Fiscal Outlook

Lord Davies of Brixton Excerpts

Thursday 10th September 2026 Lords Chamber

[Lord Davies of Brixton (Lab)]

It is a privilege to take part in this debate. I enjoyed the typically powerful speech from the noble Lord, Lord Bridges of Headley. What I think he got right was his comment that this debate is really about political choices and political beliefs. It will come as no surprise to him that, on this side of the House, we have different beliefs leading to different choices; that is as it should be. I will speak about the triple lock, which on the OBR’s figures is a key element in determining the UK’s fiscal outlook.

I support my party’s commitment to the triple lock up to the next election. The inevitable question is: what follows? A number of noble Lords have mentioned the triple lock, and it was raised several times in last week’s parallel debate. I will not mention them all, but it is clearly a big issue. A number of people simply say that we need to abolish it. I am sorry, but this is facile—that is only a part of the equation, because you also have to say what should replace it. Crucially, we must also discuss the right level of the state pension, because the debate about the triple lock is as much about this as the technical details of the revaluation basis. In my view, these are jobs for the Pensions Commission, and I hope that it will address them in its report early next year.

I favour the triple lock because it is highly effective at protecting pensioners, particularly those on low incomes. I take it people understand the triple lock, but what is often missed is that it does not apply to the whole of the state pension. It applies only to the new state pension and the basic pension. The rest of the state pension is tied to the CPI. It does not, of course, apply to all the other sources of income received by pensioners. The net result for most pensioners is that incomes during receipt, as they get older, do not increase faster than those of the working population. There seems to be an implication that pensions are going up faster because of the triple lock. This is only part of the equation, and most pensioners experience a decline in their income during their retirement. The only people for whom it actually leads to a protection—even an increase, in some cases—are the poorest pensioners. This is because, by definition, their only income is the new state pension or the basic state pension.

Any system of pension uprating serves three distinct objectives, hence the triple lock. First, it allows pensioners to share in rising living standards, which I hope we would all support. Secondly, it protects pensioners against inflation. Last but not least, it protects the Government against difficult political circumstances.

The first two objectives could be achieved through linking pensions solely to earnings or prices. The triple lock, of course, goes further by guaranteeing the most favourable outcome each year. That reduces political risk but increases long-term costs through the ratchet effect. As I have explained, the core argument in favour of the triple lock is that it disproportionately benefits poorer pensioners. It is targeted and then recouped from better-off pensioners through them paying taxation like everyone else. For many low-income retirees, the state pension and related benefits make up the majority of their household income, and a significant minority have no income beyond their state support. It is these people that the triple lock benefits.

The 2.5% minimum increase has raised the most questions. This floor was introduced partly in response to the politically controversial 75p weekly rise in the basic state pension in 2000, which complied with the rules at the time but was widely regarded as inadequate. It still ensures that pensioners receive a meaningful increase even during periods of low inflation and weak wage growth.

The policy has helped bring the state pension close to the level anticipated by the 2005 Pensions Commission, which envisaged it being around 30% of median earnings—the sort of level it is at the moment. Coming back to the focus of this debate, clearly the triple lock’s most significant drawback is that it comes with a fiscal cost. It has increased pension spending more rapidly than was envisaged when it was introduced, particularly because the 2.5% floor has been higher than earnings growth over a number of years. Critics argue that pensioners as a group are now relatively better off, but that is not true of all pensioners: as I explained, there are large numbers of pensioners on low incomes. I agree with my noble friend Lady Alexander of Cleveden that we need a reassessment of the triple lock. What are we going to do after the next election? However, as part of that, we have to recognise the value that it brings to the poorest pensioners.

Financial Services and Markets Bill [HL]

Lord Davies of Brixton Excerpts

Report stage
Monday 7th September 2026 Lords Chamber

[Lord Sharkey (LD)]

My Lords, I will speak to my Amendments 13 to 15 and 99. Clauses 7 and 8 propose radical reform of the relationship between the FOS and the FCA, and of the method of determining complaints to the FOS. These proposals will have a critical effect on consumer protection. They will turn the independent FOS into a subset of the FCA and make successful complaints harder to progress or achieve. Parliament designed and brought the FOS regime into being to provide accessible, no cost procedures for quickly determining complaints. At its heart is the “fair and reasonable” test. This test is abolished by the Bill, despite having been explicitly confirmed in July last year in the memorandum of understanding signed by the FOS and the FCA. The Bill will reduce access to free and impartial redress, introduce additional bureaucracy and costs, and ultimately risk damaging confidence in the financial services industry.

The Government have not supplied any meaningful hard evidence that might justify, or at least explain convincingly, the rationale for these reforms. They say only that the Government’s review found that,

“in a small but significant minority of cases, the FOS has acted as a quasi-regulator”.

They do not say how small or how significant these cases are, or how significance was defined and engaged, and they have completely ignored repeated requests from these Benches to provide a clear description of the problem being addressed and of the necessity for such radical changes.

Three months ago, at Second Reading, I asked for hard evidence. I got none, not even an acknowledgement of the request. I asked again on the first day in Committee, and again had no result. I asked again on the last day in Committee. This time, the then Minister—who is in his seat—apologised for not writing in answer to my questions and promised to get back to me

“as soon as we have that information to hand again”.—[Official Report, 8/7/26; col. GC 161.]

I have heard nothing since. This lack of response displays an almost contemptuous approach to parliamentary scrutiny, and it also makes obvious that the Government are unclear about the existence of any significant problem in the way that the FOS and the FCA operate under their current MoU.

I am grateful to Sarah Pritchard, FCA deputy CEO, for her attempts to persuade the Government to answer our questions in a meaningful way. In her letter to me and my noble friend Lady Kramer of 6 August, she said:

“We recognise that you have consistently sought further evidence from HM Treasury to support the case for reform, particularly the contention that uncertainty in FOS decision making may be constraining innovation. Following our meeting, we have formally re-iterated this request to HM Treasury and highlighted the importance of ensuring parliament has access to the evidence and analysis underpinning these proposals”.


HMT appears to deal with these things even-handedly; it has ignored her as well.

Her letter went on to say:

“One area where legislative change is being proposed concerns the interaction between our rules and the Ombudsman’s ‘fair and reasonable’ test. The aim is to provide greater consistency and alignment between regulatory requirements and complaint outcomes, while preserving the Ombudsman’s discretion to consider the wider circumstances of the case”.


This sounds like the arrangements currently in place under the MoU, but the Bill goes much further in practice. In effect, it reduces the scope of this discretion and reduces the FOS to a subset of the FCA, with the FCA rulebook being the determinator. It is very hard to see that this preserves the independence of the FOS and, of course, independence is desirable.

In evidence given to the Treasury Select Committee on 15 July, Nikhil Rathi said:

“From the FCA’s perspective, we want an independent Financial Ombudsman Service. That is a really important safeguard for your consumers”.


Both Mr Rathi and Mr Alder, the FCA chair, in the same TSC session, went on to express concern about the interaction between the FCA’s interpretation of rules and the FOS’s decision-making. Mr Rathi said that

“with a system where people can try to instrumentalise it so that everything that they disagree with can get pushed to us to try to deal with in 30 days because it is deemed ambiguous, you will gum up the system”.

His chair emphasised the point of this:

“To Nikhil’s point, if we get this wrong, the system will become gummed up … As a result, the main objectives of those changes in the legislation will not be met. It is very important that we get this right”.


This is the very real danger of a requirement for the FCA to respond to a referral from the FOS within 30 days. In the same session, Sarah Pritchard said:

“We have been clear that we want the Financial Ombudsman Service to deliver quickly for consumers. We do not want to turn into a backdoor appeal mechanism. Where there are important matters around the intention of our rules, absolutely we should be there to clarify. We are already taking referrals from the Financial Ombudsman Service that do that”.


The July 2025 MoU between the FOS and the FCA is in operation now. It seems clear that this blueprint has taken into account current and anticipated problems, but it differs radically from the FOS proposals in Clauses 7 and 8, including on the absolutely critical criterion of the FOS making a determination. If the MoU is working and if it is working with, as it says, the fair and reasonable test at its heart, why are the Government proposing to abolish that test and the FOS’s effective independence?

My Amendments 13 and 14 address these issues. Amendment 13 would remove Clause 7, with its referral method and four other pages of prescriptive micromanagement, including a kind of Henry VIII power on page 6. Amendment 14 seeks to restore the “fair and reasonable” test agreed in the MoU.

Consumer groups have noticed the proposed changes in the Bill and many are very strongly opposed. For example, Martin Lewis of Money Saving Expert strongly supports the removal of Clause 7 and the replacement of Clause 8 with the current “fair and reasonable” test. In all, 12 leading consumer organisations have written to us asking for support for Amendments 13, 14 and 15. I will not read out the whole list, but they have agreed a statement that says:

“At a time when the cost-of-living crisis is pushing household budgets to breaking point, the Government should not be altering the fairness test and introducing new bureaucratic hurdles in the very system that provides redress for financial loss”.


Finally, my Amendment 15 would create breathing space to enable a proper evidence-based review to take place, with a report to Parliament on its findings and recommendations. Amendment 15 sets out the proposed independent review process and its scope and timelines. It requires the review to take place not before the second anniversary of signing the MoU and then to report within 12 months. Amendment 99 would simply put the commencement of Clauses 7 and 8 on hold until the review’s report has been laid before Parliament. I beg to move.

[Lord Davies of Brixton (Lab)]

I congratulate the noble Lord, Lord Sharkey, on making a very powerful case for keeping the existing system under which the FOS operates. The problem here, expressed in the considerable representations that we have received from consumer groups, is a lack of clarity about the problem that this is meant to address, coupled with clear concerns about the loss of the fair and reasonable requirement. That is the central point. We have a system that works, in which there is a degree of consumer confidence. The reason for interfering in that system is not clear to the bodies representing consumers, so my Government have to do more to justify these changes.

Interestingly, I had some discussions with the previous Minister, who is now sharing the same Bench as me, and one of the points that came out is that it is quite difficult for the Government to point to cases in which they expect a different result following this change from what was happening before. It would be unreasonable for the Government to pick on individual cases and say, “Those people really should not have had that finding from the ombudsman”, but that is at the heart of what is being proposed here.

Before my noble friend the Minister’s elevation, I discussed this with him at length. He assured me at the time that the impact on the consumer would not be material—that the way that the legislation is worded, in particular the rules that the FCA would have to interpret for the FOS, would embrace the concept of “fair and reasonable”. It would certainly help a great deal in allaying my concerns if those assurances could be given to the House. The Minister probably cannot express it in these terms, but it would help if he could say that these changes are contingent and will be reviewed and judged on their effect. That would allay my continued concerns about what is being proposed here.

Preparing for an Ageing Society (Economic Affairs Committee Report)

Lord Davies of Brixton Excerpts

Friday 4th September 2026 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, I welcome the Economic Affairs Committee report. I was of course a member of the committee, as can be seen. Most Members will know that you do not necessarily agree with everything in a report when you sign off on it but, in fact, on rereading it, I am quite surprised by how much I agree with.

I thank my noble friend Lord Liddle for his introduction, but I must pick him up on something. He twice used the word “crisis” in relation to the challenges of an ageing society. The report specifically did not use “crisis” because, unlike financial and geopolitical shocks, demographic shifts are slow-moving and quantifiable decades in advance. The committee’s own projections run to 2074 and the key trends—falling fertility and rising life expectancy—are already fully visible in the data. That is an advantage. Policy can be phased, rather than improvised, and institutions can adjust incrementally, rather than under duress. There is also a precedent: we absorbed the post-war baby boom generation into education, housing, employment and, eventually, pension systems over several decades. Life expectancy rose substantially across the whole of the 20th century and retirement provision was adapted accordingly, however imperfectly.

I will dodge the issue of triple lock except to say that, somewhat to my surprise, I totally agree with the remarks of the noble Lord, Lord Redwood, who gets it exactly right. We need a proper debate on the triple lock.

The specific levers identified in the report—encouraging workforce participation, addressing the social care shortfall, improving productivity, expanding skills training and tackling misplaced assumptions about age and capability—are policy choices, not fixed constraints. What the report identifies as missing is not the capacity to respond but sustained political attention. There is an absence of a published government strategy or forum for addressing ageing as a standing priority. This is a remedial deficiency. Given the lead times available and a demonstrated historical capacity to absorb comparable transitions, the present challenge of an ageing society is not one without a solution, but one of sequencing and will.

Civil Service Pensions

Lord Davies of Brixton Excerpts

Monday 13th July 2026 Lords Chamber

[Lord Davies of Brixton (Lab)]

I thank my noble friend for the Statement. As she knows, I have been asking questions on this issue for most of this year, so I welcome the attention it is now receiving from the ministerial team and the work they are doing. Of course, the issue of outsourcing and the role of Capita will have to be dealt with, but I am sure my noble friend agrees that the priority now is to get the payments to the people who need them.

I attended the Statement in the House of Commons and listened to MPs repeating stories of the problems faced by the recipients, and I went to the Joint Committee meeting for as long as I could bear it. We all know that there are real human problems here. Of course, it is good that interest is being paid on late payments and that loans are being made. The interest rate is Bank of England plus 1%, but that is the rate paid when the Government pay people money. When the Government claim money from people, they charge a higher rate of interest. My view is that, in these circumstances, the higher rate of interest should be payable by Capita. Perhaps my noble friend could look at that matter and reconsider it.

The more important thing is that, in the Commons, the Minister said in reply to a question that

“members will have the opportunity to ask for other losses to be covered as part of the complaints process”.—[Official Report, Commons, 6/7/26; col. 66.]

We are beyond that stage now. These people deserve compensation for the mental stress and anguish that they have suffered, and we should expect Capita to give them cash compensation for the problems it created.

[Baroness Anderson of Stoke-on-Trent (Lab)]

I thank my noble friend for all his work to raise this and to work so constructively with my colleagues here and at the other end. On the specifics, I heard what he said about the interest payment—that may be a little above my pay grade, but I will raise it with colleagues. I very much appreciate my noble friend’s questions about compensation, but he will appreciate that we are still in the middle of trying to stabilise the pension scheme. I genuinely did not think I would be here saying that; I had hoped that, by this point, we would be well beyond that and Capita would have met its milestone deadlines, but it has not. There are still 429 people waiting on ill health retirement cases, 131 of whom have been waiting for two months, and 618 outstanding death in service cases, with 237 waiting for more than four months, as well as the harrowing stories that we have heard. We need to fix that and then look at what comes next.

Financial Services and Markets Bill [HL]

Lord Davies of Brixton Excerpts

Committee stage
Wednesday 8th July 2026 Grand Committee

[Lord Davies of Brixton (Lab)]

I cannot but support the desire for greater public understanding of financial matters. The noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Holmes of Richmond, have made a powerful case for better understanding, but I am not convinced that they have made the case for it to be focused in the way that they have set out in their amendments, so I look forward to the response from my noble friend the Minister. I want to make two points about these amendments.

The first is that better understanding is not a magic trick. We can be in favour of it but we must never overstate what it can achieve. It certainly does not weaken the case for effective regulation or remove the need for it at all. We need to be clear about that because, sometimes, when the issue is discussed there is a slight—or sometimes more than a slight, perhaps an overt—suggestion that that is what it would achieve.

It is worth my quoting a bit from the interim report from the Second Pensions Commission, which is obviously about pensions but gets to the heart of the matter. It says in its report:

“As with the principles underlying automatic enrolment, the pensions system needs to work in the interests of savers as they enter retirement and protect those who do not, or cannot, engage”.


That is the bottom line: whether people choose to take education or are capable of taking it, they are still entitled to first-class financial services. I am sure everyone here would agree with that, but sometimes it is not front and centre to the way that people think about it.

[Lord Holmes of Richmond (Con)]

Just to be clear, is the noble Lord suggesting that in anything that I have set out—I will not speak for my colleagues—financial education and financial capability would then be used to weaken and have lesser regulation? I do not believe that that is what I said.

[Lord Davies of Brixton (Lab)]

No, I am not for one moment suggesting that. I am saying that, in other discussions, I have heard it said explicitly or by implication. It is a danger and, given what we are trying to achieve, it is one that we should recognise and take account of.

My second point is that both amendments refer to the FCA. The first amendment, from the noble Baroness, Lady Neville-Rolfe, specifically refers to pensions. Let us be clear: the FCA knows little or nothing about pensions. It is the wrong body to undertake any form of public information about pensions. I have heard the discussion on the regulation of pensions and people asking, “Why do we have two regulators?” Well, we do have two: one is the Pensions Regulator and the other is the FCA, but the FCA’s involvement is narrow and we should understand that it is dying. It is going because personal pensions are dead, and the FCA will have little or nothing to do with pensions in the future. The life companies have not quite realised this yet—they are fighting against it—but history will remove them from this market.

Clearly, pensions do not fall within the ambit of the FCA for these purposes. It can provide information about life insurance products and annuities, but those are not pensions. The word “pensions” is wrong in Amendment 167.

[Baroness Kramer (LD)]

My Lords, I suspect that nobody in this Room would not speak out very strongly in favour of financial education and that, in this House, we would be really grateful if there were some capacity for it, particularly in the ever-changing world that we are dealing with today, with all its complexity. I sign up totally to that underlying concept, although I think that the noble Lord, Lord Davies, alighted on an important point. I know that my noble friend Lady Tyler speaks a lot on financial inclusion and always talks about financial education as part of that, but she becomes extremely frustrated when people seem to think that, somehow, financial education is a substitute for the other actions that are needed, such as access to cash or to personal services. The noble Lord is completely right that we want financial education, and it is brilliant if we have good financial education, but that does not take away from the need to make sure that our financial services sector delivers proper, safe, first-class services, appropriately regulated.

Of all the bodies to choose to provide financial education, the FCA would be right at the bottom of my list. This is a body that has so many responsibilities already, and to take on another absolutely massive task—communicating with the ordinary person on the street, among other things—would be way beyond its capacity. It has plenty to do without this. Also, has anybody read letters from the FCA? It does not write human in its general communication. I think this is probably a government responsibility, and to me it makes a whole lot more sense to fund someone—I am picking this out of the blue—such as Citizens Advice, with people who speak with normal people and understand the issues they face and how they face them, if we are going to look for a financial education champion. I am sure people will come up with others.

I want to address Amendment 171 in the name of the noble Lord, Lord Holmes, because it is very important. It would provide a right of action to SMEs for breaches of the FCA handbook. I have from time to time, in this House and even in this series of debates, expressed my very deep frustration with the regulatory perimeter: the consumer protections that the FCA provides are limited to individuals—consumers. It now includes very small micro-businesses, but it does not include small businesses. Bad actors in the industry completely exploit that. We have seen that in example after example of mis-selling, whether back in the days of asset stripping or the mis-selling of derivatives or a play with mini-bonds. That perimeter has been used as a mechanism, because, on the far side of the perimeter, from the FCA perspective, there is not protection: it is entirely caveat emptor. In the complex world of today, where small businesses have to deal with so much and compete on a scale that they never had to if you go back a generation or so, I think it is wrong not to recognise that they will not have the capacity to be able to deal with some of that financial complexity.

I have always been keen on a right of private action; it is a very old and core tradition in British common law. One of my frustrations with the FCA has been that, in a sense, it went down the path of adopting the consumer duty to avoid doing what this House had intended it to do: look for a duty of care—because embedded in a duty of care is a right of private action. The FCA opted for a tick-box approach, rather than the principled approach that lies with a duty of care and the right of an individual citizen to get redress through the court system if they feel they have been damaged. For small businesses to now have a right of private action when they deal with the regulator seems to be an important step forward and a recognition of the reality of the challenges that small businesses face today.

Civil Service Pension Scheme

Lord Davies of Brixton Excerpts

Tuesday 30th June 2026 Lords Chamber

Asked by

[Lord Davies of Brixton]

To ask his Majesty’s Government what further steps they are taking to resolve difficulties being experienced with the administration of the Civil Service Pension Scheme, in particular the failure to pay new pensioners.

[The Parliamentary Secretary, Cabinet Office (Baroness Anderson of Stoke-on-Trent) (Lab)]

My Lords, midnight tonight marks the deadline by which Capita promised a complete return to normal contractual service levels. We will hold Capita’s performance against this important milestone. The Minister for the Cabinet Office intends to provide a comprehensive update in the coming days, once we have fully evaluated the data. We have been consistently clear that we will not hesitate to take firm action for continued underperformance. I will endeavour to repeat any Statement in your Lordships’ House, subject to agreement by the usual channels.

[Lord Davies of Brixton (Lab)]

I thank my noble friend the Minister for her reply. The issue is getting a return to normal service standards, which was hoped to be achieved by June—by today—but clearly it simply has not happened. Many new pensioners are still losing their earnings income and not receiving their pension, leaving them in poverty. It is clearly an important and urgent matter. It is time to reconsider the contractual arrangements, but I hope my noble friend will agree that the important issue now is urgent action to help those facing poverty.

Declining Birth Rates

Lord Davies of Brixton Excerpts

Thursday 4th June 2026 Lords Chamber

[Lord Davies of Brixton (Lab)]

I thank my noble friend Lady Nargund for raising this important issue; it was a good illustration of the expertise that is brought before this House. I recognise the important work that she has done in this area, looking at the barriers to parenthood and the need for family-friendly policies. We need to prioritise long-term thinking, but I want to highlight that falling fertility is also a story about women’s choices. There is a certain symmetry to our debates; the previous debate was about women who want to have children and what we can do to help them, but it is also a choice not to have children.

This is not just a UK issue, of course; we know that the global fertility rate has roughly halved since the 1960s. The standard explanations focus on housing costs, debt, technology and the general pressures of modern life. Those things exist and they are influential, but the evidence is that they are not necessarily the primary explanation. The other explanation is that women now have far greater control over their reproductive lives, and they are exercising it. I do not have the presumption to speak on behalf of women; I simply read the consistent evidence on the pattern of falling fertility.

Fertility decline is not concentrated among women facing the greatest economic pressure. If costs were the main driver, you would expect the sharpest falls among the least well-off. This is not what we see. What cuts across all groups is access to contraception and, equally important, the freedom to use it. The timing of the decline in fertility tracks closely with the expansion of women’s reproductive autonomy, not with any particular economic shock.

Education reinforces this. Better-educated women exercise more choice over how many children they want, when to have them and how many they actually have. It is not that education makes women want to have fewer children, but it is associated with more effective control over that decision. When teenage birth rates fall decade after decade across every country, as they have, that is not young women being unable to afford children; it is a decline in unintended pregnancies. This must be progress, not failure. The conclusion is that much of this decline in fertility simply reflects what women, given genuine choice, actually want. To that extent, it should be welcomed and not seen necessarily as a problem to be solved.

In the time remaining, I will add two further thoughts that bear on this issue. First, the last 100 years demonstrate that human society can deal with massive economic and demographic change. I often ponder what Lloyd George, when he introduced his state pension, would have thought about the possibility of having the current, much better, state pension when circumstances, on the criteria that we are talking about now, have made it massively more difficult. But, of course, we have overcome them over time. It is important that we understand that, while people often say time is a healer, it is also an enabler: it enables us to confront these changes.

Finally, there must come a time, now or in the future, when we say that enough is enough. Growth, whether economic or in the population, is not good in itself; it is what you do with what this world provides that really counts.

Pension Schemes

Lord Davies of Brixton Excerpts

Tuesday 28th April 2026 Lords Chamber

[Lord Davies of Brixton (Lab)]

I thank my noble friend for the Statement from the Commons, which I welcome. Does she recognise that the problem here—we can take the comments from the Opposition with a pinch of salt—comes to a large extent from the system of outsourcing, which is why we welcome the bit in the Labour manifesto at the last election about introducing a large degree of insourcing. We hope that programme will proceed at pace.

Can my noble friend confirm or clarify why Capita retained the Civil Service contract? Members of the scheme are suffering, both those in retirement and those claiming death benefits. They find it incredible that the contract cannot be taken away. Is the problem that, however badly Capita performs, the chaos that would ensue if the contract were taken away abruptly would cause even more problems? Is this an issue with the way these outsourcing contracts work?

Finally, I have a factual question. The Statement states that a large number—I forget exactly what it was—of people are waiting for quotations. Having spoken to the unions and many of the members involved about this, I ask: how many people have received quotations but have not yet actually received their benefits?

National Insurance Contributions (Employer Pensions Contributions) Bill

Lord Davies of Brixton Excerpts

Report stage
Thursday 5th March 2026 Lords Chamber

[Lord Freyberg (CB)]

My Lords, I apologise for not speaking earlier in the Bill’s passage. I have only recently become aware of how its provisions bear on freelance workers in the creative industries, and I hope the House will permit me to raise those concerns across the relevant groups. I declare an interest: I have worked both as a freelance editor on short-term contracts and on payroll, and I understand from personal experience how differently this legislation lands, depending on which side of that line a worker falls.

I support the amendments in this group, in particular Amendments 1 and 17, which would exempt basic-rate taxpayers from the cap, and Amendments 14 and 27, which would index the limit to the national insurance upper earnings limit, rather than fixing it at a flat £2,000.

The creative industries are built on short contracts. A set designer or director of photography may work for three or four different employers in a single year, such as a commercial house, a broadcaster or an independent film company, each engagement lasting weeks rather than months. Many of those workers are basic-rate taxpayers. The Government have consistently justified the Bill as targeting higher earners, yet, as we have heard, these are precisely the workers it will catch. Amendments 1 and 17 would correct that directly.

Amendments 14 and 27 address a related problem. A creative worker with a good year followed by a lean year faces a rigid £2,000 cap that takes no account of natural variation in earnings. Indexing the limit to the upper earnings limit would at least ensure that it kept pace with the economy.

Amendments 12, 26 and 13 would raise the cap to £5,000—or £10,000, as we have heard—which would substantially reduce the problem for those with fluctuating incomes, and I support the principle behind them.

Finally, Amendments 4 and 20 would remove from the optional remuneration rules any pension contributions where no cash alternative was offered. For a freelancer on a standard short-term contract, where the pension arrangement is simply a term of engagement, not a personal tax planning choice, that is a straightforward matter of fairness. I urge the House to support these amendments.

[Lord Davies of Brixton (Lab)]

I want to contribute, by supporting the Government, a bit of sense to this debate. We have heard so much doom and gloom, but what is the reality? What impact are these measures going to have? I am sure my noble friend the Minister will be able to tell us.

The first point to understand is that salary sacrifice for pension contributions really makes no sense. It is a form of regulatory arbitrage. It has never made any sense and it is notable that previous Governments have taken away almost all forms of salary sacrifice on other in-work benefits, without forecasting the end of incentives for working. I have always been against it in principle—I would be happy to see it removed entirely, but possibly that might be politically suicidal—but a £2,000 limit seems an entirely reasonable approach to providing some fair incentive without the opportunity for, in truth, gross inequality. We are told that this measure hits the lower paid and not so much the higher paid, but of course the people who make most use of this are people with enormous bonuses. That is where the money is going and these measures will stop that.

Secondly, it is not an essential element in our current pension system. The key question that none of the previous speakers has addressed is: what is the right level of tax incentive for pension saving? That is a proper debate, and it cannot be answered by saying that more is always better. We have to draw up a fair judgment on where, and how far, tax incentives to encourage people to save for retirement should go. It is obvious that, if you reduce tax incentives, there will be an impact on people’s decisions. One impact that it might have is to encourage them to save more, because, if they have a target pension in mind, they will need to save more money than they did previously.

Thirdly, figures are quoted for the impact on individuals, particularly those under the higher-rate threshold. Well, I have a spreadsheet and I have calculated those figures, and, as I said at Second Reading and in Committee, the effect on basic-rate taxpayers on incomes around and above the median level is marginal. What sorts of figures do you think we are being told are going to have such a shattering effect on the pension system? For someone on median earnings, paying the median contribution rate, it is nothing. Maybe, if you earn a bit more towards the tax threshold, it will be something like £40 a year.

Now, nobody likes paying more tax. I could explain that the reason why there is this demand for more taxes is 14 years of mismanagement by the previous Government, but I will leave that to my noble friend. But it does annoy me that so much emphasis is placed on what is essentially a sideshow to the important questions of pension provision that we are going to have to address.

[Baroness Altmann (Non-Afl)]

As I think the noble Lord knows, I have enormous sympathy with everything he says, and there is a strong case for reforming and improving the incentives for low earners. However, does he not accept that, if you change for the worse the incentives on the people who earn least, for whom it is most difficult to contribute, there is bound to be an effect at the margin, however large or small the difference is? If your pension is giving you lower take-home pay because something you have is being taken away, that can have only negative consequences. Therefore, there are risks in this proposal as it stands.

[Lord Davies of Brixton (Lab)]

I thought I said in my earlier remarks that there will be a marginal effect: I accept that, although we do not actually know what that marginal effect will be. It is all hypothetical at the moment. One thing we do not know from the OBR figures is quite what the reaction will be and how people will adjust their behaviour between now and when this comes in.

I accept the noble Baroness’s point but, as I say, nobody likes paying tax and nobody wants to pay more tax. If you ask people whether they want to pay more tax they say no, but it has to fit in with the Government’s overall financial strategy.

Of course, only some people gain an advantage from salary sacrifice. Many private employers just do not offer it. The number is increasing all the time, which is part of the problem because it is increasing the cost. Nobody in the public sector benefits from salary sacrifice. We can, and will, have an interesting debate about public service pensions, but noble Lords should understand that it is unequal that people in the private sector can take advantage of salary sacrifice but people in the public sector cannot.

[Baroness Kramer (LD)]

My Lords, I thought it might be best to combine standing as a winder and talking for a few moments to the two amendments in this group that are in my name. I start by thanking the noble Baroness, Lady Neville-Rolfe, who made an incredibly powerful speech to introduce the whole series of amendments in this group. I thank her for signing my two amendments, Amendments 12 and 26. Amendment 26 is the Northern Ireland parallel to Amendment 12, so we need not treat it separately. I also thank the noble Lords, Lord Altrincham and Lord Londesborough, for signing my amendments. The noble Lord, Lord de Clifford, would also have signed them had space been permitted on the Marshalled List.

I also talked very extensively, both at Second Reading and in Committee, and I will try to discipline myself not to repeat those comments, particularly because speaker after speaker has so fully described the issues that are at stake. I find myself in complete disagreement with the noble Lord, Lord Davies of Brixton, which does not happen very often, but I think that the Government will recognise that, for a whole series of political leanings around the House, there is very common ground on this issue.

My Amendment 12, as others have described, would lift that limit on salary sacrifice contributions subject to NICs relief to £5,000 a year. I discussed in detail in Committee why I talked to various people and came to that number, but the key point I want to emphasise—others have made it, but let me make it again—is that it would strongly benefit younger people and quite low earners. We are looking primarily at the second decile of earners, who are probably on their first or second pay rise. They are still low earners and still living a life much more akin to that of a student. They are sharing accommodation and do not yet have mortgages, children or families. Many have, very responsibly, with the nudge that is given by this tax relief, been encouraged to start seriously saving for pensions, well in excess of that £2,000 benchmark that the Government propose.

As these people move on in their lives and acquire children and mortgages, their pension savings drop. Those very early savings that then have a chance to accrue over a working lifetime are very significant in the end result to the quality of pension that they receive. That is why we took an approach that we thought would, in a very simple way, enable this group of people to continue with that incredibly positive behaviour.

In this group, I will certainly support the amendments that the noble Baroness, Lady Neville-Rolfe, will choose to move. I want to make particular reference to the amendment from the noble Lord, Lord Leigh, on student loans. It is absolutely essential. The Government have recognised—at least, this is what I understood from the Minister’s responses in Committee and at Second Reading—that the Bill quite unintentionally puts serious additional costs on to graduates. I find it absolutely ridiculous that, having recognised that there is an unintentional impact and that it is problematic, the Government are not correcting it in this Bill. As far as I can understand, they are waiting for some future piece of legislation to make that change.

[Lord Davies of Brixton (Lab)]

May I just press the noble Baroness on the point she made about serious additional costs? Would she care to quantify what those serious additional costs are?

[Baroness Kramer (LD)]

Let me refer back to the example I gave in Committee. The noble Lord will be aware, on that additional contribution, that the graduates are paying the 8% additional in NICs but, on top of that, because it pulls them into scope of having to make repayments at the margin, the impact is 17%. It has a huge impact on graduates who are now just beginning to reach the level where they would have anticipated they would start to repay, and they suddenly hit this really serious spike. I think he has seen the numbers that some of the people have sent to us, and the Chartered Institute of Taxation could help him with those numbers if he wants to look at them. The Government, I think, recognise that problem but my answer is to fix it.

--- Later in debate ---

On the proposed new clause in Amendment 33, which concerns charities, the Minister might recall that I tabled three amendments to the NI Bill to exempt charities, social care homes and hospices. The Government did not accept any of those. Surely the Government want to help charities as much as possible, particularly those, such as hospices, that cannot raise revenue to compensate for any extra costs that this might incur to them. I therefore hope that the Government will consider this very carefully and show some flexibility.

[Lord Davies of Brixton (Lab)]

I have just two points. First, I am perhaps the only person in the House who believes in the National Insurance Fund. I am in favour of the National Insurance Fund in principle. It is a fund into which people pay contributions and accrue entitlement to benefits. I am therefore against a detached look at a very small part of the overall operation of national insurance; that would clearly be a mistake. You have to look at the whole thing together. I am not necessarily against that. I suspect that the Treasury will not be keen but, in principle, it is time for it.

However, my second point is that that makes sense only if we look at the tax treatment of pension schemes, which is the electric third rail of pensions politics. There has been a lot of discussion in the think tanks about the tax treatment, and proposals such as flat rate relief have been made. It is a massive subject—one that it is time to review. For the same principle, it would be wrong to look at this tiny part of the overall structure. I am therefore against the amendments, but the general principle—that the issue needs to be looked at—is a good one.

[Lord Londesborough (CB)]

My Lords, I support Amendment 31 in the name of the noble Baroness, Lady Neville-Rolfe, to which I have added my name. I also add my vocal support for Amendment 32 from the noble Baroness, Lady Kramer, which I should have added my name to but did not. Both amendments concern the impact on SMEs. I am more concerned about the “S” part of that acronym, because medium-sized businesses with payrolls of over 100 staff are a lot better equipped to deal with the provisions of the Bill. I heard the Minister saying that only 10% of this group apply for salary sacrifice, which is a glass-half-empty argument. It is precisely because of that that we should be very concerned about the 90% who are missing out entirely on salary sacrifice.

When we go back to Amendment 31 and look at the impact, the employment data this year for SMEs is utterly dire—on vacancies, payroll and employment, part-time and full-time. I will not go through all the data, but I remind your Lordships that only 10 days ago, the Federation of Small Businesses wrote a letter to the Chancellor of the Exchequer warning that one-third of its members are planning either to shut down their business this year or to reduce their headcount, and that should send a real chill down the spine. I simply do not believe that the Government understand what it is to develop and foster a thriving SME ecosphere, on which, at the bottom of the pyramid, our economic growth utterly depends. I therefore throw my support behind these two amendments.

UK-EU Customs Union

Lord Davies of Brixton Excerpts

Thursday 29th January 2026 Lords Chamber

[Lord Davies of Brixton (Lab)]

The House has seen four brilliant maiden speeches today, and I am sure that in the coming years we will benefit from everyone who has joined us. It is my honour and pleasure to follow my friend, David Pitt-Watson, who has now joined the House as Baron Pitt-Watson. His territorial designation is

“of Kirkland of Glencairn in the County of Dumfriesshire”.

What an asset he will be to the House—what a CV. In his speech, he only touched on what he will bring to our deliberations. This House will welcome, value and learn from his range of experience. Wikipedia has him down as a businessman and a social entrepreneur, but also a Labour councillor and a Labour bureaucrat, blending a life in academia and a life in business—successful, but always with a social purpose in mind.

I will touch on just a few things from my noble friend’s extensive CV: a Pembroke visiting professor at the Judge Business School, Cambridge University; influential books translated into five languages; and a lifetime achievement award last year from the International Corporate Governance Network. The citation for that award states that he is

“one of the most influential pioneers of responsible investment and stewardship. His leadership in creating ventures that advanced governance advocacy and institutional stewardship services set new global standards and inspired market-wide change”.

I am sure that many Members of the House will also welcome the fact that my noble friend is always a Scotsman. Finally, I hope the House will forgive me when I say I particularly welcome David because he is greatly interested in pensions, for that is how we met many years ago. He is not just interested but a tenacious and ultimately successful thought leader, and one of the leading advocates of a new type of pension provision, collective defined contribution schemes—CDCs. This will be of increasing importance in our development of better pensions.

Moving on, I look forward to the valedictory statement from the noble Lord, Lord Offord. It will be interesting, if not necessarily in line with what I believe.

On the subject of the debate, I want to make just one crucial point. I hope that everyone has now read or, better, watched Prime Minister Carney’s brilliant and important speech that sets in my mind the context for this debate. There is a new international political geometry. First, it is clear now that size matters; economic power, soft power and military power will also be increasingly important. Secondly, the delusion of “take back control” has been exposed for us all to see. Thirdly, we can no longer rely on the United States. We will always be friends—culture and language will always bring us together—but it will be that friend that we know we cannot rely on any more.

The inevitable conclusion of this, given our broad political and cultural affinities to Europe and the simple fact of geography, is that we have to work out a new relationship with Europe. Brexit has been a disaster. Let us talk seriously about how to proceed rather than being swept along by events.