Budget Statement

Lord Gadhia Excerpts

Friday 12th March 2021 Lords Chamber

[Lord Gadhia (Non-Afl) [V]]

My Lords, I offer five brief reflections on the Budget. First, faced with the sharpest economic contraction in more than 300 years, the Chancellor’s overall fiscal judgment and priorities are hard to fault. The narrative of “spend now, tax later” has stuck but, as the OBR points out, there is a risk that the Government cannot rein in spending and does not raise enough revenue. Consequently, further tax increases cannot be ruled out.

Secondly, addressing the slump in business investment through the super-deduction scheme is a bold and welcome move. It should bring forward investment and help propel the recovery as government spending falls away. However, it may not increase the overall level of investment. That jury is still out.

Thirdly, the contribution of trade to GDP growth is disappointing. The Budget Red Book shows this flatlining if not reversing. Data on bilateral trade flows with EU countries also shows sharp declines. This might be the temporary effect of Covid and new customs procedures, but it could also be more ominous. We must monitor these trends closely.

Fourthly, while the peak in unemployment is expected to be lower, at 6.5%, employment levels remain broadly flat. The labour force is therefore declining, and up to 1.3 million migrants have departed during the pandemic. Our economy will soon falter without the resumption of a steady flow of migrant talent.

Fifthly, our vulnerability to rising interest rates has increased and has been exacerbated by the new wave of quantitative easing from the Bank of England. A 1% increase in rates adds more than £20 billion to interest costs. Restoring fiscal discipline is not a political choice but an economic and macroprudential necessity.

To conclude, crises are like buses; they come in pairs. The cumulative impact of the financial crash and the pandemic have stretched government and central bank balance sheets to their limit. We must hope that the third bus does not arrive too soon, so that the Chancellor’s plan for rescue, recovery and repair has enough time to work through.

Financial Services Bill

Lord Gadhia Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Thursday 28th January 2021 Lords Chamber

[Lord Gadhia (Non-Afl) [V]]

My Lords, I congratulate my noble friends Lord Hammond of Runnymede and Lady Shafik on their maiden speeches. Their choice of debate is especially appropriate, and the quality of their contributions demonstrates how much they will enrich your Lordships’ House. I look forward to their future active participation.

I turn to our main topic. I welcome this omnibus Financial Services Bill in the spirit in which it is intended: as an entrée to the main course that will follow once the Government have consulted on the future regulatory framework. We should therefore calibrate our expectations of the Bill accordingly and not attempt to boil the ocean. Instead we should keep our powder dry to tackle the more fundamental issue of the accountability framework between the Government, regulators and Parliament, with a potential role for an independent body, which I will come on to.

First, some personal context. I started my own career in financial services 30 years ago this year at a City merchant bank in the aftermath of the big bang. I have therefore seen my fair share of trials and tribulations over three decades. During this period the City—and financial services more broadly—has constantly reinvented itself, sometimes by choice and more often through necessity. So, if I bring a bias to this debate, it is as someone who has seen the financial services sector overcome its challenges to not just survive but thrive.

Apart perhaps from our life sciences sector, there are not many globally significant industries where the UK plays such a world-leading role. An effective regulatory framework is clearly one of the key ingredients to sustain this position. The financial crisis and now Brexit have forced us to re-evaluate the regulatory architecture in quick succession. The onshoring of powers from the EU has triggered an inevitable debate between those who would like to see the UK take full advantage of its new-found freedoms to simplify and reduce the burden of regulation and those who fear that we might embark on a race to the bottom, to the detriment of consumers and society. That debate is illusory. However much some of us might dream of radically streamlining regulation, we are simply not destined for a bonfire of rules. To quote Treasury Minister John Glen, speaking in the other place during its Second Reading debate,

“we have no intention of needlessly, ideologically or recklessly diverging from EU legislation. Instead, we will maintain existing regulations where they make sense for the financial services industry in this country.”—[Official Report, Commons, 9/11/20; col. 669.]

It is not surprising to hear that strong statement, since the UK has played an active role in shaping much of the EU legislation. It is therefore increasingly unbelievable for the EU to maintain that it is seeking assurances about our future intentions before making an equivalence decision. We should recognise that the equivalence process is being used as a political lever, not a technical determination. I therefore agree with Andrew Bailey’s sentiments, expressed in recent evidence to the Treasury Select Committee, that we should not hold our breath for a quick decision and should treat trade equivalence as a bonus if and when it comes.

We should also recognise that the EU is unusual in drawing up such detailed rules and incorporating them into legislation. This is not the norm around the world. Other jurisdictions rely more heavily on the expertise of independent regulators to translate legislative objectives into detailed rulebooks. Delegating responsibility for technical areas of financial regulation is necessary, but also brings important accountability and scrutiny issues.

This subject requires more than a six-minute speaking slot, so I shall make three brief points. First, we need to be strategic in the scope of powers we delegate and the risk of concentration—what Sir Paul Tucker, in his excellent and thoughtful book Unelected Power, calls an “over mighty citizen”. Another of his observations is the importance of having a clear objective that can be monitored. He warns against having three or four objectives in statute that are ranked equally and are vague, which is relevant to the new “have regard” clauses incorporated in the Bill. While I would hope we can manage primary and secondary objectives, we should consider this input from a respected former front-line practitioner.

Secondly, while we decide upon the new architecture, the show must go on and Parliament needs to have a role in the process. I suggest a relatively simple fix: the next set of remit letters from the Chancellor to the PRA and FCA should be published in draft form and offered for consultation and debate in both Houses, either in the Chamber or through Select Committees. It could also make sense to look at a Joint Committee of both Houses, drawing on the considerable expertise available across Parliament.

Thirdly, we need a more permanent body to help the Executive and Parliament scrutinise and streamline regulation more systematically. I suggest we look at creating an independent office for financial regulation, which draws on the examples of both the Office for Budget Responsibility and the Office of Tax Simplification and whose remit is a hybrid of the two. It would report annually on whether the statutory objectives of the financial regulators have been met and systematically review regulation to propose how it could be simplified. A continuous series of incremental improvements appear more feasible than a one-time reform package. The cumulative impact could be significant over time, and more enduring.

In conclusion, we must now deal with the world as it is, not as we would like it to be. If we can be as fleet of foot in financial regulation as we have been in vaccine procurement, then I am confident that the financial services sector can remain a strategic national asset, supporting jobs and prosperity. This Bill provides a start on that journey.

Future of Financial Services

Lord Gadhia Excerpts

Wednesday 11th November 2020 Lords Chamber

[Lord Agnew of Oulton (Con)]

The noble Lord asks a lot of questions: I will take the last one first. Of course, getting a deal will make the whole relationship far more constructive. We remain cautiously optimistic that this can be achieved. I think the Government are broadly sceptical about creating an equity distribution fund or a fund that makes equity available. As I am sure the noble Lord will know, the private equity industry has some $1.5 trillion-worth of dry powder available for investment around the world, including this country. I believe that we should be accessing that rather than using taxpayers’ money.

[Lord Gadhia (Non-Afl) [V]]

My Lords, I welcome the content of this Statement and the recognition of the significant contribution of financial services to our economy. However, could I press my noble friend on equivalence? For those following the trajectory of our approach to securing continuing market access, we have been on a ski slope for mutual recognition to enhanced equivalence to equivalence and now to unilateral equivalence—which, by definition, involves no reciprocity. Does this Statement effectively signal we have abandoned hope for a substantive financial services chapter in the UK-EU trade deal? How does that reconcile with the ambitions set out in paragraphs 35 to 37 of the political declaration?

[Lord Agnew of Oulton (Con)]

My Lords, we have certainly not abandoned any aspirations of mutual equivalence. As I said earlier, we cannot start from a position of almost perfect equivalence, and it is disappointing that the EU has not seen it appropriate, at this stage, to engage on a more collaborative basis. We had to provide clarity to UK-based firms and show that we were ready for business on 1 January, whatever the EU’s attitude. We continue to engage with the EU proactively.

Race Disparity Audit

Lord Gadhia Excerpts

Tuesday 10th October 2017 Lords Chamber

[Lord Young of Cookham]

The noble Lord is right to say that we in this country have made enormous progress. I was looking at the Equality and Human Rights Commission report Is Britain Fairer?, which says:

“The reader will find that Britain has become fairer in many areas. We should be proud of and celebrate these advances. If we do not recognise the positives, we run the risk of feeding an untrue and excessively negative narrative that suggests everywhere you look we are becoming more divided and less fair as a nation”.


I think there has been enormous change and improvement in social attitudes, underpinned by relevant race equality legislation. The noble Lord is right that there was a spike—I hope it was just a spike—after the referendum result, and that poses a challenge to all those government departments with responsibility for promoting good relationships. There is particular responsibility for the police on the law and order front. In publishing this document, we recognise that we have progress to make in a wide number of areas.

[Lord Gadhia (Non-Afl)]

My Lords, I add my welcome for the publication of this report. Sunshine is often the best disinfectant, and bringing transparency to areas where more work needs to be done to tackle persistent inequality and prejudice is most welcome. I encourage the Government to develop a proactive agenda to tackle these issues. At the same time, there is some positive evidence in the report, particularly regarding the British Indian community, which comes top in a number of earnings and education indicators. For example, 35% of British Indians earn more than £1,000 a week, versus an average of 24% in that income bracket across the population; and 14% of British Indian children achieve three A grades or better at A-level. Does my noble friend agree that the British Indian community provides a role model for how a minority group can integrate successfully into British society and make a positive and outstanding contribution to this country?

[Lord Young of Cookham]

I agree with my noble friend. One positive fact that emerged from this audit was that 85% of ethnic minority people believe that they are British and identify very strongly with their community. That is a very positive sign. My noble friend is right that in many of these indicators, the Indian community does well; but, by contrast, they reveal that the Bangladeshi community does not do nearly so well on many of the same indicators. We need to understand the reasons, address them and see whether we can bring those members of the ethnic minorities who do not achieve quite as well as the Indian community in the respect that my noble friend mentioned up to the same standard.