Autumn Budget 2024

Lord Fox Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Fox (LD)]

My Lords, it is a great pleasure to speak in this debate and to welcome the noble Lord, Lord Booth-Smith, to his place and the noble Baroness, Lady Penn, back to her place.

The noble Lord, Lord Johnson, is taking his new job as party co-chairman very seriously. Clearly, to entertain his troops, he has turned up the rhetoric to 11. However, for all the huff and puff we have just heard, His Majesty’s loyal Opposition have no moral authority to criticise those who are picking up the mess they left. The parlous state of the economy, the near collapse of public services and the sheer level of financial mismanagement that we saw from the former Government was a disgrace.

One of the benefits of your Lordships getting to debate this Budget somewhat after it was released is that its effect is starting to crystalise, and I suspect that the Minister may be disappointed by the way it has been received. Then again, as he is a seasoned Treasury hand, I would ask him whether he was surprised by the reception the Budget got. OBR data and that of countless other analysts shows that UK households, which are still struggling to absorb the shocks from the pandemic, inflation and the energy crisis, will now be hit by the tax increases in this Budget, one way or another. Meanwhile CPI inflation is expected to rise above previous expectations and interest rate cuts will probably slow. So it cannot really be a surprise that the Chancellor failed to inspire a mood of national cheer.

Nevertheless, we are glad that the Chancellor listened to Liberal Democrat calls for more investment in the NHS in order to start repairing the damage done by the Conservatives. We will now hold the Government to account on delivering their promises, so that people can, for example, see a GP or dentist when they need to. However, we must ensure that this money is not used to paper over the cracks. Structural reform is needed, but more than that, the Government are still ignoring the elephant in the room: the social care crisis. In fact, it is likely that they are making the situation worse, because the employer national insurance increase will hit social and primary care.

Thousands of private care providers are now facing increased costs, forcing them to reduce services and increase charges or even pushing them into collapse. GPs, who are already stretched, will also be hit by this tax change. GPs and social care providers cannot afford these tax rises and you cannot fix the NHS without fixing primary and social care. We urge the Government immediately to sort out the challenges facing these health providers. They must also start cross-party talks on the long-term future of social care and get on with reforming it.

Having boxed themselves in during the election from using big tax opportunities, the Chancellor could have done what we campaigned for: reverse Tory tax cuts in the bank tax, implement an increased tax on betting companies and levy the digital giants. Instead, the Chancellor turned to business to raise a spectacular amount of tax. As a result, the UK tax take is set to rise to a historic high. This was a tough Budget for employers to swallow, particularly small and medium businesses, social enterprises and charities.

SMEs have had a tough time for years, struggling with rising energy prices, Covid loans, high interest rates and rocketing input costs. They were hammered by the previous Conservative Government, who broke their promise to reform business rates and tangled them up in red tape. Given their importance to our economy, it is wrong to hit them like this. The burden of this Budget should fall on the likes of big banks, social media giants, gambling companies and oil and gas firms—not small businesses.

Added to increased NIC costs, the living wage increases will have a big effect. Leaders in the hospitality and retail sectors told the Business Secretary that the tax bill for employing a part-time worker had increased by 73% as a result of lowering the threshold for national insurance contributions. This sort of rise cannot be absorbed in these low-margin sectors. Then there are the changes in agricultural and business property relief. Your Lordships will likely hear today—and already have—how these changes threaten the generational chain of family farm ownership. I add my voice to that. As someone from Herefordshire, I know the effect this is already having on rural communities.

Less publicised is the possible plight facing family businesses. Will the Minister say how these businesses will be valued when they are taxed? How does the introduction of this liability encourage family firm entrepreneurs to grow their business? I note that these changes raise little more than £500 million overall. Given the individual anguish they are already causing in our communities and the political trouble they are causing him, I wonder whether the Minister would rather have increased the betting tax instead.

With all this, the Chancellor looked to sweeten the pill. The Minister set out those measures very well. The message is that, in return for the pain, there will be progress: an industrial strategy, infrastructure investment, including accelerating the drive to net zero, and investment in people and skills. These Benches say “bravo” to that, and I congratulate the Chancellor on continuing the industrial strategy put in place by Vince Cable on and investing in key sectors. Capital-intensive sectors have also welcomed the commitment to long-term political stability, be it through the corporation tax road map or the full expensing regime, but what new ideas can we expect?

On infrastructure and net zero, it is all about delivery. The startling thing about the Chancellor’s projections is the very low level of growth over the next five years: 2% or less is not a good return on the investment the Government say they will make. It should also be noted that this Budget is very front end-loaded. The money going into public services in years four and five dwindles spectacularly. The Government are hoping that actual growth will increase beyond current projections to bail out those last two years. That requires delivery.

We want this Budget to succeed. The list that the Minister just rattled off was full of important things that this country needs, but we have no time to waste. We will be strong on chasing delivery. I for one worry whether the UK has the capacity to absorb investment on the scale the Government intend, not least because they are moving slowly on the skills sector. The Minister mentioned Skills England, but when will any results of that start to affect how investment is delivered? Where is the workforce going to come from to deliver the growth we need, and how will investment be delivered?

We await the Government’s 10-year infrastructure strategy. What will the vision be for infrastructure investment? How will projects be prioritised? Can the Minister please clarify how the new national infrastructure and service transformation authority will improve delivery, and when will we see all of this?

Of course, there is a golden opportunity to boost growth. If the Government are serious about growth, they have to materially fix our relationship with the EU. That means beginning the work that will set us forward towards future membership of the single market.

In summary, burdening small businesses, GPs and small care providers with a jobs tax is wrong. Small businesses have had a very tough time for years and countless small care providers are on the brink. Making things even harder for their workers is not right.

Family farms have experienced one shock after another in recent years, from spiralling energy, fertiliser and feed prices to the Conservatives’ terrible trade deals. This Government should not have dealt them another blow, especially when they are making real-terms cuts to the Defra budget. We will be standing up for family farms.

We are also calling on the Government to exempt social care providers and GPs from the employers’ national insurance tax rise, and we will continue to speak up for those struggling with the cost of living crisis, holding the Government to account on their decisions to cut the winter fuel payment and to increase bus fares. I look forward to hearing from your Lordships in the debate.

--- Later in debate ---

[The Earl of Clancarty (CB)]

My Lords, I, too, congratulate the noble Lord, Lord Booth-Smith, on his excellent maiden speech. I will speak on the arts and creative industries. I thank the Campaign for the Arts and the Authors’ Licensing and Collecting Society for their briefings. There is, of course, a one-hour debate on the effect of the Budget on this sector on Thursday, but this area is certainly important enough that both the Treasury and the DCMS should be addressed on the concerns that this sector has, not least because the Budget is a mixed bag for the arts and creative industries. Perhaps worse than that, the areas where funding is most urgently needed after so many years of underfunding have not been addressed and indeed could go backwards, which is disappointing for a Government who say they will support the arts.

There is good news, hopefully, for the national museums and galleries, but questions remain: how much additional funding will be made available and when will this happen? Will the Government further help other struggling arts and cultural organisations— the plight of Welsh National Opera immediately springs to mind—through the Arts Council and other funding bodies? I thank the Government for listening to concerns about VAT on specialist performing arts schools and confirming that courses covering the Music and Dance Scheme and the Dance and Drama Awards scheme will not attract VAT. I think that will be music to the ears of the noble Lord, Lord Berkeley.

[Lord Fox (LD)]

Literally.

[The Earl of Clancarty (CB)]

Literally—yes, indeed. However, as the Campaign for the Arts says:

“Realising the full ambition and potential of”


Labour’s growth plan, including for the creative industries,

“will take a level of resourcing and commitment beyond that which we have seen at this Budget”.

Starting with the noble Lord, Lord Fox, earlier in this debate, we have had numerous references to concerns about the survival of SMEs. Will the Government promise to keep an eye on, or even formally assess, the effects of their measures on SMEs? This is hugely important for the creative industries after being hit so hard by both Brexit and Covid.

The director of the Museums Association, Sharon Heal, said that

“the urgent needs of local and regional museums and galleries have not been addressed in this budget”,

and the Minister should be aware that the situation for civic museums is sufficiently urgent that a programme of emergency funding was asked for before the Budget. Birmingham Museums Trust said that

“this budget leaves us worse off and we are already in a dire financial situation in Birmingham”.

Similar arguments can be made about our libraries across the country, as the noble Lord, Lord Shipley, referred to, and I agree with everything that the noble Lord, Lord Whitty, said about a new basis for local authority funding. For authors, there is disappointment that the public lending right has not been addressed, seeing that there has been no increase in PLR in the last 10 years. Our own £6 million fund pales in comparison to Germany’s £14 million annual pot. Will the Government increase the fund to ameliorate these significant discrepancies?

The Government intend to cancel levelling up culture projects affecting the International Slavery Museum, the National Railway Museum, V&A Dundee and Venue Cymru. Why do the Government not consider these investments to be sufficiently, in their own words, “focused on the growth mission”? Have they assessed the impact of cancelling these investments?

The reduction in business rates relief will adversely affect the arts. The Music Venue Trust has calculated that this reduction will place an additional £7 million burden on 350 grass-roots music venues, put at risk more than 12,000 jobs and cost more than £250 million in economic activity. I understand there will be a consultation on business rates reform in 2026, but this will not help the hundreds of already struggling music venues that will undoubtedly be lost unless the Government rethink their decision or intervene with a ticket levy on big arena gigs that can help the small venues. While of course it is good news that the arts tax reliefs remain unchanged, it is disappointing that this has not been extended to choirs. Will the Government look again at this?

Finally, Creative Europe was a huge help to our arts and culture, yet we have never had any proper replacement for that funding; indeed, we ought to rejoin Creative Europe, which the rules allow us to do. On top of that, we now hear that the UK shared prosperity fund is to be reduced and phased out. Have the Government assessed the impact of this? Why is it happening before reforms have been completed?

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, it is a privilege to close today’s debate on the Budget. I am grateful to all 75 noble Lords for their insights, differing perspectives and expertise. I join others in congratulating the noble Lord, Lord Booth-Smith, on his excellent maiden speech, bringing his valuable first-hand experience of government and policy-making to your Lordships’ House. I look forward to his further contributions in debates such as this.

This was a Budget to fix the foundations; to restore stability by repairing the public finances; to rebuild our public services after years of neglect; to choose investment, rather than decline; and to keep our promises to working people. It was a Budget notable in scale, but commensurate with the challenging inheritance that we faced.

The noble Lord, Lord Johnson of Lainston, in his opening speech for the Opposition, began by denying the need to rebuild the public finances and the need to restore stability to our economy. He failed yet again to say sorry for the past 14 years, in particular for the disastrous Liz Truss mini-Budget. What he went on to defend was, in itself, very revealing. He defended second homes being bought up by foreign owners, pushing up prices for first-time buyers. He opposed reintroducing a reduced rate of inheritance tax above £3 million. He opposed VAT on private school fees, cutting £1.7 billion from state schools. He defended tax-relief pensions being used not as a retirement vehicle but as a tax-planning tool. It was very clear where the party opposite’s priorities lie, and the choices that it would make, and they would certainly not be for working people or public services.

Several noble Lords spoke in positive terms about this Government’s economic inheritance, including the noble Lord, Lord Lamont of Lerwick, and the noble Baronesses, Lady Finn and Lady Lea of Lymm. The reality is that, over the past 14 years, the UK’s economic performance was poor, as my noble friends Lord Hannett of Everton and Lord Bach, and the noble Baronesses, Lady Wheatcroft and Lady Kramer, said. Had the UK economy grown at the average rate of other OECD economies, our economy would have been £171 billion larger. Inflation peaked under the previous Government at 11.1%, as my noble friend Lady Crawley said, and was above target for 33 months in a row. It was the worst Parliament for living standards ever recorded. The UK was the only country in the G7 to have a lower employment rate and a higher inactivity rate than before Covid. As my noble friend Lord Eatwell said, public services were pushed to breaking point, with sewage in our rivers and our schools literally crumbling.

Some noble Lords focused on this Government’s fiscal inheritance and the £22 billion black hole, including the noble Lord, Lord Johnson of Lainston, who seemed to be confused by the fact that the numbers went up over time. It was mentioned also by the noble Lord, Lord Lamont of Lerwick, and the noble Baronesses, Lady Finn and Lady Lea of Lymm. The Treasury has provided to the OBR a line-by-line breakdown of the previous Government’s unfunded commitments—260 separate pressures. Noble Lords need not just listen to the OBR and the Treasury; they need look only at the outturn data. Central government current expenditure published by the ONS shows that, for the six months since March, the outturn is £11.8 billion higher than forecast. That is £11.8 billion over six months, well on course for £22 billion over the year.

This Government’s number one commitment is to economic and fiscal stability. That is why we support the fiscal framework, the OBR and the independence of the Bank of England, which the noble Lord, Lord Altrincham asked about. It is also why we have established robust fiscal rules, which put the public finances on a sustainable path while allowing a step change in investment to drive long-term growth. The stability rule brings the current Budget into balance so that we do not borrow to fund day-to-day spending, as my noble friends Lady Crawley and Lord Murphy of Torfaen said.

The noble Baroness, Lady Penn, mentioned borrowing. Borrowing as a share of GDP falls over this Parliament, from 4.5% to 2.1%, as we achieve the biggest current Budget surplus in over 20 years. Over the past 14 years, borrowing averaged 5.6% of GDP. Over this Parliament, it will average 2.6% of GDP. However, while being tough on spending, we must create the space for investment.

As the IMF has said, more public investment is badly needed in the UK, so the investment rule, as set out in our manifesto—despite the claim made by the noble Lords, Lord Lamont and Lord Bridges of Headley—will target debt falling as a share of the economy. It will be defined as net financial debt. I am grateful to the noble Lord, Lord O’Neill of Gatley, for his welcome of this move. He stressed the need for the guard-rails we have set out and the importance of what this investment is spent on. I am grateful, too, for the support of my noble friends Lord Liddle and Lord Chandos, the noble Lord, Lord Young of Cookham, and the noble Baroness, Lady Wheatcroft. As my noble friend Lady O’Grady of Upper Holloway pointed out, the previous Government planned to cut public investment, a recipe for continued decline.

To address the points made by the noble Lord, Lord Johnson of Lainston, and the noble Baroness, Lady Penn, these rules are actually tougher than those of the previous Government. To stop fiscal commitments being endlessly deferred for five years, this is the last year when the fiscal rules will target the fifth and final year of the forecast. The rules must be met by 2029-30 at this Budget, and until 2029-30 becomes the third year of the forecast, at which point both rules will target the third year of the rolling forecast period. This is a much tougher constraint than the previous Government’s borrowing rule: to borrow up to 3% of GDP by the fifth year of the forecast.

To repair our public finances and rebuild our public services, the Budget raised taxes by £40 billion. It was therefore a very significant Budget, as the noble Baroness, Lady Penn, set out. It was, though, commensurate with the challenges that we faced. The noble Lord, Lord Lamont of Lerwick, described it as bold; it was of course the most fiscally significant Budget since his Spring Budget of 1993. The Budget meant taking difficult decisions, to address the point made by the noble Lords, Lord Burns and Lord Lamont. As a result of those decisions, we have now wiped the slate clean, meaning that we never have to do a Budget like this again. We have set tough fiscal rules, which we meet two years early, and set the envelope for the second phase of the spending review, which we will stick to.

The noble Lord, Lord Johnson of Lainston, helpfully quoted our manifesto, as mentioned also by the noble Baroness, Lady Penn. Let me be clear: this Budget keeps every single manifesto commitment we made to working people—to not increase their income tax, their national insurance or VAT. We went further by freezing fuel duty, on which I disagree with the noble Lords, Lord Londesborough and Lord Young of Cookham, and my noble friend Lord Whitty, who said that it should have been raised during a time of cost of living pressures. I also disagree with the noble Lord, Lord Londesborough, who said that we should have increased employees’ national insurance.

The choice made by the previous Government was to freeze income tax thresholds, costing working people nearly £30 billion. We could have extended that freeze but instead, from 2028-29, personal tax thresholds will be uprated in line with inflation once again. The noble Lord, Lord Sherbourne of Didsbury, mentioned how many more people had been pulled into tax.

This Budget does, though, involve some very tough decisions. Several noble Lords, including the noble Lords, Lord Burns, Lord Bilimoria, Lord Londesborough, Lord Oates, Lord Shipley, Lord Gadhia, Lord Razzall and Lord Northbrook, and the noble Baronesses, Lady Wheatcroft and Lady Penn, focused on the increase in employers’ national insurance contributions by 1.2 percentage points to 15% from April 2025. We of course recognise that this involves asking businesses to contribute more. We have acknowledged that the impacts of this measure will be felt beyond businesses too, as set out by the OBR.

The noble Lords, Lord Fox and Lord Northbrook, the noble Earl, Lord Devon, and the noble Baroness, Lady Kramer, mentioned small businesses and their importance to the economy. We are protecting the smallest companies by increasing the employment allowance from £5,000 to £10,500, meaning that 865,000 employers will not pay any national insurance at all, and that more than 1 million employers will now pay the same or less than they did before. The Federation of Small Businesses said in its Budget response:

“Against a challenging backdrop, today’s Budget shows a clear direction in business policy now for the whole of this Parliament to target support at small businesses … prioritising everyday entrepreneurs working in local communities in all parts of the country”.


Some noble Lords raised the issue of compensation, including the noble Lord, Lord Fox, and the noble Baronesses, Lady Tyler of Enfield and Lady Kramer. The Government have chosen to compensate the public sector with £5.1 billion to ensure there is sufficient funding to support our vital public services, including the NHS. We will work with departments to ensure that the funding set aside is allocated appropriately. The Department of Health will confirm funding for GPs for 2025-26 as part of the usual GP contract process later in the year, including through consultation with the sector. The spending review includes an investment of £100 million. The Government also provided a significant funding top-up to local government, which can be used for pressures including adult social care.

The Government of course recognise the need to protect the smallest charities. Like any other eligible business, they will benefit from the significant changes to the employment allowance, which mean more than half of businesses with NICs liabilities either gain or see no change next year. Charities will still be able to claim employer NICs reliefs, including those for under 21s and under 25 apprentices, where eligible.

The noble Lord, Lord Dobbs, asked about the impact on employment. Following the Budget, the Bank of England now expects that rather than unemployment increasing, as it had previously forecast, unemployment will now fall. According to the OBR, employment will grow over the forecast period by 1.2 million.

The noble Lord, Lord Bilimoria, and the noble Baroness, Lady Penn, asked about the impact on living standards. The last Parliament saw living standards stagnate and was the worst Parliament for living standards ever recorded. The OBR forecast shows that real household disposable income will increase by an average of 0.5% in real terms each year. That is a world away from the stagnating living standards we saw under the last Government, and in the context of a Budget where we had to take some very difficult decisions to clean up the mess that we inherited.

Many noble Lords focused their contributions on economic growth. As several noble Lords mentioned, there was no bigger failure of the previous Government than their failure on growth. My noble friend Lord Whitty and the noble Lord, Lord Skidelsky, mentioned their austerity, their Brexit deal—which permanently reduced growth by 4%—and their disastrous mini-Budget, which, as my noble friend Lady Liddell rightly said, crashed the economy.

My noble friend Lord Liddle, the noble Lords, Lord Fox, Lord Razzall and Lord Shipley, and the noble Baroness, Lady Kramer, were right to reinforce the importance of this Government’s European reset to address the trade barriers that businesses now face.

When last week the Bank of England cut interest rates, it forecast that the Budget would add 0.75% to growth next year. Over the course of this Parliament, the OBR says growth is largely unchanged. The noble Lord, Lord Johnson of Lainston, said this Budget did nothing for growth, but over the longer term the OBR says that this Budget will permanently increase GDP by 1.4% due to the investment that his party is opposing. The noble Lord, Lord Lamont, also opposed that investment but called for more growth.

As the noble Lords, Lord Burns and Lord Young of Cookham, and my noble friend Lord Liddle said, we need to go further and we need to go faster. That is why economic growth remains this Government’s central mission.

The noble Baroness, Lady Neville-Rolfe, rightly focused on GDP per head and productivity. She raised an interesting suggestion which I will happily look at.

The noble Lord, Lord Bridges of Headley, mentioned debt. The OBR shows that the best way to make debt sustainable is to increase productivity.

As my noble friend Lord Eatwell set out, long-term reforms are vital. We have set out extensive planning reforms, a new national wealth fund and a modern industrial strategy, and created Skills England. I totally agree with my noble friends Lord Liddle and Lord Monks on skills and that we must go further.

We will shortly publish the “Get Britain Working” White Paper to tackle inactivity, and the Chancellor will set out pension reforms—which the noble Lord, Lord Howell of Guildford, asked about, and the noble Lord, Lord Gadhia, commented on—in her Mansion House speech later this week. All of these things will significantly boost growth, and none of them, as the noble Lord, Lord Gadhia, observed, are yet included in the OBR’s forecast.

The right reverend Prelate the Bishop of Newcastle and my noble friend Lord Sahota spoke about the importance of regional growth. In the Budget we set out the first steps in our approach to spreading growth across the country through devolution, investment and reform. We gave mayors greater control of their budgets by announcing the first integrated settlements for the West Midlands and Greater Manchester from 2025-26. We invested in major railway projects, and we confirmed funding for investment zones and freeports.

The noble Lords, Lord Fox, Lord Gadhia and Lord Forsyth, spoke about inflation and interest rates. The OBR is forecasting that inflation and interest rates will fall over the course of this Parliament. That is very different from the previous Parliament, when inflation peaked at 11.1% and was above target for 33 consecutive months, and when mortgages rose by an average of £300 a month following the Liz Truss mini-Budget.

My noble friend Lord Bradley spoke about the importance of growth to investment, and I agree with the points that he made. As several noble Lords set out, including the noble Lord, Lord Bilimoria, and the noble Baronesses, Lady Finn and Lady Moyo, private investment is a vital part of addressing the growth challenge. That is why this Budget delivers stability by putting on a sustainable path the public finances, which are an essential foundation for growth and investment. To ensure certainty, in the Budget we published a Corporate Tax Roadmap, which confirms our commitment to cap the rate of corporation tax at 25%, the lowest in the G7.

The noble Lord, Lord Londesborough, asked about enterprise. We have extended the enterprise investment and venture capital trust schemes until 2035. We have also taken action on late payments and non-financial reporting burdens. As my noble friend Lady Liddell said, at the recent international investment summit we saw over £60 billion of new investment creating nearly 40,000 new jobs.

I was surprised that the noble Lord, Lord Fox, spoke against the increase in the national living wage.

[Lord Fox (LD)]

I did not speak against the rise in the living wage. If the Minister goes through Hansard, he will find that to be the case.

[Lord Livermore (Lab)]

I will check, but it did sound very much like it to me.

The noble Baroness, Lady Neville-Rolfe, spoke against the plan to make work pay. But, as my noble friends Lady O’Grady of Upper Holloway, Lord Monks and Lord Hallett of Everton pointed out, there is now a wealth of evidence that greater in-work security, better pay, more skills and more autonomy in the workplace have substantial economic benefits. A more secure and productive workforce is good for business and good for working people, because each depends on the success of the other.

Many noble Lords focused on some of the other tax measures contained in the Budget. The noble Lord, Lord Londesborough, asked about stamp duty, which was also mentioned by the noble Lord, Lord Elliott of Mickle Fell. We are reforming stamp duty land tax so that those who buy second homes pay two percentage points more than before. This will support an estimated 130,000 additional people to buy their first home.

Many noble Lords mentioned agricultural property relief. They included the noble Lords, Lord Fox, Lord Forsyth, Lord Bilimoria, Lord Dobbs, Lord de Clifford, Lord Young of Cookham, Lord Empey, Lord Berkeley of Knighton, Lord Northbrook and Lord Shipley, the noble Earl, Lord Devon, the noble Duke, the Duke of Wellington, the noble Baronesses, Lady Mallalieu and Lady Humphreys, and the right reverend Prelate the Bishop of Newcastle. In terms of inheritance tax, currently the largest estates pay a lower effective tax rate than smaller estates. That cannot be right, so we are reforming agricultural property relief and business property relief to reduce this unfairness, while protecting small family farms. Almost three-quarters of estates claiming the relief will be unaffected. It is expected to affect around 500 claims next year.

We should be clear that agricultural property relief is given on top of the normal inheritance tax thresholds. Individuals can pass up to £500,000 to a direct descendant, and then agricultural property relief will provide another £1 million tax-free allowance. This means a couple can pass up to £3 million tax free. Above that, there is a 50% discount on inheritance tax, so it is a rate of only 20% and any liability can be paid in 10 yearly instalments which, to answer the noble Earl, Lord Devon, will be interest free.

The noble Lord, Lord Fox, asked about valuing property for business property relief. There is an established process for valuing business property, which will continue to apply.

On inheritance tax on pensions, the noble Lord, Lord Johnson of Lainston, seemed unsure whether pensions are a savings vehicle or a tax planning vehicle. The fact is, as my noble friend Lord Davies of Brixton said, that these reforms remove distortions resulting from pensions tax policy over the past decade, which have led to pensions being openly used and marketed as a tax planning vehicle to transfer wealth rather than to fund retirement.

Several noble Lords raised the issue of VAT on private schools, including the noble Lords, Lord Johnson of Lainston, Lord Forsyth, Lord Berkeley of Knighton, Lord Moynihan of Chelsea, Lord Lexden and Lord Borwick. This raises £1.7 billion a year—money to benefit the 94% of pupils who attend state schools. The new leader of the Opposition has that said she will reverse this measure, so she will of course need to say where her cuts to state schools will fall. The impact assessment, published alongside the Budget, shows that 35,000 pupils will move to state schools—less than 0.5% of the state school population and lower than previous estimates had suggested.

The noble Lord, Lord Shinkwin, asked about children with special educational needs. Children with the most acute needs, whose places in a private school have been deemed necessary by local authorities, are protected from the VAT impacts because local authorities can reclaim VAT. To improve outcomes for the most vulnerable children and to ensure that the system is financially sustainable, the Budget provided a £1 billion uplift in funding for special educational needs—a 6% real-terms increase.

The difficult decisions this Budget takes are for a purpose—not just to repair our public finances but to rebuild our public services, as my noble friend Lord Bach observed. I happily join my noble friend Lady Thornton in welcoming the work of the Women’s Budget Group.

We have set the envelope for the second phase of the spending review, which we will stick to. That will involve some tough choices on spending. Several noble Lords asked about reform, including the noble Baronesses, Lady Finn and Lady Neville-Rolfe, and the noble Lord, Lord Young of Cookham. Our reform agenda will be central to improving services going forward, including our 2% efficiency target for all government departments.

My noble friend Lady Ramsey of Wall Heath set out the increased funding that the Budget provides to the NHS. The noble Baroness, Lady Tyler of Enfield, asked what the NHS funding pays for—it is for 40,000 more appointments a week, £1.5 billion for new diagnostic scanners and new surgical hubs, and an expansion of mental health support, to name just a few. I think I heard the noble Baroness saying that more should be spent while opposing the increase in employer national insurance contributions that pays for it.

As the noble Baroness, Lady Lea of Lymm, observed, and the noble Baroness, Lady Penn, mentioned, the situation we inherited from the previous Government—the only major economy where inactivity has not returned to pre-pandemic levels—is completely unacceptable. We will publish a White Paper to get Britain working; my noble friend Lord Davies of Brixton asked for a date, and I tell him that it will be later this month. Next year, we will publish a White Paper on sickness benefit reform.

The noble Lord, Lord Desai, spoke about the importance of the welfare state. My noble friends Lady Lister of Burtersett and Lady Wilcox of Newport mentioned that we provided £1 billion to extend the household support fund and discretionary housing payments to help those facing financial hardship with the cost of essentials. We have reduced the level of debt repayments that can be taken from a household’s universal credit payment each month, meaning that 1.2 million of the poorest households will keep more of their award each month, lifting children out of poverty.

As my noble friends Lord McConnell, Lady Liddell, Lady Wilcox of Newport and Lord Murphy of Torfaen said, we are providing funding to support public services and drive growth across Scotland, Wales and Northern Ireland, with the largest real-terms funding since devolution.

My noble friend Lord McConnell and the noble Lord, Lord Oates, spoke about spending on overseas development assistance. ODA budgets have been set for the next two years to enable the UK to spend 0.5% of GNI. I reassure them that the Government remain committed to restoring development spending to 0.7% of GNI as soon as the fiscal circumstances allow.

My noble friend Lord McConnell also asked about the Integrated Security Fund. The ODA programme budget, including the Integrated Security Fund, will increase by 2025-26 to £9.2 million.

I am short of time, so I shall write to my noble friend Lady Warwick of Undercliffe about her housebuilding and social housing questions.

The difficult decisions that we made in this Budget, which have been debated here today, were made for a purpose—to repair the public finances, restore stability, rebuild our NHS, invest in the national interest and protect working people. It was, of course, possible to make different choices, to ignore the problems in our public finances, to not rebuild public services or invest in the fabric of our nation and to fail to protect working people. But we should remember that, at the last election, the country voted for change. As many of my noble friends have pointed out, the British people did not overwhelmingly reject the previous Government because they thought the choices they had made were the right ones. They gave this Government a mandate to fix the foundations of our economy and to deliver change. That is exactly the mandate that this Budget delivers on.

We have made our choices. They are the only responsible choices—to protect working people, restore stability and invest in Britain’s future.

Public Spending: Inheritance

Lord Fox Excerpts

Tuesday 30th July 2024 Lords Chamber

[Lord Fox (LD)]

My Lords, I want to follow up on my noble friend’s comments on the NHS and social care. All of us who were observing the hospital programme could see that it was foundering, costing money and not progressing, so yesterday’s announcement on its future was not surprising. However, the need for new NHS facilities and to upgrade and shore up the NHS estate remains. Communities may well have been sold a pup by the Conservatives, but their needs remain. What are the Government’s plans to pick up and deal with the legacy of a crumbling NHS estate?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his support for the announcements on the hospital building programme yesterday. As he knows, those plans were completely unfunded, behind schedule and overbudget. It is right that we have a full review of them. As I said to the noble Baroness, Lady Kramer, the coming spending review will prioritise the manifesto commitments that we made on public services, including the NHS. We will take forward our commitment to reform adult social care, as he mentioned, and will work towards building a consensus for the reforms needed to build a national care service.

European Investment Bank

Lord Fox Excerpts

Wednesday 24th July 2024 Lords Chamber

[Lord Fox (LD)]

During his very good summing up at the end of Monday’s excellent debate, the Minister did not get a chance to answer some of the questions that I had asked about the national wealth fund, so I will ask one of them now and perhaps he can go through Hansard and look at the others. How will the national wealth fund decide what it is going to invest in? Will it be a strategic investment or purely commercial? Who will be setting the criteria for those investments?

[Lord Livermore (Lab)]

The national wealth fund will work on the same basis as the UK Infrastructure Bank in terms of allocating investment. I think that is the answer to the noble Lord’s question.

Start-up Companies: Tax Incentives

Lord Fox Excerpts

Monday 29th April 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I am grateful to my noble friend. I know that HMRC regularly engages with industry and endeavours to work collaboratively with industry to improve guidance such that EIS applications can get through as quickly as possible. I hear his plea to set up a working group. I am not entirely sure whether a formal working group will be possible, but I will very happily take back his request that perhaps he and some of his colleagues can meet officials from HMRC to outline their concerns.

[Lord Fox (LD)]

My Lords, there appears to be a dissonance between the Minister’s answer and the experience that industry is reporting to us. I spoke to Tech UK this morning and it said it had recently made representations to the Treasury, with worked examples of real-life situations that absolutely uphold the issue the noble Lord has raised today. This is not just about payment; it is about retrospective payments and it really puts businesses in danger when their cash flow dries up in these situations. So I ask the Minister to harness her natural curiosity, go back to her department and dig a little deeper, because it may be publishing results, but the experience on the ground does not match that.

[Baroness Vere of Norbiton (Con)]

I hear what the noble Lord is saying and I will very happily look at the evidence that he has provided to officials in the Treasury. Perhaps he would like to join the meeting with my noble friend Lord Leigh.

Credit Card Invoices

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Tuesday 26th March 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I agree with the noble Lord that those payment machines should be correctly configured. When customers realise that there is a problem, they must raise it with the bank, which will then be able to take further action. It is the case that if there is any suspicion of fraud—whether using a credit card or a debit card—the customer can get their funds back.

[Lord Fox (LD)]

My Lords, we are rightly discussing regulations for credit cards and consumer credit, but an increasing amount of consumer credit is coming from the buy now, pay later app sector, which is unregulated. Does the Minister understand how lopsided that is? It is time that the Government looked into regulating buy now, pay later, so that people have equal safety on both sides of the consumer credit barrier.

[Baroness Vere of Norbiton (Con)]

The Government are considering responses to a recent consultation on draft legislation for buy now, pay later. The Government believe that any regulation of this area must be proportionate, because buy now, pay later can be very useful to a large number of people. There are existing protections in the Consumer Rights Act, and the FCA has powers over the terms and conditions of the buy now, pay later contracts.

Destitution: Low Median Wage

Lord Fox Excerpts

Thursday 23rd November 2023 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I fundamentally disagree that collective bargaining will be the way to lift wages; I believe that economic growth will be the way to lift wages. What I would like to say—and I would criticise this Government and previous Governments for not making the most of this—is that, when we look at the national living wage, the increases we made yesterday mean that, next year, someone working full time on the national living wage will see their real after-tax take-home pay go up by 30% since 2010. I think that is a very significant achievement.

[Lord Fox (LD)]

My Lords, I welcome the noble Baroness to her new spokesperson role. The Chancellor was very pleased to pull the reduction in national insurance from his chancellorial hat at the end of his speech, and has been going around touting that very much. There is one statistic that I hope the noble Baroness can help me with. The Resolution Foundation notes that the top fifth of earners will receive five times the benefit from that cut than the bottom fifth of earners. Can she confirm that statistic?

[Baroness Vere of Norbiton (Con)]

What we did yesterday—and we were absolutely clear about this—was to reward workers. It is critical that we reduce work-related taxes, because by doing so we increase the number of hours worked, which will lift the number of full-time equivalents by 94,000. We think that the cut yesterday was absolutely the right thing to do.

Bank Accounts

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Wednesday 19th July 2023 Lords Chamber

[Baroness Penn (Con)]

My Lords, I think the point we can all agree on is that the right to lawful freedom of speech is fundamental. Where that has been seen to be brought into question through the provision of services, we have cause to worry.

[Lord Fox (LD)]

The Minister rightly upheld the need for access. One of the ways people access banks is through bricks and mortar branches in our towns and cities. These continue to be closed; every week banks are closing. What conversations has her department had with banks about their closures and what was the content of those discussions?

[Baroness Penn (Con)]

This is an issue we have discussed, including during the passage of the Financial Services and Markets Act. The Government legislated in that Act to protect access to cash for consumers and business depositors, which will help people continue to access banking. Banking hubs are also being rolled out in areas that may be seeing closures, and those signed up to banking hubs have given a commitment that, where a hub is due to be opened in an area, the last bank will not shut until it is open.

Co-operatives, Mutuals and Friendly Societies Bill

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3rd reading
Friday 16th June 2023 Lords Chamber

[Lord Naseby (Con)]

My Lords, this is a vital Bill for the mutual movement of the United Kingdom. It prevents any predator trying to take away the capital put in by individual members of the society, and it is absolutely vital that this goes through. I recognise that another element sitting on the statute book that complements the Bill is the Mutuals’ Deferred Shares Act 2015, which I had the honour of taking through this House some time ago. I say to my noble friend on the Front Bench that we in this country now have a huge opportunity to benefit in the same way that Canada and Holland have from the mutual movement. It is ready to move forward, and we now look to His Majesty’s Government to implement the Bill and take the mutual movement forward. I particularly thank the noble Lord on the Front Bench on the other side of the House for all that he has done to take it this far.

[Lord Fox (LD)]

My Lords, briefly, it is a pleasure to follow the noble Lord, Lord Naseby, whose speech I agree with completely. The noble Lord, Lord Kennedy, and his colleagues should be congratulated on bringing forward the Bill. It is a passive Bill, and it is no reflection on him but, sadly, it is too late: too many mutuals have been cashed in, with the current generation benefiting from the prudence of past generations. Anything that we can do to halt that decline is excellent. Turning to the Front Bench, I think that this is an important sector that has largely been undervalued over past decades. Taking the theme of the noble Lord, Lord Naseby, I think this is an opportunity to kick off with this sector of our economy and perhaps grow it and make it more valuable, which it undoubtedly has the potential to be.

Budget Statement

Lord Fox Excerpts

Thursday 16th March 2023 Lords Chamber

[Lord Fox (LD)]

My Lords, it is a great pleasure to follow the noble Lord, Lord Bellingham. In fact, compared to many speeches he was very restrained in both time and content.

If I were writing a review of this debate, it would be “an eclectic debate with something for everyone”, and that is what we normally expect from your Lordships. I have to both praise and apologise to the noble Baroness, Lady Moyo: by all accounts hers was a fabulous speech, but unfortunately I was unavoidably hooked out of this Chamber during it. I look forward to reading it but also to being in the Chamber when she participates in future debates.

Yesterday, at the other end of this building, a slew of relatively modest changes, with a couple of larger long-term plans, was announced with what I would call traditional ballyhoo. It is worth putting that into some context: at the same time, across the UK, people were not listening to it because they were busy trying to negotiate the problems and impediments in their own lives. As the Chancellor rose, pensioners glanced at their smart meters and worried; parents juggled problems of childcare and work on a school strike day; a pair of young people looked at the cost of a mortgage and then went back to looking at the possibility of renting accommodation, something that my noble friend Lord Lee emphasised. Elsewhere, local businesses put “situations vacant” notices in their windows with little hope of recruiting anyone; manufacturers in their offices wrestled with paperwork that they now need to send their products to France or Germany; and in our hospitals, the effects of the first ever doctors’ strike caused the cancellation of already-delayed treatments, something that my noble friend Lady Brinton emphasised. Meanwhile, in Ukraine, young soldiers were fighting and dying for their freedom; on the beaches of Calais, refugees were wondering how or indeed if their flight from oppression would end; and around the world the global temperature rose by just a little bit more. That was the news agenda and the personal agenda that were going on as the Chancellor spoke. Nevertheless, he got his day in the sun.

We normally expect a little theatre, a flourish, but there were no rabbits—and no hat. Indeed, the childcare bunny, which had apparently been held back for theatrical purposes, had somehow escaped the night before, so instead the Chancellor had to settle for what was in the end a résumé of his department’s leaks. Still, it is convenient to have all the department’s press releases in one document. That the event held no surprises is something to be celebrated, particularly when we compare it to his immediate predecessor’s version of excitement and surprise.

Of course, as with all Budgets, the real news is not the announcement but the details and the analysis of them that emerges later, and that is just starting now. I have to say that the noble Lord, Lord Skidelsky, has done much to undermine my faith in economics. As a chemist, I have an absolute view of the world, but I fear that that is being eroded.

The first statistics concern inflation and, as we saw, the OBR predicts that that will be 2.9%. Whether or not that turns out to be true, the fact is that over the past year inflation has been running at double-digit levels so, whether or not the rate of increase falls, the place where most families find themselves today is very much higher in price and very much harder to afford than it was a year ago.

We must remember the other fact, rather than projection, is that wage increases are running at well below that rate of inflation that we have experienced: 3% to 4% in the private sector and much less in the public sector. So, as we know, real disposable incomes will continue to be hit further as we go forward.

I turn to growth. Again, the noble Lord, Lord Skidelsky, undermined these numbers, but these are the numbers that the Chancellor used. The Chancellor calls what is in essence around 2% per year over the next four years a Budget for growth. Well, as the noble Lord, Lord Bridges, so eloquently set out, 2% per year is not going to touch the growth in need that is out there, never mind the demographics, the cost of debt and all those things. This 2% per year on average is not the growth that will sustain the challenges we have ahead of us.

One thing I think we can put more stead in from the OBR is the scale of the impact of freezing the income tax thresholds. This freezing will lead to a tax rise of £12 billion in 2023-24. This compares to the cost of £3 billion in the same year of extending the energy price guarantee for three months. The Chancellor gave with one hand, but is taking away a great deal more with the other hand. Over time, this freezing of tax thresholds will lead to a total stealth tax rise of nearly £30 billion by 2027-28, or a total of £120 billion over the coming five years, with 3.2 million people dragged into paying income tax and 2.1 million paying at a higher rate. These compound the Government’s historic place as the party of high tax and more than wipe out the meagre support that families were getting over energy bills. At a time when inflation has put so many people under so much pressure, people’s budgets are being hit again, but in a way that is being sneaked in rather than properly announced. If the Chancellor had announced what I think adds up to a rise of about 4 pence in the pound in income tax, you could imagine the outcry.

Moving on, there is much talk about the UK being a science superpower and I am sure we all share ambitions of leveraging our excellent science and learning understanding in this country. Many of us felt that, after the Windsor Framework, it would clear the way for the UK rejoining the pan-European Horizon R&D programme, which by all expert analysis is something from which the UK takes far more than it puts in. But once again we have heard nothing. I ask the Minister: what is the blockage on this issue? When will a decision be announced?

Another theme that should have run through the Budget is the competitive threat posed by the US Government’s Inflation Reduction Act green subsidy programme. A number of your Lordships mentioned this. I remind your Lordships that the so-called IRA is a $369 billion subsidy package on offer throughout the US and it sits on top of a $280 billion CHIPS and Science Act as well. The IRA completely relaxes state aid rules for green industries and really has changed the global game for green investment. Across the world, big global businesses are relocating or planning to relocate their developments to the US to take advantage of this scheme. The EU has had to respond, and is going to announce its net-zero industry Act; we will see how many hundreds of billions of euros are in this pot. So where in this Budget is the equivalent British response? Well, I cannot find it.

I did hear a promise by Chancellor Hunt of funding of £20 billion over 20 years for the nascent carbon capture sector. But let us face it, set against the US model, £1 billion a year is unlikely to unlock the level of investment in carbon capture, clean energy and hydrogen infrastructure that is required to meet climate targets.

Meanwhile, by changing the taxonomy of nuclear energy, any money that could have been spent on a variety of technologies that would deliver near or medium-term progress is now likely to be diverted into Great British nuclear and SMRs. I have a word of warning on SMRs for enthusiasts: no one has built one yet. We will all be looking at the economics and the timelines—[Interruption.] The noble Lord, Lord Howell, shakes his head from a sedentary position, but there is not even a prototype.

The replacement of the super-deduction with something not quite as good is helpful for large taxpaying businesses, and the enhanced R&D tax credit is a good step towards promoting innovation. However, the large proportion of firms that fall outside the 40% intensity threshold will be left feeling mystified by the change in policy since last autumn. R&D tax credits had been a very effective way to create cutting-edge products and services in the small business community, and their loss is felt. Of course, the company has to be in a position to invest. British Chambers of Commerce highlighted in its recent survey that half of its businesses will be struggling to pay their energy bills in April, so investment or any help they might have with it is a rather theoretical exercise.

There are 5.5 million small businesses and 16 million people who work for them, and if the Chancellor hoped to woo small businesses, the signs are that he failed. Responding to the Budget, the Federation of Small Businesses said that it

“will leave many feeling short-changed. The distinct lack of new support in core areas proves that small firms are overlooked and undervalued.”

It sees support being focused on large companies. It would be interesting to hear the Minister’s view on whether small companies are being helped as much as large companies. Also, there is nothing new yet on business rate reform, so can the Minister tell us when we might see something on that?

The Chancellor announced 12 investment zones across the UK. The Minister praised Docklands as an example. Can the Treasury remember how much public money went into Docklands to make it what it is today, and is it planning to put the same level of public money into all 12 of the new investment zones? If so, where is this money coming from? We are also concerned about the lowering of good regulation for both the environment and workers’ rights. I should appreciate it if the Minister could give some assurance that there will be no dilution of employment or environmental regulations in those zones.

Your Lordships would expect me to say that a major flaw in this announcement is the total lack of an industrial strategy—something I have talked about a lot. Investment zones or freeports are no alternative to that. This hole is huge, and we are missing the overall strategy to develop future green industries such as green hydrogen, offshore wind and e-vehicles. Nothing in this Budget will deliver the gigabattery plants we need.

However, I do welcome an old friend. The £100 million innovation fund announced for Greater Manchester, the West Midlands and Glasgow has now been announced three times—so welcome back. The Chancellor and your Lordships have had a lot to say on getting more people back into the jobs market, and here I agree that there is no silver bullet. There are a lot of different measures in this Budget focusing on health, pensions, welfare and childcare, and many of your Lordships spoke at length on them, so I do not propose to reproduce those comments. In the end, success in all of these will be measured by results, and results come from effective implementation of these policies. Implementation is something many Governments have struggled with over the years.

The health checks may deliver results, but would not putting more money into delivering better primary healthcare be a way of improving the health of our age 50-plus employees? Pensions thresholds are aimed at one very specialised end of the market, and it will be interesting to see whether this achieves what is intended. My feeling is that this is a multidimensional problem that a single £1 billion solution is trying to solve. I think it unlikely that we will get what we want or, indeed, get value for the money we are putting in. However, I understand why the Government are trying.

The welfare changes are complex but should be seen in the context of the huge cuts that are already baked into the welfare system, but which do not kick in until after the end of this Parliament. I suggest that, taken with the increased pressure on people to work, the poorest will suffer the most. That is usually what happens when welfare changes.

The childcare changes are potentially very significant and are welcome, with two provisos. The first is that the services have to be available, staffed and economically viable, which comes down to delivery. Secondly, they will not happen for some time. The nine month-old baby who will benefit from this new policy has not been born.

Finally, I would like to suggest an untapped source of tens of billions of pounds. This does not mean a new tax or require cuts in public spending; it simply requires properly collecting the tax due that has not been paid. In January, the Commons Public Accounts Committee found that an “eye-watering”—its hyperbole, not mine—£42 billion in unpaid taxes are owed to HMRC. Some 5% of owed taxes remain uncollected. There seems to be neither the staff nor the will to collect this cash. I ask the Minister: why not? It is not as if we do not need the money.

The Chancellor, in delivering his speech, said that his plan is working. Others will judge that. The pensioner freezing in a cold house; the family struggling to balance their lives; the chronically ill person awaiting treatment; the business team trying to keep their enterprise afloat: they will be the judges of what is working and what is most definitely not.

Silicon Valley Bank

Lord Fox Excerpts

Tuesday 14th March 2023 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, we recognise the indispensable role played by the UK life sciences and tech sectors. These drive growth and innovation across the economy, as well as creating and sustaining good jobs. We therefore welcome yesterday’s announcement that HSBC is buying the UK arm of Silicon Valley Bank.

As the Statement makes clear, this move protects SVB UK’s customers’ deposits, allowing them to bank as normal. That will allow a range of start-ups and scale-ups across the UK to continue their operations rather than having to deal with immediate financial and other pressures. We are grateful to officials at the Treasury, Bank of England and financial regulators for working at pace over the weekend to facilitate this agreement.

The collapse of SVB raises important questions about the risks taken by some financial institutions and their regulators. It is true that in the UK context the system established under the Banking Act 2009 has worked. However, my colleague Tulip Siddiq asked yesterday whether, at the time when SVB UK’s licence was granted, any assessment was made of the significant liquidity risks associated with SVB UK’s deposit base. I do not expect the Minister to answer that question today, but I should like an assurance that a review will be undertaken in due course or that Ministers will make themselves available to parliamentary committees for questioning.

Normal ring-fencing rules also had to be disapplied to allow HSBC’s acquisition. The Economic Secretary helpfully confirmed yesterday that this exemption will be permanent. Will the Minister go into more detail about any steps HSBC or SVB UK may be required to take in the future? If she is unable to do so today, perhaps she will write with further information prior to our debate on the “made affirmative” statutory instrument.

The Government are currently making significant changes to UK financial regulation. We support the broad thrust of this, as the financial services sector makes a significant contribution to the UK economy and its success will be key to future growth. However, as our many debates on the Financial Services and Markets Bill highlighted, we must balance risk and reward. Does the Minister have full confidence in all the regulatory changes proposed in that Bill and in the so-called Edinburgh reforms, which will come on stream later, or is it possible that the Treasury might wish to revisit some aspects of those initiatives in the light of recent events?

While the UK part of SVB’s collapse may have been addressed quickly, global markets have still been sliding as recent events are processed and questions are being asked about the risk level of similar institutions. Does the Minister agree that it is vital that we do everything possible to provide confidence in the UK’s financial system? With this in mind, and given the impacts of persistently high inflation and increasing interest rates on UK institutions, will the Government launch a systemic review of the risks facing the sector?

[Lord Fox (LD)]

My Lords, I thank the Minister for repeating the Statement, albeit in the graveyard shift: she could have got in a bit earlier. Having read through the details of the events of the last weekend, I can understand why the Statement veers towards the slightly triumphalist: the sale of Silicon Valley Bank to HSBC averted existential problems for a huge number of UK tech businesses, and I am sure the Minister and colleagues are pleased to have done this. We should congratulate the Treasury and the Bank of England, as well as Coadec, Tech London Advocates and BVCA on the industry side, all of which came together very swiftly over the weekend. But where do we go from here?

First, can the Minister confirm that there will be a full investigation, both to confirm how this happened and, more importantly, what lessons can be drawn? One lesson we can all observe is that bank runs in the social media age happen in hours rather than days: the speed with which the run on this bank happened points, I think, to future issues if we ever came to them. As we know, Silicon Valley Bank’s UK wing oversaw roughly £7 billion in deposits from 3,000 entities across the country’s important tech industries and, contrary to US reports, it was not ring-fenced from its US parent. My first specific question is how we ended up in a situation where a huge proportion of a vital sector of the UK economy was reliant on one regional US bank. I am sure the answer is not simple, but it is important. For example, accessing connections to venture capital may have led banks to SVB, but there is also evidence that the traditional UK banks just do not have the appetite to take up this kind of business. Where will the tech start-ups go now for funding, especially in an environment where capital is getting more scarce?

History tells us that, when interest rates rise as fast and by so much as they have during the past period, bad things nearly always happen. It is a near certainty that one of two outcomes will occur: recession or a bank crash—sometimes both. I am sure we all hope that the failure of SVB, the closure of Signature Bank and the Tory-created crisis in UK government bonds and the pension sector are just outliers and do not herald something worse. They may, indeed, be one-offs; however, it seems to me that the Government, the Treasury and the Bank of England have to err on the side of caution. Can the Minister assure us that the tone of this announcement does not indicate a sense in our financial institutions that their work is done?

The SVB crash epitomises the risks buried in our financial system as central banks rapidly lifted borrowing costs. SVB’s unhedged investments in long-term, fixed-rate, government-backed debt securities left it doubly exposed to rising interest rates because it reversed tech companies’ growth and hit the price of its securities. There may be other issues that unwind when investigation of this bank carries on—we will have to wait and see—but how did the US regulators miss the issue at the heart of SVB? Since the 2008 financial crisis, the focus has been on liquidity, although I would suggest that not even that has been particularly successful. Interest rates have grabbed little attention because they had not posed a significant threat in recent decades, but they do now.

Can the Minister confirm that the Government have asked the Bank of England to review the stress tests it conducts in order to take into consideration the rapid rise in interest rates? Can the Minister confirm that the tests will be extended into the so-called shadow banking sector, which is increasingly grabbing large slices of business traditionally carried out by banks? Can the Minister also assure your Lordships’ House that the necessary horizon scanning is under way?

I do not think anyone predicted the LDI issue in the autumn, and I do not think anyone pointed to a sector-focused regional bank like SVB being the source of a crisis. So where could the next crisis come from? I can offer three options in the current environment: insurance funds investing in illiquid assets; overvalued real estate; and private equity funds with opaque valuations. I am sure the big brains in the Treasury will be much better at navigating the complex and interwoven investment landscape and come up with a better list to enable them to avoid unpleasant surprises. Can the Minister confirm that there are people digging down into the systemic risks which are buried deep inside the highly complex finance systems and finance products that exist around the world today?

At the heart of this is also politics. Republicans have loosened US bank regulations in recent years and banks such as SVB had previously lobbied successfully to be excluded from the category of systemically important banks—that meant they faced lower capital and liquidity standards. We are not immune from the same political pressures in this country. The Edinburgh reforms announced late last year also point towards deregulation, not least in the plan to reform the ring-fencing regime for banks.

But more than that, and as the noble Lord, Lord Tunnicliffe, referred to, we can see this trend in the Financial Services and Markets Bill that is currently being debated by your Lordships. For example, Clause 24 in that Bill requires the FCA to help drive the international competitiveness of the economy of the United Kingdom, in particular the financial services sector—help drive the competitiveness of the economy. This creates a huge conflict of interest within the FCA, and in light of the SVB it looks at least questionable. Can the Minister confirm that this clause will be reviewed with a view to future amendment when the Bill comes back on Report?

Finally, after 2008 the Government and the financial sector all said “Never again”, and there were significant changes to the banking regulations; much of this was based on a report led by Sir John Vickers. Speaking today on the BBC, Sir John said that the country made advances in 2009 and we must not row back on these advances. He explicitly said that the Edinburgh reforms should be reviewed again and that ring-fencing should be maintained. I would remind the Minister that, failing anything better, the Government are the scrutiniser in chief, and the buck stops with the Government. Will the Minister listen to Sir John and halt the slide towards deregulation in this country?

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

My Lords, as noble Lords have recognised, the course of events over the weekend was a good outcome for the customers of Silicon Valley Bank in the UK and an example of the Bank of England, in consultation with the Treasury, using powers granted by the Banking Act 2009, as part of the post-crisis reforms, to safely manage the failure of a bank and, in this case, facilitate its sale, which has protected those customers and taxpayers. I add my thanks to both noble Lords’ to the officials in the Treasury and at the regulators who worked tirelessly through the weekend to grip the situation and prevent real jeopardy to hundreds of the UK’s most innovative companies.

The noble Lord, Lord Tunnicliffe, asked whether any assessment was made of the significant liquidity risks associated with SVB UK’s deposit base at the time its licence was granted. Those authorisation decisions are for the independent regulators to comment on. However, requiring SVB to subsidiarise meant that it was independently capitalised from its parent in the US and had its own liquidity buffers. That brought the firm into the scope of the UK’s resolution regime. Had SVB UK remained a branch, it would have been resolved by the US resolution authority as part of action taken with respect to SVB.

That distinction is important to make in relation to a few of the points from the noble Lord, Lord Fox, in looking at the potential differences between the regulation and the regime in the US and the regime in the UK. However, there is read-across between the two. That is why we have measures in place to ensure that banks that are of systemic risk to different jurisdictions have cross-jurisdiction oversight, and that regulators work together on these matters.

The noble Lord, Lord Tunnicliffe, also asked about the ring-fencing changes made to facilitate the sale. To ensure the sale could proceed, the Government used powers under the Banking Act to provide HSBC with an exemption to certain ring-fencing requirements. This was crucial to ensure that a successful transaction could be executed, that the bank had the liquidity it needs, and that deposits and public funds were protected. We broadened an existing exception in the ring-fencing regime, allowing HSBC’s ring-fenced bank to provide intragroup lending to SVB UK. This should facilitate the smooth operation of SVB UK. In addition, SVB UK, which is now a subsidiary of HSBC’s ring-fenced bank, is not subject to the ring-fencing rules.

Both noble Lords spoke about the importance of doing everything possible to ensure that there is confidence in the UK’s financial system. We absolutely agree with the importance of that, which is why the UK authorities took such swift and decisive action this weekend to facilitate the sale of the firm. The noble Lord, Lord Fox, noted how quickly events unfolded. It is certainly true that the timeline including the weekend gave the time and space for such a resolution to be found, but that only adds to the point about the speed at which these events can take place.

Both noble Lords also asked about the stress test system for banks and about launching a wider systemic review of the risks facing the financial sector, including non-bank risks. Of course, both noble Lords will know that that is the role of the Financial Policy Committee of the Bank of England, which is responsible for identifying, monitoring and addressing systemic risks to financial stability.

The FPC meets quarterly, following which a record of its discussions is published. It produces a biannual financial stability report setting out its assessment of the risks facing the financial system and its resilience. It looks at it for the non-banking sector, but also sets the scenarios and coverage used for stress tests within the banking sector. Those decisions remain with the Financial Policy Committee.

Both noble Lords also rightly pointed out that, while we reached a good resolution in this instance, it is of course right that we reflect on what happened and look at whether any lessons can be learned. I can confirm that the Treasury and the Bank of England are looking to work together to ensure that we reflect properly on the events in this case.

Finally, both noble Lords also referenced the reforms that we are currently taking through this House in the Financial Services and Markets Bill and through the wider Edinburgh reforms set out by the Chancellor in December. I assure all noble Lords that the Financial Services and Markets Bill introduces ambitious reforms for a financial services sector that will give the UK the ability to continue to grow and be internationally competitive with other markets, while adhering to the highest-quality regulatory standards. As my honourable friend the Economic Secretary to the Treasury said to the House of Commons yesterday, having good, healthy businesses that grow and are profitable is the best way to avoid jeopardy. The Bill and the Edinburgh reforms deliver that commitment. We are confident that our reforms will deliver a high-quality regulatory environment for our financial services sector in future.

[Lord Tunnicliffe (Lab)]

I know it is unconventional, but will the Minister advise us whether the lessons learned report is going to be published?

[Lord Fox (LD)]

The Minister is getting a job lot of questions. I was hoping to hear her say that the shift in danger has gone from being just about liquidity to being about a lot of things connected with interest rates. We saw that in the autumn and again this week. When I suggested that the Treasury talk to the Bank of England about stress tests, I was suggesting not that the Treasury did the stress testing but that we would all be much more comfortable if we knew that shift had been taken on board and would inculcate future stress tests.

[Baroness Penn (Con)]

The point I was trying to make is that I am sure the Financial Policy Committee of the Bank of England will want to consider that. It updates its approach to stress testing both for banks and in its wider assessment of the risks to the financial sector more broadly. The noble Lord is not wrong in painting a picture of a changed context. We can also look at it for LDI, for example. While that is something for the FPC to take forward, I recognise the noble Lord’s points about that changed context. I hope that the points I made about how it holds its meetings and provides transparency about its considerations will reassure noble Lords about that process.

I will have to come back to the noble Lord, Lord Tunnicliffe, about the lessons learned and whether this reflection will be published. I do not know what form it will take. With the LDI process, interim findings have already been made public for people to take forward, but there is also further work. I imagine that a similar process may be followed here, but I will confirm this to noble Lords.