Financial Services and Markets Bill

Lord Forsyth of Drumlean Excerpts

Committee stage
Monday 20th February 2023 Grand Committee

[Lord Harlech (Con)]

My Lords, the Government agree that the regular review of rules after implementation is essential to ensure that they remain appropriate and continue to have the desired effect.

The Bill makes a number of substantial changes to the regulators’ framework to ensure that such reviews will be an integral part of the regulators’ functions going forward. In particular, Clause 27 inserts a new provision into FSMA that will require the FCA and the PRA to keep their rules under review. To supplement this duty and ensure that there is a mechanism to require the regulators to conduct reviews of their existing rules where needed, Clause 27 also inserts a new power into FSMA for the Treasury to direct the regulators to review their rules where the Treasury considers it is in the public interest. Clause 46 inserts similar provisions into FSMA for the Bank of England in relation to its regulation of CCPs and CSDs.

I will speak first to Amendments 78 and 145 in the name of the noble Baroness, Lady Bowles. I assure her that the powers inserted into FSMA by Clauses 27 and 46 of this Bill already allow the Treasury to require these regulators to review a range of rules, entire regimes and interrelated rules, as appropriate, where that is in the public interest.

I turn next to Amendments 79 and 146, also in the name of the noble Baroness, Lady Bowles. In order for the Treasury to direct the regulators to review their rules, certain criteria must be met. One of the key criteria is that the Treasury considers the review of the rule or rules in question to be in the public interest. It will be important for the Treasury to work with parliamentary committees to understand the evidence base for whether it is in the public interest to exercise the power.

[Lord Forsyth of Drumlean (Con)]

I am most grateful to my noble friend; I apologise for not having been able to attend all the Committee’s meetings. Can my noble friend help me by defining “public interest”—that is, how it will be defined?

[Lord Harlech (Con)]

I understand what my noble friend is getting at and think that, when each issue is put to the Treasury, it will consider whether or not it is in the public interest.

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[Lord Forsyth of Drumlean (Con)]

I am most grateful to my noble friend and do not want to detain the Committee, but the whole point of the noble Baroness’s amendment is to avoid exactly this kind of debate. To my mind, what is in the public interest suggests a very substantial test, leaving the regulators to mark their own homework.

[Lord Harlech (Con)]

Like I said, I will speak to the department and write with a definition of what constitutes “in the public interest”.

Parliamentary committees can already conduct their own inquiries and hearings, call for papers, and call for individuals and organisations to give evidence. The power in Clause 27 seeks to complement, rather than substitute or detract from, the important role played by parliamentary committees. It will be important for the Treasury to work with parliamentary committees to understand the evidence base for whether it is in the public interest to exercise the power.

On Amendment 79A, from my noble friend Lady Noakes, as with parliamentary representations, it will be important for the Treasury to consider the views of the regulators’ statutory panels and representatives of those affected by the rules. However, it would be inappropriate for the Treasury to provide a running commentary on the individual representations made. In addition, the FCA and the PRA have committed to ensuring that there are clear and appropriate channels for industry and other stakeholders to raise concerns about specific rules. These channels will be set out in the regulators’ policy statements on rule review, required by Clause 27, in due course.

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I do not know what resources are available to the Treasury Select Committee in the other place but I have observed that Select Committees in the other place are better resourced than our own. They may well be able to acquire sufficient resources to do the job thoroughly but my view is that the most secure path to proper parliamentary accountability is through a newly formed Joint Committee that can exploit the undoubted expertise that exists in this House; that is what my amendments in this group seek to achieve. I beg to move.

[Lord Forsyth of Drumlean (Con)]

My Lords, it might be helpful for me to speak now as my noble friend referred to my amendment, which is in the next grouping. My noble friend has always been cleverer than me; I absolutely, 100% support what she puts forward in this amendment. I have an inkling that the Minister will say, “Ah, but we cannot be instructing Parliament on what to do”; that is why my amendments are in the next group, which we may or may not come to.

My noble friend is presenting the Committee with a Rolls-Royce, whereas my amendment is a Trabant, but it provides an opportunity to do what this amendment would do: set up a powerful Joint Committee of both Houses that is properly resourced. In my view, that is the right solution. I entirely agree with everything that my noble friend said. It seems to me that for the Government to resist this is a great mistake because it actually damages the position of the regulators. The regulators themselves would benefit from having proper scrutiny and accountability.

It is important to remember what this Bill is doing, which is extraordinary. It is taking all our financial regulation, giving it to a bunch of regulators who are not in any way democratically accountable and leaving it to them to decide what they will change, at what pace and everything else. It is absolutely essential that there is parliamentary scrutiny. My noble friend is right in the structure that she is proposing, where the elected House will have a pre-eminent position, but it strikes me as very foolish in this legislation to exclude from any role of scrutiny the House of Lords, which, at the risk of flattering members of the Committee and others, contains people with considerable experience and expertise in this area who could add an enormous amount to the regulators in carrying out their duties.

I seem to recall at an earlier stage—my noble friend Lady Noakes follows these things much more closely than I do—the regulators themselves saying that we need to have proper parliamentary scrutiny in order for us to be certain that we carry the degree of consensus and support that is necessary in the regulatory framework. I hope that my noble friend the Minister will accept this amendment. Then we will be able to make enormous progress because we will not need to discuss my amendment.

[Lord Vaux of Harrowden (CB)]

My Lords, after a number of days in Committee and at Second Reading, it is clear that the major theme of scrutiny of the regulators has emerged and that we have an extraordinary level of cross-party agreement on the Bill—almost unprecedented, as the Minister will see if she turns around and looks behind her.

This is so important because, as the noble Lord, Lord Forsyth, just said, the Bill transfers huge amounts of power to the regulators but does very little to provide Parliament with the means to scrutinise what they do. This has been raised by a number of parliamentary committees, including the EU Financial Affairs Sub-Committee, of which I was a member before it was wound up, and the European Union Committee, among others. The Bill does give strong oversight, scrutiny and direction rights to the Treasury but that is not the same as parliamentary scrutiny.

The Minister said this at Second Reading:

“It is also imperative that the regulators’ new responsibilities are balanced with clear accountability to the Government and Parliament. I assure noble Lords that the Government recognise the importance of parliamentary scrutiny of the work of the Treasury and the regulators.”—[Official Report, 10/1/23; col. 1332.]


However, nothing in the Bill does that. All the Bill does at the moment is make requirements for the regulators to notify the Treasury Select Committee of the consultation and for the regulators to respond in writing to responses to any statutory consultations from any parliamentary committee.

I am sorry, but that is not the same as providing for genuine parliamentary scrutiny of the activities of the regulators. Are the regulators meeting their objectives? Are they protecting consumers from excessive risk and fraud? Are they ensuring stability? Are they carrying out their activities efficiently? Are they encouraging growth and competitiveness? Are they acting in accordance with the climate change rules? Are they horizon scanning for future risks and so on? Nothing in the Bill, as currently drafted, provides for real parliamentary scrutiny as I would understand it.

I am afraid that the noble Baroness has form in this respect. Perhaps I could take her back a few months to the discussions we had around the UK Infrastructure Bank Bill when we queried her reference to parliamentary scrutiny of various documents within that. To paraphrase, she suggested that the more informal parliamentary scrutiny, such as the ability to ask Oral Questions and such like, was sufficient. We seem to be heading down the same way with this Bill. It is not acceptable.

The other day, the noble Lord, Lord Bridges, set out with his usual clarity the three things required for effective scrutiny of the regulators. To paraphrase, they were reporting, independent analysis and parliamentary accountability. There are various amendments in this group and the next group dealing with the third of those: parliamentary accountability. I have added my name to those in the name of the noble Baroness, Lady Noakes, which aim—as she has explained—to create a bicameral committee that will focus specifically on scrutiny of the financial regulators.

I have long argued that financial regulation is such a large subject, so complex, and dealing with such an important sector of our economy, that it deserves a committee dedicated to it. It is just too big to be able to be meaningfully scrutinised by a committee that covers a wider subject area, such as the Treasury Select Committee of the Commons, the Economic Affairs Committee or the Industry and Regulators Committee, as we heard a minute ago. I strongly support the idea of creating a new bicameral committee that will focus specifically on this subject.

Importantly, Amendment 87 from the noble Baroness tries to widen the scope of parliamentary scrutiny. It says that:

“The FSRC—


the new committee—

“may examine or otherwise oversee the administration, policy and operations of”

the various regulators and may examine any consultations and reports issued by them. I am slightly nervous about the word “oversee” as I worry that might imply interference in the independence of the regulators. More importantly, I also want to add that the new committee should consider the impact of the regulators, in addition to administration, policy and operations. As I have said before, it is really important that the scrutiny is forward-looking, that we are horizon scanning for future risks, so I would widen the amendment further rather than it just being backward-looking. As I say, I wholeheartedly support the principle of a new, properly resourced bicameral committee with a much wider remit than the narrow focus that the Bill currently provides to the Treasury Select Committee. As we have heard from the noble Lord, Lord Forsyth, the involvement of this House is incredibly important. There is enormous expertise throughout the House.

I recognise that there are other ways of achieving proper parliamentary scrutiny, as we can see from the various other amendments in this and the next group in the name of the noble Lord, Lord Forsyth. I am not going to get too religious about this. It is clear that there appears to be near-unanimity on the importance of strengthening the arrangements for parliamentary scrutiny of the regulators and of the Treasury, as the Minister said at Second Reading, given the greater responsibility this Bill pushes on to the regulators.

In the interests of time, I am not going to speak on the next group. It would just be repeating what I am saying now. But I hope the Minister will take it as read that I support the theme and concept in the next group. just as I do within this one. What I hope will now happen is that the Minister and all interested Peers can get together between now and Report to try to come up with something mutually acceptable that we can all get behind. Is that something the Minister can facilitate?

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[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, the Government are keenly aware of the interest in Parliament in the appropriate committee structures for scrutinising the regulation of financial services and will listen to the debate that we have on all the different groups very carefully. However, as noble Lords have noted, and I note myself, Parliament is of course responsible for determining the best structure to scrutinise the regulators.

As other noble Lords have also recognised, this debate has been had across different parts of Parliament over previous years, including during the Government’s consultation on our proposals. As my noble friend Lady Noakes said, the Treasury Select Committee considered this question in its report of June 2022, Future Parliamentary Scrutiny of Financial Services Regulations. That resulted in the establishment of a new sub-committee for scrutiny of financial services regulations. I also note that the All-Party Parliamentary Group on Financial Markets and Services published a report in February 2021, which recommended the creation of a Joint Committee.

I note that my noble friend modelled her amendment on the provisions relating to Parliament’s Intelligence and Security Committee, which is a Joint Committee set up on a statutory basis. Let me say to the Committee that the requirements applying to the ISC are quite unique, given the extreme sensitivities concerning the operation of the intelligence services. A large part of the provisions related to the ISC are about limiting its scrutiny powers to ensure that the intelligence services can operate and that the information they require to do their jobs is appropriately protected in those circumstances. The financial services regulators do not handle such sensitive information so the Government consider that a similar approach in statute is unlikely to be required in this instance. As I have said, it is not for the Government to impose an approach on Parliament.

I recognise the contributions from noble Lords saying that, by amending the Bill to create a Joint Committee, Parliament would be expressing its view. However, the point I would make in relation to that is that Parliament has the capability to set up Joint Committees without the involvement of government; they are usually established by Standing Orders in both Houses. This process does not require legislation. Introducing a Joint Committee at this stage of the Bill would be a significant change to the structure of the scrutiny of financial services. There is already a mechanism by which Parliament can establish such a Joint Committee should it wish to do so. Through this Bill, the Government intend to ensure that Parliament has the information it needs to conduct effective scrutiny of regulators, whatever structure it determines to be correct for doing so.

Clauses 36 and 46 and Schedule 7 require the regulators to notify the Treasury Select Committee of their consultations and draw the committee’s attention to specific sections, including those that deal with how the proposals advance the regulators’ objectives and how they have had regard to the regulatory principles. Those references to the TSC are in line with wider requirements elsewhere in existing financial services legislation, which establish that committee as the main committee for financial services matters. However, I note the wide range of sincerely held views on this matter and the fact that a number of different committees have previously been involved in scrutinising the wide breadth of financial services regulation.

[Lord Forsyth of Drumlean (Con)]

I am trying to follow the logic of my noble friend’s argument. If her argument is that Parliament can set up committees so there is no need for legislation, why is it necessary to reference the Treasury Select Committee in the legislation?

[Baroness Penn (Con)]

In the legislation, the Government are seeking to formalise and make explicit some of the ways in which committees can have their work facilitated. I recognise that this Bill refers to the Treasury Select Committee. That is the case in existing financial services legislation; for example, Schedule 1ZA to FSMA requires that the person appointed as the CEO of the FCA must appear before the TSC before their term can begin. Also, when appointing independent reviews of ring-fencing and proprietary trading, as required by Sections 8 and 10 of the Financial Services (Banking Reform) Act 2013, the Treasury was required to consult the TSC.

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Moved by

[Lord Forsyth of Drumlean]

89: Clause 36, page 50, line 30, leave out “chair of the Treasury Committee of the House of Commons” and insert “chairs of the relevant committees of Parliament”

[Lord Forsyth of Drumlean (Con)]

My Lords, perhaps I should repeat the declaration of interests I made at Second Reading. I am regulated by both the FCA and the PRA and am chairman of a publicly quoted bank, Secure Trust Bank. In tabling this amendment, I anticipated my noble friend’s response to the previous group. I have Amendments 89, 93, 97 and 109 in this group; Amendments 89 and 97 are the guts of it. Basically, they would enable Parliament to set up a committee—a Joint Committee or its own committee or whatever.

In making her case for the last set of amendments, my noble friend Lady Noakes pointed to a key point, which is about resources. The noble Baroness, Lady Bowles, has talked about the scale of the task that is being put before the regulators. It is hard to believe that without some kind of statutory backing, the huge resources that will be required to do this task and to do it effectively are likely to be forthcoming. I think that is in the nature of things. Certainly, my experience as chairman of the Association of Conservative Peers has been that getting any change in this place is a lifetime task. I just do not see Parliament being able to rise to the challenge.

If my noble friend cannot countenance writing into the statute book that there should be a Joint Committee of both Houses, which I believe is the right solution, these amendments at least provide for that. It is evident from this quite short debate that every member of this Committee thinks that this is desirable, although I quite understand why my noble friend’s briefs say that it is not.

I do not wish to be rude about the Treasury Select Committee in any way but, as a former chairman of the Economic Affairs Committee—I am sure my noble friend Lord Bridges agrees—I have not detected within the Treasury Select Committee the kind of commitment that we see in the Select Committees of this House. That is because their members have constituency and other responsibilities. You can see that in the committee’s attendance and in the way in which it operates. As the noble Baroness, Lady Bowles, pointed out, this is a monumental task.

Now, I hate all this consensus so I will introduce a degree of controversy. I voted for Brexit. I voted for Brexit because I believe in Parliament taking back control over our regulations. I did not vote to give all the European regulations, over which we have had insufficient parliamentary scrutiny and control, to a bunch of regulators who are not subject to any parliamentary control. From the Government’s point of view, when they keep being asked “What did Brexit ever do for us?” to refuse even minimal accountability over our most important earner and job creator is extraordinary.

We should listen very carefully to the points made by the noble and learned Lord, Lord Thomas, in the debate on the previous group: this is a central constitutional matter. Without wandering into a Second Reading debate, throughout the Bill we have endless examples of where power is being taken away from Parliament by the Executive without being subject to scrutiny.

I am actually speaking to my amendments, in the hope that, at the very least, my noble friend will say that, as I made the case against my noble friend Lady Noakes’s amendments on the basis that it is for Parliament to decide, these amendments enable Parliament to decide what it should be. At the same time, I recognise that they do not deal with the issue of resources although—believe it or not—it is entirely up to Parliament how much resources its committees adopt. It is not within the Treasury’s control; Parliament votes resources to the Treasury, not the other way round.

My noble friend is a very effective and much respected Minister at the Dispatch Box but, if I were a Minister faced with a Committee as unanimous as this, knowing the views that were expressed at the Second Reading on the Bill, I would not hope to proceed without making a major concession in this area. Not doing so would make it more difficult for the passage of this legislation.

It is a great experience for me to have the noble Lord, Lord Tunnicliffe, and the noble and learned Lord, Lord Judge, support an amendment in my name. I am not used to this degree of consensus. That in itself ought to make my noble friend aware that she needs to take this away and come back with a government amendment that establishes a Joint Committee.

I will deal with the argument about the ISC, which my noble friend said is unique. It is indeed. It is a unique committee, because the powers that are operated by the security services are great. The powers that are operated by the regulators are great. We can argue that this is about confidentiality—it certainly is—but it is also about ensuring that people who wield great power are held to account, and that is missing from the Bill, as so many have said during this debate.

The other point I make to my noble friend is that yes, it is true that it is the only statutory committee that has been established, but we have made a fundamental change in taking financial regulation away from the European Union, where it was subject to considerable scrutiny—a moment of praise from me for the European Union and the wonderful work that the noble Baroness did as chair of ECOFIN. Whatever criticism one might make of the regulations, there was proper scrutiny, and that is completely absent here. Are we really going to say that we as a Government have delivered Brexit by making sure that there is little democratic accountability and less than was achieved in respect of the European Union?

In responding, I ask my noble friend to accept the amendments, but go further if she can.

[The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)]

My Lords, I have to inform the Committee that if Amendment 89 is agreed, I cannot call Amendment 90 by reasons of pre-emption.

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With that, I would like to reiterate two, or perhaps three, things: the importance placed by the Government on the accountability of the regulators to Parliament; the care with which we have sought to reflect that in the Bill and our approach; and my willingness to engage with noble Lords, in particular on the role of this House in scrutinising their actions and reflecting on this issue, with all members of the Committee who wish to, ahead of Report.

[Lord Forsyth of Drumlean (Con)]

My Lords, my noble friend referred to the range of views and the House of Commons. I hope that this does not get into a kind of turf war between the House of Commons and the House of Lords. The reason I say that is that if I look at the scrutiny the Bill got in the other place, it is not impressive.

The noble Lord, Lord Tunnicliffe, said that he does not regret not becoming a Member of Parliament. When I was first elected as a Member of Parliament in 1983, it was exceptional to have a guillotine in consideration of legislation. Now everything is timetabled in the House of Commons and when you say that it results in almost zero scrutiny, the response one gets is, “Ah, yes, but that’s because all parties agreed that only that time was necessary”. That is why this House spends so much of its time looking at badly drafted legislation that has not even been considered.

If we think about the work that this House has to do and the burden of the legislation that comes our way, it is particularly acute at the moment. I certainly find it difficult to keep up with all the legislation that we are at present being asked to look at. I would like to be speaking today on the legislation in the Chamber but cannot because I am here, and so on. The idea that the main purpose of the House of Commons is scrutiny is completely wrong—accountability, yes, because they are elected. They are accountable to the voters, unlike all of us here.

At the heart of, if I may say so, the Treasury’s misreading of this situation is its not distinguishing between accountability, scrutiny and independence. Yes, we want the regulators to be independent and to have scrutiny, but we also want accountability. They need to be able to explain why they have done or are proposing certain things. To argue that that is achieved by getting them to send a copy of their latest consultation documents, which they might have spent two years thinking about, and that they will respond to letters and representations from committees that are overloaded and focused on long-term scrutiny is just—I am sorry to use the word—fatuous. It does not begin to meet the challenge created by the decisions to leave the European Union and to give the responsibility for these regulations to the regulators.

My noble friend the Minister keeps referring to the legislation that was passed in FSMA. As my noble friend Lord Bridges has said, that was then and this is now. This is a complete sea-change in what is required, and the Bill does not meet the test. My noble friend Lord Bridges asked the Minister to answer the question with a yes or no. Listening to her speech, I thought that was definitely a “yes”—that she does think the Bill provides sufficiently for parliamentary scrutiny and accountability. There is no one else in this Room, who is a Member of this House, who thinks that.

It is not enough to say, “I hear what you say and we will come back at Report stage.” I can see a car crash here. I can see us getting into a fight, which might be represented as a turf war between the Commons and the Lords, but is actually about ensuring that our regulators have the credibility that will come from effective scrutiny and that we get regulations that have been properly accounted for. At the end of the day, it will be for the House of Commons to decide what should happen.

That is the central role of this House. Frankly, it is insulting to this House to say, “Don’t worry your heads about this. The House of Commons and the Treasury Select Committee are the designated bodies to deal with scrutiny on an unprecedented scale.” It is the scale of the thing that I do not think is understood. A little voice in my head says that the Treasury sees itself as providing the scrutiny. Well, how do we hold the Treasury to account for the scrutiny? The argument may be that we do so by asking Oral Questions or Written Questions, but I have heard a few recently and the answers, frankly, do not persuade me that we have effective scrutiny through that route even in this House. I will not give examples as that would be embarrassing to those concerned.

I thought my noble friend the Minister might say, “I’ll grab this as a lifeboat because it is the very least that can be done,” but, actually, my noble friend is sticking to her guns. I agree with the noble Lord, Lord Tunnicliffe, that, if the Government are not prepared to bring forward amendments, we will have to find agreement on a suitable amendment. I think the Government will be defeated; there are very strong feelings on this. I say to my noble friend that she should go back to the Chancellor and to her colleagues and ask whether they really want to get into an unnecessary fight about something that any reasonable person would see is essential for the proper conduct of the financial services in our country, on which we so depend. I beg leave to withdraw the amendment.

Amendment 89 withdrawn.

Wales: Additional Financial Resources

Lord Forsyth of Drumlean Excerpts

Wednesday 18th January 2023 Lords Chamber

[Baroness Penn (Con)]

My Lords, I believe that the fiscal framework agreed in 2016 does that, and I am sure the noble Lord will welcome the fact that the latest spending review set the largest annual block grant in real terms of any spending review since the devolution Act of 1998.

[Lord Forsyth of Drumlean (Con)]

My Lords, has the time not come to get rid of the Barnett formula and to fund the devolved Administrations on the basis of need, which is how they distribute the money themselves? I know my noble friend is very busy, but could she read the report of the Select Committee of this House, which was initiated by the late Lord Barnett, which showed clearly that Wales lost out as a result? I say that as a Scot, and Scotland benefits in addition to parts of the north of England, Wales and other devolved parts of the United Kingdom.

[Baroness Penn (Con)]

My Lords, I am aware of the views of Lord Barnett, to whom the formula’s name relates. The point my noble friend makes about needs is exactly what we tried to build into the fiscal framework in 2016. There was an assessment of additional needs in Wales. It said that, on a needs basis, it should be at least 15 % more than the equivalent in the UK. That was recommended by the independent Holtham commission, and that is something that the UK is taking forward.

Financial Services and Markets Bill

Lord Forsyth of Drumlean Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Lord Forsyth of Drumlean (Con)]

My Lords, I declare my interest as set out in the register as chairman of a publicly quoted bank. I am also regulated by the PRA and the FCA under the senior managers regime, so I am putting a book down my trousers for the rest of my speech.

I welcome the Bill and its commitment to supporting our financial services sector by creating competition and removing needless bureaucracy and regulations which were made for Europe but were wrong for Britain. There is, however, a fundamental weakness that needs to be addressed in Committee. That is, while the Bill gives regulators more powers and independence, it is shockingly weak on ensuring their accountability to Parliament. These points have been made by the noble Baroness, Lady Bowles, and my noble friends Lord Bridges, Lord Frost and Lord Hill, so I think there is a degree of consensus across the House on this matter.

That accountability is vitally important to ensure that we achieve the growth and wealth creation our country desperately needs after the ravages of Covid lockdown. We have already seen the undermining of Parliament’s role in voting means of supply, with the Bank of England’s expansion of its balance sheet through quantitative easing—money created out of thin air on an industrial scale. Quantitative easing amounts to just short of £1 trillion—in fact, almost 40% of our GDP—in which Parliament was a bystander and the Chancellor unable to be held to account because we are told the Bank of England is independent.

Your Lordships’ Economic Affairs Committee warned that QE was a dangerous addiction in 2021 and that the Bank’s view that inflation was a transient phenomenon while continuing with QE risked serious inflation. Its own chief economist resigned while expressing similar concerns. The committee was ignored, and it turned out to be right and the Bank wrong. The consequences have been inflation, higher interest rates and a bill in excess of £100 billion for taxpayers to allow the asset purchase facility of the Bank of England to pay interest to the banks under an indemnity agreement with the Treasury, which the Treasury has insisted on keeping secret.

I voted for Brexit, to coin a phrase now so popular with the leader of the Opposition, because I wanted to take back control. I wanted to restore to Parliament, particularly the elected House of Commons, the ability to make our laws and be held to account for them at every general election. Frankly, this Bill seems to pass control of regulation from one unelected European bureaucracy to other unelected bureaucracies in the form of the Treasury, the PRA and the FCA. Parliamentary scrutiny and accountability in a thicket of Henry VIII provisions and regulatory powers, whose purpose is unclear, is derisory.

The fact that we have only five minutes each to discuss this Bill is an absolute abuse of the House. Also, as I discovered this afternoon, thanks to the noble Baroness, Lady Bowles, that we are expected to deal with this Bill in a Grand Committee, not on the Floor of the House. Whatever was the Official Opposition thinking in agreeing to such a matter?

Of course, Clause 36 purports to tackle this issue by providing that the FCA and the PRA would have to notify the Treasury Committee when they published a consultation and responded to any committee replies to their consultations. We do not need a clause in the Bill to do that; such a measure already exists. It is already part of custom and practice. Is that really accountability? Is that it? Surely, at the very least, we need a Joint Committee of both Houses made up of Members with the necessary experience and properly resourced, with informed and expert advice for overseeing what is a Herculean task.

There is no timescale associated with achieving the Bill’s objectives and it is not inconceivable that little, if anything, will change. I do also worry about how all this is going to be resourced. It can already take months for regulators to approve senior appointments and transactions in regulated businesses, damaging their ability to operate effectively. The FCA has itself acknowledged that it is underresourced to perform its existing responsibilities. This House and the other place have, on numerous occasions, raised the politically exposed persons regime as it affects Members of Parliament and their families to no clear purpose, but nothing has changed. Nothing has been done about it.

The ECB rules on capital, which limit lending by smaller banks to housebuilders as a result of abuses in Spain and Ireland, continue to apply in the UK at a time when the Government’s policy requires more housing. It is far more profitable for banks to lend money for mortgages than to build houses, so why are we surprised by the consequent increases in house prices? The countercyclical capital requirements now being introduced as the country experiences recession will require banks to hold more capital, restricting increased lending by smaller banks when so many good businesses need a lifeline. It seems unwise to me but neither the Treasury nor Parliament can do anything about it as the regulator’s independence is not to be questioned. I hope that, during the remaining stages of this Bill, my noble friend the Minister will address these issues.

Brexit presents us with many opportunities, including the chance for Parliament to unleash the talent and expertise of the City. However, I fear that this Bill needs to focus more clearly on execution and delivery. “Doing nothing often leads to the very best of something” might have been good enough for Winnie-the-Pooh but it will not be for us if we are to succeed as a nation.

Money Laundering Regulations: Politically Exposed Persons

Lord Forsyth of Drumlean Excerpts

Monday 28th November 2022 Lords Chamber

[Baroness Penn (Con)]

My Lords, there is a difference between looking at the FCA guidance and whether it is being properly adhered to and whether that could help solve the problem that noble Lords are talking about. We have made continuous efforts to look at that but, given the wider sentiment we have heard in this House, we also want to look at whether we can make a more substantive change to how domestic PEPs are regulated. That is a wider piece of work that could have unintended consequences, so we need to look at that carefully.

[Lord Forsyth of Drumlean (Con)]

My Lords, what was the point of us leaving the European Union to take back control if Ministers cannot direct the FCA to show a bit of common sense? I declare my interest as chairman of a bank.

[Baroness Penn (Con)]

My Lords, the standards for our anti-money laundering regulations come from the FATF, which defines an international approach. My noble friend is right that we have the opportunity, having left the EU, to adapt the anti-money laundering regulations to make them more proportionate and more effective. We have already done that in a number of areas, and the piece of work we are going to do, looking at the evidence around the risk of domestic PEPs, is a further area in which we can do some work.

Defined Benefit Pension Funds

Lord Forsyth of Drumlean Excerpts

Tuesday 1st November 2022 Lords Chamber

[Baroness Penn (Con)]

If that was the impression the noble Baroness had of my Answer, it was not the one I meant to leave with noble Lords. The regulators, including the Financial Policy Committee, the Pensions Regulator and others, will want to look at and reflect on the lessons that can be learned from the events of recent weeks. In pointing to the Commons committee’s work, I merely sought to address the noble Lord’s point about a different or more independent set of eyes also looking at this.

[Lord Forsyth of Drumlean (Con)]

My Lords, can it be true that the Bank of England’s own pension fund had more than 80% of its assets invested in these highly risky derivative products, which depended on keeping interest rates down? Given that the Bank of England intervened to buy bonds to keep interest rates down, was there not a conflict of interest there? Also, was it not apparent to everyone, if these are the facts, that the system of regulation has failed—failed absolutely —and needs to be looked at again?

[Baroness Penn (Con)]

My Lords, I do not know how the Bank of England’s own pension scheme is invested. As my noble friend pointed out, the particular issue around these schemes was liquidity; the Bank of England stepped in to address that issue, which I believe has now been resolved. None the less, we will look at the lessons that can be learned. I pointed to an exercise undertaken in 2018 to stress-test UK pension schemes’ resilience, but the movements we saw in the past few weeks went beyond the bounds of those scenarios. We should reflect on that and see whether anything needs to change as a result.

Premium Bonds

Lord Forsyth of Drumlean Excerpts

Thursday 23rd March 2017 Lords Chamber

[Baroness Neville-Rolfe]

As I said, it is important that people have choice and look at a sensible way of saving. Having material on different websites is important but, in the round, we try to make sure that government advice gives people a sound sense of direction on savings, including what is good value for money. Again, I emphasise the point about pensions: investing in a pension is a very good form of saving.

[Lord Forsyth of Drumlean (Con)]

My Lords, would my noble friend look at the rules, which, while respecting the importance of avoiding money laundering, make it extremely difficult for grandparents and others to gift premium bonds to young children? That would be a very useful way of encouraging saving.

Economic Forecasts

Lord Forsyth of Drumlean Excerpts

Tuesday 17th January 2017 Lords Chamber

Tabled by

[Lord Forsyth of Drumlean]

To ask Her Majesty’s Government how the United Kingdom economy has performed since 23 June, in terms of growth and employment; and how this compares to forecasts made by the Treasury during the referendum campaign.

[Lord Dobbs (Con)]

My Lords, at his request and with the leave of the House, I beg leave to ask the Question standing in the name of my noble friend Lord Forsyth of Drumlean.

Finance Bill

Lord Forsyth of Drumlean Excerpts

Tuesday 13th September 2016 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, it can sometimes seem a little lonely for a Minister addressing the House on issues such as the Finance Bill and the Budget. He sees before him a significant number of Members of the Opposition, some of whom have had experience in high office, including my noble friend Lord Darling as Chancellor, but he may not have too much support behind him. It was interesting today to see that the Minister had no support behind him: there has not been a single speaker from his Benches. Of course the House is reasonably full, reflecting the importance of this debate and the issues—

[Lord Forsyth of Drumlean (Con)]

It is true that there have been no Conservative speakers, but that is because those in the Conservative Party are really enthusiastic about their leader, who addressed them at the start of this debate.

[Lord Davies of Oldham]

My Lords, that is a convenient excuse. I have no doubt that it is important to prioritise attending such meetings. However, the noble Lord will also recognise that a prime duty of Members of this House is to attend debates and actually engage in them, particularly in circumstances where the Opposition will have some trenchant things to say about the main subject of the debate. But there have been no speakers from the Minister’s Benches. That may also be a reflection of the fact that the Government Benches have largely decided that the last Budget is wholly irrelevant to our present situation.

Several noble Lords have made that point quite explicitly. Even the noble Baroness, Lady Kramer, indicated that she had difficulty seeing the significance of the Finance Bill, which now belongs to the past and which was introduced by a previous Chancellor—a Chancellor who conspicuously failed in the significant tests that, had he been providing any supervision of the economy, he ought to have met. The deficit was postponed from 2015 to a putative surplus in 2019 and 2020. Growth, which he put forward in 2010, fell considerably below his optimistic forecasts. He even failed to match the growth levels that my noble friend Lord Darling presided over when he was Chancellor. Living standards for a very substantial section of our population have fallen. There have been no pay increases since 2010 and inflation has taken its toll. I imagine that, at this stage, members of the governing party are happy to see the back of the Finance Bill and its objectives.

Nevertheless, we have to recognise one absolutely critical aspect of the Finance Bill and I want to itemise that. The Government emphasised that cuts in corporation tax and capital gains tax would help investment in the economy and help to boost British industry and enterprise, but there was never a reference to any deleterious effects. This is a manifestly unfair Finance Bill. It is asking ordinary people to sustain the cost of cutbacks in crucial areas of government expenditure while tax breaks are given to those among the wealthiest in our society.

We are critical of the Bill. We were critical of it in the other place and we are critical of its general propositions here. But of course the debate has moved on in several respects. This House had the benefit of a report introduced today by the chair of the Economic Affairs Committee, my noble friend Lord Hollick, who emphasised the fact that the Government had discreet weaknesses in their position over the subject of that report. We can all see the advantages to the taxation system of modernising the receipt of taxes, but the digital economy clearly presents enormous challenges for ordinary people. It is not the case that everyone in this country is completely au fait with how the digital economy is meant to work and who have the confidence to respond in those terms. But there is no indication that the Government have any real awareness of that. In the report that my noble friend commented on, that point was emphasised.

The report also emphasised that the Government pay lip service to the concept of tax simplification. It says positive things about the Office of Tax Simplification, but not what the committee emphasised, which was any suggestion of adequate resources for that office to be able to carry out its role. We recognise that the Government have some regard for the Office of Tax Simplification. They certainly accepted amendments to place greater emphasis on the role of the Treasury Select Committee in the other place with regard to personnel. But the fundamental point remains that the report sought greater resources for the Office of Tax Simplification. It wanted much more consideration of the way in which the ordinary taxpayer will respond to the digital revolution and it wanted greater consultation about the development of tax law so that matters should be simpler for the ordinary taxpayer. I hope that the Minister will address those points because they are an important part of this debate so ably introduced by my noble friend Lord Hollick.

The Minister also needs to respond to points made by my noble friends Lord Darling and Lord Hain. They emphasised the extent to which it is essential for the Government to change their order of priorities and develop a strategy for growth that enables us to improve what I know the Minister is concerned about—levels of productivity. They will not increase while we are trailing at low levels of growth. It is important for the Minister to respond to the fundamental issue that for the last six years we have had a great weakness in the British economy that no amount of concentration on reduction of debt has done anything greatly to assuage. That is why the Minister needs to respond to these crucial issues raised in the debate.

Noble Lords who subsequently followed my noble friends largely regarded the issues of the Finance Bill as passé and not part of the crucial issues of the debate about our economy at the present time.

Of course, we have moved into the fog of Brexit. We are grateful to the noble Lord, Lord Kerr, who sought clarification on some of the issues, the first of which is an indication of the timescale for when certain aspects will need to be negotiated. I have seen nothing from the Government that remotely approaches anything as definitive as that. Nor have I seen any recognition on the part of the Government of the point made by the noble Lord, Lord Kerr, when he said that it is important that those who are involved in determining our negotiations with the European community should acknowledge that this is an entirely capitalist economy. It is an exercise in which they will expect to get the best deals they can for themselves as much as we will strive to do on behalf of our people. That is a tough agenda, but I have seen nothing yet to show that the Government are facing up to it, particularly when one of the key figures of Brexit, the Secretary of State Liam Fox, attacks British industry for being more interested in playing golf than improving its business record.

These are serious issues which the Government need to take hold of very rapidly indeed, yet thus far we have had nothing but evasion when challenges are presented, and indeed they have been presented today with great force in this House. We all recognise the primacy of the other place when it comes to financial issues, but occasionally we are given the chance to debate the nature of the challenges in our economy. Consideration of the Finance Bill gives us no chance to amend or challenge it because that is the responsibility of the elected House, but as I say, we have a chance to comment on the economy and to point the way forward to a more constructive position than what obtains at the moment.

What we have now is obvious. We have economic failure on the part of the Government in previous years now allied to a decision by the British people to throw a great deal of our trading position into hazard. It is important that the Government should take every opportunity to clarify how they are going to go about the Brexit process. That does not mean that they should give away their negotiating position, but they should reassure people that they understand what the approach will be and how long it will take. Thus far, we have had nothing.

Surplus Target: Corporation Tax

Lord Forsyth of Drumlean Excerpts

Monday 4th July 2016 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, I notice to my right some noble Lords with strong views on and experience of these kinds of events. Let me just reflect on my own judgments, including some from my past life. Let me also quickly state that in the last week our long-term borrowing costs have gone down. It is the job in terms of policy to focus on doing what is right in the circumstances. I do not believe that we should react to or be excessively focused on what a rating agency may say one way or another. It is important that we do the right thing.

[Lord Forsyth of Drumlean (Con)]

My Lords, can my noble friend help those people in the country who might be a bit puzzled as to why the Chancellor said a few days before the referendum that if we voted to leave the European Union interest rates and taxes would have to go up? Now we are faced with the proposition that taxes should be cut and interest rates might go down. Why did that strange transformation take place over such a short time in the Treasury?

[Lord O'Neill of Gatley]

My Lords, forecasts are forecasts and I have spent a considerable part of my life having that dubious challenge. We are dealing with an outcome as opposed to a forecast. From what I remember of the specifics, I do not remember a statement that interest rates “will” rise, I thought it was more that they “could” rise. Importantly, while the Chancellor has responded with the appropriate flexibility for the new circumstances we may find ourselves in, based on what the OBR comes up with in its new forecasts for the Autumn Statement, it may well be that there are still difficult choices to be made.

The Economy

Lord Forsyth of Drumlean Excerpts

Thursday 28th April 2016 Lords Chamber

[The Commercial Secretary to the Treasury (Lord O'Neill of Gatley) (Con)]

My Lords, it is an honour for me to lead this debate today on the economy and our prospects. Let me add that I am glad to see that the topic of economics is as stimulating as always. The purpose of this debate is partially to give noble Lords an opportunity to contribute, in view of the fact that the Budget debate was held in the Moses Room, given the heavy legislative agenda. With this in mind, as many might have participated there, my opening remarks will be offered in a slightly different style so as not simply to repeat much of what I offered that day.

I also take this opportunity to pay tribute, on the sad news of his recent passing, to the remarkable contributions made by Lord Peston to this House and our country as a whole.

Since this Government came to power, the economy has made good progress: no other G7 economy has grown faster; we have record levels of employment; our fiscal deficit has declined considerably; and we have a clear path to the goal of a fiscal surplus and reduced government debt. Nevertheless, we face a considerable period of uncertainty around the world and, as an open economy, we live in that world with consequences for us from what happens to the rest of the world and the actions we may take in engaging with it. With this in mind, I will make some comments about the EU referendum and its possible interplay with two of our ongoing economic challenges: our low recorded productivity performance and our large external deficit.

It is a fact that for a long time, the UK has experienced much weaker levels of productivity than our G7 neighbours. It is apparently also the case that since 2010, our productivity performance has been weak compared to the pre-crisis period, as is seemingly true for the rest of the G7, but with ours deteriorating more than others. We have spent time debating the causes, and in the past year we have introduced a range of policies to remedy some of these challenges, but I will present some further aspects of this complex and challenging issue today.

Interestingly, there is no real evidence that financial markets are especially troubled by this—at least yet. Since 2010, our trade-weighted exchange rate—the average of our exchange rates against all our neighbours—has risen by around 6%, while those of five of our G7 partners have declined. Since 2015, our trade-weighted exchange rate has indeed declined, by just under 5%, which is more than the rest of the G7, but this only takes back some of the rise since 2010.

If there were concerns around the world about our ongoing productivity performance, you might expect a larger sustained weakness. It is also evident from other key financial indicators—be it our appropriate measure of equity indices or our gilt market performance compared to elsewhere—that there are no signs of structural underperformance. This is gratifying and could be read as suggesting that markets do not entirely believe the accuracy or importance of the reported productivity data, or that there are much important influences at work, including perhaps our strong GDP and employment performance. None the less, we cannot take this “kindness of strangers”—to paraphrase the Governor of the Bank of England—as a given, and if our productivity underperformance persists or deteriorates further, and/or other, strong aspects of our economic performance reverse, then markets might behave differently. I shall return to this later, but as the Treasury has shown recently, a vote to leave the EU might be regarded as a negative productivity shock.

If you adjust our reported productivity data for their employment strength, and again compare them with the rest of the G7, our underperformance does not look quite so bad. Although the link between productivity and employment is uncertain, recent work by the French academics Bourlès, Cette and Cozarenco—apologies for my pronunciation—has identified a relationship between the employment rate, the number of working hours and the level of productivity.

Making use of this work, and adjusting our competitors’ employment rate and working hours to match our own, we can generate illustrative estimates of what one might regard as a truer productivity gap. These estimates find that the gap drops considerably with some of our neighbours: approximately 40% with Germany, around 50% with France and over 70% with Italy.

There are also some important facts to highlight from the reported productivity data. For example, and again in contrast to much of the perception, some of our key service sectors have been reporting strong productivity performance: notably, wholesale and retail, which has grown by 11.3% since the start of 2010.

It is not true that, as is often perceived, manufacturing is the source of the strongest productivity performance. As reported—and again, not generally appreciated—in fact, two of our weakest productivity performers since 2010 have been financial services and oil and gas, both reversing previously apparently strong productivity performances. There is a case to be made that the recent weakness might simply be compensating for what was actually, in hindsight, not sustainable productivity. If that is indeed true, this part of our supposed recent productivity weakness is not something to be concerned about. Of course, it might be that these sources of productivity weakness need to be reversed, which, if so, is contrary to much popular perception of our immediate challenges. More analysis on this conundrum is definitely necessary.

Whatever is the case with that interesting challenge, I remain happy in general with our progress in pursuing the policies that deal with our longer held major sources of underlying productivity weakness. An essential part of that plan is to invest in skills and training so that we can meet the needs of employers. That means, for example, making sure that the adult skills budget is protected, or creating a new network of national colleges and institutes of technology.

It also means giving more young people the opportunity to develop high quality skills, and our expansion of apprenticeships is about quality as much as quantity. By 2020, we will have doubled what we spent on apprenticeships in 2010 in cash terms.

We also need to make sure that we have the best possible infrastructure in place. That is why we have established an independent UK Infrastructure Commission and stepped up investment in the road and rail networks we need, such as Crossrail 2 and so-called High Speed 3.

Lastly, we need to realise our vision of a northern powerhouse—something in which I am particularly involved—to make sure that we realise the productive potential of all parts of the United Kingdom. As well as investment, devolution remains a crucial aspect of this.

I turn to the second so-called Achilles heel: our current account balance of payments. This is a perceived weakness which is of course worthy of some concern. The latest data show a sharp deterioration in the fourth quarter of last year to 7% of GDP, and as a consequence of that quarter’s number, for 2015 as a whole the reported deficit was 5.2% of GDP.

As I shall explain in a minute, there are important qualifications that suggest that this external deficit might not be quite as concerning as it might be if it were dominated by a deteriorating trade deficit. But, whatever that explanation, it is also true that if strangers were to become less kind, it could be problematic, especially if it coincides with a new, clear negative productivity shock.

Examining the data in detail reveals that for the past four years, our trade balance has stabilised, albeit with a deficit that is still too high. The actual source of the current account deficit deterioration is in the so-called non-trade accounts. Earnings from our overseas investments have declined—presumably reflecting lower economic growth—while our returns to overseas investors, perhaps reflecting our superior economic performance, have stayed relatively strong. As such, we ran an income deficit—the difference between the two—of nearly 2% of GDP last year. One might imagine that, as the rest of the world economy strengthens, especially in the rest of Europe, those returns should increase as this part of the external accounts improves, possibly significantly.

However, as I personally have discovered in recent discussions with many large foreign investors, including some that I have visited—I was in the Middle East the week before last—if we were to adopt policies that might give rise to increased risk premia in their eyes, they might decide to stop investing here, which would result in an investment shortfall for the UK that would, among other things, immediately require a corresponding domestic rise in our savings rate. This could be translated in a number of different ways, but it would quite possibly be the case that this could be forced through an immediate cut in our consumption, which itself could be forced by an adverse reaction in financial markets.

Against the background of these two issues, let me now turn to the EU referendum. As shown in the document we published on Monday 18 April, a decision to leave the EU would represent a classic trade and productivity shock, and it would occur at a time when our current account requires ongoing net positive capital inflows to maintain financial market stability. This analysis found that a decision to leave the EU would lower GDP by 6.2%, leaving the average household £4,300 worse off, if we assume that the UK would negotiate a bilateral trade agreement such as Canada’s. However—I am sure most noble Lords are more than aware of this, but for those who are not—it is not just the Treasury’s analysis which shows this: the bulk of credible economic analysis, including that produced by the Bank of England, the IMF, the LSE’s Centre for Economic Performance and, yesterday, the OECD, corroborates the broad findings of the Treasury. This seems a very unsatisfactory risk/reward ratio unless there are clear, definable long-term benefits.

[Lord Forsyth of Drumlean (Con)]

My noble friend referred to the Treasury document and its estimate of the effect of leaving the European Union. It included an estimate projecting 15 years ahead that we will have 3 million more people in this country as a result of immigration. Will he tell the House what provisions are made by the Treasury to fund the health, education, housing and other costs that would arise from that?

[Lord O'Neill of Gatley]

My Lords, I could spend a lot of time specifically wading into this question. I will reflect on other comments I hear and try to incorporate them in my closing comments. In our transparent and clear fiscal policy framework we have committed to a path for all sorts of areas of government spending over the remainder of this Parliament, including protecting those areas that we think most need it.

I will finish my opening remarks as quickly as possible.

[Lord Forsyth of Drumlean]

My noble friend has not answered my question. The Treasury document assumes that there will be 3 million people here as a result of our inability to control immigration. That has huge implications for spending. The document made no reference to that and I can see nothing in any of the Treasury’s plans that indicates how the costs of the schools, hospitals and other infrastructure that will arise will be met in those circumstances. Surely the Minister has an answer. It was his document.