleration of money. Many of those are strategically aimed at the sorts of businesses mentioned, including those involved in a carbon-free economy.

[Lord Balfe (Con)]

My Lords, I draw attention to another division in this country. Those who I define as the salariat are largely working from home and not suffering any reductions in pay. Indeed, they are saving money and a couple of hours a day from not travelling to work. They are making the rules, but seldom suffer any of the consequences. At the same time, we have a lot of very junior workers, some around this House, who are struggling to get by. Some are furloughed; some have no jobs at all. They feel rejected and unwanted by society. This is not a matter that the Government can wave a wand to solve, but we need to pay more attention to this division in society.

This House is almost empty of workers. If they can work at home for so many months without us even seeing them, is there not a good case to move some jobs from the House of Lords to areas of high unemployment and poverty in the north-east? If they can be done remotely from Dorking, Woking and towns in Berkshire, they can surely be done from Hartlepool and other delightful towns found in the north-east and north of the country, where these jobs are seriously needed.

[Lord Agnew of Oulton (Con)]

The noble Lord makes an extremely important point. By coincidence, I am the Minister working on the programme to move civil servants out of London, which was recently announced. The Prime Minister will be making more comments on this shortly but, given that I have lived this for six months, I can reassure my noble friend that we have identified 14 hubs with spokes across Britain, including the devolved authorities. The most important part is to get the senior civil servants out of London, because they make decisions on the lives of people from whom they are, in my view, far too detached. At the moment, some 65% of all senior civil servants in the country are here in London, and the vast majority in this postcode. We are committed to ensuring that opportunities for those senior jobs are outside the capital, and that they make policies that affect citizens in those areas.

[Lord Campbell-Savours (Lab) [V]]

My Lords, the availability of an effective coronavirus testing regime is critical to reopening the economy. With the reported Good Law Project prospective legal action on the procurement of testing equipment in mind, can we have an assurance that the procurement programme has, extraordinarily, either National Audit Office prior approval or that government lawyers are satisfied that contracts do not breach the 2015 Public Contract Regulations? Can we have that assurance in writing, as it is very important for business confidence?

[Lord Agnew of Oulton (Con)]

The noble Lord’s question is timely, because part of my responsibility is for the procurement reform rules which we are putting into place and will be able to use once we leave the EU on 1 January. Part of the problem we have had over this crisis is the extremely clunky method of procurement that is imposed on us by the OJEU rules. It will need primary legislation, but we have designed a programme that will deal with exactly the issues that the noble Lord raises. If he is interested, I am happy to send him a draft copy of the Green Paper, which will be available in the next week or two.

[Lord Cormack (Con)]

My Lords, like the noble Lord, Lord Berkeley of Knighton, I applaud what the Chancellor has been seeking to do in very difficult and trying circumstances. However, as the noble Lord said, if the country is to get back to normal, it, like the hospitality sector, will be very dependent on a thriving cultural sector. My noble friend did not really face up to this in answering the noble Lord, but it is a fact that, although we all applaud the creation of a safety net for the self-employed, a vast number of them—self-employed musicians and so on—are falling through it, particularly in the cultural sector. Can this matter be addressed as one of urgency? Frankly, it is insulting to say to musicians, who have spent a lifetime training, that they can retrain for something else.

[Lord Agnew of Oulton (Con)]

I respect my noble friend’s passion for this area and I agree that it is an extremely important part of our society, as I said earlier. We have put forward a cultural recovery fund of some £1.5 billion, and of course we will continue to look carefully at what more can be done to support those who are falling through the net. I just remind my noble friend that our overall employment support scheme has been one of the most generous in Europe, but the group that he refers to is extremely difficult to get to easily.

[Baroness Ritchie of Downpatrick (Non-Afl) [V]]

My Lords, what discussions have taken place with ministerial colleagues in the DWP regarding the need to extend the minimum income floor of universal credit beyond 13 November for self-employed people during the Covid outbreak?

[Lord Agnew of Oulton (Con)]

My Lords, I am aware that those discussions are ongoing but I do not have the figures to hand, so I will write to the noble Baroness about the latest thinking on that.

[Lord Berkeley (Lab) [V]]

My Lords, the Sunday Times of last Sunday says that the Prime Minister has ordered a review which would allow

“City dealmakers, hedge fund managers and company bosses flying into the UK”

to be

“exempt from the 14-day quarantine period under plans to ‘promote global Britain’.”

There are also stories that working lunches of up to 30 people, now being promoted by expensive London restaurants, can be allowed as long as business is discussed. Can the Minister confirm that anyone who is, or thinks they are, involved in global business, global Britain or business can therefore exempt themselves from these rules and that that can apply to anyone else? If not, how can the Government expect the rest of the country to comply while allowing their apparently rich friends to buck the system?

[Lord Agnew of Oulton (Con)]

My Lords, I suspect that this is just speculation. I am certainly not aware of any government policy promoting that. As we know, groups of six people, socially distanced, can eat if they are in an outside setting. Those facilities are being made available by pubs and restaurants, but I am not aware of any special treatment that the noble Lord refers to.

[Lord Rooker (Lab) [V]]

My Lords, first, I thank the Minister, who, unlike some of his colleagues, has shown massive respect to the House and in responding to the questions that he has been asked. That being so, perhaps I may take him back to the first supplementary question, from the noble Lord, Lord Forsyth, who called not for a coalition but for a united national effort, and I think that that is what the public want. If we stay in our tribes, we will not win. We have to reach out outside the tribe. I am looking for some desire on the part of the Government to seek to reach out, outside the tribe, so that we can have a national effort to get through this crisis. Does the Minister agree?

[Lord Agnew of Oulton (Con)]

I certainly agree with the noble Lord that this requires a national effort and that we need to avoid tribalism at all costs. What has perhaps taken us all by surprise is the long-term reaction to the crisis that we will have to sustain. I think that most of us—certainly I speak personally—thought that we could handle three months of lockdown, after which it was hoped that we could get back to our lives. The brutal reality now is that this could roll on for even another year, depending on any progress on a vaccine, which is far from certain. Therefore, the longer it goes on, the more there is a need for us to rise above our sectarian differences and to operate as a whole country.

Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020

Lord Agnew of Oulton Excerpts

Tuesday 6th October 2020 Lords Chamber

Moved by

[Lord Agnew of Oulton]

That the draft Regulations laid before the House on 9 September be approved.

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, the regulations before us today will establish a breathing space scheme for individuals who live in England and Wales. This is a temporary period of respite from creditor action to help people in problem debt consider their options and engage with professional debt advice. To many in this Chamber, the scheme will need no introduction, as noble Lords were the driving force behind amendments to the Financial Guidance and Claims Act 2018, under which the Government present these regulations today. Since then, of course, the Government have had to make unprecedented policy interventions to save jobs and support livelihoods due to the impact of Covid-19, so the need for this scheme is even more pressing.

A breathing space—or, to use the term in the regulations, a moratorium—will pause most enforcement action, creditor contact, and interest and charges on a person’s qualifying debts. There are two kinds of moratorium. The first, a breathing space moratorium, lasts for 60 days and is open to anyone who engages with debt advice and meets the eligibility criteria. The second, a mental health crisis moratorium, available where a person is in mental health crisis treatment, extends those protections for as long as that treatment lasts, plus 30 days.

Professional debt advice providers have a central role in the scheme. They can initiate a moratorium for anyone who meets the relevant eligibility criteria and conditions. They should not do so if it would be inappropriate—for example, if their client could go into a debt solution like an IVA or bankruptcy straight away, or if they could manage their finances without a moratorium. There are other important safeguards to ensure that clients are complying with the scheme’s rules as far as possible. For example, certain ongoing liabilities such as a mortgage or rent must be paid as they fall due during a breathing space moratorium. If they are not, or if the client is not engaging with debt advice, the debt adviser can decide whether the breathing space moratorium should continue.

Of course, the Government recognise that, during mental health crisis treatment, it will be harder to engage with debt advice in this way and that it may be less reasonable to expect the individual to keep up specific obligations on them. The scheme anticipates this, with alternative access for people in mental health crisis treatment to a moratorium with equally strong protections that last longer, and where the conditions on the debtor are relaxed. This type of moratorium can only be accessed once an approved mental health professional has certified that a person is in crisis treatment. The debt adviser need not provide advice directly to the person but will still check that the relevant eligibility criteria are met and that an AMHP has provided the necessary evidence. A breathing space moratorium can only be accessed once every 12 months, but there is no limit to the number of times that a person can enter a mental health crisis moratorium.

I will now move on to implementation and begin by addressing the recommendations made by the Secondary Legislation Scrutiny Committee. It recommended that the Government consider establishing a comprehensive debt adviser register. Access to professional debt advice is crucial, but our view is that instead of creating a new register, this can be best achieved by working with the Money and Pensions Service and other stake- holders to clearly direct people to free debt advice provision, including on GOV.UK and via MaPS’s existing online tools. In its most recent report on the regulations, the committee also suggested that the Government should bring forward the start date for the scheme to earlier than May 2021, in response to Covid. Simply making the regulations does not give effect to the scheme’s protections; creditors large and small need time to change their systems and debt advice providers need to plan and train their staff. This is against the backdrop of everyone making unprecedented efforts to help people affected by the financial impact of Covid. While the Government appreciate the committee’s intent, they are firmly of the view that May 2021 is ambitious but achievable. The Government continue to work to support implementation next May, and detailed scheme guidance is to be published by the end of this year.

Beyond the committee’s recommendations, there are other areas of implementation that I would like to bring to noble Lords’ attention. A barrier to individuals seeking help with debts can often be fear of the impact any intervention will have on their credit score. The Government have considered this issue carefully. Debt advice providers need clarity on this to advise their clients, and the Government are mindful to avoid unintended consequences for debtors and creditors in the scheme. A moratorium is not a payment holiday or a payment deferral scheme. Other than pausing interest and fees, no new arrangements are made regarding the debts protected in a moratorium, so the Government do not consider it appropriate to ask creditors to pause reporting to credit reference agencies. Credit files take up to 50 days to update, so the impact on an individual during the 60-day moratorium would in any case be limited.

The Government have also considered whether it would appropriate to seek a new flag or code to show a breathing space on a credit file. This could have longer-lasting effects and, in the mental health crisis moratorium, sensitive information about a person’s treatment could be inferred from credit files. This is not acceptable. We therefore propose that creditors should continue to report payments in line with their existing arrangements, encouraging payments to continue during the moratorium wherever possible. The Government will keep this position and its effects under review.

The breathing space scheme will encourage people to engage with professional debt advice and create the necessary space for them to make better decisions based on that advice. Importantly, it will also protect people receiving mental health crisis treatment until they are more able to engage in this way. I hope we can agree that these regulations are a positive step forward in an area that has long been important to many in this Chamber, with the potential to change lives. I beg to move.

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

My Lords, I thank noble Lords for their thoughtful contributions, and I am grateful for the chance to respond to the points that have been raised.

I think we can all agree that current events make the case for this scheme to be introduced as soon as possible. I understand the point made by some noble Lords about the need to try to bring it in sooner. However, we have worked extensively with the sector and we feel that it is unlikely that we will be able to bring it in much sooner, probably due more to the need to train advisers than to issues related to the lending sector. The noble Lord, Lord Blunkett, and the right reverend Prelate the Bishop of Rochester are concerned about that. However, we want the scheme to work well, so we want to get it launched properly.

The noble Lord, Lord Tunnicliffe, my noble friend Lord Kirkhope and the noble Baroness, Lady Janke, asked about the SDRP. Many of the challenges apply in relation to the statutory debt repayment plan, which is complex; the Government want to ensure that the strong protections promised can be achieved. The financial services Bill will shortly be debated in Parliament. It contains a clause to give the Government the full range of powers they need to implement the SDRP and ensure that the protections that it offers mirror those in the breathing space regulations. Secondary regulations will then need to be prepared, appropriately consulted on and made. I cannot commit today to a specific date for introducing the SDRP, but I assure noble Lords that the Government are aware of the desire to see the second part of the debt respite scheme up and running as soon as possible.

We have also heard concerns that creditors will struggle to be ready, given the challenges of operating in the pandemic. The Government understand those concerns, but the scheme is, and remains, a priority in the current circumstances. The date of May feels like a reasonable compromise to achieve its introduction and have it working properly.

Noble Lords asked specific questions about how the scheme will work. The noble Lord, Lord Tunnicliffe, asked how the Government will prevent stigma in the scheme. I am aware that stigma can cause people to delay seeking advice. I am assured that this is being considered in the scheme design, including in the approach to credit referencing, which I set out for noble Lords in my opening speech. The Government’s intention is that the scheme’s strong protections should incentivise more people to see the value of taking advice earlier.

The noble Lord, Lord Blunkett, asked about unscrupulous advisers. I assure him that the FCA requires the provision of sound, impartial debt advice that is in the best interests of consumers. Debt advice providers cannot charge a fee in connection with the moratorium. Fee-charging debt advice firms must also signpost clients to sources of free debt advice. They must be transparent about the fees and charges payable by their clients and must ensure that those fees and charges do not undermine their clients’ ability to make significant repayments to creditors. The FCA’s most recent thematic review of the sector, published in March 2019, found significant improvements in the standard of advice given. The FCA takes supervisory and, if necessary, enforcement action where it finds that harm is caused by firms providing inappropriate debt advice.

The right reverend Prelate the Bishop of Rochester asked about the inclusion of universal credit debts. Universal credit overpayments will be included in the breathing space scheme from day one. Universal credit advances and third-party deductions will be included in the breathing space scheme on a phased basis as early as possible after the policy starts. These two additional aspects require significant IT changes, which need to align with the requirements of the wider UC programme. The Government recognise the importance of including all universal credit debts in the scheme as soon as possible.

The noble Lord, Lord Kirkhope, asked about approved mental health professionals. They are qualified and experienced, approved by local authorities, and have specific expertise and training in mental health and mental capacity law. They are experienced in supporting people in crisis and usually based in community crisis or home treatment teams. The Government will provide guidance on the scheme and are working with MaPS to smooth the process for AMHPs to reach debt advice providers.

The noble Lord, Lord Kirkhope, and the noble Baroness, Lady Janke, asked whether debt advice providers would be able to navigate the definition of excluded debts in the regulations. This point will be covered in the guidance. The Money and Pensions Service is working in partnership with the Money Advice Trust to develop and deliver an online training module, which will inform and support debt advisors with the introduction of the scheme in May 2021. The intention is for the training to be accessible to all debt advisors across the sector. MaPS is also working to provide debt advice providers with access to support on technical questions.

It is a complex scheme, necessarily so, given the wide range of public and private debts included. I explained in my speech that the Government will publish scheme guidance by the end of the year to offer further explanation where possible. The noble Lord, Lord Kirkhope, asked for whom this guidance will be provided. I can confirm that it will be prepared for debt advice providers, creditors, AMHPs, and GOV.UK will include a high-level overview of the scheme.

The Government are fully committed to closely monitoring the impact of the breathing space scheme, and developing and monitoring an evaluation strategy to facilitate an effective post-implementation review. As in all such matters, financial services firms will need to take their own legal advice on their approach. In addition to the government scheme guidance, I understand that the FCA will publish a consultation on guidance for firms shortly.

The right reverend Prelate the Bishop of Rochester asked about training. Government support for debt advice has already seen an extra £37.8 million support package made available to debt advice providers this year. The Government are working closely with MaPS on training for debt advice providers to help ensure that they will be ready to offer the scheme.

The noble Baroness, Lady Janke, asked about demand for the scheme. Moratorium can be accessed only via professional debt advice, so the take-up rate of the scheme is constrained by the available supply of that debt advice. Covid-19 poses many uncertainties, and we will continue to monitor the evolving situation. The noble Lord, Lord Tunnicliffe, was also concerned about the impact of Covid-19 and the downturn of the economy. The Government recognise that people are struggling with their finances during this very difficult time and have put an unprecedented package of support in place to try to help people during the pandemic. We will keep this area under close consideration.

I believe that the breathing space scheme will encourage people to engage with professional debt advice and create the necessary space for them to make better decisions based on that advice. Importantly, it will protect people receiving mental health crisis treatment until they are more able to engage in this way. I hope we can agree that these regulations are a positive step forward in an area that has long been important to many in this Chamber, with the potential to change lives. I beg to move.

Motion agreed.