Fortifying the Fiscal Framework (Economic Affairs Committee Report)

Lord Pitt-Watson Excerpts

Tuesday 3rd November 2026 Grand Committee

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

My Lords, it is a pleasure to respond to this debate on the Economic Affairs Committee’s report on the fiscal framework, and to do so alongside so many distinguished noble Lords: to have the noble Lords, Lord Burns and Lord Macpherson, talking at this debate, with their experience, is a real treat. I thank all noble Lords for their thoughtful and considered contributions during today’s debate and congratulate the Economic Affairs Committee on the report.

In particular, I thank the committee’s first chair, my noble friend Lord Wood of Anfield, and its current chair, my noble friend Lord Liddle for his opening speech and chairmanship. I also thank members of the committee, past and present, and the committee staff for producing the report. It raises important questions about fiscal rules, the role of the Office for Budget Responsibility and the long-term sustainability of the public finances. Along with officials across the Treasury, I have studied the findings and look forward to continuing to work with the committee in my role as Lords Treasury Minister.

Indeed, I have studied the report more often than noble Lords might imagine, because when I was appointed as a Minister in the summer, I asked civil servants to put together a package of documents which they thought would be particularly informative, including on the fiscal rules. That the committee’s report was among that bundle is testament to the seriousness in which it is held.

Before I address the substance of the report, I should say a few words about the wider economic context and the Budget that took place last week, since it has been raised a number of times. I do not want to address the particular political points that have been made. If we want to look at the graph of when the debt of this country was built up and map that against the administration, we can. If we want to look at the time when Britain had to start paying a premium, we can do that too. I set that aside.

I would like to talk about the Budget, set, of course, against the backdrop of global economic storms. The Chancellor has made it clear that we cannot wish those storms away. Indeed, we must set a course to steer through them. That is why both the Prime Minister and the Chancellor have been clear that fiscal responsibility will underwrite every promise that the Government make. In this Budget, we met our fiscal rules. For the first time since 2022, we are meeting fiscal rules which are assessed in the third year of the forecast, with borrowing falling across the Parliament.

Despite the warning from forecasters that our economy would slow down, Britain has shown real resilience. The OBR has upgraded the UK’s growth forecast for this year to 1.2%. One swallow does not make a summer but, in the first part of this year, we were at the top of the G7. Productivity was up at 2.2% last year, compared with an average growth rate of 0.5% between 2015 and 2024. Whole economy investment and business investment have grown more in this Parliament so far than they did in the entirety of the last one.

Nevertheless, debt and the deficit are big and considerable issues. People have said that there is not enough will or evidence that the debt and deficit are being kept under control, but I note that earlier this month the IMF forecasted that our deficit would be the lowest in the G7 by 2029. It also said that the UK now “stands out” as a country where

“action to reduce the debt and deficit has been taken decisively”.

I know that concerns have been raised about this, quite rightly. It is an important thing to be thinking about but, in saying that this is just a fantasy hockey stick, the noble Lord, Londesborough, is in disagreement with Kristalina Georgieva. That is certainly not to claim that everything is rosy, but it shows that this Government take fiscal discipline seriously. Indeed, we believe that it is a sine qua non for steering through these difficult times.

Let me return to the report, where I think we find a considerable degree of consensus. First, we all believe that fiscal rules are important. I think even my noble friend Lord Sikka would think they are important, although he would want a social report on their effect. The report suggests some reform. It covers five areas: the control of debt and whether a new debt rule is required; the adequacy of headroom; fiscal rules and whether new ones are needed and how they should be agreed; fiscal forecasting and the critical independence of the OBR; and long-term sustainability. Let me try to take each of those in turn, beginning with debt.

As I have already set out, this Government met the fiscal rules at the Budget last week and, for the first time for the Government, they were assessed in the third year of the forecast. The second fiscal rule, the investment rule, ensures that government debt, defined as public sector net financial liabilities—when I got this job I discovered that this is known as “persnuffle”—must be falling as a percentage of the GDP. We are meeting that rule with a headroom of £24 billion in 2029-30, so that will be lower at the end of the forecast than now.

I accept that a number of noble Lords, starting with the noble Lord, Lord Redwood, asked: is this not just always “jam tomorrow”, and therefore do we not need something that tightens the fiscal rule? Indeed, the committee’s report proposes that the Government should set out an additional debt target that would show cumulative performance over three years. I understand that, but the Government’s position is that the design of the fiscal rules needs to strike an appropriate balance between maintaining a clear, medium-term anchor and allowing near-term adjustments in response to changing economic conditions before the three-year target. Similarly, the committee’s report raises concerns that debt can rise while the fiscal rule is still met. However, targeting a reduction allows space to respond to near-term shocks and return debt to a sustainable path.

To be clear, all the statistics and measures that we are looking at are fully transparent. From the independent record, outsiders in particular, such as this committee, can see how debt is evolving over time. These are important numbers, and it is appropriate that the Government are questioned on them, but it is another, bigger step to say that a new fiscal rule therefore needs to be introduced. The fiscal rules just set a minimum target, and the OBR forecast shows that debt stabilises in 2008-09 before falling in the following year.

That is supported by the fact that the level of borrowing falls across the forecast to 1.8% of GDP by the end of the forecast, after having already fallen by 0.7% of GDP last year. This may not be St Augustine—we are not entirely holy yet—but it feels as if things are happening here. The noble Lord, Lord Liddle, and others said that perhaps it is possible to game the fiscal rules that we have, but the IMF’s independent and serious international observers have noted that our consolidation plans, underpinned by our rules, stand out compared to our peers. The UK is one country where action to reduce debt and deficit has been taken decisively. So it is not clear to me that a new debt rule is needed, although the figure may be an important one to look at.

With regard to the fiscal rules, the committee’s report makes three further recommendations. The first relates to the frequency of changes in the fiscal rules, the second argues for fuller consultation before fiscal rule changes are made, and the third calls for an additional fixed rule rather than using the rolling rules alone.

First, I think we have consensus on the frequency of changes. It has been pointed out that fiscal rules in the past have often had a short lifetime, but we have stuck to the rules for three Budgets and there are no plans to change them.

On the second recommendation, there is some scepticism that consultation on the rules would be done better through a broad political grouping. Rather, it is right that the fiscal rules are set by the Chancellor in line with the Government’s priorities and fiscal strategy, consistent with manifesto promises. The Government’s economic priorities and fiscal strategy are set out in the manifesto before a general election. However, when it comes to consultation, of course the Government regularly engage relevant stakeholders and experts, as well as those from other countries. Fiscal rules were legislated through the Charter for Budget Responsibility, providing a full opportunity for debate and scrutiny.

On the third issue of rolling and fixed rules, as noble Lords will be aware, from this fiscal year the fiscal rules target the third year of the forecast, which binds near-term decisions while still providing some space for macroeconomic adjustment. It also links to the three-year spending plans of government departments. We therefore believe that rolling rules provide the Government with the flexibility to respond appropriately to adverse shocks in the near term and allow time for public finances to recover, while maintaining a clear medium-term anchor. With a fixed rule, as the target grows nearer, adjustments to in-year savings or tax rises become more challenging and potentially economically damaging. A rolling target instead provides a medium-term anchor to support stability and sustainable public finances.

I turn to headroom, which is needed to absorb the impact of economic shocks. This is what a buffer is for: to be used when needed before being rebuilt when conditions allow. The conflict in the Middle East has driven up borrowing costs all around the world; for the UK, this is broadly in line with the G7 average. All G7 countries have seen borrowing costs rise. It is our forecast that costs will be about £14 billion a year in extra government debt interest. At the last Budget in 2025, the headroom was, £21.7 million. It is now £15 billion for 2029-30, before rising to £22 million in 2030-31, so some of the increase in borrowing costs has been absorbed in the Budget. We feel that is the right level, as a matter of both contingency and challenge, to make sure that the Government stick to their fiscal consolidation.

As regards forecasts and the OBR, the report and the Government are in entire agreement as to the importance of the OBR and the critical role it plays. As the noble Lord, Lord Burns, said, it is the Government who set the rules and the procedures, but the OBR is an independent adjudicator on what those plans look like. The committee’s report argues that requiring two OBR forecasts a year creates unnecessary policy volatility. The UK has a long-standing practice of having two official forecasts per year. This predates the OBR, and we value the OBR’s role in ensuring economic and fiscal transparency. It will continue to publish two forecasts a year, in line with best practice internationally. In line with the recommendation made by the IMF, the OBR now assesses the fiscal rules only once per year, in the Budget. This aims to create a more predictable framework, strengthen stability and give business and households certainty about the future.

I turn to the question of a long-term fiscal sustainability. The OBR’s recent Fiscal Risks and Sustainability report confirms the need to boost growth and maintain sustainable public finances. That is what the Government are committed to doing. It also shows—I think some of the figures have been quoted—that if there were no change from the assumptions made today then, over a long period of time, debt goes very high indeed. The report says that that is a path to unsustainable debt levels. However, one can overlook the Government taking action to think about this, to bring down borrowing over the long term, including, for example, announcing the electric vehicle excise duty, which is necessary to replace taxes on petrol. I think that might have been part of the projections that noble Lords were looking at. We mentioned that, from April 2030, the Government will adjust the triple lock, which will have a big effect on what the long-term future looks like. That reform ensures that the state pension is sustainable, protecting pensioners today and today’s workers when they are pensioners. The observations of the committee are understood, but these actions show that they have been taken on board by the Government.

The charter for Budget responsibility, which this Government updated to reform the fiscal framework, ensures that fiscal sustainability will remain central to the Treasury’s objectives for fiscal policy. We will continue to consider a wide range of metrics to inform a full assessment of the sustainability of public finances. As a result of our 2024 reforms, the OBR will also continue to report on the long-term impact of capital investment and government policies in its forecasts. But fiscal stability is an ongoing process. Constructive criticism is welcome; indeed, it was part of the briefing for a new Minister in the Treasury.

I once again sincerely thank the Economic Affairs Committee for its work on this important report. The Government share the committee’s overriding commitment to fiscal responsibility and to ensuring that the fiscal framework continues to operate effectively. The challenges to the fiscal outlook set out by the OBR last week demonstrate why this position is necessary, because it is only by delivering sustainable public finances that we can maintain resilience in the face of global shocks. I look forward to continuing to engage with the committee as we take forward the measures in this Budget, including through the upcoming 10-year plan and the spending review.

Binance Security Breach: Consumer Exposure and Interim Safeguards

Lord Pitt-Watson Excerpts

Tuesday 3rd November 2026 Lords Chamber

[Lord Nagaraju (Lab)]

My Lords, I declare my interests in AI and technology as set out in the register, and I beg leave to ask the Question standing in my name on the Order Paper.

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

I welcome this Question. The Government are closely monitoring developments following the Binance security breach and are engaging with the Financial Conduct Authority and other authorities to assess the implications for the UK. Binance is not authorised or registered to provide crypto asset services to the UK. However, it is possible that UK customers may still have been affected, and the Government are currently working to understand the associated impacts and risks.

[Lord Nagaraju (Lab)]

My Lords, given that a large number of UK consumers engage with crypto assets and that the new regulatory regime will not take full effect until October 2027, will the Minister commit today to working with the FCA, the National Cyber Security Centre, the Bank of England and other relevant authorities to put effective transition arrangements in place now and publish a clear interim cyber security and consumer protection plan with a timetable before the end of this year?

[Lord Pitt-Watson (Lab)]

We are looking to learn from what happened at Binance, but I am not clear that it makes sense to put in an interim arrangement. By October next year, we will have a comprehensive FCA regime for crypto assets, including disclosure, market abuse and resilience. To put that in place requires changes by the firms, and it then requires authorisation. There will be an iterative process there, and I think it might not be helpful to have an interim regime in the middle of that. It would perhaps slow things down.

[Baroness Kramer (LD)]

My Lords, the hacking of Binance demonstrates that large-scale theft is far more possible in a crypto world. At present, UK banks are resisting providing accounts, financial services and credit lines to crypto service providers, but that is expected to change in the next year when the FCA’s crypto providers authorisation scheme kicks in. What would be the consequence to bank stability of such a heist happening after that authorisation and the relationship created between the banks and the crypto world? Would the banks be covering the losses? It is certainly unclear who is covering the losses now.

[Lord Pitt-Watson (Lab)]

I am not quite sure what heist the noble Baroness has in mind. We can say that, right now, the Financial Stability Board does not believe that crypto assets are a systemic risk to the financial system, but if she would like to write to me with her thoughts on how this heist might come about to affect one of the large banks, I would be very interested to read that.

[Lord Ranger of Northwood (Con)]

My Lords, I bring to the attention of the House my registered interests in AI businesses and digital assets.

Digital assets operate across borders, as do cyber security threats, as we have seen in the issue with Binance. Given the considerable progress being made internationally on regulatory co-operation, does the Minister agree that there should be an increased amount of discussion about that co-operation on regulatory compliance? Also, does the Minister agree that the Government should commit to making digital assets a security and regulatory priority as part of our G20 presidency next year?

[Lord Pitt-Watson (Lab)]

Digital assets and cryptocurrencies are two related things. As regards digital assets, this is something that the Government are promoting through our industry group with Chris Woolard. He has been quite successful in thinking how we do that safely and well to make the UK a centre that can take advantage of digital assets and tokenisation.

[Lord Alton of Liverpool (CB)]

My Lords, will the Minister ask his officials to provide for him a copy of the House of Lords Written Question HL4338 from December 2017? That contained warnings about the ability of North Korea to hack cryptocurrency and to commit cyber robbery—2017 being the year of the attack by North Korea on our National Health Service. Will the Minister ask his officials what notice was taken of those warnings? In light of the evasion of sanctions and the recycling of revenues into nuclear weapons and ballistic missiles programmes, what progress is being made in tracing the stolen assets and identifying those responsible? Will the Minister agree to meet the officers of the All-Party Parliamentary Group on North Korea and the All-Party Parliamentary Group on Crypto and Digital Assets?

[Lord Pitt-Watson (Lab)]

I would be very happy to meet, but I wonder whether there is a misunderstanding here. Binance, which is the institution that has been hacked, is not authorised in the UK. It is not registered in the UK; it is a foreign entity. While I am sure that there will be lessons to be learned from the issues that the noble Lord is talking about, what happened with Binance did not happen under any registration in the UK.

[Baroness Neville-Rolfe (Con)]

My Lords, this incident shows that society as a whole faces very serious risks from cyber crime and that lessons need to be learned, as the Minister has said. I know that the Minister is concerned about financial education. Will he use his influence to ensure that the prevention of fraud in all its aspects, including cyber crime, plays a full part in plans to improve financial education?

[Lord Pitt-Watson (Lab)]

I would be more than happy to do that, and to do it jointly with the noble Baroness.

[Lord Vaux of Harrowden (CB)]

My Lords, the Government are issuing digital gilt instruments, and I believe that the first trades are expected to happen in Q1 of next year. What lessons are we learning in terms of the security for DIGIT from this hack?

[Lord Pitt-Watson (Lab)]

The DIGIT is a digital gilt instrument which we are experimenting with. The hack, of course, was to an exchange, which is rather different, so I am afraid I do not have an answer to that question. If the noble Lord would like, I could write when the evidence is in about what happened on Binance and any relevance it might have for DIGIT.

[Lord Fox (LD)]

My Lords, to help the Minister’s bewilderment at my noble friend Lady Kramer’s question, he is right to say that Binance is not registered in the United Kingdom at the moment. But under the conditions of change, as outlined by my noble friend, there is every reason to believe that Binance or an equivalent organisation will be registered after the changes next year. Her question was: in the event of that, how would such a theft be dealt with? Would it be by the banks or the exchange, and where would the Government and the Bank of England sit in that position?

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[Lord Pitt-Watson (Lab)]

I do not know the details of what happened at Binance, but my understanding is that the money came from custodial operations at the exchange itself, not from a bank. Perhaps I could get back to the noble Lord if I am wrong on that.

[Lord Bellingham (Con)]

My Lords, following the question asked by the noble Lord, Lord Alton, the Minister will probably be aware that yesterday the US Treasury announced that it had overwhelming evidence that it was rogue North Korean state actors who perpetrated this appalling fraud. Given the number of UK investors in this particular exchange, what can he and his department do to work with the US Administration to pursue this?

[Lord Pitt-Watson (Lab)]

I am not sure that we know how many UK investors there were because, as I say, Binance was not authorised or registered to provide crypto asset services to the UK. But when we discover that, which we are looking to do today, I am sure we will want to co-operate with all regulatory authorities in making sure that this cannot happen again.

[The Earl of Kinnoull (CB)]

My Lords, North Korea has form in attacking financial markets to fund its foreign currency requirements. It attacked the London reinsurance markets 15 years or so ago, when there were heavy losses for London reinsurers and losses for German reinsurers. This is a pattern of attack by North Korea. Can the Minister tell us whether we are co-operating internationally, not just with the Americans but with the Germans in this instance, to try to make sure that we can stamp out this abuse by North Korea?

[Lord Pitt-Watson (Lab)]

Indeed we are. We have been taking some powers to trace, seize and recover, and we have been getting financial institutions to do more about disclosure and know your customers. I am not aware of the specific conversations that we have had with individual countries, but if that is of particular interest to the noble Earl, perhaps I can write to him.

Tax-Free Shopping: Economic Impact

Lord Pitt-Watson Excerpts

Monday 26th October 2026 Lords Chamber

[Baroness Meyer]

To ask His Majesty’s Government what assessment they have made of the impact of tax-free shopping on the economy.

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

My Lords, the VAT retail export scheme known as tax-free shopping was withdrawn in 2021. The announcement of that withdrawal was made by Kemi Badenoch. The OBR estimated that the 2021 withdrawal, which was from non-EU citizens, would save the taxpayer £540 million. However, a policy that was compliant with World Trade Organization rules would apply to EU citizens as well and be much more expensive. It therefore seems extraordinary that Mrs Badenoch has confirmed that she would reintroduce this policy but has not told us how it would be funded. Should any Member of the party opposite know the answer to that question, I would be most interested.

[Baroness Meyer (Con)]

I thank the Minister for his Answer. I should note that it was actually Rishi Sunak who scrapped the scheme. The OBR estimate of £500 million a year is not agreed by many of the organisations and businesses that would benefit from it. Will the Minister review the evidence, since many do not agree with the numbers, and consider a digital retail export scheme modelled on Germany and Italy, in which private operators refund and thus reduce administration costs to the Government? That was one reason why the scheme was scrapped, because the Government estimated that it was too expensive bureaucratically. Before the noble Lord, Lord Watts, says anything—yes, it was the Conservative Party that scrapped the scheme, but, on the other hand, I think to myself, “Isn’t this an irresistible opportunity for the Labour Government to reverse something to create jobs and growth in this country?”

[Lord Pitt-Watson (Lab)]

I thank the noble Baroness, Lady Meyer. In fact, the Conservative Party did reintroduce this scheme in the Liz Truss mini-Budget. It was withdrawn six weeks later by Jeremy Hunt when he became Chancellor and, when he withdrew it, he suggested that that would save the taxpayer £2 billion per year. Again, I ask if anyone on the Benches opposite can tell me where that £2 billion would come from? As to the evidence that this would be tax raising, there are some reports—I accept that point from the noble Baroness—but the Oxford Economics report was, of course, commissioned by the Association of International Retail and the Centre for Economics and Business research by Global Blue, which is a company that provides VAT refund services. If we are going to have evidence-based policy, I think the numbers that I have been citing to your Lordships are rather better than ones that might be in danger of being policy-based evidence.

[The Earl of Clancarty (CB)]

My Lords, it is worth pointing out that the VAT retail export scheme is the norm in the EU, and it was withdrawn here in the wake of Brexit. That loss has particularly affected the creative industries, including craft and fashion, as the British Fashion Council points out. To take the wider view, will the creative industries be under particular discussion at the EU-UK summit on 20 November?

[Lord Pitt-Watson (Lab)]

I am absolutely sure they will. But, to be clear about the evidence here, if we look at the difference in spend by foreign visitors from 2019 to 2024 in the major EU countries and in the UK, we see no evidence that the withdrawal of this scheme has been negative. Britain is actually a little above the average. It is not statistically significant, because it is comparing only five countries, but I really do not think that there is evidence that the withdrawal of this scheme has done great damage, and the scheme comes at some cost.

[Baroness Kramer (LD)]

My Lords, the Minister is someone who understands calculation. My understanding is that the Treasury and the OBR have not calculated the lost revenue from the higher visitor activity in the UK that would have resulted had this scheme not been withdrawn, have not calculated the potential revenue from the spend of those additional visitors to the Treasury, and that that number, according to the industry, is roughly £2 billion a year. Will he go back and try to understand why the OBR and Treasury do not include those calculations when they assert that they are saving money by scrapping the scheme, because it looks to everybody that, at the worst, it would be a wash, and, if the industry is even vaguely correct, the Treasury is actually losing money in this way?

[Lord Pitt-Watson (Lab)]

Let me reassure the noble Baroness that the £540 million figure that I gave, which is a Treasury figure, fully includes all the knock-on effects of the introduction of the tax-free shopping scheme for non-EU citizens. The £2 billion quote was from Jeremy Hunt after Liz Truss’s disastrous mini-Budget. I cannot tell noble Lords how that number was calculated, because in the Liz Trust Budget the OBR was not consulted.

[Baroness Royall of Blaisdon (Lab)]

My Lords, I hear what my noble friend says and certainly do not have any answers. I remind noble Lords of my registered interests. However, I know that many visitors from far away overseas who used to come and spend five or six days in this country, visit lots of wonderful attractions, do a lot of shopping and then go home now come here for three days, visit some attractions and then go to Paris, Milan and other places to do their shopping. Therefore, can my noble friend perhaps look again at this at some stage?

[Lord Pitt-Watson (Lab)]

I can come back on that. I think we all understand that visitors can still reclaim VAT on purchases; they just need to have them shipped directly. If they are shipped directly, they are then caught by customs in the country to which they are shipped. The statistics are the 2019 to 2024 statistics. UK tourism receipts recovered to 111% of their 2019 levels after adjusting for inflation. In France, they recovered to 107%, in Italy to 103% and in Germany to 83%. We were beaten only by Spain with 117%. The notion that loads of people who were coming here who are now not coming here is difficult to stand up on the evidence.

[Lord Harlech (Con)]

My Lords, I declare an interest in that my wife works for a British fashion house.

Lost sales equals lost jobs. One of the areas hit hardest in the rising NEETs situation is retail and hospitality. What are the Government doing to improve sales in these areas and get young people back into retail jobs?

[Lord Pitt-Watson (Lab)]

There are a number of things for the broader retail industry. In particular, I note the new deal on business rates support, with retail and hospitality saving nearly £1 billion a year, covering 750,000 properties. The Government continue to review the wider business rates system. However, if there is to be any change to that, we need to wait for the Budget.

Defence Sector Banking Services: Environmental, Social and Governance Rules

Lord Pitt-Watson Excerpts

Monday 26th October 2026 Lords Chamber

[Lord Sharpe of Epsom]

To ask His Majesty’s Government what progress they have made in reforming environmental, social and governance rules to ensure that they are not used by financial institutions to deny banking services, including loans, to the UK defence sector.

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

My Lords, I thank the noble Lord, Lord Sharpe, for his interest in this issue. It is timely because, in response to his and other work, today the FCA has confirmed there should be no sustainability requirements and no FCA regulatory barrier preventing banks and other financial institutions supporting the defence sector. I have the publication with me; it requires good practice from financial firms. I hope that goes some way to addressing the concerns the noble Lord has been raising.

[Lord Sharpe of Epsom (Con)]

I thank the Minister for that Answer, and I am very grateful to him for it, because it is encouraging. The reason I am asking this Question again—the second time in 18 months—is that I was recently contacted by two ex-Army officers who have developed a novel counter-drone technology. They had secured a £700,000 grant from Innovate UK but were in danger of losing that grant because they had nowhere to put it. The banks said that they could not open an account on the ex-Army officers’ behalf “because of the nature” of their business. Can the Minister press home the importance of this new FCA report directly to the banks? Perhaps he could invite them to the Treasury and explain that defending the nation is not only profoundly ethical but a moral imperative.

[Lord Pitt-Watson (Lab)]

I am in entire agreement with the noble Lord, Lord Sharpe, on this. To be clear, no legitimate company should be excluded from financial services solely because it operates in the defence sector. I can confirm that, as a first step, the FCA will be writing to all financial firms today to make that expectation absolutely clear. Again, I thank him and the many other people from all political parties who have been campaigning on this important issue for some time.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, I chair the Industry and Regulators Committee. We are looking at defence at the moment, and we have heard from small defence companies with this problem. I ask two things. The first is to make sure that the FCA enforce the guidance, which it does not do in the other area I deal with, as noble Lords know, of politically exposed persons. The second is that financial services be sympathetic to the sort of cases referred to. These are often new companies, so they will not have a long trading arm, and therefore help must be flexible.

[Lord Pitt-Watson (Lab)]

Again, I am in total agreement on this. The FCA did this, and we encouraged it to do so, for precisely for that reason. In particular, we want to make sure that new start-up companies and small and medium-sized enterprises in the defence sector have access to the financial services they need to carry out their business and help protect the nation. I thoroughly agree with the comments made by the noble Baroness.

[Baroness Kramer (LD)]

My Lords, I asked that this action be taken in an amendment to the financial services Bill, so I am very pleased that we are going to get more vigour from the FCA. I join others in insisting that that vigour be sustained. There was a second, equally important issue: the public procurement process for small defence businesses, including the Government’s failure to protect SMEs’ intellectual property. Given that these small businesses are vital for innovation in the defence sector, as other noble Lords have said, will the Government look seriously at this issue, which is also undermining development in this area?

[Lord Pitt-Watson (Lab)]

The Government are sympathetic and are putting their money where their mouth is. For example, the British Business Bank’s growth guarantee scheme, which is specifically focused on defence and other SMEs, provides £3.5 billion a year. One example is Kraken Technology, in marine defence, which aims not to be the sole lender but to crowd in private finance as well. The national security strategic investment fund, for start-up companies like the one we were talking about earlier, will invest £100 million by 2029-30. So, again, we have a full consensus and considerable action is taking place on the issues being raised by this Question today.

[Lord Robertson of Port Ellen (Lab)]

My Lords, I refer to my entry in the register of interests. There are still financial institutions in this country which are resistant to the idea of investing in defence. I ask the Minister to encourage them to read last year’s strategic defence review, in which they will see the good reasons we have for investing in defence, especially given the danger this country faces. I also point out that the word “defence” refers to the defence of this country. This country is in danger, and a lot of these companies need the money for investment for the future.

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[Lord Pitt-Watson (Lab)]

Again, I am in desperate agreement with the noble Lord. The first communication they are going to receive is from their regulator, the Financial Conduct Authority—I have it here—which is going to be clear that there are no sustainability requirements that prevent companies serving defence firms. When they serve defence firms, they should consider the risks associated with them, but they should do that proportionately and consistently across all the companies they are funding. If this FCA action does not work, I am sure I will have another round of Questions in a few months’ time.

[Baroness Neville-Rolfe (Con)]

My Lords, like others, I have been appalled by this long-standing problem with finding bank accounts, especially for the small and innovative defence companies that we really need at the current time. On 8 June, the FCA said:

“Our sustainability rules do not prevent investment in or finance for defence companies”.


I am not sure what today’s welcome announcement changes, because banks continue to have their own ESG-style exclusions—and I know ESG is an area in which the Minister is an expert. So, can he undertake to sort that out as well?

[Lord Pitt-Watson (Lab)]

I think that is also covered in the FCA letter. One can overdo how significant ESG disclosures and regimes have been in preventing investment in defence. At one time, that was an issue, and there has been some concern among supporters of allowing ESG investment, along with some reform. My co-author, Stephen Davis, of Harvard Law School, is among those who has campaigned on this. I note that RUSI agrees that ESG disclosure regimes generally do not prevent investment in defence, and the push now being given by the FCA is the right next step for us to take to ensure that defence companies are treated in exactly the same way as any other companies seeking finance.

[Baroness Deech (CB)]

Will the Minister confirm that the sentiments he has expressed apply equally to any anti-Israel prejudice that is preventing proper investment in defence, and that the Government should lead the way by not putting any obstacles in the way of the supply of and co-operation with Israeli intelligence in our defence mechanisms?

[Lord Pitt-Watson (Lab)]

The FCA is saying—and I agree with it—that there are no rules that exclude financial services from a company solely because it operates in the defence sector. If an individual company wishes to take that into account, it should do so proportionately and consistently, and those rules should be clear to those who are approaching it. If any noble Lords would like me to send them a copy of what the FCA is asking to be done, drop me an email and I will make sure my office sends it to them. This is a significant step forward on what has been an important issue, and I again thank the Members of this House who have been raising it. This is the right response, and a solid one.

[Lord Fox (LD)]

My Lords, I am glad the Minister mentioned the RUSI report, because I attended the discussion on it. He is exactly right that it found that ESG constraints in banks was not a specific issue, but it is also suggested that perceived public affairs and public relations issues in the management of those banks was driving these behaviours. There is more than simply a regulatory issue here; there is a cultural one. Can the Minister explain how we might go about addressing that?

[Lord Pitt-Watson (Lab)]

Please ask for a copy of the FCA report, because it specifically addresses the issue that banks must be responsible for making sure that they are consistent and proportionate and that defence is not a reason, ipso facto, for refusing funding for companies. I would be happy to send the noble Lord that report.

Cash and Card Payments: Reduction in Availability

Lord Pitt-Watson Excerpts

Tuesday 20th October 2026 Lords Chamber

[Lord Blunkett]

To ask His Majesty’s Government what discussions they have had with the financial sector about the decline in acceptance of cash payments and the pending reduction in availability of card payments in favour of payment by smart devices.

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

My Lords, the Government are committed to ensuring cash remains a viable method of payment. Initiatives with the financial sector include LINK, to ensure that cash machines are available, the Post Office for withdrawal and deposits, Cash Access UK for banking hubs, and others, and we await the Lloyd report. Regulation of these services is done by the FCA. Cash acceptance by businesses remains voluntary and levels of acceptance are kept under review.

[Lord Blunkett (Lab)]

I thank my noble friend. I remind the House that, some time ago, I asked the then Minister, the noble Baroness, Lady Vere, if she would come to dinner with me on the proviso that, if I could not access the payment system, she would be the one to pay. We never had the date. Will my noble friend bring pressure to bear on UK Finance to ensure that its terminal approval system mandates tactile covers for flat screen payment devices, so that people with little or no sight can maintain their privacy and have the equality that others take for granted?

[Lord Pitt-Watson (Lab)]

That is a really good question. There are some initiatives from UK Finance that we should commend; for example, its Accessible Cards Code of Practice, where the largest card issuers have committed to common standards for the design of future cards. UK Finance has also developed accessibility guidelines for touch screen chip and PIN devices, as well as an approved list of accessible card terminals and vendors. UK Finance and the British Retail Consortium are working together to identify opportunities to embed these features where customers need them most. However, there is still work to be done, and officials continue to raise the issue with UK Finance. I am more than happy to reinforce that message.

[Lord Bailey of Paddington (Con)]

My Lords, as I am sure the Minister knows, some of the most vulnerable people rely on cash to budget and administer their daily life. As the Minister pointed out, acceptance of cash is voluntary. Will the Government legislate so that essential services are forced to make sure they always accept cash, because some of the most vulnerable people can operate only with cash?

[Lord Pitt-Watson (Lab)]

There is no current plan for legislation, but this is being monitored. The British Retail Consortium believes that all its members are accepting cash, and I think 99% of corner shops are accepting cash. The Bank of England did a survey where 40% of people accepted that, where they had not been able to use cash, they had found somewhere else where they could get the service they wanted. This remains under review, rather than there being any plan at this stage, but the issue raised is an important one.

[Baroness Kramer (LD)]

My Lords, this is getting more complicated. In a year or so, payments, including some salaries, will start being paid in stablecoin. What happens if you do not have an electronic wallet? Even if you have a smartphone, how can you use it to access cash from an ATM? Who is going to pay for interoperability, and will it fall on the consumer or the banks but not on the companies that will make increased profits out of stablecoin?

[Lord Pitt-Watson (Lab)]

On people getting hold of cash, there are initiatives taking place. On future payment systems, the National Payments Vision is trying to put together what an entire system using different payments methodologies would look like. Some of this is work in progress, around where we are and where we are going.

[Lord Hunt of Kings Heath (Lab)]

My Lords, has my noble friend looked at the experience of Sweden, where, a few years ago, there were a number of crashes and online payments were completely halted? The conclusion in Sweden was that it had to have a continuing element of cash payments. Are we looking at that?

[Lord Pitt-Watson (Lab)]

On this question of resilience, yes we are. For example, there is a project with Mastercard to support point-of-sale terminals from 2027 if the system failed, so that the system would still work. There is also a multi-year campaign on preparedness more generally—on the notion of what backups there are if, for example, our payment systems and ATMs failed. Again, that is work in progress, as is the Mastercard project, because it is not here yet.

[Baroness Neville-Rolfe (Con)]

My Lords, the truth is that not everyone is sophisticated financially, and those who are not tend to use cash, especially the elderly. There is a lot of concern in the House, given the increasing drift away from cash—for example, in car parks. Will the Government take steps to ensure that those who use cash can play a full part in the life of our nation, and actually get on with this?

[Lord Pitt-Watson (Lab)]

That is a good question. We are on top of the availability of cash through the banking system, but it is the case that acceptance of cash is voluntary, whether it is a car park, a retailer or the rest of it. That issue is under observation, rather than something on which there are direct plans. I point out that the other way that one can deal with this is to make sure that people have a way to pay by card. For example, the reduction of people who do not have bank accounts—from about 1.2 million to 900,000 over the past four years—is positive progress, but the noble Baroness makes a good point.

[Baroness Hoey (Non-Afl)]

My Lords, the noble Lord mentioned a review. Is he consulting pensioner groups across the country on this? They are particularly affected by the lack of cash and by having to use these modern devices. Can he give a commitment that no government department or institution will ever make it compulsory to use them, and that there will always be the option of using a card or cash?

[Lord Pitt-Watson (Lab)]

I have talked about some reviews. When I talked about voluntary acceptance, I meant voluntary acceptance. As I say, we have data from the British Retail Consortium, the local shop association and the Bank of England and so on about whether that acceptance is currently a problem. There is no consultation on anything that would make acceptance of cash mandatory right now. Although the pensioner groups will be involved in those areas that I have talked about where reviews are taking place, it is not the case that a review of retail acceptance is taking place right now.

[Lord Livingston of Parkhead (CB)]

My Lords, although taking cash is obviously necessary for some groups, it is an increasingly expensive thing to do for a dwindling amount of cash. Will the Minister consider how one ensures that corner shops and high street shops do not bear the cost of this, while people who are online-only get away scot-free? The cost of providing cash must be borne across the retail and utility sector as a whole.

[Lord Pitt-Watson (Lab)]

As I have explained, the choice is entirely voluntary for the people who accept cash right now. Some 99% of members of the local shop association are accepting cash right now. I realise that there are some fixed costs in accepting cash and that that makes it more and more costly. That is why, as I say, this is under observation by the Government, to make sure that we do not slip to a point where people are not able to buy the things that they need.

[Baroness Prosser (Lab)]

My Lords, I ask the House not to forget the purpose of this Question, which was to ensure that there is access to machinery for those who are either blind or partially sighted. We have moved on to other issues, which are of course important, but the whole point of the Question was to ensure that people with sight issues can access such equipment as is available. Please do not forget that.

[Lord Pitt-Watson (Lab)]

That is absolutely right. The Government recognise that individuals with visual impairments must be able to pay for products easily and safely. Considerable progress is being made on cards, but there is some progress still to be made on how chip and PIN services are used. I will reinforce that message from the House with UK Finance.

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.