Economy: Purchasing Managers’ Index

Debate between Lord Bates and Baroness Kramer

Thursday 11th April 2019 Lords Chamber

[Lord Bates]

I absolutely agree with the first part of the noble Lord’s question. I am sure it is noted on his Front Bench. We have been clear that we believe the best way forward for manufacturing—in fact, for the whole economy—is to leave the European Union with a deal, and that is what the Prime Minister is working towards.

[Baroness Kramer (LD)]

My Lords, I fear that some of your Lordships, and perhaps the Minister, must have missed out some of the sentences in Markit’s report on the PMI. It said that, increasingly,

“Companies stepped up production to build-up inventories”,


of,

“both purchases and finished products”,

in advance of Brexit—in other words, stockpiling. It later says that business sentiment “remained subdued” looking ahead, amid persistent Brexit concerns. The CBI this morning confirmed its view that the economy is down 1% to 2% from where it would have been without Brexit. Do the Government believe that underestimating the issues facing industry in any way helps industry to handle this Brexit crisis?

[Lord Bates]

I do not dispute that there are headwinds and that uncertainty is bad for business, which is why we want to resolve matters and move forward. However, one of the points about the purchasing managers’ index is that it asks people what their future intentions are, so if people had been “stockpiling” from the beginning of the year, that would not explain why they are now saying that they believe that they will buy more goods and are more positive about the future outlook. So that is not necessarily the right way to read the numbers.

UK Convergence Programme

Debate between Lord Bates and Baroness Kramer

Tuesday 9th April 2019 Lords Chamber

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, the Government have a legal requirement to give the European Commission an update of the UK’s economic and budgetary position as part of our convergence programme. Given our decision to leave the European Union, some Members may find it odd that we are debating the UK’s convergence programme here today, but it is right to do so, because we continue to exercise our full membership of the EU until the point of our exit and because doing so is a legal requirement and one that we must therefore take seriously.

The document before us may look familiar. This is because substantial parts of its content are drawn from the Autumn Budget report and the OBR’s most recent economic and fiscal outlook. It is the content, not the convergence programme itself, that requires the approval of the House today.

I remind the House that although the UK participates in the stability and growth pact, which requires convergence programmes to be submitted, by virtue of our protocol to the treaty opting out of the euro we are required only to “endeavour to avoid” excessive deficits. The UK cannot be subject to any action or sanctions as a result of our participation.

Let me provide a brief overview of the information we will set out in the UK’s convergence programme. Noble Lords should note that this does not represent new information; rather, it captures the Government’s assessment of the UK’s medium-term economic and budgetary position, as we set out in the Autumn Budget and again in the Spring Statement.

The UK economy has been growing for nine consecutive years, with the longest unbroken quarterly growth run of any G7 economy. It has added 3.6 million jobs since 2010, has almost halved youth unemployment and has seen female participation in the workforce increase to record levels. The economy is now delivering the fastest rate of regular wage growth in over a decade. Despite the slower global economy, the OBR expects Britain to continue to grow in every year of the forecast period: at 1.2% this year, 1.4% in 2020 and 1.6% in each of the final three years. This represents cumulative nominal growth over the next five years that is slightly higher than the Budget forecast. The OBR forecasts 600,000 more jobs in our economy by 2023. There is positive news on pay too, with the OBR revising wage growth up to 3% or higher in every year.

The Government have made significant progress since 2010 in reducing the deficit, and in 2016-17 reduced the Maastricht treaty-defined deficit below the EU’s 3% limit for the first time since the financial crisis. The OBR forecasts it to fall below 2% of GDP in 2018-19 and below 1% in the final two years of the forecast period. At the Spring Statement, the OBR forecast that public sector net borrowing is expected to be £22.8 billion this year—£3 billion lower than forecast in November and £130 billion lower than in 2009-10.

We remain on track to meet both our fiscal targets early, with the cyclically adjusted deficit at 1.3% next year, falling to just 0.5% by 2023-24, and with headroom against our fiscal mandate in 2020-21 increasing from £15.4 billion at the Autumn Budget to £26.6 billion at the Spring Statement.

Less borrowing means less debt, which is now lower in every year of the forecast period than at the Budget, falling to 82.2% of GDP next year, then 79%, 74.9%, 74% and finally 73% in 2023-24. Our national debt is falling substantially for the first time in a generation.

While committed to getting debt falling, the Budget took a balanced approach to government spending, supporting households and businesses in the near term and investing in the UK’s economic potential in the medium term. We have made over £150 billion of new spending commitments since 2016, and the Chancellor announced in the Budget that the long but necessary squeeze on current public spending would come to an end at the upcoming spending review, setting out an indicative five-year path of 1.2% per annum real-terms increases in day-to-day spending on public services compared with real-terms cuts of 3% per annum at spending review 2010 and planned cuts of 1.3% in real terms per annum at spending review 2015.

We made our biggest choice on public spending to put the NHS first, in line with the Prime Minister’s announcement of £34 billion of additional funding per year by the end of the period—the single largest cash commitment ever made by a peacetime British Government—to support our long-term plan for the NHS. It will deliver improved cancer and mental healthcare, a transformation of GP services, more doctors, more nurses, and better outcomes for patients.

Following the House’s approval of the economic and budgetary assessment that forms the basis of the convergence programme, the Government will submit the convergence programme to the Council of the European Union and the European Commission. The submission of convergence programmes by non-euro area member states and stability programmes by euro area member states also provides a useful framework for co-ordinating fiscal policies. A degree of fiscal policy co-ordination across countries can be beneficial to ensuring a stable global economy, which is in the UK’s national interest. The UK has always taken part in international mechanisms for policy co-ordination, such as the G7, G20 and OECD.

Although we are leaving the EU, we will of course continue to have a deep interest in the economic stability and prosperity of our European friends and neighbours. So we will continue to play our part in this process while we remain subject to the acquis, and in other international policy co-ordination processes once we have left the EU.

The Government are committed to ensuring that we act in full accordance with Section 5 of the European Communities (Amendment) Act 1993, and that this House approves the economic and budgetary assessment that forms the basis of the convergence programme, which I commend to the House.

[Baroness Kramer (LD)]

My goodness. I thank the Minister for his statement. I think we can all agree that this is a bit of a paper exercise, as the UK is not a member of the euro. Therefore, no matter how we perform on our structural deficit, there are no enforcement measures that the EU or any part of it can take against the UK. He is also absolutely right that there is nothing new in any of these numbers; they are basically a cut and paste from the last Budget and the OBR forecast. The forecast is slightly differently defined from our deficit numbers, but the cyclically adjusted treaty deficit number actually rises slightly this year, so technically we are actually going into the excessive debt procedure, although probably only briefly. Again, that has no particular consequences.

I find this, like many other debates on the economy, to be utterly surreal, because we will have no idea how the economy will look until Brexit is sorted out. That is so fundamental to creating the terms on which we have to look forward. All that we know is that every forecast that HMT has done of the medium term, in any Brexit scenario, shows us to be significantly worse off than if we had remained in the EU. That includes getting absolutely wonderful and amazing free-trade deals all over the place.

Because we have had so many debates on this issue, I am sure that the House will not mind if I am brief and will make just a few points. First, while I share the Government’s pleasure in our good employment numbers, I repeat that it is a lagging indicator, and I wish that HMT would take that on board. But rather more troubling, a recent piece of work by Aston University suggests that established businesses have been shedding employees in significant numbers for some time and that the slack has been taken up by start-ups.

I am delighted with start-ups, but we are all well aware that a start-up is far more volatile, and if we go into any period of recession or rough water it is exactly that start-up arena that will take some of the harshest blows. I had not anticipated that there was a threat to our employment numbers, but it looks to me as if we potentially have something here that the Government should take a very close look at.

Secondly, I want to raise the question of the very sharp drop in business investment. I want to make sure that we do not confuse business investment with oligarchs buying luxury properties in our major urban areas. That pumps the numbers up, but it is not the kind of investment that anybody in this House is particularly keen to see, particularly as it deprives local people of housing opportunities.

Government Debt

Debate between Lord Bates and Baroness Kramer

Tuesday 9th April 2019 Lords Chamber

[Lord Bates]

Certainly, the Government see merit in repaying debt; we pay interest rates of about £50 billion a year on debt, so there is a good rationale for trying to do that. However, we need to balance our approach. Primarily, we seek to stop that debt level increasing by bringing it down as a percentage of GDP from around 85% to 73% at the end of the forecast period, but we need to go further on that.

[Baroness Kramer (LD)]

My Lords, do the Government now understand that including borrowing for investment into infrastructure in the deficit number is not only intellectually flawed but has constrained growth in this country by limiting the number of projects in which we can invest, at a time when interest rates have been exceptionally low and a great deal more could have been done to catch up on the infrastructure backlog?

[Lord Bates]

I do not see how one can take it out of that figure. If it is public expenditure on infrastructure, it is government debt, so we need to reflect that in the numbers.

Retailers: Business Rates

Debate between Lord Bates and Baroness Kramer

Monday 8th April 2019 Lords Chamber

[Lord Bates]

We have looked at that area, and the Select Committee on Housing, Communities and Local Government is looking at this precise time to see what can be done. We have to remember that options such as an online sales tax would hit many high street stores, because they are hybrid business models that have a physical presence but also an online business.

[Baroness Kramer (LD)]

My Lords, does the Minister accept that taxing just the land value of commercial sites would achieve many of the goals that other questioners have put forward? It would encourage small firms to take on new technology and to expand, and would reduce the business rates for many, with the consequence that they would face a more level playing field with the online players.

[Lord Bates]

The land value option was looked at in the review in 2016, which I talked about earlier. The review concluded that a land value tax would also result in anomalies and problems. Under the business rates system that we have at the moment, it is easy to collect and easy to understand the calculation, which is why we are sticking with it at the moment.

Access to Cash

Debate between Lord Bates and Baroness Kramer

Wednesday 3rd April 2019 Lords Chamber

[Lord Bates]

I am happy to undertake to take that up with the Economic Secretary to the Treasury, who is responsible for retail banking, as well as the Financial Conduct Authority. I know that significant progress has been made on that, and I will write to the noble Lord.

[Baroness Kramer (LD)]

My Lords, nearly 40% of payments are still in cash. Does the Minister recognise that although the payments regulator cites post offices as places where one can get cash, they tend to close at 4 pm or 5 pm? People need access, and 1 kilometre is far too far away to keep any local community functional in the way that it needs to be.

[Lord Bates]

There are limitations that arise from the changes in the way that people access their financial services and cash. We are seeing contactless overtaking debit cards as a way of payment. These changes are happening, but it is important that the regulator and the Government work together with the industry to ensure that people continue to have the access they need to these important cash services.

National Insurance Contributions Holiday

Debate between Lord Bates and Baroness Kramer

Wednesday 27th March 2019 Lords Chamber

[Baroness Kramer (LD)]

My Lords, setting aside the irony that this is a unfulfilled manifesto commitment, does the Minister recognise that small businesses, which are often the best place for someone from a disadvantaged community to start work because of the support available, often find it costly to take on someone who needs that kind of additional support? For those firms, this critical amount of a one-year holiday from national insurance contributions, which might not matter to a big company, is absolutely pivotal in making it possible for them to take on this extra load. Therefore, will he push for this element of the manifesto to be carried through?

[Lord Bates]

The noble Baroness will recall that, when we were in coalition Government, we introduced the employment allowance, which effectively said that the first £3,000 of national insurance contributions for small businesses did not apply. We have also abolished national insurance for those on apprenticeships under the age of 25 and abolished national insurance for those under the age of 21. We are doing a significant amount in this area, but I accept that we need to do more.

Financial Services (Miscellaneous) (Amendment) (EU Exit) Regulations 2019

Debate between Lord Bates and Baroness Kramer

Thursday 21st March 2019 Lords Chamber

[Lord Bates]

I thank the noble Baroness and the noble Lord for their scrutiny and questions on these points. I shall do this in reverse order because I am waiting for a little further inspiration about fintech—it is arriving. The noble Lord, Lord Tunnicliffe, is always assiduous in these matters and drifts easily between bus operations in Northern Ireland and financial services across the European Union in his scrutiny of SIs. He raises a very serious point: the first of these documents runs to some 26 pages, and 26 pages of Explanatory Memorandum, while the second has 11 pages and 14 pages of Explanatory Memorandum, so there is an awful lot of detail.

During this process—we are now nearing the end of it—we have worked on some 52 statutory instruments and have been grateful for the way the noble Baroness and the noble Lord have engaged with us very constructively over the past four to five months. During that process, of course, there will be consequential amendments that were not foreseen, because some of the 48 affirmative statutory instruments that have gone through this House were laid after the previous ones were made, and therefore changes need to be made. We envisaged, when we began this, what we call an onshoring process to ensure seamless activity, so that there is no disruption for UK financial services. We always envisaged the need for some instrument such as this at the end that corrected any errors and dealt with consequential changes. All the amendments are being made to ensure a functioning financial services regulatory regime in the UK, in any scenario, when the UK leaves. These amendments ensure continuity and clarity.

The noble Lord asked me to make the very specific commitment that no policy changes are involved in these: that is certainly the case. To make policy changes would be in contravention of the letter and spirit of the withdrawal Act and we certainly would not do it. The approach has been consistent. He asked about the number of errors. Around eight drafting errors in previous EU exit financial services SIs are being corrected in this measure.

The noble Baroness raised some issues around fintech and I appreciate her expertise in this area. Fintech is very much a jewel in the crown of the UK. We have some of the most amazing financial services firms in fintech, including start-ups in places, such as Shoreditch, around the City of London: it is a quite incredible and burgeoning industry and certainly one that we want to see continuing to expand. UK providers of online services to the EEA countries will need to continue to comply with a range of EEA countries’ individual legal requirements relating to online activities. The exclusion we are referring to here is limited to online-only activities. We expect that firms will use passporting rights rather than this exclusion; therefore, we estimate the number of fintech firms will be very small.

[Baroness Kramer]

Will the Minister, if he has the opportunity, look into this? I know that crowdfunders and many others—I have tried to tell the Treasury a million times—use the e-commerce directive, not passporting rights. It has played a key role. Whether they can transfer from using the e-commerce directive to passporting rights, I am not clear, but it seems at least an issue somebody should look at.

[Lord Bates]

I was just coming to that precise point, because the noble Baroness raises a serious point which is worthy and very important for us to look into further. I undertake to do that and to write to her, to copy in the noble Lord, Lord Tunnicliffe, and to place a copy in the Library. It is very important that we ensure that there is no unintended, deleterious impact on such an important sector of the UK financial services industry. With that, I commend the regulations to the House.

Spring Statement

Debate between Lord Bates and Baroness Kramer

Wednesday 20th March 2019 Lords Chamber

[Lord Bates]

I am sorry—delete “even” from the record. The right reverend Prelate the Bishop of Chester, whose point about housing I will come back to in a minute, referred to it. The noble Lords, Lord Leigh, Lord Gadhia, Lord Bilimoria and Lord Suri, recognised that progress had been made despite the headwinds. It is absolutely right that we recognise that that progress has been made because British business and enterprise up and down the country—and around the world—is making a Herculean effort, creating jobs, wealth and buoyant tax revenues. These revenues are coming into the Exchequer, giving us the opportunity to look at them.

Across most of the contributions, there was a focus on public services and public spending. As I mentioned, the spending review will be in the summer and conclude in time for the Budget for the autumn, which will rely on it. Contributions effectively broke down into four areas. The noble Lords, Lord Macpherson and Lord Hain, and the noble Earl, Lord Listowel, referred to social care. The noble Lords, Lord Tunnicliffe and Lord Bilimoria, referred to policing, and the noble Lord, Lord Scriven, alluded to the tragic knife crime situation in Sheffield. The right reverend Prelate the Bishop of Chester, the noble Lord, Lord Wakeham, and the noble Baroness, Lady Thornhill, referred to housing. The noble Lord, Lord Shipley, and the noble Earl, Lord Lytton, addressed local government finance.

Two other areas, which were grouped together, were the challenges of the changing nature of tax revenue and collection. The attraction of statutory land tax, which the noble Lord, Lord Wakeham, referred to, is that it is very easy to collect. The changing nature of tax is making collecting tax more challenging. The noble Lord, Lord Wakeham, the noble Earl, Lord Lytton, my noble friend Lord Leigh and the noble Viscount, Lord Chandos, referred to that challenge and ways to address it. Coupled with that is business confidence, which the noble Lords, Lord Gadhia, Lord Suri, Lord Northbrook and Lord Davies, referred to.

I will use the bulk of my time to address the questions raised as a result of those contributions. Several noble Lords asked how the Brexit dividend might be funded. The OBR’s Spring Statement forecast that business investment is weak. The noble Baroness, Lady Kramer, referred to that, and we acknowledge that in the near term. However, as uncertainty wanes, it picks up to 2.3% in 2020 and grows stronger at this pace from 2021 onwards. GDP growth is forecast to be 1.2% in 2019 before picking up to 1.4% in 2020 and 1.6% from 2021 onwards.

The noble Lords, Lord Tunnicliffe and Lord Hain, as well as several others, referred to infrastructure. We have increased the National Productivity Investment Fund to £37 billion to support key infrastructure up and down the country. Public investment is at its highest sustained level in 40 years.

The noble Lord, Lord Bilimoria, and the noble Earl, Lord Lytton, referred to Making Tax Digital—indeed, the noble Lord, Lord Wakeham, focused on that and the noble Lord, Lord Hain, touched on it. Research now shows the high level of awareness among business and tax professionals: eight out of 10 businesses were aware at the end of last year and over 80% of those had already started preparing. Of VAT returns, 98% are already done online.

The disguised remuneration loan charge was raised quite extensively, by my noble friend Lord Northbrook; by the noble Lord, Lord Wakeham, on behalf of the noble Lord, Lord Forsyth; and by the noble Baroness, Lady Kramer, with her work on the all-party parliamentary group. Disguised remuneration schemes are and always were contrived tax avoidance. It is not normal or reasonable to be paid loans that are not repaid in practice; my noble friend Lord Wakeham was right in his sage advice on that, as in so much other advice he has given over the years. It is the individual’s responsibility to ensure the accuracy of his or her tax return. HMRC is pursuing the promoters of disguised remuneration schemes and has been investigating over 100 promoters. In the last year, HMRC has taken litigation action against 10 scheme promoters.

I turn to universal credit and welfare, which the right reverend Prelate the Bishop of Chester referred to and the noble Lord, Lord Shipley—

[Baroness Kramer]

This really is an important point on the loan charge. Regarding the action that the Minister said HMRC had taken against scheme promoters, I do not believe that any of those schemes was a loan charge scheme. Those are schemes generally, but one of the complaints is that no action has been taken against the promoters of loan charge arrangements.

[Lord Bates]

I am afraid that I do not have the answer to that. Your Lordships may recall that, after the Autumn Statement, I ended up having to write extensively on loan charges. We know that officials at the Treasury are used to dealing with disappointments and I am afraid we may have to write again on the issue to deal with that point.

On welfare, as the noble Earl, Lord Listowel mentioned, work is the best route out of poverty. I thank him for the recognition that he gave to the incredible growth in the number of people—three and a half million more—in work, and a million fewer people in workless households. These are substantial social changes happening around the country and we believe that that is the best route out of poverty. Changes to the welfare system have ensured that work pays. There is a strong safety net for people who need it, while making the system fair for taxpayers.

The noble Lords, Lord Tunnicliffe, Lord Scriven and Lord Bilimoria, all raised the issue of serious violence. Police forces are already due to receive an additional £970 million from April. Police and crime commissioners have committed to using this funding to recruit and train an extra 2,800 police officers. In addition, the Chancellor announced a package of £100 million additional funding. Of this, £80 million is new funding, which takes the total additional funding for policing this year to in excess of £1 billion.

The noble Lords, Lord Hain and Lord Bilimoria, the noble Baroness, Lady Thornhill, and the noble Earl, Lord Lytton, referred to business rates. We are providing up-front support worth over £1 billion for high streets through the new retail discount, reducing bills by one-third for up to 90% of retail property for two years, starting from 1 April 2019.

On housing, further progress has been made in implementing the Budget to achieve our ambition of 300,000 homes. I hope that the right reverend Prelate the Bishop of Chester will not called upon from his retirement home in Scotland to eat his cassock—that prospect will add extra zest to our ambition to meet the target—but £717 million from the £5.5 billion Housing Infrastructure Fund to unlock 37,000 homes is a good step in that direction; there will be £250 million for 13,000 homes at Old Oak Common in London, and there are other schemes in Cambridge.

The noble Lord, Lord Wakeham made a serious point about the tax gap. While we recognise that there is a long way to go, we have one of the lowest tax gaps on record. It has fallen from 7.3% in 2005-06 to 5.7% in 2016-17.

We heard a considerable number of contributions on the very important issue of health and social care, which featured significantly in the Autumn Budget as well as in the Spring Statement last year.

Over the last three years, we have given councils access to around £10 billion of dedicated additional funding for adult social care. This includes £240 million this year and next for adult social care so that people can leave hospital when they are ready, and £410 million next year for councils to use to improve social care for older people, people with disabilities and children. This was announced in the Autumn Budget of 2018. The offer of the noble Earl, Lord Listowel, for us to see the incredible work done by many involved in social care and health visitors is one that many will want to take up.

I was immensely grateful to my noble friend Lord Leigh, for summarising a lot of the very positive, good news around, as did my noble friends Lord Suri and Lord Northbrook. My noble friend Lord Leigh spoke particularly about the measurement of productivity, and I think he is on to a point here. We had a discussion about this after the last Autumn Budget, and that was one of the conversations that led to the commissioning of Professor Sir Charles Bean to undertake an independent review of UK economic statistics to find out, among many things, whether that point about how financial services are treated and whether their full value is considered is right. To help address challenges, the Treasury has today provided the ONS with £16 million of funding so that we can continue to have world-leading statistics that capture what is happening in the modern economy.

The noble Baroness, Lady Thornhill, talked about the funding of local government. I recognise the experience that she draws on when she does that. The Budget of 2018 and the 2019-20 local government finance settlement delivered a real-terms increase in core spending power for local authorities in 2019-20. We expect authorities to receive final funding allocations in the normal timetable. Councils in England can access more than £200 billion for local services from 2015 to 2020. The 2019 spending review will be launched in the summer and conclude in the autumn and will no doubt receive many representations.

I am sorry about not addressing the point made by the noble Viscount, Lord Chandos, about student loans. I remember answering an Urgent Question at the time of the last debate and I thank him for that. This will be taken up in the Augar review. In the Spring Statement, the Chancellor of the Exchequer announced that the post-18 education and funding review will conclude at the spending review, so that will be in the summer. This is a delay from the original timetable, in part due to the decision by the ONS to change how student loans are accounted for in public expenditure. That will be covered in the review.

The noble Lord, Lord Shipley, mentioned the importance of the northern powerhouse. That is crucially important: we have seen spending of more than £13 billion—the largest in history—in the northern powerhouse. We hail from the same area of Tyne and Wear and we have all rejoiced at the increase in infrastructure there, including the Tyne and Wear metro upgrade, which will make a very big difference.

The noble Lord, Lord Bilimoria, asked whether we would have the necessary money in the event of no deal. The Chancellor has been clear that leaving without a deal would mean significant disruption in the short and medium term, and a smaller economy in the long term. However, he also laid out ways in which it is possible for the Government to prepare us, including holding a £26.6 billion headroom against our borrowing target.

I again thank noble Lords for their contributions. Several noble Lords referred to investment into the UK. I want to put some points on the record, which noble Lords might have touched on. We need to remember that Forbes magazine, which knows a thing or two about business, surveyed 153 economies to find out which was the best country in the world for business investment. It arrived at the UK in 2018—and again in 2019; it is the number one place for investment. That is backed up not just in a survey but with the significant increase in overseas investment between 2016 and 2017—the last numbers available were announced just last year.

[Baroness Kramer]

My Lords—

--- Later in debate ---

[Lord Bates]

I am on a roll. Can I go a little further with the good news before we get reminded that every silver lining has a cloud wrapped around it? There was a £149 billion, or 12.6%, increase in the stock of overseas investment in the UK. It is now the third-largest in the world and the largest in Europe. London is the top city for property investment, not way past when, but in 2018. It was £16.2 billion compared with £12 billion in Paris and £8.4 billion in Hong Kong. Exports are at near-record levels and have risen more than 50% since 2010. They rose by £17 billion last year.

We have many challenges in this country and face many headwinds, but one of the things we can all have confidence in is that the world has confidence in this country. We should have more confidence in ourselves. I commend the Statement to the House.

[Baroness Kramer]

I do not want to entirely ruin what the Minister is saying. I know that the noble Lord, Lord Leigh, knows exactly what I will say in this particular instance. The Minister is quite right that a lot of the investment in the UK is property development. It is overseas moguls buying very expensive properties in London and elsewhere. If that is removed from the numbers, I am afraid that the picture is exceedingly different.

Financial Services (Distance Marketing) (Amendment and Savings Provisions) (EU Exit) Regulations 2019

Debate between Lord Bates and Baroness Kramer

Tuesday 5th March 2019 Lords Chamber

[Lord Bates]

My Lords, having spent the past six months with the noble Lord in Grand Committee and here, I can assure him that the last thing I would ever attempt to do is to try to smuggle through some policy under his astute watch, because I would never succeed—and we would never attempt it, of course.

The noble Baroness, Lady Kramer, made a good point on this. It gives me an opportunity to put some additional remarks on the record—I know she was talking particularly about buy-to-let properties, but the principle will hold. By extending the scope of the distance marketing regulations to EEA firms in a temporary permissions regime, we are ensuring that UK consumers will continue to be protected by appropriate distance marketing regulations. Firms in the temporary permissions regime will be seeking authorisation, and it is therefore in their interests to comply with the UK’s marketing regime—that is not the answer. I am sorry about that. I will get an answer for her. I absolutely got what she was asking.

[Baroness Kramer]

Picking up on the point made by the noble Lord, Lord Tunnicliffe, on direct marketing, illegal cold calling into the UK happens frequently. We know that Nigeria is often the major source of illegal cold calls and illegal contacts through emails and so on. One of the frustrations for UK authorities has always been that they cannot enforce against such illegal calls because they are at a distance and they have no locus. Will an equivalent situation arise after leaving the EU so that, if there are inappropriate or illegal cold calls into the UK from an EU-based entity, there will be no mechanism for enforcement against them? If that is the case, that might be something we need to think about.

Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019

Debate between Lord Bates and Baroness Kramer

Tuesday 5th March 2019 Lords Chamber

[Lord Bates]

I thank my noble friend Lady McIntosh, the noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe, for their contributions and engagement through this whole process. I am particularly grateful to my noble friend Lady McIntosh for participating in the debate and for opening it up with some perspectives on this. She said it was unclear what the post-exit requirements for derivatives were. We have made several onshoring SIs relevant to trading and issuing of derivatives already. I think we are currently up to SI number 40. Within that batch of 40, there were some specifically on that. I will certainly write to my noble friend to explain exactly how this regime will operate post exit.

She also asked about the direction of the transitional power. The power is available to regulators for two years from exit. It is then for the regulators to propose appropriate delay or phasing in of requirements within the two-year period. She also asked about the impact assessment—I applaud her for her scrutiny in getting to that level of detail in the specific tables. Let me populate some of the information from them. As outlined in the impact assessment, while the overall familiarisation costs were estimated at £110 million, the cost per firm was estimated at £1,900. The number of firms affected was based on the fact that FiSMA applies to all firms regulated by the PRA and FCA, which amounts to approximately 58,000 firms. It is also estimated that there will be an additional 1,200 firms entering into the temporary permissions regime, which then brings the total to 59,200. While FiSMA applies to all firms regulated by the PRA and FCA, many of the effects of this SI result from the loss of passporting rights at exit. I note that the remarks she made were drawn from considerable experience of how hard-fought those rights were. Of course, that is a consequence of decisions taken ultimately by the British people. This means that changes made by the SI will, in terms of the number of firms affected, predominantly affect those 1,200 firms entering the temporary permissions regime.

Moving to the remarks made by the noble Baroness, Lady Kramer, I again thank her for her input on this. She asked whether we could map all the onshoring changes. She made that request at the meeting with the Economic Secretary to the Treasury. Although we recognised that there were some challenges in doing just that, we felt that it was a very reasonable request when we met last week. I can confirm that we are working on this and will be in touch, I hope with a positive mapping exercise to share with her.

[Baroness Kramer]

I thank the Minister; that is good and welcome news.

[Lord Bates]

I am very happy to do that. I should also say that all these changes are being made because of the quite brilliant Economic Secretary to the Treasury, John Glen. He is an outstanding Economic Secretary, and takes his duties very seriously. As a more senior person, I find it encouraging to see young Ministers who are so diligent in the way they engage with Parliament and the department. He is an example to others in how he does it. The noble Lord, Lord Tunnicliffe, found a polite way of saying that he found it refreshing to be talking to the butcher, not the block. I absolutely get the point, and he could not be engaging with a better metaphorical butcher in this regard.

The noble Baroness, Lady Kramer, asked me to comment on the significance of the Bank of England exemptions regarding the FSCS rules. The regulators have judged that bringing in these requirements immediately is important for the financial stability. The Treasury was consulted and agrees with this. We do not anticipate that this will change.

On the point made by the noble Lord, Lord Tunnicliffe, on the use of unpublished directions, on which again, we had a substantial and useful discussion, it should be stressed that the Treasury and the regulators would want to avoid unpublished directions as the power is to be used broadly across a large range of firms. Unpublished directions would not be effective—as I read that out I thought that the noble Lord was ahead of us in that he was not asking for the unpublished directions but was rather seeking an engagement on matters after the fact. I certainly know that the Economic Secretary is taking that seriously.

I thank noble Lords again for their engagement on this, particularly my noble friend Lady McIntosh. I also thank the Opposition and Lib Dem Benches for the constructive way in which they have engaged with the Government on this, as a result producing a better outcome for regulation.

Brexit: Economic Impact

Debate between Lord Bates and Baroness Kramer

Wednesday 20th February 2019 Lords Chamber

[Lord Bates]

I do not accept that, as the noble Lord would anticipate. There are reasons to be positive about the UK’s prospects, particularly if we leave with a deal. The analysis showed the severely negative impact that no deal would have on the UK economy, which is why we want to avoid it at all costs and why a responsible approach from the Opposition, if they care about the economy and jobs, would be to support the deal.

[Baroness Kramer (LD)]

My Lords, the November analysis demonstrated that every scenario would be hugely damaging to the UK economy; it said that no deal would be worse but that the other options were significantly awful. That raises the question of why the Labour Party is not openly opposing Brexit at this point. The deal modelled here, which the Minister presents as though it were the Government’s, is in fact the Chequers deal, which had within it “max fac” and therefore assumed absolutely no friction in trade between the UK and the EU. That option is no longer on the table. The backstop was part of the analysis as well. We therefore have never at any point seen numbers that represent the deal currently being negotiated by the Prime Minister. Does the Minister not agree that it is a disgrace that MPs will be asked to vote on that deal without ever having seen the analysis of its impact on our economy in the immediate present, the near future and the long term?

[Lord Bates]

I do not accept that. We produced that analysis, which ran to some 83 pages. The noble Baroness says that we did not produce analysis. It was the proposal for the backstop in the withdrawal agreement that was rejected very clearly in the other place in the first meaningful vote. In all other aspects of what we seek to achieve, we want to see maximum facilitation and trade. That is what the Prime Minister is working tirelessly to secure with our European partners.

Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019

Debate between Lord Bates and Baroness Kramer

Monday 18th February 2019 Lords Chamber

[Lord Bates]

This is a separate debate. The noble Lord is moving his amendment, expressing regret from your Lordships’ House that there has been no consultation with industry on this measure. That is what his amendment says, as my noble friend Lord Bridges pointed out. I am not trying to raise the temperature to the same level as perhaps existed earlier in the Chamber; I am trying to maintain it at a level where we are focusing on the legitimate scrutiny which the noble Lord and the noble Lord, Lord Davies, are applying to this process. My noble friend Lord Bridges talked about UK Finance; I was about to quote TheCityUK.

[Baroness Kramer]

I thank the Minister but he is rapidly losing me. Had the noble Lord, Lord Tunnicliffe, not raised it just now, I would not have known that we are about to give approval for the issuance in the UK of Venezuelan sovereign bonds. That may not have been of particular interest to TheCityUK or UK Finance because of the way in which they look at the world, but I suggest that, had we had a 12-week public consultation, somebody would have come in with that information, which might have been of great interest to this House and created some pressure on government to re-examine that provision and clause. While industry bodies are crucial, there are many other stakeholders with an interest which by necessity have apparently been excluded from this process so far. Underscoring their importance is the issue in front of us today.

--- Later in debate ---

[Lord Bates]

To allow the House to make progress on this, I will seek some advice on that point.

[Baroness Kramer]

Is there any hope that there might be some in-flight information on this? I had understood, from listening to this debate, that this is not a rollover of the current rules; it is a way to make the rules more palatable—presumably to many of the Brexit community—by saying, “We will recognise that EEA state organisations do not have to use prospectuses, but don’t worry, we’re not treating them as special, we’re now going to allow it for every other country, even if they don’t have equivalence”. That is a policy shift. All I am saying is that a consultation would surely have surfaced that issue and the Government would have dealt with it in a different way.

Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019

Debate between Lord Bates and Baroness Kramer

Monday 18th February 2019 Lords Chamber

[Lord Bates]

We could probably start with agreement across the House in saying that that is certainly something the Government do not want to happen. There is a very easy way for the noble Lord to ensure that that does not happen: to ensure that his colleagues support the deal before the House. This would then be unnecessary. This is not in any shape or form an objective this Government relish. It is a possibility that any prudent Government must prepare for. That is its status—nothing more, nothing less.

Given that we are going to be in for five substantial debates tonight, I will set one thing in context at the beginning. I will not cover some of the points, because I know they will come up in later debates, so I will try to not test the patience of the House by repeating answers five times to five different SIs. I will try to keep them as concise as possible so we can move through them at some pace.

I thank the noble Lord, Lord Sharkey, as the official spokesman for the Liberal Democrats and the noble Lord, Lord Tunnicliffe, as the official spokesman for the Opposition, for stating their intent to let this legislation go through, because they recognise that—whatever their concerns—there is a greater concern to ensure that there is a functional statute book in the unlikely event of no deal. I recognise that responsible approach, and I am sure it will be welcomed by the industry. The noble Earl, Lord Kinnoull, and the noble Lord, Lord Leigh, spoke from that perspective.

I want to put this on record, because I think it is really important. In their presentations the noble Baroness, Lady Kramer, set out brilliantly and the noble Baroness, Lady Bowles, set out extremely well—and indeed the noble Lord, Lord Sharkey—the outstanding work that the Parliament and the Commission did in regulation. The UK has been a leader, an influencer and a shaper of regulation. It really has been a good process. Every single one of the SIs we are dealing with through this entire process has gone through that scrutiny. We are not dealing with something that has never been thought of before; this already exists and has been subject to scrutiny—not only in the Parliament but, let us not forget, in another important group that does incredible work in this House: the European Union Committee and its six sub-committees. They scrutinise all the regulations and directives that come out. Then we had the European Union (Withdrawal) Act, in which we said—because it included a revocation of the European Communities Act 1972—that we needed to bring a lot on to the statute book. That is what we are doing: bringing on SIs, directives and regulations from the EU that have been subject to scrutiny by a UK Minister, the European Parliament and your Lordships’ House in the sub-committees, at the instruction of Section 8 of the European Union (Withdrawal) Act. Many of us recall the long and painful process of that working its way through the House. I looked it up: we spent 10 hours on Section 8, which gives us the powers and sets up the process we are now following.

The idea is sometimes presented that somehow what we are doing here is bringing onshore a whole load of stuff that we have never prepared for and that industry has not had any clue about dealing with. Industry is working with it, and we are now bringing it onshore. The process by which we deal with new regulations in future—the point made by the noble Lords, Lord Lilley and Lord Leigh—is something we need to look at. What we are doing at the moment is bringing across what is already in existence and has already been considered through a rigorous process, and putting it on the UK statute book.

[Baroness Kramer]

Perhaps this is my misunderstanding, but as I read the SI I did not have the understanding that the Treasury, following exit day with no deal, would be able to act only in exact accordance with the pre-existing rules established under European directives but that it could make fresh and new decisions to revoke, effectively amend or make new decisions for a 12-month period; a process would appear at some point in that time that was not Treasury-only, but it would be structured around a negative SI. I thought that was part of this whole package.

[Lord Bates]

The powers the Treasury will have are the powers the Commission currently has. The Commission cannot have them because we will have left the EU without a deal. Somebody therefore has to have them, and it goes to the Treasury because that is the equivalent body. Where the European markets authority was the regulator, that is transferred to the regulator here. We are simply doing all the things the noble Lord, Lord Tunnicliffe, has said at least two dozen times when we have discussed these points. He looks to see if we are actually following the rules as set down in Section 8 of the European Union (Withdrawal) Act. That is what we are doing. We are not making substantial policy changes, just correcting deficiencies and making fixes. The noble Baroness is absolutely right; that is the process.

[Baroness Kramer]

I accept what the Minister says. The Treasury in effect becomes the Commission, but without the checks and balances that normally exist on the Commission because we do not have the democratic process. That is the only point I am trying to make.

[Lord Bates]

I know the noble Baroness is seeking to make a point, but the Treasury does have a representative in your Lordships’ House. I know the noble Lord, Lord Deben, thinks, with the Chief Whip present, that I will be here today, gone tomorrow. That may well be the case.

Brexit: Outstanding Commitments

Debate between Lord Bates and Baroness Kramer

Wednesday 6th February 2019 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I thoroughly agree with everything the Minister just said: if we do not honour an obligation that we signed up to, we will have difficulty negotiating a sensible deal with the EU. Does he also recognise that the way we handle this is being watched around the globe? If we are seen as people who do not meet obligations—trying to find some technical angle or way to weasel out of a commitment that we have made—we will have no chance of getting future trade agreements of any value.

[Lord Bates]

The noble Baroness is right. We need to remember that our net contribution, because of the way it is calculated, is made up not just of what the UK sends to the European Commission but of what the European Commission sends to the UK. Therefore, there are two parties to this; both are making contributions, and both need to honour their obligations. We believe that the financial settlement does just that.

Financial Services (Implementation of Legislation) Bill [HL]

Debate between Lord Bates and Baroness Kramer

Report stage (Hansard): House of Lords
Tuesday 29th January 2019 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I am very grateful not to be the Minister, who has to respond to my noble friend Lady Bowles and the noble Lord, Lord Leigh. I can see that it is a challenge and I hope that if I talk for a few minutes, it will give the Box a little more time to get notes to him.

I think that the House knows that my underlying question has always been how we draw the line so that we know when it is appropriate for change to be carried through by an SI and when it should come to this House as primary legislation, particularly in this field. What happened in the weeks and months immediately following a no-deal exit would shape whether we were in a position to maintain access to the EU market for our most significant industry—the services sector—and indeed for the economy as a whole. I think that in the changes he has made the Minister has got us to a better place and to a much clearer understanding of the Government’s intent. If he wanted to split the difference, he could say “major or significant” and deal with the problems all in one go.

I want to say how much I appreciate the listening that the Minister did and how much we appreciate the listening, thought and effort that his officials put into responding to the queries and issues that we raised. It gives me the feeling that we in this House, including the Government, are all essentially on the same page in understanding the significance of the period that would follow no deal and how carefully and sensibly we would have to approach regulation in the financial services area because of the potential knock-on impacts and unintended consequences, which could be extraordinarily severe.

With that sense that the Minister understands when an issue should be brought to the House because it is a fundamental change of policy and critical to an underlying key sector of the economy, and when it is an issue that can rightly be dealt with under a statutory instrument, I can say that I am very happy with the changes that have been offered and, again, I thank the Minister for them.

[Lord Bates]

I thank noble Lords for their contributions. I particularly thank the noble Lord, Lord Davies, for moving his amendment and giving us the opportunity to comment. I very much concur with the noble Baroness, Lady Kramer, about how the officials have engaged in this process. I do not know whether it is appropriate to refer to them on the Floor of the House but I will do so anyway. I think that they too found it a very useful interaction. This Bill is beginning its journey through the legislative process in your Lordships’ House, and the ability to shape and craft it so that it will have been improved by the time it leaves this House will make the job of the other place, which has quite a lot on its plate at the moment, a little easier.

I also agree with the tribute paid by the noble Lord, Lord Davies, for the work being done by officials and, indeed, by UK Members of the European Parliament and the industry on shaping EU financial regulation over the years to make it effective and proportionate.

I believe that the intent behind the noble Lord’s amendment and behind the noble Lord, Lord Sharkey, putting his name to it was to give the Government an opportunity to put further flesh on the bones of what is meant by “major” and “significant”. They will become the new version of “corresponding” and “similar”, which we discussed in Committee. I do not want to hark back to that debate; instead, I shall focus on these key words. I will put some remarks on the record and then turn to the point made by my noble friend Lord Leigh.

It is clearly important that we find a way of limiting this power appropriately, and I am very grateful for the proposal in Amendment 2, moved by the noble Lord, Lord Davies. However, the noble Lord’s amendment could have the unfortunate and unintentional effect of rendering the power and therefore much of the Bill almost unworkable. The reason the Government settled on the term “major” rather than “significant” in drafting this amendment was the greater clarity provided by the term “major”.

Financial Services (Implementation of Legislation) Bill [HL]

Debate between Lord Bates and Baroness Kramer

Committee: 1st sitting (Hansard): House of Lords
Tuesday 8th January 2019 Lords Chamber

[Baroness Kramer (LD)]

We will have amendments discussing equivalence more directly later, but will the Minister confirm that nothing could be done to step away from or undermine equivalence, or does this allow that? That is certainly the way it has been read by most Members of this House.

[Lord Bates]

We will have the debate under the future group of amendments on equivalence. We are not setting here the test or the bar as one of equivalence. We are simply talking about the specific directives and regulations before us and mentioned in the Bill: the 15 here; the four already agreed, which are mentioned on page 1 of the Bill; and the further 11 mentioned in the Schedule accompanying it, which have not yet been agreed. Because they have not been agreed and may be under debate or amendment without the UK at the negotiating table, we are simply adding in that greater level of power to say that the UK, in the event of leaving without a deal, would need to look after the interests of the UK financial and industry sector and could not give a blank cheque in the opposite direction to the EU to pass whatever regulation that we would automatically implement because of adherence to a notion of equivalence. That cannot be right for UK financial services. We need to look at what comes to us, then act within the interests of the UK financial services sector at that time.

I will deal with some of the specific points raised. The noble Lord, Lord Sharkey, talked about the recommendation of the Delegated Powers and Regulatory Reform Committee. I pay tribute to the work it did on this and the quick turnaround and punchy conclusions it arrived at. We are considering its recommendations, which the noble Baroness, Lady Liddell, asked us to look at. I will be happy to meet with noble Lords ahead of Report to discuss where we stand. I thank the Delegated Powers and Regulatory Reform Committee for its work and recognise that it raised some very pertinent issues. We want to look at them in greater detail, and I would be happy to discuss that with noble Lords ahead of Report.

I hope I have gone some way to addressing noble Lords’ points at this stage. We will come to a number of the other points in future debates and groups.

[Lord Bates]

I am happy to do that. As the negotiations on these files continue, further amendments may be agreed, proposed or dropped that the Government will wish to domesticate or remove using the powers under this Bill. As the final outcome on many of these files is still unclear, we need to make sure that we can bring them into UK law in a way that works best for UK markets. This might, for example, include areas where the final parts of legislation could, if unchanged in a no-deal scenario, present inconsistencies with the UK regulatory framework, with global standards or with the UK’s position as an open global financial market. It is important therefore that we have the power to adjust these inconsistencies when bringing them into UK law. I acknowledge that this is a—

[Baroness Kramer]

I am sorry, but the Minister just said that Clause 1(1)(b) allows an interpretation not to remain with the objective described in the European directive. His whole argument under Clause 1(1)(a) was that the words “corresponding” and “similar” provide, in different legal ways, for us to take steps only where it is consistent with the objective of the European directive. He is now directly saying that Clause 1(1)(b) allows us to take steps that are directly opposed to or completely inconsistent with the European directive. Could he provide us with some clarity on this? It seems that the power allows the Government to move in any direction they wish, and that is exactly the issue we are trying to raise here. Under those circumstances, is that for Parliament to decide or for the Treasury to decide through statutory instrument?

[Lord Bates]

I thank the noble Baroness for her intervention. There is a difference between the two elements and between the use of “adjustments” and the terms used earlier, “similar” and “corresponding”. Effectively, they relate to the two different groups that we have here. The first group is those for which we have been party to the negotiations and to agreeing. Following engagement, we know that the industry is keen to see those transposed into UK law, and we support it in that respect. Then there are those other elements that are incomplete, the final shape of which we do not yet know. Once the final shape is known—in all likelihood, that will be after the date in this scenario and once we have left the European Union and the negotiating table—we will have the power to adjust. Those are the two different elements.

[Lord Bates]

That is not the case. I accept that the noble Lord is presenting a caricature of the situation that proves a particular point, but of course that is not what will happen. First of all, certain guarantees are presented in terms of reporting, which we will come on to again later. There are certain processes in terms of scrutiny of secondary legislation, not only by the Secondary Legislation Scrutiny Committee, which does incredible work and of course has a role set out in Standing Orders as to how it must scrutinise secondary legislation. Also, the affirmative SIs must be debated in your Lordships’ House. In addition to that, we have also undertaken that there should be proper engagement with the industry in talking about this and with other stakeholders too. There is a wide range of things.

We will delve deeper into some of the points in the noble Lord’s own amendments later. I appreciate that the role and purpose of Committee is to elicit from the Government further explanations about what these terms mean. We may have a difference about whether the noble Lord’s view is shared by the Front Bench, and whether all these matters should be dealt with by primary legislation in 15 Bills or by secondary legislation, which has been the convention, particularly when it comes to financial services.

[Baroness Kramer]

My Lords—

[Lord Bates]

I will just finish this point if I may. That is why the noble Lord, Lord Tunnicliffe, and I and indeed the noble Baronesses, Lady Kramer and Lady Bowles, spent so much time in Grand Committee talking through various pieces of secondary legislation on financial services. That has been the conventional way in which we have worked. The noble Lord, Lord Adonis, believes that the legislation ought to be primary in this case. That is his view. It is not the Government’s view and it is my job to outline the Government’s view on this. We are following established procedures and providing powers under scrutiny to allow us to deal with a unique set of circumstances, which we have never had to deal with before.

[Baroness Kramer]

My Lords, this is genuinely a question of clarification. Is the Minister saying to me—I cannot read it in the language of the Bill—that Clause 1(1)(b), which states:

“with any adjustments the Treasury consider appropriate”,

excludes the category of in-flight legislation described as,

“specified EU financial services legislation”?

I assume that it includes that. Therefore, the Minister’s argument is that the Government will have to stick with the underlying objective for specified EU financial services legislation—which is what Clause 1(1)(a) is talking about—but the same legislation can then be overturned and dealt with completely differently under Clause 1(1)(b), which frankly allows adjustments as long as a piece of string. That is what I am trying to clarify. I understand that they are two different groups, but paragraph (b) surely applies to both groups.

[Lord Bates]

Perhaps it would be helpful at this stage to agree that these issues will be addressed in future groups. We will choose some wording—if not today, then certainly before Report—that is quite rightly required by the Committee to reassure itself about what is and is not referred to in that respect. With that, and with the undertaking to meet with colleagues specifically on the report of the Delegated Powers and Regulatory Reform Committee before Report, I invite noble Lords not to press this amendment.

--- Later in debate ---

[Lord Bates]

I thank noble Lords for their contributions to this debate. I shall begin by looking at what I think is an area of common ground: we all recognise the importance of the financial services industry to the UK. Perhaps I may pick up on a point made by my noble friend Lord Flight, that one of the main purposes of this Bill is to ensure that the UK remains an attractive and competitive place to do business, retaining our place as a world leader in financial services. To do this in a no-deal context, it is essential that the UK retains sovereignty over our rules. From the perspective of financial stability and protecting the UK taxpayer, it is essential that the Government, the Bank of England and the FCA have the tools available to ensure that the UK markets are appropriately and effectively regulated.

It would be wrong to set a condition over the UK’s regulatory framework that means decisions which are made about the UK’s future regime are determined through the lens of maintaining equivalence to the EU, irrespective of the quality of those rules and how future legislation and the market itself may evolve.

[Baroness Kramer]

I think that there may be a misunderstanding. This would mean that statutory instruments could not be used to create divergence—it does not mean that primary legislation could not be used to do so. That is the underlying point.

--- Later in debate ---

[Lord Bates]

The legislation we are dealing with is in its very composition a temporary measure; it is a temporary piece of primary legislation with a sunset clause.

[Baroness Kramer]

I know that we will discuss the sunset clause later. It does not mean that the statutory instruments created under this legislation die after two years, it means only that the powers in the overarching legislation will die. However, those two years are the critical period, so the sunset clause does not have the consequence that I think the Minister might suspect it does.

[Lord Bates]

To go back to first principles, I am saying that the power in this Bill is not in effect to make policy—rather, it is the ability to produce secondary legislation that has a policy content to it and which would then be subject to scrutiny in this House. That power is being put in place for an extraordinary set of circumstances—I think we all agree that these are extraordinary circumstances and in fact I should underscore that we hope that these powers will not be required to be acted upon, because there will be a deal and we will continue to have access to the market in financial services across the EU. That is our aim, but we are preparing for all eventualities.

The noble Baroness will be aware that equivalence determinations are autonomous decisions with the EU and, in turn, the UK retaining autonomy for determining if a foreign jurisdiction has equivalent standards and supervision. The EU takes a varied approach to assessments of equivalence, tailoring its approach to individual regimes with regard to how the assessment is conducted. The Commission itself has stated:

“It is the equivalence of regulatory and supervisory results that is being assessed, not a word-for-word sameness of legal texts”.


Indeed, for a recent example, one need to look only at the EU’s statements on equivalence in a no-deal scenario. Within these, the EU has been clear that equivalence decisions of the UK will be made where justified in the interest of the Union and its member states, with time limits and conditions to their decisions where appropriate. As such, it is very difficult to judge what the EU will take into account in its future assessments and how its autonomous third-country regime will evolve. Such an approach, plus the breadth and variety of considerations that form part of equivalence determinations, from the rules themselves to supervisory approaches, means that it would be very difficult to determine what effect, if any, a change or adjustment that the UK makes to our laws might have on a future equivalence determination in a given area, given that these are autonomous decisions taken by the EU. It is therefore difficult to see how the test set out in this amendment could be met.

Let me reiterate the importance of, in the case of a no-deal situation, retaining the ability to adjust our legislation so that it best serves the aims and objectives of the UK once we have left the EU, as my noble friend Lord Flight has identified. It is crucial to ensure that we can bring into force pieces of legislation in a way that works best for the interests of UK markets. The Government are also committed to doing this as transparently as possible, which is why we have set out the strict reporting requirements to which I know we will return on Report. In the light of that, I invite the noble Baroness to withdraw her amendment.

--- Later in debate ---

[Baroness Kramer]

I will just say from these Benches that we agree.

[Lord Bates]

My Lords, first, I am sure that I speak for the whole Committee in thanking the noble Lord for his succinctness in presenting his amendment. I recognise the old adage that everything needs to be said but not everyone needs to say it. That is a good principle. In following him in that spirit, I will put on the record a few comments that I believe will be helpful for our wider debates.

We appreciate the concerns across the Committee regarding the Henry VIII powers and, where they are proposed, it is clear that their necessity must be well evidenced. In the case of the financial services legislation, to which the power in this Bill will apply, I hope that noble Lords will accept the need for such a power.

An inability to amend existing primary legislation such as the Financial Services and Markets Act 2000 will render it impossible to implement this necessary body of legislation. Further, as noble Lords will be aware, the exercise of many functions under financial services legislation is carried out by the independent regulators—the Financial Conduct Authority and the Bank of England. The capacity and expertise of the financial regulators will be absolutely crucial to the effective implementation of these pieces of legislation and, consequently, to the resilience and prosperity of the financial services sector here in the UK.

The amendment would remove the ability to delegate to the regulators because, as a general rule, a power to make secondary legislation does not include a power to sub-delegate. An inability to effectively delegate powers to the regulators in implementing the legislation contained in this Bill would severely undermine the value of transposing the original legislation into UK law. In many cases, it would effectively render legislation unenforceable, and the Bill would simply not be able to achieve its central goal of ensuring that the UK continues to be an attractive and competitive place to do business in the immediate two-year period post exit, in the unwelcome and unlikely event of a no-deal scenario. Given this context and the context of the previous debate, I invite the noble Lord to consider withdrawing his amendment.

Student Tuition Fees and Maintenance Loans

Debate between Lord Bates and Baroness Kramer

Tuesday 18th December 2018 Lords Chamber

[Lord Bates]

It is not correct to say that student loans are not on the Government’s books. Of course, the national debt does take into account the full cost of student loans—they are listed there. The question at issue, which was addressed by the ONS, was whether the repayment rates should be reflected in the deficit—the total is in the debt but not in the deficit—and it came down on the side of believing that that ought to be recognised in the year in which the loan takes place, rather than waiting until the end of 30 years to figure that out.

We do not mark our own homework on this. We follow the existing rules, as all Governments have done. The ONS has offered a view and made a recommendation, and we will follow that through.

[Baroness Kramer (LD)]

My Lords, what most worries me is the distortion in decision-making that results in this silly game-playing with accounting standards. We saw it with PFI and with Network Rail and now, there is a great fear around the House that the student loan programme might be curtailed to improve the cosmetics of the deficit. Will the Government finally simply overhaul the way they handle the public accounts so that they are genuinely clear and transparent? The financial markets that are supposed to be most fooled by this managing of the deficit number simply deconstruct it so that they can see the underlying reality, so there is nothing to be gained except PR—and the danger of distorted decision-making.

[Lord Bates]

We accept the ONS’s rules. The rules that she criticises are the same as those that were in place during the coalition years. People have pointed this out, and there is a debate about whether it is correct to book a loss that might or might not occur in 30 years in the year in which the loan is made. That is a reasonable debate to have. We do not make the decision; the ONS does. It has decided and we will follow it.

Financial Services (Implementation of Legislation) Bill [HL]

Debate between Lord Bates and Baroness Kramer

2nd reading (Hansard): House of Lords
Tuesday 4th December 2018 Lords Chamber

[Lord Bates]

My Lords, I agree with the noble Lord, Lord Davies: this has been a well-informed debate, representative of the deep expertise in your Lordships’ House, which has been on full display. The areas of agreement were effectively two: recognition of the necessity of preparing for a no-deal scenario, and a united view that we hope never to be in the position of having to exercise the powers in this Bill.

The noble Lord, Lord Sharkey, began our debate by expressing concern about the range of powers, in particular those to include and exclude files. My noble friend Lord Hodgson questioned whether this was a stopgap measure and said that it could not be a substitute for longer-term legislation and a solution in this important area. The noble Baroness, Lady Liddell, having remarked that this is not the most exciting legislation to come before your Lordships’ House, recognised the importance of the financial services industry, to which it relates. She also recognised the role that the United Kingdom has played over many years in the European Union in shaping financial services regulations.

The noble Baroness, Lady Bowles, teed up what will be, if we are fortunate to secure a Second Reading, a Committee stage debate on words such as “implementation”, “proportionality”, “corresponding”, “similar”, “appropriate” and “adjustments”. It will be important to flesh out exactly what is meant by those terms.

My noble friend Lord Leigh talked about the impact of regulations in financial services on small and medium-sized enterprises. He also became perhaps the first Peer to announce in your Lordships’ House his forthcoming listing on AIM. I do not know whether it is appropriate to comment on that, but I wish him well—he is probably getting worried because I wished him well; it was a personal wish.

The noble Baroness, Lady Kramer, talked about the strong role of the financial services in underpinning the fiscal base of the economy, tax revenues and public services. She said it is vital that we retain that strength and continue to exert scrutiny. The noble Lord, Lord Davies, talked about the oft overlooked fact that, when we talk about the financial services, we are talking not just about the City of London but about a national industry, with hugely important centres in Bristol, Leeds and Edinburgh. He also reminded us of the international competitive nature of financial services, and that the UK’s leadership can never be taken for granted but must be earned and restated.

With that, let me move on to some of the points that were raised in the debate. The noble Lord, Lord Sharkey, asked why, if this is so important, other departments are not doing the same, specifically the Department of Health and Social Care. We have already put in place many of the legislative building blocks to deliver our exit from the EU. Since the European Union (Withdrawal) Act received Royal Assent, the Government have started laying statutory instruments to ensure a functioning statute book in all scenarios. Any requirements for further legislation in other areas will be announced in the usual way. I realise that that is not quite the answer that the noble Lord was looking for—or that I anticipated as I began reading out the note. His was a specific question, asking that I speak with colleagues in the Department of Health and Social Care, and I will certainly do that and find out how the particular legislation he referred to might be handled.

The noble Lord, Lord Sharkey, also mentioned the powers to adjust. As the final outcome on these files is still unclear, we need to make sure that we can bring them into UK law in a way that works best for UK markets. This could, for example, include areas where final parts of legislation could, if unchanged in a no-deal scenario, present inconsistencies with the UK regulatory framework, global standards or the UK’s position as an open, global financial market. It is important that we have the power to correct inconsistencies when bringing these into UK law.

The noble Lord then asked why we had chosen some files rather than others. The Bill provides the UK with an interim means to domesticate key EU financial services files that are in the European legislative pipeline. Those are the files that we believe will be the most important for market functioning and UK competitiveness in a no-deal scenario. Those in-flight files not listed on the face of the Bill include those that apply only to eurozone members, which we would never have implemented as a member state, those that the UK has opted out of, and those where there is not a critical need to implement the legislation in the narrow window of time covered in the Bill.

The noble Lord went on to ask what was meant by the word “appropriate”. Once we leave the European Union, we will lose our ability to influence the outcomes of files at a European level—something to which the noble Lord, Lord Davies, and the noble Baroness, Lady Liddell, also referred. As such, we will require the ability to ensure that the files or parts of the files implemented best suit the needs and the structures of the UK financial services market. The power to make appropriate adjustments to legislation is therefore designed to enable the UK Government to ensure that the implemented legislation is the best fit for the UK.

The noble Baroness, Lady Bowles, similarly asked about the power to adjust. The power will only allow the Government to make adjustments to files and not to make entirely new financial services policy not covered within the files. The power will also have to be exercised with the purpose of making similar or corresponding provision to specific lists of files set out in the Bill, so the subject matter of the regulations will naturally be limited. This is simply about ensuring that we implement legislation that is the best fit for the UK.

The noble Lord, Lord Sharkey, asked what was meant by “some criminal offences”. The limitation in the Bill mirrors that in the European Union (Withdrawal) Act. It prohibits the creation of criminal offences for which an adult can be sentenced to a period of more than two years in prison.

The noble Baroness, Lady Liddell, asked about the comparability of low-carbon benchmarks. This is an important issue and I realise that a number of noble Lords have received representations on it. I undertake to look at it specifically and write ahead of Committee.

My noble friend Lord Hodgson asked about the reporting duty of the Government and whether that would include a statement on why a power is used. The report will provide an overview of how the power has been used in the first year and how the Government propose to use the powers in the second year. In the meantime, the Government will undertake extensive engagement and co-operation with key stakeholders throughout the process, ahead of and during each use of the power, and Parliament will have the opportunity to debate every SI under the affirmative procedure. He also asked whether it would be advisable for the Treasury to consult transparently ahead of each use. We agree, which is why, within the policy note accompanying the Bill, we have committed to undertaking extensive engagement and co-operation with key stakeholders throughout the process, ahead of and during each use of the power. In that term “stakeholders”, we very much include Parliament and your Lordships’ House.

The noble Baroness, Lady Bowles, asked whether it would be helpful to change the wording to “corresponding and similar”. This is classic territory for Committee and a well-worked amendment around that will elicit a more in-depth and appropriate response from the Minister at that point. She asked a specific question, which was also referred to by the noble Baroness, Lady Kramer: namely, whether the power could be used to remove the bankers’ bonus cap. While remuneration policies were introduced as part of the EU’s Capital Requirements Directive IV, they are due to be updated through the Capital Requirements Directive V, which is included in the Bill. The Bill allows us to choose not to implement certain files or to implement parts of them. At this point we are not proposing specific policy changes or decisions. Before bringing forward any secondary legislation using the powers in the Bill, we will engage with a wide range of stakeholders, including the financial services sector.

The noble Baroness, Lady Bowles, asked about legislation regarding pension firms. Again, this is something that might best be covered in a letter ahead of Committee. She also asked why we do not just do this through primary legislation in order to get proper parliamentary scrutiny. Given the number of files in question and the potential requirement to implement them at pace to respond to market developments and meet international obligations, it would not be feasible to rely exclusively on primary legislation in every instance. The Bill requires the use of the affirmative resolution procedure for every statutory instrument made. She went on to ask why the Government will not make a full report about concerns and the approach to policy in this Bill. At this point it is very difficult to say which files or parts of files we would seek to implement and whether and what adjustments would be made. This is because we do not know the exact context in which these decisions will be made and what the final versions of many of the files will look like.

My noble friend Lord Leigh asked about the potential negative impacts on, for example, CSDR. We recognise that there are aspects of these files that are currently under development which different parts of the sector may not fully support. The Bill allows us to choose not to implement files, to implement parts of them and to correct deficiencies in them, as well as to make adjustments to ensure that the legislation works best for the UK, subject to appropriate safeguards.

The noble Baroness, Lady Kramer, asked about the so-called Henry VIII powers being used. Of course we understand the concerns around the breadth of powers, and that is why we have included a number of safeguards within the Bill to address them, including explicitly listing the relevant files on the face of the Bill and sunsetting the powers to two years, consistent with the European Union (Withdrawal) Act.

The noble Lord, Lord Davies, asked about adjustments to powers. It would be possible under the terms of the power only to make adjustments to any EU file we would be implementing and not to completely change its intent. This power would allow us to make provisions which are broadly equivalent to the original file and which therefore seek to achieve a similar outcome in a way that best fits the UK. However, it would not be possible for the Government to use this power to implement something completely different from the original file.

Again, I thank noble Lords for their contributions to the debate.

[Baroness Kramer]

This may be extremely petty, so I ask for the compassion of the Minister. However, subsection (9) is completely incomprehensible. Three of us read it and we came up with entirely different conclusions as to what it meant in terms of both the preparation and publication of this report. Is he able to provide clarity now or else to do so by the time we get to the Committee stage? It may not be contentious at all—it is just that it is impossible to work out exactly what it means.

[Lord Bates]

I can understand that. It is a fairly short Bill, but I will undertake to write a more substantial letter between this Second Reading and Committee if it is granted by your Lordships’ House. I will cover and expand further on that point.

We will carefully consider all the points which have been raised in this debate. I thank noble Lords for bringing their expertise and knowledge to bear on this important piece of legislation. I request that the Bill now be given a Second Reading.

Brexit: Bank of England Report

Debate between Lord Bates and Baroness Kramer

Thursday 29th November 2018 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I beg leave to ask the Question of which I have given private notice.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, the Bank of England’s analysis has been produced for the Treasury Committee and Parliament, and it is rightly produced and presented by the Bank independently of government. The analysis shows that under an economic partnership similar to the Government’s deal, there could be an improvement in the economy’s performance for the next five years compared to the Bank’s latest forecast. Over the long term, our economy will remain fundamentally strong. We are confident that the deal we have agreed provides certainty, is the best available for jobs and prosperity and allows us to honour the result of the referendum.

[Baroness Kramer]

My Lords, in its scenario looking at terms closest to the May deal, the Bank of England analysis actually shows that GDP by 2023 will be nearly 4% below the pre-referendum trend—below what it would have been under remain. Will the Government now tell the British people very clearly that their chosen deal leaves the country not just marginally but significantly poorer, less productive and with a smaller economy than remaining in the EU? Will the Government now treat the country fairly and allow the people to vote with this full information at hand?

Brexit: Economic Analysis of Various Scenarios

Debate between Lord Bates and Baroness Kramer

Wednesday 28th November 2018 Lords Chamber

[Lord Bates]

The choice before us is clearly between a deal and no deal. Many people have speculated over the past two and a half years as to what would happen. They said that no agreement would be reached in December and that we would not get the EU (Withdrawal) Act through Parliament. Both those things have happened. Also, crucially, they said that we would not reach a deal this November, which the Prime Minister has secured. It is a good deal for this country, which is being put before Parliament as promised. Also as promised, we are supplying, in a transparent way, the economic analysis of that, included in technical notes, so that the House can come to an informed decision.

[Baroness Kramer (LD)]

My Lords, the Chancellor this morning—I am sure quite inadvertently—suggested in a number of media interviews that the deal being presented to Parliament would offer a level of prosperity only marginally poorer than that of remaining in the EU. Of course, he was reading from the wrong column of his own report. Is he now willing to make the correction and confirm, as the Institute for Government and others have, that the nearest comparison to the proposed deal is the column entitled “Modelled White Paper with 50 per cent NTB”—non-tariff barrier—“sensitivity”, which blows a complete cannonball through that assertion and, indeed, shows that the option on the table is far more damaging even than the EEA or Norway option?

[Lord Bates]

The analysis shows a range of possible outcomes because we do not know, at this stage, what the outcome will be of the negotiations. We have set out a proposal in the White Paper that is backed up by the political declaration, and we want to see that achieved. To help the House and indeed others to prepare for that, we have provided for a whole range of scenarios. That includes sensitivity analysis, which would allow for just the point the noble Baroness has highlighted—about different types of trade outcomes—to be factored in before people come to a conclusion.

Brexit: Economic Effects

Debate between Lord Bates and Baroness Kramer

Wednesday 21st November 2018 Lords Chamber

[Lord Bates]

Yes, I can. The position will be contingent on the outcome of the Council, but if there is agreement there on the proposal put forward in the withdrawal agreement, and also on the crucial element of political declaration on the future partnership, we would expect to produce that analysis and put it in the public domain next week.

[Baroness Kramer (LD)]

My Lords, yesterday the FT City Network—a forum of more than 50 senior city figures—spoke out in favour of a people’s vote. Another wave of City members wrote to the FT today with exactly the same message. The IoD, to its own surprise, found that a survey of its members produced a majority in favour of a people’s vote. Will the Government finally consider a people’s vote? For business, while no deal would be a catastrophe, the proposed May deal is so second-rate that it diminishes them.

[Lord Bates]

Talking to the British Chambers of Commerce, CBI and all the business organisations, I find that the one thing they all want is for a deal to be done. They want certainty. They want to understand where they are so that they can continue to trade and move forward. That is what the Prime Minister has put before us, that is what the Cabinet has agreed, and that is what we hope will be agreed at the European Council next week. That is the best way forward for Britain, and it is the best way forward for business.

Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018

Debate between Lord Bates and Baroness Kramer

Tuesday 6th November 2018 Lords Chamber

[Baroness Kramer]

The point that I was trying to understand is that we have two entities—company Y and subsidiary company Y—dealing with the same customer base, the same transactions and the same business. Is a mechanism included to enable a smooth transfer from one to the other, or do we have a potential hiccup of significance in place?

[Lord Bates]

We are trying to address that through the whole strategy of enhanced equivalence, which seeks to make sure that our regulations that we are introducing here are as compliant and consistent as possible with those that already exist and that we have transposed into UK law from the European Union. So we hope there would not be the potential for the hiccup that the noble Baroness referred to.

The noble Baroness also asked whether we could keep the cross-border payments regulation. The CBPR sets limits on charging for cross-border euro transactions. Were the CBPR to be automatically retained in UK law, it would be inoperable. Applying the CBPR to UK payment service providers making cross-border euro payments to the EEA would place obligations on them which they could not fulfil. These SIs are for a no-deal scenario. They do not prejudge the outcome of any future agreement.

On the safeguarding front, we believe that the most prevalent method used to safeguard funds is for firms to hold them in a segregated account with a credit institution. A significant number of UK firms hold safeguarding accounts in the rest of the EU and they will still be able to do so once this SI comes into force.

The noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe, asked what happens if an EEA passporting payments firm does not apply to enter the temporary permissions regime. Firms should enter the temporary permissions regime which will allow them to continue to carry out their business as before, writing new contracts and servicing existing contracts. This will enable them to obtain UK authorisation and transfer business to a UK entity as necessary.

My noble friend Lord Kirkhope asked about the geographic scope of the SI. It is broadly in line with the geographic scope of SEPA. However, it does not include three existing non-EEA country participants within SEPA: Switzerland, San Marino and Monaco. This is because EU law does not include those three countries and therefore it is not possible to include them in UK law under the EU withdrawal Act.

The noble Baroness, Lady Kramer, and my noble friend Lord Kirkhope asked what the criteria are for participating in SEPA as a non-EEA country. A number of the provisions are here but I will not go into all the detail about the tests. However, for the record and in response to the specific questions, they will cover areas such as the capital requirements directives, the money laundering directives and the Rome convention on the law applicable to contractual obligations. Finally, they must demonstrate that all United Nations Security Council financial sanctions are implemented to the same extent as they are implemented and regulated within the EU itself

My noble friend Lord Kirkhope asked about the justiciability of part 2 statements. Part 2 statements made about these instruments are statutory requirements under the EU withdrawal Act and are intended to assist the House in considering the proposed exercise of the powers under that Act.

The noble Lord, Lord Tunnicliffe, asked what would happen to these SIs for a no-deal scenario in the event of a deal. I think I have covered that. The Government White Paper on the EU withdrawal agreement Bill states that provision may be needed to defer, revoke or amend SIs and that is likely to be included in the withdrawal agreement Bill.

My noble friend Lord Kirkhope asked me to explain the consequences of the sunset clause referred to in paragraph 7.4 of the Explanatory Memorandum. The power in the EU withdrawal Act to fix deficiencies in retained EU law falls away two years after exit day. This was debated during the passage of the Bill—now the Act—but instruments made during that two-year period will remain in force after it ends.

The power to revoke was addressed by my noble friend Lord Kirkhope and the noble Lord, Lord Tunnicliffe. This relates to the credit transfers and direct debits regulations. The entirety of credit transfers and direct debits in euro regulation would be revoked in those circumstances. The relevant articles of the Payment Services Regulations could be revoked via the negative procedure by statutory instruments.

I turn now to the question of the noble Lord, Lord Tunnicliffe, about what will happen if the UK is unsuccessful in its application to SEPA. I mentioned that UK Finance has submitted an application. SEPA enables efficient, low-cost euro payments to be made between participants. In the unlikely event that the UK does not maintain participation in SEPA, UK consumers would face higher transaction costs and longer transaction times when making euro payments. That is why we want these provisions in the event of no deal, but it remains the firm resolve of Her Majesty’s Government to seek a deal so that these no-deal scenario provisions are not required.

The noble Lord, Lord Tunnicliffe, asked about the criteria for participating in SEPA as a non-EEA country. I mentioned the criteria earlier in terms of capital requirements and anti-money laundering et cetera.

The noble Lord then asked about impact assessments. I began by explaining the situation there and where we are coming from. I would just add that we have prepared an impact assessment and hope to publish it shortly.

On the whole, these SIs will reduce significantly the costs to businesses in the event of a no-deal scenario; without them, the legislation would be defective and firms would be left to deal with an unworkable and inconsistent framework that would disrupt their businesses substantially. In making these changes, we have attempted to minimise the disruption to firms and their customers, as well as maintain continuity of service provision. That is the purpose of the SIs. I beg to move.

Green Finance

Debate between Lord Bates and Baroness Kramer

Wednesday 31st October 2018 Lords Chamber

[Lord Bates]

I can see that the Chief Whip is taking note, as many of us were here until the early hours on the Northern Ireland legislation, so I hope my noble friend has not disclosed too much. The point on indices is right; I absolutely agree with that. The very fact that we are having this Question is because indices were produced and people could see where they ranked. The more that people see the data surrounding this, the more they can make informed decisions. That is why it was good that the Bank of England announced a couple of weeks ago that it is going to ask the Prudential Regulation Authority to ask banks and insurance companies to factor the climate into their investment decisions.

[Baroness Kramer (LD)]

My Lords, the Government will be aware from the Ernst & Young report that investment in green projects in the UK is down by nearly 70% this year. Does the Minister believe that that is in any way related to the Government’s decision to sell off the Green Investment Bank, which at one time provided essential seed money and leverage to give these projects lift-off?

[Lord Bates]

The investment going in is substantial. We are a leader in this area. Since 2015, the rate of emissions has fallen faster in this country than in any other G20 country, which we can be proud of. The fact that one in five electric vehicles sold in Europe is manufactured here in the UK is again something that we can be proud of, and we are investing heavily in that. We have a clean growth strategy, and an industrial strategy that has these issues at its heart.

Brexit: Economic Forecasts

Debate between Lord Bates and Baroness Kramer

Wednesday 24th October 2018 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I am tempted to comment on our shocking growth numbers at 1.2% compared with those of the US and the EU, which are close to 6%. The noble Lord is relying on future free trade agreements. I am shocked to learn how low the utilisation of free trade agreements is. The requirements to qualify for zero tariffs under any existing free trade agreement are so heavy in documentation on rules of origin, certification, dealing with royalties and valuation that the overwhelming majority of companies choose to pay the tariff rather than opt for the zero. In some free trade agreements only 10% of qualified transactions opt for the zero tariff because of the costs; at best it is only 60%. Does that not damn the future trading relationships that he describes?

[Lord Bates]

I point out to the noble Baroness that some of the markets in which we are trading most successfully and where growth is increasing are ones that we do not have a formal free trade agreement with and where we operate on WTO terms. But that is not the objective we are setting for the future; we want a good trade agreement with our friends in the European Union and good free trade agreements that we will be able to negotiate with other countries around the world.

Online Marketplaces: VAT Evasion

Debate between Lord Bates and Baroness Kramer

Monday 22nd October 2018 Lords Chamber

[Lord Bates]

There are other ways of approaching the issue, one of which is to crack down on the loopholes. We have introduced successive initiatives and we have spent some £2 billion for HMRC to cut down on evasion. Next April, we will bring in an important measure to address the point made by my noble friend Lord Leigh. It will require that due diligence is carried out on online marketplaces to ensure that people are actually paying the correct amount of tax. Our emphasis and focus is on closing the gap and ensuring that more people pay the tax that is due rather than looking at the rates.

[Baroness Kramer (LD)]

My Lords, despite its expanded powers, HMRC is shockingly poor at collecting VAT from overseas sellers. The number has been 4% of the amount that it is owed, and if I understand the Minister’s numbers, it will not even attempt to get the figure up to 10%. As we go through the Brexit process we run the risk that another 27 countries are going to fall into the same overseas sellers category without the single market and the ECJ to ensure that we can collect VAT from entities that are based elsewhere but selling in the UK. What does he anticipate will be the consequence of that?

[Lord Bates]

We have to recognise that the UK has the largest online marketplace in the EU. We also need to recognise that beyond the EU, this is a global issue. Most of the goods coming in are actually from outside the EU, and that is why the G20 and OECD base erosion and profit shifting initiatives are so important, as well as moving our tax system on to a digital basis so that we can ensure that digital businesses pay the correct amount of tax due.

Prudential Regulation Authority: Equity Release Sector

Debate between Lord Bates and Baroness Kramer

Wednesday 5th September 2018 Lords Chamber

[Lord Bates]

The responsibility for that lies directly with the PRA, the responsible regulator. It is in regular contact with the industry on setting new guidelines. That was already done in 2016. Just before the report, to which the noble Lord referred, was published, a new consultation was published by the PRA on this issue—the effective value test, which was used to calculate an appropriate amount that must be held in capital on the balance sheet to reflect the risks being entered into. That consultation is open until 30 September. There are some proposals, which, if they find support, will be implemented by the end of the year.

[Baroness Kramer (LD)]

Is the Minister sure that the PRA is genuinely on top of this issue? We would all agree that it is essential that sufficient capital is held to deal with the risk inherent in equity release guarantees. When evidence was given to the Treasury Select Committee, in the same Session, in February 2017, Sam Woods, speaking for the Bank of England said that the capital required to be held was in the range of £126 billion. David Belsham, speaking for the then PRC gave the figure as only £80 billion. They were presumably part of virtually the same organisation. Does this suggest that there is some coherent thinking within the regulator and that it fully understands the risks it is facing?

[Lord Bates]

What it reflects better is an issue of pricing, which is a fair debate. The no negative equity guarantee, which is very important to lots of consumers, because they do not want to leave their families with the potential liability, is a key part of the offer. The pricing of that, depending on which measure you take, says either that we assume there will be house price growth over the next 15 to 25 years, or that there will be no growth at all, or that interest rates will accrue at 5% to 6% or at 1% to 2%. The variance that the noble Baroness has identified lies in whether you apply the effective value test at a different point between those two extremes to come up with a different number. The purpose of the consultation paper is to get clarity so that all interests are protected.

Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) (Amendment) Order 2018

Debate between Lord Bates and Baroness Kramer

Wednesday 18th July 2018 Grand Committee

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, in just under five months, the ring-fencing regime will be fully in force. It requires structural separation of core retail banking from investment banking for UK banks with retail deposits of more than £25 billion.

Ring-fencing is one of the key parts of the post-financial crisis reforms and will be important in preserving financial stability in the United Kingdom. It was the central recommendation of the Independent Commission on Banking, chaired by Sir John Vickers, which the Government accepted and legislated for via the Financial Services (Banking Reform) Act 2013. It will support financial stability by insulating retail ring-fenced banks’ core activities, whose continuous provision is essential to the economy—that is, retail and small business deposits and payments services. It will protect them from shocks originating elsewhere in the global financial system.

The continuous provision of core services—namely, retail and small business deposits and payments services—is essential to the economy. Ring-fencing means that banks that provide those essential services become simpler and more resolvable, so core services can keep running even if a ring-fenced bank or its group fails. Details of the regime are set out in secondary legislation passed in 2014. As part of restructuring to comply with the ring-fencing regime, banking groups may be required to move some accounts from one legal entity to another. For example, they may need to move a retail depositor’s account into a new ring-fenced bank. However, some of the holders of those bank accounts are subject to financial sanctions, which prohibit the movement of any funds that the said account holders own, hold or control.

There is a clear conflict between the two regimes. This means that, at present, some banking groups are unable to move accounts held under sanction, which in turn means that they are not compliant with the ring-fencing legislation. The order resolves the otherwise conflicting requirements between the ring-fencing regime and financial sanctions regime by amending the Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order 2014. The order amends the definition of “core deposit” so that accounts whose account holders are or have been subject to financial sanctions—as defined in Section 143(4) of the Policing and Crime Act 2017—at any time in the last six months are no longer included in the definition. This means that banking groups will not be required to move retail accounts whose holders are subject to financial sanctions into ring-fenced banks. They will be outside the scope of the ring-fencing regime. Banking groups will have six months from the removal of sanctions to move retail accounts of those account holders previously subject to sanctions inside the ring-fence. This ensures that the regime remains consistent once the sanctions have been lifted.

The order will ensure that banking groups that cannot otherwise comply fully with the ring-fencing regime due to sanctions legislation are not deemed non-compliant under the ring-fencing legislation. The amendment does not alter the location and height of the ring-fence or the timetable for ring-fencing: banks in scope must be ring-fenced by 1 January 2019 and, together with the Prudential Regulation Authority and the Financial Conduct Authority, we are monitoring their progress closely. I commend the order to the Committee.

[Baroness Kramer (LD)]

My Lords, as a member of the Parliamentary Commission on Banking Standards, I am a very strong advocate of ring-fencing. I am pleased that the process is now well under way. Obviously, I remain vigilant for any opportunity for any person to try to find a way either under or over the ring-fence. Therefore, I would look very carefully at any change or exemption. In this case, the order seems entirely logical and a suitable way in which to deal with the conflict between two good pieces of legislation, finding the simplest path to reconciling them.

I have two simple questions for the Minister. Can he give us some sense of the scale that we are talking about? To be honest, I have little idea of how many accounts are sanctioned at any typical time. I do not know if we are talking about six accounts or 6,000. The reason why I ask is that it makes a difference in monitoring—that is, whether it is a relatively small number or a challenging number. I just have no idea. I do not know if the Minister will be able to throw light on that.

There has also always been a concern, in particular from the sanctions perspective, that people who do bad things—and, typically, if you are going to be sanctioned, you will have been doing something that we think is a bad thing—will look at the opportunity to use aliases, false names and so on to front their various accounts. There is always the possibility that, if those accounts are not recognised as being linked to the individual who is to be sanctioned, they can end up being moved over into the ring-fenced bank. With accounts in two locations, it may become much harder to recognise that they are the accounts of the same individual and ought to be treated in the same way. I am fairly sure that those who are sanctioned will look for any mechanism possible to escape it, but I have no idea if there is a mechanism within all this that provides us with some comfort that we are alert to the use of this particular change as a mechanism that might make life a little easier for those who wish to avoid the sanction that they are due.

[Lord Tunnicliffe (Lab)]

My Lords, I thank the Minister for introducing this order and the noble Baroness, Lady Kramer, for asking at least one of the questions that I had in mind, particularly on scale. I do not have quite the exalted background of the noble Baroness as being a member of the banking commission but, because I failed to duck, I have been involved with this legislation since 2010. I saw it through and feel a certain loyalty to it. When this conflict arises, like the noble Baroness, I want to see that conflict resolved. However, I did think, “Why are they going to spoil this beautiful banking legislation, which I have sought to understand over the past several years? Why can we not change the sanctions legislation?” I decided to try to understand the sanctions legislation to see if there was a way in which it could provide the flexibility rather than the banking legislation. I dived into Section 143(4) of the Policing and Crime Act 2017, but I have to say that, at that point, I hit a brick wall. For the life of me, I could not understand from that how the sanctions regime functions. I hope that the Minister can shed light on how the regime works—or perhaps he will write to me at some point.

To what extent has the alternative way of solving the problem been considered—creating flexibility in the sanctions regime to allow movements across the ring-fence that are required for other legal purposes and hence keep the accounts hosted on the right side of the ring-fence?

Financial Exclusion

Debate between Lord Bates and Baroness Kramer

Wednesday 4th July 2018 Lords Chamber

[Lord Bates]

I am not aware of that particular scheme. Of course, pressure is now being brought forward. One particular body, the Equality Advisory Support Service, oversees how this operates for people with disabilities. It can report and require the Financial Ombudsman or the Financial Conduct Authority to look at these areas and take action. I am happy to look further into the matter raised by the noble Baroness.

[Baroness Kramer (LD)]

My Lords, many small businesses are still part of the cash economy. Where both the banks and the post office are closed, they face a conundrum: they cannot travel long distances during the day to get to facilities so where do they take their cash in the evening? Old banks used to have cash boxes in the wall where they could deposit cash safely. We are creating a serious security problem for many small businesses.

[Lord Bates]

That reason, among others, is why the Government announced in March a review of and consultation on cash and digital payments in the new economy. That is precisely the type of question that is being looked at now as part of that consultation, to which we will bring forward a response in the autumn.

Electronic Presentment of Instruments (Evidence of Payment and Compensation for Loss) Regulations 2018

Debate between Lord Bates and Baroness Kramer

Wednesday 13th June 2018 Lords Chamber

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, payment systems sit at the heart of our economy. They allow money to flow between households and businesses, allowing the prompt and proper exchange of goods and services. The Government are therefore committed to ensuring that the United Kingdom’s payment systems are efficient and meet the needs of end-users, taking advantage of technological developments as they arise.

Cheques continue to form a vital part of the British payments landscape. While there is no denying that there has been a decline in their use over the years, cheques are still important for many smaller charities, voluntary organisations and those members of our society who are often the most vulnerable. In the first quarter of 2018, more than 65 million cheques were cleared, with a value of over £80 billion. That is an average of 1 million cheques cleared per working day.

Before we discuss the new legislation I am presenting to the House today, I shall briefly explain how the current cheque clearing system works. Under the current model, cheques deposited into a bank or building society are transported to their associated processing centre where the essential details are read. Afterwards they are transported to an exchange centre, where the cheques are physically passed to the bank of the customer who originally drew them. Finally, the cheques are taken to the relevant processing centre of the paying bank, which ensures that the cheque is genuine before releasing the funds.

Under that anachronistic process, it takes six weekdays before a cheque fully clears and the recipient can be certain that the money is theirs. That is why Parliament legislated to allow UK banks and building societies to accept the receipt of cheques and similar instruments by electronic image. The new cheque image clearing system cuts down clearing times to the next weekday by sending a digital image of the cheque for clearing. Cheque imaging will also facilitate further innovation in the industry—for example, by enabling customers to pay cheques through their mobile banking app.

The purpose of the legislation under discussion today is to ensure that the electronic clearing of cheques has no detrimental impact on cheque users. It makes provision for two measures to achieve this, which will help to protect customers as the image clearing system rollout intensifies over the second half of the year. The first concerns the use of cheques as evidence of payment. Under the current model, a customer can request a copy of the paper cheque that they drew from their bank. This paper cheque can then be used as evidence of payment. To ensure that this right remains available, the measure ensures that a copy of the cheque, along with some additional information, can be provided to the writer of the cheque upon his or her request, and that this copy has the same evidential value as a paper cheque.

The second measure concerns compensation. In cases of fraud or error, the rules for compensation are set out in scheme rules by the Cheque and Credit Clearing Company. There is, however, no legislation stipulating under what circumstances customers must be compensated, or by whom. To prevent any potential harm for consumers from what is a fundamental change to cheque processing, the Government consider it necessary to legislate to ensure that cheque users are not left out of pocket if they incur a loss.

The second measure therefore provides that, where a customer incurs a loss under the image-clearing system and prescribed conditions are met, including that compensation has not already been received, the bank of the customer receiving the cheque must pay the compensation. Similarly, if the bank of the customer writing the cheque incurs a loss, where prescribed conditions are met, the recipient’s bank must again provide compensation if none has been forthcoming.

The Government believe that the existing industry-led approach works well. Indeed, the optimal solution is that the legislation need never be used as the scheme rules continue effectively to resolve losses from fraud or error. In summary, the Government believe that the legislation is necessary to ensure that customers can continue to trust that their cheque will be valid proof of payment under the new image clearing system and to provide a backstop for compensation. I hope this is helpful to colleagues and I commend the regulations to your Lordships’ House.

[Baroness Kramer (LD)]

My Lords, first, I am delighted to hear the Government reaffirm that there is still a place in our financial lives for cheques. I remember that there was a time when the Treasury was considering their abolition. From looking at countries where cheques have in effect disappeared—talking to relatives in Germany, for example—it became clear that the way in which people compensated for that was to carry a lot more cash and leave a lot more cash at home. Much of that seem to be an invitation to petty thievery and street mugging, by which I do not think that any of us would be terribly charmed, so I am very glad that the Government have restated that today.

I looked through the regulations trying to think of something to say without finding very much. I have bank accounts in the United States, a legacy from my 20 years living there, and many states—I am not sure that it is all of them—already use this system of electronic presentation of instruments, so I have seen it first-hand and have never heard of any particular problems. There is a very good article in the Penn State Journal of Law in December 2015. The one issue it raises is that it is crucial to ensure that the rules minimise any surprises in any conflicting claims between the paper copy and its image. I understand from what the noble Lord, Lord Bates, said, that he feels that that issue is covered. If he can give me that assurance, I am delighted to welcome the regulations.

[Lord Tunnicliffe (Lab)]

My Lords, I, too, have worked my way through the instrument and the accompanying Explanatory Memorandum—I also spoke to James Evans of the Treasury—and feel that I understand it. I have no objection. It would seem a sensible, modern improvement to the system.

In looking around the instrument, I alighted on the fact that it is a further extension of the computer systems which underline modern banking. Reflecting on recent press comment, I started to look at just how many computer problems the banking system had had over recent years. I counted at least four for RBS since 2012, three from HSBC, three in Barclays, three at Lloyds and, of course, the recent TSB event where 1.9 million customers were locked out of their online and mobile services.

As we know, banks have a special role in our society. If they fail, the impact is not a mere difficulty, as it is when any large enterprise fails; it is catastrophic to our society. The Bank of England has put an enormous amount of effort into creating an effective resolution regime which, because I have been in this role since 2010, I have seen all the legislation on. It has a resolution directorate staffed with people ready to move in if there is a problem with a bank to solve it over a weekend. But the problem seems to me to be that, just as a bank cannot be allowed to fail for financial reasons, it is increasingly true that a bank failing because of its technical capability—because of its computer services—would have an equally catastrophic effect on society.

I therefore ask the Minister whether, as we hand further tasks to these ailing computer systems, the regulators have an equivalent regime to ensure that the banks’ computer systems will never fail.

Royal Bank of Scotland

Debate between Lord Bates and Baroness Kramer

Wednesday 13th June 2018 Lords Chamber

[Baroness Kramer]

To ask Her Majesty’s Government what assessment they have made of the impact on the value of the Royal Bank of Scotland shares they hold of the actions of the bank’s global restructuring group inside and outside the United Kingdom.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, the Government do not routinely assess the impact of any single factor on the value of RBS shares, and have not made an assessment of the impact of the actions of the bank’s global restructuring group—GRG—on their value. The board of RBS is responsible for the commercial and operational decisions of the bank, including in relation to GRG.

[Baroness Kramer (LD)]

My Lords, does the Minister accept that the £400 million set aside by RBS is inadequate to compensate the several thousand small businesses that were mistreated and the many viable businesses ruined by RBS’s global restructuring group? International regulators in the US, Australia and across the EU are looking at similar behaviour by various RBS-owned branches or subsidiaries. Given that, should not the Government, in the name of full disclosure, hold back on their sale of RBS shares until the full impact and damage done for compensation and liability is completely disclosed to any new buyer of shares?

[Lord Bates]

The point that the noble Baroness makes is right in terms of this particular focus. The FCA identified that there had been widespread inappropriate treatment of firms by RBS. We know that small and medium-sized enterprises are the backbone of the economy, therefore mistreatment of that type is taken extremely seriously. As the noble Baroness knows, the FCA has an ongoing inquiry, and is currently assessing what enforcement actions may be taken in the future, so I will be restricted in what I can say. The fact that the Royal Bank of Scotland has come forward and issued a profound apology, and has established a fund to start the process of providing compensation to the 12,000 firms affected, is a step in the right direction. However, we deplore the actions taken which led to that being necessary.

Royal Bank of Scotland

Debate between Lord Bates and Baroness Kramer

Tuesday 5th June 2018 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I beg leave to ask a Question of which I have given private notice.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, last night the Government conducted a sale of shares in RBS, restarting the phased return of the bank to full private ownership. The Government sold 925 million shares overnight, raising £2.5 billion for the taxpayer. The transaction represents value for money for the taxpayer. RBS is a smaller, simpler and safer organisation than the one that the Government were forced to recapitalise in 2008, and the sale price reflects that reality.

[Baroness Kramer]

My Lords, why sell now, crystallising a loss that rises to in excess of £3 billion, when financing costs are included, when there is no pressure and when the Government claim to be positive about both RBS and the community? Are the Government concerned that, by acting now, they could be selling shares on an inaccurate prospectus, ignoring growing allegations about liabilities to those abused by RBS’s global restructuring group? We are beginning to hear, both in the UK and now in the US, Australia and across the EU, that those liabilities are inadequately quantified, not declared and not provided for in the accounts.

[Lord Bates]

I thank the noble Baroness for her questions. In response to the first one, it must be remembered that when the Government paid £5.02 per share for RBS in 2008 it was an essential injection of capital at a time of financial crisis. The bank whose shares we sold yesterday is a very different organisation. Its balance sheet is £1.5 trillion less. It is operating in nine countries instead of 38. Because we have changed the rules, its capital buffer is now 15.1%, which is greater than it was and well above the threshold required. The noble Baroness also touches on some other important factors. These had a bearing on UK Government Investments, which advised the Government about when to sell—we act on advice in these things. It pointed to the fact that, because a settlement of £3.6 billion with the Department of Justice in the United States, announced in early May, had now happened, it judged this to be a good time to exercise this sale. The Financial Conduct Authority rightly looked into the global restructuring group, where the circumstances are very concerning for the businesses affected. Its report recognised that a number of that group’s customers had been mistreated.

Creditworthiness Assessment Bill [HL]

Debate between Lord Bates and Baroness Kramer

Committee: 1st sitting (Hansard): House of Lords
Friday 11th May 2018 Lords Chamber

[Lord Bates]

I am very happy to take that back. It is an example of the innovative ideas that we can discuss as alternatives to the measures before us today in terms of legislation. As the noble Lord was speaking, I was thinking of the Libor fines. Those sums were significant —some £600 million or £700 million—but the then Chancellor designated that they would be given to the families of servicemen and the emergency services. There is an example there. My point is that I think there are solutions which would better achieve the effect that the noble Lord, Lord Bird, is rightly trying to achieve.

[Baroness Kramer]

My Lords, the Minister has been very generous with his time. The virtue of the Bill of the noble Lord, Lord Bird, is its sheer simplicity. So often Governments come up with incredibly fragmented, complex and convoluted attempts to solve a problem. The Minister pointed a moment ago to the cap on payday lending. He will remember that the Government resisted that right to the very last, with exactly the same kinds of arguments about fintech, alternative approaches, different ways of dealing with it, cost and trying to crack a nut with a hammer. But they now laud that cap on payday lending. My suspicion is that if they decided to support the Bill brought forward by the noble Lord, Lord Bird, they would very soon be lauding that solution, its simplicity and its universal application.

[Lord Bates]

I hear what the noble Baroness says but, as other Members have pointed out in the debate, there is the risk of some unintended consequences as a result of taking this approach. I have also outlined that we are not dismissing the problem, but are seeking an alternative route to solving it which we believe will be more effective and fairer, and avoid some of those unintended consequences. If that turns out not to be the case, of course we are always open to review our position vis-à-vis proposals such as this, and we will continue to act in that way because our first priority is to protect the most vulnerable and help them make a better future for themselves and their families by getting access to home ownership.

Customs Clearance Arrangements at UK Ports

Debate between Lord Bates and Baroness Kramer

Monday 19th March 2018 Lords Chamber

[Lord Bates]

In response to the first question, what the Secretary of State for Transport described is pretty similar to what I said in the Answer to the Urgent Question about our desiring a frictionless border between ourselves and the European Union and a deep and ongoing partnership. Clearly, “frictionless” has connotations relating to particular checks which could be undertaken at roll-on, roll-off ferry terminals such as Dover, which are important to the economy.

On the second point, the noble Lord invites me to think about whether there are other examples which could be pointed to in this regard. But again, we are looking for something unique, innovative and different. We believe that it is possible; the fact that we are seeing agreement on the implementation period just today shows that it is possible with good will on both sides.

Finally, the noble Lord asked about HMRC and computer systems. That was one of the reasons why the Chancellor announced in his Autumn Budget that a total of £3 billion will be made available and, specifically, that £260 million will be made available to HMRC to prepare itself for the outcome. Therefore the resources are there. To touch on the point the noble Lord made about technology, that is interesting, because it is not as if at the moment the UK does not have any expertise in trading with the rest of the world. It does so quite frequently, and if you go down to Felixstowe or other places, you will see significant amounts of imports that come through and are dealt with in an incredibly efficient and effective way, using technology. We are seeking simply to take that technology and to give it wider usage so that it achieves our objective of a frictionless border that enhances both trade in the EU and for the UK.

[Baroness Kramer (LD)]

My Lords, does the Minister understand that even companies that have obtained trusted trader status—it is expensive—do not use it, because it is so complicated and expensive that they have found that it is not worth while? Secondly, he will know that in the container ports he cites, goods coming long distance are on ships for days and even weeks, which is why trusted trader status can be used in those situations; it takes so long that it cannot be used at an equivalent of Dover, where you have a roll-on, roll-off situation. Does the Minister also recognise that coming through the Dover port, and intermingled with the kinds of operations that could perhaps seek trusted trader status, are vans that have the accumulated goods for 12 small companies, Amazon delivery vans, and so on? The traffic is so completely mixed, and because there is no space at Dover or any capacity to pull out any of the trucks, the mechanism he describes is in effect one of turning a blind eye.

Picking up the Government proposals for dealing with the Irish border, where essentially small businesses, which account for 80% of cross-border traffic, would not be checked, that, again, is the blind-eye strategy. Does the noble Lord understand the implications for smuggling and for abuse of the system of what he is talking about? We already have extensive fuel smuggling at the Irish border and extensive abuse of the VAT tariff differential. He is now creating an opportunity in not just Ireland but at the UK ports, especially the ro-ros, for criminal activity on a scale which this country has fought deeply in the past.

[Lord Bates]

The noble Baroness takes a very pessimistic view of this matter. We believe that we are taking a realistic and optimistic view of the potential agreements. For example, we believe that it is in everybody’s interest to ensure that this process takes place. If we look at the balance of trade between ourselves and the EU, there is a deficit of £96 billion on trade in goods, which suggests that it is very much in the enlightened self-interest of our European friends to ensure that that border is as frictionless as possible so that this trade can take place.

The noble Baroness referred to the situation in Northern Ireland. Of course, there is a difference in duty on certain goods between the two countries, as she alluded to, and they have introduced mechanisms for dealing with that. They have a variety of means of doing so, not just technology. They use some physical checks, particularly to clamp down on the fuel element of that traffic, so I believe that where there is a political will, there is a way. We believe that a will to make this frictionless border happen has been demonstrated, and that is what we are working towards.

National Debt

Debate between Lord Bates and Baroness Kramer

Wednesday 14th March 2018 Lords Chamber

[Lord Bates]

I wonder whether the noble Lord heard last week when we discussed the national infrastructure plan and announced the initiatives that we were taking to boost the housing market—some £43 billion over the spending period. We recognise that housing is a huge issue, not only of intergenerational fairness but also in terms of driving forward the economy. That is why we have announced the very substantial initiatives that we have to get that sector moving, including from the National Productivity Investment Fund, a large chunk of which is dedicated to housing.

[Baroness Kramer (LD)]

My Lords, do the Government recognise that borrowing that arises from excess day-to-day spending and borrowing that arises for investment in infrastructure and other capital projects are two entirely different issues? Any corporation treats them that way and this Government surely should. Would that not allow them to take the borrowing cap off local authorities, which could then invest in the social and affordable housing that no other programme is currently delivering and which would underpin economic growth in future?

[Lord Bates]

I again refer to the Statement, in which the Chancellor announced that in areas of high demand and low affordability local authorities would be given that additional flexibility, which is welcome.

Green Finance

Debate between Lord Bates and Baroness Kramer

Monday 5th March 2018 Lords Chamber

[Lord Bates]

We are thinking about it because there is quite a lot to think about. The issue is, first of all, whether the Government should be launching these bonds while the market itself is growing quite dramatically. Five years ago, there were virtually no green bonds, or a very limited amount, but now their issuance is $160 billion globally, with some $200 billion predicted for this year. That is happening. Secondly, the Debt Management Office would have to look at whether there is a sustainable demand for hypothecated bonds, in this case. It is not something that we have tended to issue, nor have previous Governments—we tend to operate through gilts. Therefore, it is right that we listen to the expert advice that we receive and then act upon it.

[Baroness Kramer (LD)]

My Lords, I encourage the Government to take on board the warnings that Paris and others are surging ahead in this market because of their willingness to establish that base through green sovereign bonds. I suggest to the Minister that ordinary people would like the opportunity to invest in green and sustainable investments. Will the Minister turn to the NS&I and ask it to make available for ordinary people a scheme that would let them invest in some sort of green investment or savings scheme?

[Lord Bates]

The last point in particular is very interesting and it is certainly worth the NS&I looking at it. Again, that comes within the remit of the Green Finance Taskforce. It was asked to look at intuitional barriers to green finance but also at retail. All that is very much in its remit, and we would encourage it to look at those issues.

Sanctions and Anti-Money Laundering Bill [HL]

Debate between Lord Bates and Baroness Kramer

Committee: 3rd sitting (Hansard - continued): House of Lords
Wednesday 6th December 2017 Lords Chamber

[Lord Bates]

I do not accept that all we are doing is describing a problem. We are of course doing that, but we are also highlighting that we are about to formally establish the office for professional body anti-money laundering supervision, which will be responsible for supervising the very professional body of trust companies to which my noble friend was referring. We will have to keep an eye on and watch out for this issue, but we are certainly not complacent about it; we are aware of it and watching it carefully.

[Baroness Kramer]

My Lords, perhaps I heard the same speech that the noble Lord, Lord Naseby, heard, because it seemed to me a speech in which basically all the loopholes were recognised. The argument was that we cannot do anything much about it. We have to co-operate with international regulators regarding companies based overseas with no UK presence that take advantage of Companies House; and regarding companies that go directly to Companies House, never get noticed again but, under the radar, can behave inappropriately. Some of them are entirely legitimate, I am sure, but within that pool there are bound to be some that are behaving very inappropriately.

Having recognised that there is a loophole, I am not vested in one set of answers to how we close it, but it needs to be closed. If the Minister has problems with the drafting or the way various phrases have been laid out, or if there are various other issues, surely all of those can be overcome once there is a decision in principle that this is a loophole and we ought to close it. I hope there is an opportunity for a conversation before Report, because I suspect that this House would be rather uncomfortable with walking away from a Bill like this and leaving a large and acknowledged loophole on the books and in the system. I beg leave to withdraw the amendment.

Sanctions and Anti-Money Laundering Bill [HL]

Debate between Lord Bates and Baroness Kramer

Committee: 3rd sitting (Hansard): House of Lords
Wednesday 6th December 2017 Lords Chamber

[Lord Bates]

My Lords, I thank the noble Baroness, Lady Bowles, for introducing this amendment; she brings her own expertise in this area from her role in the European Parliament. That was evident in the way she went through a very complex issue, and I will come to the response on that.

These amendments propose creating a new corporate criminal offence for the failure to prevent money laundering, and launching a public consultation within six months of this Bill receiving Royal Assent regarding possible further reform of the law relating to corporate liability for money laundering, terrorist financing and offences which pose a threat to the integrity of the international financial system.

I understand and sympathise with the need to ensure that policies are in place which effectively prevent money laundering. However, I hope that the Committee will agree that it is of paramount importance to consider the evidence and current context before creating a new corporate offence, as the noble and learned Lord, Lord Davidson, invited us to do before introducing this element. He referred to the Ministry of Justice call for evidence earlier this year on potential reforms of the law relating to corporate liability for economic crime. Indeed, one of the options considered within that call for evidence was the potential for creating a corporate criminal offence of failure to prevent economic crime. I am sure the Committee can see the overlap with the new offence proposed by Amendment 69B and the provisions of Amendment 69C. The Ministry of Justice is considering the responses to its call for evidence, and will publish a response in the new year.

I should say that the responses to these consultations are like buses: you wait for a few months and then three of them come along together. The other one is of course on our anti-corruption strategy, which the noble Lord, Lord Collins, referred to. I mention it in this context to say that my noble friend Lord Ahmad and I have just been discussing it, and we will seek to provide a substantive update on progress towards the strategy by Report in the new year. Of course, because some of the consultations are outstanding, some of the elements of that strategy may need to wait until they are clarified.

[Baroness Kramer]

Just for clarification, is the Minister saying that before Report he will be publishing the MoJ’s response to its consultation? He said it would be in the new year.

[Lord Bates]

I did say the new year, but I was talking about two different things. That is my fault. The MoJ consultation response will be published in the new year—that is what we have said. Earlier the noble Lord, Lord Collins, asked what had happened to the anti-corruption strategy, which is an overarching approach by the Government. I was saying that after discussing that with my noble friend Lord Ahmad, who leads on these matters—

[Baroness Kramer]

Can I clarify that the MoJ response to the consultation will not be available before the Bill has completed its process through this House?

[Lord Bates]

The new year is the new year. I do not want to prejudge when that response might be. I have said enough, basically; obviously we are trying to respond to noble Lords’ questions on these matters as fully as we can, but that is as far as I am able to go at this point. What I was saying about the anti-corruption strategy was that we will seek to provide a substantive update by Report.

I hope the Committee can agree that it would be precipitous to introduce a further “failure to prevent” offence before we properly review this evidence. Similarly, this call for evidence substantively overlaps with Amendment 69F, proposing a new consultation relating to corporate liability for offences of the type referred to in Clause 41. It is right that we wait for the Ministry of Justice to respond to this call for evidence before undertaking a further public consultation that covers the same ground.

Further, the Government introduced corporate criminal offences of failure to prevent bribery, which the noble Baroness, Lady Bowles, referred to, through the Bribery Act 2010, and failure to prevent the facilitation of UK and foreign tax evasion in September through the Criminal Finances Act 2017. Consideration of the introduction of future “failure to prevent” offences should be informed by how those policies operate in practice. While the Bribery Act 2010 has been in force for a number of years, the relevant provisions of the Criminal Finances Act 2017 were commenced only in September of this year, meaning that as yet there is little evidence on how the offences established through that legislation are operating in practice.

I further note that many instances of corporate failures related to anti-money laundering are already captured by existing anti-money laundering legislation. The 2017 money laundering regulations, for example, already impose requirements to prevent money laundering on companies in the regulated sector, such as banks, lawyers and accountancy firms. Breaches of any of those duties by the company are subject to civil or criminal penalties, including fines. For example, firms are required to put and keep in place specific policies, controls and procedures to manage and mitigate effectively the risks of money laundering to their business, including by their clients or customers.

Those regulations, the previous regulations and related rules are well enforced. For example, the Financial Conduct Authority fined Deutsche Bank £163 million in January this year for failing to maintain an adequate anti-money laundering framework, after its investigations revealed that a UK division of the bank had failed to take reasonable care to establish and maintain an effective anti-money laundering control framework. Further, in 2015 the Financial Conduct Authority fined Barclays Bank £72 million for similar failures in guarding against financial crime, noting that Barclays,

“did not exercise due skill, care and diligence”,

and,

“failed to assess, manage and monitor those risks appropriately”.

These financial penalties substantively demonstrate that effective and proportionate penalties are already applied to UK-regulated firms that fail to put in place proper systems and controls to prevent money laundering.

--- Later in debate ---

[Baroness Kramer]

My Lords, the noble Lord, Lord Patten, may be very interested in the next group of amendments, given the theme that he has just raised. He may have raised it because he cannot remain for that group, but if he has the opportunity, he will get a thorough response to the questions that he has just raised—possibly not from the Government, but certainly from other Benches.

I rise to explain the origin of this particular amendment. This came as a consequence again from the meetings that the Minister very kindly was able to offer to discuss the content of the Bill. The Minister will be aware of how strongly I feel about the importance of keeping the democratic process embedded in creating anti-money laundering legislation by essentially taking those powers that are undertaken by the European Parliament and the Council and transferring them to this Parliament, rather than to government Ministers and executive control. That is the underlying issue that essentially faces this Bill, and we discussed some of that earlier.

When we were in that discussion and proposed something very simple—the text of Amendment 68A, which took the existing 2017 regulations, put them on to the face of the Bill and then said they could be amended only by primary legislation in order to make sure that that democratic process continued—two primary issues were raised with us. First, it was said that sometimes action would need to be fast-tracked. We took care of that, as your Lordships who were here will remember, under Amendment 69A, which provided a fast-track mechanism for those moments of emergency. However, I notice from the Delegated Powers and Regulatory Reform Committee report that, when it probed to try to find examples of those emergencies, the FCO could not come up with a single one, which the committee was not very impressed by. But let us accept that there are times when there are emergencies—and there certainly is a role that FATF plays—so we made a carve-out for that.

The second issue that was raised with us was that it would be impossible to change in the Bill the language of regulations tied to the European Union and convert it over to a UK equivalent—that was almost too impossible for anybody who was sitting there drafting the Bill even to contemplate. The noble Baroness, Lady Bowles, who is a fearsome drafter, very rapidly took pen to paper and drafted an amendment which pretty much does that. She accepts that the amendment may not be absolutely perfect, but she does not have the resources or legal staff that the department has available to do the checks and complete conversions. I believe that this particular transposition took about an hour, and I think that anybody on the government Benches would agree that, in terms of making that shift, the amendment probably does 98% to 99% of what is necessary and is in need of only a little refinement.

The amendment makes it clear to the Government, since such a challenge was thrown down, that there is a very simple way—it is a relatively short new clause—to cover what, apparently, was one of the primary obstacles or difficulties for moving through the primary legislation route. This would leave the policy framework and principles in place as part of a democratic process, rather than requiring that all of those be abandoned and we just go to a regulation process on these very fundamental issues.

As my noble friend has said, these provisions can place great burdens on business and—we will come on to this later—can lead to the creation of criminal offences, with imprisonment for up to two years; can define the defences available against prosecution; can put in place new supervisors and change the powers of those supervisors; and can redefine every other piece of legislation that uses the phrase “terrorist financing”, using sweeping wide powers.

I understand the Government would have loved to have been able to do that in primary legislation but could not see a way through and was therefore forced to try and do this through a regulatory mechanism. This amendment is just one of those examples that makes it clear that it can be done, and I hope the Government will take it seriously.

[Lord Bates]

My Lords, I thank the noble Baroness, Lady Bowles, for doing this. I have to say that I am growing in awe of the noble Baroness and her drafting skills. Should there be any vacancy among the clerks in the Public Bill Office, they will be quite impressed by the notion that the noble Baroness can draw up this technical amendment in one hour—it is very impressive indeed.

My noble friend Lord Patten perhaps did the noble Baroness a disservice by saying that it was a “probing probing amendment”; I think it was a “very probing probing amendment”, which the record should capture. Having read through her handiwork in the drafting, I think she did not do herself justice. The amendment certainly provides a welcome opportunity—which is, I know, its purpose—for us to put on the record some further remarks about how we see this particular issue being addressed.

--- Later in debate ---

[Lord Bates]

That is a good point.

[Baroness Kramer]

Can I just be helpful? I am sure that there will be a better note from the Box, but is the correct phrase “on notice” for the group that falls within the terminology of the grey list? Is that the correct terminology?

[Lord Bates]

That may indeed be a very helpful intervention from the noble Baroness, Lady Kramer. However, for the record, because this is a serious point, the note that I read out may not fully reflect the announcement to which my noble friend has referred. To make sure, I shall seek some additional clarification. The next group is very germane to the issue that he raises in relation to overseas territories. Therefore, perhaps without presuming on my noble friend too much, we may have some further information that will better answer that particular point.

In fact, a note has arrived, and I can say that the list published yesterday relates to tax. The EU maintains a separate list of countries which represent a high risk of money laundering and terrorist financing, to which UK firms must have regard. That may be part of the answer; more will come in the next group, if my noble friend can bear with us.

On the EU withdrawal Bill, which the noble Baronesses, Lady Bowles and Lady Kramer, asked about, Clause 7 is very clear—it is a power to remedy deficiencies in law that arise as a result of the UK leaving the EU, no more and no less. That is a level of certainty which I hope will offer some reassurance to the noble Baroness. We do not intend to make changes to the 2017 regulations other than to make those fixes. The 2017 regulations refer to guidelines issued by the European supervisory authorities. Amendment 69D enables those references to be removed only if they are replaced by references to those issued by the UK supervisory authorities. Those would cause additional work and a risk of duplication with other guidance. So, in response to that, and after what I am sure has been a very helpful debate, if not fully illuminating at this stage, I invite the noble Baroness to withdraw her amendment.

Brexit: Costs

Debate between Lord Bates and Baroness Kramer

Wednesday 29th November 2017 Lords Chamber

[Lord Bates]

I welcome the support that the noble Lord offered to parts of the Statement, but the Government have a specific responsibility, which Parliament has endorsed, not to release information that would undermine our negotiating position. We are in the midst of one of the most complex and important negotiations that this country has ever undertaken in peacetime. It cannot be right that we should have to give a running commentary that will be observed and undermine our negotiating position. We do not want that to happen. At the same time, we are very mindful that we have a duty to keep Parliament informed as far as possible. The position is that we are negotiating the best possible outcome that we can achieve. We have a particular target in relation to the Council meeting taking place in mid-December. We are making every effort and working in a good spirit towards a successful completion of that negotiation.

[Baroness Kramer (LD)]

My Lords, the £50 billion to £55 billion being discussed is the net sum of our unpaid bills and commitments, so will the Minister answer the Question and tell us the costs of Brexit: the cost of a complex new customs system and of replacing 39 regulators; the cost to business of losing “just in time” in trade; the cost to the public of the collapse in sterling; the cost of Christmas dinner, which is up by 20% this year; and the cost of financial services not being able to sell across Europe? Then perhaps we could understand the shape of the Government’s negotiation.

[Lord Bates]

I accept that there are costs, but there are also benefits that will come from Brexit. As for the costs, there is our net contribution of £10 billion a year. We have set aside £3 billion, which the Chancellor announced in the Budget, to prepare government departments and the devolved Administrations for all eventualities and outcomes. This is the right and proper way to implement a decision of the British people.

Paradise Papers

Debate between Lord Bates and Baroness Kramer

Monday 6th November 2017 Lords Chamber

[Lord Bates]

The noble Lord asked what we had done about tax over the past seven years. The Statement mentioned that we have collected £160 billion in compliance revenue since 2010, that the tax paid by the richest 1% is now 28% of the total, which is more than it was under the previous Labour Government, and that we have introduced initiatives such as a diverted profits tax to tackle just the sorts of corporate manoeuvring of tax, revenues and incomes that he talked about. We have introduced the Criminal Finances Act to make it a criminal offence for employees of organisations, be they professional services firms or others, to give advice on avoiding tax. We are at the forefront of the OECD tax initiatives. This Government included in the Finance Bill, which will come before this House on 15 November, a measure to make it no longer possible to have non-dom status in perpetuity—we are ending that position. Therefore, we have done a great deal but we are not complacent. We recognise that there is an issue to be addressed and fairness will be at the heart of all our actions.

[Baroness Kramer (LD)]

My Lords, do the Government not recognise that the ordinary taxpayer hearing again this news today is utterly outraged that if you are rich or a business, you can avoid tax? There are schemes on an industrial scale, which are protected by a lack of transparency. During the passage of the then Criminal Finances Bill, when there was pressure from all over this House for the registers of beneficial ownership in the overseas territories to be made public, why did the Government resist when that would have stripped away secrecy? Why, also, have they brought a Sanctions and Anti-Money Laundering Bill to this House that gives Ministers the power, with virtually no intervention by Parliament at all, to eliminate every anti-money laundering regulation and replace them by highly watered-down versions? Is this the new Britain we are to expect post Brexit?

[Lord Bates]

Of course it is right that the overseas territories and Crown dependencies take the correct approach on this. That is why the common reporting standard I mentioned—which has just come into effect and on which we led the way through the G7 and various initiatives through that—is coming into effect. That means that the Crown dependencies and overseas territories must inform HMRC about any person from the UK who is registered for tax in the UK but has an account in a different jurisdiction—one of a hundred, including all the overseas territories and Crown dependencies. That is just the type of action we need to ensure that people pay the taxes they are due to pay.

South Africa: Money Laundering

Debate between Lord Bates and Baroness Kramer

Thursday 19th October 2017 Lords Chamber

[Lord Bates]

Well it is certainly right—and I pay tribute to my noble friend for raising this issue—that South Africa is a country with incredible resources, not only naturally but in its people. It is the largest economy in the African continent and is the largest investor in the UK and largest trading partner in Africa for the UK. Whenever countries go through political difficulties, as they are in South Africa at the present time, we recognise that there is a long-term important relationship for the UK to maintain.

[Baroness Kramer (LD)]

My Lords, this is another instance where the US regulators have been ahead of the curve of the UK regulators, even though it appears that London is part of the core allegations. It has happened before in money laundering—it was so evident in the LIBOR scandal. Will the Minister once again look at the resources available and the enforcement strength of our regulators? Will he also look again at the whistleblowing laws which, although improved, are still so weak and career ruinous that the regulator does not have access to information that it should be getting at a much earlier stage?

[Lord Bates]

I do not accept that we are behind the curve on this. In many ways, the UK is leading the world: at the G20, in the Financial Action Task Force, and with the regulations that we have put in place and the reform of the Financial Conduct Authority. That is why this year the Financial Conduct Authority handed out one of the toughest fines ever levied—£163 million—to Deutsche Bank for failing to comply with up-to-date money laundering regulations. We are very tough on this, but we realise that you have to be vigilant all the time. Therefore, when issues are drawn to our attention, we respond to them quickly and appropriately.

Financial Services: Regulation

Debate between Lord Bates and Baroness Kramer

Wednesday 6th September 2017 Lords Chamber

[Lord Bates]

It is certainly a time for better regulation; I very much agree with that. There has been a suggestion that the way in which the FCA has conducted these matters has not focused on the areas of greatest risk. One area it has looked at is the small businesses, in particular, that have been affected by the regulation, whereas perhaps, historically, they are at lower risk. That was why the Enterprise Act 2015 required the FCA to look at the proportionality and the cost of regulation, particularly on those small businesses, which I think was the right step forward.

[Baroness Kramer (LD)]

My Lords, does the Minister agree that in fact the FCA is becoming an effective protector and guardian of individual consumers in regard to the financial services industry? Does he also agree that it is time now to consider expanding its remit to small businesses, especially microbusinesses? We do not need a repeat of the abuses that have happened with RBS and HBOS, and an expanded, proactive role for the FCA in this arena would be very much welcomed by small businesses, the backbone of the country.

[Lord Bates]

Those major banks, of course, are covered by the Prudential Regulation Authority, through the Bank, but the FCA has a prudential role as well as its regulatory role. As I mentioned, it is important that we recognise that where regulations apply it is done in a proportionate and appropriate way for consumers and also for the businesses that are being dealt with.

Barnett Formula

Debate between Lord Bates and Baroness Kramer

Thursday 13th July 2017 Lords Chamber

[Lord Bates]

I recognise that—and of course for 40 years there has been an ongoing debate about the Barnett formula. Our response to that, as my noble friend will recognise, is to believe that we should devolve to the devolved Administrations more responsibilities and financial accountability in taxation and how money is spent in the Budget. That is the best way in which to eventually work towards a needs-based rather than population-based formula.

[Baroness Kramer (LD)]

Do the Government understand that this is an issue of trust? While the Barnett formula is not a legal requirement, it is clear to everyone in this House that the additional £1 billion for Northern Ireland is a sort of pork barrel, as they would say in America—a politically induced donation—which ought to fall within that formula if one was keeping to the conventions of Parliament.

[Lord Bates]

It is wrong for the noble Baroness to refer to it in that way. First, the details of the deal have been made very clear and published on the website on 26 June. There have been Written Ministerial Statements about it. As for terming this a donation, I stand by a donation that gives £100 million extra for health and education, £400 million for infrastructure, £50 million for mental health, £100 million for severely deprived areas and £150 million for broadband in one of the most needy parts of the United Kingdom.

Business: Exports

Debate between Lord Bates and Baroness Kramer

Thursday 6th July 2017 Lords Chamber

[Lord Bates]

The noble Lord is absolutely right to point to the tremendous opportunities that are going to open up to the UK in global markets for exporting. We are very mindful of that. We also recognise, of course, that significant investment needs to be made in understanding the complexities of trade. I pay tribute to the work of the Export Institute, of which the noble Lord is a member. The apprenticeship levy is available across the United Kingdom. In England it is for companies to determine how that is spent and offset against budgets; it is for devolved Administrations to determine how it is spent, but I would have thought that any investment in training our young people in the opportunities in trade, in particular, would be money well spent.

[Baroness Kramer (LD)]

My Lords, this House will know that yesterday the EU and Japan agreed a free trade deal. Will the Minister tell us the cost to UK SME exporters and supply chain of exclusion from this deal?

[Lord Bates]

The EU agreed that deal with great support from the United Kingdom. We have made it very clear that we want to replicate such deals and potentially get even better terms for our markets. We have seen a tremendous increase in the value of exports over the past year—up by 5.8%, and up by 34.8% since 2010. We believe that we can do better than that outside the European Union.

Public Sector Pay Cap

Debate between Lord Bates and Baroness Kramer

Wednesday 5th July 2017 Lords Chamber

[Lord Bates]

The answer to the question is yes, but it is not a publicity stunt. These are serious matters that are considered very carefully, as has been the case on many occasions for a long time. Public sector pay is set out in the Budget and that advice is contained in recommendations that are sent to the independent pay review bodies. They make their recommendations and then the Government respond, normally by way of Written Ministerial Statement, as we have done already. The situation in which we find ourselves is one of significant debt. It is worth remembering that the interest that we pay on our debt would cover the NHS pay bill in its entirety each year. These are not therefore inconsiderable matters; we ought to bear them in mind and, at the same time, try to strike the balance between fairness to those public sector workers who do so much in our society and country and having regard for the taxpayers who are paying their salaries.

[Baroness Kramer (LD)]

My Lords, lifting the 1% public sector pay cap has been Liberal Democrat policy since 2015. Does the Minister agree that the pay cap was brought in to prevent losses and deflation at a time of fiscal crisis? It was never intended to be prolonged and to continue into a period of high employment and inflation and, therefore, should be ended.

[Lord Bates]

I seem to remember that when we were in coalition with the noble Baroness’s party, there was in fact a pay freeze for two years, which was then loosened to a 1% cap. We now want to move forward: there needs to be public sector pay restraint but we want to make sure that, through progression pay and other benefits, public sector work is recognised and rewarded.