Financial Services Act 2021 (Overseas Funds Regime and Recognition of Parts of Schemes) (Amendment and Modification) Regulations 2024
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Lord Sharkey (LD)
My Lords, we are grateful for the Minister’s clear and concise explanation of what this SI does and why it is necessary. I note the thorough and helpful consultation report, published as long ago as 2020. We are happy to support this instrument and have only a few questions.
The first question is to do with timing. The new OFR will come into operation only when the appropriate equivalence determinations have been made by HMT. The introduction of this new regime has been foreseen for at least two years. During that time, I am sure HMT has been working diligently to decide on the appropriate equivalence determinations. When might we expect these determinations to be published?
My second question arises from the 2020 consultation report. It makes clear the decision not to extend FOS and FSCS protection to the newly authorised funds. This is despite the recommendation of the Financial Services Consumer Panel. Can the Minister explain why these basic consumer protections were omitted?
My third question arises from the decision to reject these protections. In paragraph 2.44, the consultation report notes that:
“In general, respondents to the consultation considered that if the scope of FOS and FSCS remain unchanged, funds should inform investors through disclosures in the fund prospectus”.
The Government agreed that some form of disclosure was necessary, and in paragraph 2.46 said:
“The government will consider the appropriate framework for disclosing the absence of FSCS and FOS in the future. The FCA will also explore whether it is necessary and appropriate to require enhanced risk warnings or explicit acknowledgement from investors about the lack of availability of FOS and FSCS coverage”.
That was over two years ago. How is HMT getting on with the framework thinking? How is the FCA getting on with its exploration? Can the Minister tell us what HMT has concluded about the appropriate framework for disclosing the absence of FOS and FSCS cover and what the FSA has concluded about enhanced risk warnings? If at this late stage there is as yet no conclusion from HMT or the FCA, will she commit to write to us, setting out the conclusions when they are finally arrived at?
Lord Jones (Lab)
My Lords, the Minister is clearly up to speed on these detailed matters, as I know my noble friend Lord Livermore is—but I am not. I recollect that, when I was in another place, the late Lord Cecil Parkinson, a very able Minister, introduced his great City finance reforms—what we knew then in the other place as the “big bang”. Lord Parkinson was a clever and adept Minister; he rose to even higher rank in government, and was a party chair for the late Lady Thatcher. But it seems to me that, in his reforms, simplicity was not one of the ingredients. With reference to the Explanatory Memorandum, at paragraph 7.1, what are sub-funds? Might the Minister throw some light on that detail?
Lord Livermore (Lab)
My Lords, I am grateful to the Minister for introducing this statutory instrument. We support these regulations, as they will provide smoother market access for overseas funds that have been determined to be equivalent to the UK’s in relation to consumer protection. This SI is part of a wider set of measures to bring the overseas funds regime, or OFR, online. The regime will apply to funds from jurisdictions that the Treasury has deemed “equivalent”, so the OFR will become operational only once those decisions by the Treasury have been made.
When this SI was debated in the Commons, my honourable friend the shadow Economics Secretary asked the Minister when the Secretary expected to take the equivalence decisions that would enable overseas funds to utilise the streamlined approach envisaged under the new overseas funds regime. In his answer, the Minister was able only to say, “very soon, I hope”. Given this, is the Minister able to go any further in providing greater clarity on the timing of these equivalence decisions? Is she able to provide any indication of how many equivalence decisions the Treasury expects to make in the first instance?
Local Government Finance Act 1988 (Prescription of Non-Domestic Rating Multipliers) (England) Regulations 2023
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The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)
My Lords, although these draft regulations may appear at first sight obscure and technical, they are essential to the smooth functioning of the business rates system for the financial year 2024-25 and beyond.
The regulations serve two main purposes. The first is to preserve the threshold for those businesses that pay rates by reference to the lower small business multiplier at a rateable value of below £51,000. This has been government policy since 2017 but, due to the passing of the Non-Domestic Rating Act 2023 in October, it must be reaffirmed here.
The second is to ensure that this threshold of £51,000 not only applies to occupied properties, as it has done previously, but extends to charities, unoccupied properties and those on the central list that are not subject to full relief. Moving these properties from the higher standard multiplier to the lower small business multiplier will place the entire business rates system on an even footing. It will also constitute a modest tax cut for those properties that will move to the small business multiplier for the first time, to the tune of around £5 million per year.
The Committee may find it helpful if I set out a quick reminder of how the business rates multiplier works. A multiplier is, in effect, a tax rate used to calculate business rates. There are two kinds of multipliers. The standard multiplier applies to businesses with a rateable value of £51,000 or above. The small business multiplier applies to businesses with a rateable value of less than £51,000. The relevant multiplier is multiplied by the yearly rental value of a property, known as the rateable value, to calculate its business rates bill before any reliefs are applied.
These regulations have been precipitated by the Non-Domestic Rating Act 2023, which implemented the reforms announced at the conclusion of the 2020 business rates review. As I am sure many noble Lords are aware, this important legislation introduced more frequent revaluations, bringing the revaluation cycle down from every five years to every three years to make the system fairer and more responsive. The Act also introduced a new improvement relief to incentivise businesses to invest in their properties; legislated for improved transparency in how business rates valuations are calculated; and introduced a number of administrative reforms to the business rates multiplier to streamline and improve the system.
This last point is most relevant here, as those reforms provide the Government with a power to set and alter in secondary legislation the thresholds for which properties are eligible for each multiplier. As these new reforms will come into force from the 2024-25 financial year, the Government must bring forward these regulations in order to maintain the threshold for which properties pay the multiplier at its existing level of £51,000 rateable value. If these regulations are not passed, the small business multiplier will instead apply only to businesses in receipt of small business rates relief. This would constitute a tax hike for hundreds of thousands of businesses whose properties have a rateable value of between £15,000 and £51,000.
The second purpose of these regulations is to bring unoccupied properties, charities and properties on the central list in line with occupied properties, by bringing properties with a rateable value of below £51,000 into the scope of the small business multiplier. The proposal to bring unoccupied properties and charities within the small business multiplier was initially made in the technical consultation following the business rates review. The Government committed to this change in the summary of responses to that document in March 2023. To maintain consistency across the business rates system, it was subsequently decided to bring properties on the central list—the centrally managed list of properties that span multiple local authority areas, such as utilities pipelines—within the scope of the small business multiplier.
The content of this instrument is therefore very simple. The instrument continues and extends existing government policy, applying the small business multiplier to properties with a rateable value of below £51,000 that are not subject to full relief. Properties valued at £51,000 and above that are not subject to full relief will pay business rates by reference to the standard multiplier.
For the majority of ratepayers, then, this statutory instrument merely preserves the status quo. Ratepayers are used to a £51,000 rateable value threshold for the small business multiplier, and this instrument maintains that threshold under the legislative reforms made by the Non-Domestic Rating Act 2023. The instrument promotes stability and predictability in the business rates system. For unoccupied properties, charities and properties on the central list with a rateable value of below £51,000, this instrument will provide a small tax cut, as these properties are brought into the scope of the small business multiplier. The regulations will make the multiplier more consistent and place all properties on a fair and level playing field. I beg to move.
Lord Jones (Lab)
My Lords, I thank the Minister for her helpful and brisk exposition, and I will not delay for mischief or malice these regulations that come to the Committee. It is the settled view of the usual channels that it should be so—and rightly so. I rise briefly in the traditional manner to ask the Minister questions, simply and briefly, to hold the Executive to account. So often the Grand Committee considers regulations of great importance to citizens but debate is so brief.
Paragraph 2.2 of the Explanatory Memorandum is welcome. Can the Minister tell us the Government’s estimate of the numbers of small businesses in England and Wales? Does the department have any idea of how many there may be?
Paragraph 12.1 of the Explanatory Memorandum baldly states that this is a “tax cut”. Surely the Minister who comes to this Committee with a tax cut should be congratulated. For the Minister arriving with a tax cut, it raises confidence when next she gives her expert and brisk introductory remarks.
On paragraph 14 of the Explanatory Memorandum, who will carry out monitoring and review? Shall it be civil servants, independent consultants or simply the Minister’s section in her department?
Under the heading “Consultation outcome”, paragraph 10 mentions small businesses. Has the Federation of Small Businesses—or the chambers of trade, for example —been involved in this consultation? Details might be available from the Minister or her officials.
Lastly, local government tells of its great problems concerning finance. Does the Minister know that local government throughout the nation hopes that, in the imminent Budget, the Chancellor will offer more money to hard-pressed local authorities in a time of austerity?
Lord Shipley (LD)
My Lords, I thank the Minister for her introduction. I welcome strongly the decision to ensure, through this instrument, that charities and unoccupied properties will be eligible for the small business multiplier. It is also helpful that the Government have decided to extend the small business multiplier to central list properties below the £51,000 rateable value threshold.
Business rates are simply too high, particularly for small businesses. I recognise that there has been a freezing of the small business multiplier. At Third Reading of the Non-Domestic Rating Bill in October, I said that what is now the Act made some very welcome changes, particularly around more regular revaluations. However, business rates used to be around half the rental value of a property and they are now closer to 100%—they are almost equal. This financial burden is putting huge pressure on many businesses and impacting on our high streets, particularly our retail sector.
I want to ask the Minister this. We had assurances during the passage of the Non-Domestic Rating Bill that the legislation would be kept under review. Will the Government continue to keep under review the amount that small businesses have to pay? Even though there is a discount, at 49.9p in the pound, compared to other businesses, at 51.2p in the pound, small businesses need greater help today. I hope very much that the Minister will be able to say that the Government are well aware of the financial pressures that small businesses have and are alert to the need to ensure that those pressures, in the current economic context, do not get worse. Might the Government find ways to review the business rates system, which we debated at some length during the passing of the Non-Domestic Rating Bill, but also the level that is paid by many businesses which have been struggling?
King’s Speech
Lord Jones Excerpts(1 year, 1 month ago)
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Lord Jones (Lab)
My Lords, it is a pleasure to follow the always insightful noble Viscount, Lord Waverley.
On rail, huge interest has been shown in north Wales in the Prime Minister’s conference pledge to invest £1 million in the north Wales coastline. Will the Minister repeat the guarantee that this money shall be forthcoming? To spend well on the north Wales rail system, we must urgently have money to formulate the business plan. How will this be done and when? Also, the north Wales coastline is a vital economic artery from the cross-border city of Chester to Holyhead, Anglesey. Please, modernise Chester city station as soon as possible. Are there sufficient funds for this modernisation?
The helpful chair of Transport for the North, the noble Lord, Lord McLoughlin, and the supportive Mayor of Liverpool have sought investment in the Liverpool-Wrexham rail line, especially from English Bidston to Welsh Wrexham. Will the Government please move this on? It is a priority in Wirral and north Wales. The interim report from the commission led by the noble Lord, Lord Burns, has marked up these issues. Our Growth Track 360, so well led and chaired by Councillor Louise Gittins, has the goal of cross-border connectivity, with the emphasis on rail. The Prime Minister’s pledge at conference will help this on.
On energy, Trawsfynydd and Wylfa have distinguished historic pedigrees in the production of nuclear power for Britain. Both are dormant now. I would like both localities to be rewarded for their undoubted excellence in the production of vital power. I ask the noble Baroness the Minister to state what specific plans the Government have for these locations. Shall there be small modular nuclear reactors at Trawsfynydd? Is it the case that Rolls-Royce is considering a prototype there? Do the Government have plans to encourage the building of a standard reactor at Wylfa, or will there be SMRs there? Are American companies looking at SMRs there? Can the Minister please give information? There is but speculation on these issues.
Trawsfynydd and Wylfa are far flung from traditional industrial locations. There are few skilled, well-paid jobs in north-west Wales. It is not fair to expect hard-pressed communities to exist on the tourist industry alone, good though it is in the lovely landscape of Wales, which is my homeland. Can the Minister spell out and summarise where the Government stand as far as Trawsfynydd and Wylfa are concerned, at the wind-up or by letter? If we go the SMR way, why not build these units at the extensive Welsh industrial facility at the giant industrial park at Deeside or in the lee of the advanced manufacturing centre alongside Airbus UK’s giant facility in Flintshire in north-east Wales?
I conclude by congratulating the noble Lord who has the name of a great English soccer forward and the right reverend Prelate the Bishop of Norwich on their magnificent maiden speeches.
European Structural and Investment Funds and the European Agricultural Guarantee Fund
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Baroness Penn (Con)
My Lords, as I have explained to the House, as European funding tails away, UK funding ramps up. For example, the shared prosperity fund will reach £1.5 billion a year by the end of the spending review period. For each of the sectors that the noble Baroness mentioned, we have provided clarity around the funding available for the full three years of the spending review and the mechanisms by which it will be distributed. I know that my colleagues in Defra continue to work hard with farmers to ensure the successful rollout of the replacement schemes.
Lord Jones (Lab)
My Lords, will the Minister acknowledge that, in recent times, Wales has lost a great foundation industry, which was mining? It provided tens of thousands of jobs and created some prosperity. In recent times, the once mighty steel industry of Wales has also all but disappeared—it has shrunk. We are more and more in need of investment. It was from the privy counsellors’ Bench over there that former Prime Minister Harold Macmillan, Viscount Macmillan, paid tribute to the miners and steelworkers who, in two world wars, defeated first the Kaiser and then Adolf Hitler. Wales now needs more and more government funding. In the lovely heartland of Wales—cefn gwlad—there is great distress among the farming communities. We are in need of investment.
Baroness Penn (Con)
My Lords, we had a discussion last week about the needs of Wales when it came to government funding. I told noble Lords then that we took into account the greater needs of Wales as calculated by the Holtham commission. Indeed, the funding that goes to Wales is over and above the assessed needs of Wales at the present time.
Farmers and Landowners: Tax Consequences
Lord Jones Excerpts(2 years ago)
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Baroness Penn (Con)
My Lords, we are iterating our approach as we develop these schemes. Quite a lot of them are new, and many different aspects are being piloted or developed. It is important that, as development happens, we take into account the tax considerations and implications of the new schemes. I can reassure noble Lords that we are aware of some of these questions and issues. We are looking at them very closely and, as the policies are developed, we are taking that into account in the Treasury’s input into Defra schemes.
Lord Jones (Lab)
My Lords, does the Minister guarantee that her taxation policies will not bear down unjustly and negatively on the upland farming areas of England and Wales? I have in mind the Borders, Cumbria, the Pennines, Cefn Gwlad—the heartland landscape of Wales—and the moorland communities of the south-west. Does she acknowledge that, already, besides taxation, the big problems are elevation and climate, and that these historic communities do not need further problems arising from her department’s taxation policy?
Baroness Penn (Con)
I reassure the noble Lord that we are cognisant of the need to ensure that our tax policy and our environmental land management schemes are working with and not against each other. It is an area of some complexity. With respect to how different farmers are affected—the noble Lord mentioned upland farmers—we are trying to look at the whole system and its different levels of complexity to make sure that we get to the right approach.
Financial Services (Miscellaneous Amendments) Regulations 2022
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The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
My Lords, this statutory instrument comprises two sets of provisions relating to Gibraltarian firms operating in the UK market and to securitisation. The proposed legislation will remedy technical deficiencies identified in financial services legislation that was put in place to help manage our withdrawal from the EU.
In relation to Gibraltar, this instrument will fix temporary market access arrangements put in place to ensure that Gibraltarian firms did not face a cliff-edge loss of market access into the UK when we left the EU. In particular, these amendments will complete the intended transfer of powers to the Treasury and the Financial Conduct Authority in three specific areas. This transfer will give the UK authorities powers in relation to Gibraltarian firms where operating in the UK market, consistent with their powers over domestic firms.
It is worth remembering that financial services legislation was amended on withdrawal from the EU to adjust the treatment of EEA firms; in particular, to remove passporting rights, which were a function of the EU’s single market. At this time, because Gibraltarian firms had benefited from equivalent rights, separate provisions were necessary to preserve the existing arrangements supporting market access for financial services between the UK and Gibraltar. These arrangements were always intended to be temporary. Through the Financial Services Act 2021, we are working to replace them with a new permanent regime designed specifically for Gibraltar that reflects our unique history and relationship.
The temporary regime that the Government put in place for Gibraltarian firms unintentionally prevented the transfer of powers to the Treasury and the Financial Conduct Authority being completed in certain areas, leaving gaps in UK law. This SI will exclude provisions from this temporary regime to remove these gaps in the powers available to the Treasury and the FCA. This is equitable and proportionate, as it will enable the treatment of Gibraltarian firms to be brought in line with that of UK firms. Closing these gaps will provide for a more consistent legal and regulatory environment, as intended.
This SI will have an impact on three regulations that affect Gibraltarian firms operating in our market. Under the Short Selling Regulation, the Treasury’s power to modify the reporting threshold relating to net short positions will extend to Gibraltarian firms trading shares on a UK trading venue. Under the Markets in Financial Instruments Regulation, the FCA will be able to apply technical standards relating to post-trade disclosure obligations to Gibraltarian investment firms in the UK. Similarly, under the Packaged Retail and Insurance-based Investment Products Regulation, the FCA will be able to apply technical standards to Gibraltar firms selling, advising on or manufacturing PRIIPs to retail investors in the UK.
I turn now to the second area the SI covers, securitisation provisions. Securitisation is the packaging up of assets or loans and selling them on to investors. This allows lenders such as banks to transfer the risks of assets to other banks and investors to free up their balance sheets and allow for further lending to the real economy. The UK supports the implementation of international standards to promote simple, transparent and standardised—or STS—securitisations. STS securitisations are easier for investors to understand and assess the risks of. As a result, some STS investors will benefit from lower capital requirements.
Generally, only firms established in the UK can designate their securitisations as STS. However, transitional arrangements were put in place to allow for certain EU STS securitisations issued prior to the end of 2022 to be recognised in the UK. These arrangements were extended to the end of 2024 by another set of EU exit regulations earlier this year. The instrument being debated today will simply extend the end date of two requirements for EU STS securitisations to the end of 2024, rather than 2022. This will ensure that UK investors do the appropriate due diligence checks when investing in EU STS securitisations, and that these securitisations remain exempt from clearing requirements, to prevent unnecessary administrative burden. The amendments thus maintain the current requirements as long as the transitional arrangements last. I beg to move.
Lord Jones (Lab)
My Lords, I thank the Minister for her lucid introduction. I refer to paragraph 7.26 of the Explanatory Memorandum. Will she tell us just how busy Gibraltar firms are? How many of them are there—that is, those that are
“acting as sellers, advisers or manufacturers of PRIIPs to retail investors in the UK”?
Gibraltar is a very small place. We might ask, with regard to the Explanatory Memorandum, what is going on in Gibraltar? There is a plethora of technical terms, a multitude of abbreviations in capital letters and specialist vocabulary, and it is all a blizzard of necessitous complexity, the House might agree. Of course, the Minister is a master of it all and, again, I thank her for her lucid introduction.
Barnett Formula
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Lord Jones (Lab)
My Lords, I thank the noble Lord, Lord Shipley, for initiating this debate, and his succinct address.
Were he alive, Lord Roberts of Conwy would be here today. As a long-standing ministerial and opposition opponent of his, I think that his contribution to Wales’s public life was magnificent. He was more than ever loyal to Wales’s local government units, and his journey from the Methodist manse of Ynys Môn to high rank here in your Lordships’ House is a fine essay in giving good public service. Wyn Roberts built more roads than the Romans ever did, and he built schools and hospitals. He was a fine man.
As I see it, the background to the Barnett formula was the consequence of three beleaguered Administrations of which I was a member, led first by Prime Minister Harold Wilson and then by Prime Minister James Callaghan. The latter Administration was sustained by a Lib-Lab pact of a kind. In those crisis years, as he was addressing the complex algebra of local government finance, the noble Lord, Lord Barnett, knew that the IMF was kicking in the doors of the Treasury, that the British manufacturing smokestacks were falling down by the day, that the OPEC nations had trebled—indeed, quadrupled—the price of oil, and that a fearful inflation was raging, some 27% year-on-year in 1975. That also triggered off what is now called in shorthand trade union militancy.
I will give the following brief vision of how the noble Lord coped as Chief Secretary. You would find him in the Members’ Dining Room in another place with his great friend, the noble Lord, Lord Sheldon, and he coped by opening a half-bottle of House of Commons champagne. He then went back to the Treasury that little bit better in his morale. It was from these fires in British governance that the Barnett formula arose, as it were, metaphorically so, from the political loins of the noble Lord, Lord Barnett. My one observation is to be careful for what you wish if you are a Welshman in governance, particularly in Wales. Whatever the outcome of the Scottish constitutional debate, Barnett will come to the fore in all our deliberations and arguably shall be in the manifestos of the great political parties. That is for certain.
My caution is this. Roughly speaking, per head of the population in England the sum of money per citizen is exceeded in Scotland by £1,400; and in my own country, Wales, by some £800. I have spent only 43 years here in Westminster, and I am concerned that when Whitehall mandarins have their monthly meetings they may be tempted to consider how they may be able to get rid of the responsibility as it affects the Celtic fringes. I therefore feel that before one advances one should know precisely what the outcome is. That is what the noble Lord, Lord Barnett, always did; he was an accountant by profession. I offer again the sight of the noble Lord quaffing his half-bottle of Commons champagne before going back to address problems of great crisis.