Financial Services and Markets Bill

Lord Livermore Excerpts

Report stage
Thursday 8th June 2023 Lords Chamber

Although I very much liked the suggestion from the noble Lord, Lord Bridges, of an office for financial regulatory accountability, in effect a resource such as that would need to sit underneath a committee, or committees, in order to make sure that they have the proper tools and information. I hope the Government will realise that what they have done is a step forward but that they will have to complete the process. We still have a deficit in scrutiny and accountability, and it is a deficit that matters.

[Lord Livermore (Lab)]

My Lords, I join the noble Baroness, Lady Kramer, in congratulating the noble Lord, Lord Forsyth, on persuading the Government to adopt his amendments, albeit in a slightly different form. Given the amount of regulation coming forward in the months and years ahead, and with the expertise that your Lordships’ House can offer, it was crucial that the Government extended the Commons-only provisions to include a relevant Lords committee, and we very much welcome these government amendments.

We are also pleased that the Minister included the option of a Joint Committee, as this future-proofs the legislation in the event that colleagues in both Houses feel—as does my noble friend Lord Eatwell—that such a body would provide a better form of scrutiny of the regulator’s work. As my noble friend Lady Chapman mentioned in a previous group, and as the noble Lord, Lord Forsyth, stressed further, there are still significant outstanding questions about the level of staff resource and expertise that relevant parliamentary committees will be able to draw on. Although these questions cannot be adequately addressed through the Bill, these concessions will at least safeguard the role of your Lordships’ House and enable conversations on resourcing to now proceed.

[Baroness Penn (Con)]

My Lords, the amendments in this group focus on further formalising the role of parliamentary scrutiny of the regulators. The Government agree with noble Lords that effective parliamentary scrutiny, in particular through parliamentary committees, has a critical role to play in improving the quality of regulation, as the noble Baroness, Lady Kramer, said, and the performance of the regulators overall.

The Bill, through Clauses 36 and 47 and Schedule 7, seeks to ensure that the Treasury Select Committee has the information it needs to fulfil its role, by requiring the regulator to notify the TSC when publishing any relevant consultations. However, the Government have listened to the case made by noble Lords that the important role of this House was not adequately reflected by that approach. We have therefore tabled a series of amendments which will require the regulators to also notify the relevant Lords committee when they publish a consultation. These amendments will ensure parity between arrangements for the Commons and the Lords. They also provide that, if a Joint Committee is set up in future, the regulators will be required to notify it in the same way.

I am glad that my noble friend Lord Forsyth feels that these amendments fulfil the aims of his own; that is just as well, as his amendments in Committee and on Report formed the basis for the Government’s approach—that is no coincidence. I am grateful to him for the work that he has put in on this issue and for the time that he has taken to discuss these matters with the Government.

I am also grateful to my noble friend Lord Bridges and the noble Lord, Lord Hollick, for their engagement as the chairs of the current committees in this House that look at the work of the financial services regulators. When I spoke with them, they explained how the EAC and the IRC currently split some responsibility for financial services policy, an example of which was their recent work on LDI, where the EAC focused on the work of the Bank of England and the PRA and the IRC focused on that of the FCA. The Government’s amendments would allow for the two committees to continue with that approach if they wished to do so and for a different Lords committee to receive notifications of consultations from the FCA and the PRA. That structure would be for Parliament to decide.

I shall now pick up on the concern from noble Lords about having multiple committees looking at the same issues or the work of the same regulators. As I have said, the structure is a matter for Parliament, but currently we have the TSC in the Commons, and the Economic Affairs and the Industry and Regulators Committees in the Lords, which at the moment look at various aspects of the regulators’ work without duplicating each other or creating unnecessary burdens. Given the scale of powers for the regulators being established in this Bill, there will be more than sufficient work to go round different committees, and they have already proven themselves able to co-ordinate their work so that it is not duplicative.

We have heard, given the scale of the task before us, that there is concern about the resource made available to those committees. Committee structures and their resourcing will remain a matter for Parliament to decide and I have noted that noble Lords agree that that is the right approach. However, the Government recognise that the new model for financial services regulation will require a step change in this House’s scrutiny of the regulators and agree there must be suitable resource in place to support this. The Government will work with the usual channels and the House authorities in the appropriate way.

The Government have also heard concerns about the feedback loop when Parliament engages with regulatory proposals. There can often be a significant period of time between an initial consultation and the Bill’s existing provisions regarding the regulators’ engagement with parliamentary committees, and final rules being published. In particular, the Government recognise amendments tabled by the noble Baroness, Lady Bowles, in Grand Committee, seeking to require the regulators to explain how parliamentary recommendations have been considered. The Government have therefore tabled Amendments 61 to 63, which require the regulators, when publishing their final rules, to explain how they have considered representations from parliamentary committees. This will ensure that the regulators provide a public explanation of how the views of parliamentary committees have been considered at the point when rules are made. This complements the existing requirement in Clauses 36 and 47, and Schedule 7, for the regulators to respond in writing to the chairs of committees that have made representations. This will ensure not only that regulators appropriately consider Parliament’s representations but that they set out publicly how they have done so.

The debates so far have shown that there is no single silver bullet to solve the problem of accountability. However, the Government are committed to creating an effective, overarching ecosystem in which the various different actors all play their roles in holding the independent regulators to account, ensuring high-quality financial services regulation in the UK. I am therefore grateful that my noble friend Lord Forsyth has said that he will withdraw his amendments, and I intend to move the Government’s amendments, based on those amendments, when they are reached.

Financial Services and Markets Bill

Lord Livermore Excerpts

Report stage
Thursday 8th June 2023 Lords Chamber

[Lord Forsyth of Drumlean (Con)]

My Lords, I realise that we are on Report, but I should have declared my interest as chairman of Secure Trust Bank. I understand that it is not enough to have done so in Committee; it needs to be done at each stage.

[Lord Livermore (Lab)]

My Lords, I will be very brief so as not to detain the House further. Much of the substance of these issues was debated in the previous group on Tuesday evening, when I said that we strongly support the inclusion in the Bill of the new secondary objective for the regulators of international competitiveness and economic growth.

While the introduction of this secondary objective is a positive step, it is also important to ensure that it is meaningfully considered in the regulators’ decision-making. One of the main ways of doing this is by introducing some proven accountability measures to require the regulators to report on their performance against the objective. We therefore welcome the government amendments in this group, which will provide for initial reports on implementation of the competitiveness and growth objective, as well as other provisions that seek to improve regulatory accountability.

[Baroness Penn (Con)]

My Lords, I thank all noble Lords for that constructive debate and I seek to engage only with the points that have been raised.

I agree with the noble Lord, Lord Eatwell, that high regulatory standards are a key to London’s and the UK’s competitiveness as a financial centre. That is why the growth and competitiveness objective is a secondary objective to the primary objectives already in existence. However, high regulatory standards are not the only contributor to the growth and competitiveness of our economy or the sector. The new secondary objective, therefore, has an important role to play.

To address specifically the concern expressed by the noble Lord, Lord Eatwell, on day one of Report—the noble Baroness, Lady Kramer, reflected on that again today—that the government amendments in this area somehow seek to elevate the secondary objective from its position within the hierarchy, that is not the case. These amendments reflect the fact that they are new objectives for the regulators and it is right that we have a focus on new objectives being added through the Bill to understand how they are being embedded into the operation of the regulators.

The noble Lords, Lord Vaux and Lord Davies of Brixton, asked how the reporting will take into account the fact that the objectives are secondary and how they will impact on the primary objectives. It is in the structure of the objectives that the growth and competitiveness objective can be delivered only in the context of achieving the primary objectives. That is built into the system. Each year, in addition to these two reports provided for in our amendment, there will be the annual report from the regulators looking at their delivery across all their objectives.

Several noble Lords asked whether having a report on this specific objective for just two years was the right approach. We think it strikes the balance between reflecting the new nature of these objectives and, over time, integrating them into the working of the regulators and reporting them in future annual reports. However, I point out to noble Lords that the Government have the power to specify certain matters to be addressed in those annual reports if we think it necessary in future. Under Clause 37, we also have the power to require further reporting on certain matters, so if the Government felt that further focus on the embedding of these new objectives was needed, there are powers in the Bill that would allow that to be drawn out.

My noble friends Lord Trenchard and Lord Ashcombe, and others, raised concerns about the need for specific metrics for reporting the regulators’ delivery against their objectives, as set out in my noble friend’s amendment. As noble Lords recognise, that is exactly the purpose of the Government’s current call for proposals. We do not think it is right to have the metrics in the Bill, because that would hinder the objectives that my noble friends are talking about, in terms of having the best possible set of metrics that can be adapted and updated to ensure that Parliament, industry and the Government get the information that they need on the regulators’ performance.

My noble friends Lord Holmes and Lord Ashcombe also drew attention to Amendment 92 in this group. I am aware that the speed and effectiveness with which the regulators process applications for authorisation remains an area of concern for both Parliament and industry, and the Government share those concerns. In December, the Economic Secretary to the Treasury wrote to the CEOs of the PRA and the FCA, setting out the importance of ensuring that the UK has world-leading levels of regulatory operational effectiveness. Publishing more and better data detailing the FCA and PRA’s performance is critical to meeting these aims. That is why, in their reply to the Economic Secretary’s letter, both CEOs committed to publishing more detailed performance data in relation to authorisation processes on a quarterly basis.

On 19 May, both the FCA and the PRA published their first set of enhanced quarterly metrics relating to their authorisations performance, including the average time taken to process applications. The reports demonstrate that the regulators, particularly the FCA, are making progress towards meeting service-level targets, while recognising that there are further improvements to be made on some measures. The Government will continue to monitor this data to assess performance and discuss continuing efforts to improve operational efficiency with the regulators.

I am glad to have heard the general support for the Government’s amendments in this group. As my noble friend Lord Holmes said, we drew heavy inspiration from his contributions in Committee, and those of other noble Lords.

Financial Services and Markets Bill

Lord Livermore Excerpts

Report stage
Tuesday 6th June 2023 Lords Chamber

Financial regulation ultimately requires robust rules, made in the long-term public interest. The public interest does not always align with the immediate interests of financial institutions. Tasking oversight bodies with promoting the industry they regulate fundamentally compromises their work. It is just the way the system works, and however much you may wish that the world was different, experience over many years demonstrates that that is the inevitable result of tasking the regulator with the job of promoting what they are meant to be regulating.

[Lord Livermore (Lab)]

My Lords, we do not support this group of amendments. We strongly support the inclusion in this Bill of the new secondary objective for the regulators on international competitiveness and economic growth. Its position as secondary in the hierarchy of regulators’ objectives is of course key. As a secondary objective, economic growth and international competitiveness will remain subordinate to the regulators’ primary objectives of preserving financial stability and protecting consumers. The UK’s reputation and success as a leading international financial centre depend on high standards of regulation, and a stable and independent regulatory regime. These high regulatory standards are a key strength of the UK system and its global competitiveness, so we would not support any moves towards a regulatory race to the bottom. That would negatively impact international confidence in the UK, making the UK less attractive to international businesses and investment.

The UK’s financial services industry plays a vital role in boosting economic growth and delivering skilled jobs in every part of the UK. Almost 2.5 million people are employed in financial services, with two-thirds of those jobs based outside London, and the sector contributes more than £170 billion a year to GDP—8.3% of all economic output.

The City of London is one of only two global financial capitals and is at the very heart of the international monetary system. This is an enviable position, and it is vital that we support the sector across the UK to retain this competitiveness on the world stage post Brexit so that the UK can continue to be one of the world’s premier global financial centres. It is therefore crucial that the UK’s regulatory framework plays its part in supporting this positive contribution to the UK economy and society. To do this, it must enhance competitiveness and support the industry in trading with the world, including in new markets. It must attract investment into the UK and promote innovation and consumer choice.

A secondary growth and international competitiveness objective is a simple and internationally proven way to achieve this, helping to ensure that the UK remains a leading global financial centre by empowering regulators to make the UK a better place to do business and ensuring a more attractive market for international providers and consumers of financial services. The UK is, of course, in competition with other international financial centres, and many of them, including Australia, Hong Kong, Japan, Malaysia, Singapore, the United States and the European Union, have introduced a similar objective, which they balance against financial stability and consumer protection.

In future groups we will come to topics such as investment in high-growth firms, but it is precisely by having this secondary objective on competitiveness and growth that we will create an ecosystem that supports investment in new technologies, provides much-needed economic growth and secures new jobs.

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, the new secondary growth and competitiveness objectives in the Bill will ensure that the regulators can act to facilitate medium to long-term growth and competitiveness for the first time, but a focus on competitiveness and long-term growth is not new. When the UK was part of the European Union and financial services legislation was negotiated in Brussels, UK Ministers went to great efforts to ensure that EU regulations appropriately considered the impact that regulation could have on economic growth and on the competitiveness of our financial services sector.

Now that we have left the EU, and as the regulators take on responsibility for setting new rules as we repeal retained EU law, it is right that their objectives reflect the financial services sector’s critical role in supporting the wider economy. We must ensure that growth and competitiveness can continue to be properly considered within a robust regulatory framework. As the noble Lord opposite said, a secondary competitiveness objective strikes the right balance. It ensures that the regulators have due regard to growth and competitiveness while maintaining their primary focus on their existing objectives. That is why the Government strongly reject Amendment 10, tabled by the noble Baroness, Lady Bennett of Manor Castle, which seeks to remove the secondary objectives from the Bill.

Turning to Amendment 9 from the noble Baroness, Lady Bowles of Berkhamsted, the Government agree that the UK financial services sector is not just an industry in its own right but an engine of growth for the wider economy. The current drafting of the Bill seeks to reflect that but also recognises that the scope of the regulators’ responsibilities relates to the markets they regulate—the financial services sector—so it is growth of the wider economy and of the financial services sector, but not at the expense of the wider economy. I hope I can reassure her on that point.

On Amendment 115, also from the noble Baroness, Lady Bowles, as noble Lords know, the Bill repeals retained EU law in financial services, including the MiFID framework. Detailed firm-facing requirements, such as those that this amendment seeks to amend, are likely to become the responsibility of the FCA. As such, it will be for the FCA to determine whether such rules are appropriate. When doing so, the FCA will have to consider whether rules are in line with its statutory objectives, including the new secondary growth and competitiveness objective.

Parliament will be able to scrutinise any rules that the regulators make, including pressing them on the effectiveness of their rules, and how they deliver against their objectives. Industry will also be able to make representations to the regulators where they feel that their rules are not having their intended effect or are placing disproportionate burdens on firms. I hope the noble Baroness is therefore reassured that the appropriate mechanisms are in place for considering the issues that she has raised via that amendment.

Financial Services and Markets Bill

Lord Livermore Excerpts

Report stage
Tuesday 6th June 2023 Lords Chamber

[Baroness Sheehan (LD)]

I am just about to conclude.

Global Witness, for example, recently launched a “Brazil Big Beef Watch” Twitter bot to show how simple and effective supply-chain traceability can be. Therefore, due diligence requirements are not an onerous ask and are long overdue. It is deplorable that indigenous people are on the front line in defending against deforestation. Some 40 people per week are killed in the process. This must stop. I think I speak for our Benches when I say that should the noble Baroness, Lady Boycott, seek the opinion of the House on her amendment—we hope that she will—we will give it our wholehearted support.

Amendments 93 and 113 on fiduciary duty have been covered extensively by the noble Baronesses, Lady Hayman and Lady Drake, and by other noble Lords across the House, so I need say very little other than that we are in full support of them.

[Lord Livermore (Lab)]

My Lords, this has been a fascinating if somewhat disheartening debate, and I have learned much listening to the contributions from noble Lords on all sides of the House.

We welcome the tabling of government Amendment 4, which brings forward new provisions relating to sustainability disclosure requirements, but we agree with the views expressed across the House, particularly as set out by the noble Baroness, Lady Hayman, arguing that the Bill simply does not go far enough in supporting the country’s green ambitions.

We support many of the amendments in principle but particularly Amendment 15 in the name of the noble Baroness, Lady Hayman, and Amendment 91 in the name of the noble Baroness, Lady Boycott, the latter having been signed by my noble friend Lady Chapman.

The financial services sector touches many more aspects of our lives then we may sometimes realise, with firms’ investment decisions having a direct impact on virtually all sectors of the economy. This activity can, and often does, do much that is good. For example, if we are to secure the green jobs of the future, businesses will need investment. But, as we see in some cases, such as investment activity that leads to deforestation, there can be severe negative environmental impacts. In a recent poll cited by Global Witness, 77% of UK savers said they would be unhappy to discover that their pension was funding deforestation and habitat loss, with 14 million people estimated to switch pension provider if they made such a discovery. However, as Amendment 7 highlights, there is currently no way for the public, nor indeed the Government, to tell if their money is invested in that way, and therefore no way for consumers to exercise choice. That surely cannot be right.

Amendment 91 would implement recommendations from the Government’s own Global Resource Initiative taskforce in relation to deforestation, a practice which causes significant harm to global climate ambitions, as well as to indigenous peoples who are evicted from their ancestral homes. We are told by the Government that they are serious about achieving net zero and protecting nature, yet, at present, the net-zero regulatory principle still fails to mention nature, which is what Amendment 15 would correct. Indeed, nature is not even mentioned in the Bill. As the WWF rightly points out, by excluding nature from this key financial services legislation, the UK will fail to secure opportunities that could make the UK a leading green finance centre, while exposing the country to nature-related risks.

We should also give serious weight to the intervention of Professor Sir Partha Dasgupta, who led the Government’s review of the economics of biodiversity, when he urges the Government to support the amendment. He says:

“We need to empower those in charge of regulating our financial system to support the sector to arrive at a nature-positive destination by recognising the value of natural capital and the significant social and economic benefits restoring nature presents”.


We are losing nature at an alarming rate, and these issues are only going to become more urgent. We have missed opportunities to act in the past, and we cannot continue to make the same mistakes. We therefore urge the Government to think again on these important areas, but if they are not willing to do so, we will support the noble Baronesses, Lady Hayman and Lady Boycott, should they choose to push their amendments to a vote.

[Baroness Penn (Con)]

My Lords, let me first take Amendment 15, from the noble Baroness, Lady Hayman. I reassure noble Lords that the regulators already consider issues related to sustainability, and specifically nature, as part of their work under their existing objectives. For example, the Government and the regulators are active participants in the work of the Taskforce on Nature-related Financial Disclosure, which we have heard about, which helps organisations to report and act on evolving nature-related risks; and the Bank of England is a key member of the Network for Greening the Financial System, which recently launched a task force on nature-related risks.

The noble Baroness listed the work that is happening and the various commitments, and I interpret that to mean that the lack of the reference to nature in the framework does not equal a lack of action by either the Government or the regulators. I understand the desire of noble Lords to see that reflected in the framework in the Bill. However, further work needs to take place to better understand the interaction between nature targets and the work of the financial services regulators when including it in regulation, and the conclusions of that work are not yet clear. Moreover, equivalent targets to those in the Environment Act for England and Wales in 2021 do not yet exist in the other devolved Administrations, so we remain of the view that it would not be appropriate to place a requirement within the FSMA regulatory principles without the clarity I spoke about, or to impose requirements that link to targets that do not yet exist; so unfortunately, the Government are unable to support the amendment.

Turning to Amendment 91 in the name of the noble Baroness, Lady Boycott, the Government are committed to working with UK financial institutions to further tackle deforestation-linked finance. As set out in the updated green finance strategy, we will begin this work with a series of government-convened round tables this year, and I am keen to work with noble Lords on this process.

As we discussed in Committee, the amendment we are considering today would involve imposing requirements on all regulated financial services firms, obliging them to undertake due diligence on practically all their client firms and their clients’ supply chains. In practice, this would amount to UK banks being required to check most of the world’s major companies and their supply chains for links to illegal deforestation, and stopping any finance to them until those companies can provide the data needed to do so. This is while the rest of the world’s banks carry on financing this activity with no global standard on deforestation in place.

Global due diligence is not something that can be legislated for by Parliament and the UK financial sector alone. In fact, trying to do so may make this problem harder to solve. Imposing this data requirement on UK financial firms alone where such data is lacking globally could lead to one of two things: firms trying to satisfy the requirement but failing due to a lack of data, leading to misreporting and misallocations of capital; or keeping that business outside the UK, with no chance of securing the type of environmental change we want and that is the aim of the amendment.

The Government therefore want to find a workable solution, and we are pursuing a number of different lines of action to do so, in addition to the commitment we made to work with UK financial institutions in the green finance strategy. First, we are directly addressing deforestation in situ by our partnerships approach. The Government launched the forest and climate leaders’ partnership at COP 27, and also fund the partnership for forests, which has channelled more than £1 billion of private investment into forests and sustainable land use, and brought more than 4 million hectares of critical landscapes under sustainable land use.

Secondly, the Government are working to address due diligence for illegal deforestation using the Environment Act. The most relevant UK businesses that use forest-risk commodities or products derived from them will be required to ensure those products are produced in compliance with relevant local laws. Thirdly, the Government are supporting the development of a coherent international approach on disclosure and management of nature-related risks and impact.

Since our debate in Committee, the Taskforce on Nature-related Financial Disclosure has published its latest draft framework. This now includes recommended metrics and associated governance strategies for businesses to understand and mitigate deforestation in areas of direct or indirect operational control. We committed in the green finance strategy to explore how the final TNFD framework should be incorporated into UK policy and legislative architecture, and we will start this work later this year, once the final framework is published.

I personally made the case to the International Sustainability Standards Board, while at COP 15 in Montreal, that such standards should be considered for integration into its work. If that happens, global standards are genuinely within reach. I acknowledge that TNFD or any subsequent global standards do not prohibit the financing of deforestation in itself but, as a disclosure framework, it is the bedrock for action, both by incentivising firms to take action on the risks that they identify and allowing the Government to consider taking further regulatory action after the establishment of such a disclosure framework. I hope, therefore, that I have explained why the Government cannot accept the amendments, but have also demonstrated that effective action is under way to address noble Lords’ concerns in these areas.

Turning to Amendments 93 and 113, also from the noble Baroness, Lady Hayman, in the updated green finance strategy, the Government have already recognised that decisions about investing in the context of systemic risks such as climate change and biodiversity loss are complicated, in particular for pension funds. The Law Commission’s 2014 report suggested that fiduciary duties mean that non-financial factors can be considered as part of investment decisions if trustees have good reasons to think their members share their concerns and if such decisions do not involve a risk of significant financial detriment to the fund.

However, the Government recognise that trustees would like further information and clarity on their fiduciary duties in the context of the transition to net zero, and that is why we are taking steps to ensure that such clarity is forthcoming. Later this year, DWP will examine how closely its stewardship guidance is being followed, including whether incorrect interpretations of fiduciary duties are playing a role in this area. The financial markets and law committee, which includes representatives from both DWP and the Treasury, is working to consider issues around fiduciary duties and sustainability and whether further action or clarity is needed.

Tourist Spending: VAT

Lord Livermore Excerpts

Wednesday 24th May 2023 Lords Chamber

[Baroness Penn (Con)]

My Lords, I would say to the noble Lord that the Government have looked very carefully at the Oxford Economics analysis, and we do appreciate that some of the costs would be offset by higher visitor numbers and their spending. However, the OBR’s and the Government’s previous analysis suggested that the offset was marginal and the policy still comes with significant fiscal costs. One of the key differences between the Government’s costings and those produced by Oxford Economics is the assumptions around additional visitor numbers, with the OBR estimating that VAT-free shopping could bring in 50,000 to 80,000 additional visitors and the industry commission report suggesting 1.6 million additional visitors.

[Lord Livermore (Lab)]

My Lords, major UK tourist attractions last year saw 38 million fewer visitors than in 2019—a 23% fall—suffering first from lower international tourism because of the pandemic and then lower domestic tourism because of the cost of living crisis. Many of the UK’s seaside towns, already neglected, and with tourist spending in long-term decline, have suffered particularly badly. I ask the Minister what steps the Government are taking to support the regeneration of our seaside towns.

[Baroness Penn (Con)]

The noble Lord makes an important point. We have taken steps during the pandemic to provide support for those towns that rely on tourism; £37 billion of support went to tourism, leisure and hospitality in the form of grants, loans and tax breaks. We have the tourism recovery plan, which is focused on both international visitors and domestic tourism within the UK. We also have the towns fund, which is specifically focused on helping regenerate towns, including many of the seaside towns that do not tend to benefit from the bigger-city deals.

UK-EU Relationship in Financial Services (European Affairs Committee Report)

Lord Livermore Excerpts

Wednesday 17th May 2023 Grand Committee

[Lord Livermore (Lab)]

My Lords, I congratulate the noble Earl, Lord Kinnoull, on his opening speech. I thank him and the European Affairs Committee for their report into the UK-EU relationship in financial services. Although published nearly a year ago, it is a testament to the quality of the report that it is, as the noble Baroness, Lady Kramer, said, still just as relevant today as it was then.

I have recently returned to your Lordships’ House from a leave of absence, during which time I was working in the European banking practice at McKinsey & Company, so it feels particularly appropriate that this should be the first debate I take part in in my new role. It is a pleasure to speak alongside so many noble Lords who have such expertise in this subject. This has been a very interesting debate, which I have greatly enjoyed listening to and from which I have learned much.

The committee’s report rightly begins by highlighting the importance of the financial services sector to the whole of the UK economy. It notes that, as many noble Lords have said, the sector is a major employer,

“employing 2.3 million people and making up 10% of total UK tax receipts”.

Indeed, in the year since the report was published, employment in financial services has increased substantially to almost 2.5 million, with two-thirds of those jobs based outside London. The strength and stability of our financial services sector continues to be of profound importance to our economy, with the sector contributing more than £170 billion a year to GDP—8.3% of all economic output.

The report goes on to note:

“The UK’s financial services sector is not only significant to the domestic economy; it is also vital for the functioning of the wider global economy”.


As the noble Earl, Lord Effingham, noted, the committee highlights the City’s location:

“Driven by its location, bridging time zones between the major financial services centres in East Asia and the Americas, and lying in close proximity to the EU, the world’s largest trading bloc, the sector plays a pivotal role in the world’s financial markets. Its participants ‘benefit from an ecosystem recognised for its openness, global connections and a culture of collaboration’”.


In my view, we should be immensely proud of this picture that the committee paints—proud that our capital city is one of only two global financial capitals and is at the very heart of the international monetary system. I quote from the opening chapter once more. It says that

“London has developed ‘the largest financial services cluster in the world’, having ‘the deepest and broadest capital market in Europe, if not one of the two premier capital markets in the world’, and an insurance market ‘bigger than all of its competitors combined’”.

This is an enviable position. As my noble friend Lord Liddle said, it is vital that we support the sector across the UK to retain its competitiveness on the world stage, so that the UK can continue to be one of the world’s premier global financial centres.

The noble Lord, Lord Bilimoria, mentioned many of the statistics; I will pick just a few. The report highlights that the financial services sector is a major contributor to the UK’s international trade, comprising 19.1% of all UK services exports, and that the European Union is a vital part of this trade, making up some 37% of the total—the second-largest market for UK financial services exports after the US.

However, the value of this trade has been steadily falling. Since 2018, it has fallen by 19%, with little corresponding progress in securing trade deals for our financial services around the world. As focused on by the noble Lord, Lord Desai, in his speech, the committee’s report examines the impact on the financial services sector of the UK’s exit from the European Union. It details that some firms have had to make operational and structural adjustments to continue to conduct business between the UK and EU. In evidence given to the committee, the think tank New Financial stated that

“nearly 500 firms based in the UK have responded to Brexit in some form by relocating part of their business, staff, legal entities, or capital to the EU”.

Evidence to the committee identified that 7,000 financial services jobs have left the UK to move to the EU, with witnesses expressing concern about the opportunity cost of Brexit to the UK’s financial services sector: that new jobs may in future be created in the EU that might once have been created here. The committee therefore

“warns against complacency in this regard, as it is not yet clear whether the impact of Brexit on employment has fully played out”.

The EU will always remain an important market for many UK financial services firms, and we must prioritise strengthening the UK-EU business relationship in the interests of the City and our country. Looking ahead, it was extremely welcome to read in the report that so many witnesses were optimistic about the future outlook for the financial services sector. The report notes that London has retained its position as the world’s second-largest financial centre and the most important in Europe. It also states that

“there was a strong sense … that the sector has retained its resilience”.

However, I was particularly interested to note the observations made by the noble Lord, Lord Hill, in his evidence, urging us to look further afield and that international competition to the City’s pre-eminence will come not from within the EU but from the rest of the world.

Given how much has happened since this report and the Government’s response to it were published—we are now near the end of the passage of the Financial Services and Markets Bill, and the Government have announced the Edinburgh reforms—I would be grateful to the Minister if she could set out the action the Government are taking both to boost financial services exports and to support the competitiveness and international position of the sector more generally.

The main substance of the committee’s report examines four main areas: equivalence, regulatory co-operation, regulatory reform and divergence, and future opportunities for the sector. In chapter 2, the committee focuses on equivalence, noting the absence of EU equivalence decisions. It heard evidence that although some of the missing equivalence decisions would be mutually beneficial for the UK-EU trading relationship, the sector does not seem to view either their absence or the competitive imbalance compared with other third countries as a matter of fundamental concern. Given that equivalence decisions are unilateral in nature, I agree with the committee’s conclusion that relying on a process governed by others is not a suitable strategy for the long-term health of the financial services sector.

In chapter 3, the committee regrets that although the UK and EU committed to it alongside the trade and co-operation agreement, a memorandum of understanding on regulatory co-operation has still not been signed. I share the committee’s concern in this regard. As my noble friend Lord Liddle noted, the collapse of Silicon Valley Bank and Credit Suisse highlights the importance of regulators working closely with their international counterparts, both in the EU and beyond, in order to respond to market events and maintain as much confidence in the system as possible.

We should listen to the concerns of our world-class financial and professional services firms, negotiate for mutual recognition of professional qualifications for our services sector, and finalise a memorandum of understanding on regulatory co-operation. The Government’s response to the committee’s report stated that they are ready to sign the MoU, yet it has still not been signed almost a year later. As the noble Viscount, Lord Trenchard, and other noble Lords asked, I would be grateful if the Minister could update the Grand Committee on progress on this. The report goes on to consider the issues of regulatory reform and divergence. The committee’s recommendations in this area pre-date the Financial Services and Markets Bill, but their observation that the Government should weigh up the benefits of divergence against the costs of implementing new rules is notable.

Clearly, regulatory divergence has the potential to produce opportunities for the sector, such as reform of Solvency II to unlock capital for investment in the green transition. But we should continue to take an intelligent approach to regulation, not diverging for its own sake, and, where it makes sense to remain aligned with the EU on banking regulation, we should continue to do so.

The final chapter of the report focuses on future opportunities for the sector. I endorse the committee’s view that fintech and green finance provide significant opportunities for the UK economy, and it is vital that we benefit from the gains in productivity that these areas can bring. As the noble Lord, Lord Holmes of Richmond, said, the UK today remains a top destination for fintech investment, attracting £10 billion of investment in 2022. This is second only to the US and more than all of the next 10 European countries combined. The strength and resilience of our financial services sector, our reputation for high regulatory standards and legal services, our world-leading universities and our access to a highly skilled workforce all come together to make Britain the destination in Europe to invest in fintech. Our goal now should be to make Britain the best place to start and grow a fintech company, not just in Europe but in the world.

As it is so relevant to so many areas that the committee focuses on, I end by endorsing some of the closing words of the committee’s report:

“We … urge the Government not to disregard the importance of a cooperative and constructive UK-EU relationship in financial services.


Once again, I thank the noble Earl, Lord Kinnoull, and the European Affairs Committee for their report. It is an excellent document, which still has much to contribute to this ongoing debate.

Energy Profits Levy

Lord Livermore Excerpts

Tuesday 9th May 2023 Lords Chamber

[Baroness Penn (Con)]

My noble friend is right. That is why the Government have always sought to deliver a balance between a fair return for the UK from the use of its resources and providing the right conditions to attract investment in the North Sea. That is why we have the investment allowance in the EPL that provides an additional incentive for companies to reinvest profits in the UK. On the point about environmental impact, the level of tax relief available for upstream decarbonisation expenditure was increased from January this year to incentivise companies for the cleaner production of oil and gas.

[Lord Livermore (Lab)]

My Lords, the Government’s energy levy leaves billions in excess profits on the table while many households struggle through an unprecedented cost of living crisis. Only last week BP announced quarterly profits of over £6 billion while Shell recorded a quarterly profit increase of 22%, handing a further £5 billion to shareholders and now allocating more to dividend payments alone than to its entire investment in renewables. Given that, and with households and small businesses facing sky-high energy bills, how well does the Minister think the current levy is working?

[Baroness Penn (Con)]

I welcome the noble Lord to the Front Bench. He referred to figures that are the global profits of companies. As I have said to his noble friend, the UK applies its windfall tax to UK profits, and I think that is the Labour proposal also. Abolishing the investment allowance would be counter-productive. As I have said, the UK is still reliant on gas for its energy supply. Reducing incentives to invest would lead to investors pulling out of the UK, damaging the economy, causing job losses and leading to lower future tax revenue—tax revenue that we have used to put in place unprecedented cost of living support to families, which is still going out to households at the moment, so that those who are worried about their bills who are on low incomes and means-tested benefits can look forward to more support coming from the Government over the next year.

Budget Statement

Lord Livermore Excerpts

Tuesday 14th March 2017 Lords Chamber

[Lord Livermore (Lab)]

My Lords, this was a Budget of broken promises that has left Britain’s economy weaker, less resilient and unprepared as we approach the biggest challenge faced by our country in decades. It contains no plan to deal with the difficult journey that now lies ahead, but it breaks binding manifesto commitments on our nation’s finances, on working people’s incomes and on our ability to trade with the biggest market in the world.

On 14 April 2015, the then Prime Minister, David Cameron, launched the Conservative Party’s election manifesto. In his speech, he said that,

“by 2018 we’ll be running a surplus”,

but,

“not through tax rises on you and your family”.

Yet last week the Chancellor of the Exchequer, elected on that manifesto, not only confirmed that we would not, as promised, be running a surplus in 2018 but revealed that, far from keeping his promise not to raise taxes for working people, he would now break that promise too.

At the last general election, we were told by the Government that reducing debt and eliminating the deficit were the most important challenges facing our nation. Indeed, their manifesto described failure to do so as,

“more than an economic failing; it would be a moral failing”.

Yet, since then, the Government have failed to meet a single target on debt or deficit reduction.

On debt, the Chancellor told us in his Budget Statement:

“Britain has a debt of nearly £1.7 trillion”,


that it would rise to 86.6% of GDP this year, and would peak at 88% next year. On the deficit, immediately after the last general election, the Government delayed their target date for running a surplus from 2018 to 2021. Now, in this Budget, they have abandoned any attempt at all to close the deficit during the lifetime of this Parliament. As the Chancellor said,

“borrowing over the forecast period is still set to be £100 billion higher than predicted at Budget 2016”.

He is now not on course to achieve his fiscal objective of eliminating the deficit until 2026—a full 15 years after George Osborne started to raise taxes and cut spending. Even that the IFS describes as “a substantial challenge”, meaning that Britain is now facing a third consecutive Parliament of austerity.

The Government have failed to meet their central manifesto commitment on our nation’s finances. As a result, in this Budget, they have also broken their promise not to raise taxes for working people. The Prime Minister and the Chancellor stood for election on a manifesto that, on four separate occasions, without qualification, pledged not to raise national insurance contributions. During the general election campaign, this promise was described as a five-year tax lock with no national insurance rises and as a vow. Yet, in this Budget, the Chancellor has increased national insurance for the self-employed by 2%—a £2 billion tax rise that will cost 2.5 million people an average of £240 per year.

These manifesto commitments—to run a surplus and not to raise taxes—have been broken because the mandate won by this Government less than two years ago has now been trumped by their determination to pursue the hardest of Brexits. Indeed, in his Budget Statement, the Chancellor was largely silent on the Government’s third broken manifesto promise; their promise to safeguard Britain’s economy inside the single market. But the alternative path that they have now set us on, to pull Britain out of the single market, discarding our membership of the largest trading zone in the world, is now clearly putting our economy at risk.

Last November, the Autumn Statement revealed the first instalment of the bill that we will have to pay for leaving the European Union. Now, having taken account of the Government’s negotiating position, the OBR concludes that after Brexit,

“our trading regime will be less open than before”,

and has spelled out the further damaging consequences.

While the Chancellor sought to focus attention on this year’s growth number, the OBR has revised down its growth forecast for every subsequent year from 2018 to 2021. By the end of the forecast period in 2022, the economy is expected to be even smaller than in the downgraded forecasts in the Autumn Statement. The OBR stated that cumulative growth over the forecast as a whole is weaker than in November.

The fundamentals of our economy are also weakening. The OBR forecasts lower business investment, and a savings ratio back to the low levels last seen before the financial crisis. Average productivity growth has been downgraded again to just 1.3%, while nominal pay growth has been revised down from the second quarter of 2018 onwards. The inflationary impact of the devaluation of sterling means that real earnings are now set to fall and will return to their pre-crisis peak only in late 2022—15 years after the pay squeeze began. According to the Resolution Foundation, this is the worst decade for pay growth for 210 years, and it will be those who can afford it least who will suffer the most.

The large and regressive benefit cuts due in the coming year could see a single-earning couple with two children lose £1,630 a year from 2021. The Joseph Rowntree Foundation estimates that, by the end of this Parliament, a working family of four on universal credit will be over £1,000 worse off than they were expecting in 2015. This combination of low pay growth and benefit cuts means that the next four years will be even worse for the poorest third of households than the four years following the 2008 financial crisis. The British people did not vote to make themselves poorer. But that is precisely what this Budget will deliver.

In his introduction to the Conservative’s 2015 election manifesto, David Cameron said:

“Our friends and competitors overseas look at Britain, and they see a country … on the rise … But our national recovery … is fragile, and with the wrong decisions, it could easily be reversed”.


Much has happened since he wrote those words and the Government have indeed taken the wrong decisions. They have taken the decision not to prioritise the national economic interest, but to take Britain out of the single market and make Britain less prosperous as a result. Our friends and competitors overseas now look on not with envy, but with astonishment at this act of national self-harm. In this Budget we begin to see the likely consequence of this decision: an economy in decline and ill prepared for the very real challenges that lie ahead.