Financial Services and Markets Bill [HL]

Debate between Lord Pitt-Watson and Baroness Lawlor

Committee stage
Wednesday 8th July 2026 Grand Committee

[Baroness Lawlor (Con)]

My Lords, I am delighted to have the debate, and I am very grateful to the noble Lord, Lord Pitt-Watson, for raising questions which have encouraged debate, but I support my noble friend Lady Neville-Rolfe’s opposition to Clause 39 standing part of the Bill. I also support her Amendment 160A about ring-fencing.

Clause 39 gives the Treasury powers to loosen the ring-fencing scheme. It has been anticipated, as others have said in this debate, by a number of announcements and reports, not least the Skeoch report—I hope I have pronounced it rightly, in the Celtic way—and the announcements this year by the Treasury itself. All of these point to and address a real problem. The question before us today is whether the Government’s solution in their Clauses 39 and 40 is sufficient to deal with the problems raised by reviews and announcements going back to the 1 March 2022 independent review of the working of the scheme.

I have a concern. The clause may seem to be the answer to some of the serious questions raised in that review and other concerns, and allow for the mitigation of problems arising from the ring-fencing regime—to allow for “proportionate” changes, to use a word which continues to recur throughout the assessments of how the scheme is working. However, in essence, it protracts the dominance of the regime and the regulators in what should be business decisions under good law, which is the spirit of the common law. It is a law which is permissive of risk-taking rather than prohibitive of the spirit of enterprise, or looking over the shoulder to the precautionary principle.

Officials and regulators can be very intelligent, competent and talented people, but it is not part of their skill set to drive through an entrepreneurial idea from the drawing board to production, sale, expanding their markets, developing a business, taking risk, and hiring and training people—which is an additional cost—while all the time keeping on top of the services sector, one of the fastest growing sectors in the UK and a jewel in the crown. Enabling officials to decide which activities should or should not be prohibited, and under which circumstances, does not tackle the fundamental problem to which the ring-fenced regime has given rise: the artificial and contrived structure. We are dealing with a structural problem—an artificially separated structure.

This structure inhibits the financial services sector from functioning in the best possible way, as an enabling hub for the whole UK economy, to allow small businesses, in particular, to grow and credit to flow. It is unlikely to remedy what we are dealing with, the fundamental problem of risk aversion imposed by ring-fencing law on businesses and the endemic risk aversion in the operation of the law.

[Lord Pitt-Watson (Lab)]

I wonder whether there might be some confusion here. The thing about the ring-fence is that there are activities within it that the Government are promising to bail out. Those things are being insured. By the way, the move in the ring-fence proposed by the Government will extend these a little, but they include lending to the small businesses that the noble Baroness has talked about. The question is: are we going to be rid of that? Is it the case that the implicit guarantee that the Government are giving can go to any other activity that the bank decides that it wants to undertake? That could include, although Skeoch would say it is not a problem right now, the sort of proprietary trading that brought the American banks down in 2008—of course, they had been allowed to do that because Glass-Steagall had been removed 10 years earlier. What we are talking about here is: how much of bank activity will the Government stand behind? As Mervyn King said, we must make sure that it is just the very most important things.

[Baroness Lawlor (Con)]

I thank the noble Lord, but it is about where the line is drawn in law, so that businesses can be certain and have predictability, because activities change day by day.

[Lord Pitt-Watson (Lab)]

With respect, that is what Skeoch is recommending and what is being allowed in what we are being asked to accept here—there is an extension of the ring-fence. He is saying, “Look, there are other important activities that go beyond the ring-fence that are administratively complicated for the banks. Please can you move this? Also, can you move this in a way so that it doesn’t need to go to primary legislation any time it needs to change, because all these things are moving?” What we are trying to do here is recognise that the independent commission is run by a senior financial businessperson—he used to run Standard Life—whom we are going to back. He indeed said that, in the long term, you may want to think about how ring-fencing goes together with the resolution regime, but that is not for now. He certainly did not say that we should abandon it.

[Baroness Lawlor (Con)]

I thank the noble Lord, but he was speaking about 2022, which was light years away for the financial sector. Things have moved on and have changed. We have different regimes in place now. As my noble friend Lady Noakes has explained, the banks are now resolvable. There are other schemes that will avoid the problems for the taxpayer. That should be borne in mind.

I had better finish quickly. That is my objection. It is about who decides for businesses. If you have a ring-fence, ultimately, no matter how much you relax it, the Government are never going to have the knowledge of the sector, and the detailed tactical and strategic ability, to be ahead of the game and make businesses grow. They will always play slightly safe, but maybe they are over-safe.

I will finish on why we need to repeal the ring-fence, not just why Clause 39 is not good enough. In a sense, we are seeing the inhibition of risk-taking and a structure that inhibits it. As other noble Lords have pointed out, we do not have parallels in other economies. I know that there is the Volcker rule in the US, but Switzerland has solved its “too big to fail” problem without a ring-fence and it has a very instructive banking sector. France and Germany have it individually but not the EU, which rejected it. Australia reviewed it again in 2019 and rejected it on the grounds that noble Lords have mentioned. It is well worth going back to the famous Skeoch review, which contends that, in the longer term, we will not need the ring-fence and we will have resolution schemes in place. For those reasons, I support my noble friend’s opposition to the clause standing part of the Bill and her Amendment 160A.