Coronavirus Grant Schemes: Fraud

Debate between Lord Agnew of Oulton and Lord Tunnicliffe

Monday 24th January 2022 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, last week, the Government objected to the £4.3 billion figure quoted in various news reports. In many senses, we would be delighted if the extent of fraud arising from the Government’s coronavirus support scheme was smaller than first thought. Is the Minister able to provide a more accurate or precise figure today? If not, how will the department calculate this and when can we expect to see the correct sum?

In looking ahead to this UQ last Thursday, the Minister did not answer my question about fairness. Is he able to comment today on why the Government expect working people to cancel out these losses? That would be bad enough in normal times, but is surely worse when families face an unprecedented cost-of-living crisis.

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

I thank the noble Lord for his important question. I am here to defend the Government’s record in the deployment of counter-fraud measures over the last two years or so. However, I will only be able to do that in part. The assertion made by the Economic Secretary to the Treasury in the Commons debate last week that the priority was speed of distribution of funds is absolutely correct, but what has followed has been nothing less than desperately inadequate. Given the time available, I will focus on one or two emblematic failures, but these issues run far wider.

The oversight by both BEIS and the British Business Bank of the panel lenders of the BBLS has been nothing less than woeful. They have been assisted by the Treasury, which appears to have no knowledge of, or little interest in, the consequences of fraud to our economy or society. Much store has been given to the extra money allocated to HMRC, but it took a year to happen, and this department was already the most competent and well-funded in that discipline; whereas at the beginning of Covid, BEIS had the grand total of two counter-fraud officials on its staff, neither of whom were experienced in the subject. They refused to engage constructively with the counter-fraud function that sits in the Cabinet Office, has considerable expertise and reports directly to me.

Schoolboy errors were made: for example, allowing more than 1,000 companies to receive bounce-back loans which were not even trading when Covid struck. They simply failed to understand that company formation agents hold in stock companies with earlier creation dates. I have been arguing with Treasury and BEIS officials for nearly two years to get them to lift their game; I have been mostly unsuccessful.

We move now to a new and dangerous phase: banks’ ability to claim on the 100% state guarantee for non-payment. We do this without implementing a standard bar of quality assurance on what we expect as counter-fraud measures; we know that we have serious discrepancies. For example, three out of the seven main lenders account for 87% of loans paid out to companies already dissolved. Why is the ratio so skewed? Two of the seven account for 81% of cases where loans were paid out to companies incorporated post-Covid, as I referred to a moment ago. One of the seven accounts for 38% of the duplicate BBL application checks that were not carried out after the requirement was enforced. Bizarrely, it took six weeks to get the duplicate check into place, during which time 900,000 loans, or 60% in total, were paid out, bearing in mind that some £47 billion has been paid out.

If only BEIS and the British Business Bank would wake up, there is still time to demand data and action on duplicate loans. Why will they not do it? Despite pressing BEIS and the BBB for over a year, there is still no single dashboard of management data to scrutinise lender performance. It is inexcusable. We have already paid out nearly £1 billion to banks claiming the state guarantee. The percentage of losses estimated to be from fraud rather than credit failure is 26%; I accept this is only an early approximation, but it is a very worrying one. I will place in Hansard a copy of my letter to the chairman of the British Business Bank, sent on 16 December, addressing some of these points. I have still not received an answer.

I have at least four differences of opinion with Treasury officials: first, on urgent improvements in lender performance data, I simply want the bar to be set at what the best of the panel banks can deliver—to repeat, there is not even a common definition of fraud to trigger the payment of the guarantee; secondly, far greater challenge of lender banks when we uncover inconsistency in data; thirdly, educating Treasury officials as to why reliance on audits is far too reactive and generally happening well after the horse has bolted; fourthly, a failure by Treasury or BEIS officials to understand the complete disjunction between the level of criminality—probably hundreds of thousands of pounds—and enforcement capability. For example, NATIS, a specialist agency, can handle around 200 cases a year; local police forces might double that.

Noble Lords can see that it is my deeply held conviction that the current state of affairs is not acceptable. Given that I am the Minister for counter-fraud, it feels somewhat dishonest to stay on in that role if I am incapable of doing it properly, let alone of defending our track record. It is for this reason that I have, sadly, decided to tender my resignation as a Minister across the Treasury and Cabinet Office with immediate effect. I would be grateful if my noble friend would pass this letter to the Prime Minister at his earliest convenience. It is worth saying that none of this relates to far more dramatic political events being played out across Westminster. This is not an attack on the Prime Minister, and I am sorry for the inconvenience it will cause. Indeed, I think any Prime Minister should be able to reasonably expect that the levers of government are actually connected to delivering services for our citizens.

I hope that, as a virtually unknown Minister beyond this place, giving up my career might prompt others more important than me to get behind this and sort it out. It matters for all the obvious reasons, but there is a penny of income tax waiting to be claimed here if we just woke up. Total fraud loss across government is estimated at £29 billion a year. Of course, not all can be stopped, but a combination of arrogance, indolence and ignorance freezes the government machine. Action taken today will give this Government a sporting chance of cutting income tax before a likely May 2024 election. If my removal helps that to happen, it will have been worth it.

It leaves me only to thank the noble Lord, Lord Tunnicliffe, for his courteous but attentive role as shadow Minister of my portfolio, and to thank noble friends, many of whom I know will carry on their scrutiny of this important area. Thank you, and goodbye.

Devolved Governments: Public Expenditure

Debate between Lord Agnew of Oulton and Lord Tunnicliffe

Thursday 20th January 2022 Lords Chamber

[Lord Agnew of Oulton (Con)]

I think the noble Baroness makes a very good point. I will suggest to the relevant Ministers that the work on the fiscal framework, announced in October, includes a review of the points raised.

[Lord Tunnicliffe (Lab)]

My Lords, building on that point, is not the problem that the UK Government are in no position to lecture others—whether it is the National Audit Office, influential think tanks or others? We regularly hear of cases where Ministers have exercised poor judgment when spending public funds. The most recent example was the quiet announcement that the Treasury does not intend to chase down an estimated £4.3 billion fraudulently claimed from coronavirus support schemes. Why did the Government not listen to Labour’s warning about potential fraud earlier in the pandemic, and why will family units have to pay the price for the actions of fraudsters through upcoming tax increases?

[Lord Agnew of Oulton (Con)]

The noble Lord raises a very good point. I believe that I will be coming back on Monday to deal with an Urgent Question on this specific subject. I would remind noble Lords that these schemes were stood up at an incredibly fast pace to protect the productive capacity of this country. Yes, the fraud losses are extremely frustrating but, if we had not got that money to the business community as quickly as we did, we would have seen a lot more damage to our economy.

Money Laundering

Debate between Lord Agnew of Oulton and Lord Tunnicliffe

Thursday 13th January 2022 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, the Minister’s colleague, the noble Viscount, Lord Younger, said during our proceedings on the NICs Bill:

“In the last three years, we have recovered over £550 million from the proceeds of crime, charged over 100 people with money-laundering offences, and seen over 75 people convicted for money laundering.”—[Official Report, 10/1/22; col. GC 113.]


That is a pathetic figure—or at least it feels like one. In his original Answer, the Minister indicated that assessments had been made over three recent years. What he failed to do was tell us what the answer was. Could he provide the answer so that we can judge the success so far and see whether the right resources and energy are being devoted to this issue?

[Lord Agnew of Oulton (Con)]

My Lords, if we were to go the very top-down figures, which are ultimately the most important, I would look at the tax gap, which we have been very successful in closing over a number of years. In 2005-06, the gap was 7.5%; in the last year for which figures were available, 2019-20, it was down to 5.3%. That is of course against the enormous headwinds of the build-up of hot money around the world. I would therefore be more optimistic and say that we are making good progress.

Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2021

Debate between Lord Agnew of Oulton and Lord Tunnicliffe

Tuesday 30th November 2021 Grand Committee

[Lord Tunnicliffe (Lab)]

My Lords, I am grateful, as ever, to the Minister for introducing this latest set of Treasury regulations. These are not the first changes to arise from the Financial Services Act 2021, but this SI represents the biggest amendments to and revocation of the capital requirements regulation—the CRR—since that parent legislation passed. Many of the changes are to facilitate the implementation of certain Basel III standards from 1 January 2022. As the Minister and the Explanatory Memorandum noted, the UK played an active role in negotiating this reform package.

As we discussed at length during the passage of the parent Act, the Prudential Regulation Authority—the PRA—has taken responsibility for updating parts of the CRR through its regulatory rules. That such changes are being made at arm’s length might still rankle with some—the noble Baroness, Lady Kramer, reinforced that point—but that was the Treasury’s determination and it is the framework that we must operate under.

Other changes made by the instrument are designed to facilitate the implementation of the investment firms prudential regime—the IFPR—by the Financial Conduct Authority. That new system will ensure tailored regulation of non-systemic investment firms outside the scope of the CRR. The Explanatory Memorandum notes that although the FCA has introduced most of its IFPR rules, some more are required before the regime goes live on 1 January 2022. Can the Minister confirm whether these additional rules have been finalised and published since the SI and EM were laid? If not, does the FCA have an estimate of when they will emerge?

Could the Minister also outline what parliamentary engagement has been undertaken on the CRR and the IFPR reforms? Given the highly technical nature of these regulations and the various regulatory rules that must be read alongside them, is the Minister confident that everything is present and correct? This might at first glance feel like a trivial question but, as a veteran of dozens of EU exit SIs, it is vital that we have confidence in this process.

Moving on, the Treasury has, in its Explanatory Memorandum, pointed to the existence of accountability frameworks for the PRA and the FCA. However, in doing so, it neglected to mention the unease that has been expressed about this by several colleagues across your Lordships’ House. At the time, it was suggested that concerned colleagues may find comfort in the ongoing future regulatory framework review process. Some has indeed been found in the proposals outlined in measures 6 and 7 of Command Paper 548 to introduce statutory requirements for the PRA and FCA to notify relevant parliamentary committees of their consultations and provide written responses to any representations made. If adopted, these steps would mirror several of the key asks in our previous amendments. Nevertheless, as always, the devil will be in the detail. While it may not be strictly relevant to this SI, can the Minister outline the anticipated timescale for the review? When is the Treasury likely to come forward with the resulting legislation?

Another concern around CRR and IFPR rule-making was the extent to which the regulators would have regard to the steps needed to tackle the climate crisis. The Government eventually conceded that the PRA and the FCA should have regard to the 2050 net-zero target, but this requirement takes effect only on 1 January —that is, after most of the rules have been published and at the same time as they enter into force. Can the Minister outline what steps, if any, have been taken by the regulators to ensure that green issues have been considered as part of the current exercise, in so far as it is possible within the Basel III framework? Can he also explain how he envisages the new duty operating in practice? What kinds of regulatory changes would he expect to see as a result of that concession having been made?

There is a perception—I have outlined my concerns before—that while the Chancellor likes to talk green, he is somewhat less keen on acting accordingly. Many firms in the financial sector are cognisant of the need to make their business practices more sustainable. Some have acted as outriders, setting ambitious targets and creating interesting schemes for change. However, more needs to be done. A voluntary approach to things such as investment in fossil fuels will get us only so far. Some will do the right thing but others may see opportunities to gain competitive advantage. If, by the time we get to the next financial services Bill, these kinds of issues have not been adequately addressed by the PRA and FCA, can the Minister commit the Treasury to taking action?

Implementing Basel III and IFPR is one thing, and we do not oppose these regulations’ small part in delivering those reforms. However, meeting the challenges of the future is another matter and it is not yet clear that we are on the right course.

[Lord Agnew of Oulton (Con)]

I thank noble Lords for their contributions today. Some important points have been raised during the debate. I will attempt to answer them but there may be one or two where I will have to write.

To start, my noble friend Lord Naseby asked about impact assessments. A de minimis impact assessment has been published alongside the instrument. As the equivalent annual net direct cost is less than £5 million, the only direct costs to businesses in scope of the instrument will be approximately £900,000. This is for provisions relating to the securitisation regulation.

Regarding the amendment to Article 2(12)(g) of the securitisation regulation, including all the FCA investment firms in scope of due diligence requirements, the net impact to firms is expected to be £900,000 per annum, based on the relevant firms investing in 20 securitisation positions per year. This figure represents the aggregate compliant costs for firms that are being brought within the scope of the due diligence requirements. This figure has been calculated from information provided by the FCA and industry; the calculation is based on the type of investment firms on which the amendment has an impact, the estimated number of such firms and the estimated cost of complying with the due diligence requirements.

The noble Baroness, Lady Kramer, asked about future regulatory reform and parliamentary oversight. The Government and the regulators are committed to ensuring that Parliament has the opportunities it needs to scrutinise the PRA’s rules and respond to anything raised. The Government consider that Parliament has a wide range of powers to request information and conduct effective scrutiny of the regulators, including through the Select Committee system. To support this work, the Government have proposed formalising through statute the mechanisms through which the regulators provide information to Parliament to ensure that it has the information it needs to undertake this scrutiny.

The noble Lord, Lord Tunnicliffe, asked me to outline what parliamentary engagement has been undertaken on both the CRR and IFPR reforms. Ultimately, it is Parliament that sets the regulators’ objectives. It is of course right that Parliament has an appropriate opportunity to scrutinise the work of the regulators and their effectiveness in delivering the objectives that Parliament has set them. The regulators committed to sending their consultations and draft rules on Basel and the IFPR to Parliament during the passage of the Financial Services Act earlier this year.

Consultation on these changes started in December 2020, so there has been plenty of time for Parliament to review and report on it, including through the Select Committee process. The PRA and the FCA also published their near-final rules over the summer to provide ample time for familiarisation well in advance of this debate. As part of the ongoing future regulatory reform, as I have mentioned, we have proposed formalising through statute the mechanism through which regulators provide information.

The noble Lord, Lord Tunnicliffe, and my noble friend Lord Naseby asked whether the detail of this instrument and the accompanying rules set by the regulators are present and correct. The answer is yes. Treasury officials have worked extensively with their counterparts at the regulators to ensure that the changes mesh and make a cohesive whole. Where appropriate, both the Treasury and the regulators have consulted on the measures implemented through this statutory instrument. The noble Lord and my noble friend also asked whether the IFPR rules have been finalised and published since the SI and EM were laid. I can confirm that the FCA has now published all the IFPR rules, including the final outstanding set of rules, which were published on 26 November.

I thank the noble Lord, Lord Tunnicliffe, for his assertion that two of the measures in the recent financial future regulatory framework review consultation provided him with some comfort on the question of the regulators’ accountability to Parliament. He also asked about the timescales of the review. The Government published their consultation on 9 November, with a closing date for responses of 9 February next year. We will bring forward further detail on our approach to implementing the proposals in the review in due course.

The noble Lord asked me to outline what steps, if any, have been taken by regulators to ensure that green issues have been considered as part of their rule-making processes. He is of course correct to say that the Financial Services Bill 2021—now an Act—was amended to include

“have regard to the net-zero carbon target”,

which will apply after 1 January next year. This means that the PRA does not need to have regard to climate change considerations in making the Basel III rules, nor the FCA in making the IFPR rules, for 1 January. This was done to ensure that there is no delay in implementing the Basel III and IFPR reforms. It will be for regulators to determine how the new duty will operate in practice. The Government anticipate that it will function in much the same way as other similar obligations did during the PRA’s implementation of the Basel III standards, such as the need to have regard to the ability of firms

“to continue to provide finance to businesses and consumers in the UK”.

The PRA and the FCA are aware of the need to respond to the potential risks posed by climate change. For example, on 28 October, the PRA published its second climate change adaptation report, finding that under the existing regulatory capital framework there is scope to use capital requirements to address certain aspects of climate-related financial risks. This and future work will no doubt feed into how the PRA sets its rule from 1 January 2022.

Money Laundering and Terrorist Financing (Amendment) (No. 3) (High-Risk Countries) Regulations 2021

Debate between Lord Agnew of Oulton and Lord Tunnicliffe

Thursday 25th November 2021 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, on the face of it, the regulations before us are very straightforward. The Financial Action Task Force has updated its list of high-risk countries, and we are mirroring those changes in our legislation. We have supported such instruments in the past and will continue to do so.

Paragraph 3.3 of the Explanatory Memorandum outlines the usual justifications for this instrument being laid under the “made affirmative” procedure. We accept the arguments, but it is a pity that the urgency in laying these SIs is not always matched when it comes to the Government’s wider efforts to crack down on money laundering. Although it is true that the task force has given the UK a good rating in general terms, we know that concerns have long been expressed about the UK’s supervisory regime. As my colleague Pat McFadden said in the Commons, the Treasury itself has conceded that FATF sees our systems as “only moderately effective” and that the international body also believes that there are

“significant weaknesses in the risk-based approach to supervision”

in the UK.

The UK is understandably a target for illicit funds, given the size and global status of our financial services sector. The Magnitsky case is a well-known example of funds being funnelled through UK institutions, but we know it is not the only one: that much has been seen with the recent publication of the Pandora papers. The Financial Conduct Authority is reportedly running several active investigations in this area. We wish it well with those probes and hope that any wrongful behaviour is punished in an appropriate way.

The Minister said yesterday that, despite the lack of criminal convictions secured through FCA action, the body is nevertheless taking robust action. He pointed to the imposition of a number of major fines in recent years, such as those against Standard Chartered. However, it is not clear that these punishments are changing behaviour or preventing the recurrence of bad practice. On Monday, Minister Whately outlined some of the limited examples of government action. We welcome the allocation of funds to this fight, but it is hard to take seriously her claim that everything possible is being done to make the UK

“a hostile place for illicit finance and economic crime”.—[Official Report, Commons, 16/11/21; col. 532.]

Many of the initiatives cited have been announced and re-announced without meaningful action following. For example, Companies House has been given an additional £63 million of funds to assist with its reform, but there is little sense that the changes being made will empower that body and lead to better outcomes.

Minister Whately also failed to provide clear justification of the UK Government not classifying countries such as Russia and Afghanistan as high risk. It is true that this instrument is designed solely to administer the task force list, but does the Treasury not see a case for taking action of its own where UK interests are at stake? We await with interest the outcome of the task force’s ongoing analysis of recent events in Afghanistan. It will be interesting to see whether that country is added to the list when we consider the first of these SIs in 2022 but, on Russia, I will simply repeat one of Pat McFadden’s questions: do the Government really not judge Russia to be as big a risk as some of the countries listed in these regulations?

As I said earlier, we are privileged to have a significant financial services sector in this country. Lots of talented people, both regulators and people in the sector, work night and day to detect and stop economic crime and obviously we support them in their endeavours. However, the fact remains that, despite the efforts of individuals, the UK Government’s regulatory framework of choice is seen by the international community as insufficient. As a global leader in financial services, we have a responsibility not only to replicate international initiatives but to lead them from the front. I hope the Minister can outline today exactly how the Treasury intends to do this.

[Lord Agnew of Oulton (Con)]

I thank noble Lords for their contributions and I will try to answer the queries raised.

I turn first to the noble Lord, Lord Purvis, and the register of overseas entities’ beneficial ownership. The Government remain absolutely committed to these reforms. When implemented, this register will be an important new tool in our wider efforts to tackle economic crime and will be complemented by the broader powers we are now proposing for Companies House. Once implemented, the register will be one of the first of its kind in the world. That is good news for the UK, maintaining our global leadership role on corporate transparency and enhancing our already strong reputation as an honest and trusted place to do business. The Bill will reflect the pre-legislative committee’s recommendations to ensure that the legislation is as effective as possible in tackling the use of UK property for the purposes of money laundering. I cannot give the noble Lord a precise date, but I am the counter-fraud Minister and I am pressing hard to get that commitment, because I share his concern on this important additional weapon in our arsenal.

I turn to the number of important points raised by the noble Lord, Lord Tunnicliffe, and will try to address as many of them as possible. In terms of the views of FATF, the UK has achieved the best ratings of any country assessed so far in this round of its evaluations, outperforming other states who are at the forefront of tackling money laundering and terrorist financing. I must stress that we are not complacent, and I take the noble Lord’s challenges and criticisms very seriously. The Government will continue to enhance our response to illicit finance as new risks and methodologies emerge.

The UK continues to be guided by FATF standards in our domestic response to money laundering and terrorism financing. Our strategy for combating these crimes is set out in the Economic Crime Plan. This plan contains 52 actions, and its comprehensive agenda will ensure that the UK maintains its global leadership. Key actions include the reform of the suspicious activity reporting regime and improving the supervision of anti-money laundering compliance in the regulated sector. We have made progress in delivering on the Economic Crime Plan, with 24 of the actions complete and a further 10 implemented and being undertaken as an ongoing activity.

In terms of the weakness in the RBA to supervision, the FCA is changing its risk-based approach to anti-money laundering supervision by implementing new data-driven analytical tools and a targeted modular supervision model. This means it will be better placed to balance the two perennially competing aspects of any regulatory oversight regime—depth and breadth—to make the supervisory approach more bespoke, flexible and targeted. The FCA expects firms to implement their obligations effectively and has taken meaningful and impactful enforcement action against firms who failed to implement effective systems. As committed to in the Economic Crime Plan, the Treasury is undertaking a review of the UK’s anti-money laundering regulatory and supervisory regimes. The review will consider the structure of the UK’s supervision regime and the role and powers of the Office for Professional Body Anti-Money Laundering Supervision. We will publish a report setting out the findings of the review and intended next steps in June 2022.

I turn to Companies House reform. The Government have issued their response to the corporate transparency and register reform consultation of last September and set out their plans to reform Companies House and strengthen the UK’s ability to combat economic crime. The reforms are significant and will deliver alongside other broader reforms to clamp down on the misuse of corporate entities. They will deliver more reliable information on the companies register via verification of the identity of people who manage, control or set up companies. There will be greater powers for Companies House to query and challenge the information submitted to it, and the removal of technological and legal barriers to allow enhanced cross-checks on corporate data with other public and private sector bodies.

The noble Lord specifically asked about Russia and Afghanistan. The high-risk third countries list is only one of the tools that the Government have to signal to the private sector which jurisdictions are currently at risk. We also have the national risk assessment of money laundering and terrorist financing, which advises firms where they should take extra caution in building business relationships, given cross-border money laundering risks. The money laundering regulations require firms to consider geographical risks so, regardless of listing, firms have to be nuanced and risk-assess their business relationships taking into account credible sources.

In the FATF assessment of Russia, the judiciary’s lack of independence and corruption were both highlighted. For example, FATF noted that levels of corruption are high in Russia. This is why we are at the forefront of global actions spanning operational policy and diplomatic communities to target the money launderers and the enablers who underpin corrupt elites and serious organised crime. To go back to the point made by the noble Lord, Lord Purvis, there is a horrible interconnection with what is happening with the migrant boats. If they get 50 people on to one of those boats at £2,000 each, that is £100,000 and it probably costs them £1,000 to buy the boat, so the noble Lord is completely right. That is why we are not in any way complacent about this.

Some of our response will be visible through law enforcement policy and international engagement. Other options will be less visible but no less impactful. Our response continuously evolves with the threat. In relation to Afghanistan, our engagement with the private sector tells us that there is already a very high level of scrutiny of money laundering, terrorist financing and sanction evasion risks. The presence of sanctions entities in Afghanistan and its potential money laundering and terrorist financing risks have been well-publicised, with alerts from UK supervisory bodies and other credible sources available for the regulated sector to draw on to assess the risks.

The noble Lord asked how we intend to lead the fight from the front. We are trying to lead by example and our freely accessible public register of company beneficial ownership is one of the most open and extensively accessed company registers in the world. The UK has been at the forefront in delivering greater corporate transparency. We have led international reform efforts. This year, we used our G7 presidency to agree landmark commitments to implement and strengthen beneficial ownership registries, securing commitments from countries such as the US, Canada and Japan which had not previously been made.

Money Laundering

Debate between Lord Agnew of Oulton and Lord Tunnicliffe

Wednesday 24th November 2021 Lords Chamber

[Lord Agnew of Oulton (Con)]

My Lords, it is a harsh judgment to say that we are a honeypot for international money launderers. We are one of the largest financial centres in the world, so the volume of money passing through our system is colossal. We have been judged by the FATF as one of the most effective regulators of this area in the world. We have the second- highest level of fines so far. As I mentioned in response to earlier questions, we continue to review the situation carefully. For example, at the moment we are looking at Companies House legislation to make sure that registrations there are more carefully vetted.

[Lord Tunnicliffe (Lab)]

My Lords, 10 December 2021 will be the fourth anniversary of the Government’s United Kingdom Anti-Corruption Strategy, which in 2017 committed to bringing forward a draft Bill in that Session of Parliament

“for the establishment of a public register of beneficial ownership of overseas legal entities.”

Are Her Majesty’s Government still committed to such a Bill? If so, when will we see it?

[Lord Agnew of Oulton (Con)]

My Lords, we are certainly committed to that. I am afraid I cannot give a date yet. As the noble Lord will know, we are trying to put a huge amount of legislation through both Houses, but we recognise that it is a priority. In February this year the economic crime plan was set out. It listed seven priorities, and dealing with the issues he referred to is included there.

UK Cash Network

Debate between Lord Agnew of Oulton and Lord Tunnicliffe

Monday 8th November 2021 Lords Chamber

[Lord Agnew of Oulton (Con)]

My noble friend asks important questions. On access to cash, as I said in earlier answers, the Government are committed to legislating to protect access to cash and ensuring that the UK’s cash infrastructure is sustainable in the long term. In answer to my noble friend’s second question, the Government are undertaking a wider financial services future regulatory review, which aims to build on the strengths of the UK’s existing framework as set out in the Financial Services and Markets Act 2000. An initial consultation exploring these issues and a proposed approach was published by the Treasury in October last year, and we had 120 responses. We will publish a second consultation with detailed proposals shortly.

[Lord Tunnicliffe (Lab)]

My Lords, the noble Lord, Lord Holmes of Richmond, is right to keep up the pressure on this important issue. The problem to date has been the lack of ownership, with the Treasury urging action from a variety of regulators and public bodies, none of which has a whip to crack when providers leave town. The recent consultation sought to place overall responsibility with the Financial Conduct Authority. Is this still the Treasury’s preference? If so, when and how will this be enacted?

[Lord Agnew of Oulton (Con)]

My Lords, the Government’s consultation set out proposals for the Financial Conduct Authority to become the lead regulator for oversight of the retail cash system, including having responsibility for monitoring and enforcing new legislation and cash access requirements. In adopting this approach, the Government intend that the Payment Systems Regulator and the Bank of England continue with their existing functions with regards to cash. Co-ordinated actions by the FCA and PSR on cash as part of the Covid response have shown that joint working between the regulators at both strategic and operational levels is working.

Critical Benchmarks (References and Administrators’ Liability) Bill [HL]

Debate between Lord Agnew of Oulton and Lord Tunnicliffe

2nd reading
Wednesday 13th October 2021 Lords Chamber

[Lord Agnew of Oulton (Con)]

My Lords, I thank noble Lords for their detailed and collaborative contributions on this very technical Bill. I would particularly like to welcome and thank my noble friend Lord Altrincham for his excellent and personal maiden speech. I know that his experience in financial matters will be of great benefit to us all.

The Bill reinforces the provisions in the Financial Services Act 2021 that provide the FCA with powers to oversee the wind-down of a critical benchmark in a manner which protects consumers and minimises disruption in financial markets. In doing so, it provides key support to the Libor transition and market confidence.

I will try to address a number of the questions raised by noble Lords this evening, but I will write on the more technical ones on which I may not be able to come up with the answers immediately.

I start with the noble Lord, Lord Sharkey, and his concern about the late running of this, so to speak. I accept his point that work could possibly have been done before the Financial Services Act 2021 received Royal Assent. The FCA feels strongly that it needs to follow an orderly and sequenced process to consult first on the framework for decisions and then on the decisions themselves, but I accept that the timing will be tight.

The noble Lord, Lord Sharkey, also asked why this year is taken as the cut-off. This date was selected back in 2017 after engagement with panel banks, so it has been in the works for quite a long time and there has been time for the industry to plan for it. We have had very close engagement with the US and the timings are aligned. It has now said that the new use of US dollar Libor rate will stop at the end of this year, following supervisory guidance from the US and UK and other international authorities.

The noble Lord, Lord Sharkey, also asked about the mechanisms for the synthetic rate to be smoothed. The FCA has confirmed that that is the approach. The synthetic methodology is based on a broad global consensus and it would cause significant market disruption to change course at this point. It is not clear that that would deliver better outcomes for markets or consumers. As discussed at the briefing yesterday, the smoothing has been put in place taking the five-year median rate, but I can write with more detail if the noble Lord would like, as I accept that this is an important issue.

The noble Lord, Lord Sharkey, said he was worried about congestion at the end of the year. We have been clear that the active transition is the main mechanism; we have seen a large transition away from Libor over the last few months. I take my noble friend Lord Blackwell’s point that the latest data shows that some 55,000 contracts are still outstanding, but they are moving quickly. The FCA has taken on board market feedback on distinguishing between contracts that can be amended before the year end and those that cannot. Every step it is taking is to minimise disruption, in line with the objectives.

My noble friend Lady Noakes asked about the cost of funds fallbacks. This legislation provides certainty on how references to the Article 23A benchmark should be interpreted in contracts and other arrangements in which the FCA has exercised powers under the benchmarks regulation to require a change in the benchmark methodology. Where a contract or arrangement has a fallback that is triggered by the temporary or permanent unavailability of Libor, Article 23FA provides that the benchmark continues to be available and consequently that it does not cease to exist, be published or otherwise be made available. This means that the cost of funds fallbacks, which are generally triggered by the unavailability of the benchmark, will not be triggered.

My noble friends Lord Blackwell and Lady Noakes asked what happens after the proposed 10-year period. The legislative framework put in place in the Financial Services Act 2021 allows the FCA to support the orderly wind-down of the benchmark. Specifically, it allows the FCA to impose a synthetic methodology to provide for the continuity of a Libor setting for the benefit of tough legacy contracts for up to 10 years. The Government will continue to work closely with the FCA and the Bank of England to support an orderly wind-down of Libor and will continue to monitor the risks in this area, given its systemically important role in the UK economy.

My noble friend Lord Blackwell asked about the shorter term, after a year. The benchmark regulation provides that the FCA can review the decision to compel continued publication of a synthetic benchmark after a year. The FCA has been clear about the expected direction of travel with regard to the sterling synthetic Libor rate and does not intend that it will cease automatically after a year.

The noble Lord, Lord Sharkey, and the noble Baroness, Lady Kramer, are concerned about FCA accountability and, linking to that, parliamentary oversight. The FCA must operate within the framework of statutory duties and powers agreed by Parliament. The FCA is also fully accountable to Parliament for how it discharges its statutory functions. This direct accountability to Parliament reflects the FCA’s statutory independence and the fact that it is solely responsible for everyday operational decisions, without government approval or direction, and so is primarily accountable for them. The legal framework ensures direct accountability of the FCA to Parliament, including through a requirement for it to produce annual reports and accounts which are laid before Parliament by the Treasury.

The FCA is subject to full audit by the NAO, which has the associated ability to launch value-for-money studies on the FCA. The FCA is subject to scrutiny from Select Committees. The Treasury is the FCA’s sponsor in government; it is responsible for the statutory framework of financial services regulation and for the continued effective operation of the FCA as part of that framework. The mechanisms for the FCA can be directly accountable to the Treasury. This includes direct controls over appointments to the FCA board and powers under the Financial Services Act 2012 to commission reviews.

The noble Lord, Lord Sharkey, and my noble friend Lady Noakes asked about safe harbour. The responses to the Treasury consultation earlier this year identified the risks that parties may look to contest the continued publication of synthetic Libor by its administrator, or to seek damages against the administrator. This risk might be heightened if other avenues of litigation are closed off to parties by the Bill.

Where the administrator of an Article 23A benchmark is subject to legal challenge for complying with statutory requirements imposed by the FCA under the benchmarks regulation, it could impose a significant unreasonable and unmerited burden on the administrator of an Article 23A benchmark. If faced with too much legal risk, the administrator may seek to resign from administering the benchmark, which in turn risks causing disruption. Such action could serve to erode parties’ confidence in using the benchmark, undermining the operation of the FCA’s powers to oversee an orderly wind-down of it.

My noble friend Lady Noakes also asked about alternative benchmarks. The focus of this legislation is on providing legal certainty regarding the operation of the FCA’s powers to wind down this critical benchmark. Where contractual parties have acted in line with regulatory guidance to transition the contract to an alternative rate, the Government do not see that there is a need for further legislative clarity. The Government continue to encourage parties to contracts that reference Libor to transition those contracts to alternative benchmarks wherever possible, in accordance with regulatory guidance.

Several noble Lords, including my noble friend Lord Blackwell, asked about legal certainty. It is the Government’s view that it is appropriate to provide legal certainty as to how references to Libor should be interpreted in contracts or other arrangements, once the switch to the synthetic rate occurs. This legislation comprehensively addresses the risk of contractual claims relating to the exercise of the FCA’s powers to wind down a benchmark, as identified in response to the Treasury’s consultation on this matter.

It is important to stress how narrow the contractual continuity provision is. It does not protect the parties to the contract from all legal challenge. This would result in parties to those contracts not being able to challenge any element of that contract, and would be too broad. It simply specifies that where a contract references Libor, that should be read as referring to synthetic Libor. The effect of that is that legal claims cannot be brought on the basis that synthetic Libor is not included in the contract.

As the home jurisdiction of Libor’s administrator, the UK has a unique role to play in minimising financial stability risks and disruption to financial systems arising from the wind-down, both in the UK and globally. This plays to the comments made by several noble Lords in relation to London’s reputation as a financial centre and the unfortunate events that surrounded the problems with Libor 12 or more years ago.

In the UK framework, the FCA will be able to provide for the continuation of Libor settings under a synthetic methodology. Subject to the legislative framework in other jurisdictions, any change of methodology imposed by the FCA would flow through to global users of Libor contracts continuing to reference the rate. By taking this approach, the UK has provided a global solution rather than an approach that would have been effective only in the UK.

My noble friend Lord Blackwell asked about the methodology. Noble Lords will appreciate that setting this methodology is a responsibility that Parliament has granted to the operationally independent FCA, within the parameters established by the recent Financial Services Act. However, the FCA has an overriding responsibility to act in the best interests of consumers in this country. It is also important to note that the FCA’s approach is in line with the global consensus.

As we all acknowledge, and as I said in my opening remarks, Libor is mostly used by sophisticated financial operators, not retail investors. We estimate that there are only around 200,000 mortgages left on Libor, with that number estimated to fall to somewhere between 50,000 and 100,000 in the next few months. The synthetic Libor rate is a last resort and regulators have been encouraging markets to move to alternative rates for some time.

I remind noble Lords that the Financial Services Act 2021 allows the FCA to impose a synthetic methodology only if it considers it desirable to do so to protect consumers or protect and enhance the integrity of the UK’s financial system. Furthermore, the synthetic rate seeks to provide a reasonable and fair approximation of Libor while removing a major factor in its volatility: the variable credit spread, which has often spiked in times of economic stress. Reducing volatility will benefit consumers who pay interest with reference to Libor.

I will write to the noble Lord, Lord Eatwell, on his specific points; I am afraid that I do not have that information to hand at the moment.

This Bill is vital to the protection of consumers and the integrity of UK markets. I would be happy to arrange another detailed technical session in a similar form to the two we have had so far, because I am aware of how technical this Bill is. I hope that we have noble Lords’ support.

[Lord Tunnicliffe (Lab)]

My Lords, may I raise a bureaucratic point before the Minister sits down? He intends to put letters in the public domain through the medium of the Library. It would be convenient if he could simultaneously copy them to everybody who has participated in the debate and registered interested parties like me.

[Lord Agnew of Oulton (Con)]

I would be happy to do that. I am pleased to see the noble Lord, Lord Tunnicliffe, back here without Covid; we were worried that he might have had it. I will certainly do that.

Capital Requirements Regulation (Amendment) Regulations 2021

Debate between Lord Agnew of Oulton and Lord Tunnicliffe

Tuesday 14th September 2021 Grand Committee

[Lord Agnew of Oulton (Con)]

My Lords, I thank the noble Lord again for his very thorough analysis of an immensely complicated subject. I will try to address his two substantive questions. The first was on the scrutiny of PRA rules and regulations by Parliament. I assure the noble Lord that Parliament ultimately sets the regulators’ objectives, and it is right that Parliament has the appropriate opportunity to scrutinise the work of the regulators and their effectiveness in delivering the objectives that Parliament has set them. The letter the noble Lord referred to was clear that we set out a reasonably long consultation period earlier this year and had substantive responses from the key players in the sector, and we have responded to those.

The regulator committed to sending these consultations and draft rules to Parliament during the passage of the Financial Services Act earlier this year. Consultation began in February so there has been a decent period to review and report on them. The PRA published its final rules in July—again, well in advance of this SI. The FSMA requires regulators to undertake these consultations and to consider and to respond to representations from Parliament as well as other stakeholders. Mechanisms for accountability, scrutiny and engagement are considered further through the further regulatory framework review. We should not rush to prejudge the outcome of the FRF review. The Government will bring forward proposals through a second consultation later this year.

On the noble Lord’s question about climate change, the Financial Services Act 2021 was amended to include a “have regard to” the net zero carbon target but its application was delayed until 1 January 2022. This means that the PRA does not need to have regard to climate change considerations in making the rules as a consequence of this specific SI. This delay will ensure that there is no unnecessary and impractical delay in implementing the Basel 3 reforms for 1 January next year, otherwise we would be in the unfortunate position where the regulators would have to reopen or restart their consultations which were first published, as I said, in February this year.

I assure the Committee that the PRA will still need to make rules to implement substantive reforms contained in Basel 3.1. I expect the regulators to use the powers again in future to update their rules: for example, to take account of new international standards or developments in the market. The PRA will need to have regard to the net carbon target in setting those rules.

I hope noble Lords will agree that these amendments strike the right balance between taking action on climate change quickly and taking swift action to reform our prudential regimes that aims to prevent a future crisis. I suggest that we write to the noble Lord to update him on the timetable for his specific concern on the net-zero targets.

[Lord Tunnicliffe (Lab)]

Before the noble Lord sits down, I recognise that what I have said is perhaps complex so I would be grateful if he would also write to me on whether he has any further reflections on how Parliament might be involved. The formal position, as I understand it, is that the PRA can now make regulations without seeking any formal authority from Parliament; indeed, that is almost the essence of it. I sense some degree of sympathy that somehow Parliament ought to be involved, so if he and the Treasury have further thoughts on that, it would be valuable if they could share them with me.

[Lord Agnew of Oulton (Con)]

Of course we will write to the noble Lord to provide a bit more clarity on that. Again, it is that difficult balancing act with incredibly complex regulations—as the noble Lord has so ably demonstrated as he has fought his way through layers of hyperlinks—and I recognise that.

The Prudential Regulation Authority has consulted on these rules. As I mentioned, in July it published the near-final version of the proposed rules, along with an accompanying policy statement. This set out how the regulator has taken into account the public policy factors in the Financial Services Act.

I hope that the noble Lord has found today’s debate informative. I will write to him on the specific items we have discussed. I hope he will join me in supporting this instrument and I beg to move.

Money Laundering and Terrorist Financing (Amendment) (No. 2) (High-Risk Countries) Regulations 2021

Debate between Lord Agnew of Oulton and Lord Tunnicliffe

Tuesday 14th September 2021 Grand Committee

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

My Lords, the Government are committed to combatting money laundering and terrorist financing and recognise the threat that economic crime poses to our country. Illicit finance causes significant social and economic costs through its links to serious and organised crime, it is a threat to our national security, and it risks damaging our international reputation as a fair, open, rules-based economy. Illicit finance undermines the integrity and stability of our financial sector and can reduce opportunities for legitimate business in the UK. That is why the Government are focused on making the UK a hostile environment for illicit finance. As part of this work, we have taken significant action to tackle money laundering and terrorist financing, and to strengthen the whole-system response to economic crime.

Underpinning these efforts are the money laundering regulations, a key part of our legislative framework which set out a number of measures that certain businesses must take to combat money laundering and terrorist financing. These requirements include the need for businesses to identify and verify the people and organisations with whom they have a business relationship or for whom they facilitate transactions.

In addition, the regulations require that financial institutions and other regulated businesses conduct additional checks, or “enhanced due diligence”, on business relationships and transactions involving “high-risk third countries”. These are countries that have been identified as having strategic deficiencies in their anti-money laundering and counterterrorism financing regimes and which pose a significant threat to the UK’s financial system. The statutory instrument under discussion today updates the list of countries specified as high risk in the money laundering regulations.

I will explain the background to this instrument. At present, the UK’s list of high-risk third countries, specified in the money laundering regulations, mirrors those identified by the Financial Action Task Force, the global standard-setter for anti-money laundering and counterterrorist financing. The Financial Action Task Force updates its public lists of jurisdictions with strategic deficiencies following the conclusion of each Financial Action Task Force plenary to reflect changing risks and circumstances in these jurisdictions and in the global economy.

This instrument will therefore amend the money laundering regulations to update the UK’s list of high-risk third countries to mirror the Financial Action Task Force’s public lists. This will ensure that the UK’s list is responsive to the latest threats emanating from high-risk countries with inadequate counterillicit finance systems, and that the UK remains at the forefront of global standards on money laundering and terrorist financing. This update will therefore help to protect our national security and the UK’s reputation, and will protect businesses and the financial system from money launderers and terrorist financiers.

In summary, the instrument will update the UK’s high-risk third countries list. Businesses that fall under the scope of the money laundering regulations and which deal with these countries will be required to take extra scrutiny measures. This amendment will enable the money laundering regulations to continue to work as effectively as possible to protect the UK financial system and it will allow the UK to continue playing its full part in the fight against economic crime. I hope that noble Lords will join me in supporting this legislation. I beg to move.

[Lord Tunnicliffe (Lab)]

My Lords, I welcome the Minister to what is for me the first Treasury SI to be held physically since the pandemic began. There is also a sense of nostalgia that predates the Minister: namely, this SI is being conducted by only the Minister, myself and the Government Whip. It is a matter of “never mind the width, feel the quality”.

I am grateful to the Minister for introducing the latest iteration of these regulations. As he outlined, they enact the latest changes to the Financial Action Task Force’s list of high-risk countries for illicit finance, which come three times a year. The last time we debated this topic, towards the end of April, we also covered the logistics involved in defining key terms and ensuring that the UK can mirror the FATF’s list, now that we are outside the EU. Thankfully, the relevant corrections to domestic law have been made, which means that we do not need to revisit that topic in any detail. However, we find ourselves giving retrospective approval to a made affirmative instrument, when the Government’s stated ambition in April was to use the regular process.

Of course, we understand that the work of the FATF may not directly align with the sitting dates of our Parliament. We also accept that delays in bringing forward these regulations introduce a necessary and undesirable risk. While these occasions allow noble Lords to raise a series of related issues with Ministers, it seems unlikely that the Government or Parliament would wish not to enact these regulations when they appear every few months. With that in mind, and given the huge volume of secondary legislation that we now deal with, could the Minister and his department examine whether and how the process giving effect to changes in the FATF list might be streamlined or otherwise improved?

Speaking of peripheral issues, could the Minister also provide a brief update on the Government’s broader efforts in this area? In April, the noble Lord spoke of 52 joint actions being undertaken by the Government and private sector to tackle economic crime. He also referenced 17 extra staff being recruited to the UK Financial Intelligence Unit. How are those exercises progressing? I would be happy for him to write with the details, if necessary.

[Lord Agnew of Oulton (Con)]

My Lords, I thank the noble Lord for his participation in the debate today and for his normal, thorough consideration of the instrument under question.

I shall go to his query about the progress on the 52 actions that we have committed to in this area: 20 of those 52 have now been completed, and we are at a key point in the economic crime plan timeline. The Government recently published the Statement of Progress, which details progress made against the plan; it sets out the UK’s future priorities and outlines seven new priority actions that build on the original actions in the plan. It increases our level of ambition to combatting economic crime, supporting our growth and prosperity and enhancing our global reputation as a clean financial centre and a safe place to do business.

As the noble Lord requested, I shall write to him with further details on the work; there is a great deal going on, covering a number of departments—for example, reforms to Companies House to prevent the misuse of companies, which was set out in September last year. We are looking to introduce reforms to limited partnerships and how they operate, and a register of overseas beneficial owners. Likewise, the Home Office is shortly to consult on a number of economic crime-focused legislative changes to ensure that we have the right powers to share information and seize assets. However, as requested by the noble Lord, I shall put that into a letter so he has a full update.

On the pressure on bringing instruments forward, which will be reasonably frequent, I absolutely accept the noble Lord’s challenge. It is always a difficult balancing act to subject government to proper scrutiny in the parliamentary process but also not to clutter up the timetable. We will take back his comments and see whether there is a better way of doing it.

I hope that noble Lords have found the debate informative, albeit short, and that they will join me in supporting this instrument.

Cash Network

Debate between Lord Agnew of Oulton and Lord Tunnicliffe

Tuesday 7th September 2021 Lords Chamber

[Lord Agnew of Oulton (Con)]

My Lords, the Post Office plays a vital role in supporting payments across the system. There are some 11,000 post offices, and some 95% of business customers and 99% of personal banking customers are able to deposit cheques, check their balances and withdraw and deposit cash. The banking framework allows banking via post offices.

[Lord Tunnicliffe (Lab)]

My Lords, the Minister’s answers seem to me to fail to sense the problem for minorities and people who are poor. My real concern about access to cash is how poor people will manage. For poor people, frequently cash is the only way they can budget—they are not up to systems and that sort of thing. There are not many of them, but society must be responsible for them. I have read the document on this that the Treasury has pushed out; it seems pretty reasonable when you read it, but the key issue is the charging. The system is losing free-to-use cash machines. To us, the charges look trivial, but when you are taking small amounts of cash out, proportionately they are eye-watering. Will the Government insist that the free-to-use network is maintained and possibly enhanced?

[Lord Agnew of Oulton (Con)]

My Lords, to reiterate my earlier point, there are some 40,000 cash machines that are free at the point of use; they are sustained through an interconnection charge between the banks. As for what the Government are doing, in the Financial Services Act of this year we legislated to allow cashback without purchases. That became law in June this year, and it is something where everyone’s interests are aligned: the retailer gets the opportunity to increase footfall into their shops and to reduce the cost of having to bank cash, which is expensive. We are optimistic that this will provide a wide range of additional outlets for cash.

Kalifa Review of UK Fintech

Debate between Lord Agnew of Oulton and Lord Tunnicliffe

Tuesday 27th April 2021 Lords Chamber

[Lord Agnew of Oulton (Con)]

My noble friend is right that finance is an inherently risky business; my great-plus-three grandfather and his two brothers founded Close Brothers, so risk is certainly in my genes. That is one reason why we are introducing the sandbox concept, whereby this technology can be tested in a safe environment without exposing the economy to any risk.

[Lord Tunnicliffe (Lab) [V]]

My Lords, in the Chancellor’s recent Written Statement on fintech, he speaks of a “scale-up visa stream” allowing qualification for a fast-track visa without the need for sponsorship or third-party endorsement. What criteria was used to select fintech for this fast track, and where else in the economy is it envisaged that scale-up visas will be introduced?

[Lord Agnew of Oulton (Con)]

My Lords, these concepts are still being designed and I will be very happy to update the noble Lord when more information is available. However, the key emphasis of scale-up is to attract global talent and boost the fintech workforce, so it will be focused on the skills these people can offer our country.

Wales: Customs Sites

Debate between Lord Agnew of Oulton and Lord Tunnicliffe

Wednesday 25th November 2020 Lords Chamber

[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.

Budget Statement

Debate between Lord Agnew of Oulton and Lord Tunnicliffe

Wednesday 18th March 2020 Lords Chamber

[Lord Agnew of Oulton]

That is an extremely good idea. I will certainly take it back to the Treasury, where we will investigate it.

[Lord Tunnicliffe]

If the Minister is going to write to individuals, will he copy in all noble Lords who participated in the debate?

[Lord Agnew of Oulton]

Yes, of course. I am afraid I have not had time to answer various noble Lords’ specific questions, so I will ensure that they are all copied in to my replies.

To sum up, there have been many calls today for the Government to move faster—not just by putting more money into the system but by being ever more restrictive of people’s liberty and way of life. Indeed, I was at a meeting with the Prime Minister last night. He said to the assembled group, “Even in the war, we didn’t stop people going to the pub.” We have to try to bring the country with us as we do some of the most profound things to happen in our lifetime.

I want to finish on a slightly more positive note. For those noble Lords interested in history, it is worth remembering that it was in difficult times like this that the Education Act 1944 was introduced for its Second Reading that January, nearly five months before D-day and nearly 18 months before the war was won. Parliament had the vision then to introduce legislation that would change the lives of young people in peacetime well before we had any sense that we had achieved peace. I hope we will be able to look back on this Budget in 18 months’ time and say something similar, but for the whole economy and everyone who lives in Britain.

Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2020

Debate between Lord Agnew of Oulton and Lord Tunnicliffe

Tuesday 3rd March 2020 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I will take a similar self-denying ordinance to that of the noble Baroness, Lady Kramer, and speak relatively briefly. I would like simply to put on record my support for the excellent speech by my noble friend Lady Lister. I join with the noble Baroness, Lady Kramer, in failing to understand why this is not part of the Budget. Because it is not part of the Budget, it is lacking in process. In some senses, virtually all the changes that the Minister described are designed to introduce the CPI increases of 1.7%. Insomuch as that has previously been announced in budget processes, I cannot object, except on the wider basis that my noble friend Lady Lister outlined.

There is one particular increase, however—the increase in PT, which I am told is the “primary threshold”—which is not in line with inflation. Its excuse for being introduced is that it is in the Conservative manifesto. I have a copy of that manifesto and I have to admit that I could not find it. Fortunately, a member of the Treasury was able to advise me that it was on page 15—which was conveniently not numbered, but never mind. It says:

“We not only want to freeze taxes, but to cut them too. We will raise the National Insurance threshold to £9,500 next year—representing a tax cut for 31 million workers.”


I thought that a basic rule of introducing a change of policy would be that it would be properly costed. Just to make sure that this was not trivial, I did a few sums. The effect, as the Minister said, is to increase the threshold by £868; it would have increased a little anyway because of the 1.7%, but the policy impact is something like a real £720 increase. If you multiply that by the 12% rate and the 31 million people involved, you get a figure of, say, £2.7 billion. My concern is that such a sizable sum ought to have been properly set out and illustrated.

The Explanatory Memorandum says:

“A Tax Information and Impact Note has not been prepared for this instrument as it gives effect to previously announced policy and it relates to routine changes to rates, limits and thresholds.”


Well, it does not. This one is clearly a policy change, and clearly the cost is a few billion pounds. Will the Minister tell us how much it will cost? Why was it not set out in the Explanatory Memorandum? Surely it is improper to introduce a national insurance change that is a reduction in taxation without calculating its cost and putting that in the public domain.

[Lord Agnew of Oulton]

My Lords, I will try to deal with the queries raised by the noble Baronesses and the noble Lord. I will start with the question asked by the noble Baroness, Lady Lister, on the impact of the historic benefit freeze. We have to put all these events into some context. When the freeze was originally announced in 2010, we were putting the public finances back on track. For example, before 2010, welfare spending was rising at an unsustainable rate. Between 1997-98 and 2010-11, welfare spending rose by £84 billion in real terms—a 65% increase. The Government are committed to building a welfare system that ensures that work pays, that there is a strong safety net for people who need it, and that the system is fair for claimants and taxpayers. As I mentioned in my earlier comments, this is a substantial payment back into the system to support some of our most needy and vulnerable people. However, the Government are not able to provide a blank cheque for an unlimited uprating from the years of austerity that we have had to come through.

--- Later in debate ---

[Lord Agnew of Oulton]

The answer to the first part of the noble Baroness’s question is that this is what it will cost; the figure I mentioned earlier in my comments, which I think was £800 million, is the cost. The second question was: what about the people at the top end? Again, I am proud to represent a Government who are focusing our attention on those at the very bottom end of income, so this is where we are at the moment. I cannot speak for the Budget—

[Lord Tunnicliffe]

Can I just check the Minister? The area that I was concerned about, which is the increase in the PT, affects virtually every taxpayer and is not in any way concentrated at the bottom end of employment.