Data Reporting Services Regulations 2023

Lord Livermore Excerpts

Wednesday 10th January 2024 Grand Committee

[Lord Sharkey (LD)]

My Lords, I will speak first to the data reporting services SI. The Explanatory Memorandum for this instrument helpfully reduces its 28 pages to a succinct six pages. It makes plain what the scrutiny situation with regard to the SI will be. Paragraph 7.4 says:

“Before FSMA 2023, the FCA did not have any rule-making powers over DRSPs, except for some limited powers in respect of technical standards, as well as limited powers of direction enabling them to establish the current authorisation process. These were not sufficient to replace the detailed provisions currently in retained EU law”.


Paragraph 6.6 goes on to remind us:

“Separately, Section 11 of FSMA 2023 inserts new section 300H into FSMA 2000 which establishes a general rule-making power for the FCA in relation to DRSPs. Going forward, it will be the responsibility of the FCA to make firm-facing rules in relation to DRSPs within the powers established by FSMA 2023”.


These new FCA rules will not be subject to parliamentary scrutiny—unlike the retained EU law provisions, which were. We should be clear that Parliament will be bypassed by these new FCA rules.

In this SI, we are simply being asked to consider a set of framework proposals for these new FCA rules, not the rules themselves. The helpful de minimis assessment makes this point very clearly in its opening paragraph when it says:

“Retained EU law will be replaced with rules set by our independent and expert regulators, operating within a framework set by government and Parliament”.


We regret that Parliament is being excluded from effective scrutiny here.

There are some questions relating to this framework; I would be grateful if the Minister could address them. In paragraph 7.10 of the Government’s response to the consultation on the WMR, there is a note on the issue of removing the requirement for CTPs to provide data streams free after 15 minutes. The report notes that most respondents favoured removing this requirement but others argued that

“retail and non-professional investors currently benefit from this obligation and removing it, even for CTPs, could risk disadvantaging them”.

Have the Government discussed this with the FCA? Which approach is currently favoured? Are we going to leave the 15 minutes in or take it out?

In paragraph 7.11 of the WMR response, it is noted that some respondents suggested that

“the current requirement in legislation for market participants, operators and data reporting services providers to make data available on a ‘reasonable commercial basis’ (RCB) is not working”.

These respondents argued that this is because the FCA

“does not have sufficient enforcement powers and asked for the FCA to be given appropriate enforcement powers to control the cost of market data”.

Can the Minister say whether this framework SI will allow the FCA to take on these obviously necessary enforcement powers?

I turn now to the 44 pages of the second SI before us, the Securitisation Regulations 2023. We acknowledge the need for action in this area but, as with the previous SI, we strongly regret that Parliament is in effect excluded from scrutiny of the rules to be set by the FCA and PRA. There are several areas in the instrument where it would be helpful to hear more detailed explanations from the Minister.

Paragraph 7.12 of the EM notes:

“This SI makes some changes to the regulatory perimeter, including scoping out”—


I take that to mean “ruling out of scope” rather than “investigating”—

“non-UK AIFMs from the definition of institutional investor”,

and transferring

“the responsibility for the supervision of providing securitisations by occupational pension schemes”

from TPR to the FCA. Can the Minister explain on what basis these two changes are thought to be beneficial and to whom?

I am also puzzled by this comment in paragraph 7.14 of the EM:

“Due diligence requirements for occupational pension schemes will remain in legislation and be supervised by TPR”.


It goes on to say:

“These requirements will be restated as part of a further SI in 2024”.


Why is there a need for restatement? What deficiencies are there in the current legislation?

Paragraph 7.20 of the EM says that

“this instrument exercises sections 71N(3) and 71N(4) FSMA to allow the FCA to disapply or modify their rules in relation to securitisation activity”.

Are there any limitations here to what the FCA may do or does it have carte blanche to do as it sees fit, absent any scrutiny from HMT or Parliament? If there are any limitations, where are they set out?

I close by referring to paragraph 10.4 of the EM and the Q2 2024 date for the publication of the outcomes of the FCA and PRA consultations and, therefore, of their new rules. This is a long wait. It is extremely unfortunate that these outcomes and the final new rules are not available to Parliament to inform our debate on this SI. No doubt we will have many more financial services SIs in this Session. Will the Minister ensure that the relevant consultation outcomes and proposed new rules are available to Parliament before we debate future SIs?

[Lord Livermore (Lab)]

My Lords, I am grateful to the Minister for introducing these two grouped SIs, both of which we support.

The Explanatory Memoranda accompanying these regulations note that the repeal of retained EU law remains subject to the entry into force of commencement regulations in order to ensure that there is no overlap or gap between the two different regimes. How soon is commencement expected once this package of SIs has been debated and passed?

I note that the consultations and reviews underpinning these regulations were held in 2021. Although the industry has commented on drafts of the SIs, not all feedback was incorporated and, in some specific areas, the regulators’ rules are still being finalised. Is the Minister satisfied that the changes in timelines have been communicated adequately to the relevant entities? Does she believe that any further communication needs to take place before commencement?

The Explanatory Memorandum for the first of these SIs notes, as did the Minister in her introduction, that

“there is no consolidated tape provider in the UK”.

Apparently, the MiFID II framework “attempted” to bring one about but the requirements for running a tape were thought to have made it “commercially unattractive”. The EM goes on to outline new measures contained in the SI aimed at facilitating a UK consolidated tape, including giving the FCA the power to run a tender exercise based on revised governance arrangements.

I wish to ask the Minister three related questions. First, what practical impact is the lack of a UK tape having and what alternative data sources are being used? Secondly, what is the timescale for the tender process? Thirdly, what will the Government do should there be no suitable bids or if concerns around the governance of a tape remain?

The Explanatory Memorandum for the second of these SIs notes that the FCA will have the power to review and modify its securitisation rules for specific purposes. When is the next overall review of securitisation expected?

[Baroness Vere of Norbiton (Con)]

My Lords, I am grateful to both noble Lords for their consideration. I will definitely have to write. I am grateful to the noble Lord, Lord Sharkey, for all his questions; I am just not clever enough to listen, write them all down and come up with a response at the same time. Had he given me fair warning, I would have come very well prepared and been able to answer all his questions. I am sure I can, but I will have to do so in writing.

I take issue with the premise behind many of the noble Lord’s comments about where Parliament sits in all this. He asked why we are not discussing the very detailed rules around what sits at what is in essence the back end of the market, to ensure that it functions in an appropriate way. Independent regulators fulfil many different roles within our society. Obviously, the FCA and PRA do many of those within the financial services sector. We entrust to them the role of making the detailed rules. That was agreed when FiSMA was passed by your Lordships’ House last year.

I reflect on my recent experience as Aviation Minister, when I worked with the Civil Aviation Authority all the time. I did not expect to take to Parliament detailed rules about how to build a safe aircraft. It was agreed with FiSMA that we hand over certain elements to the independent regulators. Part of the reason for handing over the regulation of the back end is to improve the agility and proportionality of regulation and to respond to changes to the market. There is a feeling that we are not particularly agile at the moment, and we could do much better. Clearly, we want UK financial services to maintain their place at the very top of the global financial services sector. That is my overarching response to some of the questions raised by the noble Lord in regard to both SIs.

I turn to the tender process for the consolidated tape. I mentioned in my opening remarks that we intend to remove the 15-minute requirement and the requirement to have a per-user charge. However, we have given the FCA the power to run a tender process for a consolidated tape. It has chosen the bond markets first, and the process for developing that is now well under way. We expect the tape to be in place by 2025, if all goes well. Between now and a tape being in place, it will be for the FCA to decide what the tender looks like, given the data in the market now, the market players, what the technology looks like and what information is required by whom, at what price and when. The FCA will do that detail; it is certainly not within my skill set to be able to scrutinise that.

That is the power we are giving the FCA. It may well be—who knows?—that all sorts of things are included as part of that tender process. We have taken out the requirement to make data free after 15 minutes, but that does not necessarily mean that this would not be in the final tender or the winning bid. It is all about providing agility. Previously, people tried to set up or thought about doing consolidated tapes on a commercial basis, and it just does not work. As it has not worked, the industry feels that the best way to do it is via the FCA process. We have now given the FCA the powers to do that. It will move from bonds on to equities next.

The noble Lord mentioned some issues around enforcement powers, and I will have to write to him about that. Indeed, on many of the other questions, I will probably write with further information.

On the issues raised by the noble Lord, Lord Livermore, the industry has been extensively consulted on both of these instruments. Draft SIs have been published. We believe that the industry is fully aware of where things currently stand, and we communicate regularly with it. Of all the industries that I have worked with, financial services are fairly on the ball about what is happening in government and do not necessarily always need to be nudged into responding to consultations or looking at draft statutory instruments. I am content with the amount of interaction that we have had with the financial services sector.

Returning to the impact of the consolidated tape, the practical impact of not having one would be very difficult to quantify, but one might imagine that it would cause our markets to be slightly less efficient and, as all good economists know, efficient markets are happy markets. That is why we think it would be a positive step for the UK to start to have consolidated tapes—we expect there to be one for each asset class.

I feel that was a slightly substandard response, but I will write with more information.

Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No. 2) Regulations

Lord Livermore Excerpts

Wednesday 10th January 2024 Grand Committee

[Lord Livermore (Lab)]

My Lords, I am grateful to the Minister for introducing the latest iteration of the list of high-risk countries from the Financial Action Task Force. As she outlined, this is a routine piece of secondary legislation and one that we are pleased to support.

I note that often there is only a relatively small number of countries added or removed from the list but that, on this occasion, there are significantly more countries involved. Specifically, Albania, Cayman Islands, Jordan and Panama have been removed.

In past debates, the Government have said that UK institutions do not necessarily stop enhanced due diligence just because a country is removed from the list. However, the impact assessment accompanying this SI states that if no action were taken to update the list, firms would have to continue undertaking enhanced due diligence on Albania, Cayman Islands, Jordan and Panama, which have rectified the systemic deficiencies identified by the Financial Action Task Force, leading to unnecessary costs for UK firms. These two statements might potentially be contradictory, and I would be grateful if the Minister could clarify exactly what the appropriate level of due diligence is for a country removed from the list. Is it defined anywhere, or are firms simply able to determine their own levels?

Finally, I note that Gibraltar remains on the list, despite previous assurances that the authorities there are making good progress on implementing the Financial Action Task Force’s recommendations. Can the Minister provide an update on Gibraltar’s progress and indicate whether she sees Gibraltar coming off the list in the near future?

[Baroness Vere of Norbiton (Con)]

I am grateful to both noble Lords for their contributions to this short debate. I will try to answer as many questions as possible. The noble Lord, Lord Sharkey, has already asked for a letter; I am very happy to provide him with one because I absolutely do not have the information that he requires on the steps that we will be taking in order to improve the data in the impact assessment.

There are some important elements raised by both noble Lords, Lord Sharkey and Lord Livermore, around whether we will make an independent—non-FATF—adjustment to the list. At the moment, we have no intention of doing so. The rationale is that there are of course many other routes to ensuring an appropriate level of due diligence, and we would therefore expect regulated firms to pursue those instead or in addition.

That raises the point that the noble Lord, Lord Livermore, talked about: if a country is removed from the list, what then? Does it come out of the naughty corner, off the naughty step, and back to being exactly the same as everybody else? Of course, that is not the case because there is a much more nuanced way of looking at it. It is good to follow FATF because one of the big benefits of that is that the enhanced measures are implemented in a co-ordinated manner by the international community. If the UK puts a country on the FATF list, then many other nations will do so too, which therefore magnifies the preventive effect.

However, the list is just one of the many measures to prevent illicit finance entering the UK. The money laundering regulations also require enhanced scrutiny in a range of situations that present a high risk of money laundering, including geographic risk. This is the case not just for those on the list of high-risk third parties; individual organisations will take their own view about the risks they perceive in a particular region and, indeed, in a particular sector in a particular region. Regulated firms will take into account credible sources where they identify the risk of money laundering, terrorism and designated entities operating in a country or significant levels of corruption. Noble Lords will know that regulated firms devote significant resources to this because it is in their interests to ensure that they do not support illicit finance. This means that, regardless of the listing, firms would still need to be nuanced. As is always the case in money laundering regulations, one cannot be too prescriptive because the circumstances are different for most of the regulated firms.

On the latest estimates of the amount of money laundering going on, when I took up this role in mid November, my first question was: how do we know it is £100 billion? Of course, we do not; it is an estimate. We will endeavour to provide estimates going forward, but it is a known unknown, and it is very difficult to establish the amount of money laundering going on because if we knew it was there, we would try to stop it, but we can certainly look to do that in future.

I recognise that the impact assessment has an element of certainty that perhaps does not exist. It is a very difficult thing to do, which is why there was a slight delay to laying this SI. Noble Lords will note that the impact assessment itself states that there is

“low to medium confidence in the accuracy of the overall quantitative conclusions”.

We will write to set out the steps we are taking to understand the impact of changing the list. It is the case that complying with money laundering regulations is an expensive business, but it is necessarily so to protect the integrity of the UK financial services sector. However, I will write with further information.

I will write to the noble Lord about what progress has been made in Gibraltar. My understanding is that it has made very good progress against its action plan, and we continue to work with it on this. We expect Gibraltar to be removed from the list soon due to the improvements in its illicit finance regimes. It is worth mentioning that we work closely with the overseas territories to ensure that they get the benefit of our expertise because they are treated as independent nations. They are members of a FATF-style regional body themselves. Part of the rationale behind FATF is to share understanding and make sure that we lift people to the highest possible standard in terms of stopping illicit finance.

NatWest: Account Terminations and Branch Closures

Lord Livermore Excerpts

Wednesday 10th January 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

The noble Baroness is absolutely right. That is why we are putting this voluntary provision on a statutory footing. The Treasury has the power to designate not only banks but the operators of the cash access co-ordination services—Cash Access UK—to do the banking hubs, so they must then follow the requirements set out in the legislation.

[Lord Livermore (Lab)]

My Lords, the average house in the UK now costs nine times average earnings—the most expensive ratio since 1876. Living standards are seeing their biggest ever fall and families remortgaging since the Government’s disastrous mini-Budget have seen their monthly payments rise by an average of £220. Given this, does the noble Baroness agree with the comments of the chair of NatWest last week that it is currently “not that difficult” to get on the housing ladder?

[Baroness Vere of Norbiton (Con)]

No, I think those comments were very ill advised and I rather wish he had not made them—as I am sure he does. The key to a thriving housing market is ensuring that interest rates come down. To do that, one has to reduce inflation, and that is exactly what this Government are doing.

Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023

Lord Livermore Excerpts

Wednesday 13th December 2023 Grand Committee

[Lord Sharkey (LD)]

My Lords, we have no comment to make on the second statutory instrument in this group, except to say that we agree with what the Minister said during the debate in the Commons that for the entirely consequential changes brought about by this instrument “consequential” means “necessarily following on from” not “of consequence”.

We support this instrument, but we have a little more to say about the first. As a mathematician by education, I should start by saying how pleased I was to see e—Euler’s number, the base of natural logarithms —make an important appearance on page 2 of the instrument, albeit without any explanation at all for the reader of what it might mean. I think that may be rather odd.

The EM explains that the discount factor—a means of reducing the amount of capital that small and medium-sized firms hold for their trading and derivative activities—was removed in error from the capital requirements regulation, both here and in the EU. Reinstating it via this SI will help ensure that the UK remains competitive with other jurisdictions. We entirely support this remedial measure but note the SLSC’s comments about the matter. The Minister has already mentioned some of them.

The question really is: how is it that the mistake, and it was a mistake, was introduced into the UK after it had already been corrected in the EU? Does this not suggest incompetence or, at the very least, insufficient awareness of relevant activity in key trading partners? What steps has the Treasury taken to eliminate this kind of error?

We also support the extension of the transitional period for third-country benchmark regimes for five years to 31 December 2030. As the Minister said, if we were to lose access to these third-country benchmarks, it could weaken our position as a centre for global FE and derivatives. This SI gives us six years to sort out a new regime, as I believe the EU is also contemplating.

How, when and with what do we intend to replace these transitional arrangements? What steps are currently being taken to make sure that we do indeed replace them, or are we content to extend this supposedly transitional arrangement indefinitely? Are we engaged in discussion with our EU counterparts over the matter? The Treasury told the SLSC that the risks arising from the extension of the transition period were “small, manageable and temporary”. The Minister mentioned and addressed that issue, but I would be grateful if she could expand on exactly what the risks are, how they are manageable and why they are temporary. Having said all that, I close by saying that we support this SI.

[Lord Livermore (Lab)]

My Lords, overall, we agree with these regulations. When the first of these two grouped SIs was debated in the House of Commons, my honourable friend Tulip Siddiq, the shadow Economic Secretary, posed two questions to the Minister. Unfortunately, he did not address either of them in his response, so I will ask them again today. Of course, the noble Baroness is welcome to write with an answer, if that is preferable.

The two questions are on changes to capital requirements. First, given that the Prudential Regulation Authority is proposing to remove the SME supporting factor when it confirms its final rule, are the Government not reintroducing a measure that the PRA plans subsequently to abolish? Secondly, if the PRA goes ahead with its plan, what reassurance can the Government provide that the UK’s SME lending market will not be left at a significant competitive disadvantage against its European counterparts due to the increased cost of capital?

The noble Lord, Lord Sharkey, asked about the reintroduction of a discount factor, which was mentioned by the Minister in her opening remarks. I note that the discount factor was previously “unintentionally” removed from the relevant regulation in both the UK and the EU. I also note that the discount factor was removed from UK law in January 2022, and that this was identified as an issue only 18 months later, in July 2023. However, apparently, the factor was reinstated by the EU into its own laws four months prior to it being unintentionally removed from UK law back in September 2021. As the noble Lord, Lord Sharkey, observed, it is odd that a mistake was introduced in the UK after it had already been corrected in the EU. The Minister is clearly correct to note that the UK does not mirror changes to EU law post Brexit, but does she think that keeping up to date with developments in the EU, where parallel measures remain part of UK legislation, could help to ensure that avoidable errors such as this do not occur?

[Baroness Vere of Norbiton (Con)]

Once again, I am grateful to both noble Lords for their contributions to this short debate. I will write further on what the noble Lord, Lord Sharkey, said about the formula—it is not that complicated; I am an engineer by training, and it is not beyond the wit of man to understand this. But we might provide a little more explanation in due course.

I am not sure I can say much more about the timing of the removal and reintroduction of the discount factor. It is not a particularly widely used element within the system, and therefore the industry took a while to notice that the change had happened. Obviously, there are lessons to be learned in these circumstances, and we moved to reintroduce it as quickly as we could. Of course, the regulators are well aware of what happened. I am grateful to noble Lords that we are able to get it back on to the statute book today.

That brings me on to the various discussions we have with the EU, as close trading partners. The noble Lord, Lord Sharkey, asked what changes will be next. There will be potential changes to the third-country benchmarks regime, but that is in the context of much wider changes within the smarter regulatory framework, so the repeal of each piece of retained EU law will be commenced once appropriate arrangements are in place with the UK rules—or, as I said in my opening remarks, when the Treasury has determined that no replacement is needed. Alongside that, we are delivering our smarter regulatory framework in order to replace retained EU law as necessary.

It will be a carefully planned and phased approach. We believe that we have given ourselves sufficient breathing room by making the transitional period last until 2030. It may be that we need all that time, or it may not, but we want to make sure that it fits into the wider reform of the programme to ensure that we prioritise those things that we feel are needed first in order to benefit our very successful financial services sector. Of course, we continue to have enduring and sensible dialogue and co-operation with other jurisdictions, including the EU. For example, on 19 October, the Treasury hosted the first joint EU-UK financial regulatory forum, which welcomed participants from not only the European Commission but UK and EU regulators to discuss common issues. It is clear that the UK and the EU regulatory frameworks will change over time and ultimately remain the autonomous concern of the respective parties, but it is also important that we discuss changes for the benefit of sharing our understanding.

The noble Lord, Lord Sharkey, asked about the risks from the benchmark extensions. It should be noted that systemically used benchmarks pose the greatest risk. These benchmarks are subject to UK benchmark regulation because they are administered in the UK. They might be subject to another jurisdiction’s benchmark regime or be created by a third country’s central bank. That also means that there are some benchmarks that do not fall into those categories—these are possibly the lesser-used ones. But it is the case that UK benchmark regulation places additional requirements on the users of benchmarks that continue to apply where they use third-country and domestic benchmarks. These requirements include, for example, robust fallback provisions in the contract should the benchmark become unavailable for whatever reason, or fail—so there are protections there. As I noted in my opening remarks, we recognise the risks and also the benefits that those benchmarks have in underpinning a very significant part of our financial services sector.

The noble Lord, Lord Livermore, asked about the questions raised by his colleague in the other place. I will write with more information. I have lines here on the Prudential Regulatory Authority, Basel III et cetera, but his question deserves a fuller answer about how we see this transitioning into that regime.

Motion agreed.

Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023

Lord Livermore Excerpts

Wednesday 13th December 2023 Grand Committee

[Lord Sharkey (LD)]

My Lords, let me say at the outset that we support this statutory instrument and the two that are to follow—but we do have some questions and comments. I note that, last week, the Commons debated all three instruments together, as one group. Why have the Government chosen to take a different approach in this House by splitting the debate into two sections? What does this signify, if anything?

Dealing with the instrument before us, we believe that it contains relatively uncontroversial and appropriate updates to existing legislation, following on from the TSC’s recommendations as made in its report on the collapse of London Capital & Finance in June 2021, as the Minister noted. The committee said that the FPO

“would benefit from reform due to the increasing risks associated with the exemptions that allow customers to self-certify as high net worth or sophisticated”.

It continued:

“The Treasury should—as a matter of priority—re-evaluate the Financial Promotion Order exemptions to determine their appropriateness and consider what changes need to be made to protect consumers”.


That was two and a half years ago. Perhaps the Minister could explain why it has taken so long to address the TSC’s recommendation. It is obvious that the risks addressed by the TSC continue to increase, as even a cursory glance at the inviting investment ads on any Tube train will show.

Some questions arise directly out of the consultation carried out by the Treasury in preparation for the SI. Angel investors had some doubts about raising the high net worth thresholds. They noted that raising the thresholds

“could reduce the potential for broadening angel network participation, including among less represented groups such as women and ethnic minorities. They also raised concerns that lower angel investor participation in the future could reduce SME investment, particularly for younger start-ups”.

I would be grateful if the Minister could tell us why these worries were discounted, particularly for the SMEs.

The consultation report also noted that

“many responses provided suggestions for improvements to the investor statements to ensure greater investor engagement. These included adding additional risk warnings and positive frictions, to encourage investors to engage meaningfully”.

These suggestions appear not to have been taken up by HMT. Can the Minister tell us why that is?

We also note that, in its third report, the SLSC encourages HMT to reassess the thresholds contained in this instrument on a more timely basis, as the Minister has mentioned. It is 18 years since the thresholds were last updated. Why cannot the Government agree to a regular—say, quinquennial—change to smooth out the boundary changes? In closing, I confirm again our support for the clearly necessary updates proposed by this SI.

[Lord Livermore (Lab)]

My Lords, we agree with these regulations, but I will ask the Minister just one question, which follows on from the final question of the noble Lord, Lord Sharkey. As the Minister said in her opening remarks, the exemptions to the financial promotions regime were last substantively updated in 2005, nearly 20 years ago. Given current high inflation rates, and the fact that prices have already risen nearly 5% since the January 2023 data used to reset the thresholds in this instrument, these new figures could arguably be said to be already out of date. I note what the Minister said in her opening remarks, but can I push her to provide at least an approximate timeframe for when the thresholds are likely to be reviewed again?

Financial Stability: Private Equity Firms

Lord Livermore Excerpts

Wednesday 13th December 2023 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I have not been following those interventions from the former governor, the noble Lord, Lord King, but I shall certainly look at them.

[Lord Livermore (Lab)]

My Lords, the Bank of England has recently warned of the risks to financial stability posed by artificial intelligence and machine learning, with the bank’s Financial Policy Committee identifying the potential for system-wide risk, herding behaviour and increased cyber risk. Does the Minister believe that regulators have sufficient powers, and that existing powers are sufficiently future-proofed, to deal with emerging risks to financial stability from rapid technological advances, including but not limited to AI?

[Baroness Vere of Norbiton (Con)]

I accept that the AI regulatory system is still in development, but that is not unique to the United Kingdom. The AI summit convened by the Prime Minister made good steps in the right direction.

National Insurance Contributions (Reduction in Rates) Bill

Lord Livermore Excerpts

2nd reading
Tuesday 12th December 2023 Lords Chamber

[Lord Livermore (Lab)]

My Lords, the Labour Party supports this Bill, and we welcome the cuts in national insurance that it contains. We have long argued that taxes on working people are too high, and that we want them to be lower.

We have been consistent in this view. We opposed the manifesto-breaking increase in national insurance that the Prime Minister tried to implement last year, when he was Chancellor. When he introduced his 1.25% increase in national insurance contributions for employees and employers—his so-called health and social care levy—we described it at the time as

“a new tax on working people and their jobs”.—[Official Report, Commons, 14/9/21; col 845.]

When it became clear to him that the Labour Party was correct to say that this was the worst possible tax rise at the worst possible time, he attempted a partial U-turn, and then, eventually, the increase in national insurance was rightly reversed.

Unfortunately for working people, this reprieve to their living standards was short-lived, as it was quickly followed by the Government’s disastrous mini-Budget, which crashed the economy and sent interest rates and mortgage rates soaring. Interest rates have now risen 14 times to a 15-year high of 5.25%, while the average two-year fixed-rate mortgage at one point rose from 2.6% to over 6%. As a result, families re-mortgaging since July have seen their mortgage payments rise by an average of £220 per month. Some 1.6 million families have seen their mortgage deals end this year. Next year, a further 1.5 million families will face a similar fate.

According to the Resolution Foundation, this Parliament is now on course to be the first ever in which real household incomes fall. We are now seeing the biggest ever fall in living standards since records began. The cut in national insurance that the Bill contains is not the full story on tax, nor does it represent the reality that many British people now face.

Despite what the Government would like us to believe, and in contrast to the claim the Minister made in her opening speech that the Government are paying back working people, the reality—as the Institute for Fiscal Studies, the Resolution Foundation and the House of Commons Library have all made clear—is that taxes are going up, not down. As the noble Baroness, Lady Kramer, implied, it is important that we are all honest about that point. The truth is that the tax burden will now rise every single year for the next five years, rising to its highest ever level and making this the biggest tax-raising Parliament ever. Indeed, new data published just this week by the OECD showed that the UK’s tax burden has now increased to its highest rate ever on record.

Prior to the Autumn Statement that announced the cut in national insurance we are debating today, the Government had already put in place 25 tax rises amounting to £90 billion and the equivalent of a 10p increase in national insurance. This 2p cut does not remotely compensate for the tax increases already announced. As my noble friend Lord Sikka pointed out, the Resolution Foundation has calculated that, even after this cut to national insurance, households will still be £1,900 worse off.

These cuts to personal taxation are more than eclipsed by increases in taxes that the Government have previously announced. For example, the freezing of national insurance and income tax thresholds for six years is now expected to cost taxpayers £45 billion. This fiscal drag means that nearly 4 million more people will pay income tax and 3 million more people will pay the higher rate. The combined effect is an average tax rise of £1,200 per household.

According to Paul Johnson from the Institute for Fiscal Studies, the cut in national insurance rates

“pales into … insignificance alongside the … increase in personal taxes created by the six year freeze in allowances and thresholds”.

The IFS has calculated that, extraordinarily, almost every single person in the UK liable for income tax or national insurance will now be paying higher taxes overall. As a result, the tax burden will now reach 37.7% of GDP by the end of the forecast period, an increase equivalent to an astonishing £4,300 of additional tax for every household in the country. This is a tax- raising Government.

The actual lived experience of the British people is not that their taxes are going down; it is that their taxes are going up. The reality that working people face is not that they will be better off; it is that they will be worse off. We should all be honest about that fact. We should be honest, too, about the reasons why: taxes are so high in this country because growth is so low. The UK’s growth record over the past 13 years has been poor by international standards. We have languished in the bottom third of OECD countries, with 27 OECD economies growing faster than us since 2010. Over the next two years, no fewer than 177 countries are forecast by the IMF to grow faster than the UK. For this year and next, we will be 35th out of 38 OECD countries for growth.

The latest outturn figures for GDP show that there was no growth at all in the third quarter of this year. In the Autumn Statement, the Office for Budget Responsibility downgraded its forecast for growth in each of the next three years, so that growth in 2024 is now forecast to be just 0.7%—more than half the 1.8% predicted as recently as the Budget in March. The Bank of England’s view is that even that is too optimistic; its latest forecast shows no growth at all in any of the next three years—no growth this year, next year or in 2025.

That is the economic reality faced by the British people—the reality of 13 years of failure. Growth and living standards are down; mortgage rates and taxes are up. The tax burden will now rise every single year for the next five years, rising to its highest ever level and making this the biggest tax-raising Parliament ever, with an average tax rise of £1,200 per household. While the cut to national insurance is welcome, the British people will conclude that it is simply too little, too late.

Banking Hubs

Lord Livermore Excerpts

Monday 11th December 2023 Lords Chamber

[Baroness Vere of Norbiton (Con)]

In many circumstances banking hubs have a private room where community bankers can meet customers to discuss their financial requirements. Cash Access UK, the partnership that sets up banking hubs, publishes a list showing where community bankers are available. I should also point my noble friend to other interventions that some banks are using, such as mobile banking services, pods and pop-ups. There are a lot of ways to have face-to-face contact with consumers.

[Lord Livermore (Lab)]

My Lords, the latest figures from the British Retail Consortium show that shopping with cash has risen for the first time in a decade, as household budgets are increasingly stretched. At the same time, almost half of bank branches have closed, while the rollout of banking hubs has been much delayed. Will the Minister agree to match the Labour Party’s commitment to work with banks and, where necessary, bring in additional powers for the FCA to guarantee face-to-face banking services, beginning by prioritising areas that currently have no high street banks?

[Baroness Vere of Norbiton (Con)]

I think what the noble Lord has just set out is exactly what the Government are doing. The FCA consultation goes into an awful lot of detail on the criteria that will need to be met for banking services to continue. We accept that, while the use of cash has declined over time, it has possibly reached a plateau. But I reassure noble Lords that, for example, 97% of the urban population is within 1 mile of a free-to-use cash access point.

Payment and Electronic Money Institution Insolvency (Amendment) Regulations 2023

Lord Livermore Excerpts

Wednesday 6th December 2023 Grand Committee

[Lord Livermore (Lab)]

My Lords, we also support these regulations. I would like to ask the Minister a couple of questions. First, on how the FCA’s significantly expanded remit will be delivered in practice, can she set out what the Government are doing to ensure the FCA’s greater powers are accompanied by greater accountability? Can she also tell us what steps the Government are taking to ensure that the additional FCA requirements on payment firms and EMIs are proportionate, and explain how the Government will ensure that these requirements do not hamper innovation in the UK’s payment sector?

Secondly, as is often the case with financial services regulation, there seems to have been a significant gap between the consultation, which took place in December 2020 and January 2021—three years ago—and the statutory instrument being brought forward. Can the Minister tell us the reason for this delay?

Finally, I note there is a requirement for this new regime to be evaluated after two years, with a decision then made on whether the regulations should continue to have effect. Can the Minister set out the criteria by which the regime will be evaluated? I thank her in advance for her answers to these questions.

[Baroness Vere of Norbiton (Con)]

My Lords, I can hear much flapping of papers behind me, so I have no doubt that I will not be able to answer all the questions in full, but I will do my best. I am grateful to the noble Lord, Lord Livermore, for giving me advance sight of some of his questions, which was very helpful. The noble Baroness, Lady Kramer, mentioned that she might ask me a few questions. None of them were difficult—well, one of them was a little difficult, but we will give it a go.

I thank all noble Lords for their consideration of this draft instrument. It is all about taking an established regime and ensuring that it operates everywhere that it should across the United Kingdom by applying to all organisations in Northern Ireland and to limited liability partnerships in Scotland.

Both noble Lords mentioned the timing and why the Government were unable to bring forward all the regulations at the same time. We took the opportunity to bring through the England and Wales regime before the regulations being debated today because it was slightly easier to do so and we wanted to get the regime in place as soon as possible, having done the consultation. There are some quite significant differences in insolvency law. We therefore took a little extra time carefully to consider the legislation before applying this to Scotland and Northern Ireland. In doing so, we worked extensively with the devolved Administrations in both those areas. There was no sort of tension or opposition, and the rules underpinning this regime will have to be set out by those Administrations in due course anyway.

Herein is the slightly tricker question from the noble Baroness, Lady Kramer, which is her “hard bar” question. I will certainly write. One observation I have about these sorts of payment systems is that consumers tend to be much more actively engaged in them. I would have thought it would be slightly easier to get in contact with them because it is a much more immediate system. However, I will definitely write and set out exactly what we are doing to achieve the balance that she rightly set out. It is not our intention to cut anybody off; it is our intention to get money to consumers as soon as possible because, as we know, time costs money and, unfortunately, delays mean that consumers sometimes get back less than they would otherwise.

Turning to the points raised by the noble Lord, Lord Livermore, about the FCA’s greater powers, accompanied by greater accountability, these regulations directly affect only firms that have entered the insolvency process. They have no effect on firms in normal circumstances. It is also worth stressing that the special administration regime is ultimately a process led by an insolvency practitioner and administrator, not by the FCA. However, the FCA does have a role to play in the regime, including a power to direct an insolvency practitioner, but this power can be used only subject to a number of objectives being met.

More broadly, the Government are committed to the operational independence of the financial services regulator, but increased responsibility for the regulators must be balanced with clear accountability, appropriate democratic input and transparent oversight. I am sure the noble Lord is aware that during the passage of the Financial Services and Markets Act 2023, we included a package of measures to increase the accountability of the regulators, including the FCA, to Parliament when exercising their regulatory powers.

On the proportionality of the FCA requirements, the Financial Services and Markets Act 2000 requires the regulators to take into account eight regulatory principles when discharging their functions, including making rules. The second of these is the principle that restrictions should be proportionate to the benefits that are expected from the imposition of that restriction.

The noble Lord made a good point about whether the requirement would hamper innovation. Clearly, this is an area where innovation has been significant in recent times. The payments are essential to the UK economy but are also a major source of the UK’s competitive growth, at the heart of our financial services sector. In July, the Government commissioned an independent review into the future of payments and specifically asked how to catalyse innovation in UK payment systems.

The regulations being discussed today are all about protecting consumers. Our view is that they will strengthen confidence in the sector by improving customer and market outcomes. In addition to the independent review, the Financial Services and Markets Act 2023 includes a new secondary objective for the FCA to facilitate growth and competitiveness. The Government are taking this through across all sectors to achieve that balance between growth and competitiveness and effective and robust regulation.

I think I may have covered the gap between the consultation and this SI. It is all about the differences in law and just taking the opportunity to bring it in as soon as we could, at least for England and Wales. We brought that in during 2021, which is not bad after a consultation which ended in January 2021, so that is a minor pat on the back. I accept that we would have loved to have brought it in at the same time, but a significant amount of additional work needed to happen.

On the review of the regulations and the criteria to evaluate them, under the Banking Act the Treasury is required to conduct a review of this regime. This is due for completion in 2025 and will be an independent review covering whether the regime is meeting insolvency regulation objectives and whether the regulations should continue to have effect. As ever, once completed a copy of the review will be laid before Parliament. We will set out further details of the review in due course.

Autumn Statement 2023

Lord Livermore Excerpts

Wednesday 29th November 2023 Lords Chamber

[Lord Livermore (Lab)]

My Lords, I join others in welcoming the noble Baroness to her new role. It is a privilege to take part in today’s debate, and a pleasure to hear contributions from so many eminent and expert noble Lords.

All of us here have benefited from the intervening week between the Autumn Statement and today’s debate, allowing us to consider in greater detail the Green Book and the Office for Budget Responsibility’s report, as well as analysis from other independent forecasters. What has become clear is the extraordinary difference between the story told to us by the Chancellor and the reality revealed to us by the numbers themselves.

The Chancellor told us the economy had turned a corner but in reality, growth was downgraded—revised down next year, the year after and the year after that. The Chancellor told us inflation had fallen, but he omitted to mention that the inflation forecast has actually been increased every single year for the next three years. The Chancellor told us that debt will be lower. What he did not tell us was that debt will actually now be 28% higher than when this Government came to power 13 years ago and is set to surpass £3 trillion for the first time ever. The Chancellor told us that take-home pay is going up, but he did not reveal that real household disposable income is set to fall next year, or that we are now seeing the biggest ever fall in living standards since records began. Of course, the Chancellor also told us he was cutting taxes, when in reality the tax burden will now rise every single year for the next five years, making this the biggest tax-raising Parliament ever, with the tax burden now set to reach its highest ever level.

Increasing growth is clearly the biggest economic challenge our country faces, with the Governor of the Bank of England warning since the Autumn Statement that the current economic outlook is the worst he has ever seen. It is therefore no surprise that many noble Lords mentioned growth in their contributions to this debate, including my noble friend Lord Eatwell in his excellent opening speech, and the noble Lords, Lord Macpherson of Earl’s Court, Lord Willetts, Lord Dobbs, Lord O’Neill of Gatley, Lord Londesborough, Lord Leigh of Hurley, and Lord Desai, and the noble Baronesses, Lady Noakes and Lady Lea. The UK’s growth record over the past 13 years has been poor. We have languished in the bottom third of OECD countries, with 27 OECD economies growing faster than us since 2010. Looking ahead, over the next two years no fewer than 177 countries are forecast by the IMF to grow faster than the UK. For this year and next, we will be 35th out of 38 OECD countries for growth.

Against this backdrop, we were told to expect an Autumn Statement for growth, and several noble Lords have mentioned the Chancellor’s 110 measures for growth. Yet, the Office for Budget Responsibility, having seen those measures, actually downgraded its growth forecast in each of the next three years. The economy is now forecast to be £40 billion smaller by 2027 than the Chancellor expected as recently as March. The latest outturn figures for GDP show that there was no growth at all in the third quarter of this year. Growth in 2024 is now forecast to be just 0.7%—more than halved from the 1.8% predicted in the Budget. The Bank of England’s view is that even this is too optimistic. Its latest forecast shows no growth at all in any of the next three years: no growth this year, next year or in 2025. Restoring growth to Britain must be our priority, and Labour has set out a plan to deliver that mission. Indeed, many of the Chancellor’s announcements last week were simply pale imitations of measures we have already set out.

As my noble friend Lord Davies of Brixton mentioned, the Chancellor spoke about unlocking capital by reforming pensions. However, Labour has already announced that we would go further, encouraging investment in British start-up and scale-up firms. On planning, the Government are simply attempting to follow Labour’s lead on how to encourage communities to host grid infrastructure, and on speeding up planning decisions. We also welcome the Chancellor’s announcing permanent full expensing—another measure we have been calling for. However, that does not make up for the years of uncertainty businesses have faced. How many billions of pounds of investment has our economy missed out on because of the Government’s delay?

Several noble Lords focused on inflation, including the noble Lord, Lord Howell of Guildford, the noble Baroness, Lady Lawlor, and the noble Baroness, Lady Goldie, in her very enjoyable speech. In the Autumn Statement, the Chancellor tried to suggest that the cost of living crisis is now behind us. In reality, the inflation forecast was actually increased by the OBR in every single year of the forecast period, and consumer prices in 2027-28 are now set to be 7% higher than previously expected in March. Inflation is still more than double the Bank of England’s target rate, and the Bank now expects inflation to stay above target throughout next year, with interest rates remaining at their current levels for “an extended period”. Indeed, on Monday of this week, the Governor of the Bank of England warned that interest rates will not be cut “in the foreseeable future”.

Interest rates have now risen 14 times to a 15-year high of 5.25%, while the average two-year fixed-rate mortgage at one point rose from 2.6% to over 6%. As a result, those re-mortgaging since July have seen their mortgage payments rise by an average of £220 a month. Some 1.6 million families have seen their mortgage deals end this year; next year, a further 1.5 million families will face a similar fate.

Therefore, the outlook for living standards remains truly bleak. It is of course welcome that the Chancellor has accepted this year’s recommendation of the Low Pay Commission on the minimum wage, but real wages are set to fall this year and real average weekly earnings are now set to remain below their 2008 level until 2028—a shocking two full decades of pay stagnation. According to the Resolution Foundation, this Parliament is now on track to be the first ever in which real household incomes fall, and we are now seeing the biggest ever fall in living standards since records began.

The centrepiece of the Autumn Statement was of course the Chancellor’s claim to be cutting taxes. Several noble Lords spoke about the Chancellor’s tax plans, including my noble friends Lord Howarth of Newport and Lord Sikka, the noble Lords, Lord Macpherson of Earl’s Court, Lord Tugendhat, Lord Northbrook, Lord Balfe, Lord Horam and Lord Desai, and the noble Baronesses, Lady Noakes, Lady Featherstone and Lady Meacher. The reality of this Autumn Statement is that the tax burden now rises every single year for the next five years, rising to its highest ever level and making this the biggest tax-raising Parliament ever.

We on this side have argued that taxes on working people are too high and that we want them to be lower. We opposed the manifesto-breaking increase in national insurance that the Prime Minister tried to implement last year when he was Chancellor. Going into this Autumn Statement, the Government had already put in place 25 tax rises, amounting to £90 billion. That is the equivalent of a 10p increase in national insurance. So, while welcome, the 2p cut does not remotely compensate for the tax increases already announced. Indeed, the Resolution Foundation has calculated that, even after the measures announced by the Chancellor, households will still be £1,900 worse off.

As several noble Lords have observed, greater than expected fiscal drag also means that nearly 4 million more people will pay income tax, and 3 million more people will pay the higher rate. The combined effect is an average tax rise of £1,200 per household. According to Paul Johnson from the Institute for Fiscal Studies, the cut in national insurance rates

“pales into … insignificance alongside the long-term increase in personal taxes created by the six year freeze in allowances and thresholds”.

The IFS has calculated that—extraordinarily—almost every single person in the UK liable for income tax or national insurance will now be paying higher taxes overall. As a result, the tax burden will now reach 37.7% of GDP by the end of the forecast period, an increase equivalent to an extra £4,300 in tax for every household. This was not an Autumn Statement that cut taxes.

The reality of this Autumn Statement is very different from the story presented to us last week by the Chancellor. Despite the picture he tried to paint, the reality is that the economy is just as weak, if not weaker, after this Autumn Statement than it was before. The Government cannot undo the damage done over 13 years, because their economic approach simply is not working.

Growth was low before this Autumn Statement; it is even lower now. Living standards were falling before this Autumn Statement; they are now seeing the biggest fall on record. Taxes were high before this Autumn Statement; they are now set to be the highest in history. Far from turning a corner, as the Chancellor claimed, the economy is stuck with low growth and high taxes, and working people are still worse off.