Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2024

Lord Livermore Excerpts

Tuesday 17th December 2024 Grand Committee

Moved by

[Lord Livermore]

That the Grand Committee do consider the Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2024.

Relevant document: 9th Report from the Secondary Legislation Scrutiny Committee

Motion agreed.

Short Selling Regulations 2024

Lord Livermore Excerpts

Tuesday 17th December 2024 Grand Committee

Moved by

[Lord Livermore]

That the Grand Committee do consider the Short Selling Regulations 2024.

Relevant document: 9th Report from the Secondary Legislation Scrutiny Committee

Motion agreed.

Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024

Lord Livermore Excerpts

Tuesday 17th December 2024 Grand Committee

Moved by

[Lord Livermore]

That the Grand Committee do consider the Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, with the leave of the Committee, in moving this instrument, I shall speak also to the Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2024 and the Short Selling Regulations 2024. Noble Lords may be aware that the Secondary Legislation Scrutiny Committee raised the ring-fencing and short selling regulations as instruments of interest in its secondary legislation report, published last month.

The regulations being introduced today will ensure effective, proportionate regulation for the financial services sector in three ways: first, by reforming the ring-fencing regime to be more flexible while upholding financial stability safeguards; secondly, by creating a new framework for the regulation of short selling; and, thirdly, by enabling better supervision and enforcement of designated activities under the Financial Services and Markets Act 2023.

I will first address the reforms to the ring-fencing regime for banks. As noble Lords will know, ring-fencing was introduced following the global financial crisis, on the recommendation of the Independent Commission on Banking, and came into full force in 2019. It requires large complex banks to separate the services that they provide to households and small and medium enterprises from investment banking activity.

In 2022, an independent statutory review of the regime recommended updates to ensure that it operates as intended and is proportionate. This statutory instrument improves the regime and implements changes from the review. The reforms that it contains will improve competition in the banking sector, reduce costs and support economic growth. They have been developed with the Prudential Regulation Authority, which is content that they also maintain appropriate financial stability protections.

The reforms will ensure that, in future, only the largest and most complex banks are subject to the regime, with two key changes. The first of these is an increase in the primary deposit threshold—the amount of core deposits a bank can hold before it is required to ring-fence—from £25 billion to £35 billion. This accounts for growth in the deposit base and other relevant economic indicators since ring-fencing was introduced, and supports competition. The second is the introduction of a new secondary threshold that exempts retail-focused banking groups from the regime where investment banking activity accounts for less than 10% of common equity tier 1 capital.

This statutory instrument also makes changes to the way in which banks within the regime can operate. It introduces measures to encourage more investment by ring-fenced banks in UK small and medium enterprises and to reduce the compliance burden associated with the regime. It also creates significant new flexibilities to allow ring-fenced banks to operate globally, subject to Prudential Regulation Authority rules, as well as to provide a wider range of goods and services to their customers.

I turn now to the Short Selling Regulations 2024. Short selling is the practice of selling a security that is borrowed or not owned by the seller with the intention of buying it back later at a lower price to make a profit. Short selling plays a role in the proper functioning of financial markets. It provides essential liquidity to markets, which drives investment in British companies; it helps drive economic growth; and it helps ensure that investors pay the right price when investing in shares.

This statutory instrument introduces a more streamlined UK short selling regime, which focuses on equities rather than both equities and sovereign debt. The new regime also includes a reformed public disclosure regime for short selling to ensure that there is transparency over short selling activity, without the issues identified with the current regime through the 2022 call for evidence.

There can, however, be risks associated with short selling. As such, it is important for the Financial Conduct Authority to have the tools necessary to monitor short selling activity effectively and to intervene. This statutory instrument provides the Financial Conduct Authority with broad rule-making powers in relation to short selling. This will allow the Financial Conduct Authority, in effect, to oversee short selling in UK markets. It will also mean that the UK’s short selling rules can be adapted and updated by the Financial Conduct Authority in a more agile way in the future—for example, to better adapt to new global standards or to take account of market innovation and new business models.

This instrument also retains the Financial Conduct Authority’s powers to intervene in short selling activity in UK markets in exceptional circumstances—an important feature of the current regime.

Finally, the Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024 give the Financial Conduct Authority the broad rule-making power for short selling that I have just mentioned. The new short selling regime operates under the designated activities regime introduced into the Financial Services and Markets Act 2000 by the Financial Services and Markets Act 2023.

The designated activities regime allows the Treasury to designate certain activities to be regulated by the Financial Conduct Authority without the requirement for those carrying on the activities to become full authorised persons, such as banks or insurers. This enables proportionate regulation of activities where it would be inappropriate to require full authorisation.

The designated activities supervision and enforcement regulations enable the Financial Conduct Authority to supervise and enforce rules that it makes under the designated activities regime. They do this by extending the Financial Conduct Authority’s existing supervision and enforcement powers under the Financial Services and Markets Act 2000, so that they can be used in relation to designated activities, even where those carrying out the activities are not authorised persons. The extension of these powers applies, in the first instance, to designated activities covered by the Consumer Composite Investments (Designated Activities) Regulations 2024 and the Short Selling Regulations 2024. This will enable effective supervision of the regimes that those regulations introduce.

In closing, these SIs ensure that our financial services industry is subject to a rule book that is fit for purpose, more proportionate and tailored to UK markets. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, first I declare my interests in financial services, as in the register—just in case. I will speak to the Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations and then to the Short Selling Regulations.

The set of rules and provisions under which the FCA can give directions is important. Every time something is the subject of such a direction or supervisory action, there is an opportunity to go to a tribunal. I wonder whether the Minister has any statistics, from looking at the FCA’s present powers and at when tribunals can be invoked, on how frequent that is. I am trying to get at one of the things that has irritated me, which, as the Minister knows, is that the FCA seems quite slow to respond when something is going on in the market. One’s instinct, if we know that something is going wrong, is to want quick action. These provisions allow that, but they could always be subject to challenge. So how might that interfere? The question is a little theoretical, but is anything already being done in that way with which we might compare it? I realise that that information might not be to hand; if it is not, I would be happy to have a letter.

--- Later in debate ---

[Baroness Neville-Rolfe (Con)]

My Lords, I rise to address these three significant pieces of legislation, which collectively aim to refine and enhance the regulation of our financial services sector. The measures come at a pivotal time for not only our financial services industry but the broader economy, as we navigate the challenges and opportunities presented by our post-Brexit regulatory autonomy.

My overall concern is that we are moving too slowly and too modestly to reduce the constraints that existed in the EU regime, and to encourage the competition and dynamism that we need for growth. This means that the US financial services industry and the industry in newer markets, such as Singapore, are eroding our prime position despite our dual advantage of time zone and the English language. Questions have been asked about the effectiveness of our stock market; indeed, that was highlighted today by the reaction to the Canal+ listing in London, which, obviously, we all welcomed. We look forward to debating the reforms announced in the Mansion House speech.

In the light of all this, the instruments demand careful scrutiny. I will also follow the sequence on the Order Paper. The first measure under consideration deals with the supervision and enforcement of designated activities. This legislation builds on the regulatory framework of the Financial Services and Markets Act 2000, empowering regulators to oversee specific activities that pose systemic or consumer risks. From our perspective, this is a necessary and prudent step. By focusing regulatory attention on designated activities rather than institutions alone, we can ensure that oversight remains targeted and proportionate.

Yet it is vital that this power is exercised judiciously. Overzealous enforcement could stifle innovation and deter smaller players and start-ups from entering the market at all. We would like to see a regulatory approach that provides clarity and certainty, enabling businesses to thrive while protecting consumers and market integrity. We also want to keep compliance costs down for business, especially smaller business. Historically, that has not always been the way of the financial regulators—nor, I am afraid to say, of the Treasury. Does the Minister agree that financial regulation should be more careful about the costs that it imposes? I know from the Mansion House speech that the Chancellor wants to be more competitive; I would like to see that reflected in financial regulation.

Incidentally, I was surprised to see this in paragraph 9.1 of the Explanatory Memorandum:

“The government does not generally assess successful enforcement action—such as fines levied after a breach of rules—as a cost to firms”.


From my experience, enforcement can be very costly to a firm: in legal fees, to fight any unfairness and possible reputational damage; in diversion of management time and talent; and in finding money from tight budgets for any fine. That is a good reason for a firm to comply with the established rules but it is also a reason for our regulators to work hard, in order to make compliance with the law easy, and not to judge themselves on the amount of fines they levy.

There is a related point on which I would very much welcome a response. The Minister may be aware of the huge concerns raised by the financial services sector about the FCA’s proposals earlier this year to name and shame firms involved in FCA enforcement action. It is consulting again, I am glad to say, on modified proposals. Can the Minister say whether the FCA intends to apply these new rules to the persons who are within the designated activities regime, which is at issue today, rather than, or as well as, the authorised persons regime? I know that the Chancellor, like her predecessor, has expressed concerns about naming and shaming. Clearly, we need to tread with great care in this area.

I look forward to hearing the answers to the questions from the noble Baroness, Lady Bowles of Berkhamsted, about tribunals and speed. I should like to say that her grasp of technical aspects of financial services law is extremely helpful to this Committee in the scrutiny of complex SIs such as these; we owe her a great deal. However, I have to say, I am not sure that I completely agree with her on FCA objectives, as I think that responsible growth and dynamism need also to come through in the way the FCA behaves.

That brings me to the second measure, which addresses short selling—an activity that has long been a point of contention in financial markets. Short selling, when responsibly undertaken, contributes to market liquidity and price discovery, as the Minister explained. Personally, I would have been more radical in moving away from the EU regulation, and perhaps in giving the FCA narrower rule-making powers. However, the proposed regulations seek to establish a robust framework for managing the risks of short selling while preserving its legitimate role, for example in times of crisis; I think that “exceptional circumstances” was the term the Minister used.

Moreover, on public disclosure, I welcome the move to a list of securities that are within the scope of the rules—this is in paragraph 5.11 of the second SI’s Explanatory Memorandum—rather than having a list of shares the FCA considered to be exempt. This will be clearer and easier. However, I urge the Government to ensure that the reporting and compliance burdens on market participants arising from this new instrument remain proportionate. Excessive red tape hinders the competitiveness of our financial markets, and I believe that we still have too much of it.

I say in response to the noble Baroness, Lady Kramer, that I, too, have learned a lot from history. She mentioned what I think she called “casino banking” but, as a former bank non-executive director—long after the financial crisis—I can vouch for the thoroughness of the checks that are made on personnel with responsibilities. My only concern is that this might be a less leisurely process because, obviously, personnel changes are often needed to run organisations well.

The third and final measure relates to amendments to the ring-fencing framework established in the wake of the global financial crisis. Ring-fencing was designed to protect retail banking operations from the risks associated with investment banking. Although this principle remains sound, the financial landscape has evolved considerably since the original provisions were enacted.

The proposed amendments rightly seek to introduce greater flexibility into the ring-fencing regime. This is a sensible response to changing market dynamics and the need for regulatory frameworks to evolve. Having said that, I think that increasing the limit from £25 billion to just £35 billion is timid, especially given recent inflation. Like the noble Baroness, Lady Kramer, I would like the Minister to remind the Grand Committee which of our banks will need to be ring-fenced going forward and to name some of those that will escape and be able to grow and diversify, both here and overseas, more easily.

In other respects, I say to the Minister and his officials that the Explanatory Memorandum and de minimis assessment on this instrument were very thorough and helpful.

As Conservatives, we understand the critical importance of maintaining the UK’s status as a global financial hub. This requires not only robust regulatory frameworks but a willingness to adapt and innovate in response to new challenges and opportunities, such as AI. I urge the Government to continue the processes of dealing with retained EU law and of engaging with industry stakeholders in order to ensure that domestic measures are implemented effectively and without unnecessary burdens or delays. In doing so, it should be possible to foster a competitive financial services sector that drives economic growth and innovation, creates jobs and enhances our nation’s global standing.

[Lord Livermore (Lab)]

My Lords, I am extremely grateful to all noble Lords who have spoken—specifically, the noble Baronesses, Lady Bowles, Lady Kramer and Lady Neville-Rolfe—for their comments and questions and for, as others have observed, the extraordinary level of expertise that they bring to this debate and, as a result, the level of scrutiny that they are able to provide. I apologise for speaking to the instruments in an order other than that on the Order Paper.

The noble Baroness, Lady Bowles, began by focusing on the designated activities SI. She asked about the direction power. The designated activities regime provides a power of direction to the Financial Conduct Authority. The Treasury can, by regulations, switch on that direction power for the Financial Conduct Authority’s supervision of any given designated activity. This statutory instrument sets out additional procedure for how that power may be exercised, but it does not create or switch on the direction power itself.

The noble Baroness, Lady Bowles, also asked for some statistics on the frequency of tribunals. I will write to her on that, as she requested. If she does not mind, I will also write to her on her second question, which was about the differences in the power of direction between CCIs and short selling.

The noble Baroness then went on to focus on the short selling SI. She asked how the views of consumers were considered. These reforms were informed by extensive industry engagement, taking into account views from a wide range of market participants, including consumers. The new UK regime will ensure that the regulation works effectively to protect against the risks of short selling while improving UK competitiveness.

--- Later in debate ---

[Baroness Kramer (LD)]

Can I ask the Minister for clarification? It would seem that, if individual entities are disclosing their net short position, it is possible for an investor to understand whether the price is being affected by one institution that is making a very big play or by a series of institutions that are making a similar play. That is important information, and I have no idea how you can get it once everything is aggregated —unless I have misunderstood all of this completely, which is perfectly possible.

[Lord Livermore (Lab)]

Since I am going to write to the noble Baroness on those other two points, it is probably best that I write to her on that one, so that we can be absolutely clear.

In the meantime, I move on to the questions on the ring-fence from the noble Baroness, Lady Kramer. She spoke about a return to casino banking, but she will understand that I disagree with her on that point. These are sensible, technical reforms on which the Treasury has undertaken detailed work with the PRA. The PRA is satisfied that they maintain the appropriate financial stability safeguards. The Treasury has considered the combined overall risk of reforms to the sector, alongside detailed cost-benefit analysis through an impact assessment. That impact assessment concluded that the reforms will improve outcomes for banks and their customers by making the ring-fencing regime more flexible and proportionate, while maintaining appropriate financial stability safeguards and minimising risks to public funds.

The noble Baronesses, Lady Kramer and Lady Neville- Rolfe, asked which specific banks will be removed from the ring-fence as a result of these measures. The reforms create significant new optionality for banks, with the eventual benefits depending on their commercial decisions. It is for the banks to announce how they will utilise the new flexibilities created in the regime and the Government do not comment on specific firms.

The noble Baroness, Lady Kramer, also asked about firms being taken out of the ring-fence as a result of the primary threshold. No firms will leave the regime as a result of increasing the core deposit threshold.

The noble Baroness, Lady Neville-Rolfe, in contrast to other noble Lords, spoke of these reforms being too slow and modest. She also asked what assessment the Government had done on the impact of these SIs. We published impact assessments alongside both the ring-fencing and short selling statutory instruments, which set out their estimated impacts on firms. Both these statutory instruments are estimated to result in a net cost saving for industry.

The noble Baroness also asked how these SIs will deliver growth. There are several measures in the ring-fencing SI that have an impact on growth. We are increasing the core deposit threshold at which banks become subject to the regime, allowing them to grow, as well as exempting retail-focused banks from the regime. We have also introduced new flexibilities for ring-fenced banks to invest in UK small and medium enterprises. The Short Selling Regulations introduce a streamlined short selling regime, which reduces costs for firms and improves UK competitiveness, while still effectively protecting against the risks of short selling.

The noble Baroness also asked about the powers that the supervision and enforcement statutory instrument provides. Those regulations extend the normal powers that the Financial Conduct Authority already has over designated activities. They will allow the Financial Conduct Authority to supervise designated activities even where those carrying on the activities are not authorised persons. They mean that it will be able to gather information on and launch investigations into persons carrying on designated activities, and to enforce its designated activity rules, by publicly censuring or imposing financial penalties on persons who breach them. The Financial Conduct Authority will also be able to restrict or prohibit persons from carrying on the activity if necessary. I will write to the noble Baroness, Lady Neville-Rolfe, on the broader FCA enforcement approach.

[Baroness Neville-Rolfe (Con)]

Before the Minister goes on, I want to ask about naming and shaming. Is it to be done at the stage when enforcement becomes public? Can we be clear when the naming and shaming will take place? The Government are still considering exactly what they are going to do on naming and shaming, I think. It would be good to have confirmation on that because this area is of particular concern to the industry, for an obvious reason: the reputational hit of naming and shaming is substantial.

[Lord Livermore (Lab)]

If there is anything more that I can usefully add, I will include it in the letter that I will write to the noble Baroness.

A final question was asked about why we have increased the limit by just £10 billion. It was recognised when the ring-fencing regime was originally designed that the threshold would need to be adjusted over time to reflect the evolution of banking practices and growth in the deposit base. The Treasury considered several metrics, as well as financial stability and competition considerations, in proposing the £10 billion increase.

Increasing the deposit threshold will provide smaller banks with more headroom to grow before being subject to the requirements and costs of ring-fencing. This will support domestic competition in the retail banking market. A competitive and dynamic market improves outcomes for depositors. The reforms may also encourage inward investment in the UK, as new entrants to the UK banking market will have more room to grow and develop economies of scale before becoming subject to the regime.

I hope that I have covered all noble Lords’ questions. As I say, I will write on the points that I indicated.

Motion agreed.

Listed Investment Companies (Classification etc) Bill [HL]

Lord Livermore Excerpts

3rd reading
Friday 13th December 2024 Lords Chamber

[The Earl of Effingham (Con)]

My Lords, I thank the noble Baroness, Lady Bowles of Berkhamsted, who has argued so cogently and cohesively for the Bill.

Finding ourselves in this position appears to be a mistake, and it is essential that we take the right steps to ensure that disclosures relating to closed-end listed investment companies are presented accurately. This is not merely a point of minute detail. As the noble Baroness has argued so diligently, the current situation has led to the loss of tens of billions of pounds of potential investments, resulting in economic damage to our country.

The Government tell us repeatedly that they want growth, and therefore the British people expect them to take the right steps to foster that growth. Indeed, as the Minister highlighted at Second Reading, EU-derived legislation related to retail disclosure is not fit for UK markets. We understand that the Government have committed to making changes to address and resolve these issues, and His Majesty’s Official Opposition greatly hope that the Government will continue to listen to the noble Baroness in a co-ordinated and collaborative effort to foster the growth that is essential if we are to deliver optimal outcomes for everyone across the country.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I congratulate the noble Baroness, Lady Bowles, on her Bill, and I thank her for her engagement on this issue so far. The Bill seeks to address an important concern for the sector, and I am grateful for the work of the noble Baroness and other noble Lords to raise awareness of the issue. As she has rightly identified, the previous legislation relating to retail disclosure was not fit for purpose. That is something on which the Government, the Financial Conduct Authority and many Members of this House agree, and it is an area in which this Government have already taken forward action to address industry concerns.

Only last month, the Government passed legislation to replace the package retail and insurance-based investment regulations with a new framework for consumer composite investments. That has provided the FCA with the appropriate powers to deliver a new disclosure regime that is more proportionate and tailored to UK markets and firms, including for investment trusts.

The Government also heard concerns from industry that the cost disclosure requirements have had an unintended consequence for the investment trust sector and its ability to fundraise. As a result, the Government took exceptional action to temporarily exempt investment trusts from cost disclosure regulation, with legislation passed last month to that effect.

Given that investment trusts offer their products to retail investors, it is right that they must provide tailored disclosure on costs, risks and performance to support consumer understanding. Together, the instruments that the Government have already passed will enable the FCA to holistically reform cost disclosure, addressing issues with current disclosure requirements. Ensuring that retail investors can make informed investment decisions is a key component of healthy UK capital markets.

I am grateful to the noble Baroness for her continued championing of the investment trust sector and for bringing her concerns to the Government’s attention. I hope she will recognise the genuine difference that her campaign has made. However, given the Government’s legislative interventions to resolve this issue, I am afraid I must express reservations on behalf of the Government on the Bill.

Bill passed and sent to the Commons.

Small Farms and Family Businesses

Lord Livermore Excerpts

Thursday 12th December 2024 Lords Chamber

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I begin by thanking the noble Earl, Lord Leicester, for securing today’s debate and congratulate him on his opening speech. I also pay tribute to the noble Baroness, Lady Cumberlege, following her valedictory speech. Throughout her many years in this House the noble Baroness has been an important and influential voice, on the issue of healthcare in particular. I wish her well for the future.

I have listened closely to the words of all noble Lords throughout this debate, and I of course acknowledge the strength of feeling expressed today. I pay tribute to the huge contribution that our farmers make, not only to our economy and to our food security but to our way of life. The Government are deeply committed to supporting them and our rural communities. As the right reverend Prelate the Bishop of Norwich observed, I know that many in the sector are anxious about what the changes announced in the Budget mean for them. In the time I have available, I shall set out some facts and seek to provide some reassurance about the impact of the measures we are introducing.

Let me first, though, remind your Lordships’ House about the economic context in which the Budget decisions were taken. As noble Lords will know, the Government faced an incredibly challenging fiscal position, with a need to both repair the public finances and rebuild our public services. We believe that economic stability is the foundation of economic growth and that stability in the public finances is a core part of that, so ignoring or postponing difficult decisions was simply not an option.

Many noble Lords have spoken in today’s debate about the fragile state of the rural economy, and they are of course right. Problems including poor public transport, a lack of affordable housing and poor digital connectivity have plagued rural communities for years. That is why fixing the foundations of our economy for the long term is so important, so we can invest in the public services and the infrastructure that will benefit the whole of our country.

Among the many difficult decisions that we had to take in the Budget, much of this debate has focused on the reforms that we are making to agricultural property relief and business property relief. I recognise that inheritance tax is an emotive issue. It is an understandable and natural desire for people to want to pass on the assets they worked hard for to the people they love when they die, and the Government recognise the role that these reliefs play in supporting farms and small businesses. Importantly, they will continue to play that role, but the reality is that the full, unlimited exemption, introduced in 1992, has become unsustainable.

The main issue is one of fairness. Under the current system, the 100% relief on business and agricultural assets is heavily skewed towards the wealthiest landowners and business owners. According to the latest data from HMRC, 40% of agricultural property relief is claimed by just 7% of estates making claims. That is just 117 estates claiming £219 million of relief.

It is a similar picture for business property relief. More than 50% of business property relief is claimed by just 4% of estates making claims, which equates to 158 estates claiming £558 million in tax relief. It is neither fair nor sustainable to maintain such a large tax break for such a small number of claimants, given the wider pressures on the public finances.

A secondary issue relates to the purchase of farmland. The reality today is that buying agricultural land is now one of the most well-known ways to shield wealth from inheritance tax. This has artificially inflated the price of farmland, locking younger farmers out of the market. Clearly, this was not the objective of this 100% relief when it was first introduced in 1992.

For the reasons that I have set out, the Government are changing how we target agricultural property relief and business property relief from April 2026. We are doing so in a way that maintains significant tax relief for estates, including farms and businesses, while supporting the public finances in a fair way.

Many different numbers were used in today’s debate, so let me set out some of the facts. Under the new system, individuals will still benefit from 100% relief for the first £1 million of combined business and agricultural assets. Above this amount, there will be 50% relief. That means that inheritance tax will be paid at a reduced effective rate of up to 20%, rather than the standard 40%.

Up to 520 estates claiming agricultural property relief, including those that also claim business property relief, are expected to be affected as a result of these changes in 2026-27. Therefore, nearly three-quarters of estates making claims in that period will not pay any more tax as a result of this change in the year it is introduced. Similarly, around three-quarters of estates claiming business property relief alone in 2026-27 will not pay any more inheritance tax either.

Indeed, all estates making claims for these reliefs will continue to receive generous support, at a cost of £1.1 billion to the Exchequer in the first year. The reliefs also sit on top of all the other spousal exemption and nil-rate bands. Therefore, a couple with agricultural or business assets will typically be able to pass on up to £3 million-worth of assets without paying any inheritance tax.

The noble Earl, Lord Leicester, and the noble Lord, Lord Curry of Kirkharle, spoke about the longer-term projections for this tax change. However, forecasts for the impact of these changes over a long period are unreliable, as estates will make changes to the way they plan their tax affairs in order to reduce their liabilities. For example, they may change ownership structures or plan for their succession differently.

After these reforms are implemented, the system will remain more generous than it was before 1992, when inheritance tax was applied at a maximum rate of 50%, including on the first £1 million. As the Institute for Fiscal Studies has said, our reforms will leave farmland

“much more lightly taxed than most other assets”.

Importantly, however, people can also access existing features of the inheritance tax system. Full exemptions for transfers between spouses and civil partners will continue to apply, meaning that any agricultural and business assets left to a spouse or civil partner will be completely tax free.

Any inheritance tax liability on relevant assets can be paid in 10 annual instalments in most circumstances and will be interest free. These payment terms are more generous than in any other part of the tax system. If owners pass on their businesses seven or more years before their death, no inheritance tax will be due. Taper relief will also apply within that time. The noble Lord, Lord Northbrook, asked about taking an income in these circumstances; there are several ways in which this would still be possible.

The changes will not be introduced until April 2026, giving farmers time to plan and assess their liabilities. As the changes are implemented, we expect estates to reduce their tax liabilities. For example, individuals may change ownership structures or plan for their succession differently. The costings by the independent Office for Budget Responsibility take full account of this and assume that it will occur.

At this point, I would like to directly address some of the misinformation that has surrounded this issue. Much of this has focused on the data used to determine how many estates will be affected, mentioned by the noble Baronesses, Lady Shephard of Northwold and Lady Foster, and the noble Lords, Lord Curry of Kirkharle, Lord Bilimoria, Lord Rogan, Lord Northbrook, Lord de Clifford and Lord Douglas-Miller. I encourage all noble Lords who have not yet seen it to review the letter that the Chancellor sent to the Treasury Select Committee in the other place setting out the facts in this regard, copies of which are available in the Library.

It is important that we avoid causing unnecessary concern to farmers and farming communities. The data the Government use is based on HMRC’s inheritance tax claims data—that is to say, the actual claims made by estates for agricultural and business property relief. This is the most robust data there is and is endorsed by the independent Office for Budget Responsibility.

Some noble Lords have referred to data published regularly by Defra, data from the Northern Ireland Executive and from other organisations and have used this to claim that the number of estates affected will actually be far higher. However, this data relates to the total value of farms across the country. It is impossible to accurately calculate inheritance tax liability from this data because owning assets over the exemption threshold does not necessarily mean you will pay inheritance tax on those assets. This is because such data does not account for key factors such as who owns the farm or the nature of that ownership, how many people own the farm and how they plan their affairs. It also assumes no succession planning over the coming years.

The noble Lords, Lord Taylor of Holbeach and Lord de Clifford, the right reverend Prelate the Bishop of Newcastle and the noble Baroness, Lady McIntosh of Pickering, asked about assessments made of this tax change. The Government set out their modelling at the Budget and more recently the Chancellor provided further details to the Treasury Select Committee, including in her follow-up letter. As is standard practice, we will publish a tax information and impact note in the usual way alongside the draft legislation next year.

My noble friend Lady Mallalieu and the noble Lord, Lord Douglas-Miller, asked what steps the Government have taken to consult on these measures. Alongside routine engagement, the Government received Budget representations from the National Farmers’ Union, the Country Land and Business Association and the Tenant Farmers Association which covered this specific issue. We will continue to work closely with key stakeholders in the industry as we implement this change.

My noble friend Lady Mallalieu, the right reverend Prelate the Bishop of Norwich, the noble Baronesses, Lady Foster and Lady Bennett of Manor Castle, and the noble Lord, Lord Douglas-Miller, also raised concerns around mental health among farmers and in rural communities. Mental health is of course an issue that the Government take extremely seriously, which is why we are working to improve mental health services across the country, including through plans to recruit an additional 8,500 mental health workers. Defra also works through its farming and countryside programme with a range of farming charities, including the Royal Agricultural Benevolent Institution and the Yellow Wellies charity, which have highlighted mental health challenges for farming communities.

The right reverend Prelate the Bishop of Norwich, the noble Earl, Lord Devon, and the noble Baroness, Lady Bakewell of Hardington Mandeville, asked if the Government will consider dispensation for farmers above a certain age. The Government remain committed to the changes as set out in the Budget, but clearly individual circumstances will vary. Therefore, any individual who is concerned about their specific tax liability should consult an accountant or financial adviser.

The right reverend Prelate the Bishop of Newcastle, the noble Lords, Lord Curry of Kirkharle, Lord Londesborough and Lord de Clifford, the noble Viscount, Lord Trenchard, and the noble Baroness, Lady Foster, asked about the level of the threshold. The Government’s position remains that our approach gets the balance right between supporting farms and fixing the public finances in a fair way.

Many noble Lords raised the issue of wider support to farmers and rural communities. The changes we are introducing should of course be seen in this wider context. The Budget committed £5 billion to farming over the next two years, including being the biggest Budget for sustainable food production in our history. It also committed £60 million to help farmers affected by the unprecedented wet weather last winter, and we are protecting farms and rural businesses by committing £2.4 billion over the next two years to rebuild crumbling flood defences.

We will also continue to provide existing support for the farming industry in the wider tax system. This includes, for example, the exemption from business rates for agricultural land and buildings, and the ongoing entitlement for vehicles and machinery used in agriculture to use rebated diesel and biofuels.

Many noble Lords, including the noble Baronesses, Lady Miller of Chilthorne Domer, Lady Cumberlege and Lady Foster, and the noble Lords, Lord Rogan, Lord Cameron of Dillington and Lord Taylor of Holbeach, spoke about food security. That is an issue we approach with the utmost seriousness. It is why we have committed £5 billion to the farming sector over this year and next to support long-term food security. As the United Kingdom Food Security Report 2024 published yesterday showed, our food security has been resilient in the face of a number of shocks over the last three years.

The Government recognise that a small minority of estates will be affected by these changes, but reform of these reliefs is necessary given the fiscal challenge that confronts us. We must put our economy back on to a stable footing and repair our broken public services. That includes the schools, hospitals and roads which communities across the country, including those in rural areas, rely on every day. We have taken this decision in a way which makes the tax system fairer and more sustainable, and it is set against the backdrop of significant new investment for farming as well as support for small businesses. Again, I thank all noble Lords who have spoken today, and in particular the noble Earl, Lord Leicester, for securing this debate.

Economic Productivity

Lord Livermore Excerpts

Thursday 5th December 2024 Lords Chamber

[Baroness Neville-Rolfe]

To ask His Majesty’s Government what plans they have for increasing productivity in the UK economy.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, in the decade from 2010 the UK economy saw the lowest productivity growth since the Napoleonic Wars, which led to the lowest growth in living standards ever recorded. Reversing that performance is the number one mission of this Government. As part of our growth strategy, we have set out far-reaching plans to increase productivity, including restoring economic stability, reforms to planning, to skills and to the labour market, record levels of investment in R&D, new investment in transport connectivity, a modern industrial strategy and a 10-year infrastructure strategy.

[Baroness Neville-Rolfe (Con)]

My Lords, I believe the Government missed an important opportunity by failing to impose productivity conditions alongside their costly public sector pay rises. I do know that productivity is a complicated area. On most metrics, public sector productivity has been significantly lagging that of the private sector. What measures will the Government adopt to ensure that it increases towards private-sector levels?

In particular, the Minister mentioned planning. Does he agree that speeding up and simplifying planning, and reducing the cost of electricity for businesses, rather than doing endless review, should be important components of the plan that he set out?

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her Question. To answer her first point, she is incorrect to say that we did not impose any productivity criteria. We have introduced a 2% efficiency and productivity target in the NHS for this year and next year. We have also gone further than the previous Government did by extending that target to all government departments to ensure that we are improving the quality of public services while also improving value for money.

The noble Baroness mentioned planning. A significant programme of planning reform was announced by the Chancellor on her very first day in the Treasury. The previous Government had 14 years to announce those things but never did anything.

[Lord Sahota (Lab)]

My Lords, as a former small businessman, I welcome the Government’s recent announcements to help small businesses, including increasing the threshold for national insurance contributions from £5,000 to £10,500, and cutting business rates for shops, pubs and other leisure properties. Are there any more goodies to come in the future from this new Labour Government for small businessmen?

[Lord Livermore (Lab)]

I am grateful to my noble friend for his support for the policies we have announced for small businesses. He is absolutely right that we protected small businesses in the recent Budget. SMEs are, of course, an essential part of a growing economy. We set out clear plans for small businesses in our manifesto and we will deliver on those in the coming months.

[Lord Fox (LD)]

My Lords, the Minister was right to mention skills being central to bringing productivity up. Both our parties had large chapters on skills in our manifestos and, since coming into office, the Government have announced initiatives, consultations and suchlike. Will the Minister tell your Lordships’ House when the first cadre of employees who have benefited from any of the skills measures that the Government intend to bring in will reach the workplace?

[Lord Livermore (Lab)]

The noble Lord is correct to say that both parties are absolutely aligned on the importance of skills reform, which is why we have announced Skills England. We will be increasing the number of people in training and they will enter the workforce as soon as they graduate.

[Lord Londesborough (CB)]

My Lords, the Office for National Statistics may have inadvertently thrown some light on our so-called productivity puzzle. The slide in the quality of its workforce data appears to have coincided with the increasing practice of its staff working from home—in many cases five days a week. Indeed, ONS staff have recently threatened industrial action—to go on strike—if forced to work from the office for two days a week. Do the Government have plans to commission a study across the public sector of the impact that working from home has on productivity? It is a crucial issue.

[Lord Livermore (Lab)]

I know that the noble Lord cares deeply about this issue. He has spoken in debates on this topic before and has made some very important points about productivity. I have also answered a Question in this House on working from home and its impact on public sector productivity. As I said then, the current evidence is mixed. There are clear advantages to working from home for some and there are also clear disadvantages to working from home. Most studies seem to suggest that there are significant benefits to a hybrid model. But there are no such plans to commission the kind of study he mentioned.

[Lord Blunkett (Lab)]

Does my noble friend accept that there are some really perverse outcomes in the current way we assess productivity in the public sector, such as smaller class sizes worsening productivity in the education system, or employing more police officers so crime drops and the ratio therefore worsens? Is it not really important that we get a bit of common sense into this?

--- Later in debate ---

[Lord Livermore (Lab)]

I completely agree with my noble friend on that point. Measuring public sector productivity is very difficult and contradictory measures are involved. My noble friend is right that, obviously, our priority is improving those public services and we will continue to do so.

[Lord Howell of Guildford (Con)]

My Lords, in the 1970s, we attracted enormous increases in productivity by also attracting vast quantities of Japanese inward investment, which saved our motor industry. Now, unfortunately, our motor industry needs saving again. Could we concentrate on attracting FDI by having the kind of Budget that really makes international investors keen to invest here on a scale much larger than anything that has come before?

[Lord Livermore (Lab)]

The noble Lord is absolutely correct to say that investment is one of the key drivers in raising productivity. Obviously, it was a matter of regret that, under the previous Government, the UK was the only G7 country with levels of private sector investment below 20% of GDP. We are absolutely determined to raise that: the recent international investment summit saw £64 billion of investment come into the UK, creating some 40,000 jobs. We are determined to continue that trend.

[The Lord Bishop of London]

My Lords, productivity is now often spoken of in relation to the National Health Service, which the Minister mentioned in his Answer to the Question. The Health Foundation looked at NHS productivity and identified maintaining morale and motivating the workforce as key to it. Alongside essential things such as targets, what effort are the Government making to continue softer leadership, including listening to the workforce and fostering good industrial relations?

[Lord Livermore (Lab)]

The right reverend Prelate is absolutely correct in what she says about the importance of the health service to productivity. A healthier workforce is a more productive workforce. We have a 10-year NHS health plan in the works. It will be published in the spring and will focus on delivering the reforms needed to ensure better value for money for taxpayers and sustainable productivity gains. Of course, good working relations with the workforce are essential to that.

[Baroness Kramer (LD)]

My Lords, big business in the United Kingdom is among the most productive in the world. It is small businesses, which as the Minister said are the backbone of our economy, that struggle to grow productivity. How will the Government even communicate with this sector—most of the conversation is about only tax issues—to encourage and support innovation? How will they change financial services, so that businesses that wish to innovate can realistically access finance?

[Lord Livermore (Lab)]

That is a very good question, which I am not sure I know the answer to. Obviously, the Department for Business and Trade has an ongoing programme of dialogue with small businesses, as the noble Baroness said, in terms of communication, and it will continue to do that. The recent Mansion House reforms outlined by the Chancellor will, I hope, address the noble Baroness’s points.

[Lord Tyrie (Non-Afl)]

Do the Government accept that the fall in business confidence since the Budget will have a depressing effect on the investment needed to secure productivity gains?

[Lord Livermore (Lab)]

Well, I hope that the recent international investment summit, which saw £64 billion of investment come into the UK, suggests otherwise. The Office for Budget Responsibility, the Bank of England and the OECD have all upgraded their forecasts for the growth of the UK economy over the next three years; that is a very encouraging sign.

[Lord Brooke of Alverthorpe (Lab)]

Does the Minister agree that one way of increasing productivity is by reducing headcount and costs? Could we in this Chamber perhaps give a lead to the country by looking at what we are doing and seeing whether, in six months, we could reduce our headcount by getting rid of those people who come along and claim their expenses but do no work?

[Lord Livermore (Lab)]

My noble friend makes a very interesting point.

Financial Services and Markets Act 2023 (Addition of Relevant Enactments) Regulations 2024

Lord Livermore Excerpts

Wednesday 4th December 2024 Lords Chamber

Moved by

[Lord Livermore]

That the draft Regulations laid before the House on 31 October be approved.

Considered in Grand Committee on 2 December.

Motion agreed.

Financial Services and Markets Act 2023 (Addition of Relevant Enactments) Regulations 2024

Lord Livermore Excerpts

Monday 2nd December 2024 Grand Committee

Moved by

[Lord Livermore]

That the Grand Committee do consider the Financial Services and Markets Act 2023 (Addition of Relevant Enactments) Regulations 2024.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, these regulations will add four pieces of legislation, known as “enactments”, to the list set out in Section 17(3) of the Financial Services and Markets Act 2023, so that those enactments can be temporarily modified as part of the financial market infrastructure sandboxes.

A financial market infrastructure sandbox is designed to provide a regulatory environment in which existing legislation and regulation are temporarily removed or modified. Firms that participate in a financial market infrastructure sandbox are able to test new and developing technologies and practices that would otherwise be inhibited by existing legislation. If an activity in a financial market infrastructure sandbox is successful, the Treasury can make permanent changes to legislation—only after laying a report before Parliament.

The Treasury was granted the power to make provision for financial market infrastructure sandboxes by Section 13 of the Financial Services and Markets Act 2023, and the list of enactments that the Treasury can temporarily modify is set out in Section 17(3). The Treasury also has the power to add further enactments to this list, set out in Section 17(6) of the Financial Services and Markets Act 2023. This is because the testing of new technology and practices, by its nature, evolves over time, and the list of legislation in scope would likely need to be added to. The ability to add further enactments to the list is therefore a way of ensuring that the financial market infrastructure sandbox regime can be used to its full potential, ensuring that the testing of new technologies and practices can continue to take place as new legislative changes are identified.

This statutory instrument exercises the power set out in Section 17(6) of the Financial Services and Markets Act 2023 so that new enactments can be added to support two financial market infrastructure sandboxes; namely, the existing digital securities sandbox and the future private intermittent securities and capital exchange system—known as PISCES—sandbox. The digital securities sandbox will enable firms to test new and innovative technology across financial market infrastructure activities, while the PISCES sandbox will allow private companies to have their shares traded on an intermittent basis on a new type of stock market.

This statutory instrument will bring the following legislation into the scope of the power to make temporary modifications in future financial market infrastructure sandboxes: the Stock Transfer (Gilt Edged Securities) (CGO Service) Regulations 1985, which I will refer to as STRs; the Government Stock Regulations 2004, which I will refer to as GSRs; the Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which I will refer to as MLRs; and Regulation (EU) 2017/1129 of the European Parliament and of the Council, also known as the prospectus regulation, which we inherited from the EU.

Temporarily modifying the STRs and GSRs will enable us to support a digital gilt issuance through the digital securities sandbox. The MLRs will be modified to facilitate an exemption from the MLRs crypto asset regime for digital securities sandbox participants; this is on the basis that digital securities sandbox activity will involve regulated securities and conventional anti-money laundering legislation will be applied. The new UK prospectus regulation will be modified as part of the PISCES sandbox so that prospectus requirements can be disapplied in favour of bespoke disclosure requirements in the PISCES sandbox.

I should note at this point that this statutory instrument does not make any temporary changes to the enactments themselves. Under the procedure stipulated by Financial Services and Markets Act 2023, this will be done as part of further negative SIs to be laid before Parliament, which will provide all the relevant explanatory information for the changes being made to each enactment. For example, the Government published a draft of the instrument that will set up the PISCES sandbox in November for public comment. Similarly, the digital securities sandbox has already been established by a statutory instrument laid last December, although changes to the MLRs will require a further statutory instrument.

In closing, this statutory instrument will make changes consistent with the powers established by the Financial Services and Markets Act 2023 and will support the continued development of the digital securities sandbox and future financial market infrastructure sandboxes, such as the PISCES sandbox. The Government believe that this will help support innovation through each of these financial market infrastructure sandboxes. I hope that noble Lords will  feel able to support these  regulations and their objectives. I beg to move.

[Baroness Kramer (LD)]

My Lords, the more times I read this statutory instrument—even after writing myself a cheat sheet on its alphabet soup of acronyms—the more I realise that I lack the expertise in the digital financial services and crypto space to really understand what is happening, the context and the implications. However, I have always supported the sandbox approach as a creative way for the regulator to understand innovations in financial services and how to appropriately regulate them.

This is a high-level SI that will, as the Minister said, be followed by detailed—although negative—SIs to address specific cases. I am a bit concerned that we will need to spot these cases in order to question them, but I have no intention of opposing the regulations before us today. PISCES is a slightly different issue but, frankly, without seeing the new prospectus regime, I have absolutely no idea how to comment on the changes contained in this SI.

I do, as always, have a few questions. First, I want to understand how this SI and what lies behind it ties in with the competition and growth objective. Are the Government taking the view that future growth in financial services is largely linked to digital business models, including blockchain infrastructure and crypto assets, and that shaping the FCA to be a benign regulator will make the UK a leading player in designing, holding, trading and marketing new instruments? Or are the Government concerned that digital and crypto create a new potential for market manipulation, mis-selling and money laundering, such that the FCA needs to find ways to counter, with different approaches to monitoring supervision enforcement? In other words, are the Government playing offence or defence? I would like to hear the Minister’s view.

Secondly, and related to that, with this instrument and the related activities, are we ahead of the curve, with the curve or behind the curve compared with other international regulators? I am afraid I do not have the global reach to understand, and it would be helpful if the Minister could tell us.

My lack of knowledge in this area led me to contact a friend in the industry to seek advice, and I was stunned by the response. In summary, I was told that the innovators who bring new and innovative models to the regulator’s sandbox are the smartest people in the room, but the regulator views the sandbox as a means to decide on monitoring procedures, compliance algorithms and approaches to enforcement. The innovators, by contrast, use the sandbox to identify the regulator’s points of weakness and then build them into their models to escape regulatory control. Innovators in the sandbox explore the regulatory perimeter, for example, to design products that will fall just outside; the mini-bonds are an example. They identify transaction sizes that will slip under the radar and coding approaches that will prevent multiple transactions that are essentially identical to be linked together and therefore escape both supervision and action. Those are just examples, but, increasingly, the industry seems to regard observing the intent of the regulator as purely voluntary. Does the Minister have any concerns that the regulator is outmanoeuvred, underpowered and underresourced?

I will end on my hobby-horse, which applies very much in these circumstances. Does the Minister recognise that, in this very fast-changing world, when so much is global and so much is digital, an effective whistleblowing system is absolutely vital, and our current system is a serious weakness?

--- Later in debate ---

These regulations will allow our financial services landscape, innovation and new technology to continue to be world leaders. We welcome the regulations, which build on the important work of the Financial Services and Markets Act 2023.

[Lord Livermore (Lab)]

My Lords, I am extremely grateful to the noble Baroness, Lady Kramer, and the noble Lord, Lord Altrincham, for their contributions and their support for this measure. The noble Baroness spoke about its complexity and the alphabet soup. I have huge sympathy for that perspective, I must say; as such, I will do my best to address the questions she asked. If I am unable to cover any of her questions, I will, of course, write to her.

The noble Baroness asked whether we are watering down regulation. I assure her that this instrument will not lead to the watering down of any regulation. All modifications in the DSS are intended to achieve the same regulatory outcomes while allowing for flexibility when new or developing technology or practices might meet the same outcomes in a different way.

The noble Baroness also asked about the changes to the prospectus regime for PISCES. I fully accept that she is unable, at this point, to comment on the detail. I can let her know that the Treasury intends to modify the prospectus regulation, which this SI is bringing into the scope of the FMI sandbox powers, and the Public Offers and Admissions to Trading Regulations 2023, which is already in scope of the powers, in order to ensure that placing shares on PISCES does not trigger a requirement to produce the prospectus.

The noble Lord, Lord Altrincham, asked about the timing of that. Further detail on how this will be done will be set out when the final SI is laid in May 2025; that will provide the legal framework for the PISCES sandbox. Similarly, the FCA intends to consult in due course on the processes for taking part in a sandbox and the rules that will apply to firms. Once the PISCES sandbox is established, it will be up to commercial firms to apply to the FCA to operate a PISCES platform.

The noble Baroness, Lady Kramer, asked about tokenisation. The use of tokenisation in digital assets has the potential to be genuinely transformative for financial markets. This could include improving existing processes by making markets more efficient, transparent and resilient. It is important, though, that markets are able to realise the benefits in a safe manner, preserving existing regulatory outcomes.

The noble Baroness asked about money laundering. Potential applicants to the digital securities sandbox will need to submit an application to, and be assessed by, the regulators. Even after activity in the sandbox is exempted from the crypto asset regime and the money laundering regulations, activity in the DSS will continue to be subject to the existing anti-money laundering regime for non-crypto markets. The DSS excludes unbacked crypto assets and is focused on regulated activities. The Government will lay in the new year a negative SI that puts in place the changes to the MLRs, and will provide further information and a de minimis impact assessment as part of that.

The noble Baroness also asked whether I consider the regulator outmanoeuvred and underpowered. As I think she would expect me to say, no, I do not accept or believe that.

Finally, the noble Lord, Lord Altrincham, asked whether the Government will bring more legislation into the scope of these powers. At the time these powers were granted to the Treasury under the Financial Services and Markets Act 2023, it was envisaged that additional legislation would likely be required to be brought into the scope of Section 17(3). This is because the testing of new technology and practices is uncertain, meaning that new issues that necessitate new legislation being brought into scope may be identified. Future FMI sandboxes may also have a different focus, again requiring changes to legislation not previously considered.

I hope that I have addressed all the points made. If not, as I said, I will write to noble Lords.

Motion agreed.

International Banking: Payments

Lord Livermore Excerpts

Thursday 28th November 2024 Lords Chamber

[Lord Lamont of Lerwick]

To ask His Majesty’s Government what assessment they have made of the plan by the BRICS countries to establish a separate banking payments system, and of the implications for the international banking system and the ability of the United Kingdom and its allies to impose economic sanctions.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, the Government believe an integrated global financial system is the best way to achieve global prosperity and financial stability. Fragmentation is damaging to the global economy, whereas deep, liquid markets boost economic efficiency. That is why we will continue to work with our international partners to strengthen the rules-based international system and our interconnected financial and economic systems.

[Lord Lamont of Lerwick (Con)]

My Lords, I thank the Minister for his reply. While the idea of a BRICS payment system, which was announced by Mr Putin at the BRICS conference in Kazan, may seem rather fanciful and a long way off, it nevertheless needs to be taken seriously. Does he not agree that, if it ever happened, it would be a major threat to the western-led financial system? Above all, it would make it impossible for the West to impose sanctions on countries such as Russia, China, Iran or other malign countries. Is the Minister aware that, after the BRICS conference, Chinese state media reported that the proposed new payment system would be based on technology taken from the Bank of International Settlements, with its bridge development? Is he also aware that America has apparently expressed some concern to the Bank of International Settlements about this transfer of technology to possible malign actors? Should we not be taking this very seriously?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for the points that he raises, and I agree that, of course, we should take these developments seriously. I will not comment on the specific proposals announced by the BRICS countries that he refers to; I would not want to speculate as to what systems may or may not come into common usage. The Government believe very much that the current international model for the financial system works effectively, and we will continue to work with our international partners to maintain an interconnected financial and economic system. On the noble Lord’s question on the effectiveness of sanctions, we continue to believe that economic sanctions are an important and effective tool, and we will continue to utilise those sanctions where necessary. On the potential to undermine them, we will pursue any necessary steps with our allies to maintain the interconnected system and reduce opportunities for the circumvention or evasion of international sanctions.

[Lord Hannay of Chiswick (CB)]

My Lords, does the Minister agree that if the President-elect of the United States goes ahead with some of the more extreme versions of his tariff ideas, it is likely to add a momentum and an impetus to the attempts by the BRICS to break away from the financial system that currently exists?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question. On the potential move by the forthcoming Trump Administration, the UK will continue to work closely with the US on a range of security issues, including sanctions, to advance our shared priorities. I do not think it would be appropriate for me to comment on the Trump Administration’s future policies. In terms of actions by the BRICS, we obviously respect each country’s right to choose its own path and partners, but we will continue to collaborate with our international colleagues around the globe, including BRICS members, in forums such as the UN and G20, to build an open, stable and prosperous world.

[Baroness Kramer (LD)]

My Lords, because of my complex family, I need to transfer funds across international borders several times a year. The system assumes I am a terrorist, the banks have rip-off charges and exchange rates and obstructive technology. Even the new online apps, for which I had high hopes, have very severe limitations. Do western Governments, including ours, understand that if they fail to remedy this absolutely hapless international payments system, and the BRICS devise any international payment that is even halfway efficient and reasonably priced, users will simply flock to the BRICS system out of sheer frustration?

[Lord Livermore (Lab)]

I share some of the noble Baroness’ frustrations in this regard. I am always happy to vouch for her that she is not a terrorist; I am very certain of that fact. The noble Baroness is obviously making a very serious point. Clearly, fragmentation along the lines that she describes would be very damaging to the global economy—we must ensure that this does not proceed. The evidence of the extent to which fragmentation has occurred is mixed, and we should keep an eye on the data. I very much bear in mind the points she makes.

[Baroness Bryan of Partick (Lab)]

Can the Minister understand the concerns of BRICS and other countries about how the US uses the dollar for political ends, such as sanctions against Cuba?

[Lord Livermore (Lab)]

No, I would not agree with my noble friend on that point.

[Lord Marland (Con)]

My Lords, many emerging markets are relying on the RMB for funding, which will form the cornerstone of the BRICS payment system. Will the Government review this overzealous regulation—which the noble Baroness referred to from the retail side—but from a commercial side, which is forcing British banks to withdraw from funding in emerging markets?

[Lord Livermore (Lab)]

It is extremely important that British companies are able to engage in emerging markets in the way the noble Lord describes, and I will happily look at the point that he raises.

[Lord Skidelsky (CB)]

My Lords, the noble Lord, Lord Collins, stated in this House on 15 October:

“Sanctions … are a crucial tool to weaken Russia’s ability to attack Ukraine”.—[Official Report, 15/10/24; col. GC 21.]


After nearly three years of sanctions, do the Government still consider them to be an effective tool, especially in the light of the evasions which have been mentioned earlier in the debate? I call upon the Government yet again to give an undertaking to publish their assessment of the effectiveness of the sanctions regime, so we can have an evidence-based debate on the subject rather than being fobbed off with mere assertion.

[Lord Livermore (Lab)]

The answer to the noble Lord’s first question, in terms of whether we consider them effective, is yes. In the case of Russia’s invasion of Ukraine, these measures have dramatically reduced Russia’s access to global financial markets and weakened its ability to finance its illegal invasion of Ukraine. Russia’s increasing reliance on North Korean and Iranian weapons highlights the impact these sanctions have had. We will pursue any necessary steps with our allies to maintain and reduce opportunities for the circumvention or evasion of international sanctions.

[Baroness Wheatcroft (CB)]

My Lords, does the Minister agree that a sensible use of the sanctions now might be to seize the money that has been taken and sanctioned from the Russian regime and give it to the Ukrainians now, while they can use it?

[Lord Livermore (Lab)]

That is very much the spirit that lies behind the Financial Assistance to Ukraine Bill, which will shortly be before your Lordships’ House. The Financial Assistance to Ukraine Bill provides spending authority for the UK to implement our commitment to the G7 Extraordinary Revenue Acceleration Loans to Ukraine scheme, a landmark agreement which provides a collective £50 billion to Ukraine.

[Baroness Neville-Rolfe (Con)]

My Lords, there is much evidence that the international order is undergoing a process of major and very troubling change. The BRICS proposal is just one manifestation of this phenomenon. Given what we have heard from my noble friend Lord Lamont, does the Minister agree that we must be even more clear-sighted as to where our national interests lie? In particular, can he outline what the Government are doing to protect our substantial interests in the financial services industry and indeed in the interconnected system that he mentioned?

[Lord Livermore (Lab)]

I absolutely agree with the noble Baroness that we should of course always proceed from a position of our own national interest. The Chancellor in her Mansion House speech two weeks ago set out a very comprehensive programme to ensure that our financial services industry was examined from that position of our own national interest and set out a comprehensive set of proposals in that regard.

[Lord Alton of Liverpool (CB)]

My Lords, can the Minister give the House an update on the proceeds from the sale of Chelsea Football Club, which were supposed to have been released and sent to help humanitarian causes in Ukraine?

[Lord Livermore (Lab)]

I am afraid I do not have that specific information to hand, but I am more than happy to write to the noble Lord.

[Lord Kamall (Con)]

My Lords, we know that the BRICS grouping of countries is looking to expand, and has recently invited allies of ours, such as the United Arab Emirates and Saudi Arabia, dare I say it. What conversations do the Government intend to have with those two allies, particularly as the BRICS grouping promotes its alternative international financial system?

[Lord Livermore (Lab)]

As I said earlier, we absolutely respect each country’s right to choose its own path and its own partners, including which international groupings it associates with. The UK will continue to collaborate on international challenges with countries right across the globe—including the BRICS members that he mentions—in forums such as the UN and the G20, to build an open, stable and prosperous world.

Financial Services: Mansion House Speech

Lord Livermore Excerpts

Thursday 21st November 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, my party is determined to see growth in the UK economy and to use tools such as reform of the financial services sector to drive that growth, though we would put much more emphasis on a revival of community banking and financing for SMEs. High risk, however, is not for all. For people with small pensions, safety—not a jackpot—is the goal. Will the Minister assure this House that, in all the various changes, small pensions will in some way be backstopped from losses generated through higher risk, including illiquid investments? In Canada, which seems to be a template for the Government, public sector pension funds are, in effect, wholly backstopped by the state.

Members on these Benches remember the financial crisis of 2007, which destroyed growth for a generation. It was enabled by gullibility and naivety in dealing with the financial sector, both by Conservative and Labour Governments and by the regulators. The Bank of England is re-looking at the regulation of CCPs to allow greater derivates risk; the PRA now allows insurance companies to hold illiquid assets without relevant reserves; the bank ring-fence is being undermined, and the FCA plans to gut the clawback on bankers’ bonuses and downgrade the certification of senior managers. We are back to jobs for the boys.

Much more—if I understand the Chancellor correctly in the Mansion House speech—is to come. I sat for two years on the Parliamentary Commission on Banking Standards, listening to the pernicious incompetence of masters of the universe who were turning a deliberate blind eye to market manipulation, mis-selling and money laundering, with no acceptance of responsibility. Will the Minster read the reports of the PCBS before he proceeds with any further weakening of regulation? If this is not done with extraordinary care, we risk seeing the reseeding the next financial crisis.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I am very grateful to the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, for their comments and questions. May I take this opportunity to welcome the noble Baroness, Lady Neville-Rolfe, to her place and say how much I look forward to working with her in the period ahead? I am very grateful to both noble Baronesses for the “cautious”—I think I should say—welcome that they gave to various aspects of these reforms.

The noble Baroness, Lady Neville-Rolfe, began by talking about growth and, of course, we all know that growth was one of the biggest failures of the previous Government. In her Budget last month, the Chancellor set out a number of important measures to fix the foundations of our economy, restore stability to our public finances and rebuild our public services. They included a new approach to public investment to help deliver high levels of economic growth.

As the Chancellor made clear at the time, however, the Budget was not the limit of our ambition. Increasing private investment and reforming our economy are also central to realising the UK’s growth potential. That is why, last Thursday at the Mansion House, the Chancellor placed the financial sector at the heart of the Government’s growth mission and set out a plan for investment and reform. The financial sector employs 1.2 million people and makes up 9% of GVA, and it is one of the largest and most successful in the world, but we cannot take the UK’s status as a global financial centre for granted. The Chancellor therefore set out a commitment to developing a comprehensive plan to grow that financial services sector.

In the spring, the Government will publish a financial services, growth and competitiveness strategy to give the financial services sector the confidence it needs to invest for the long term. It will be published alongside our modern industrial strategy and be clear-eyed about our strengths, proposing five priority growth opportunities: fintech, sustainable finance, asset management and wholesale services, insurance and reinsurance markets, and capital markets.

In her Mansion House speech, the Chancellor also announced plans in the key area of pension funds, which the noble Baroness, Lady Neville-Rolfe, focused on. I am grateful for her supportive words about the objectives behind those reforms. As she knows, the UK has one of the largest funded pension markets in the world, but pension capital is often not used enough to drive investment and growth in our economy. Our system remains highly fragmented and pension funds cannot bring their full financial weight to bear due to limited investment in more productive assets. This holds back investment in infrastructure and for our most innovative companies.

For this reason, the Chancellor announced the publication of the interim report for the pensions investment review. The plan in the report will deliver a significant consolidation of the defined contribution market and the Local Government Pension Scheme in England and Wales, harnessing the collective size of our pension funds and creating larger funds and pools of capital. The noble Baroness asked about the timescale. A consultation on our pension reform changes opened last week and will run until 16 January. To give the market the necessary time to prepare, these changes will not apply in full until at least 2030. Local Government Pension Scheme changes are expected to be completed sooner, by March 2026, given the arrangements already in place.

The Chancellor also set out plans for reform. We will upgrade our regulatory regime across our economy, including reviewing the guidance we give to the Competition and Markets Authority and other major regulators, to underline the importance of growth. The noble Baroness, Lady Kramer, talked about the global financial crisis; I am very happy to read the reports she recommends. While it was right that successive Governments made regulatory changes after the global financial crisis to ensure that regulation kept pace with the global economy, these changes resulted in a system which often sought to eliminate risk-taking and, in some cases, had unintended consequences that we must address. Regulation has costs as well as benefits; when spending large sums on compliance, firms are not using that money to innovate and grow. It can also have costs to consumers, such as by restricting access to financial advice that could help them plan for the future.

While maintaining important consumer protections and upholding international standards of regulation, we must rebalance our approach. I think this was cautiously welcomed by the noble Baroness, Lady Neville-Rolfe. Alongside her Mansion House speech, the Chancellor issued new growth-focused remit letters to the financial services regulators to make it clear that the Government expect them fully to support our ambitions on economic growth.

The noble Baroness, Lady Kramer, asked about risk-taking. Enabling more responsible and informed risk-taking will support innovation and investment to help drive growth. Our aim is to maintain a sound and stable financial system with appropriate consumer protections while allowing businesses and consumers to make informed choices about the level of risk they take on. Protecting consumers is central to these reforms; the remit letters are clear that the regulators must maintain high regulatory standards, including to adequately protect consumers, in the process of embedding their secondary growth and international competitiveness objectives.

[Lord Birt (CB)]

My Lords, I strongly support the plan to consolidate the UK’s pension funds. However, I used to chair the investor relations committee for a major UK private equity fund and dealt with many of the world’s most illustrious and successful pension funds. Their mission, which we all understand, was to achieve assured, long-term returns for their members and to do so, in part, by managing risk and investing in not one but multiple geographies and sectors. I am unaware—though there may be examples—of any constraints placed on any of those leading funds by their Governments. What justification can there be for the Government to constrain the investment strategies of the UK’s pension funds by requiring them to focus on particular geographies—most obviously, our own—and sectors?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question and the expertise he brings to this conversation. This comes back to the issue of growth that the noble Baroness, Lady Neville-Rolfe, began with; we see these reforms as part of our wider growth strategy and want these significant consolidations and amounts of money to flow, in part, into UK infrastructure and assets to contribute towards our growth strategy. That is a key part of our investment objectives.

[Lord Desai (CB)]

My Lords, does the noble Lord agree that it is not fair to blame the present growth rate on the Labour Government? There are long and variable lags in economics, so whatever investment we make now will take some time to be reflected in the growth statistics. We all ought to calm down, let this policy go through and then see its effect, rather than immediately blaming whatever we do as having failed.

[Lord Livermore (Lab)]

I am very grateful to the noble Lord. It will not surprise anyone to hear that I agree with the sentiment behind his question. He is right that you cannot undo 14 years of damage in one Budget. Our economic strategy is based on the principles of stability, investment and reform; the Budget was about restoring stability to the public finances and therefore stability to the economy, which is the essential underpinning of any growth strategy. The Budget also talked about increasing levels of public investment in our economy; these Mansion House reforms are part of increasing private investment into our economy. The noble Lord is correct that there will be lags in that investment, but we very much hope to see growth coming through in due course.

[Lord Liddle (Lab)]

My Lords, I very much welcome the proposals on pension funds that the Chancellor has put forward. However, I have some sympathies with what the noble Baroness, Lady Kramer, said about City regulation. We must face the fact that, when the financial crisis hit us in 2008, because of the prudence of Gordon Brown as Chancellor of the Exchequer the debt to GDP ratio was less than 40%, whereas under the Conservatives over the last 14 years it has reached 100%. The chances of us being able to launch a massive rescue operation of banks in the way that Gordon Brown did with such success in 2008 will be constrained by that fact. What is the Minister’s judgment of that?

Secondly, what are the Government’s plans to improve access to finance for small and growing firms, particularly those outside London and the south-east? Lots of studies have demonstrated that growing firms find access to capital difficult. The British Business Bank is one response to that. Are the Government proposing to upscale it? That area is a key constraint on UK growth.

[Lord Livermore (Lab)]

I am grateful to my noble friend for his points. In the letter that the Chancellor sent to the chief executive of the Financial Conduct Authority, she made it very clear that the importance of competition, growth and risk-taking is to be seen in the context of its regulatory duties. She said that:

“The financial services regulators are key to driving forward”


growth;

“we must have proportionate, effective regulation that allows firms of all sizes to compete, innovate and grow, creates a stable, attractive environment which encourages businesses to establish and expand in the UK, and adequately protects consumers”.


She recognises that there are trade-offs to be made, but she would like to see a greater emphasis on achieving that secondary growth objective.

On supporting small businesses and their access to finance, my noble friend is absolutely right that, to date, the UK has been a very good place to start a business but a less good place to scale one, and access to capital is a vital part of improving that. He mentions the British Business Bank, which is incredibly important; it has been very successful in providing some of that finance, and we need to go further. Colleagues in the Department for Business and Trade will also be coming forward with proposals to help small businesses scale and grow.

[Baroness Penn (Con)]

My Lords, I welcome the inclusion in the Statement of work with tech platforms and telco networks to tackle fraud. Can the Minister confirm whether that work is just the implementation of the charter, launched about a year ago under the previous Government, on voluntary action from those companies, or whether it will move towards mandatory action if sufficient progress is not made? Can he also update the House on the implementation of the measures in the Online Safety Act to tackle fraud online?

--- Later in debate ---

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. When I first became a shadow Treasury Minister, the noble Baroness was taking through the Act that introduced the secondary objective, and we were very supportive of it at the time—I remember those debates well.

On her first question, I may have to write to her as I do not have that answer to hand. On the fraud question, the Chancellor, Home Secretary and Secretary of State for Science, Innovation and Technology have written to leading tech and telecom companies, calling on them to go further and faster with clear, demonstrable action to reduce the level of fraudulent activity that exploits their platforms and networks. This comes ahead of the legal content duties under the Online Safety Act coming into force next year. The Act requires user-to-user and search services in scope to take measures to respectively prevent and minimise illegal fraudulent content on their service, or face the prospect of significant fines.

Building on existing measures to tackle scam calls, telecom companies have also recently agreed to a second fraud charter, to help prevent the misuse of telephone networks by criminals. We will monitor this closely in the months ahead, as the Government prepare the expanded fraud strategy.

[Lord Brooke of Alverthorpe (Lab)]

My Lords, I wonder whether the Minister recalls the conversations we had, before he was in government, about the possibility of having a fresh look at PPPs—public/private partnerships—to see whether we could update them and perhaps use them in a better way than in the past. One of my concerns is that the private equity funds that we see growing on such a scale are leading to a diminution of the number of individual personal investors in stocks and shares, of the type who were encouraged in the 1980s and 1990s.

I see that we are now going to call for evidence to examine the common bond on credit unions, and I wonder whether that could have been extended to having a review of the structure on public/private partnerships. We ought to be seeing whether we could encourage a change that would allow the public to invest directly in public/private partnerships, and whether the concept should not simply operate on a national level, as originally introduced, but be moved down to local-level activities and used particularly in expanding the growth opportunities in green energy.

[Lord Livermore (Lab)]

I am grateful to my noble friend for the question. I do remember the conversations we had in the past and I am, of course, happy to continue to discuss these issues with my noble friend. He talks about partnership; it is a key part of our investment plans. Partnership between public and private investment is key to our national wealth fund, with our public sector investment leveraging greater amounts of private sector investment into exactly the kind of green technologies that my noble friend references. I understand and sympathise with the spirit behind his question, and I am very happy to continue discussions with him on that point.

[Baroness Neville-Rolfe (Con)]

My Lords, I thank the Minister for his welcome; I too look forward to a constructive relationship in the traditions of the House. Can he comment on my point about gilt yields? My concern is their impact on compliance with the Chancellor’s fiscal rules. There has been a worrying increase of about 0.5% in the gilt yields, and I was interested in his reflections—perhaps in writing—on that.

[Lord Livermore (Lab)]

The noble Baroness is kind enough to give me the opportunity to write, and I will happily do so.

[Baroness Manzoor (Con)]

My Lords, I have a very brief question. I put on record that I am the chairman of the Financial Ombudsman Service. I welcome the Mansion House speech from our perspective and, personally, the emphasis on financial reform. It is very important that there is much greater clarity around the rules and regulations that govern both the businesses and the responsibility of consumers. I am particularly concerned about the level of fraud and scam cases in the UK, which continues to rise. We have a call for input, put out by the FCA and the Financial Ombudsman Service. The Minister has already identified the importance of consumer protection, and that remains key, but are there plans to ensure that there is also much greater clarity around the responsibilities of consumers themselves, in terms of the reform measures?

[Lord Livermore (Lab)]

The noble Baroness raises a very important question and I am grateful for her support around the reforms of the Financial Ombudsman Service; she brings a great deal of expertise to it. Her point about the role of consumers is a good one, and I will write to her on that specific matter.

[Baroness Kramer (LD)]

My Lords, I pick up the issue of consumer protection that the Minister mentioned, as well as a number of other speakers. Does he recognise that the consumer duty, as it is currently fashioned by the FCA, definitely has cost for businesses—it is very box-ticking? But what it does, which very much pleases businesses, is to deny individuals who have been injured a right of private action. It is that right which allowed the sub-postmasters to challenge the abuse that they suffered. That is not available to people within the financial services sector, and quite deliberately so. Without it, essential consumer protection is, to my mind, very much undermined. Will the Minister take a look at that issue?

[Lord Livermore (Lab)]

I thank the noble Baroness for her question. She brings out quite eloquently the trade-offs that the regulator has to make across these different protections. I am happy to look at what she says, of course, but I do not believe there are any plans in that respect.