Small Farms and Family Businesses

Lord Harlech Excerpts

Thursday 12th December 2024 Lords Chamber

[Lord Harlech (Con)]

My Lords, it is a great pleasure to follow the noble Lord, Lord Bilimoria. I pay tribute to my noble friend Lady Cumberlege for her eloquent valedictory speech. I have been moved by so many speeches in today’s debate, including those of the noble Lord, Lord Cameron of Dillington, and the right reverend Prelate the Bishop of Norwich, but in particular by that of the noble Baroness, Lady Mallalieu, who put her head above the parapet to call her own party to account on the disastrous situation facing family farms and businesses. I declare my interests as a Welsh farmer, as set out in the register.

I want to address these rural economy issues, which go to the very fabric of our communities, and the impact of the Government’s recent Budget proposals. Small farms and family-run enterprises are the lifeblood of many regions in our country. They contribute to the agricultural sector and are pivotal in sustaining local economies, creating jobs and preserving our rural landscapes. However, recent proposals from the Government have put these and many businesses like them under unprecedented strain, threatening their survival and, by extension, the very essence of rural life.

The Budget includes changes to agricultural funding and the ongoing transition away from the common agricultural policy. While the Government have repeatedly assured us that the reforms ensure a fairer and more sustainable future for farmers, there is growing concern that the current pace of change is leaving too many behind.

Moreover, as we have heard today, many farmers are operating on razor-thin margins given the continuing rise in input costs, including of feed, fertiliser and fuel. The Government’s Budget proposals, particularly the lack of direct support for those facing these rising costs, will result in many farms facing the impossible choice of scaling back or closing down entirely. For family farms, this is not just a financial issue; often, generations of history, pride and identity are at risk.

Let us also consider the issue of access to finance. Small farmers and rural entrepreneurs often struggle to access the capital they need to invest in their businesses, particularly in a climate where traditional lending institutions are reluctant to take on risk. We need to stimulate this growth. Without easy access to affordable credit and loans, these businesses cannot expand, innovate or weather the financial storms that inevitably come.

Small farms and family-run businesses are major employers in many rural areas. A reduction in support for these sectors will lead to a loss of local jobs, further exacerbating the rural/urban divide. As larger corporations dominate the marketplace, the social fabric of our rural communities will fray, leading to a rise in economic inequality and a depletion of rural services.

The Government must change course now. I think that we on these Benches always suspected that the mask would slip, but we have just been surprised by how quickly. To any farmers or others in rural communities listening to or watching this debate: the Government do not understand you and they do not care about you. Worse still, they want what is yours—or they want the Deputy Prime Minister to bulldoze it.

Wales: Public Services

Lord Harlech Excerpts

Tuesday 5th November 2024 Lords Chamber

[Lord Harlech (Con)]

My Lords, the Government have stated that one of their priority aims is to grow the economy, yet their counterparts in Wales cancelled all road-building projects in 2023. How will this help growth in Wales and across the United Kingdom?

[Lord Livermore (Lab)]

The noble Lord is quite right that growth was one of the biggest failures of the previous Government over the past 14 years. It is absolutely our priority to do something about that. Obviously, one Budget cannot turn around 14 years, but we have already seen its measures increasing growth throughout the United Kingdom in the medium term.

International Women’s Day

Lord Harlech Excerpts

Friday 8th March 2024 Lords Chamber

Motion agreed.

[Lord Harlech (Con)]

My Ladies and Lords, I beg to move that the House do now adjourn.

House adjourned at 2.35 pm.

Financial Services and Markets Bill

Lord Harlech Excerpts

Report stage
Tuesday 13th June 2023 Lords Chamber

[Baroness Kramer (LD)]

My Lords, this is an issue that I have raised in the House before, having run into the same set of issues—I suspect with some of the same companies down in the West Country involved particularly in large-scale exports which require performance bonds to be able to meet their contractual obligations. In these instances, performance bonds were denied by the banks unless the collateral included the homes and personal possessions of the directors and senior managers of the company. This was despite the fact that the firms had long-standing records of being able to deliver on the projects they engaged in and indeed the customers at the far end had reputations, again, of being excellent payers.

It is a real weakness in the system that we have no one who deals with market gaps, particularly when it applies to SMEs. I attribute part of this to the regulatory perimeter, but regardless of where the fault lies, there needs to be a remedy if we are to build a future economy which will be based very largely on SMEs and, hopefully, very significantly on exports.

[Lord Harlech (Con)]

My Lords, the Government recognise the importance of ensuring that SMEs are able to access appropriate financial products, including performance bonds, and of ensuring the availability of useful information on such products. As noble Lords are aware, performance bonds are a type of financing product that provides a financial guarantee to one party in a contract in the event of the failure of the other party to fulfil its obligations.

More broadly, SMEs already benefit from a diverse financial market, made up of high-street banks, smaller banks and a range of non-banks, to ensure they can continue to access suitable finance. The Government support SMEs’ access to finance through a variety of debt and equity finance programmes through the British Business Bank. These programmes were supporting more than £12 billion of finance to more than 94,000 smaller businesses as of June 2022.

The British Business Bank also produces several reports on access to finance on an annual basis, including the Small Business Finance Markets report, providing expert and independent assessment of the availability and options within the wider funding landscape for SMEs. Fundamentally, the commercial terms that banks and insurers offer, including the collateral they require for performance bonds, are a matter for the firms, subject to meeting the relevant regulatory requirements.

The Government remain committed to maintaining the highest international standards of regulation, and the Financial Services Act 2021 granted the PRA the powers to implement the latest international standards, known as Basel III.1. These include revised capital requirements for performance bonds for banks. The PRA recently consulted on its proposals and specifically requested comments and data from firms and wider stakeholders on its proposals for capital requirements for products such as performance bonds, and it will be considering feedback provided by respondents in formulating its final proposals. For insurers providing performance bonds, the Government are reforming one of the capital requirements, the risk margin, removing a barrier to lower product pricing.

As noble Lords are aware, under the provisions in the Bill, our independent regulators will take on new responsibilities. This means that the PRA will take on responsibility for setting the relevant regulatory requirements that are currently set through retained EU law, acting within the framework set by the Government and Parliament.

As we have discussed a number of times in relation to the Bill, when making rules designed to ensure the safety and soundness of financial services firms it is also important to consider how those firms can support the wider UK economy. That is why the Government have introduced the new secondary growth and competitiveness objectives, which will require the regulators to act to facilitate the competitiveness of the UK economy and its growth in the medium to long term. The PRA’s current consultation has been undertaken before the provisions in the Bill will come into effect. However, the Financial Services Act 2021 requires the PRA to “have regard” to the Government’s economic policy, including investment in SMEs and infrastructure, as well as the effect of its requirements on the UK’s international standing and the provision of finance to businesses and consumers in the United Kingdom on a sustainable basis.

Measures in the Bill also allow for parliamentary scrutiny of the regulators’ performance, including how they have advanced their new secondary competitiveness and growth objective. In addition, the Bill requires the regulators to produce statements of policy on how they will review their rules. Recent government amendments will require these statements to include information on how stakeholders can make representations to review rules, and on the arrangements for ensuring that these representations are considered.

In conclusion, the Government are committed to ensuring that SMEs have access to suitable financial products which are subject to suitable prudential safeguards to appropriately manage any risks. This is particularly important to ensure that UK SMEs are accessing finance to support their goals and contribute to the UK’s growth agenda. I therefore ask my noble friend to withdraw his amendment.

[Earl Attlee (Con)]

My Lords, I am particularly grateful to the noble Baroness, Lady Kramer, for her intervention, which showed how much more she knows about finance than I do. She did a great job. I am not convinced that industry will be cracking open the champagne after listening to my noble friend’s response to my amendment; nevertheless, I am grateful for it. In the meantime, I beg leave to withdraw my amendment.

--- Later in debate ---

Amendment 107 withdrawn.

[Lord Harlech (Con)]

My Lords, I beg to move that further consideration on Report be now adjourned until 8.31 pm.

[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, I do not think that the debate on our regret amendment is time-limited.

--- Later in debate ---

[Lord Harlech (Con)]

My mistake. I did not mean to imply that it was time-limited. I meant to say that Report stage on the Bill would resume not before 8.31 pm.

Consideration on Report adjourned until not before 8.31 pm.

Financial Services and Markets Bill

Lord Harlech Excerpts

Report stage
Tuesday 13th June 2023 Lords Chamber

[Lord Holmes of Richmond (Con)]

My Lords, in moving Amendment 108 I will speak also to Amendment 109 in my name and, in doing so, I declare my technology interests as set out in the register. The purpose of both amendments is predicated on the fundamental truth that AI is already extraordinarily powerful and pervasive across our financial services, impacting so many elements of people’s experience and ability to access and avail themselves of financial services. If AI is to human intellect what steam was to human strength, we see the extent of the issue.

In Committee, the Minister perhaps rightly suggested that it would be wrong from a policy perspective to have an AI reporting officer in financial services and not consider this across the whole of the economy. If so, will my noble friend take back to the Treasury the need to work across departments—with the Business Department and the newly formed DSIT—to consider an approach where an AI-responsible officer on the boards of all companies would be considered, for the benefit of all those involved in the provision of those services; in this context, financial services? Perhaps this would be a good topic to work up for the AI summit which will be taking place in London later this year. Similarly, the UK has an extraordinary opportunity to be a leader in ethical AI, and I ask my noble friend whether it would make sense, with colleagues across government, to expand the specificity of these amendments in financial services and look at how they might be implemented, coming off the back of the AI summit in the autumn.

The Bill provides an opportunity to raise the whole question of AI. I bring these amendments to do just that. I believe that it would make a real difference to financial services—consumers, businesses and regulators alike—if these amendments were considered in that context, but I completely accept that there is a broader context and would welcome my noble friend’s comments on both the specific and the broader context. I beg to move.

[Lord Harlech (Con)]

My Lords, I thank my noble friend Lord Holmes of Richmond for tabling these amendments for discussion. The Government are firmly of the view that artificial intelligence has the opportunity to revolutionise every aspect of our lives, and we are committed to unlocking the enormous benefits that it can bring, in a way that is fair and allows everyone in society to benefit.

In March 2023, the Department for Science, Innovation and Technology published proposals for a new regulatory framework for AI regulation in the government’s AI regulation White Paper. This sets out a proportionate, adaptable framework for AI regulation, underpinned by five potential cross-sectoral principles, which include concepts such as fairness, safety and transparency, to strengthen the current patchwork approach to regulating AI indirectly.

Through the proposals for the new AI regulatory framework, we are building the foundations for an adaptable approach that can be adjusted to respond quickly to emerging developments. The vast majority of industry stakeholders we have engaged with so far agree that this strikes the right balance between supporting innovation in AI while addressing the risks it presents. We are committed to a proportionate approach to AI regulation that allows us to maximise the benefits that AI can bring to the economy and society and can effectively respond to the fast-moving risks presented by AI.

The White Paper is currently undergoing public consultation until 21 June 2023. We will continue to work with experts and stakeholders across the AI economy during the consultation period and beyond in order to identify emerging opportunities and risks and ensure that the regulatory framework can adapt to them. Furthermore, the FCA, the PRA and the Bank of England recently published a discussion paper on how regulation can support the safe and responsible adoption of AI in financial services. Last week, the Government announced that the UK will host the first major global summit on AI safety this autumn.

While I am very sympathetic to the intentions behind my noble friend’s Amendments 108 and 109, the Government believe that they could result in unintended complications in the use of artificial intelligence in the financial services sector. I hope that I have sufficiently reassured noble Lords that the Government remain committed to an effective and consultative approach to the use of artificial intelligence within the financial services sector. Noble Lords can be reassured that the Government will continue actively to involve Parliament in decisions in this area, particularly in relation to the future creation of a digital pound. Therefore, I ask my noble friend to withdraw his amendment.

[Lord Holmes of Richmond (Con)]

My Lords, I thank the Minister for his full response, which is appreciated. It is a thoroughly good thing that, particularly this year, we have heard more conversations and considered thought around AI, both in this place and in wider society, than we probably had in preceding years. I hope that we can have increasing public engagement and public debate around AI to ensure that everybody is enabled to take the benefits, understand the risks and understand that they are mitigated, managed and eradicated by regulators and legislators so that the UK can be the place where ethical AI is championed for the benefit of businesses, consumers and communities alike. I very much look forward to the global summit later this year. I beg leave to withdraw the amendment.

Financial Services and Markets Bill

Lord Harlech Excerpts

Report stage
Thursday 8th June 2023 Lords Chamber

Moved by

[Lord Harlech]

90: After Clause 59, insert the following new Clause—
“The Ombudsman scheme
(1) FSMA 2000 is amended as follows.(2) In section 429 (Parliamentary control of statutory instruments), in subsection (2B) after paragraph (c) insert—“(d) provision made under paragraph 15(3) of Schedule 17.”(3) Paragraph 15 of Schedule 17 (the Ombudsman scheme: power of scheme operator to charge fees) is amended as set out in subsections (4) and (5).(4) In sub-paragraph (1) after “respondent” insert “or other persons of a specified description”.(5) After sub-paragraph (2) insert—“(3) The reference in sub-paragraph (1) to persons of a specified description is a reference to such descriptions of persons as may be specified in regulations made by the Treasury.(4) The power conferred by sub-paragraph (3) to specify descriptions of persons may not be exercised so as to provide for eligible complainants to fall within a specified description of persons.(5) The reference in sub-paragraph (4) to “eligible complainants” is a reference to complainants who are eligible in relation to the compulsory or voluntary jurisdiction of the ombudsman scheme (see section 226(6) and 227(7)).(6) Before making regulations under sub-paragraph (3) the Treasury must consult the scheme operator.””Member’s explanatory statement
This new Clause would enable the scheme operator of the Financial Ombudsman Scheme to make rules requiring persons of a description specified in regulations, other than eligible complainants, to pay fees in connection with the investigation of complaints (in addition to the existing power to impose fees on persons who are the subject of complaints).

[Lord Harlech (Con)]

My Lords, the Financial Ombudsman Service was established through the Financial Services and Markets Act 2000 to provide for the proportionate, prompt and informal resolution of disputes between consumers and financial services firms. The FOS offers a cost-free service for consumers, which is fundamental to its purpose.

The FOS is funded by a combination of an annual levy on regulated firms and case fees. Under the current framework, it is responsible for setting its case fee rules and can charge case fees only to firms that are subject to complaints. This means that claims management companies—or CMCs—and other professional representatives cannot be charged for bringing cases to the FOS. The Government heard the concerns raised by noble Lords, particularly by my noble friend Lady Noakes during Grand Committee, about CMCs bringing large numbers of vexatious claims against firms to the FOS.

Amendment 90 therefore addresses those concerns by amending FSMA 2000 to give the Treasury the power to make regulations specifying categories of persons to whom the FOS can charge case fees. The Treasury intends to add CMCs and other professional representatives such as law firms to this list. This will enable the FOS to amend its rules to charge case fees to CMCs and other professional representatives for bringing complaints, subject to its usual consultation processes. By specifying who can be charged by the FOS in regulations, the Government can ensure that the full range of claims management models can be effectively captured. It also allows flexibility to amend this list in future if different models emerge.

The Government are clear that all consumers should be able to access the FOS free of charge and without the need for any CMC support. The FOS remaining a cost-free service for consumers is fundamental to its purpose. The amendment therefore expressly prevents the Treasury adding consumers to the categories of persons who can be included in the regulations.

In summary, Amendment 90 will ensure that the Treasury is able to empower the FOS to charge case fees to CMCs while ensuring that the FOS remains cost-free for consumers. I beg to move.

[Baroness Kramer (LD)]

From these Benches, the amendment makes sense to us.

[Baroness Chapman of Darlington (Lab)]

Happily, it makes sense to us as well. Without wishing to delay anybody—remembering the exchanges we had before this debate started today—I wonder whether the Minister could indicate the level of fees. He said that consumers would be excluded, which is very important. Are the Government confident that this will not in any way suppress the use of this service? Do they have anything in mind to improve awareness of the service among consumers?

[Lord Harlech (Con)]

My Lords, I am grateful for the contributions in this short debate and thank both noble Baronesses for them.

On case fees, the amendment follows the existing approach under FSMA to allow the FOS to charge fees to respondents. Under this approach, the Government set out through legislation who the FOS is able to charge fees to and it will be for the FOS to set the detail of those case fee rules. This may include when firms should be charged; for example, from the first case or after a certain number of cases. Similarly, the amendment will not prescribe the specific approach the FOS will have to take in charging CMCs—it will be for the FOS to look at those fees. The FOS highlighted concerns from industry about this issue in its feedback statement following its recent consultation on its funding framework, and it acknowledged examples of poor behaviour by CMCs.

The Government agree that there are wider implications and it is critical that the bodies in the financial services regulatory framework, including the FCA and the FOS, co-operate effectively. That is why Clause 38 introduces a statutory duty for the FCA, the FOS and the Financial Services Compensation Scheme to co-operate on issues that have significant implications for each other or for the wider financial services market. Clause 38 also ensures that the FCA, the FOS and the FSCS put appropriate arrangements in place for stakeholders to provide representations on their compliance with this new duty to co-operate on matters with wider implications. These organisations already co-operate on a voluntary basis through the existing wider implications framework. Clause 38 will enhance that co-operation and ensure that these arrangements endure over time while retaining the operational independence of the bodies involved.

As I have set out, the Government are clear that all consumers should be able to access the FOS free of charge, without the need of any CMC support. Amendment 90 will enable this.

Amendment 90 agreed.

Financial Services and Markets Bill

Lord Harlech Excerpts

Report stage
Tuesday 6th June 2023 Lords Chamber

Moved by

[Lord Harlech]

2: Schedule 2, page 128, line 38, at end insert—
“(5) Paragraph (6) applies where—(a) a central counterparty (A) was taken to be recognised pursuant to Article 25 of the EMIR regulation in accordance with regulation 19A(3), and(b) A ceased to be taken to be so recognised by virtue of the relevant period in the case of A having expired before the commencement day.(6) The Bank of England— (a) may determine that the relevant period in the case of A is (in spite of its expiry) to be treated, as from the making of the determination, as not having expired, and(b) may accordingly exercise its power under this regulation to vary the relevant period on or after the commencement day.(7) In paragraphs (5) and (6) “the commencement day” means the day on which Part 5 of Schedule 2 to the Financial Services and Markets Act 2023 comes into force.(8) Paragraphs (5) to (7) expire at the end of 31 December 2025 (but without affecting any variation of a relevant period made under this regulation by virtue of paragraph (6)(b) before that time).”Member’s explanatory statement
This amendment would enable the Bank of England to restore a third country CCP to the run-off regime in cases where the regime has ended in the case of that CCP before the coming into force of the amendment made by paragraph 51 of Schedule 2 to the Bill.

[Lord Harlech (Con)]

My Lords, I beg to move government Amendment 2 and will also speak to the other amendments in this group. These are a set of minor amendments that the Government have tabled to ensure that all provisions of the Bill and the Financial Services and Markets Act 2000 operate effectively and fully achieve their intended policy effect.

Turning first to Amendments 2 and 118, central counterparties, or CCPs, are a type of financial market infrastructure and are crucial to global financial stability. Following the UK’s exit from the EU, the Treasury established a temporary recognition regime to enable eligible non-UK CCPs to continue providing important clearing services to UK firms while equivalence and recognition decisions were ongoing. To allow CCPs exiting the temporary recognition regime without recognition time to wind-down exposures to UK firms, a run-off regime was also established. The length of the run-off is determined by the Bank of England for each CCP, with a current maximum period of one year. As a result of provisions in this Bill tabled in Committee, the Bank of England will have the ability to extend the maximum run-off period for CCPs from one year to three years and six months. This would allow overseas CCPs currently due to exit the run-off regime at the end of June 2023 further time to apply for recognition if desired, and to remain able to offer services to UK firms during that period.

Amendments 2 and 118 seek to facilitate continuity of services under the run-off regime in the event that Royal Assent of this Bill occurs very close to or after 30 June. Amendment 118 provides that the Bill provision that gives the Bank the power to extend the run-off period comes into force on Royal Assent. This will allow the Bank of England to extend the run-off for those CCPs that wish to continue providing services to UK firms but need more time to apply for recognition, as was set out in Committee. However, if Royal Assent is secured after relevant CCPs have exited the run-off, government Amendment 2 will give the Bank of England the ability to reinsert a CCP into the run-off regime by determining that a CCP’s run-off is to be treated as not having expired. This will allow the Bank of England to extend the length of a CCP’s run-off period even in cases where a CCP has already exited the run-off. This will avoid any potential disruption that could otherwise arise if CCPs exited the run-off period before the Committee stage amendment had come into force.

Amendments 3, 16, 17, 21, 22, 34, 53 and 54 ensure that the references to the regulators’ objectives in the Bill and the Financial Services and Markets Act 2000 include the new competitiveness and growth secondary objectives for the PRA and the FCA, and the Bank of England’s new secondary innovation objective.

Turning to Amendments 5 and 6, Schedule 5 to the Bill makes amendments to FSMA to ensure that the regulatory gateway for financial promotions legislated for in this Bill can be implemented and operated. One way that it does this is by applying other relevant parts of FSMA to ensure that the FCA can oversee the gateway effectively. Amendment 5 aligns the wording between a provision introduced by Schedule 5 and a similar existing provision within FSMA. These provisions relate to the issuance of notices to vary permissions or to impose requirements. The amendment will ensure that the regulator is required to provide notice when they propose to vary a permission in all cases, and to avoid any potential duplicatory requirements to provide notices. Amendment 5 replaces the relevant provisions in Schedule 5 and in FSMA with a single new provision. This will help to ensure that these similar provisions are interpreted consistently and achieve the intended policy effect. Amendment 6 is consequential on Amendment 5.

Amendment 49 ensures that the CBA panel’s statutory remit includes cost-benefit analyses for rules for critical third parties, and that it is therefore able to provide advice to the Bank in relation to this. Amendment 86 corrects a drafting error, ensuring that Schedule 11, regarding the central counterparties resolution regime, functions as intended. It provides clarity over the Treasury’s power to lay regulations restricting the making of partial property transfers. Amendments 87, 88 and 89 make technical corrections and clarifications to the insurer insolvency provisions in Schedule 12 to the Bill. Amendment 89 provides a clarification to make clearer the amount of FSCS top-up compensation that policyholders will be eligible to receive following a write-down order, meeting the stated policy intent. Amendment 87 clarifies that a liability is, to the extent of its reduction by a write-down order, to be treated as extinguished unless and until revived by the variation or revocation of the order. This helps to ensure that the intent of the provisions is achieved by increasing legal certainty about the treatment of written-down liabilities.

All these amendments seek to ensure that the provisions in this Bill achieve the policy intent and minimise potential disruption to the UK financial services sector. Therefore, I beg to move Amendment 2 and intend to move the remaining amendments when they are reached.

[Baroness Kramer (LD)]

My Lords, I will make very few comments on this group of amendments. I accept that they are technical. I find some of them distasteful, particularly those that enhance the scope of the competitiveness and economic growth agendas. I fear very much that the underlying concept and construct will lead us back in the direction of the kind of risk taking that created the crisis that we went through so badly in 2008 and 2009. However, given that our attempts to turn around those objectives have not won support from other parts of the House, there is no sensible reason for me to object to these more technical amendments, other than to say that it is a sad day and that many of us will be revisiting this, if we live long enough, when we hit the next financial crisis.

[Lord Eatwell (Lab)]

My Lords, I will make two points on these technical amendments. As the Minister said, central counterparties are fundamental institutions in maintaining the stability of financial markets. This measure, to continue the role of overseas-based central counterparties, is enormously sensible. But there is an issue that has not been addressed. What if the overseas central counterparties decide not to provide services to UK firms—if they decide, following the UK exit from the European Union, that they will withdraw from providing such a service? What provision has His Majesty’s Government made for providing those services in those circumstances?

Secondly, I echo the point that the noble Baroness, Lady Kramer, made about the competitiveness and economic growth objective that is being incorporated as a subsidiary objective. As a subsidiary objective, it is unobjectionable. What is striking in the government amendments that we will debate is the way in which it is continuously privileged, such that it no longer remains subsidiary; extra reports and consideration will now be required, all focused on one objective. This is a serious mistake, because the statutory objectives of the regulatory authorities will change with circumstance over time. Writing into law that one objective should be privileged is a significant error. The primary and secondary objectives make sense, but overegging the position of a subsidiary objective is a mistake.

My main point at this time is to ask the Minister what measures provide central counterparty provision in those areas where overseas central counterparties decide not to act for UK firms.

[Lord Harlech (Con)]

My Lords, I am grateful for both contributions to this short debate. The noble Lord, Lord Eatwell, brought up the competitiveness issue, which is something we will come on to at a later stage in the proceedings on the Bill. In answer to his point about overseas CCPs, that would be a commercial decision for that institution to make. However, the idea of the run-off regime is to provide time for UK firms to wind down their operations and make alternative arrangements.

Amendment 2 agreed.

--- Later in debate ---

Moved by

[Lord Harlech]

3: Clause 6, page 6, line 29, after “section 1B(1)” insert “, (4A)”
Member’s explanatory statement
This amendment would ensure that Clause 6(10)(a) of the Bill includes a reference to the duty relating to the competitiveness and growth objective, as inserted into section 1B of the Financial Services and Markets Act 2000 by Clause 24.

--- Later in debate ---

[Lord Eatwell (Lab)]

My Lords, I apologise for missing the introduction from the noble Lord, Lord Tyrie; I was caught out by the Whips’ rearrangement of business. Fortunately, I read his pamphlet on this matter, so I have a good idea what he said.

[Lord Harlech (Con)]

My Lords, I am afraid that the noble Lord, Lord Eatwell, was not here for the opening comments from the noble Lord, Lord Tyrie.

[Lord Eatwell (Lab)]

I am probably the only Member of this House who has been a member of the Regulatory Decisions Committee and I might have some observations to make.

[Noble Lords]

Hear, hear!

[Lord Harlech (Con)]

Clearly, the House wants to hear the noble Lord’s remarks, so please continue.

[Lord Eatwell (Lab)]

If the Whips had not rearranged the business so peremptorily, one would not have been caught out.

[Lord Harlech (Con)]

The business has not been rearranged; the Order Paper says,

“at a convenient time after 7.30pm”.

[Lord Eatwell (Lab)]

My Lords, as a founding member of the Regulatory Decisions Committee of the Financial Services Authority who served from 2001 to 2006, I reflect on the fact that at that time the FSA took extraordinary care in preparing the documentation that was submitted to the RDC. This clearly had an effect on the way in which the RDC prepared itself. This is an important element in ensuring that our regulatory system is not only fair but seen to be fair. Having read with care the pamphlet from the noble Lord, Lord Tyrie, I support the arguments that he made there, which I am sure he recently repeated in the House.

Financial Services and Markets Bill

Lord Harlech Excerpts

Committee stage
Tuesday 21st March 2023 Grand Committee

[Lord Jackson of Peterborough (Con)]

My Lords, I rise briefly to support Amendment 241B, moved by the noble Baroness, Lady Fox of Buckley. I declare at the outset for full transparency that I am a paid-up member of the Free Speech Union. To be fully topical, I am also a graduate of Royal Holloway, which has been in the news today along with the noble Baroness on similar free speech issues. We debated this matter in the Chamber earlier.

This is a very gentle nudge by way of an amendment. Like the debate we had earlier this month on politically exposed persons, in this case, we see that a regulatory regime does not work and that we sometimes need a legislative nudge by way of something like this amendment. We could have a sterile debate about EDI/ESG and woke and cancel culture, but that is perhaps for another day. My concern is that untrammelled free speech should not be a monopoly; it is a relative concept because we have laws in this country to prevent egregious offence against certain people who have protected characteristics under the Equality Act 2010. Free speech within the law cannot be the preserve of a plutocratic, wealthy elite as represented by big financial institutions and big tech companies.

I never thought I would quote the comedian Jack Dee but, when the decision was taken by PayPal on 15 September last year to throw off the Free Speech Union, the Daily Sceptic blog and UsforThem, he quite rightly said:

“Big Tech companies that feel they can bully people for questioning mainstream groupthink don’t deserve anyone’s business.”


The offence of UsforThem was to question the efficacy of a policy of the teaching unions and, by inference, the Government not to force or even encourage children to go back to school. UsforThem felt that there was a serious public policy issue around that; it was well within its rights to debate that on the basis of empirical evidence and a well-argued case but PayPal took against it and threw it off the platform for breaching its rather Orwellian-sounding “acceptable use policy”. I do not think that is at all right.

The point that the noble Baroness, Lady Fox, made is right. In a competitive market where you have perfect competition—that is, lots of participants and allowing people to enter and leave the market—people can pick and choose which banks and tech companies they go to. However, when there is an oligopoly, as in this case, with a small number of providers of technical applications, perfect competition falls down. There is effectively a situation where people have no choice. That is why people who are not exactly conspiracy theorists, including me, worry about the idea of a cashless society because it puts absolute power in terms of business into the hands of the powerful, the influential, the wealthy, the well-connected and those who believe in and articulate groupthink.

The other thing that slightly worries me is not necessarily the overt idea of censorship, which is itself very worrying in an advanced liberal democracy such as the UK and the United States, but the concept of self-censorship—that is, you do not debate these important issues of public policy that might push against vested interests because you know that the battlefield is so asymmetrical that you do not have the funds to fight big tech or to engage civil litigation, and you run the risk of criminal penalty and sanctions should you do so. That is important. You cannot afford to take the risk so we get into this cul-de-sac of self-fulfilling beliefs and views, which were represented by PayPal.

I am glad that PayPal capitulated and surrendered, and said that it was wrong, but it did a lot of damage to the Free Speech Union, its membership base and its cash flow. Not surprisingly, Toby Young, the founder and CEO of the Free Speech Union, made it absolutely clear that he would not go back to PayPal because it had egregiously ruined his business model.

However, that is not as important as the general principle that, unless you have a bit of stick with these tech companies, they will not voluntarily eschew the concept of EDI and their fixed beliefs. Only the power of legislation can force them to comply with the basic tenets of a decent, liberal society: that free speech should be available to everyone; and that people should be able to voice unfashionable opinions. The mark of a mature and sensible society is that we allow people with whom we vehemently disagree to have a say in the public square.

To an extent, this a probing amendment, but my noble friend the Minister—incidentally, she has done extremely well in a very long and difficult Bill; I give her that plaudit, having given her a hard time the last time I was before this Committee—should reflect on it and come back with some sanction to defend the long-standing commitment that all of us, as parliamentarians and legislators, should have to the concept and practice of free speech.

[Lord Harlech (Con)]

My Lords, I thank the noble Baroness, Lady Fox, and my noble friend Lord Jackson of Peterborough for raising the important issue of freedom of expression and, within that, the role of payment providers.

Following PayPal’s temporary suspension of some accounts in autumn last year, to which both the noble Baroness and my noble friend referred, the Economic Secretary met PayPal and the FCA, as well as interested Members of Parliament. He subsequently set out the Government’s position on this matter on Report during this Bill’s passage through the Commons.

The Government fully recognise the importance of protecting free speech and the crucial role of payment providers in delivering services without censorship. The Government are committed to ensuring that the regulatory regime respects the balance of rights between users’ and service providers’ obligations, including in relation to protecting freedom of expression for anyone expressing lawful views. My noble friend made that distinction in his remarks.

I draw noble Lords’ attention to the letters from the Economic Secretary, the Financial Conduct Authority and PayPal regarding this issue, copies of which have been deposited in the Commons Library. The letter from PayPal explains that it re-evaluated and reversed its decision in a number of the specific cases raised. It made clear that it was never its intention to be an arbiter of free speech and that none of its actions were based on its customers’ political views.

While welcoming this clarification, the Economic Secretary expressed his concern about the importance of protecting free speech and recognising the crucial role of payment service providers in delivering payment services without censorship. As a result, he pledged to take evidence on the adequacy of the existing legislative framework through the statutory review of the Payment Services Regulations. This was published on 13 January 2023; the Government look forward to responses from all interested parties. I note for the Committee that that consultation is open for 12 weeks, meaning that it will close on 7 April. The Economic Secretary will promptly update Parliament through a Written Ministerial Statement following this review. He has committed that, if it emerges that there is a problem with the existing regime, the Government will act swiftly to address it.

In terms of going further to protect the importance of free speech, we have to understand that the Government do not believe there is evidence of a potential issue with payment services regulation beyond these few PayPal cases. The existing legal regime includes statutory minimum notice periods, rights of appeal to the Financial Ombudsman Service and the FCA’s principles on fair treatment. Users of payment services, in common with all UK citizens, benefit from a safety net of legislation such as the Human Rights Act, criminal law and court decisions, which balance the rights of people to express their ideas in a public space with the necessary limits of a democratic society, for example, to protect people from hate speech. More specifically, the Equality Act 2010 prohibits service providers in the UK denying services to users on the basis of their beliefs, including philosophical as well as religious beliefs.

Noble Lords talked about going further in this Bill. The Government’s view is that making legislative change just for payment services would not be proportionate or correspond with the requirements placed on other essential service sectors. The Government need evidence if there is a problem given the existing protections in the current legal regime for payment service users. Today I am aware of the concerns raised in relation only to PayPal, which re-evaluated and reversed its actions in several cases. The FCA has explained that it has the tools to regulate in a further specific way through its authorisation processes if there is a problem.

[Lord Jackson of Peterborough (Con)]

When the Minister analyses the results of the review which is concluding next month, will he also look at the slightly wider issue of barriers to entry and the possible oligopoly behaviour of payment services? That is a linked issue which is pertinent to the debate we have had today.

[Lord Harlech (Con)]

My noble friend makes an excellent point. I will certainly feed that back to the department in terms of the review.

To conclude, the Government already have the means to act on this issue and have made a clear commitment to do so if necessary. We are clear that we first need public consultation and an evidence base before determining the right course of action on this matter. I therefore request that the noble Baroness withdraws her amendment.

[Baroness Fox of Buckley (Non-Afl)]

I thank the noble Lord, Lord Jackson, and the Minister for that response. I will not keep noble Lords long. What the noble Lord, Lord Jackson, said about self-censorship was important. I mention that because I am worried that the Government are underestimating the climate that financial services providers are embroiled in relating to ESG and EDI. This is a warning shot that we recognised around PayPal, but I did not confine it to PayPal. It is just one example. There are sadly lots of recent examples, with organisations such as GoFundMe refusing to accept certain people because of their views and so on. I know that is not strictly within the remit of this Bill, but I know that the Government understand that there are tensions here. I do not want them to be too narrow and technocratic in the way they approach it by saying “Oh, there are only three examples, so what is there to worry about?” We have seen this internationally. I note that the Chinese social credit system lurks around this debate as something we want to be careful of. Big tech financial companies do not have regard for free speech as their terms and conditions will often cut against what is required in equality legislation here. That was the point I was making.

I hope that this short debate will be taken note of in that consultation. I also hope the Government do not feel that they can just deal with it simply through the consultation but will keep a close eye on what could be a dangerous and nasty situation of financially powerful organisations having an impact on individuals, frightening them into thinking that if they say the wrong thing they will not get banking. That is not the sort of society that we would like to end up with. I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Tunnicliffe (Lab)]

My Lords, I first welcome my noble friend Lord Leong to this very special club, the Financial Services and Markets Bill club. I am sorry that it is a little thin on the ground. I will say no more than that the case, as presented and supported, seems strong.

One of the sad things about occupying this position is that, every time credit comes up, you get abusers. The large companies are frequently the abusers, and payday loans are a classic example of that. Anywhere there is credit, you end up with pockets of abuse. I unashamedly believe in regulation. I do not believe in bad regulation; I believe in good regulation and I think it should enter this field. But that is not a formal position, so we will listen to the Minister before concluding our point of view.

[Lord Harlech (Con)]

My Lords, I thank the noble Lord, Lord Leong, and others noble Lords for their contributions on this amendment headed “Regulation of factoring companies”.

As noble Lords know, invoice factoring is a type of invoice finance where suppliers effectively sell their invoices at a discount to a finance provider in exchange for an advance. This means that suppliers can receive payments sooner, helping them to manage cash flow. Invoice factoring is an important product for British businesses, helping them to grow sustainably when they might otherwise struggle to do so. It is a relatively standardised product designed to help businesses manage their cash flow and support growth.

Businesses benefit from a diverse finance market made up of high street banks, smaller banks and a range of non-banks to ensure that they can continue to access suitable finance. This is particularly important to ensure that UK SMEs are accessing finance to support their goals and contribute to the UK’s growth agenda. We have discussed the approach to regulating small businesses in an earlier debate but, as noble Lords know, invoice factoring is not considered credit, because it is an advance on invoices already generated; therefore, any small businesses using these products do not benefit from protections such as those under the Consumer Credit Act, which apply to the smallest businesses taking out loans.

However, invoice factoring is generally used by larger SMEs that would not benefit from protections under the Consumer Credit Act in any case. UK Finance estimates that its members advanced invoice finance and asset-based lending facilities to just 35,000 firms in 2022, representing less than 1% of all UK businesses; in comparison, according to the SME Finance Monitor, 36% of SMEs—nearly 2 million of them—were using external finance in 2022.

However, the Government believe that businesses using invoice finance are well protected in other ways. The banking and finance industry has recognised that businesses should be able to use invoice factoring with confidence, so has taken steps to ensure that businesses have adequate protections. UK Finance members, representing between 90% and 95% of invoice factoring by volume, are subject to a standards framework and code, which set the standards that firms should meet when supplying invoice factoring facilities. They include an independent complaints process focusing on the requirements of those smaller businesses using invoice factoring, which might otherwise be reluctant to raise concerns about their treatment. For invoice factoring among larger firms, these businesses will have the financial and legal resource available to take action through the courts.

Bringing invoice factoring into regulation would likely increase costs for businesses. This would negatively impact the ability of these businesses to manage their cash flow in a flexible, cost-effective way at a time when it is important that they have the confidence to invest and expand. There is a fine balance between the costs and benefits when bringing activities into the regulatory perimeter. It requires careful consideration to ensure that there is an appropriate balance between several factors, including ensuring that consumer protection is in place and that businesses are allowed to innovate.

Overall, the Government believe that the current approach—enforcing standards through industry bodies and voluntary codes while facilitating innovation and competition—is more likely than new regulation to drive positive outcomes for businesses that rely on invoice factoring. I therefore ask the noble Lord, Lord Leong, to withdraw his amendment.

[Lord Leong (Lab)]

I thank all noble Lords who have kindly supported this amendment. Access to finance is vital to start-ups and small companies; it is one way in which they can easily get money without any security. The number of small companies that have to resort to factoring invoice discounting is on the rise because banks are becoming more and more demanding as far as security is concerned. As I said in my speech earlier, my amendment is a probing one. I want to take this opportunity to ask the Minister this: can we do some more work to see how many companies access this form of finance and how many companies go bust because they cannot afford to pay some of the rates that are being asked by these companies?

On that basis, I beg leave to withdraw my amendment.

--- Later in debate ---

[Lord Tunnicliffe (Lab)]

Before I start, would the Government Whip like to give us some indication as to how we are going to end this session?

[Lord Harlech (Con)]

The Grand Committee is scheduled to run until 7.45 pm, which gives us half an hour. However, in the usual way, if the debate has not concluded by that point, the debate on this group will continue into the next day of Committee.

Budget Statement

Lord Harlech Excerpts

Thursday 16th March 2023 Lords Chamber

[Lord Harlech (Con)]

My Lords, I suggest that we adjourn the debate on the Motion in the name of my noble friend Lady Penn in order to take the Urgent Question repeat to the Foreign, Commonwealth and Development Office.

[Lord Tunnicliffe (Lab)]

Could the noble Lord give us a time when we might come back?

[Lord Harlech (Con)]

The Urgent Question repeat may run up to 10 minutes and then my noble friend the Deputy Chief Whip will adjourn the House for 30 minutes on the conclusion of the Urgent Question, so it will be roughly 40 minutes.

Public Spending: Barnett Formula

Lord Harlech Excerpts

Wednesday 15th March 2023 Lords Chamber

[Lord Wigley (PC)]

My Lords, I am delighted to follow the noble Baroness and congratulate the noble Lord, Lord Hendy, on his delightful maiden speech. I warmed very much when he mentioned the Barnett consequences of HS2—I will mention those in a moment. I am sure we all look forward to his future contributions to debates in this Chamber. I also thank the noble Lord, Lord Shipley, for bringing this debate and giving us an opportunity from various angles to address aspects of the Barnett formula.

I am probably the only Member here who spoke in the Commons debate when the Barnett formula was introduced in 1978. I then warned that it would freeze the financial relationships between our four nations and ossify Wales into a dependency relationship in which the consequences of historic industrial and social patterns would place high demands on healthcare and housing budgets.

In opposition, Welsh Labour MPs called for a needs- based formula to replace Barnett, but when in government they failed to deliver. That was partly, I believe, because the Chancellor and then Prime Minister Gordon Brown was a Scottish MP and feared that a needs-based formula might penalise Scotland.

When the Barnett formula was introduced in 1978, Joel Barnett proposed it as a short-term measure. Four decades later, the then Lord Barnett described its continued application as an embarrassment. Its fundamental weakness for Wales is that it takes as its starting point the situation that existed in 1978. The Government have acknowledged that the baseline for Barnett is created by “rolling forward existing spending”. That assumes that the spending in 1978 was appropriate to Wales’s needs and that no fundamental change in the relationships between Wales and England has happened since. But there has been a dramatic differential change arising from the ending of the coal industry and hugely reduced employment in steel. The formula’s other central weakness is that adjustments to the base spending levels were not needs related. Subsequent editions relate to spending levels determined by Westminster as appropriate for England.

It is fair to say that over the period from 2000 until Brexit hit home, Wales benefited from European regional and social funds. We received that aid because the per capita GDP in 15 of Wales’s 22 counties was below 75% of the EU figure. Wales was accorded European funding in 1999 because of the failure of UK economic policy to regenerate the Welsh economy. EU aid was essentially a recognition of need.

The challenge was to raise the economic activity levels, which ran at six percentage points lower than England. There is some irony that the issue of lowered economic activity levels is now being experienced in England as well. I question whether successive Labour-led Governments in Cardiff used those European resources in a strategic manner to put right the underlying weaknesses of our economy. Money was given out to support worthy projects that were welcomed in local communities but often did not address the underlying problem. EU funding was intended to address these needs-based issues. The Barnett formula does not even try to do so.

The Barnett formula was reviewed by a House of Lords Select Committee in 2009 and by the Holtham commission in 2010. Both criticised the formula, principally because it is not needs related. To highlight one aspect of its deficiency, over recent years public expenditure per capita in Wales has been very close to that of London, notwithstanding the greater needs of Wales on a host of indicators. Analysis from 2022 showed that total identifiable public expenditure per capita in 2020-21 was £14,222 in Wales and £15,490 in London. If per capita expenditure had been the same in Wales as in London, Wales would have received an extra £4 billion.

I accept that only half of government expenditure in Wales comes through the Barnett formula and the rest is direct Treasury funding for non-devolved matters. But over the Covid period, London benefited disproportionately from central government spending, despite the costs of Covid being felt all around these islands and the health services being largely devolved.

Another glaring example relates to HS2, as we have heard. Normally, if such a project cost, say, £100 billion in England, the Barnett consequential for Wales would be about £5 billion. Instead, Wales receives nothing because HS2 is defined as an England and Wales project, despite not a single mile of it running through Wales. Will the Minister tell the House who made that decision? Not one mile of HS2 is in Wales; indeed, a KPMG study for HS2 Ltd shows that Wales would lose competitive advantage as a result of it. That report projects Scotland as gaining competitive advantage, yet Scotland gets a Barnett consequential from HS2 and Wales does not. In responding to this debate, the Minister should announce that Wales will get a full Barnett consequential from HS2, as demanded by the Conservative leader in the Senedd. If she fails to indicate government rethinking on this issue, many Tory MPs in Wales will pay the price.

In their response to the Select Committee report, Cm 7772, the Government promised to keep the operation of the Barnett formula under review. In responding to this debate, will the Minister tell the House exactly when it was last reviewed, what material evidence arose from any such review and when it was published?

The noble Lord, Lord Forsyth, at Question Time on 18 January, acknowledged that the Barnett formula was not serving Wales well and called for it to be scrapped and replaced by a needs-based formula. The Minister has repeatedly said, in this Chamber on 18 January and again this afternoon, that the Government have responded to the demands of the Holtham commission that Welsh funding should be decided on a needs basis. I say here, as emphatically as I can, that they have not.

The Holtham report contained three core demands. The first was to establish a Barnett floor to stop the ongoing systematic convergence of the Welsh allocation per capita with that of England. It would, in Holtham’s words, prevent even further underfunding of public services in Wales.

[Lord Harlech (Con)]

My Lords, I am sorry to interrupt the noble Lord—

[Lord Wigley (PC)]

I am winding up now. As I was saying, it does not do anything to put right the level of underfunding that Wales has systematically suffered and that is built into the present settlement. That is why Holtham recommended, crucially, that Barnett be replaced by a “needs-based” methodology to get financial provision in line with Wales’s needs. Please will the Minister confirm that case?