Parliamentary Democracy and Standards in Public Life

Lord Davies of Brixton Excerpts

Thursday 11th January 2024 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, we must thank the noble Baroness, Lady Featherstone, for introducing what has become an interesting debate. I agree with much, although not quite all, of what has been said. I will simply express my concern about the trend towards plutocracy, the rule by the richest in our society, and the overweening power of money and capital in relation to our parliamentary democracy.

The undue influence of well-funded special interests can distort policy-making and compromise the public interest. The only answer to this is greater exposure and more openness. We need regulations and transparency to curb the corrosive impact of money on our democratic institutions. We need to be concerned about the pervasive impact of those who have the financial resources to influence policy-making. We all see it in this building: the people who have the time and resources to influence policy are those with money. It is a simple equation. We need to be concerned about corporate lobbying, special interest groups, campaign financing, the revolving door phenomenon and the wealth gap’s influence on policy-making. These elements collectively undermine democratic principles, causing real concern about fairness, transparency and public trust.

A particular concern worth mentioning is the funding of so-called think tanks. I pay tribute to the work of openDemocracy and its “Who Funds You?” exercise, which looks at who pays for these people popping up on our television screens and opining about this, that and the other. It is a crucial issue—who funds them? There is a simple answer. We do not know where the money of right-wing think tanks comes from. I could list a whole group of them, such as the Adam Smith Institute and the TaxPayers’ Alliance. They do not tell us who funds them, so we have to draw our own conclusions—it is the power of big money. The answer to this is greater openness and disclosure.

Health and Care Bill

Lord Davies of Brixton Excerpts

Lords Hansard - Part 2 & Committee stage
Tuesday 11th January 2022 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, I shall speak to my Amendment 21, and I support the other amendments in this group. Before I reach the meat of my remarks, it seems a long time ago, but two hours ago we were discussing mental health. I did not intervene in that debate, although the issue is very close to my heart. I totally support everything that was said in that debate, but I was gearing myself up for this contribution, not knowing that I would have a two-hour interlude.

This Bill in general is not the answer to the immediate and long-term crisis in the NHS and social care sector, but the particular concern I raise through my amendment is the widespread fear that the new arrangements being proposed will lead to the growth of the private provision of healthcare, with multi-million-pound private sector service contracts leading to the loss of the public service ethos of the NHS. I have no doubt that the Minister is well aware of these concerns. It is no secret; they have been widely discussed in the columns of the national press and professional journals. For example, Jan Shortt, the general secretary of the National Pensioners Convention, has said:

“This Bill truly represents a creeping backdoor privatisation of health care services, which despite government claims, will badly impact on the patient care across the UK.”


So I do not think that there is any question that these concerns exist.

The Government have promised that there are no plans to privatise the National Health Service, but that is quite different and distinct from the privatisation of healthcare services, shown specifically, or most starkly, by the increasing number of US-owned private companies which already provide them for the NHS and obviously seek an expanded share of the market. It is worth noting the not sufficiently reported or commented on fact that the Chancellor of the Exchequer, Rishi Sunak, was unable to attend a meeting with our hard-pressed services sector because he was busy in discussion—according to a report in the Financial Times—with US healthcare providers when he was in California recently. The Government should not insult us by suggesting that there is not an issue here of the growth in the provision of healthcare by commercial interests.

Even with the amendments to limit private companies being represented on integrated care boards, there is absolutely nothing here to stop private companies playing a part in other ways—for instance, clearly at the sub-system level via place-based partnerships and provider collaboratives. There is this whole word salad of different ways of describing these organisations operating at that level below, for or with the integrated care boards in providing services. This is the Trojan horse that will bring private provision within the walls of our publicly provided NHS.

NHS England states clearly in guidance:

“Independent sector providers can be members of a provider collaborative, but the extent of their participation may depend on the specific form and governance arrangements and the nature of a particular decision being taken by the collaborative.”


Dig through these words and they mean that we just do not know what arrangements will actually be established in this new world of provision. Guidance from NHS England also states:

“The Health and Care Bill, if enacted, will enable ICBs to delegate functions to providers including, for example, devolving budgets to provider collaboratives.”


It is this uncertain nature of the exact administrative arrangements that will apply under the new scheme that leads to the level of concern. As place-based partnerships and provider collaboratives are allowed to include private companies, the Government’s rhetoric about protecting the independence of ICBs is hollow. For all the talk from the Minister in the House of Commons of recognising that

“the involvement of the private sector, in all its forms, in ICBs is a matter of significant concern to Members in the House”—[Official Report, Commons, Health and Care Bill Committee, 14/9/21; col. 258.]

the Government have not taken the action needed to stop private companies exerting excessive influence in decision-making in the health service.

The defence against such developments will be in the hands of the ICBs, hence the concerns expressed today about their membership. This is the Minister’s opportunity to assure me, your Lordships and the many bodies outside this House which have expressed concerns that our concerns are misplaced. Simply dismissing them will not work. I note the remarks of my noble friend and maybe my amendment is not the best way of achieving my objective of getting the Government to put boundaries on commercial development within the health service, but I hope that the point of principle will be addressed and will not hide behind the limitations of my amendment.

[Lord Lansley (Con)]

My Lords, I would like to intervene on this group, in particular to support Amendment 19. I am grateful to the noble Lord, Lord Sharkey, and the noble Baroness, Lady Wheeler, for tabling it. As the noble Lord said, it gives us an opportunity to probe the arrangements for the commissioning of specialised services in the future. I hope my noble friend will be able to clarify that tonight and perhaps add further clarity as we go on.

I want to talk about this because I remember that a decade or more ago, even though the NHS was a single organisation with a single responsibility for specialised commissioning, most of this was in fact delegated to strategic health authorities. My experience was that, with the separate budgetary responsibilities of strategic health authorities and their ability to commission those services themselves, we ended up with considerable disparities and inconsistencies in the commissioning of specialised services. We know this must be the case because, after NHS England took over the responsibility in 2013, one of its most challenging tasks, not least in financial terms, was to secure a common specification and common service standards. The objective was of course not to level down, but level up, in the finest traditions of the present Government, and that levelling up was expensive. As we will all discover as time goes on, levelling up is expensive by nature. It was challenging to NHS England at a point when resources were highly constrained.

That having been achieved, we are all very clear that we do not want to go back to the bad old days but—I thought the noble Lord, Lord Sharkey, was very fair about this—there is a counterargument. Many patients, even if they have a less common condition, actually receive much of their healthcare locally, from local providers through local commissioning arrangements. They need to be integrated, and things such as access to chemotherapy for common cancers or diagnostics through the community diagnostic centres, as they are created, may be more appropriately commissioned for those patients by a local integrated care board rather than NHS England directly.

However, as the noble Lord, Lord Sharkey, referred to, there is the principle of setting commissioning at appropriate population levels. As I know from experience, the NHS can consume endless time and energy trying to work out the geography of these things and what population is right for what purpose. If nothing else, even if they multiply the tiers from place-based to ICSs to regional teams to NHS England, the present arrangements at least give specialised services a chance to be commissioned and led at an appropriate population level. For many specialised services, that is not at the level of an integrated care board, as the population may be too small for them.

We know that highly specialised services will be retained by NHS England. If some services that need to be integrated locally, for the benefit of patients, are with the ICSs, there is none the less a question, about which we need to hear more, on the extent to which NHS England will manage the commissioning by using regional teams to try to maintain national specifications and service standards through their own responsibilities.

An opportunity that has not been referred to and is not in the Bill, but may be useful in practice, is to learn from the experience and, I hope, capability of the specialised commissioning team at NHS England and have a specialised commissioning support unit. It could stand behind the regional teams or even the ICSs, if appropriate, to help them have the capability to commission effectively. Amendment 19 asks the right question: this responsibility should not be delegated to individual integrated care boards unless NHS England is clear that the capability subsists at that level. We have to accept at the start that it probably does not.

I referred earlier to outcomes which, for providers in the NHS, are often at their highest in specialist hospitals. We have a dozen or more specialist hospitals, of which the majority of services—up to 80% in one or more cases—are commissioned as specialised services. We want them to have a more coherent structure of commission; we do not want them to have dozens of contracts with integrated care boards, all over the country. I hope that NHS England, in the regime that puts commissioners and providers close to one another, at least looks out for specialist hospitals and says, “We should have a lead commissioner of these services”. It may well be that the lead commissioner is in NHS England and sets up the contract there.

My final point is on the very reasonable question asked by the noble Lord, Lord Sharkey, about budgets. Why were strategic health authorities differentiating in the way they did? Their budgets forced them into different decisions in different places and, over time, that increased the degree of divergence and inconsistency. The same will happen with ICSs, unless some very clear countermeasures are taken. They could be ring-fenced budgets or some other such mechanism, but the budgets might have to be held not locally but centrally, even if some of the functions are delegated more locally. We have to be aware that, when you start to shift and delegate budgets, it is very hard then to maintain national service standards. That should be done only when it is very clear that the safeguards are in place. I hope we can use the debates on the Bill as a mechanism to give those who rely on specialist services and the providers of them greater clarity and assurance about how they will go about that in the future.

House of Lords: Governance

Lord Davies of Brixton Excerpts

Wednesday 8th December 2021 Grand Committee

[Lord Davies of Brixton (Lab)]

My Lords, I share the previous speaker’s nervousness, faced with, as we were told, the stars of this House; I feel that I am a minor asteroid, perhaps. I put my name down on the list because I wanted to listen and perhaps ask an occasional question. One thing I have learned is that, if you come to a debate, it is a good idea to put your name down, just in case. That will not prevent me making some points.

Obviously, I am a newcomer—I have been here just over a year. In some ways, perhaps that is an advantage, because I see the House in a different light. The governance of the House is certainly a mystery to me. One problem is that it lies between different words—governance, management, administration—without us being clear as to how the terms differ and what exactly each of them means.

However, I have had the advantage of serving on the Finance Committee for a year, which provides an overall insight into the work of the House; I hope that I have gained something from that. I have also read the useful Library paper; it tells us interesting things and is also interesting for what it does not tell us—I will come to that in a minute. I would be particularly interested to hear whether noble Lords have views on where the Library paper has got it wrong.

I have three specific points to make. First, I am still puzzled by the role and functions of the Chief Operating Officer. I wonder whether there is any news on the appointment. It is notoriously difficult to insert a new post into an established structure because the existing postholders all have their interests and power relationships. Someone coming in, potentially from outside, will always be difficult. It is perhaps literally our own version of “Game of Thrones”, since we have thrones—that is a little joke.

What I have never really understood—perhaps it has never been spelled out sufficiently—is why having this role is a clear criticism of how things were before. I am not aware of anywhere where those criticisms are clearly set out. It would be useful to know what they are. It is also worth noting that the Chief Operating Officer will have the title of “deputy”. To me, that means a role that is equivalent to that of the chief. If someone is a deputy, they are not an assistant or another executive; they are someone who stands in for the chief. When you give someone that title, that is what you mean.

Secondly—and this point is missing from the Library briefing, so perhaps people could expand on it—there is hardly any reference to the usual channels. In truth, one suspects that much of the governance is undertaken through the usual channels, but those of us who are new or somewhat distant do not really get a look in. Decisions are taken but it is never entirely clear where they were taken and who took them.

Thirdly—I have plenty of time—we are told in the Library briefing that there are approximately 670 staff. They provide us with a significant reservoir of knowledge and experience but, judging from the Library briefing, they hardly exist. There is very little reference to the contribution that staff can make to the governance of the House, let alone any reference to the potential role that the trade unions that represent them could play. Perhaps the Senior Deputy Speaker could tell us a bit more about whether their absence from these discussions is an accurate reflection of their absence from any involvement in governance, or whether there is some hidden involvement.

There are two levels to the involvement of staff. In any organisation, managers and senior managers will be reluctant to distribute power to other levels within the organisation. But in a representative organisation where there are members being served, there is immense pressure on senior executives to be the sole channel of communication with the members; they will always want to be the sole means by which the staff express views to the members. I have experienced it in local government and in the trade union movement. I think that it is inevitable but, as Members here, does that serve us well? That is no criticism of the senior staff, but maybe there are ways of opening up channels of communication greater than just with the senior officials.

To conclude, I think that, generally, what we fail to achieve in the information that has been given to us is a distinction between the formal structure of administration and the shadow structure—how things are really run. The first remains a bit of a mystery but has become a bit clearer with these discussions; the second is still totally opaque.

Procedure and Privileges

Lord Davies of Brixton Excerpts

Tuesday 13th July 2021 Lords Chamber

[Lord Davies of Brixton (Lab) [V]]

My Lords, first, I support the amendment in the name of my noble friend Lord Adonis. I am also in favour of speakers’ lists for Questions, having discussed the matter with noble friends who have more experience than me. However, there are two other matters I want to raise: allowances and ballots for Oral Questions.

The issue of allowances is clearly germane to this debate. Whatever your view of remote participation and its effect on the work of the House, it has been of benefit by facilitating the participation of those who live some distance outside London. The return to the physical House will mean a big change for them, not least in the additional costs for accommodation that they will now have to bear. The unfortunate but inevitable effect is that it will limit their participation. The conclusion I draw, as argued forcefully by my noble friends Lord McConnell and Lord Elder, is that the current system of allowances needs to change to maintain the wider geographical participation that I am sure we all want to see. As someone who lives within walking distance of the House—or a short trip using my freedom pass —I have no personal interest in any change. I know nothing of how the present system is arrived at, although I appreciate the sensitivity of the issue. But, as a newcomer, it looks manifestly unfair. The return to physical sittings is the appropriate time for it to be reviewed. I am unclear whose responsibility this is, but I ask that the matter be given some genuine thought.

Then there is the issue of ballots for Oral Questions. I will focus on ballots for Oral Questions, but my remarks apply to all ballots. I am in favour of ballots rather than queues, but I suggest that the system of ballots needs to be improved. Virtually all the Members I have spoken to about the ballot system believe that they are discriminated against, even though the system is properly random. They feel that their Questions never get chosen, while others’ get chosen many times. This is inevitably determined in large part by how many Questions you ask, but the truth is that you can be randomly discriminated against. Luck may simply not be on your side. My suggestion is that in place of the present system, which is random selection with replacement, we move to random selection without replacement—at least for a specified period. In other words, those who get selected in one ballot will have less chance of being selected in those that follow. There are a number of ways by which this could be achieved, but at this stage I simply want the principle to be given some consideration.

Financial Services Bill

Lord Davies of Brixton Excerpts

Report stage
Wednesday 24th March 2021 Lords Chamber

Although financial regulation, supervisory processes and oversight have been worked through on previous occasions, they do not yet work or are not yet being worked so as to keep things up to scratch. Having regular, independent reviews can fill that gap and have a place within the future regulatory framework. I beg to move.

[Lord Davies of Brixton (Lab) [V]]

My Lords, the issue I want to highlight, as I did at earlier stages, is how to make regulators more accountable, given the well-established phenomenon of regulatory capture. Regulatory capture is where an industry regulator like the FCA and the other bodies mentioned in the amendment comes to be dominated by the industry that it is charged with regulating. The result is that the agency, which is meant to act in the public interest, works instead in ways that benefit the industry.

I do not think that there is any doubt that this happens, and the question is: what do we do about it? The important point to understand is that this does not happen because of inadequate, ineffective or corrupt individuals—rather, it happens because it is systemic. It is an institutional rather than an individual problem. There are various reasons for why it happens. First, a regulated industry has a keen and immediate interest in influencing the regulator, whereas customers are less motivated. They have normal lives to lead and they engage with the industry only for brief periods. However, participants in the industry are there all the time. Secondly, industries tend to devote large budgets to influencing the regulator, which inevitably has an impact. Lastly, there is the aspect of the whole industry community. People tend to move from the regulator to the industry and back to the regulator. That is bound to have some impact on the personal relationships that are established.

There is therefore no question that the phenomenon exists. How bad it gets and what we do about it is what we need to address. The first step is to acknowledge the problem and to recognise and address the challenge. The next step is to make the regulators as accountable as possible, which poses the question: who regulates the regulators? There are many ways to do that but we have before us in Amendment 2 a proposal for a periodic, independent review of the regulators.

What I have in mind is something akin to a school inspection, which does not happen because a school has demonstrated problems but is just part and parcel of a regular process that focuses the minds of all those involved. At the moment, regulating the regulators is effectively left to the Government whenever they care to turn their minds to the issue. The problem is that Governments have many other things to think about and the result is that addressing the problem tends to happen only after it has arisen. The public become aware that there is some deficiency in the regulator and therefore action has to be taken. How much better it would be to pose questions as to how the system can be improved before we encounter the problems. That happens only under a regular, independent review, as proposed under the terms of the amendment.

[Baroness Noakes (Con)]

My Lords, this is the first time that I have spoken on the Bill on Report and I draw the attention of the House to my interests as set out in the register—in particular, shares that I hold in listed financial services companies.

I have considerable sympathy for the amendment because the financial regulators are not very accountable. At the moment, there are set-piece appearances before the Treasury Select Committee in the other place and occasional appearances before committees of your Lordships’ House but these do not amount to a systematic and comprehensive examination. The Government often rely on the fact that annual reports are laid before Parliament but the annual reports of regulators get no more attention paid to them than the annual reports of companies. With rare exceptions, they provide few insights of value. By their very nature, annual reports accentuate the positive and shy away from the negative.

The problem of the accountability of regulators is not confined to financial services regulators. I could say much the same about Ofcom, Ofgem and other regulators, but we cannot solve the problems of the world in this Bill. The accountability of the PRA and the FCA is covered in the future regulatory framework, the consultation that has recently been completed. We discussed this a little on our first day in Committee and I hope that my noble friend the Minister will provide some information on the next steps when he responds to the amendment. The consultation closed over a month ago and the Treasury must have some idea on what it will be doing next and when.

If the outcome of that review, so far as accountability is concerned, is a well-developed form of parliamentary scrutiny, either jointly between both Houses of Parliament or within each House, the need for an independent review clause such as that contained in Amendment 2 would recede. Parliamentary committees can look at issues in depth but only if they are properly focused and well resourced. On that basis, the noble Baroness, Lady Bowles of Berkhamsted, might want to await the legislation implementing the outcome of that review rather than tackle the issue in this legislation, because action could be set in a broader, more holistic context regarding how the regulators will operate overall in due course.

If the noble Baroness, Lady Bowles, wishes to pursue her amendment—I thought I heard her say that it was more of a probing amendment for today—it would be wise to look again at its drafting because it calls for one review covering four regulators, but they are all different in what they do and how they do it. I am not convinced that there would be sufficient focus if one review tried to cover all the regulators—the two major ones and the two smaller units with regulatory responsibilities, one in the Bank of England and the other being the Payment Systems Regulator in the FCA.

In addition, I, like the ABI, wonder whether a review every two or three years is too frequent for the kind of in-depth review that the noble Baroness, Lady Bowles, has in mind. A rolling series of reviews, perhaps carried out over five years but concentrating on individual regulators, would provide more information of value to those seeking to hold them to account. However, the noble Baroness, Lady Bowles, has the right ideas in the amendment, although it may not be right for this Bill.

--- Later in debate ---

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

My Lords, it is a pleasure to follow the noble Lord, Lord Stevenson of Balmacara, and I offer my thanks for his support for the concept of Amendment 12, to which I shall speak. It appears in my name and is kindly supported by the noble Lord, Lord Sikka, and the right reverend Prelate the Bishop of St Albans.

Amendment 12 seeks to secure a discounting of debt for people entering proposed statutory debt repayment plans—something that the noble Lord, Lord Stevenson, noted has already occurred in Scotland. I set out in Committee that that is a large group of people with incomes above those eligible for debt relief orders, but with assets and income generally below those covered by voluntary agreements on bankruptcy. All those other agreements operate in ways that can result in debt being cleared in a relatively short period, much shorter than those to be covered by statutory debt repayment plans. I will not repeat all that detail again.

However, this amendment represents a development of an amendment presented in Committee to secure a fair debt write-down in respect of debts sold on the secondary market. For that initial amendment and this amended one, I pay tribute to the large amount of work done by the Centre for Responsible Credit, from which noble Lords will have received a briefing. While a strong argument exists to support this proposal, entirely legitimate concerns were raised in the debate that the impact of such a move on the operation of the secondary market would need to be properly considered. The noble Lord, Lord True, also raised a concern about the need for equitable treatment of debtors in the scheme. Taking those concerns on board, this new amendment, rather than being prescriptive, is permissive in nature and seeks to ensure that discounts on debt are secured, where appropriate, with the full agreement of creditors.

Amendment 12 recognises that many creditors listed on debt repayment plans, regardless of whether the debt originated with them or they bought it on the secondary market, will often prefer to receive a lump sum as full and final payment as opposed to low levels of instalments spread out over many years. As a result, many creditors already offer a significant discount on the total level of debt if a lump-sum settlement can be made. While the StepChange debt charity has a dedicated team to provide advice to debtors concerning possible full and final settlements, not all debt management plan providers do so. There arises a potential conflict of interest, as SDRP providers are likely to be reimbursed on a percentage basis of the total debt collected. Securing discounts for big debtors would reduce their revenues.

This amendment would therefore ensure that the Government are provided with a power to instruct SDRP providers, where appropriate, to enter into debt settlement negotiations on behalf of debtors entering the scheme. Hopefully this is not needed, but it is important that such a power exists.

In addition, it ought to be possible for SDRP providers to go further. With appropriate funding and regulation, business models could be encouraged that would allow SDRP providers to themselves buy out, and therefore discount, debts registered on their plans. For example, in recent months we have seen instances of debt of £10,000 being discounted by as much as 40% in return for full and final settlement. Enabling such debts to be bought out and subsequently collected by SDRP providers would mean the debtor would have to repay only £6,900, even after taking into account a 15% fee for the provider. It should be possible to achieve a result that is beneficial to creditor and debtor alike. I stress that building this negotiated settlement approach into the SDRP is likely to be welcomed by creditors, who in many cases are already prepared to discount heavily for lump sums in full and final settlement.

It is not my intention to push this amendment to a vote at this stage, but I seek a commitment from the Minister to continue to explore and work on this issue. I hope he can commit to a meeting between the department and interested noble Lords to see how we can take this forward, possibly in regulation.

[Lord Davies of Brixton (Lab) [V]]

My Lords, I speak in support of Amendments 11 and 12. I do not intend to delay us particularly long at this time of night, but I want to take the opportunity to pursue an issue.

My involvement in the Financial Services Bill has been a learning experience for me, as a new Member, in the way in which we are able to progress issues through the course of a Bill and the opportunities arising at different stages to make points and develop what it is possible to achieve, as opposed to what we would like in a perfect world. I have made plain my support for a more fundamental debt jubilee, but that is clearly a discussion—a fight—for another day. The amendments before us today clearly provide a useful step forward—a small step, but one that is still worth while.

I want to say a word on behalf of the debtors, those people who have taken on debts for all sorts of reasons—some good, some bad. You cannot just look at the debtors in this situation and say, “That is where the problem arose.” Quite clearly, bad debts are part of the business plan of people who lend money. We have learnt to an extent during these debates that there are issues in how you develop a plan so that, when debts are discounted, it is not just commercial organisations that benefit and there is also the opportunity for those who have unwisely or mistakenly taken on debts to gain some advantage from the discounting of debts. That is really what we are trying to work towards here.

I support these amendments and hope the Government will be able to take on board the issues raised. The underlying issue—this is the point I have pursued before—is that there is a public interest in dealing with debt and relieving people of the debts they have taken on; it does not help just the individuals concerned. Lowering the level of debt and removing onerous debts help us all generally, and particularly at the moment when we are looking for an economic revival. I hope the Government take on board the ideas behind these amendments and work towards a scheme that helps not just the debtors but all of us.

Financial Services Bill

Lord Davies of Brixton Excerpts

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 24th February 2021 Grand Committee

My name is also on the amendment tabled by the noble Lord, Lord Sikka, which I support, but in the interests of time, I will leave it at that.

[Lord Davies of Brixton (Lab) [V]]

My Lords, before getting to the substance of the debate, I must express some puzzlement; obviously, I have much to learn about this House’s mysterious ways. The specific issue that concerns me is the grouping of amendments. We are sternly told that groupings are not to be changed, but here we have a significant change: what was two groups on Monday is now a single group. The issues are not that disparate, but it makes a big difference to the time we have available.

The main point I wish to make relates particularly to Amendments 10 and 71. The latter was tabled by my noble friend Lord Sikka. If I had been a bit more alert, I would have added my name.

The issue here is to whom the FCA should be accountable, given the well-established phenomenon of regulatory capture, as the previous speaker mentioned. It is worth emphasising the point that regulatory capture is where an industry regulator such as the FCA comes to be dominated by the industry it is charged with regulating. The result is that the agency that is meant to be acting in the public interest instead works in ways that benefit the industry. The important point to understand is that this does not happen because inadequate or ineffective people are running the regulator. It is certainly not about corruption. It is an institutional, not individual, problem.

It is important to understand why it happens. The reasons are manifold but I will emphasise three. First, the regulated industry has a keen and immediate interest in influencing the regulator, whereas the customers are less motivated; they have their lives to live and are engaged only for relatively brief periods anyway. Secondly, we know that industries are prepared to devote substantial resources to influencing the regulator. Thirdly, there is the inevitable commonality of work and social life for the individuals on both sides of the process.

Given that the phenomenon of regulatory capture is acknowledged and widely understood, what do we do about it? The first step is acknowledging the issue and recognising and addressing the challenge. The next step is making the regulator as accountable as possible. There are many ways of doing this, but we can leave those for another day. What we have here are Amendments 10 and 71. Under Amendment 10, the involvement of both Houses in considering draft and final rules would be valuable in itself, given the expertise available. However, it is also valuable because of the additional exposure that it brings to the workings of the regulator, which will have to make its case. In the same way, Amendment 71 would bring greater exposure to the work of the FCA, forcing it to expound on its performance and its objectives in public and in an expert forum.

There is much more to do on making the FCA fully accountable, but these amendments are a start and have my support.

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

My Lords, it is a pleasure to follow the noble Lord, Lord Davies of Brixton. He addressed in useful detail the risks of industry capture of regulators, to which the financial sector is particularly prone and which is addressed by Amendment 71 in the name of the noble Lord, Lord Sikka. Like the noble Baroness, Lady Bowles of Berkhamsted, and the right reverend Prelate the Bishop of St Albans, I have attached my name to that amendment. I associate myself particularly with the remarks of the noble Baroness, who stressed that these amendments are about the rights of Parliament and access to data and detailed information—necessary for the kind of expert work at which your Lordships’ House excels.

As the noble Lord, Lord Davies, covered the need for Amendment 71 in some depth and its author—the noble Lord, Lord Sikka—is yet to speak, I will confine myself to general remarks about how all the amendments in this large group reflect the great degree of concern on all sides of the House about, given how the Bill is currently constituted, the lack of parliamentary oversight of the actions of both the regulators and the Treasury. The noble Baroness, Lady Noakes, explained this point in her highly informative introduction to the group.

This morning, thanks to their kind indulgence, I was able to join Cross-Benchers in a briefing on the Bill, where we heard how the formalisation of the relationship between regulators, Parliament and the Treasury is “on the way”. The future regulatory framework consultation closed on Friday. We heard that the Bill is not the final word on that, and that the responses to the consultation will not be ready in time for the Bill. So, yet again, we hear that democratic controls and the details of government plans will be included in future legislation and regulation. Your Lordships’ House has heard this so often on so many subjects; perhaps we could enlist the Lords spiritual in assisting us in putting it in some kind of musical form. It simply is not good enough.

We know that, despite the long run-in time, the Government were not ready for Brexit at the end of the transition period and that civil servants, through no fault of their own, are trapped in a huge scramble to catch up with the massive backlog of government inaction and indecision—the tsunami to which the noble Baroness, Lady Bowles, referred. But what we have here are sensible proposals from experienced, expert Members of your Lordships’ House. I hope that the Government will acknowledge the urgency and importance of ensuring democratic oversight and that they will take at least some of these amendments on board at the next stage of the Bill, particularly, given the arguments already made, Amendment 71. There is no need to wait. Democratic oversight should be a given, not an extra, later addition.

Financial Services Bill

Lord Davies of Brixton Excerpts

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Monday 22nd February 2021 Grand Committee

[Lord Blackwell (Con) [V]]

My Lords, I understand the motives of these amendments and sympathise with a lot of what has been said. However, I will be a dissenting voice on whether the form of the amendments is proportionate and practical in meeting the objectives set out.

As we all recognise, financial services have a social purpose. They play a critical role in society and in people’s lives and they have to recognise that in their responsibilities. There are clearly still failures in the way the industry operates, some unintended and some still involving bad behaviour, and, as many noble Lords have pointed out, there is a problem in the unregulated sector. However, most of the major institutions now exercise their responsibilities carefully, trying to do so in the best interests of their customers. I do not recognise in some of the comments made the tens of thousands—in fact, over 100,000—ordinary bank workers who go into their branches or call centres every day and try desperately to do their best for customers, motivated by the most genuine service obligations. In the way that the banks have operated in providing basic bank accounts and the responsibilities that they have shown in their lending practices, the industry is by and large showing how it can evolve and act responsibly.

There are, of course, failures, as there will always be in any industry, but these can be dealt with under the existing FCA principles, reinforced as they are now by the SMCR regime. There has to be a boundary on what is reasonable to expect of the duty of care. We cannot expect financial services to take on the duties of the state as a social service for those who need extended financial support. Yes, it has obligations, but there is a limit to what the financial services sector can do for those in financial need.

My issue with the general duty of care is that it has no clear boundaries setting out when a financial service company has reached the limits of what it is reasonable to do under that duty of care. We have to recognise the reality that any intervention to increase customer support or protection has a cost. The direct costs of subsidising support to customers in financial need are now covered, as in utilities, through cross-subsidies—higher charges on other customers to pay for the extended credit or basic bank accounts for those customers in need. It is accepted within the industry and within society that a measure of cross-subsidy within the financial services sector is part of being a universal provider.

However, the indirect costs of compliance are more damaging; they may disadvantage those that they are meant to help. The more questions you need to ask your customers, the more detailed information you have to ensure they have understood and the more you have to penetrate into their lives, the more banks and insurance companies are forced to rely on formulaic compliance bureaucracy that erects barriers to simply understanding and addressing customers’ issues. People spend more time ticking the boxes than they do just listening and trying to provide a genuine real-world answer to the issues in front of the customer.

The danger is that, despite the best intentions of helping to ensure that people get good advice, there is an increase in costs and risks to compliance to the point where, as happened with the retail distribution review that took place some years ago, financial services companies simply withdraw from offering any services to those customers because they cannot take the risks and costs and the compliance burden pushes customers out of access to financial services.

Not having boundaries around what that duty of care comprises opens up the risks to financial services companies of court judgments and CMC claims that continually push the obligations and costs of compliance far beyond what is reasonable for a financial services company to do—one doing its best to offer financial products and serve its customers—and what is reasonable for the customer to take on, in terms of their responsibilities in setting out their needs.

I believe that, despite the motives behind this, it is much better to be prescriptive about what obligations there are for reasonable behaviour, as set out in the current FCA principles, which include the obligation to treat customers fairly and fairly communicate the information they require. These considerations require a high level of care and compliance, not always correctly done—but there are penalties when they are not done correctly. The SMCR regime is reinforcing that. As such, despite my sympathy for the motives behind these amendments, I believe that the intent behind them, however good, would not result in a proportionate or practical improvement in regulation and carries many dangers and risks both to financial services companies and, more importantly, to the customers whom we seek to protect.

[Lord Davies of Brixton (Lab) [V]]

My Lords, I agree with much of what has been said and it is not necessary to repeat it. I support the objective of the amendments—in particular, I support my noble friend’s Amendment 4—and I look forward to the Minister’s reply. It is difficult to see how the principle of these amendments can be refused.

However, it is necessary to make an overarching point, which I base on my experience over 50 years as a close observer of the financial services industry. The truth is that the industry has a systemic tendency to malfeasance. This is not an attack on the great many good people who work within the industry, as the last contribution mentioned, in banks and insurance companies, who only wish to do a good day’s work. However, the unremitting succession of scandals involving finance is not just a series of unfortunate one-offs; it is built into its very nature. This is a big issue, but I emphasise two simple reasons. First, there is an inevitable asymmetry of information. As Amendment 4 highlights, there are

“a consumer’s vulnerability, behavioural biases or constrained choices”.

This situation is bound to create the sort of problem that we have seen. The second, even simpler, reason, using the classic but apocryphal words of Willie Sutton, is because it is “where the money is”. People seek to gain money from where there is lots of it and there is lots of it in the finance industry.

There is much to be done to solve this problem. It is systemic but it still needs to be addressed because people need help. However, what is in these amendments seems to me simply a minimum of what might be done to address the problems that the industry so clearly incorporates.

[Baroness Kramer (LD)]

My Lords, I simply do not understand the resistance we find from the Government and the FCA to the duty of care amendment moved by my noble friend Lord Sharkey, and supported by my noble friend Lady Bowles and the noble Baroness, Lady Bennett, and to the almost identical Amendment 4 proposed by the noble Lord, Lord Tunnicliffe, and supported by the noble Lord, Lord Eatwell, and again by my noble friend Lady Bowles. I am not going to repeat the saga of abuse that many noble Lords have described. That has been done incredibly well and is exceedingly powerful. I will say though that this issue keeps happening. I notice the headline in today’s Times:

“City regulator ‘slow to act’ against car leasing firm”.


Every time we think that we are perhaps past a period of abuse, another one comes along. To me, it is utterly unacceptable, as I hope it is to everyone in this House.

What makes me particularly angry is that the regulator has largely known, very early on thanks to whistleblowers, when the financial institutions that it regulates are treating customers badly. However, again and again, the regulator takes years to react, reacts minimally at first, initiates a lengthy review—often several—asks the organisation to review itself and then does too little, too late. I want to pick up one issue in illustration: the treatment of payday lenders.

Many people in this House will remember the experience of trying to pass legislation to get a cap on the interest rates that payday lenders could levy. I bring up this issue because it deals with the difference between treating customers fairly and a duty of care. The FCA took a very strong position that customers were being treated fairly so long as they knew the terms of the contract. There were, perhaps, some constraints such as a limited number of rollovers. The FCA did not look at the far deeper issue of the way that people were being abused by payday lenders and the extraordinary level of interest rates. That is why the duty of care is very much more powerful. As my noble friend Lord Sharkey said, treating customers fairly is undermined in the FiSMA legislation by the caveat emptor parts of the FCA’s rules.

I am not a bit surprised that the noble Lord, Lord Blackwell, objects to these duty of care amendments. When I sat for nearly two years on the Parliamentary Commission on Banking Standards, the industry objected to almost every measure that would have constrained the abuse which created the crisis in 2008, such as the Libor crisis and PPI. The saga was endless. I say to the noble Lord, Lord Blackwell, that in a later group of amendments I will be referring to the HBOS Reading case, another example of fraud perpetrated between 2003 and 2007. A number of bankers went to prison but today, in 2021, victims of that fraud still have not received fair compensation.

Dame Elizabeth Gloster’s damning report of last November on the FCA’s regulation of London Capital & Finance Plc said:

“The root causes of the FCA’s failure to regulate LCF appropriately were significant gaps and weaknesses in the policies and practices”.


That is simply true across the board. It is piecemeal, as my noble friend Lord Sharkey described.

Misbehaviour keeps happening and delayed redress is the normal pattern. To quote Einstein:

“The definition of insanity is doing the same thing over and over again and expecting different results.”


It is time to make a step change to protect consumers, and I hope very much that the Government do so in this Bill.