Bank Accounts

Debate between Lord Fox and Baroness Penn

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.

Silicon Valley Bank

Debate between Lord Fox and Baroness Penn

Tuesday 14th March 2023 Lords Chamber

[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.

IMF Economic Outlook

Debate between Lord Fox and Baroness Penn

Tuesday 31st January 2023 Lords Chamber

[Baroness Penn (Con)]

I must correct the noble Lord on the cause of the disappointing figures for growth this year that we have seen. The IMF emphasises that Russia’s war in Ukraine continues to weigh on economic activity, and the UK’s relatively high dependence on natural gas and, simultaneously, a near-record tightness in our labour market are dampening our outlook.

The noble Lord asked why the UK economy had not recovered to pre-pandemic levels. If we exclude the public sector, the private sector has recovered to above its pre-pandemic level and is in line with other major European economies. There is a difference in the way that the UK estimates its public sector output compared to many other countries, and the ONS has said that international comparisons are difficult to make.

On the point about the optimism that my honourable friend expressed about the UK economy, the Government make no apologies for pointing out our underlying strengths. Last year’s growth rate was uprated by the IMF to one of the highest in Europe, and if we look over the cumulative period 2022 to 2024, growth is predicted to be higher than in Germany and Japan and similar to that of the US. That will happen if we stick to our plan for growth and tackle inflation.

[Lord Fox (LD)]

My Lords, there is no harm in people being optimistic if there are grounds for optimism. Rather than taking this report as a very worrying indicator, the Government are spending their energy downplaying and discounting the bad news in it. Let us look at another indicator that points in the same direction: the ONS statistics on company insolvencies. Its survey, published today, shows a 57% rise in the number of companies going bust; that is more than at any time since the 2009 crisis.

Will the Minister now acknowledge that, as well as the problems that our competitor countries have, with which the Government seek to associate us, there are other problems that are unique to us? The Minister acknowledged the extraordinary problems we are having with skills and the lack of people to work, and the fact that our exports to the European Union have plummeted. Will the Government acknowledge that there is a problem so that they can start solving it?

[Baroness Penn (Con)]

I made it clear that the number one problem facing the UK is our high level of inflation, and that is why the Government have put it at the heart of our economic plans. We are determined to get inflation down. That is why we remain steadfast in our support for the independent MPC of the Bank of England, why we have made difficult but responsible decisions on tax and spending so that we are not adding fuel to the fire, and why we are tackling high energy prices by holding down energy bills for households and businesses this year and next and investing in long-term energy security. I fully acknowledge the challenges the UK is facing, and that is why we have a plan to deal with them.

Alcohol Duty Bands

Debate between Lord Fox and Baroness Penn

Thursday 12th January 2023 Lords Chamber

[Baroness Penn (Con)]

I reassure the noble Lord that if he looks at the consultation we did on the new duty rates, he will see that public health is at the heart of our approach. However, we need to balance public health objectives with, for example, the impact on businesses. For instance, Scotch whisky is an incredibly important industry in Scotland, and there are new breweries all across the country which are big economic success stories. We need to have a balance between those two approaches.

[Lord Fox (LD)]

My Lords, I am pleased that the Minister talked about business. Leaving aside the level of taxation—I have sympathy with my noble friend—this system is quite complicated. It is a sophisticated solution but it also makes it complicated for businesses to respond. So I ask that the Treasury, as well as looking at the level of taxation, looks at the number of different levels of taxation, because the more there are, the harder it is for small and medium-sized businesses to administer.

[Baroness Penn (Con)]

I appreciate the noble Lord’s point, but the reforms we have introduced simplify, for example, the number of different bands of duties that businesses pay. We have taken significant steps in that direction, and this Government always seek to simplify things for businesses where possible.

Russia: UK Companies

Debate between Lord Fox and Baroness Penn

Thursday 8th December 2022 Lords Chamber

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

My Lords, my right honourable friend the Prime Minister, when Chancellor, called on and welcomed UK firms who had taken the decision to divest from Russia in the wake of the invasion of Ukraine and said that we would welcome further such decisions from those companies. In terms of the Government’s actions, we have imposed the widest set of sanctions in our history against Russia, which limits the space for companies to operate in Russia, targeted at degrading the Russian war machine and also more broadly degrading its economic ability to continue this war. The noble Lord mentioned the condition of Ukraine’s infrastructure and the attacks on it by Russia in recent weeks. My right honourable friend the Foreign Secretary announced that we are looking to support energy generation in Ukraine in response to those attacks.

[Lord Fox (LD)]

It is good to hear the Minister talk about strong sanctions. I ask her to direct her department to look at the relationship between OneWeb and Eutelsat. OneWeb was absorbed into Eutelsat in an all-share deal, except for one share, the special share that the Government retain. Eutelsat continues to broadcast Russian channels, including two of the largest Russian pay-for television channels. Is it appropriate, given the Government’s special shareholding in OneWeb, which is a part of Eutelsat, for this relationship to continue?

[Baroness Penn (Con)]

I hope the noble Lord will understand if I do not comment on the specific case in the Chamber, but if he writes to me, I will look at Hansard and get back to him in writing on that point.

Inflation

Debate between Lord Fox and Baroness Penn

Monday 23rd May 2022 Lords Chamber

[Baroness Penn (Con)]

My Lords, I acknowledge the point about the differential impact of inflation. That has not always been the case, but according to the IFS’s report it was driven largely by the increase to the energy price cap and rising energy prices. That is where we have focused our support, through the warm homes discount and the £150 council tax rebate that is coming through to people now. In addition, as I said, there is forthcoming support, with a further £200 off people’s energy bills in October.

[Lord Fox (LD)]

My Lords, the Minister’s change of narrative on an energy windfall tax is intriguing, but would she agree that the Government have already received a windfall from increased receipts from VAT and from petroleum duty? Given that much money—perhaps the Minister can tell your Lordships’ House how much extra money has been received—there is a pot available to help the least able. Will she agree that this money should be used now to help the poorest people in this country?

[Baroness Penn (Con)]

My Lords, with regard to a windfall tax, my comments only echoed those of the Chancellor and those of the Prime Minister. On the additional revenue that has come in through VAT receipts and other areas, the noble Lord is right, and we have used additional finance to provide extra support to people that is worth over £22 billion. That includes new help that will flow through to people’s pockets—not yet, but in the future. For example, once the uprating in the thresholds for national insurance is in place in July, people will have more money in their pay packets as a result.

National Insurance Contributions

Debate between Lord Fox and Baroness Penn

Monday 7th March 2022 Lords Chamber

[Baroness Penn (Con)]

My Lords, I acknowledge that the circumstances have changed—that is why the Government have also changed our approach by, for example, announcing £9 billion of support to help people with their increased energy costs. The things that have not changed are the pressure on our healthcare system, the pressure on our social care system and the long waiting lists we see as a result of Covid. We need to start dealing with those now; they need proper funding and that has to come from within the levy.

[Lord Fox (LD)]

My Lords, the Minister is right to point out the pressure on the health and social care sectors. Assuming the Government do carry on with their plan, does she agree that it is unlikely that social care is going to see very much of this money and, even if it sees all of it, it is completely not enough to solve the problem in our social care service?

[Baroness Penn (Con)]

My Lords, the noble Lord is correct that in the early years it will go further towards the NHS to help deal with the backlogs; the spending on social care is aligned with the introduction of our social care reforms. But that is not the only funding that is going into the social care system; in recent years, additional funding has gone in to support the social care system.

Central Bank Digital Currency

Debate between Lord Fox and Baroness Penn

Tuesday 13th April 2021 Lords Chamber

[Baroness Penn (Con)]

The noble Lord is correct that a number of countries have launched pilots of central bank digital currencies, which the UK is looking at closely. As I noted previously, the UK is also leading international work to ensure that there are standards for CBDCs and that they are interoperable across different jurisdictions.

[Lord Fox (LD)]

My Lords, I shall bring this down to ground a little. A central bank digital currency paves the way for the abolition of cash, but the market is already doing that: across the country, increasingly over the past year, many businesses refuse to accept cash or cheques and accept only digital—either a card or an app. There are about 5 million people in this country who are excluded because they are cash-dependent. What are the Government doing to ring-fence those people to make sure that they can continue to participate in the economy? What will they do as this move to digital gets even faster?

[Baroness Penn (Con)]

My Lords, I reassure the noble Lord that the Government recognise that cash remains important to millions of people across the UK and have committed to legislating to protect access to cash in this country.

United Kingdom Internal Market Bill

Debate between Lord Fox and Baroness Penn

Report stage & Report: 3rd sitting (Hansard) & Report: 3rd sitting (Hansard): House of Lords
Wednesday 25th November 2020 Lords Chamber

[Baroness Penn (Con)]

My Lords, I do not think that I can go any further than what has been announced in the spending review today: that it is the Government’s intention to use the powers under this Bill to deliver the shared prosperity fund.

[Lord Fox (LD)]

My Lords, I thank the Minister for attempting to answer my final question but I fear that she may have been wrongly advised. Clause 31 states:

“The CMA may from time to time undertake a review”.


Subsection 1(b) certainly points to “Parts 1 to 3”, as in the Minister’s answer. However, subsection 1(a) says that such a review can refer to

“the internal market in the United Kingdom”,

which is a far broader swathe than the narrow answer given just now.

While I am up and reading the legislation, subsection (2) states:

“The CMA may receive and consider any proposals that may be made or referred to it for undertaking a review”.


Can the Minister confirm that the devolved authorities are one of the bodies that can request such a review of the whole UK internal market as in Clause 31(1)(a), rather than the answer that was just given?

[Baroness Penn (Con)]

The noble Lord will probably be unsurprised to know that the advice I have received has not changed in the short time since he asked his further question. I will commit to reviewing that advice; if any part of it was not accurate, I will write to the noble Lord. My understanding is that those reviews do not refer to the powers in this Bill, and whether the devolved Administrations or others can refer matters to the CMA for review relates to other parts of this Bill.