Defence Funding

Lord Pitt-Watson Excerpts

Thursday 17th September 2026 Lords Chamber

[Baroness Foster of Oxton]

To ask His Majesty’s Government whether they plan to reduce the welfare budget to fund defence.

[The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)]

The Government’s commitment to the defence of this country is absolute. We have the third-highest absolute expenditure on defence among our allies. We will honour our NATO commitment of 3.5% by 2035. In direct answer to the question from the noble Lord, Lord Bellingham, we will set the target date in the spending review for 3%. We are also committed to bear down on the welfare bill, but not by arbitrarily punishing those who depend on it. Finally, I note, and I hope the House understands this, that these two issues are not inextricably linked and that it is a danger if politicians suggest that we need to make false choices.

[Baroness Foster of Oxton (Con)]

My Lords, I thank the Minister for his reply, but the fact is that the welfare bill is heading towards £350 billion. The total income tax take last year was £330 billion, with public sector debt reaching 94% by mid-2026. In the last Government, Sir Keir Starmer could not persuade his Back-Benchers to reduce the welfare bill by £5 billion per annum. So, I ask the Minister: can we assume that this Prime Minister will also continue to put social security before national security in order for his Members of Parliament to hang on to their parliamentary seats?

[Lord Pitt-Watson (Lab)]

My Lords, that is exactly the sort of false choice that we need to guard against. We want to be clear that we spend the welfare budget well. That is why we have the Timms review on PIPs and why we have the Milburn review on NEETs and getting a system for getting people back to work.

Since it was quite a long question, I would like to tell noble Lords about fraud. By the end of this Parliament, the Government will be saving £4.3 billion on fraud in the welfare system that they inherited. I think they learned from the noble Lord, Lord Agnew, a Conservative Peer and one of my predecessors, who stood at this Dispatch Box and said that it was arrogance, indolence and ignorance that was stopping us bearing down on it and that he hoped his resignation would make someone do something about it. We are and we will.

[Lord Beamish (Lab)]

My Lords, first, I apologise to the House for sounding like a broken record, but does my noble friend agree with me that the Benches opposite should have a bit of humility? When they were in government, from 2010 to 2016, they cut the defence budget by 16%, made members of our Armed Forces compulsorily redundant, leading to the smallest standing Army since Napoleonic times, and, in collusion with their Liberal Democrat coalition partners, delayed the implementation of the replacement of the nuclear deterrent, adding billions to the cost. Does my noble friend also agree that the choice they are putting forward between defence and welfare is a false one and that they need to explain how they would get money out of the welfare budget, not in the future but today, to reinforce the defence budget?

[Lord Pitt-Watson (Lab)]

I completely agree with those statements. Let us recognise that in 2025 this Government committed to the largest sustained increase in defence spending since the end of the Cold War, after years, as my noble friend pointed out, of decline. I hope I will have an opportunity to come back and talk about the welfare budget and the Conservative proposals for it later on in Questions; I should allow time for that.

[Lord Bruce of Bennachie (LD)]

Is it not unfortunate that the Conservatives, who are in no way blameless for the parlous state of the public finances, are arguing the case for defence on the basis of saying that the people who should bear the burden of topping up the defence budget are the poorest, the most disabled and the most disadvantaged? That, of course, is the Conservative Party in a nutshell. Does the Minister recognise that the sooner the Government deliver clearly how they are going to achieve the 3%, so that procurement can start now, the sooner we can have a sensible debate on benefit priorities?

[Lord Pitt-Watson (Lab)]

As I said, the 3% timing will be declared at the spending review. I do not want to do all the criticising of other parties, actually; I am trying to maintain a collegiate House. But I do remember, a couple of weeks ago, the right reverend Prelate the Bishop of Coventry talked about old people, who she said were of “immeasurable worth”. Everyone is of immeasurable worth. Of course we need to talk about big numbers for defence and welfare, but real people depend on welfare and those real people are of immeasurable worth. That should inform our debate.

[Lord Altrincham (Con)]

How should our adversaries interpret the Treasury’s defence stance?

[Lord Pitt-Watson (Lab)]

That the Government have an absolute commitment to the defence of this nation; that we already have the third-highest absolute expenditure among our allies; that we will honour our NATO commitment of 3.5% by 2035 and set a target for 3% on defence at the spending review; and that in 2025 we committed to the largest sustained increase in defence spending since the end of the Cold War. That is not bad.

[Lord Dannatt (CB)]

My Lords—

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[Lord Dannatt (CB)]

My Lords, does the Minister agree that progress towards the 3% and 3.5% targets for defence spending can best be described as glacial? Will he undertake that the Treasury will look at imaginative ways of funding defence, in particular the innovative contribution that small and medium-sized enterprises can make, along with their access to private funding? It does not all have to come from the Treasury.

[Lord Pitt-Watson (Lab)]

I think the reference to private companies and what defence spending can do for the economy is very important. If I have my figures right, the additional investment we will be making will create 60,000 more jobs in the private sector. So we are aware of this important point and I thank the noble and gallant Lord.

[The Lord Bishop of Leicester]

My Lords, the best causally identified route of the rise of populist parties and extremist groups in this country is poverty, alongside deindustrialisation, austerity and perceived community decline. Does the Minister agree that the duty of a Government to protect their citizens includes protecting them from internal threats as well as external ones?

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[Lord Pitt-Watson (Lab)]

I think I have made the Government’s position on that reasonably clear. Let us just look at the proposal we have, for example on housing benefit, from the party opposite to take £4 billion off the budget, which is something like £13.5 billion or £14 billion. Have we thought about how many people that would make homeless? Have we thought about how many of them would then turn up, of course with the right to be housed if they have children? Noble Lords can hear where I am coming from.

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, could my noble friend and fellow Scotsman give us a few examples of sensible savings that the Government are making to our welfare budget?

[Lord Pitt-Watson (Lab)]

Yes. I would answer that by saying that £4.3 billion will be saved as a result of the biggest crackdown in a generation. I thank the noble Lord, Lord Agnew, for his passion on that when he stood at this Dispatch Box. We are responding to his call to take action.

Government Debt

Lord Pitt-Watson Excerpts

Wednesday 16th September 2026 Lords Chamber

[Baroness Neville-Rolfe]

To ask His Majesty’s Government what plans they have to reduce the £110 billion annual interest bill for servicing Government debt.

[The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)]

My Lords, this Question about the Government’s interest bill is a really good one: £1 in every £10 of government money is now spent paying interest. There are three elements causing this. One is the overall level of borrowing, and consistent, disciplined fiscal rules that are kept to are, we believe, the right answer. There is also the growth in global interest rates, for example following quantitative easing. We are also living in an extremely uncertain world, particularly in the Persian Gulf. The third element is the premium that the UK now pays over the G7 average—a premium that has been apparent since September 2022. Again, the best remedy for that is sustained fiscal discipline, including respecting the independence of the Bank of England in particular and, of course, the Office for Budget Responsibility.

[Baroness Neville-Rolfe (Con)]

My Lords, as most of us agreed in my noble friend Lord Bridges of Headley’s debate last week, we need to be honest about the trade-offs that we face, given the sheer scale of our national debt and the moron premium on our gilts, which the Minister mentioned. I believe that the only way to avoid a financial crisis is to reduce spending. Does the Minister agree?

[Lord Pitt-Watson (Lab)]

Overall fiscal discipline is the central question. Discipline is really important. The noble Baroness mentioned the moron premium. I do not know whether all noble Lords understand what that term refers to: it was a slight by an economist describing the behaviour of the team responsible for the September 2022 mini-Budget. To give a sense of the cost, it is £15 billion a year. I think we have learned lessons from that. When I spoke in the debate last week, speakers from across the House agreed that fiscal discipline, independent oversight and not moving the goalposts were critical. The balance of spending on tax might be something on which we disagree, but on fiscal discipline we agree entirely.

[Baroness Kramer (LD)]

My Lords, under the 2026-27 Treasury remit to the Debt Management Office, index-linked gilt issuances will account for 9.3% of total new gilt issuances. Why was this decision made when a quarter of UK gilts are already index-linked well above the international norms, when we are in a period of inflation and rising interest rates, and when defined benefit plans—the schemes which had a hedging rather than a speculative use for index-linking—are rapidly disappearing? Does this make any sense?

[Lord Pitt-Watson (Lab)]

The Debt Management Office is part of the Bank of England. I would be more than happy to write to it, or the noble Baroness herself might wish to write for the answer to her question.

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, are the Government going to join the defence, security and resilience bank to enable us to borrow money at lower interest rates for defence spending?

[Lord Pitt-Watson (Lab)]

Let me write to my noble friend to make sure that my reply is accurate. However, I believe that matter is under discussion.

[Lord Londesborough (CB)]

My Lords, is not the real problem here our chronic dependency on borrowing? Debts have tripled over the past 20 years in spite of our fiscal rules. Has the Minister found the time to read the insightful report of the Economic Affairs Committee on our fiscal architecture—45 pages, 22 sparkling recommendations and available in all good print offices? It poses the key question: “Is our fiscal framework fit for purpose?”, to which the answer, in brief, is “No, it’s not”. How much does that concern the Minister?

[Lord Pitt-Watson (Lab)]

I have read that document. I point out that, in 2025-26, our borrowing will be the lowest for six years and for the first time since 2004 we are projected to borrow less than the OECD average. As regards external evaluation of the fiscal rules, I will read from the IMF’s 2025 Article IV report, which said that

“the plans that have been put forward by the UK Treasury strike a good balance between providing favorable conditions for growth, and the emphasis on public investment is welcome in that regard and safeguarding fiscal sustainability”.

[Lord Redwood (Con)]

My Lords, since September 2022, there has been a big sales programme of longer-dated bonds by the Bank of England to drive up longer-term interest rates. Can the Minister tell us how much, over the past two years, the Government and Treasury have had to send the Bank of England to cover the enormous losses they have heaped up by selling these bonds at low prices needlessly?

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[Lord Pitt-Watson (Lab)]

I do not have those figures offhand. I could write to the noble Lord but I think they are publicly available.

[Lord Barber of Chittlehampton (Lab)]

My Lords, generating growth is the key to paying off interest and reducing the debt. The Government are doing good work on that across the economy. I hope that they will not forget public sector productivity as part of generating growth. As a Government, we spend £3.5 billion every day. Is the Minister encouraging the Treasury to focus on getting value for every one of those tax pounds?

[Lord Pitt-Watson (Lab)]

My noble friend Lord Barber is absolutely correct on this; indeed, he has huge expertise in the area. Too often all of us, from all parties, announce inputs and do not think about outputs. On the question of public sector productivity, I am not even sure that we measure outputs correctly.

[The Lord Bishop of Hereford]

My Lords, a recent report by the Institute for Public Policy Research projects that debt interest payments will increase from the current 10% of revenue to 20% by 2075. The decisions that we take today about taxation and spending should be taken with regard to our moral obligations to the generation that follows us. What assessment have the Government made of the extent to which today’s debt interest payments transfer the burden of current spending to future generations of taxpayers?

[Lord Pitt-Watson (Lab)]

There are numbers that can project out for 50 years and which would leave future generations with a potentially very large debt. They are, of course, extremely sensitive figures. The first thing that the Government have to do is to have the fiscal discipline that brings the debt down. As I said, last year we had the lowest borrowing for six years, and for the first time since 2004 we are projected to borrow less than the OECD average. I hope that is at least a start, and we can go on to think about where we go to 2070 as we move forward.

[Baroness Altmann (Non-Afl)]

My Lords—

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[Lord Pitt-Watson (Lab)]

I apologise if I have made an error. If the noble Lord could send me those paragraphs, I would find that very helpful. As he knows, he is talking to a rookie Minister here, and I apologise.

Financial Services and Markets Bill [HL]

Lord Pitt-Watson Excerpts

3rd reading
Tuesday 15th September 2026 Lords Chamber

Northern Ireland and Scottish legislative consent sought. Relevant documents: 2nd and 8th Reports from the Delegated Powers Committee.

[The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)]

My Lords, I begin by making a short statement on the position regarding legislative consent on the Bill. Legislative consent from the Northern Ireland Assembly and the Scottish Parliament is required for Clauses 49 and 51, which concern crypto assets and their seizure and recovery by UK law enforcement. These relate in part to matters that are devolved matters in respect of Scotland and transferred matters in respect of Northern Ireland. The Government have written to the Northern Ireland Executive and the Scottish Government on this matter and my expectation is that these issues will be fully addressed during the Bill’s passage in the other place. We remain committed to sustained engagement with the devolved Governments for the remainder of the Bill’s passage.

Clause 16: Requirements to have regard to the regulatory principles

Amendment 1

Moved by

[Lord Pitt-Watson]

1: Clause 16, page 21, line 17, after “principles” insert “and the climate and environment regulatory principle”
Member’s explanatory statement
This amendment would require the FCA to have regard to the climate and environment regulatory principle (as defined in the amendment in the name of Lord Pitt-Watson to clause 16, page 21, line 39) when discharging its general functions.

[Lord Pitt-Watson (Lab)]

My Lords, in moving Amendment 1 I will also speak to the other government amendments tabled in my name.

At Report and in Committee we discussed the fact that climate-related and nature-related risks can have significant implications for the economy, financial markets and long-term prosperity, and for the ability of the finance industry to do its job properly. We heard a number of calls to ensure that the financial services regulators continue to prioritise this agenda at a day-to-day level. However, it is important that this is done in a way that is aligned with the Government’s wider regulatory strategy and does not result in a new set of “have regards” which would further complicate the regulatory framework rather than make it simpler and more effective, as the Bill is intended to do.

The amendments tabled in my name deliver on the commitment I made last week to require the FCA and the PRA to continue to have regard to their existing climate change and environmental targets regulatory principle at a day-to-day level and to maintain appropriate notification and reporting requirements as part of that. Amendments 1 and 3 amend Clause 16, formerly Clause 17, so that the FCA and the PRA must have regard to the climate and environmental targets principle when discharging their general functions. Amendments 5 to 8 ensure that the regulators must report appropriately on their consideration of the principle, including in annual reports and consultations. Amendments 2, 4 and 9 then ensure that certain references and definitions are correct and account for these changes. Put together, these amendments will ensure that the FCA and the PRA continue to have an appropriate focus on this vital issue. I beg to move.

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[Baroness Neville-Rolfe (Con)]

My Lords, as this is Third Reading, I want to start by extending my warm thanks to the Minister and his team for their work on the Bill. I welcome the movement that the Government have shown on several of the issues that we have raised during the passage of this 137-page Bill, which in general we support.

Chief among them is proportionality, which will continue to apply to the regulators in the exercise of their day-to-day functions. That change reflects concerns on all sides of the House; my hope is that it will help to reduce the burden on SMEs, so I thank the Minister for this. I also welcome the movement we have seen on the important issue of financial education and look forward to engaging on that. It is becoming ever more important, whether you are a pupil, a student applying for a loan, or an adult managing your finances or thinking about retirement.

However, there remain important issues which the Government have not yet addressed sufficiently. Among them are the Henry VIII powers in Clause 3 and Clause 50 and the first use of the extensive new powers in the Bill. I understand the Government intend to reintroduce Clause 3 at a later stage in the Bill’s passage with further detail, and that is welcome, but it does not detract from the fundamental point at issue. One of Parliament’s principal functions is to scrutinise government legislation, and we simply cannot do so properly when Bills confer broad powers without setting out clearly how they are to be used.

A digital asset strategy to support faster action to stop further loss of digital entrepreneurs and less aggressive use of Section 166 are two areas where we believe the Government should go further, because we have heard consistent concerns from industry.

Turning to the amendments, I deeply regret the amendments the Government are introducing today on climate change. This represents a serious U-turn by the Government. Their original proposal was to move these considerations into five-year strategies. The existing requirements they dispensed with are largely superfluous and burdensome. There is little evidence that today’s amendments to restore them make any meaningful contribution, either to reducing climate change or to protecting the environment. At a time when businesses are already facing considerable pressure, and when our wider economic circumstances demand an unrelenting focus on growth, competitiveness and investment, imposing further needless regulatory burdens is the wrong direction of travel.

I would also suggest that, for an economy as dependent as ours on international investment, these amendments send entirely the wrong signal. We should be demonstrating to investors overseas that the UK is a predictable and attractive market. Instead, they reinforce the perception that doing business here means ever more regulation, additional cost and greater complexity for no clear practical benefit. At Second Reading, the then-Minister, the noble Lord, Lord Stockwood, who I am glad to see in his place, said that the purpose of the Bill was to

“modernise how the sector is regulated”

and

“enable it to grow”.—[Official Report, 8/6/26; col. 1146.]

These amendments seem to run directly contrary to that objective. I am deeply disappointed that the Government have abandoned that principle so quickly and with so little resistance. We on these Benches have been consistent in our opposition to this duty, which we have made clear in the House and in discussions with the Minister. I shall seek to divide the House when the amendments are called.

[Lord Pitt-Watson (Lab)]

My Lords, I think there is wide agreement that finance is essential for the running of our economy and that we want the British finance industry to be as successful as possible. I think that few of us would think that climate finance was not one of the most important areas to which the industry needs to contribute. I think all of us would feel proud that our country, particularly London, is rated as the number one centre of green finance in the world.

I understand the noble Baroness, Lady Neville-Rolfe, wanting to minimise regulation and thinking that this might be superfluous, but I note that climate is everywhere in the financial world. Why? It is because you are managing other people’s money. How does a fund manager, possibly with millions of people’s savings, think about appropriate investment? If you are responsible for the stewardship of a company, what is the sensible line to take in making sure it is as profitable as it can be but without risking the sustainability of the world? If you are an investment banker and somebody is issuing a bond, is it fair for it to be a green bond? Are you thinking about the reporting on the Stock Exchange? Should you have taken into account that the carbon assets you have will need to be written off and you will need to have a fund and tell your investors about that? Are you interested in impact investment? We were talking a lot about deforestation. How is it that we manage to get private money into deforestation? The noble Baroness, Lady Hayman, talked about insurance. Even in operations, look at the sort of thing that Bloomberg has done; all its electricity is now zero carbon. There is lots of stuff, and the UK is a leader. It is a growing area, and we should be proud of that.

Does regulation make a difference to this? That is a good question. If you were to look at the UK’s regulation on this and compare it with that of the United States—London versus New York—you would be in no doubt which was the better for promoting green finance. Frankly, I do not know of many financiers who would say that the United States now has more predictable regulation than we have in the United Kingdom. You could say that the regulator is already doing enough. Although I cannot respond to the noble Baroness, Lady Bennett, by having a national conversation, I did organise the FCA to do a drop-in to talk to noble Lords about what it was doing in this area. Every noble Lord I talked to afterwards thought that it would be a mistake to withdraw the “have regard” and that therefore this amendment was the right thing to do.

Whether noble Lords believe in the importance of climate and environmental issues or whether they want to be sure that Britain maintains its USP in this critical area of finance, I urge them to vote for these amendments.

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Moved by

[Lord Pitt-Watson]

2: Clause 16, page 21, line 21, after “proportionality” insert “and climate and environment”
Member’s explanatory statement
This amendment is consequential on the amendment in the name of Lord Pitt-Watson to clause 16, page 21, line 23.

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Moved by

[Lord Pitt-Watson]

That the Bill do now pass.

[Lord Pitt-Watson (Lab)]

My Lords, this Bill delivers important reforms to ensure that the UK’s financial services sector remains open, innovative and internationally competitive while maintaining high regulatory standards and protecting consumers. It strengthens the legislative framework for financial services, supports growth and investment, and ensures that our regulators have the appropriate powers and responsibilities to respond to a rapidly changing market.

The Bill has benefited considerably from noble Lords’ detailed scrutiny and expertise throughout its passage. I hope noble Lords feel that the Government have listened carefully to the arguments advanced in Committee and on Report, and that we have brought forward amendments which were appropriate in response. The Bill, of course, is broad. It touches on lots of areas, but it is united by one common theme, shared by the House: we want to create a clear set of rules which allow the financial industry to serve its customers better and to prosper by doing so.

I thank all noble Lords who contributed to our debates, perhaps in particular my noble friend Lord Stockwood, who led the early stages of the Bill. I also thank my officials, who supported the Bill throughout its passage. It was no mean task. I am also particularly grateful to the Opposition and Liberal Democrat Front Benches; to the noble Baroness, Lady Noakes, and other members of the Financial Services Regulation Committee; to members of Peers for the Planet; and to noble Lords across the House, including Cross-Benchers, for their constructive engagement. If I had a special thank you it would be to my Whip, my noble friend Lord Wilson, without whom I would have found this process quite impossible.

The Bill leaves this House strengthened by the scrutiny that we have given it. I beg to move.

[Baroness Kramer (LD)]

My Lords, I will be brief, which has been my practice—as people may have noticed —throughout much of this Bill. I open by saying thank you to the Minister and to the Box. They have been very willing to share their time with us, brief us and listen to issues that we raised. We did not always get the response that we wanted, but it was a positive engagement that gives us some hope for making progress.

I think the Minister came to this Bill having been told that it was a minor, technical Bill. That probably could not have been more wrong. I am glad we achieved what we did, working across the Opposition Benches. I give credit to Conservative Peers—the noble Baronesses, Lady Noakes and Lady Neville-Rolfe, and others—as well as, on my side, to my noble friends Lady Bowles and Lord Sharkey in trying to deal with the issues around proportionality.

There is a great deal left in accountability that will have to be tackled in future Bills. As we see the speed-up in AI, crypto and the other rapid changes that are coming, we will have to find a new way, as a Parliament, to engage. I also thank the noble Baroness, Lady Neville-Rolfe, for putting in an amendment that began to deal with the digital issue. I really believe that not covering that within this Bill was a miss-out. The Government will have to step up to the plate again very shortly.

I am also very grateful for the fact that we got support on the child trust fund issue, again from the Tory Benches. It is something I feel very personally, as people can probably guess. It benefits 80,000 disabled youngsters who have been unable to access money that is theirs that is sitting in trust fund accounts.

I thank my noble friend Lord Sharkey in particular for fighting the battle for the FOS—that battle is not over either. I also thank my noble friends Lady Northover and Lady Sheehan; we would have gone farther on the climate change, environment and deforestation issues, but we feel that an important step was taken by the Government in the amendments moved today.

This has been a very constructive Bill, but, frankly, it was not the maximum use that could have been made of a financial services Bill and I hope that we will see another one come along shortly. There are problems to be tackled, not least the issues of mortgage prisoners and community development financial institutions, as well as the utterly significant constitutional issue of accountability and how the regulators need to be effectively accountable to Parliament. I thank the whole House for working on a very complex set of issues, particularly as it entered this phase with the understanding that it was only going to be about minor technicalities.

Hospitality Industry: VAT

Lord Pitt-Watson Excerpts

Monday 14th September 2026 Lords Chamber

[Lord Hunt of Wirral]

To ask His Majesty’s Government, following a letter signed by more than 800 hospitality industry leaders calling for VAT on hospitality to be reduced from 20 per cent to 10 per cent, what assessment they have made of the impact of rising costs on (1) hospitality businesses, (2) investment, (3) employment and (4) opportunities for young people.

[The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)]

My Lords, I begin by recognising and thanking the hospitality businesses for their enormous contribution to jobs—it is nearly 3 million jobs—and to growth, communities and the economy. I think it is nearly a £100 billion contribution to the economy. They have seen rising costs, some to do with national insurance and many to do with rising food and labour costs. But the Government are providing targeted support to the sector, including lower business rates multipliers, a £4.3 billion business rates support scheme and the Great British Summer Savings scheme, but they are doing that while ensuring sustainable public finances. I must come back to that, because HMRC estimates that reducing VAT on accommodation and food and beverage services to 10% would cost around £11 billion a year. I think this figure is already known publicly.

[Lord Harper (Con)]

My Lords, I listened very carefully to—

[Lord Hunt of Wirral (Con)]

My Lords, the Minister has acknowledged that over the past two years hospitality has experienced higher cost, but it is nothing but higher cost, imposed in particular by this Government, from employment costs and business rates pressures to regulation, and now it faces the prospect of potentially sky-high holiday taxes. In February the Prime Minister, when Mayor of Greater Manchester, said he favoured halving VAT on hospitality to 10%,

“because of the social value that your businesses bring to places and towns that need that life injected into them”.

Will the Prime Minister now listen to himself and the 800 hospitality businesses and industry leaders who have written to him, and will he now cut VAT to support, in particular, our small business sector?

[Lord Pitt-Watson (Lab)]

I cannot comment about changes in taxation, particularly in the run-up to the Budget, but if I might just correct the noble Lord, the point I made in my first Answer was that there has been support given, particularly to pubs and music venues. Support has been given particularly to smaller businesses—750,000 properties—and in reductions in national insurance to 900,000 people who work for smaller businesses. The corporation tax here in the UK is the lowest in the G7 and it is reduced for small businesses, so I reject the thought that no help has been given.

[Baroness Kramer (LD)]

My Lords, back in November 2025 my party called for a 5% cut in VAT on hospitality because the situation was so dire, with at least a third of the industry operating at a loss. Will the Minister now look again at the VAT cut? Will he also follow through on those other issues where small businesses need help, such as a different regime for NICs for part-time workers? Will he look at their energy costs, because most of them cannot access the attractive energy packages as they are not available to the small firms? The change in business rates favours the corporate chains but actually disadvantages most of the small independents. They are the backbone and they are the employers, especially of our young people.

[Lord Pitt-Watson (Lab)]

I entirely echo the noble Baroness’s congratulations to the hospitality industry. I will be more than happy to answer the questions she has asked after the Budget, but I think most of them anticipate changes in tax, which it would be inappropriate for me to discuss at this point.

[Lord Harper (Con)]

My Lords, I apologise to my noble friend on the Front Bench, and to the House, for jumping the gun in my attempt to ask a question. I listened carefully to what the Minister said. I think he accepted that the industry is under a great deal of pressure, because he talked about some of the areas where the Government are attempting to help. Can I press him on the point that my noble friend raised? Given that the industry is under pressure, how on earth will allowing mayors around the country to impose a tax on people going on holiday help anybody with the cost of living?

[Lord Pitt-Watson (Lab)]

As the noble Lord may be aware, those sorts of rights exist for mayors and other local authorities in almost every other European country. In the UK they will need to consult locally before they introduce any such tax, but many mayors will believe that the extra revenues can raise the economy of their local area and provide better facilities so that the hospitality industry, along with everyone else, will prosper. As I said, this is part of a devolution agenda, but it is one where there will be consultation before any additional charge is introduced. It will be proportionate, of course, in the sense that it is a percentage of the cost, so it would cost more for an expensive hotel than for lower-cost accommodation.

[The Earl of Clancarty (CB)]

My Lords, picking up on that point, does the Minister agree that a tourist tax spent in the main on arts and culture would be logical, since that is what tourists come here for? If our cultural attractions are properly maintained and developed, that will in turn significantly help the hospitality industry.

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[Lord Pitt-Watson (Lab)]

That is a really good question that mayors and local authorities around the country will have to think about—how they make their towns attractive to tourists and nice places to come and visit and therefore support the hospitality industry and the wider community.

[Lord Watts (Lab)]

My Lords, does the Minister agree with me that everyone would like a tax cut? Any individual, company or sector will want tax cuts, but you have to be responsible. The Truss Government were not responsible and that set the bond markets off and caused a lot of the problems that we are experiencing now.

[Lord Pitt-Watson (Lab)]

I thank the noble Lord for that question. It brings me back to the fundamental question that we have to think about, which is that we can live only within our means. A VAT cut of 10 percentage points would cost £11 billion. That is about the same cost as the Royal Navy. We need to ask ourselves what the priorities will be. As we look to the Budget, I know that the Chancellor will be looking at absolutely everything, but I thought that benchmark might be helpful for your Lordships’ House.

[Baroness Manzoor (Con)]

My Lords, the Prime Minister stated his support for the tourist tax, but the impact assessment of it has not really been made and some parts of the country will do better than others. Can the Minister say what assessment the Government have made, despite the fact that it is potentially a devolution area?

[Lord Pitt-Watson (Lab)]

The assessment is that this should be in the power of the local authority. It will be devolved. On any cost-benefit analysis that has been done, given that I was alerted to this Question only two hours ago, I do not have that with me. If I could write to the noble Baroness, I would be happy so to do.

[Lord Fox (LD)]

My Lords, I do not believe the Minister had the pleasure of participating in the Employment Rights Bill, and I will not relitigate the entire debate, but the legislation undertakes to substantially change the zero-hours regulations that affect many of the businesses that the noble Lord, Lord Hunt, mentioned. Does the Minister acknowledge that the consultation now and the decisions that will be made as a result of that consultation—how those changes are applied, and in particular the threshold at which they are applied—will materially affect these businesses and existentially affect some of them? Does he undertake to make sure that when those regulations are published, they take into consideration the health of this sector?

[Lord Pitt-Watson (Lab)]

I will try to answer more broadly about employment. The UK employment rate is in the top half of OECD economies. It is above the G7 average. Unemployment is in the bottom half of the OECD. Participation among 16 to 64 year-olds is higher than the average participation rate in every year but one of the last 50 years. The Government are increasing funding for employment support to more than £4 billion a year, including £2.5 billion investment in the youth guarantee and the growth and skills levy in the next three years, supporting 500,000 opportunities to earn and learn in the hospitality industry and all other industries. As I say, we are faced with many challenges ahead of us, but I believe that what the Government are doing in this area is correct.

[Lord Johnson of Lainston (Con)]

My Lords, the Minister raised the importance of copying Europe with the tourist tax, but many European countries—all of them, I think—have a VAT discount on tourist shopping, one of the things the last Government sadly did away with. This has a huge impact on the retail, hotel and hospitality sectors. The Minister is not going to give me a sneak preview of the Budget, but can the Government at least look imaginatively at trying to find a way to attract tourists back into this country to spend their money? Then socialist mayors around the country can charge them even more for their hotel tax.

[Lord Pitt-Watson (Lab)]

As the noble Lord says, I am not going to give him a sneak preview of the Budget.

[Lord Vaux of Harrowden (CB)]

My Lords, the greatest impact of this tourist tax will be on those who have to go on holiday during the most expensive weeks of the year—in other words, families with school-aged children. Does the Minister agree? Can he give us an indication of how much it is likely to cost such a family? I assume the impact assessment does this.

[Lord Pitt-Watson (Lab)]

We have not made a specific assessment of that number, no.

[Baroness Griffin of Princethorpe (Lab)]

My Lords, is my noble friend the Minister aware that mayors in my former region of the north-west have for several years been championing the tourist tax to boost their local economies and local employment?

[Lord Pitt-Watson (Lab)]

I absolutely am. Indeed, I was at one time a councillor in a Conservative borough in London that also championed a tourist tax. It is a good idea, but the decisions about the tourist tax should be local decisions for the local authority to make.

[Lord Mackinlay of Richborough (Con)]

My Lords, the Minister uses a European example: most countries abroad seem to have a holiday tax, so it must be a good idea here. I know this Government love most things EU-related, but many EU countries have a lower rate of VAT on hospitality, for a very good reason—because it is a good thing. The Government have already crossed their own Rubicon with a lower rate of VAT for this summer period for many families to enjoy things as a cost of living cut. Surely a lower VAT rate on hospitality follows the same example and thinking that the Government have already found.

[Lord Pitt-Watson (Lab)]

I think I am struggling to get across my main point here. If I could halve VAT for every industry in Britain and it had no knock-on consequences, that would be wonderful. But this has £11 billion of knock-on consequences. The thing that noble Lords need to think about is not whether it would be nice not to charge people money. Of course we would rather not charge people money. But if the Exchequer loses £11 billion, where is that funding going to come from?

[Lord Lee of Trafford (LD)]

My Lords, I declare an interest as president of the Association of Leading Visitor Attractions. Given that tourism is probably the number one industry in more parliamentary constituencies than any other single private sector industry, is it not time, to demonstrate and reflect its importance, to bring tourism into the title of DCMS?

[Lord Pitt-Watson (Lab)]

I will pass on that thought to the DCMS Minister. I thank the noble Lord.

Financial Services and Markets Bill [HL]

Lord Pitt-Watson Excerpts

Report stage
Wednesday 9th September 2026 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, we have a lot to cover today, so I will be brief.

We do not believe that imposing additional reporting duties, transition plan requirements and regulatory processes on financial services firms is the right way to address the concerns that have been addressed in these amendments this evening. One of the merits of the Bill is the way it cuts out needless and repetitive operational requirements on financial services firms and regulators and instead introduces a more effective approach based on five-year strategies. As we heard on Monday, stakeholders’ views will be sought in the course of establishing those strategies. Of course, climate change and environmental objectives already remain an important statutory regulatory principle, intended to contribute to the UK’s net-zero target under the Climate Change Act and to the environmental targets established under the Environment Act.

However, requiring banks, other financial institutions and the regulators themselves to fill in forms, tick boxes and produce more and more reports about climate change will not have a meaningful effect on global temperatures; it will simply add costs. We need a regulatory environment which supports growth, enterprise and investment. That means cutting down on the red tape and extra requirements that are putting our international competitiveness at risk. These amendments would add a further layer of process and obligation without a sufficiently clear demonstration that the burdens would advance the environmental objectives being pursued.

This is a time when we should be seeking to streamline regulations and be careful about new requirements, however well-intentioned, because of the need to get the economic growth that we lack. These amendments risk taking us a step backwards, so we cannot support them and will be voting against them if noble Lords press them to a vote.

[The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)]

My Lords, I am grateful to the noble Baronesses for these amendments and for the wider debate on sustainable finance and adapting to climate change. These amendments address a number of important issues: climate transition planning, tackling deforestation, how the regulators consider climate risk and the products commonly known as green mortgages. As several noble Lords have argued today, both climate-related and nature-related risks can have significant implications for the economy, for financial markets and their ability to deliver for customers, and for long-term prosperity.

As many noble Lords may know, it is a topic close to my heart, including through my past chairing of the United Nations Environment Programme’s Finance Initiative at the Paris climate talks. UNEPFI is a voluntary organisation of more than 500 financial organisations from the North and the South, with funds of more than £100 trillion under management. It has established some of the world’s foremost sustainability frameworks for finance, including involvement with the REDD+ project, reducing emissions from deforestation in degradation, which I believe is now preserving many millions of square miles of forest.

I share the underlying objectives behind these amendments. The question before us is, therefore, not whether action is needed but how best to deliver that action in a way that is effective, proportionate and aligned with the wider framework we are putting in place.

Let me come to Amendments 34 and 55, which raise important points regarding how the regulators consider and report on climate and environment-related issues. I have spoken to the noble Baroness, Lady Hayman, and members of Peers for the Planet throughout the week on this important issue. I also hosted a drop-in session for Peers with the FCA. During that session, I heard a number of concerns about the absence of climate and environmental targets have-regard operating at a day-to-day level, and I have, of course, heard the issues raised in this debate today.

While I still believe that there is significant value in streamlining the regulators’ have-regards, I appreciate that it is important that the regulators continue to focus on the vital issue of the sector’s contribution to climate change at a day-to-day level, and I appreciate the importance of regular reporting on this issue to aid parliamentary scrutiny. While I cannot do anything today, I am prepared to return to this issue at Third Reading and would be prepared and undertake to table amendments to Clause 17 that would require the PRA and FCA to continue to consider their existing climate change and environmental targets have-regard at a day-to-day level and to maintain appropriate notification and reporting requirements.

Amendments 34 and 55 introduce a new have-regard and reporting requirement on climate-related financial stability issues. I therefore ask the noble Baronesses, Lady Northover and Lady Hayman, not to press Amendments 34 and 55 on that basis, and I will return at Third Reading with the amendments I have described.

Amendment 65 concerns transition plan requirements. The Government remain committed to this area. We consulted in 2025 on options for implementing transition plan requirements and are considering responses alongside wider work on sustainability and corporate reporting reform. In February, we finalised the UK sustainability reporting standards for voluntary use. The FCA has also consulted on aligning listed company disclosure requirements with these standards. The FCA aims to publish final rules this autumn with requirements expected to take effect from January 2027. This amendment would place a statutory timetable on an area where policy development remains under active consideration across government. We believe in the importance of finalising this work before imposing an arbitrary road map.

On Amendments 90 and 97A, I recognise the strength of feeling on deforestation and agree that urgent action is needed. I am therefore pleased to report that this work is moving forward. As the noble Baroness, Lady Young, said, Defra has confirmed that they will consult later this year on Great Britain’s approach to tackling deforestation in domestic supply chains and the next steps for the forest risk commodities regime. My officials have spoken to Defra, which has confirmed that it plans to consult during the autumn and that legislation will be delivered in 2027. The responsibility for enforcing the regime will be determined by Defra when it designs the regulations.

We share the objective of progress being made as quickly as possible. However, a six-month statutory deadline risks prioritising speed over effectiveness. The Government believe the better approach is to ensure that any resulting regime is robust, proportionate and capable of decoupling supply chains from global deforestation. The Government have already committed, through the Financial Services and Markets Act 2023, to review the regulatory framework for tackling deforestation-linked finance within nine months of Defra’s legislation on domestic supply chains. Furthermore, the principle that I committed to reapply today to day-to-day activities also explicitly covers consideration of environmental targets in the Environment Act 2021, so this will remain part of the regulators’ day-to-day work.

On Amendment 91, the Government support high-quality green mortgage products that can help households to finance energy efficiency improvements and improve resilience to climate-related risks. However, the amendment risks duplicating efforts by regulators, departments and existing frameworks. FCA rules already require clear disclosure and the FCA is considering disclosure further through its mortgage rule review. The Green Home Finance Strategic Partnership also has a dedicated working group focused on consumer protection and standards. With over 90 green mortgage products now available compared with fewer than 10 in 2019, the Government consider that imposing a statutory timetable would be premature while policy and the market continue to develop. The current approach provides the flexibility to develop clear, proportionate standards while maintaining consumer protections.

In conclusion, the Government support the objectives that sit behind these amendments. We have listened to the House and will, at Third Reading, table amendments to Clause 17 requiring the PRA and FCA to continue to consider that their existing climate change and environmental targets have regard at a day-to-day level and to maintain appropriate notification and reporting requirements. More broadly, we support credible transition planning. We support action to address deforestation and forest risk commodities, and we support the development of high-quality green mortgages. The Government are already taking forward substantial work in these areas and will continue to do so in a co-ordinated and proportionate way. I therefore ask the noble Baroness to withdraw the amendment.

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[Baroness Neville-Rolfe (Con)]

My Lords, we welcome the Government’s decision to retain proportionality as an express statutory consideration for both the FCA and the PRA when they exercise their general functions. This responds to productive discussions in and outside Committee, for which I thank the Minister and indeed the noble Lord, Lord Stockwood, who I am delighted to welcome back to the discussion of the Bill, and I thank him for his efforts to improve it. I also thank my noble friend Lady Noakes, the noble Baroness, Lady Bowles, and the noble Lord, Lord Vaux, for their constructive and flexible approach to the substantial problems on these clauses.

Time and again, one of the concerns we hear from business is that regulation can be disproportionate to the risk it is intended to address. That is particularly true for the small and medium-sized firms that we rely on so heavily for competition, innovation and economic growth, right across this country. The proportionality changes help to address this and we will not therefore be pressing our Amendment 62 on SMEs to a vote—even though it is my favourite amendment and I have the support of the noble Lord, Lord Vaux. The noble Baroness, Lady Kramer, is right to focus on lending to small defence companies as well.

The requirement for the FCA and PRA to explain in their annual reports how they have taken these proportionality principles into account, alongside the requirements relating to consultation and parliamentary committees, creates an important mechanism through which Parliament can examine whether the principle is actually being applied in practice, with concrete examples, as the noble Baroness, Lady Bowles, suggested. This is important because the ultimate test of these amendments will not simply be whether “proportionality” appears in statute. It will be whether firms see a genuine difference in the way regulation is developed and applied, particularly by the regulators. We hope that the Government’s amendments will prove to be a meaningful mechanism through which regulation can become easier to comply with, less costly and ultimately more successful in achieving the objectives that Parliament has set for the regulators—of course, the proof will be in their implementation.

The Government have listened to concerns raised during the passage of the Bill and we support the amendments that the Minister has tabled in response. This is good House of Lords practice. Like my noble friend Lady Noakes, I do not intend to pursue the other amendments today.

[Lord Pitt-Watson (Lab)]

My Lords, I thank noble Lords for this debate. I hope it demonstrates that the Government have listened carefully to the arguments made by noble Lords during Committee and recognise the strength of feeling and the logic around addressing Clause 17. In Committee, noble Lords made it clear that they had concerns with that clause, which removes the requirement to consider regulatory principles each time they exercise a general function in favour of considering them just at a strategic level. These points were made particularly strongly with regard to proportionality; in response, we have tabled Amendments 37 and 43 in my name. These amendments will ensure that the two proportionality regulatory principles will continue to apply to the regulators’ day-to-day actions.

There was also a rich debate in Committee about the different facets of proportionality and the factors that regulators should consider. Here, again, the Government have listened. Amendment 44 makes changes to the existing principles to explicitly include that the regulators should recognise the differing abilities of firms to engage and comply with regulation owing to their size—a point raised by both the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Vaux. This means that regulators will need to consider the specific impact of their proposals on SMEs.

It was also clear that a number of noble Lords had concerns about the possible effects of Clause 17 on Parliament’s ability to effectively scrutinise the regulators. In response, Amendments 40 and 46 to 50 will ensure that existing reporting requirements on the proportionality regulatory principles will remain in place, including as part of the consultation on annual reports. The Government are therefore retaining the majority of existing transparency and reporting requirements, including through panel reports, consultation requirements and annual reports.

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Moved by

[Lord Pitt-Watson]

37: Clause 17, page 21, line 34, leave out “omit subsection (5)(a)” and insert “in subsection (5) for paragraph (a) substitute—
“(a) the proportionality regulatory principles (see section 3B(1A)), and””Member's explanatory statement
This amendment would require the FCA to have regard to the proportionality regulatory principles (as defined in the amendment in the name of Lord Pitt-Watson to clause 17 at page 22, line 3) when discharging its general functions.

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Moved by

[Lord Pitt-Watson]

40: Clause 17, page 21, line 35, leave out subsection (3)
Member's explanatory statement
This amendment would require the publication of draft FCA rules to be accompanied by an explanation of the FCA's reasons for believing that making the proposed rules would be compatible with its duty to have regard to the proportionality regulatory principles when discharging its general functions (which would be inserted by the amendment in the name of Lord Pitt-Watson to clause 17 at page 22, line 3).

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Moved by

[Lord Pitt-Watson]

43: Clause 17, page 21, line 40, leave out paragraphs (a) and (b) and insert—
“(a) in the heading, after “regard to” insert “proportionality”;(b) in subsection (2), for “the regulatory principles in section 3B” substitute “the proportionality regulatory principles (see section 3B(1A))”.”Member's explanatory statement
This amendment would require the PRA to have regard to the proportionality regulatory principles (as defined in the amendment in the name of Lord Pitt-Watson to clause 17 at page 22, line 3) when discharging its general functions.

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Moved by

[Lord Pitt-Watson]

46: Clause 17, page 22, line 6, leave out subsection (7)
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Pitt-Watson to clause 17 at page 21, line 35.

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Moved by

[Lord Pitt-Watson]

58: After Clause 22, insert the following new Clause—
“Bank of England functions: payment systems and service providers(1) In the Bank of England Act 1998, after Part 3B insert—“Part 3CPayment systems and service providers30J Exercise of functions relating to payment systems and service providers(1) In exercising its relevant payment systems functions in a way that advances the Financial Stability Objective the Bank must, so far as reasonably possible, act in a way which, as a secondary objective, facilitates innovation in—(a) the operation of recognised payment systems,(b) the provision of services by recognised DSA service providers, and(c) the provision of services by service providers in relation to such systems or such DSA service providers,with a view to improving the quality, functionality and economy of the systems and services. (2) For the purposes of this Part the Bank’s “relevant payment systems functions” are—(a) its function of publishing principles under section 188 of the Banking Act 2009,(b) its function of publishing codes of practice under section 189 of that Act, and(c) its function of determining the general policy and principles by reference to which it performs particular functions under Part 5 of that Act (payment systems and service providers).(3) In this Part—“operation” , in relation to a recognised payment system, is to be construed in accordance with Part 5 of the Banking Act 2009 (see section 183 of that Act);“recognised DSA service provider” is to be construed in accordance with Part 5 of that Act (see section 184A of that Act);“recognised payment system” is to be construed in accordance with Part 5 of that Act (see section 184 of that Act).(4) In subsection (1)(c)—(a) the reference to service providers in relation to recognised payment systems is to be construed in accordance with Part 5 of the Banking Act 2009 (see section 206A(2) of that Act);(b) the reference to service providers in relation to recognised DSA service providers is to be construed in accordance with Part 5 of that Act (see section 206A(2A) and (2B) of that Act);(c) the reference to the provision of services by service providers in relation to recognised payment systems or recognised DSA service providers includes a reference to the services and arrangements mentioned in section 183(k)(i) and (ii) of that Act (interpretation).30K Recommendations by Treasury(1) The Treasury may at any time by notice in writing to the Bank make recommendations about aspects of the economic policy of His Majesty’s Government to which the Bank should have regard when considering how to advance the Financial Stability Objective and the secondary objective under section 30J(1) (payment systems etc: innovation).(2) The Treasury must make recommendations under subsection (1) at least once in each Parliament.(3) The Treasury must—(a) publish in such manner as they think fit any notice given under subsection (1), and(b) lay a copy of it before Parliament.(4) The Bank must respond to each recommendation made under subsection (1) by notifying the Treasury in writing of—(a) action that the Bank has taken or intends to take in accordance with the recommendation, or(b) the reasons why the Bank has not acted or does not intend to act in accordance with the recommendation.(5) The notice under subsection (4) must be given before the end of 12 months beginning with the date the notice containing the recommendation was given under subsection (1).(6) Where the Bank has given notice under subsection (4) in relation to a recommendation, it must by notice in writing update the Treasury on the matters mentioned in subsection (4)(a) and (b) before the end of each subsequent period of 12 months.(7) Subsection (6) does not apply if the Treasury have notified the Bank in writing that no update (or further update) is required. (8) The Bank is not required under subsection (4) or (6) to provide any information whose publication would in the opinion of the Bank be against the public interest.”(2) In section 203B of the Banking Act 2009 (payment systems and service providers: annual report)—(a) in subsection (1)—(i) in paragraph (b), for “met” substitute “advanced”;(ii) omit the “and” after paragraph (b);(iii) after that paragraph insert—“(ba) the extent to which, in its opinion, in discharging its relevant payment systems functions, its innovation objective, in its application as a secondary objective, has been advanced,(bb) the efforts it has made to engage with persons, other than persons within subsection (4), appearing to the Bank to have an interest in the discharge of its functions under this Part,(bc) the results of that engagement, and”;(b) after subsection (3) insert—“(4) The following persons are within this subsection—(a) operators of recognised payment systems;(b) recognised DSA service providers;(c) service providers in relation to recognised payment systems or recognised DSA service providers.(5) In this section—“innovation objective” means the objective set out in section 30J(1) of the Bank of England Act 1998 (payment systems etc: innovation);“relevant payment systems functions” has the same meaning as in Part 3C of the Bank of England Act 1998 (see section 30J(2) of that Act).”(3) In section 204(1A) of the Banking Act 2009 (information)—(a) the words “its financial stability objective” become paragraph (a);(b) after that paragraph insert“, or(b) in its application as a secondary objective, its objective set out in section 30J(1) of the Bank of England Act 1998 (payment systems etc: innovation).””Member’s explanatory statement
This amendment would insert provisions relating to the exercise of the Bank’s payment systems functions under the Banking Act 2009; including a secondary objective to exercise functions in a way that facilitates innovation in payment systems and related services with a view to improving their quality, functionality and economy.

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[Lord Altrincham (Con)]

I thank the Minister for hosting this second day of Report with such grace. I will focus my remarks on Amendment 64, to which I added my name. I am very grateful to the noble Baroness, Lady Bowles of Berkhamsted, for bringing this important issue before the House again.

“Section 166 review” is the name given to FCA investigations. These investigations were originally quite rare, but dozens are now launched every year and they are paid for by the target firms. These investigations are expensive and time-consuming. They can have a rather arbitrary regulatory purpose and are somewhat unconstrained. This regulatory power can be exercised without a statutory threshold requiring the regulator first to demonstrate that the matter is sufficiently serious and that using this particular tool is proportionate.

We hear consistently from firms that Section 166 reviews are increasingly becoming the norm rather than the exception. Without a degree of restraint or oversight, these powers may create regulatory uncertainty. Our amendment would not prevent the regulators acting where there is a serious problem, nor would it remove Section 166 from their toolkit. It would simply mean that such a costly and burdensome power is used proportionately where it is genuinely warranted. I very much hope that the Minister will accept the amendment, but if the noble Baroness, Lady Bowles, decides to test the opinion of the House as she has indicated, we will support her.

[Lord Pitt-Watson (Lab)]

My Lords, this group raises two important but distinct questions: how the prudential framework should treat lending that supports employee ownership, co-operatives and mutuals; and when regulators should use skilled person reviews under Section 166 of FSMA. The Government have carefully considered the case made for each amendment, but do not believe that these changes should be made through legislation.

Amendments 63 and 66 seek to create a bespoke prudential framework for lending to co-operatives and mutuals, including through lower risk weights. The Government recognise the valuable contribution that co-operatives and mutuals make to the UK economy and are undertaking a multiyear programme of work to support the growth of the sector. This includes making amendments to the Building Societies Act 1986, which we debated last week, to align it with company law and give societies greater funding flexibility.

However, prudential capital requirements should reflect the underlying risk of a lending activity rather than the ownership structure of the lender. Prudential requirements are generally set by the Prudential Regulation Authority through its rules, rather than being prescribed in legislation. This allows the framework to respond to evolving risks and market developments, while operating within a statutory framework established by Parliament. The Prudential Regulation Authority has clear statutory objectives and is accountable to Parliament for the exercise of its functions. It is therefore the appropriate body to assess risk characteristics and determine the appropriate prudential treatment of different exposures. The Government therefore do not consider it appropriate to prescribe preferential prudential treatment for particular business models through legislation. Such decisions should remain matters for the independent Prudential Regulation Authority. For these reasons, I am unable to support these amendments.

Turning to Amendment 64 concerning Section 166 skilled person reviews, I agree that these reviews should be commissioned only where appropriate and proportionate. However, the Government are not persuaded that a further statutory threshold is necessary. As we discussed in Committee, regulators already consider the circumstances of the firm, the costs involved and the availability of alternative supervisory tools before commissioning a skilled person review. The FCA and the PRA have established supervisory processes for doing so. Requiring the regulators to satisfy an additional statutory test could delay supervisory action and make it harder to intervene before problems occur that could damage the interests of consumers or affect the functioning of markets.

I know that a concern has been raised about there being more and more Section 166 reviews. I reassure noble Lords that the FCA’s use of skilled person reviews has been broadly consistent over the past 10 years. In 2025-26, only 31 were commissioned, which is the second-lowest usage since 2016. I am happy to send the figures to Members if they are interested.

In their letters to me, which have been shared with interested Members and laid in the Library, both regulators set out details of their approach to delivering proportionality, with the FCA explaining how its approach to supervision is proportionate, risk based and targeted. They also commit to ongoing engagement with parliamentary committees on their approach. I hope that this reassures the noble Baroness about the process and proportionality of Section 166 reviews and therefore ask her not to press her amendments.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I thank the noble Lord, Lord Altrincham, for supporting my Section 166 amendment. With regard to my Amendments 63 and 66, the Government have interpreted this exactly as I said it was not: I said that it is not telling the PRA what to do, but to consider a prudential distinction. I did not tell it what to do with it. Of course, it has that power anyway, and the purpose of the amendment was to draw attention to a very important sector. I will take the measure up with the PRA directly. For now, I beg leave to withdraw my amendment.

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[Baroness Neville-Rolfe (Con)]

My Lords, this is an important and forward-looking group of amendments, covering open finance, digital market infrastructure and the future of digital assets. I am very grateful to my noble friend Lord Holmes of Richmond for his amendments, and for explaining the scale of the digital tide and the AI wave and the lack of specific signals in the Bill on these opportunities.

I will focus my remarks on Amendment 88, standing in my name and those of my noble friend Lord Altrincham and the noble Baroness, Lady Kramer, who I thank for her support. We debated these issues in Committee, but the central concern remains. Digital assets are becoming an accelerating part of our financial and economic landscape, yet policy is still developing too often issue by issue, product by product and regulator by regulator.

What is missing is a comprehensive strategy. This matters. Industry is telling us that the most basic building blocks of a comprehensive regulatory regime, such as legal definitions, do not exist. This uncertainty is translating into a lack of confidence, which is driving wealth creators away.

Amendment 88 asks the Treasury to step back and set out a coherent strategy for the regulation and development of digital assets and related financial market infrastructure in the UK. It asks the Treasury to establish its objectives, consult properly with industry and other interested parties, and explain how the different strands of policy fit together. This can build on the work of the Bank of England and of Chris Woolard, the new Wholesale Digital Markets Champion at the Treasury. We are most grateful for yesterday’s briefing, at which Chris set out his forthcoming plans for another report due to be published next year.

The opportunity for the UK is considerable. We have the legal system, deep capital markets and an extensive professional services ecosystem, but firms need to know which regulator is responsible for which part of the system, what rules will apply, how different regimes will interact, and how quickly decisions will be made. We are seeing the effects of current ambiguity in reports of firms wishing to offer digital asset products being debanked, a point to which my amendment refers.

Other financial centres are moving rapidly to establish their own frameworks for digital assets and tokenised markets, as my noble friend Lord Ranger explained from his position of great expertise. If businesses conclude that another jurisdiction offers greater regulatory certainty or a clearer strategic direction, they can quickly go elsewhere.

Amendment 88 therefore offers the Government an opportunity to bring those different strands together. The work of Chris Woolard is welcome, but our amendment encompasses a wider range of concerns raised with us. I hope the Government will engage with the amendment, but if I am not satisfied with the Minister’s response I will seek to test the opinion of the House.

[Lord Pitt-Watson (Lab)]

My Lords, I thank the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lords, Lord Altrincham and Lord Holmes, for their amendments relating to the adoption of technology in the financial services sector and for their contributions to this debate. Technological change is already having a significant impact on the sector and there are huge opportunities for the UK alongside risks to be managed.

Amendment 71 seeks to require the FCA to create and maintain a framework for open finance. However, the Government already have powers to create a framework for open finance under the Data (Use and Access) Act 2025. Parliament has therefore already legislated here, and that legislation includes the power to require the FCA to regulate for open finance and includes appropriate safeguards and scrutiny. The Treasury also confirmed at Mansion House in July 2026 its commitment to open finance and said it will consult on open finance next year.

Amendments 88 and 89 are both focused on digitalisation. Amendment 88 seeks to support the UK’s approach to digital assets by requiring the Government to publish a digital assets strategy. It sets out a number of important issues that such a strategy should consider. Amendment 89 similarly seeks to support digitalisation by requiring the Government to make regulations establishing an issuer digitalisation council, composed of representatives from issuers, intermediaries, the FCA, the PRA, the Bank of England and the Treasury.

As noted in the debate in Committee, the Government strongly support digital assets and see them as a key strategic priority. As such, the Government have been very active on this agenda and have a comprehensive strategy to drive forward the digitalisation of wholesale markets through the wholesale financial markets digital strategy published in July 2025. The Government have been taking forward the actions of the strategy at speed. There has been progress even since this issue was debated in Committee.

Chris Woolard CBE published his first report as the Government’s Wholesale Digital Markets Champion in July, setting out a comprehensive cross-sector approach to digital assets. The Economic Secretary to the Treasury and I hosted a drop-in session with Mr Woolard here in Parliament just yesterday so that Members of your Lordships’ House could hear more about his agenda. I think those noble Lords who were there would agree that we should be impressed by the scope and comprehensiveness of the work he is doing.

Mr Woolard outlined not one workstream but nine taskforce action groups that are taking forward the industry road map, including an action group focused on the primary issuance of digital securities, and with an initial focus on delivering an end-to-end use case. These groups and the overarching orchestration group represent a huge amount of work, expertise and industry input that Chris is leading. They include the industry, a strategy and 50 companies, to be joined by the head of Europe from BlackRock and the London Stock Exchange. It is absolutely great work, as the noble Lord, Lord Holmes, said.

At that meeting, Chris Woolard was asked whether there was any need for further primary legislation. I think that the noble Lord, Lord Ranger, was at the meeting and can confirm that he said that right now, he did not think there was. He could also confirm that I said that, should there be that need, I and the Economic Secretary to the Treasury would be listening to that. There will be a real threat to UK competitiveness if we fail to act in this area, and a considerable opportunity if we get it right. I hope that the opportunity to engage Mr Woolard prior to this debate gave insight into the vast amount of constructive work that is already taking place to make sure that this happens.

There are many other actions being taken to support this work, such as the Bank of England and the Financial Conduct Authority’s call for input on tokenisation, which closed in July. They intend to publish a further road map in the autumn. In noble Lords’ speeches, I heard that they want momentum and a strategy involving industry. That is what is happening right now. The Government also highlighted progress on the digital securities sandbox, the digital gilt instrument, in Committee.

The Government strongly believe in the need to digitalise financial markets, and I hope that the measures the Government are taking forward and the further updates that noble Lords received from Chris Woolard, as wholesale digital markets champion, show that the Government are working with the sector and the regulators to deliver a strategic approach to digitalisation—

[Lord Ranger of Northwood (Con)]

My Lords, forgive me for interjecting, but the Minister is quite right. We had a very progressive session with Mr Woolard yesterday. The question I raised with him was about the future strategy and where we were heading, because his focus is clearly on tokenisation. We noticed that there was a further discussion on standard-setting internationally, agentic finance and various other elements that are in development and need strategic thought. I think that the champion took on board that there was a broader vision that needed to be identified, which is what we would be looking for in a strategy.

[Lord Pitt-Watson (Lab)]

He did indeed take that on board, and I thank the noble Lord, Lord Ranger, for making that point. He was also asked whether at this point further primary legislation was needed. He said that it was not but was invited, should that situation change, to talk to the Ministers in the Treasury. Therefore, I ask the noble Lord, Lord Holmes, to withdraw his amendment.

[Lord Holmes of Richmond (Con)]

My Lords, I thank everyone who has taken part in this debate. I thank the Minister for his answer, and I echo every word he said about the fantastic work that Chris Woolard and, indeed, Mark Austin have done in this area. For the time being, I will withdraw the amendment, but it remains to be seen whether we are building a faster horse or regulating existing products in a digital form. I suggest that there is still more thinking to be done on composability and the extraordinary opportunities that exist, but it is fantastic that we have such champions in Chris Woolard and others working in this area. I look forward to seeing how it develops. For the moment, I withdraw the amendment.

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Moved by

[Lord Pitt-Watson]

73: Clause 27, page 32, leave out lines 38 and 39
Member’s explanatory statement
This amendment, and the amendment in the name of Lord Pitt-Watson to clause 27 at page 33, line 1, would ensure that both clauses 27 and 36 can be commenced to amend one list in section 66A of the Financial Services and Markets Act 2000 while preserving the final “or”.

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Moved by

[Lord Pitt-Watson]

75: Clause 29, page 34, line 32, leave out “is in force” and insert “has effect”
Member’s explanatory statement
This amendment would make section 55AA(4) of the Financial Services and Markets Act 2000 consistent with section 55A(3) of that Act (as amended by clause 29).

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Moved by

[Lord Pitt-Watson]

76: Clause 33, page 38, line 28, at end insert—
“(2A) In section 61 (determination of applications), in subsection (3ZA)—(a) the words from “granting it” to the end become paragraph (a);(b) after that paragraph insert“, or(b) in the case of a permitted conditional application (as defined in section 60A(5)), granting it subject only to conditions, or for a limited period, requested in the application (or both).””Member’s explanatory statement
This amendment would keep section 61 of the Financial Services and Markets Act 2000 in step with other amendments to Part 5 of that Act, which treat a decision to grant an application on the terms requested like an approval of the application.

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Moved by

[Lord Pitt-Watson]

81: Clause 37, page 45, line 2, at end insert—
“(7) If the Treasury are satisfied that regulations under section 408A or 408B of the Financial Services and Markets Act 2000 (as inserted by subsection (3)) would, if made, have substantially the same effect as existing overseas recognition provision—(a) sections 408A to 408C of that Act (as inserted by subsection (3)) apply in relation to the regulations as if—(i) section 408A(2) were omitted,(ii) in section 408B(1), the words from “if the Treasury” to the end were omitted,(iii) section 408B(2), (4) and (5) were omitted, and(iv) section 408C(1) to (4) were omitted, and(b) section 429 of that Act applies in relation to the regulations as if, in subsection (2), “408A” (as inserted by subsection (5)) were omitted.(8) In considering whether regulations would have substantially the same effect as existing overseas recognition provision, the Treasury must—(a) treat the power in section 408B to designate a country or territory for the purposes of the regulations as forming part of the regulations, and(b) disregard any difference between that power and any power to make designations under the existing overseas recognition provision.(9) In subsections (7) and (8), “existing overseas recognition provision” means—(a) provision contained in an instrument containing provision listed in the Schedule to the Financial Services (Overseas Recognition Regime Designations) Regulations 2025 (as it has effect from time to time), or(b) a designation made under such an instrument.”Member’s explanatory statement
This amendment would allow the Treasury to consolidate existing provision relating to overseas recognition under the umbrella of the new overseas recognition regime, so long as their doing so would not substantially change the effect of the existing law.

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[Baroness Altmann (Non-Afl)]

My Lords, I support Amendment 87 in the name of the noble Baroness, Lady Bowles. I will speak to my Amendment 92, and I am grateful to her for adding her name to it. Amendment 92 would insert a provision in the Bill to allow life insurers to set up defined benefit pension superfunds outside of their solvency UK ring-fences, enabling them to participate in the superfund market and potentially even help the UK build its own version of Canada’s much-vaunted Maple Eight. UK insurers—with suitable ring-fencing, as set out in the amendment, to ensure separation from their insurance business—are ideally placed to run large pools of pension investments, with existing in-house expertise in areas such as investment, actuarial and legal. At present, insurance buyout is seen as the gold standard for defined benefit pension scheme endgame strategies.

Superfunds could provide a means to add billions of pounds-worth of productive capital into the UK economy and allow pension members to enjoy better benefits, rather than superfunds remaining niche players, if the current system is not changed. Insurers could bring large amounts of capital pooled into the pension scheme area and collect pension assets so that scheme members would have better upside opportunities and robust alternatives to the finality of annuity buyouts, which are generally considered 100% safe but could well not be. Buyout pushes assets into low-return, unproductive opportunities and denies members greater returns and better pensions, which could come from superfunds.

In particular, there are concerns about systemic risk with annuity buyouts. I wondered whether the Minister might agree to meet me and other interested parties to discuss the risks involved in the Government’s current perception that annuity buyout is the gold standard, 100% safe endgame strategy. I hope that he will recognise that the Financial Services Compensation Scheme may not be as secure as expected.

[Lord Pitt-Watson (Lab)]

My Lords, I thank the noble Baronesses, Lady Bowles and Lady Altmann, for their amendments. I will take each in turn, starting with Amendment 87.

As was noted by my predecessor, the Government recognise the role which the bespoke tax regime for transformer vehicles plays in ensuring that the UK is competitive. We also recognise, as does this amendment, the importance of robust anti-avoidance measures and clear guidance in ensuring that the regime functions effectively, provides certainty to business and safeguards the integrity of the tax system.

It is right that we preserve HMRC’s ability to effectively pursue instances where vehicles are established for the purposes of avoiding tax, and it is important that we preserve that ability and avoid creating risks for the Exchequer. However, I recognise the strength of feeling in industry over this issue. I therefore offer the Baroness a meeting with HMRC and Treasury officials to discuss it in more depth. I remain of the view that this legislation is not the appropriate place to make provision for the tax regime governing transformer vehicles—the Risk Transformation (Tax) Regulations 2017 being the specific legislation designed to govern this.

On Amendment 92, the Government recognise the important role that defined benefit pension scheme consolidation can play in improving outcomes for pension scheme members and providing additional options for schemes. The amendment seeks to place in legislation an explicit permission for PRA-authorised insurers to establish, own or operate DB superfunds and would introduce statutory requirements governing the separation of superfund and insurance activities. However, insurers are already able to establish and operate superfunds under the existing regulatory framework. The amendment therefore does not create a new route into the market. Rather, its primary effect is to place requirements relating to ring-fencing, capital treatment and the separation of activities into primary legislation. The Government’s view is that matters relating to prudential regulation, capital treatment and the supervision of regulated firms are more appropriately addressed by the relevant regulators rather than through detailed provisions in primary legislation. For those reasons, while I appreciate the intention behind the amendment, the Government do not consider it necessary.

I therefore ask the noble Baronesses to withdraw or not move their respective amendments.

[Baroness Altmann (Non-Afl)]

Would the noble Lord be willing to meet to go through some of these issues?

[Lord Pitt-Watson (Lab)]

If I would be the relevant person to talk to on this matter, I would be happy to meet. If not, perhaps I can direct the noble Baroness to appropriate officials.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I thank the Minister for his reply. There is nothing in my amendment that is intended to stop pursuit of things that are wrong, but the evidence is that the guidance is not understood. I welcome the opportunity to have a meeting with HMRC officials so that we can explain more clearly where the problems lie and see if a solution can be found. With that, I beg leave to withdraw my amendment.

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[Lord Vaux of Harrowden (CB)]

My Lords, I am not sure how to follow that. I have added my name to Amendment 98. Clause 50 is a very broad, catch-all Henry VIII power. Given that the Bill already has over 50 delegated powers in it, this seems entirely superfluous and it should be removed.

[Lord Pitt-Watson (Lab)]

My Lords, Amendment 98 would remove the consequential power contained in Clause 50. The Government understand the concern that delegated powers should be used appropriately and should not become a vehicle for making substantive policy changes without parliamentary scrutiny. Indeed, I think that, on Monday, in response to issues to do with Henry VIII powers, I gave some sympathy to that argument. However, the power in Clause 50 is not a power to introduce new policy, nor is it a power to revisit the policy that Parliament will have approved by passage of the Bill; it is a narrow, regulation-making power limited to dealing with matters that arise as a consequence of the provision that Parliament has already approved within the Bill.

It is common and often necessary for legislation of this scale and complexity to require consequential adjustments elsewhere on the statute book, so that provisions operate as intended. Without such a power, relatively minor or technical changes would require further primary legislation, creating unnecessary delay and complexity. For these reasons, the Government do not believe that removing this clause would improve the Bill. I would also note that this was not a point raised by the Delegated Powers Committee about the Bill.

Finally, I assure the noble Baroness that parliamentary committees will of course be able to call the Government to appear in front of them and account for the use of consequential power or, indeed, any other power in the Bill. I therefore ask the noble Baroness to withdraw this amendment.

[Baroness Neville-Rolfe (Con)]

My Lords, the fact is that Clause 50 gives Ministers a broad and potentially permanent power to amend or appeal primary legislation, including devolved legislation, without the full scrutiny afforded to a Bill. Unlike other Bills, this is a Bill with many new, unspecified powers, so I seek to test the opinion of the House.

Building Societies Act 1986 (Assimilation to Company Law and Changes to Funding Limit) Order 2026

Lord Pitt-Watson Excerpts

Monday 7th September 2026 Lords Chamber

Moved by

[Lord Pitt-Watson]

That the draft Order and Regulations laid before the House on 2 July and 6 July be approved. Considered in Grand Committee on 2 September

Motions agreed.

Financial Services and Markets Bill [HL]

Lord Pitt-Watson Excerpts

Report stage
Monday 7th September 2026 Lords Chamber

[Lord Altrincham (Con)]

My Lords, notwithstanding the anomalies that have been discussed—there are significant anomalies in insurance in England as well—we have some concerns about this amendment. It would hand the Treasury very extensive powers to act through secondary legislation, including the ability to amend primary legislation. We have raised concerns consistently in Committee and on Report about the use of broad, delegated powers of this kind. The same concerns apply here. Regulations being subject to the affirmative procedure provides a degree of parliamentary scrutiny. However, it does not alter the fundamental point that Parliament will be delegating significant legislative discretion to the Treasury before the detailed regime on any transitional arrangements has been set out.

[Lord Pitt-Watson (Lab)]

My Lords, Amendment 16 would give the Treasury the power to extend regulation of claims management activity to Northern Ireland through secondary legislation. I am aware of the concerns relating to high insurance costs across the UK and would be supportive of action to tackle these where we can, but we should not rush to regulate without clear evidence.

The Government’s Motor Insurance Taskforce has examined the drivers of motor insurance costs, including claims-related costs and market practices. This work has not identified clear evidence that claims management companies are a primary driver of higher premiums in Northern Ireland. Moreover, any proposal in this area would also need careful engagement with the Department of Finance in Northern Ireland and proper consideration of the devolution implications. I therefore ask the noble Baroness to withdraw Amendment 16.

[Baroness Hoey (Non-Afl)]

My Lords, there I was thinking that we had a Minister who was going to be much more reassuring, but, in fact, that was a very negative response. All the things he said have already happened and could be happening in more detail if the Government were to move forward with this. It really is a missed opportunity for the Government and it is not going to go away; it will have to come back in a different form.

I had not realised until recently—probably like many people here tonight—how appalling this situation is. I do not know where the Minister got his facts and figures; perhaps from the Treasury, but certainly not from the people who know what is going on in Northern Ireland. There is obviously no point putting this to a vote tonight, but I hope that, following this, the Minister will meet a group of us who understand this a bit more and will make it clear to him that perhaps, sometimes, he might be given the wrong advice. I beg leave to withdraw my amendment.

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[Baroness Neville-Rolfe (Con)]

My Lords, we are concerned about the scale of fraud, and in particular by the continued growth of authorised push payment fraud and other forms of online economic crime. The Government and the banks have made progress, but the truth is that it is hard to keep up with the scammers, and the sums at stake are significant, as the noble Baroness, Lady Kramer, has explained. I therefore strongly welcome the proposal from the noble Lord, Lord Vaux, for an annual report.

My noble friend Lord Howard of Rising is right to be concerned about the future protection of commercially sensitive information as part of a competitive UK sector. I am glad he has brought his amendment back, and I hope the Minister will be able to provide an assurance that this will be addressed.

The amendments in this group raise important questions about transparency, monitoring and the practical steps that firms can take to identify scams earlier, warn consumers, share information more effectively and pay compensation where that is appropriate. Indeed, there has been considerable progress since the APP reimbursement regime was introduced in 2024. I always remember my card being used in Korea to buy £2,500 worth of Louis Vuitton luggage. That would not happen today, as banking procedures and scrutiny are so much better.

However, the proposal from the noble Baroness, Lady Kramer, is a difficult one, as it is not clear what the technology companies could do to stop fraud systematically. They are not passing money on in the same way as the banks do. That may have been what the noble Lord, Lord Stockwood, was getting at in Committee when he responded to this amendment at that stage. New regulations of this kind could also have a chilling effect on the supply of online services in the UK, so more analysis is needed before the FCA introduces new rules. We believe this is an area where the Government and the regulators should be prepared to make progress, but we also understand the constraints.

It is also important that people learn to avoid scams with simple procedures such as face ID, and to take care over what they buy online. This should be an important part of education, and indeed Ofcom, working with the FCA and the tech companies, should be able to make more progress here. I very much look forward to the Minister’s response on this important area and how he thinks we can best address this problem.

[Lord Pitt-Watson (Lab)]

My Lords, before I respond, I must start with a correction. In the third debate, I said that commercial credit data-sharing schemes improve bank referrals and strengthen personal lending. However, the CCDS and the bank referral scheme are different schemes. To correct the record, I meant that the Government are improving competition and supply through enhancements to commercial credit data sharing in this Bill and working with industry to strengthen bank referral arrangements. Both these schemes help to improve lending to SMEs. I apologise for that; I was speed-reading my way through my responses. I will try to be more careful in future.

I am grateful to the noble Baronesses and noble Lords for tabling these amendments and to all noble Lords who have contributed to this debate. On Amendment 17, fraud causes profound financial and emotional harm. As noble Lords know, this Government take the issue of fraud very seriously and are dedicated to protecting UK citizens. As my noble friend Lord Stockwood explained in Committee, the Online Safety Act requires tech companies to take proactive steps to prevent fraudulent content. The Government remain committed to ensuring that Ofcom makes full use of its powers to undertake fast and decisive action against illegal online harms, including fraud. At the request of the Secretary of State, Ofcom will share an annual update on its enforcement strategy for online safety with Parliament.

In July, Ofcom published the fraudulent advertising code consultation, proposing more than 40 new measures to tackle online fraud on the UK’s biggest digital services. Among these measures, Ofcom proposes the mandatory verification of financial services advertisers. This will support legitimate financial promotions from FCA-authorised firms while cracking down on illegal financial promotions such as scam investments and crypto ads.

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[Lord Vaux of Harrowden (CB)]

I am terribly sorry to interrupt the Minister, but perhaps he could explain why the FCA has stopped the reports that the PSR was previously providing.

[Lord Pitt-Watson (Lab)]

I am unable to answer the noble Lord’s question; might I write to him with an answer?

Amendment 20 was discussed in Committee and the Government’s position remains unchanged. As set out in Committee, a range of measures is already in place and further work is under way across government, regulators and industry. This includes firms using increasingly sophisticated fraud detection systems, confirmation of payee checks, work to improve data sharing between payment service providers and steps to ensure that fraud prevention is built into the design of future retail payments infrastructure.

Turning now to Amendment 95, concerning the protection of intellectual property, I agree that weak protections can be a drag on competitiveness. On non-compete clauses, in particular, there are no provisions in the Employment Rights Act 2025 that would affect the use of non-compete clauses by financial services firms. The Government published a working paper on options for reform of non-compete clauses in employment contracts at Budget 2025. We are currently reviewing responses and will respond to the working paper in due course. The focus of the paper was on options for reform of non-compete clauses in employment contracts. It does not consider reform to intellectual property law or other means to protect confidential information. The Government understand that a well-designed, balanced intellectual property system offers confidence for business investors and consumers to contribute to growing our economy.

Turning finally to Amendment 97 in the name of the noble Baroness, Lady Bennett, I recognise the continued threat posed to the UK by ransomware criminals. Following public consultation last year, this Government are already taking forward work through the Home Office to break the business model of ransomware and provide law enforcement with the information it needs to understand, investigate and disrupt ransomware activity. This includes proposals for a targeted ban on ransomware payments and mandatory reporting for businesses above a certain size. Taken together, the Government consider that the objectives of these amendments are already addressed through the existing framework and work that is under way and do not believe that further statutory requirements are needed. With that in mind, I ask noble Lords not to press their amendments.

[Baroness Bennett of Manor Castle (GP)]

Before the Minister sits down, can I ask for a potential timeframe on when the noble Lord expects to see progress on that work in the Home Office?

[Lord Pitt-Watson (Lab)]

Again, if the noble Baroness will accept it, I will write to her on that. I do not know the timetable offhand.

[Baroness Kramer (LD)]

My Lords, the online platforms know exactly what they have to do to stop online fraud; they are just choosing not to do it. The Government say that the answer will come from Ofcom, but that has certainly not worried the platforms one iota. The platforms will take notice only when they have to pay out to reimburse people who have been victims of those fraud scams. That is why Amendment 17 matters, and that is why I am going to test the opinion of the House.

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Moved by

[Lord Pitt-Watson]

18: Schedule 2, page 78, leave out lines 27 to 30
Member’s explanatory statement
This amendment would remove a subsection which duplicates section 131Z19 of the Financial Services and Markets Act 2000 (inserted by paragraph 18 of Schedule 2).

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Moved by

[Lord Pitt-Watson]

21: Schedule 2, page 83, line 5, leave out “131Z12, 131Z13 or 131Z14” and insert “131Z13, 131Z14 or 131Z15”
Member’s explanatory statement
This amendment would correct a cross-reference.

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Moved by

[Lord Pitt-Watson]

22: Schedule 2, page 85, line 13, at end insert “, and
(ii) in its application as a secondary objective, the objective set out in section 30J(1) of the Bank of England Act 1998 (payment systems etc: innovation).”Member’s explanatory statement
This amendment is consequential on the amendment in the name of Lord Pitt-Watson that inserts a new clause after clause 22 relating to the Bank of England’s functions relating to payment systems and service providers.

[Lord Pitt-Watson (Lab)]

In moving my Amendment 22, I will also speak to government Amendments 58 and 59. Amendment 22 is developed from our discussions in Committee.

Payment systems are essential national infrastructure. They allow households to pay bills, businesses to trade and financial institutions to transfer funds securely. As technology changes how we pay, those systems must continue to evolve, becoming more efficient and capable of supporting new services while remaining trusted and resilient. The Bank of England has a critical responsibility to protect and enhance UK financial stability. The Bank is also working with the Government and other authorities to support safe innovation in payments and digital finance. The Bank has welcomed this measure and will reinforce that work while preserving the primacy of financial stability.

Amendment 58 places the Bank’s role in facilitating innovation on a clear statutory footing. When exercising certain key functions for recognised payment systems, recognised digital settlement asset service providers, and in-scope service providers, the Bank must, so far as is reasonably possible, facilitate innovation with a view to improving the quality, functionality and economy of those systems and related services. The objective is expressly secondary and does not require the Bank to facilitate innovation where doing so would undermine its primary financial stability objective. This change will also bring the regulation of systemic payment systems and digital settlement assets into closer alignment with the Bank’s supervision of other financial market infrastructure. The Bank already has a secondary innovation objective for central counterparties and central securities depositories. Providing a comparable objective for payment systems and digital settlement assets provides the Bank with a clear and consistent statutory framework.

Amendment 58 also ensures that the Bank can be held accountable under its new objective. It enables the Treasury to make recommendations about aspects of the Government’s economic policy for the Bank to have regard to when considering how to advance its financial stability and secondary innovation objective in relation to payment systems. Those recommendations must be published and laid before Parliament. The Bank must explain the action it has taken, or its reasons for not acting, and provide updates where required. The Bank’s annual reports must now also explain how it has advanced the secondary innovation objective and engaged with interested stakeholders.

Amendment 59 reinforces that accountability by requiring the Bank to publish a stand-alone annual report on both secondary innovation objectives. The report must explain how objectives have been embedded in the Bank’s operations, processes and decisions, and how it has advanced them with respect to relevant functions. This will give Parliament and industry clear sight of how the objectives operate in practice.

Amendment 22 is consequential. It ensures that the mechanism already in the Bill for co-ordination between the Financial Conduct Authority, the Prudential Regulation Authority and the Bank with respect to relevant payment functions makes appropriate reference to regulator objectives, which would now include the Bank’s secondary innovation objective.

In summary, these amendments together place the Bank’s role in facilitating safe innovation on a clear statutory footing, while preserving financial stability as its primary objective. They also provide stronger and more transparent accountability for how the Bank applies the objectives in practice. I hope that noble Lords will join me in supporting these amendments.

[Baroness Kramer (LD)]

My Lords, I have a couple of very brief comments. I am comfortable with the amendments that the Minister has just described, but I have one note of caution. The drive for innovation, which we all think is a good thing, in many ways also increasingly exposes the UK to a loss of monetary sovereignty, particularly where that innovation has to be brought in from overseas, and gives overseas companies far greater control of the payments systems in the UK. That is one of the ongoing fears that we have had. Scott Bessent has been quite open in saying tariffs are very old-fashioned in controlling western economies’ and that stablecoin is the way to do it.

I am therefore cautious when I hear this drive for innovation without some counter-warning and counter-consideration of the monetary sovereignty impacts. I never hear those words used, nor are they captured in any way in anything that I hear around regulation. So often, the move into digital assets—which is, in essence, what this is all about—is about plumbing and pipelines; it does not recognise the political implications. We have seen this in many other areas, such as where we have given away food security and energy security. We need to be very careful that we do not give away security in the financial services and payments sector.

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Moved by

[Lord Pitt-Watson]

23: Schedule 2, page 93, line 6, at end insert—
“(aa) in paragraph 2(3), omit“, (ca)”;”Member’s explanatory statement
This amendment would remove a cross-reference to the paragraph omitted by paragraph 58(a) of Schedule 2.

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[Lord Altrincham (Con)]

My Lords, these amendments reflect a number of important concerns about the proposed transfer of anti-money laundering supervision to the FCA. We do not believe that each of these points requires legislative commitment. However, we have also been made aware of serious concerns from industry about how this transition is being communicated and how the new regime will work in practice.

These concerns include the governance arrangements following the transfer of the timetable and the transitional process, the maintenance of professional standards, proportionality, and the extent to which the FCA will retain specialist expertise needed to supervise highly technical sectors such as accountancy, legal services and trust and company service provision. There are also legitimate questions about the practical support available to firms, the likely cost of the new regime and whether smaller firms in particular will face disproportionate burdens.

This is why our Amendment 93, in my name and that of my noble friend Lady Neville-Rolfe, covers a transfer of AML supervision. Parliamentary and entire industry oversight of these changes will be vital in making sure that this new architecture works in the way the Minister wants.

The common thread running through our amendment and the other amendments in this group is therefore a sensible one. If the Government are going to centralise this responsibility within the FCA, they must demonstrate that the FCA is genuinely equipped to undertake it, and provide clarity to industry about how this process is going to be practically achieved. That means not simply having the formal regulatory powers, but having the right people, the right sectoral knowledge, appropriate transitional arrangements and a clear understanding of how supervision will operate across the country.

Industry is concerned about these questions, and those concerns should be taken seriously. I therefore hope the Minister can make a firm commitment today to provide considerably greater clarity about how this transfer will be implemented, how professional expertise, standards and proportionality will be maintained, and what firms should expect during transition.

[Lord Pitt-Watson (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Kramer, for tabling these amendments concerning the implementation of the reform of the UK’s anti-money laundering and counterterrorist financing supervisory regime. The points everyone is raising about the implementation of this needing to be well done are extremely important, as is the comment made by the noble Lord, Lord Altrincham, about parliamentary oversight of what is taking place here.

Amendments 26 and 27 concern support for firms and implementation planning. Amendment 26 would require the Treasury to publish and lay an assessment before Parliament, including a comparison between the education, guidance and compliance assistance currently available to firms and the support that will be provided by the FCA. The Government recognise the concern that professional services firms should continue to receive clear guidance, appropriate support and access to sector-specific expertise following the transition to the FCA.

Existing provisions in the money laundering regulations, which require supervisors to provide information about money laundering risks to supervised populations, will apply to the FCA in relation to its expanded responsibilities. The FCA already has significant experience of providing AML/CTF information and guidance to a large and diverse supervised population. For these reasons, the Government do not believe that a statutory assessment is necessary.

Amendment 27 would require the Treasury to publish a statutory timetable for implementation. While we do not believe such a requirement is necessary, the FCA has provided some additional clarity on the expected implementation timetables. The current expectation is that the first businesses will begin to be supervised by the FCA before the end of 2028. Further onboarding will take place in phases, with the broad aim that all firms within scope will be supervised by the FCA by mid-2030.

Implementation should proceed only when the necessary preparations are complete. This includes ensuring that appropriate systems and effective information-sharing arrangements are in place, supervisory staff are adequately trained, and sufficient clarity is provided to firms about the future regime. Retaining flexibility will allow the Government and the FCA to respond to stakeholder feedback and lessons arising during the transition.

Existing supervisors will continue to supervise firms, taking enforcement action where necessary and maintaining standards until the FCA assumes its new responsibility. The Office for Professional Body Anti-Money Laundering Supervision, OPBAS, will continue to oversee the existing professional body supervisors during that period. The FCA is already engaging with professional body supervisors and HMRC on information-sharing and data-sharing arrangements.

Amendment 28 concerns professional expertise. The Government fully recognise that effective supervision depends on supervisors understanding the sectors they regulate. Legal services providers, accountancy firms and trust and company service providers have different business models, risks and regulatory arrangements.

Of course, the FCA already supervises a large and diverse population, including many smaller firms, and has extensive experience applying a proportionate, risk-based approach across different business models and firm sizes. The FCA’s independent Smaller Business Practitioner Panel also provides direct insight into the perspectives and challenges facing smaller regulated firms.

This reform is not about applying a banking-style or one-size-fits-all supervisory model to professional services firms. The future regime will be proportionate and risk-based and establish a more consistent and effective framework, while recognising the different characteristics and risks of those sectors.

Amendment 29 is on supervisory fees. All businesses, particularly smaller firms and sole traders, want assurance that the future regime will remain proportionate and that firms will not be required to pay excessive supervisory fees. The FCA will consult on the design of its future fee model before assuming responsibility for these sectors. The Government expect fees to be proportionate and consistent with the FCA’s wider fee framework, where smaller firms generally face lower costs than larger firms. The detailed fee structure will depend on the final supervisory model and is therefore better developed through consultation.

Finally, Amendment 30—

[Lord Russell of Liverpool (CB)]

My Lords, I apologise for interrupting. The Minister has not answered the question of what assessment the Government have made of the cost impact on firms of moving from a single supervisor to dealing with two, particularly for small firms.

[Lord Pitt-Watson (Lab)]

I am not aware of an individual calculation that has been done for that. I do not think that there will be a materially greater cost once the move is made. The key issue that we are trying to address here is that, right now, we have 23 regulators of AML, and that job needs to be done in a more co-ordinated and consistent fashion. If I have information on that, I would be delighted to write to the noble Lord on those costs.

Finally, Amendment 30 addresses the FCA’s capacity to undertake effective AML/CTF supervision across all parts of the United Kingdom. Amendment 30 would require the FCA to report on its capacity to supervise firms throughout the UK. The FCA already operates across the United Kingdom through its offices in London, Leeds and Edinburgh and anticipates having a significant presence for the new AML regime outside London. This provides a strong foundation for maintaining regional coverage, preserving local knowledge and ensuring that jurisdiction-specific issues continue to inform supervision and implementation planning. This will also help with ensuring that regional risks and jurisdiction-specific considerations are understood and addressed, while maintaining a consistent approach across the United Kingdom.

I recognise the objectives behind these amendments: careful implementation, appropriate support, maintenance of expertise, proportionate fees and sufficient FCA capacity. The Government understand why these assurances are being sought. However, additional statutory reports, assessments and fixed requirements are not necessary. These matters are being addressed through implementation planning, capability building, stakeholder engagement, consultation and parliamentary scrutiny of the necessary secondary legislation. The Government will continue to work closely with Parliament, industry, existing supervisors and the FCA. Our aim is to deliver a more consistent, effective and co-ordinated AML/CTF supervisory framework, while ensuring that firms receive proportionate supervision and appropriate support. I therefore ask the noble Baroness, Lady Kramer, to withdraw her amendment.

[Baroness Kramer (LD)]

I withdraw the amendment.

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Moved by

[Lord Pitt-Watson]

31: Clause 16, page 18, line 38, at end insert—
“(ba) the competitiveness and growth objective (see section 1EB), and”Member's explanatory statement
This amendment would clarify that the strategic priorities set out by the FCA in a long-term strategy under new section 1JZA of the Financial Services and Markets Act 2000 must include strategic priorities in relation to the competitiveness and growth objective.

[Lord Pitt-Watson (Lab)]

My Lords, growth is the top priority for the Government, and the financial services sector is key to delivering this. As my noble friend Lord Stockwood set out in Committee, the Government always intended that the FCA’s long-term strategy would set out its priorities for advancing its international competitiveness and growth objectives. The noble Baroness, Lady Noakes, rightly questioned if our legislative drafting was clear and, after further consideration, the Government have tabled this amendment to ensure that the law is clear on this point. I thank the noble Baroness for bringing this matter to our attention.

I turn to Amendments 32 and 33 which would place detailed statutory requirements on the content of the FCA’s and PRA’s long-term strategies, including requiring descriptions of future regulatory initiatives, indicative timelines and assessments of potential trade-offs. The Government agree that this is an important part of Parliament’s role in scrutinising the work of the regulators. I welcome the commitments made by Nikhil Rathi, the CEO of the FCA, in a letter he sent to me on 2 September, which has been shared with the Lords Financial Services Regulation Committee, the Opposition Front Bench and interested Peers. The letter made a commitment to pro-actively engage relevant parliamentary committees on their priorities before settling future strategies. Katharine Braddick, the new CEO of the PRA, also made commitments in her letter of 3 September to engage its stakeholders and Parliament in the development of its strategy. As I committed to earlier in today’s debate, I am placing these letters in the Library.

Much of the information that the noble Baroness seeks is, or should be, already available through existing channels, including the Regulatory Initiatives Grid, which is updated regularly and is specifically designed to provide firms and stakeholders with forward-looking information on forthcoming regulatory activity. The FCA also publishes and will continue to publish an annual work programme that details what it will deliver in the coming year against the strategic priorities in its current strategy.

The purpose of the long-term strategy is different. It is intended to set out the regulator’s strategic direction and priorities over a five-year period, rather than to operate as a detailed business plan. As the FCA sets out in its letter, the strategy is intended to provide greater clarity and predictability about its priorities, and to provide a strong basis on which Parliament and others can hold it to account for its performance against those priorities. The Government therefore do not consider that these additional statutory requirements are necessary.

I now turn to Amendment 68, which seeks to create new statutory offices for regulatory evaluation within the FCA and the Bank of England. I recognise the concerns expressed during Committee about ensuring that Parliament has access to meaningful information about the performance of the financial regulators. It is a point well made. This amendment would go further than this. It would establish permanent statutory bodies with dedicated directors, governance arrangements and reporting requirements, introducing additional costs on the regulators. As we discussed in Committee, there already exists a range of mechanisms to provide this information. This proposal could potentially duplicate these arrangements, and the Government do not agree that more institutional machinery will necessarily lead to better scrutiny.

--- Later in debate ---

[Baroness Neville-Rolfe (Con)]

My Lords, I begin by paying tribute to my noble friend Lady Noakes, to the Financial Services Regulation Committee, including the noble Baroness, Lady Bowles, and the noble Lord, Lord Vaux, and to my noble friend Lord Bridges of Headley for their persistent pursuit of a very simple but important principle. As regulators gain more power and their remit expands, so too should the scope and effectiveness of the oversight to which they are subject.

My noble friend Lady Noakes powerfully articulated the concern that the FSMA model has been stretched too far and that even our expert parliamentary committees are struggling with the volume and complexity of oversight. We need stronger, not weaker, democratic accountability, which is why we saw value in the office of regulatory evaluation and/or my noble friend Lord Bridges’s original model tabled in Committee. We also share his concern about the dismantling of the Bank of England’s IEO.

This is an area where the Opposition will continue to develop our thinking for future legislation and would welcome engagement. We are not comfortable with a system whose reaction seems to be to delegate every new or persistent problem to our regulators. We are very pleased that my noble friend Lady Noakes will continue to work with the Treasury and the regulators on improving parliamentary oversight through the relevant committees, and we look forward to working with her and others across the House, including the noble Baroness, Lady Bowles. What she has proposed represents a practical compromise that would allow us to move on. However, a positive response to Amendment 93 on first use of the new powers would also be important.

One practical way in which the accountability gap could be narrowed a little—and, indeed, trust in the FCA improved—would be to strengthen the remit of the cost-benefit analysis panels, which already sit within the regulators. Their remit could extend beyond rule changes to include guidance and enforcement activity. They could be given the ability to request an assessment of changes that the regulator has judged to be immaterial. This would strengthen internal challenge, improve confidence in the regulatory process and provide Parliament with more useful and more independent information. I have not brought back yet another amendment on this proposal, but I hope the Minister can commit to looking seriously at it as a follow-up to this useful debate.

I welcome the Government’s amendment on competitiveness and growth. I am only sorry that the name of the Financial Services Regulation Committee does not seem to have made its way into the statute.

[Lord Pitt-Watson (Lab)]

My Lords, I will not take up too much time because I responded to many of the points at the beginning of the debate. On the Independent Evaluation Office at the Bank of England, the Bank is committed to independent evaluation. It is strengthening the independence of the reviews that it commissions by moving to a model where it commissions external independent experts to lead the reviews.

I echo the noble Baroness, Lady Neville-Rolfe, in thanking the noble Baroness, Lady Noakes—and the noble Baroness, Lady Bowles, I should add—because we have a commitment from the FCA. If you want to be cynical about it, it may not be as fulsome a commitment as we might want, but it says that accountability, scrutiny and proportionality are central and it wants to support effective parliamentary scrutiny, which I think is where we are all coming from. I thank the noble Baroness and her committee for picking up the baton on this because we must all—Parliament and regulators, with the help of the Government where we can help—work together to have a regulatory environment that is effective and proportionate.

With that in mind, the Government do not think that at this stage further legislative amendments are helpful. I beg to move Amendment 31.

Amendment 31 agreed.

Building Societies Act 1986 (Assimilation to Company Law and Changes to Funding Limit) Order 2026

Lord Pitt-Watson Excerpts

Wednesday 2nd September 2026 Grand Committee

Moved by

[Lord Pitt-Watson]

That the Grand Committee do consider the Building Societies Act 1986 (Assimilation to Company Law and Changes to Funding Limit) Order 2026.

[The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)]

My Lords, building societies are a vital part of the United Kingdom’s financial services sector, and the Government are committed to ensuring that their legislative framework remains fit for purpose. This order is the latest step in the Government’s programme of updates to the Building Societies Act 1986 to ensure that it continues to align with company law, where appropriate, and that the Act’s funding framework operates to support financial stability and strong prudential standards among building societies.

The order before the Committee makes two targeted changes, and I will take each in turn. First, the order modernises requirements on building societies when executing legal documents. At present, building societies are required to execute certain legal documents, such as deeds, by affixing a common seal. Companies, by contrast, have greater flexibility under the Companies Act 2006: they may execute documents either by using a common seal or by the signature of authorised signatories.

This order aligns the position for building societies with the company law framework. It provides that a building society will be able to choose whether to execute documents by affixing a common seal or by having the document signed by authorised signatories. Those authorised signatories will include directors and the secretary of the society, and the order also provides for execution by a director in the presence of witnesses. This is a practical and proportionate modernisation: it will reduce unnecessary administrative burdens and it reflects the Government’s broader commitment to keep building society law aligned with company law, where that is appropriate.

The second element of the order concerns building societies’ wholesale funding limit. Under the 1986 Act, building societies must raise at least 50% of their funding from members’ deposits. That requirement is central to preserving their distinctive mutual model, which means that building societies are owned by their members. I want to be clear that this order does not change that fundamental principle.

Instead, the order makes targeted changes to the ways that wholesale funding is calculated. It specifies certain sources of funding that are to be disregarded for the purposes of that calculation. These include funding from specified Bank of England liquidity facilities, debt instruments issued to meet the Bank of England’s minimum requirements for own funds and eligible liabilities, and certain sale and repurchase agreements using high-quality liquid assets that are being held to meet prudential requirements.

The purpose of this change is straightforward. It is inappropriate to treat funding that supports prudent liquidity management or compliance with prudential regulation in the same way as ordinary wholesale funding. Doing so can distort the calculation and, in some cases, in effect, double-count funding.

That outcome is not consistent with the objectives of UK prudential regulation; nor should the funding limit create unintended disincentives for building societies to use Bank of England liquidity facilities. The order ensures, therefore, that the funding limit operates in a more appropriate way by exempting those sources of funding from the calculation. It supports the objectives of prudential regulation, protects financial stability and gives societies greater funding flexibility, while preserving the statutory requirement that at least half of their funding must come from members.

In conclusion, this order makes focused, practical and positive changes. It modernises the legal framework for building societies, supports prudent liquidity management and helps ensure that building societies can continue to compete effectively while maintaining their mutual business model. For those reasons, I commend this order to the Committee and beg to move.

[Baroness Kramer (LD)]

My Lords, the Minister is exactly right, of course. Building societies and mutually owned banks are absolutely crucial to our economy. They hold some 29% of all outstanding residential mortgages, and that figure is growing. They are especially significant for first-time buyers as conventional banks are less active in this market. So, as we try to solve the housing crisis and restore economic growth, both the capacity of the sector to grow and its lending matter—but so, too, does the stability of the sector.

As the Minister said, the Building Societies Act 1986 requires that a building society must raise at least 50% of its funds from individual member deposits, with the consequence that funding from wholesale markets cannot exceed 50%. However, this order changes the way in which the 50% is calculated to specify that certain funding sources will be excluded from the wholesale calculation. The examples given include specific Bank of England liquidity facilities, loss-absorbing instruments —we would typically cite MREL—and specific repo agreements. This is clearly of importance to the larger societies. It sets them on a more level playing field in competing against banks, as well as increasing their lending capacity. However, even though I support this change, I have two questions.

First, have the Government assessed the impact of increased wholesale funding in times of interest rate volatility? I point out to the Minister that there will be an increase in wholesale funding, if one is not going to be highly technical, because MREL, for example, is raised in the wholesale markets, as are the repos. A number of the instruments that are covered and will be excluded from the calculation are, in fact, wholesale market transactions.

Funding short—the characteristic of the wholesale funds—and lending long, at a fixed rate, was the curse of HBOS when it failed. Once, in a conversation with me that discussed such a situation, Warren Buffett’s number two, Charlie Munger, talked of funding short and lending long as living proof of the walking dead. It is a riskier strategy because of the duration mismatch. I am not suggesting that these changes are going to lead to those extreme outcomes, but it is clear that the squeeze on margins that comes from greater wholesale funding can end up inhibiting lending—and does so exactly at the time when the economy typically needs new liquidity and lending the most.

My second question is slightly different. Is there any risk of diluting the mutual identity by, in a sense, changing this weighting of wholesale versus membership funding? Building societies are much more community-driven than conventional banks. If that link were weakened by the need to respond to the pressures from wholesale lenders, we would all be losers, frankly. I would appreciate the Government’s comments on that.

The other issue in this statutory instrument, offering choice on how to execute documents, strikes me as simple common sense. Frankly, I had no idea that common seals are still in use. Indeed, I may be the only person in this building who has actually closed contracts by using a seal. That was under armed guard, because it had to be removed from the vaults and every movement was observed, because the seal was of such extraordinary value. I really thought that those days were over, and I am pleased that building societies are now going to be relieved of the burden.

--- Later in debate ---

[Lord Pitt-Watson (Lab)]

I thank noble Lords for their consideration of this order. I have listened carefully to the interventions made and will try to respond to them, if I can.

One was on the interest in common seals. Until I read this SI, I also had not realised that building societies were so constrained. There was then a series of questions about borrowing short and lending long, which is of course central to building society and bank operations; that is why you can have a run on a building society or a bank and why we have the Bank of England to deal with that and give confidence so that a run does not take place. Clearly, in the changes that are being made, which are relatively small changes associated with highly liquid instruments, deposits and dealings with the Bank of England, there is not a huge difference in the duration risk that we see today and the duration risk that we will see in future. The aim is to make building societies more equivalent and similar to banks so that they can be more competitive.

As regards what the effects of this will be, the noble Baroness, Lady Neville-Rolfe, asked a good question about greater mortgage lending. I did in fact go back and ask whether a calculation had been made on that. The answer I got, which I thought was quite a good one, was that the reduction in constraint does not immediately mean that a building society will change what it does because there are many other considerations in how it expands its balance sheet. Therefore, there is not a number on that one. I feel quite comfortable that there is not a number, but we create a level playing field. As for a review in five years’ time, I do not know what would be included in such a review; I think that it might be impacted by events from now and going forward.

In terms of the impact of interest rate volatility, as raised by the noble Baroness, Lady Kramer, the changes have been designed to help with periods of market instability, including interest rate volatility. I did inquire about the additional mortgage lending. I did not get an answer, but I think that I did not get an answer for quite a good reason.

As I set out my opening speech, this order should make targeted and practical changes to the Building Societies Act, modernising requirements and specifying certain sources of funding to be exempt from the wholesale funding limit calculation. It should ensure that the legislative framework for building societies remains proportionate and aligned with wider company law and prudential regulation, while preserving their fundamental mutual model. I hope that I have answered the questions raised.

[Baroness Neville-Rolfe (Con)]

That is very helpful and I am grateful to the Minister for answering the questions about likely changes in mortgages and investment. There are a couple of strands I would like to emphasise. One is that I am very concerned that we should help smaller building societies as well as bigger ones, which I hope he agrees with, and that competitiveness is an important factor. The one thing he perhaps could answer, either now or in a letter, is whether this is the end of the road or whether there are more changes coming in SIs on building societies.

[Lord Pitt-Watson (Lab)]

On both those questions, may I write to the noble Baroness? My understanding is that this is the end of the road for this set of legislation, but I cannot predict whether further legislation may come forward. On small and big building societies, might I simply write to the noble Baroness?

Motion agreed.

Overseas Prudential Requirements Regime (Credit Institutions and Investment Firms) Regulations 2026

Lord Pitt-Watson Excerpts

Wednesday 2nd September 2026 Grand Committee

Moved by

[Lord Pitt-Watson]

That the Grand Committee do consider the Overseas Prudential Requirements Regime (Credit Institutions and Investment Firms) Regulations 2026.

[The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)]

My Lords, the Committee will consider together two statutory instruments made under the Financial Services and Markets Act 2023, known as FSMA 2023. Although these instruments address different areas of financial regulation, they share a common purpose, which is to ensure that the UK’s regulatory framework remains stable, proportionate and internationally competitive. Together, they provide greater certainty for firms, preserve appropriate regulatory safeguards and support the continued effective functioning of UK financial markets.

The first instrument supports the Government’s wider programme of replacing retained EU legislation by creating a new overseas prudential requirements regime. The second concerns over-the-counter, or OTC, derivatives and establishes a permanent regulatory framework for certain intragroup transactions. I will address each instrument in turn, beginning with the overseas prudential requirements regulation.

The first instrument is the Overseas Prudential Requirements Regime (Credit Institutions and Investment Firms) Regulations 2026. Following EU exit, the UK retained a body of EU-derived financial services legislation, known as assimilated law. This includes the capital requirement regulation, or UK CRR, which sets detailed prudential requirements for credit institutions, such as banks and building societies, and for larger investment firms.

In 2025, the Government consulted on their approach to repealing a number of equivalence provisions currently contained in that assimilated law. This instrument delivers that approach. In particular, it restates the existing UK CRR equivalence regimes within a single overseas prudential requirements regime, helping to make the prudential framework easier to navigate while maintaining continuity for firms. Existing equivalence decisions will be preserved as overseas regime decisions under the new framework, providing continuity and certainty for firms.

This forms part of the Government’s wider programme under the Financial Services and Markets Act 2023 to repeal assimilated financial services law while preserving the necessary policy outcomes. This supports the implementation of the FSMA model of regulation, under which detailed firm-facing requirements are set in regulators’ rulebooks rather than in legislation.

As part of this wider reform agenda, the Government are replacing the existing equivalence regimes inherited from the EU with overseas recognition regimes that are tailored to the UK’s needs and reflect the Government’s outcomes-focused approach to the unilateral regulatory recognition of overseas jurisdictions.

This instrument is intended: first, to consolidate currently fragmented equivalence provisions into a single, coherent regime, while maintaining continuity for existing CRR equivalence decisions; secondly, to adjust the treatment of exposures to overseas exchanges so that capital treatment better reflects the underlying risk; thirdly, to replace the definition of “third-country investment firm” with “overseas investment firm” while maintaining the overall scope and effect of the existing treatment; and, finally, to enable the Government, subject to a further statutory instrument and parliamentary approval, to recognise eligible covered bonds from overseas jurisdictions in the future.

I turn to the second instrument, which makes a targeted and important reform to the UK’s framework for regulating OTC—over-the-counter—derivatives, those traded directly between buyer and seller, by addressing intragroup transactions. It replaces the temporary intragroup exemption regime, known as TIGER, with a permanent framework. In doing so, it provides firms with long-term certainty while preserving appropriate safeguards and regulatory oversight.

As I think all my audience knows, derivatives are contracts whose value is linked to an underlying asset, benchmark or index. They are widely used by businesses to manage risks. Intragroup transactions, where companies within the same corporate group are counterparties to a derivative contract, allow groups to manage their risks efficiently. The benefits of intragroup transactions are well recognised, so exemptions from certain clearing and margin requirements for certain transactions are a feature of regulatory regimes in the UK and in other jurisdictions.

TIGER was introduced following EU exit to provide a temporary regime for exempting certain transactions between a UK counterparty and an entity within the same group located in a jurisdiction that has not been declared equivalent under UK legislation. It was only ever intended to be a temporary measure and, having been extended once already, it is due to expire at the end of 2026. The Government consider that a further, time-limited extension would not provide the long-term framework that firms need. This instrument therefore establishes a permanent framework for qualifying intragroup transactions with overseas group entities to benefit from a regulatory exemption. The instrument also provides continuity for firms relying on TIGER exemptions.

These reforms do not remove safeguards. Firms must continue to meet the conditions for intragroup treatment, and for relevant cross-border exemptions, the Financial Conduct Authority will continue to have visibility through a notification process, while retaining oversight of the regime.

In summary, these are proportionate reforms that replace EU exit arrangements with a stable UK framework, reduce unnecessary friction, support firms’ global risk management and maintain robust regulatory oversight. I beg to move.

[Baroness Kramer (LD)]

My Lords, I will address each of these instruments separately. First, on the overseas prudential requirements regime, in the Government’s perspective, this statutory instrument is simply the application of the FSMA model to decisions on equivalence. The Government know that I am quite concerned that the FSMA model removes from parliamentary oversight decisions that were once considered to require democratic engagement and puts them into a model that is notably weak on accountability to Parliament. This is obviously a much bigger issue than this SI.

Initially, existing equivalence decisions will remain in place. Can the Minister explain whether future changes and additions will come before Parliament in any way? Will it be a deciding situation or will it be merely reported? I stress that, to me, transparency and accountability are two different things, yet sometimes, in conversations with the regulators, you would think that they were the same.

--- Later in debate ---

[Baroness Neville-Rolfe (Con)]

My Lords, I am grateful to the Minister for setting out the purpose and effect of these two instruments. Although both are technically dense, they share a common and quite straightforward purpose: they replace parts of the inherited or temporary post-EU framework with permanent UK arrangements. It gives us an opportunity to make the regime more proportionate and better suited to the UK market while preserving the prudential safeguards on which financial stability depends. We support both instruments in principle, but I have a few important, mainly technical, questions. I hope that the Minister will be able to answer them today; if not, perhaps he could write to the Committee by way of follow-up.

I turn first to the overseas prudential requirements regime regulations. The instrument carries across a substantial number of existing recognitions from the outset, for countries with sophisticated regulatory regimes, such as the US and Singapore, to some with newer and riskier ones. That is welcome because it should prevent a cliff edge for firms when the EU-derived framework is revoked. The separate treatment afforded to Gibraltar also reflects the particularly close relationship between our two financial systems.

It is important to be clear that designation does not make an exposure risk free, automatically give it a zero-risk weight or amount to a blanket finding that every aspect of an overseas regime is equivalent to our own. The Treasury can designate a jurisdiction for particular institutions or exposures and may attach conditions. The detailed prudential treatment will continue to depend on the PRA rulebook and the characteristics of the exposure concerned.

This, of course, places considerable responsibility on the Treasury when deciding which jurisdictions should be recognised and for what purpose. What evidence and methodology will the Treasury use when assessing an overseas regime? What formal role will the regulators play in this determination, and will the Treasury publish its assessment when making a new designation, so that Parliament and the market can understand the basis for the decision?

There is also the question of what happens after a designation has been made. Prudential standards, supervisory capacity and political circumstances can change. How will the Treasury monitor designated jurisdictions on an ongoing basis, and how frequently will their status be reviewed? If standards deteriorate, can a designation be suspended or withdrawn urgently during a period of financial stress, and how quickly could that decision take effect?

Future designation decisions will ordinarily be made under the negative procedure. Given that those decisions can affect the capital treatment of significant overseas exposures, will the Minister explain why that level of parliamentary scrutiny is considered sufficient? Will the Government at least commit to placing a clear assessment of the prudential case and the expected effect of each designation before Parliament?

Finally, on this instrument, Regulation 5 establishes a mechanism for recognising overseas eligible covered bonds, but the initial Schedule does not appear to designate any jurisdiction for that purpose. Can the Minister explain when the Treasury expects the power to be used?

I turn to the Over the Counter Derivatives (Intragroup Transactions) Regulations. These provide a permanent replacement for temporary post-Brexit arrangements, governing exemptions from the clearing and margin requirements in UK EMIR. This is targeted deregulation rather than the dismantling of the wider derivatives regime. It does not exempt ordinary transactions with unrelated third parties, and the FCA retains an important supervisory role. The hope is that the reforms will reduce duplication, release collateral and make it easier for international groups to manage risk centrally.

In considering this instrument, it would be helpful to know how things stand on derivative policy more generally. In particular, are the French still seeking to transfer valuable trade through protective EU regulation or have they seen sense, given the interests of their own companies and banks?

The Treasury says that no significant impact is expected. That is rather disappointing for a deregulatory measure, and it has consequently not produced a full impact assessment. What estimate has it made of the clearing, collateral and administrative costs that firms will avoid and the scale of any hidden costs? How, in practical terms, will the new notification system reduce the time and compliance work involved, compared with the present arrangements? Has Dr Felix Martin of the Cost Benefit Analysis Panel been given a chance to take a view? These are both serious measures, which is why they are subject to affirmative resolution, and I would like some reassurance on the deregulatory impact.

The Government present these reforms as supporting the competitiveness of the UK financial services sector, which is obviously an objective that we support. How does our new framework compare with the treatment of intragroup derivatives in the European Union, the United States or other major financial centres? Will the United Kingdom become a more attractive location for the treasury and risk management operations of international groups? If so, what indicators will the Treasury use to assess whether that benefit is realised?

The FCA’s role will be central. Is the Minister satisfied that it will have the information, expertise and capacity needed to assess potentially complex international group structures within the 30-day period? Where an exemption concerns two overseas entities, how will supervisory responsibility be co-ordinated with the relevant overseas authorities?

Conditions can also change, as the noble Baroness, Lady Kramer, explained. A jurisdiction may introduce capital controls, a local regulator may impose ring-fencing requirements or funds that once moved freely may become trapped during a crisis. What continuing obligation will firms have to notify the FCA of such changes? What power will the FCA have to suspend or withdraw an exemption? The central task in both cases is to ensure that greater flexibility and competitiveness are accompanied by robust supervision, continuing vigilance and appropriate parliamentary transparency. However, I am clear that these are important instruments and, subject to some sensible answers on these questions, we support them.

[Lord Pitt-Watson (Lab)]

My Lords, I thank the noble Baronesses for their comments, some of which go a little beyond what we are trying to address here with these statutory instruments. I understand the concern of the noble Baroness, Lady Kramer, about the FSMA regime, how it works, parliamentary oversight and the rest of it, but not relitigating it when we are talking about statutory instruments would be a better use of everybody’s time.

On concerns about decisions passed by regulators, no new responsibility is being passed to Parliament. These will stay decisions for Ministers and Parliament, not regulators. I specifically mentioned that the recognition of covered bonds would need to be approved by Parliament. Essentially, we are moving from one regulatory regime to a UK regulatory regime. I understand the questions about whether the UK regulatory regime is right, but we should probably not relitigate that now.

The noble Baroness, Lady Neville-Rolfe, asked what criteria would apply to future designations. The Treasury will assess whether recognition of an overseas jurisdiction is compatible with the relevant policy outcomes, which includes protecting the stability of the UK financial system, protecting the safety and soundness of UK banks and investment firms, promoting effective competition in financial services and markets and/or supporting the international competitiveness and medium to long-term growth of the UK economy.

The noble Baroness, Lady Neville-Rolfe, asked about covered bonds issued by other jurisdictions and whether they could receive preferential treatment without further parliamentary scrutiny. The answer to that is no. A specific designation of an overseas jurisdiction in relation to covered bonds would require a subsequent statutory instrument and parliamentary approval. This instrument does not designate any jurisdiction or confer preferential treatment on any particular covered bond markets. There are no current plans to use the power, but it is important that we have it available. I should write to her on the question on the bets. That is well beyond my pay grade.

How does the UK approach compare with that of the EU? The EU removed the previous dependent on third-country equivalence decisions for intergroup treatment through EMIR 3. The EU now uses restrictions linked to specified high-risk or non-co-operative jurisdictions with scope for additional jurisdictions to be identified. The UK instrument likewise delinks intragroup eligibility from Article 13 equivalence but has detailed safeguards and processes designed for the UK framework.

Finally, on why a full impact assessment has not been made, the instrument is not expected to impose significant ongoing direct costs. It largely preserves existing treatment and does not include new designations. A de minimis impact assessment has been prepared. It identifies negligible familiarisation costs and no expected annual direct costs to business. Any material future costs or benefits associated with detailed prudential treatment would arise principally from PRA rules and be assessed by the PRA through cost-benefit analysis.

Today, the Committee has considered two statutory instruments. Although covering different aspects of financial regulation, both support the Government’s objective of maintaining a regulatory framework that is proportionate, effective and supportive of growth, while safeguarding financial stability. The overseas prudential requirements regime supports the Government’s wider programme of reforming assimilated EU financial services law. It brings together currently fragmented provisions within a clearer and more coherent statutory framework, while supporting the transition of assimilated law to the FSMA model of regulation. The second instrument, the Over the Counter Derivatives (Intragroup Transactions) Regulations, replaces a temporary regime that expires at the end of this year with a permanent framework for qualifying intragroup transactions. It gives firms certainty, supports efficient risk management across international groups and avoids unnecessary disruption when TIGER expires.

At the same time, it does not remove the underlying condition that firms must meet to benefit from these exemptions. The Financial Conduct Authority will retain oversight across border exemptions and the ability to object when those conditions are not met. The Government therefore believe that the reforms strike the right balance between reducing unnecessary burdens and maintaining appropriate safeguards. Taken together, these instruments provide certainty, support the competitiveness of the UK’s financial services sector and ensure that our regulatory framework continues to operate effectively.

[Baroness Neville-Rolfe (Con)]

I have just one question. The Minister gave a very helpful reply. He seems to be saying that the second instrument is essentially carrying things over—that both instruments are carrying over from previous EU law, rushed through after Brexit—and putting them on a permanent basis. My questions were about assessment and the FCA, which he answered well. What happens when we have a new designation? Will there be a process of assessment and an impact assessment for that? I can understand where we are just moving things across, but it would be helpful to know what the Treasury’s plan is.

[Lord Pitt-Watson (Lab)]

It would come to Parliament for approval, with an assessment.

Motion agreed.

Over the Counter Derivatives (Intragroup Transactions) Regulations 2026

Lord Pitt-Watson Excerpts

Wednesday 2nd September 2026 Grand Committee

Moved by

[Lord Pitt-Watson]

That the Grand Committee do consider the Over the Counter Derivatives (Intragroup Transactions) Regulations 2026.

Motion agreed.