National Insurance Contributions (Reduction in Rates) Bill

Lord Sikka Excerpts

2nd reading
Tuesday 12th December 2023 Lords Chamber

[Lord Sikka (Lab)]

My Lords, in the era of never-ending real wage cuts, high inflation, high taxes, high interest rates and the cost of living crisis, any help for hard-pressed households is welcome, but that cannot hide the Government’s sleight of hand. Let us remember that last year the Government were prepared to increase the national insurance contribution rate for employees from 12% to 13.25%. They did not really feel that there was any need to help the poorest then. Now that they are doing incredibly badly in the opinion polls, some bribes are obviously coming out and this 2p cut is just one example.

Of course, people will not be fooled by the bribes; they will remember what the Government have done to them. Since March 2021, the income tax personal allowance and thresholds have been frozen and will remain frozen until 2027-28 or maybe even beyond. In 2022, the UK had a tax-to-GDP ratio of 35.3% compared to the OECD average of 34%, and it is going to get worse because of fiscal drag: millions more people are going to be paying income tax and national insurance contributions because of that.

Since March 2022, the threshold for national insurance contributions has also been frozen. Due to the impact of inflation on VAT, higher duties, income tax and national insurance, the additional tax yield is expected to be around £57 billion in 2027-28. This shows that the Government’s claim that they are handing things back to the people is really a work of fiction. The cut in the main rate of national insurance for employees from 12% to 10% and changes in rates for the self-employed will hand back, according to the OBR, £2.2 billion in 2023-24 and £9.4 billion in 2024-25, rising to £10 billion in £2028-29. That is a total of nearly £50 billion.

What are the Government going to collect through national insurance contributions for the same period? According to the OBR, despite the cut in the rate, they will collect £62 billion—£12 billion more than the cut they are handing back. That is all because of fiscal drag. Can the Minister explain why the cut in the national insurance contribution rate does not fully wipe out the increase in revenues from the contributions? Whichever way anyone looks at it, this cut is part of an impression management exercise. It is a small part of the additional taxes that the Government have already collected and will continue to collect.

In line with their usual practice, the Government are handing a lower amount of the national insurance cut to the less well-off and more to the rich. The annual median wage for an employee is £29,669, so a median-wage earner will get a cut of just £341 a year. Those earning more will collect far more. The median earners will still pay a higher proportion of their income in national insurance contributions than wealthier individuals: the Resolution Foundation concluded that the Budget favoured the richest 20% of earners. It will be interesting to see whether the Minister wants to deny that.

As people in London and the south-east of England tend to have higher wages, they will collect a bigger national insurance cut compared to the rest of the country. Due to the Government’s failure to address regional disparities, inequalities will now be widened. In the last tax year, 21 million adults had a taxable income of less than £12,570 and, as a result, were not liable to pay any national insurance contributions. Due to fiscal drag, that number is now around 19 million. The national insurance cut delivers zero benefit to 19 million adults, the majority of whom are women. This includes families who have been robbed of nearly £3,000 a year by the Government’s two-child benefit cap. As usual, the poorest are invisible to the Government. Can the Minister please explain the impact of the national insurance cut on regional and gender inequalities?

The national insurance cut provides little comfort to most families. Savings for median earners are immediately wiped out by the higher price of food, energy, transport, interest rates, mortgage payments, rents and council tax—there is no benefit. The Resolution Foundation estimates that, due to sluggish economic growth, persistent inflation and higher taxes, the average household will be £1,900 a year poorer by January 2025, compared to December 2019—that is a real legacy of the Government. There is no redistribution or levelling up; nothing in the Bill matches that.

The Government could have helped the 19 million adults receiving zero benefit from the national insurance cut by abolishing VAT on domestic fuel, or by cutting the standard rate of VAT, but they chose not to do that. The cost could have been met by clawing back the benefit of the 2% national insurance cut from the richest individuals—for example, by making the national insurance contribution rate more progressive for individuals on higher incomes. Patriotic Millionaires have urged the Government to tax them more, but the Government do not even want to do what the rich are urging them to—possibly because those rich people are not in the Conservative Party.

In case the Minister is tempted to say that the Government have helped the poor by increasing benefits, I remind her that the real value of benefits has fallen since 2010. The Government could have addressed the anomalies in the national insurance contribution laws. For example, there is no economic or moral reason for exempting capital gains, dividends and investment income from national insurance payments. The individuals enjoying exemptions use the National Health Service and social care system, but do not pay anything towards them. If a rich person with capital gains has an accident, a taxpayer-funded ambulance and the NHS would come to the rescue, so why do they not pay national insurance contributions? What is the moral and economic justification? The Government could have raised billions of pounds by eliminating that anomaly.

The Government could also have hit the tax avoidance industry. I know many accountants who are busy converting incomes to capital gains so that certain individuals not only pay tax at a lower rate but dodge national insurance contributions. The Government have done absolutely nothing to deal with that. Of course, getting rid of the tax avoidance industry helps with economic efficiency as well, but again the Government are oblivious to that. Can the Minister explain why investment income in the hands of comparatively few people continues to be exempt from national insurance payments? What is the justification for this? If she wishes, I would be delighted to participate in any debate that she might wish to call on this.

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[Baroness Vere of Norbiton (Con)]

My Lords, I definitely was not lecturing the House—far be it from me to do so. However, it would obviously not be a debate without a Liberal Democrat mentioning Brexit.

I am going to move on from that general observation that I am pleased that there is this political groundswell now back behind the Conservatives for lower taxes, which is excellent—

[Lord Sikka (Lab)]

My Lords, I apologise for intervening, but just to back up the Liberal Democrats, it is not just Brexit. As the Minister will know, since 2010, between £450 billion and £1,500 billion of taxes have not been collected due to avoidance, evasion, fraud and error. If only a fraction of that had been collected, the Minister can imagine how the whole country would have been transformed. If the Minister is looking to expand the debate, here is a point to talk about.

[Baroness Vere of Norbiton (Con)]

The Minister is definitely not looking to expand the debate but is trying to make progress. I hear what the noble Lord says, and if he has read the Autumn Statement, which I am sure he has, he will have seen the announcements made in it about tax avoidance.

Moving on to comments made by noble Lords, I think it is probably not worth rehearsing and rehashing the elements around fiscal drag. Again, I want to put some numbers on record, because there is an opportunity to do so. Thanks to the cut in employee national insurance contributions announced at the Autumn Statement and to above-average increases to starting thresholds since 2010, an average worker in 2024-25 will pay more than £1,000 less in personal taxes than they would otherwise have done. That statement has attracted some interest, and I reassure noble Lords that the calculations underlying this statistic are based on public information, including a published estimate of average earnings. They are robust and could be replicated by an external analyst. This goes back to what I was trying to say about data. Lots of people will do calculations on different bases, but at the end of the day, from the Government’s perspective, we want taxes to come down—this is a start—but of course we will do it only in a responsible manner. However, personal taxes for somebody on an average salary of £35,400 have come down since 2010.

The noble Lord, Lord Sikka, asked about distribution analysis, and the national insurance cuts will of course benefit everybody who pays national insurance. That includes 2.4 million people in Scotland, 1.2 million in Wales, 800,000 in Northern Ireland, et cetera. The latest published HMRC data for 2021 shows that the largest proportion of income tax payers reside in the south-east, followed by London. It will be the case when one has a tax cut that those who pay the largest amount, and the numbers of people who pay tax if they are located in certain areas, are therefore going to see the largest reductions.

However, we have also looked at the impact on women—again, an issue raised by the noble Lord, Lord Sikka. NIC charges apply regardless of personal circumstances or protected characteristics. The equalities impact will reflect the composition of the NIC-paying population. Of course, that feeds into whether we would like women to be paid more. Of course we would. That is why rewarding work will see 28,000 people come into jobs—and I very much hope that they will be well- paid jobs and will be taken up by women.

The noble Lord, Lord Sikka, talked about better-off households. Distribution analysis published at the Autumn Statement shows that a typical household at any income level will see a net benefit in 2023-24 and 2024-25, following government decisions made from the Autumn Statement 2022 onwards. Low-income households will see the largest benefit as a percentage of income. Furthermore, looking across all tax, welfare and spending decisions since the 2019 spending round, the impact of government action continues to be progressive, with the poorest households receiving the largest benefit as a percentage of income in 2024-25. I know that the noble Lord feels that we do not focus on those on the lowest incomes, but he is not correct in that regard.

[Baroness Vere of Norbiton (Con)]

I absolutely accept that the noble Baroness is right to say that you can look at it in a different fashion but, in terms of whether what the Government are doing is progressive, it is fair to say that people on lower incomes are benefiting, as a proportion, to a greater degree. Of course, the Government have intervened when it comes to cost of living. That has been cash and that is not about percentage of income. It is all around our energy price guarantee, increases to the national living wage and looking at the uprating of benefits, which will rise by much more than inflation is forecast to be next year. So there are lots of different factors to take into account and sometimes one can be quite blunt when dealing with a tax cut that is, frankly, going to benefit 29 million people.

The noble Lord, Lord Sikka, asked why national insurance contributions do not apply on unearned income. National insurance contributions are part of the UK social security system, which is based on a long-standing contributory principle centred on paid employment and self-employment. ‘Twas ever thus. Of course, a future Government may make substantial changes to that which would again increase the tax burden—but this Government are content that we will maintain the contributory principle.

[Lord Sikka (Lab)]

I thank the Minister for giving way. I hear what she says, but people who have what the Minister calls unearned income—some people may call it “rentier income”, which is perhaps a clearer expression—can still use the National Health Service. If there was an accident, an ambulance would arrive, even though they had not paid any national insurance. If the need arises, they can still get social care. So why are they not required to pay? They simply are free riders. If they paid, the Government could have made an even bigger cut in national insurance.

[Baroness Vere of Norbiton (Con)]

This potentially leads on to the next question from the noble Baroness, Lady Primarolo, about the percentage of mixed receipts that goes to the NHS. It is about 20%; 80% comes from elsewhere. Those people who pay taxes on their unearned income will, of course, pay into the general fund.

[Lord Sikka (Lab)]

As the Minister knows, the taxes levied on dividends and capital gains are lower than the taxes on wages. If she wants her point to stand, can she explain why capital gains and dividends are taxed at a lower rate than wages? What is the justification for that?

[Baroness Vere of Norbiton (Con)]

I suspect that we are now moving into an area of debate where is not appropriate to go today, because there is business still to come in the House; I know that my noble friend is desperately waiting to get up.

I go back to the point made by the noble Baroness, Lady Primarolo. Obviously, the balance of the national insurance fund is monitored closely. The most recent report from the Government Actuary’s Department—GAD—forecast that the fund will be able to self-finance for at least the next five years. But, of course, the Treasury has the ability to top up the NIF from the consolidated fund when needed. Indeed, this has been done in the past—it was routinely done in the 1990s—so it is not right to say that the cut in NICs puts any pressure at all on any payment to the NHS or otherwise; that is set independently from the national insurance fund.

Autumn Statement 2023

Lord Sikka Excerpts

Wednesday 29th November 2023 Lords Chamber

[Lord Sikka (Lab)]

My Lords, the Budget is further evidence of the Government’s war on low and middle-income families. The 2p reduction in national insurance delivers zero benefit to 19 million adults whose annual income is less than £12,570. The two-child benefit cap continues and removes around £3,000 a year from some of the poorest families. Wages continue to be taxed at a much higher rate than capital gains, dividends or income from speculative ventures. The freezing of income tax and national insurance thresholds means that, by 2028-29, another 4 million people will be paying income tax; 3 million more will pay tax at the higher rate of 40%; and 400,000 more will end up paying tax at 45%.

The Minister referred to economic growth. Despite economic growth since 2010, the average real wage has returned to the 2007 level and the Resolution Foundation estimates that the average household will be £1,900 poorer by January 2025 than in December 2019. The Government have to remember that, in the absence of good purchasing power for the masses, the economy cannot be rejuvenated—they simply have not learned that lesson over the last 14 years.

The Government’s failures have caused huge growth in poverty. Malnutrition, scurvy and rickets have returned to the UK, and people are actually dying. Between 2012 and 2018, some 335,000 people died from government- imposed austerity—that is the excess deaths according to a paper published in a refereed scholarly journal. We had a debate in this House and I never got a decent reply from the Minister. The Government’s response is to cut real public spending by another £19 billion, which means that public sector wages will be cut, hitting women the hardest as they form the majority of the public sector workforce. Can the Minister explain why the Chancellor’s Statement is not accompanied by an impact assessment showing how many more people will die as a direct or indirect result of the Government’s policies?

On economic growth, the Government offer absolutely no vision. Despite a decade of low inflation, low interest rates and low corporation tax, and numerous incentives, the private sector has failed to invest adequately in productive assets. In the OECD table of 38 countries, the UK is ranked 35th. The private sector will not invest because people do not have good enough purchasing power, and the Government have starved the public sector of investment, which then fuels private sector activity. So the Government are not really offering to increase public sector investment.

Last week the Deputy Governor of the Bank of England told the Treasury Committee that Brexit “has chilled business investment”. It has grown by less than 1% a year in real terms since Brexit. The Government have offered absolutely no answer to Brexit woes, though they have now belatedly offered £4.5 billion for investment in advanced manufacturing, as the Minister said, over the next five years. That shows hardly any ambition. I give the example of investment in the semiconductor industry: the US has offered a package of $50 billion; China, $40 billion; India, $10 billion; and the UK, £1 billion, or $1.2 billion. That is no vision of any kind whatever.

I have some specific questions for the Minister about the public debt, which she referred to in her speech. Nearly £1 trillion of quantitative easing has pushed up asset prices and enriched a few. One study has shown that QE boosted the wealth of the richest 10% of households by between £128,000 and £322,000 per household. Instead of squeezing the poor and public services, the Government could have clawed back this gift to the richest. Can the Minister explain why the gains arising from QE have not been clawed back?

Public debt under the Conservatives has soared from around £1 trillion, or 65% of GDP, in May 2010 to £1.79 trillion, or 79% of GDP, just before the pandemic. The latest figure is £2.64 trillion, or 97.8% of GDP. What does this public debt actually consist of? Ministers have never explained. I can see no rationale whatever for treating quantitative easing balance as part of the public debt, especially as the Government hold equivalent gilts and bonds. In any case, QE is an intrastate transaction between the Bank of England and the Treasury, and the consolidated effect is zero. Can the Minister explain how much of the QE is included in the public debt amount, and why?

Through the QE, the Government have enriched speculators by pushing up the price of gilts and corporate bonds, but they are now selling them at a loss. Can the Minister explain why, as part of quantitative tightening, the Government are selling securities at a loss, how much has been lost, and why the public purse is being held responsible for that loss? The Government are also paying interest to commercial banks on what are called central bank reserves, which are created as a result of QE. Can the Minister explain why this interest is being paid on the money that has been created by the state and given away freely? How much has been paid so far, and when will the Government stop this practice? It is akin to a farmer growing carrots and giving them away, then when he wishes to have one or two carrots back he offers interest to those who will return a carrot. That is exactly what the Government are doing, and it is a crazy policy. I hope the Minister will be able to give a detailed reply to each of my questions.

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[Baroness Vere of Norbiton (Con)]

A medal? I am going to come up with a medal. She is going to get it, because she came up with a plan. Of course, her plan was more taxes—but we knew that was going to happen, so that is okay. There was one other person who came up with a plan for how to pay for this increased public spending, and that was the noble Viscount, Lord Hanworth. He said to ditch the tax cuts. So there were two people. Everybody else just wanted to increase spending, and therein lies the problem.

Looking in more detail at some of the public spending that noble Lords were concerned about—and obviously I can reflect some of these concerns as well—the noble Baroness, Lady Pinnock, called for additional funding for councils so that essential services could continue. The Government stand behind councils up and down the country. The 2023-24 local government finance settlement provides councils with a 9% increase in core spending power in total, making available almost £5 billion in additional resources. It should be noted that local councils can also raise funds from local taxpayers for local services.

Personally, I live in Kingston-upon-Thames, which all noble Lords well know has a Liberal Democrat council—and my word, my council tax is eye-watering. I think it is one of the highest in the country. What makes me slightly laugh about this is that, despite having some of the highest council tax in the country, the Liberal Democrats have closed the swimming pool. The noble Baroness, Lady Pinnock, is very concerned about swimming pools. I suggest that she go to Kingston-upon-Thames and get them to open it again. There is not a lot of happiness around that.

Public spending also needs to be efficient and not greedy, as noted by my noble friend Lord Howell. It is really important that we set public spending on sustainable trajectories, delivering high-quality public services effectively and efficiently. This is why my honourable friend the Chief Secretary is leading an ambitious public sector productivity review. I hope that my noble friend Lord Sherbourne will share his thoughts with her, because we need to reimagine the way that government delivers public services. So often we fall into the trap where the amount of money put into something equates directly to its outputs. That would never happen in the private sector. It just does not happen. Outputs can be independent of the money that one puts in, and it is very important that, within the public sector, we get that and we try to do that.

I take on board the comments made by the noble Lord, Lord Lee of Trafford, about the 60,000 civil staff in defence. My former Secretary of State is now the Defence Secretary; I know him well, and I am fairly sure that he will already have looked at this in great detail, but I will nudge him in case he has not.

The noble Lord, Lord Macpherson, asked to what extent the Autumn Statement was informed by the OBR’s report on fiscal risks and sustainability. That report did inform the Autumn Statement, as I am sure the noble Lord thought I would say. The Government’s agreement to respond at a subsequent fiscal event establishes this feedback loop, which demonstrates the Government’s commitment to thoroughly assessing and actively mitigating fiscal risks.

The noble Lord, Lord Sikka, asked a question I was a little surprised by; I thought he may have known this, but perhaps it is not well known. He asked about the inclusion of QE in public debt. The UK’s fiscal rules target public sector net debt. This metric excludes the Bank of England and all its subsidiaries, including the asset purchase facility. This changed in 2021 as it was felt that excluding the Bank of England’s contributions to public sector net debt through the valuation effects associated with its quantitative easing programme and term funding schemes better reflected the impact of government decisions.

I will write to noble Lords on MoJ funding and the maintenance of schools. I want to talk about the cost of living because the amount of support that the Government have given, and will continue to give, is not fully recognised. There has been some good feedback about the local housing allowance rates going up, and not enough noble Lords welcomed where we are on the national living wage.

[Lord Sikka (Lab)]

Can the Minister tell the House how much of QE is included in the public debt now? Why is it the case that, when the left hand of government transacts with the right, the Treasury with the central bank, it somehow creates debt?

[Baroness Vere of Norbiton (Con)]

I will probably write to the noble Lord with clarity on that, because I would like to make a little progress.

A number of noble Lords tried to pull out one element of the Autumn Statement and made the point that it will benefit rich people more than poor. One cannot look at one measure in isolation. The Government have conducted extensive assessment of the policies announced both in this Autumn Statement and in previous years. It shows that, across all government decisions dating back to the 2019 spending round, the combined impact of tax, welfare and public services spending measures has benefited the lowest-income households the most.

I will touch briefly on welfare reforms. I am grateful to my noble friend Lord Jackson for his support for these reforms. We want to see people who can work be able to work; we are absolutely willing to provide support for them.

The right reverend Prelate the Bishop of Manchester mentioned mental health. I agree with him that we must confront this issue in our country. It remains a priority for the Government. Alongside other recent mental health interventions, the back to work plan includes nearly £800 million over five years to expand talking therapies for those with mild or moderate conditions, as well as individual placements and support to be delivered within community mental health schemes for those with more serious conditions.

I will write to noble Lords on a couple of other things. I come back to growth because it is undeniable that growth in many developed nations has been difficult. Since 2010, when this Government first came to power, the UK has grown faster than many of its competitors, including France, Germany, Italy, Spain and Japan. Would I like to see us grow even faster than we currently are? Absolutely—indeed, the growth trajectory is on an upward trend after the first two years. The noble Lord, Lord Livermore, did not quite get to those numbers but they are higher, peaking at 2% a year. This Autumn Statement is focused on creating sustainable growth without adding to inflation or overall borrowing. It is sensible supply-side interventions that boost business investment.

This is in stark contrast to the plans set out by the party opposite, such as they are. It is not clear to me which parts of the Autumn Statement the Labour Party actively oppose or would do substantially differently, and the noble Lord, Lord Livermore, has not enlightened me. So not only do we have a cut-and-paste shadow Chancellor; it seems we have a cut-and-paste shadow Exchequer Secretary too. It is worth reflecting on the much-vaunted flagship Labour spending policy of £28 billion. For clarity, that is £28 billion per year. In the absence of significant tax rises or substantial cuts to public spending—and only the former is in the traditional Labour playbook—this £28 billion per year will just add to our national debt, piling pressure on future generations and busting through fiscal rules. As I said, this Conservative Autumn Statement is about sensible supply-side reforms to support British businesses and boost productivity.

The noble Lord, Lord Howarth, asked whether full expensing represents value for money. The Government have prioritised the business tax cut as a targeted way to support businesses which invest. It does this by reducing the cost of capital for UK companies. This policy will drive 0.1% GDP growth in the next five years, increasing to slightly below 0.2% in the long run. Whereas the benefits of the policy will grow over time, the costs will reduce. Full expensing brings forward relief that would otherwise be claimed over decades, meaning that the costs are highest in the policy’s introduction.

The noble Lord, Lord Londesborough, talked about a productivity council. The Government take a range of advice on matters of growth and productivity from all sorts of organisations, including public sector organisations such as the National Infrastructure Commission and the Competition and Markets Authority, but also from academics, think tanks and businesses. While I respect his idea, at the moment we will probably not take it forward.

There was some interesting comment around the pension reforms. The noble Lord, Lord Davies, welcomed the proposals. He asked for the timing of implementation of changes to retired benefit schemes. This will become clearer when the consultation period has completed. I will write on the second question about pensions, because I am conscious that I will imminently run out of time.

My noble friend Lord Northbrook and the noble Lord, Lord Lee of Trafford, asked why the Government are not bringing back the VAT retail export scheme. The Government continue to accept representations from industry regarding the tourist tax and are considering all returns carefully. It is about providing very robust evidence on this. At the moment, we feel that it is a little lacking.

The noble Baroness, Lady Featherstone, talked about the creative industries. There is a large number of specific asks for a very specific sector, so I will certainly write.

It is also worth noting some of the more general discussions that noble Lords had today, and I hope will continue to have in the future. There were considerations around the size and shape of the state, the amount of contributions that should come from taxpayers, and, from the noble Lord, Lord O’Neill, public versus private sector investment. My noble friend Lord Willetts talked about the shape of the state. These are things to mull on, definitely. They will not change government policy today or in the near future but are really important issues that should be debated.

I second what my noble friend Lady Noakes said about regulation. We need to look at regulation as our economy develops. It is most helpful for the Government when noble Lords can go into specifics. I am always very happy to hear about specific regulations that we feel are not fit for purpose and which need to be improved.

Also, to my noble friend Lady Noakes, on the 100-plus measures, I say that the details can be found in the “Policy Decisions” chapter of the Autumn Statement document.

Authorised Push Payment Fraud Performance Report

Lord Sikka Excerpts

Tuesday 14th November 2023 Lords Chamber

[Baroness Penn (Con)]

As I have said to noble Lords, through the Online Safety Act, platforms and services in scope will be required to take action to tackle fraud where it is facilitated through user-generated content or via search results. They must take preventive measures to prevent fraudulent content appearing on their platforms and swiftly remove it if it does. Additionally, there will be a duty on the largest social media companies and search engines to prevent fraudulent adverts on their services. Ofcom has the power to fine companies failing their duty of care up to £18 million or 10% of annual global turnover, so there will be accountability in the system for online companies too.

[Lord Sikka (Lab)]

My Lords, only 59% of the stolen money has been returned to customers, according to the PSR report. Can the Minister explain what pressures there are on bank directors to, as it were, take care of the customers’ interest? The regulators seem to be incredibly complacent that over 40% of the money still has not been returned. Is it not really a case of restructuring the FCA and the PSR, to ensure that customer representatives have the majority of the seats on the boards of those regulatory bodies so that they can get the protection they need?

[Baroness Penn (Con)]

My Lords, I believe that an alternative route forward is already in train: the mandatory reimbursement requirement, which will apply across all payment service providers. As I said, there is currently a voluntary approach in place; a mandatory approach will ensure a much more consistent response for consumers when it is introduced next year.

King’s Speech

Lord Sikka Excerpts

Monday 13th November 2023 Lords Chamber

[Lord Sikka (Lab)]

My Lords, a sustainable economy requires high investment and good disposable income for the masses. The Government have failed on both counts. The OECD’s data shows that, despite low inflation, corporation tax and interest rates since 2010, the UK is almost the lowest investor in productive assets; it is ranked 35th out of 38 OECD countries. There are two major reasons for this, and neither is addressed in the King’s Speech.

First, until the late 1970s, the state directly invested in industry and emerging technologies, such as aerospace, biotechnology and information technology, especially as the private sector showed little appetite for long-term risks. The entrepreneurial state has been replaced by one which guarantees corporate profits, as evidenced by privatisations, outsourcing and corporate subsidies, typified by the £45 billion handed to privatised rail companies in the last five years. Did they invest in Crossrail or HS2? No, none of that. Yet the Government skimp on direct public investment: investment into HS2 has been axed; roads are full of potholes; schools and public buildings are crumbling; and NHS England has 2.3 beds per 1,000 population and is on that basis ranked 23rd of 24 European countries. So there are plenty of opportunities for public investment, but there is nothing in the King’s Speech to suggest that the state will return to its entrepreneurial role.

Secondly, low disposable income of the masses is a disincentive for long-term investment by the private sector. Who will buy goods and services, even if we produce them? With a government-led drive to cut wages, the average real pay is back to the 2007 level. Some 14.4 million people live in poverty. One in 20 people—that is, 3.8 million people—is unable to afford food or other basics, and half of those have a weekly income of less than £85. This mass exclusion from consumption cannot provide the basis for building a sustainable economy.

People’s incomes are further eroded by the Government’s inflation strategy. Everyone knows that corporate profiteering is the main cause of higher rates of inflation. The Government could have checked it with price controls, the break-up of monopolies, windfall taxes and selective taxes on those who have excess cash, especially given that nearly £1 trillion of quantitative easing has been handed to financial speculators. But no, they do not do that—instead, they attack wages and further deplete household incomes through higher interest rates.

People have been forced to hand more of their wealth to banks. In the first nine months of 2023, the big four banks have reported profits of £41 billion, compared with £23 billion for the same period last year. Huge bank profits have increased business and household costs and destroyed many SMEs. The Government have enriched bank shareholders and executives. This policy has increased inequalities and squeezed economic growth, because people simply do not have the resources to buy goods and services. Even worse, Ministers are saying that they will continue with this forced transfer of wealth from the poor to the rich. The Government have declared war on the poor.

There can be no economic renaissance without redistribution of income and wealth. The richest 1% have more wealth than 70% of the population combined. Just 50 families have more wealth than 50% of the population—but any mention of wealth taxes and the Government say, “Not us, we’re not going to do this”. Instead of taxing wealth, the Government have anti-worker policies. Wages are taxed at a higher rate than capital gains, dividends and investment income. This needs to be rebalanced; we need to rebalance the tax system by increasing taxes on wealth and reducing taxes on work and the less well off.

This afternoon, I attended a meeting with the Patriotic Millionaires, which includes some of the country’s richest individuals. They have openly urged the Government to tax them more heavily, so that inequalities can be reduced, public services can be rebuilt and we can have a just society. I hope the Minister will tell us why the Government will not listen to the richest and tax them more.

Finance (No. 2) Bill

Lord Sikka Excerpts

Committee negatived & 3rd reading
Tuesday 4th July 2023 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I thank the Minister for her speech. This Bill fails to address the fundamental problems that we all face. Economic recovery is hampered because the Government have depleted people’s disposable income through real wage cuts, high inflation, high interest rates and high taxes. This Bill depletes incomes even further by continuing the freeze on personal allowance and income tax thresholds. Without adequate income, people simply cannot buy goods and services and there will not be investment.

The poorest fifth of households in this country pay 22.9% of their income in indirect taxes. The richest fifth pay 9.1%. The Government could have helped the poorest by cutting the rate of VAT or even abolishing VAT on domestic fuel, but they have not done so.

There is nothing in the Bill for women although they are on the receiving end of real wage cuts. The majority of public sector workers are female and their wages have been cut in real terms—so this Bill does not help women either.

Tax cuts for the rich are disguised as tax relief on pension contributions; the Bill estimates that they may be worth more than £1.1 billion a year. The Government say that this is really to help doctors but, of course, it helps accountants, lawyers, architects, engineers and many others too—and the Government are inflicting a real wage cut on doctors as well, which does not help in any way.

The Bill offers nothing to the millions of people who earn less than £12,570 a year or the 28.8 million basic rate taxpayers. The biggest winners are the rich, who will benefit from the pension tax changes. Can the Minister explain why tax cuts for the rich are not matched by tax cuts for low-income and middle-income earners?

The Bill is also unjust. It taxes salaries and wages at rates between 20% and 45% but capital gains are taxed at between 10% and 28%. Why is the return on the investment of human capital taxed more heavily? Why are the Government taxing workers highly? The recipients of capital gains also do not pay any national insurance, even though they use the NHS and social care. Why are they given a free ride? I hope that the Minister can explain that.

There is a sleight of hand on corporation tax. The headline rate will go up from 19% to 25%, but it is estimated that only 10% of companies will pay that because of numerous tax reliefs, some of which the Minister mentioned. Can the Minister say now, as we are possibly heading towards a recession, how many companies will pay the full tax rate of 25%?

The Bill does not expand the tax base at all. It does not consider a financial transaction tax, wealth tax, sugar tax, salt tax or any other tax, which would at least broaden the tax base. None of that is there.

The Government’s central claim is that lower corporation tax rate will somehow encourage investment. Well, we had a corporation tax rate of 19% from 2016 to 2022. That era also had low interest rates, a low inflation rate, negative real wage growth and high tax incentives, but that did not lead to any higher investment. I hope that the Minister can explain the real reasons why the UK is a laggard in investment.

On the basis of private and public sector investment in the UK, the OECD ranks the UK 35th in its league of international investment—below Portugal, Lithuania, Latvia, Mexico, Colombia and Costa Rica. That is a total policy failure, yet all the Government are doing is repeating the same thing—which will get exactly the same results. Hopefully, the Minister will confirm that.

The OBR says that the 4% loss of UK productivity is due to Brexit, but nothing in the Bill or any ministerial Statement deals with Brexit. The Government say they are creating 12 new investment zones and that the businesses operating inside them will receive £80 million over five years. Well, the cost of that will be borne by people outside. Why penalise those who operate outside those investment zones? The OBR says that the Government have not provided enough information to enable it to

“estimate the impacts that these investment zones might have”.

Can the Minister provide us with an estimate of what will happen inside these investment zones?

A few days ago, HMRC published its tax-gap figures. It said that it failed to collect £36 billion of taxes for the year 2021-22, mainly due to avoidance, evasion, fraud and error. Adding up the years from 2010, that is about £450 billion. Other models estimate the number to be over £1,500 billion. What is the Government’s response? It is to cut HMRC’s budget from £5.9 billion for 2022-23 to £5.6 billion in 2023-24 and £4.6 billion in 2024-25. Dealing with tax abuse is a labour-intensive job, but the Government are not providing resources to HMRC.

On 23 March 2023, in response to my Written Question, the Minister said that only eight enablers who devised the tax abuses—accountants, lawyers, bankers—had been prosecuted in the last two years. That is pitiful. The Government clearly are soft on tax cheats and, despite strong court judgments, have failed to investigate, fine or prosecute even one of the big accounting firms. I challenge the Minister to name even one, if she can. I will never ask this question again, so I hope that the Minister will rise to that challenge and tell us which of the big four accounting firms is being challenged. In Australia, the Government have come down hard on PwC. Here, we give it public contracts. We reward it. That is a real failure of the Government.

Can the Minister explain why HMRC’s budget is being cut and why the Government are soft on the tax abuse industry—especially the big accounting firms?

--- Later in debate ---

[Baroness Penn (Con)]

My Lords, I was speaking about the difference between changes to any scheme and abolition of the status altogether, but I would say that there is a high degree of uncertainty about the impact of changes made in this area.

Finally, I turn to the pension tax changes made through this Bill and the Budget, which many noble Lords have spoken about. To respond to the noble Lord, Lord Eatwell, I was not implying that only the most highly skilled and productive workers benefit from these changes, but many of them will. They have been designed in response to feedback from the NHS in particular that there was an impact on retention of the most skilled staff.

Regarding the suggestion that a doctors-only change could have been implemented instead, unlike more targeted policies, the Government have considered a range of options to address this issue over a number of years. One of the elements which means that a more targeted approach would not be appropriate in these circumstances is the time it would take to implement. These changes could be implemented quickly, from April 2023, minimising the risk of early retirements in the NHS before any changes take effect.

In the Statement taken before this debate, we heard about the pressures on our NHS workforce and the pressing need to address those immediately. If we were to take a targeted approach to one profession—NHS doctors—we may well come back to the same issue, as the same issues are faced by employees in other sectors, such as air traffic controllers, the police, the Armed Forces and senior teachers. To introduce targeted measures for each profession would not be an effective way to deal with challenges across those different workforces.

The Government are aware of the concern raised by the noble Lord, Lord Eatwell—

[Lord Sikka (Lab)]

I am grateful to the Minister for giving way. Will she take up my challenge and tell me which of the big four accounting firms, with strong court judgments against them in the cases brought by HMRC, has been investigated, fined, disciplined or denied government contracts because they are peddling tax abuses? If the Minister cannot name such a firm, can she tell me why the Government are soft on tax abuses by big accounting firms?

[Baroness Penn (Con)]

I think one of the reasons why I frustrate the noble Lord in this area is that the Government do not normally comment on individual taxpayers. On his more general point, the Government have taken action to tackle tax avoidance and evasion over many years and to reduce its incidence in our economy.

Finally, I turn to the impact of the change to the annual allowance and its potential inheritance tax impacts. Noble Lords are right that the annual allowance has meant that there has been a limit on how much individuals can put into their pensions and therefore pass on. The Government are aware of concerns that some may be using their pension pots to reduce future inheritance tax liabilities, rather than for their purpose: to fund their retirement. As with all taxes, the Government keep the rules under review.

Income Tax Threshold

Lord Sikka Excerpts

Tuesday 4th July 2023 Lords Chamber

[Baroness Penn (Con)]

My Lords, of course, the Government want to bring taxes down. It is worth reminding noble Lords that since 2010 we have nearly doubled the personal allowance and, this year, around 30% of those with income are projected to pay no income tax at all. In our current circumstances, we need to be fiscally responsible, and the best tax cut we can give people is to cut inflation.

[Lord Sikka (Lab)]

My Lords, the income tax threshold and personal allowances are frozen at the April 2021 level until 2027-28. At that time, the real value of the personal allowance—to which the Minister just referred—will be less than it was in 2013. As a result of government policies, an additional 4.2 million people are expected to pay the basic rate of income tax this year; that is, 20% plus national insurance of 12%. Can the Minister explain the rationale for extra taxes on the poorest, already hit hard with negative wage rises and rising bills? How does the Government’s hiking of the taxes of the poorest reconcile with their levelling-up, or is it squashing-down, agenda?

[Baroness Penn (Con)]

My Lords, I could not disagree more with the noble Lord. On the personal allowance, the increases we have seen under this Government since 2010, even with the freeze in thresholds, will be more than if it had been raised in line with inflation. We have put in place unprecedented support for people after the two major shocks of Covid and Russia’s invasion of Ukraine. We need to consolidate our public finances in the face of that and it is right that everyone contributes. We have looked to change corporation tax rates while protecting the smallest businesses, and we have frozen tax thresholds. We brought down the additional rate threshold at the Autumn Statement 2022, which is a sign of those with the broadest shoulders bearing the biggest burden.

UK Economy: Growth, Inflation and Productivity

Lord Sikka Excerpts

Thursday 29th June 2023 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I thank my noble friend Lord Eatwell for facilitating this debate. I will say a few words about investment and productivity. Between 1974 and 2008, the UK’s productivity grew at an average rate of 2.3% a year, and it has really stagnated ever since. It is not the workers’ fault. UK workers work for longer hours than many of their European counterparts. In 2022, average annual hours worked by a German worker were 1,341, compared with 1,532 for a British worker. Yet, productivity of a German worker is up to 19% higher.

The reason for that is higher investment into productive assets and skills. With 17.3% of GDP going into productive assets in 2021, the UK is ranked 27th out of 30 OECD countries. This is despite a period of low inflation, low interest rates and low corporate taxes, with high tax incentives and negative real wage growth. None of those managed to address the block to investment—what I call the investment strike.

Private sector investment is some £354 billion less in real terms compared to the G7 median position from 2005 to 2021. The major reason for that is that British workers’ spending power has been depleted. Why would somebody invest when people just do not have the money to buy goods and services? The UK is a major financial centre, but the City of London is hooked on short-term returns, which is aided by a shareholder-centric model of corporate governance. The Bank of England chief economist, Andy Haldane, noted that in 1970 major companies paid out £10 in dividends out of every £100 of profits, but by 2015 that became between £60 to £70. I have been looking at the accounts of water companies, and they have been paying up to 80% and even more of their earnings in dividends, which is accompanied by a squeeze on labour and investment.

The private sector has little appetite for long-term risks. The state traditionally filled that void in a mixed economy. After the Second World War, the entrepreneurial state built ships, railways, steel, water, gas, electricity, mining and many other industries. It directly invested in emerging technologies and emerging industries such as biotechnology, information technology and telecommunications industries. As a result, by 1976 the proceeds of prosperity reduced the national debt from 270% to 49% of GDP.

But now the state has basically been sidelined—the mantra of the neoliberal coup that has plagued this country from the late 1970s. The state has been restructured and become a guarantor of corporate profits, as evidenced by PFIs, privatisations and outsourcing. Privatised industries have rarely provided the promised investment—just look at the water industry. Since its privatisation in England in 1989, no new water reservoirs have been built, while the population has increased. It just does not respond. If the UK public sector had emulated the G7 median practices over the period 2006-21, an additional £208 billion in real terms would have been invested, but the Government basically opted out of that.

UK productivity is damaged by what I call dead weights. One good example of that is the City of London and the finance industry. We all need bank accounts, insurance, pensions, debit and credit cards and so on; what we do not need are the destructive practices of the City, such as frauds, mis-selling, rigging interest and foreign exchange rates, money laundering, tax abuse and unrestrained gambling. None of that generates any productivity. One study at the University of Sheffield estimated that between 1995 and 2015 the finance industry made a negative contribution of £4,500 billion to the UK economy—and it sucks up a lot of graduates, which denies other industries skilled labour.

Accountancy is another dead weight. We have nearly 400,000 professionally qualified accountants in the UK, the highest number per capita in the world. About 100,000 of these are devoted to tax abuse, although they call it tax planning—a euphemism. It does not generate any productivity; it actually takes money away from the public purse and ensures that the state cannot invest in social infrastructure or other industries. The Government do absolutely nothing, and have not investigated any of the accounting firms involved in this—they have not prosecuted any or fined any. It is business as usual.

I hope the Minister can tell us whether the Government are willing to change their economic and political model and address the systemic problems that are plaguing this country. That will include reforming the shareholder-centric model of corporate governance, which will mean addressing issues about equitable distribution of income and wealth, dealing with the dead weight and, above all, giving the state a direct role in the economy. If the state will not take long-term risks, nobody else will.

Corporate Profits: Inflation

Lord Sikka Excerpts

Thursday 29th June 2023 Lords Chamber

Asked by

[Lord Sikka]

To ask His Majesty’s Government what assessment they have made of the extent to which increases in corporate profits have contributed to inflation.

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

My Lords, UK inflation has been affected by global factors, including Russia’s invasion of Ukraine which has affected energy and food prices. The UK is not alone in facing these challenges: advanced economies across the world are feeling the impact of inflation. That is why halving inflation is one of the Prime Minister’s top five priorities, as a staging post to returning inflation to the 2% target. Evidence that corporate profits play a role is inconclusive.

[Lord Sikka (Lab)]

My Lords, the Minister is in total denial of reality here. The pandemic of profiteering is driving inflation. The IMF and the ECB have said so, but the Government are in denial. Look at the accounts of banks, oil and gas companies, supermarkets, food, internet and mobile phone companies, and others, and you will see that their profits have doubled within the last couple of years. The Government have a whole array of policy options, including price controls, windfall taxes, prosecution of profiteers, and breaking up oligopolies to encourage more competition to curb profiteering, but they choose to do absolutely nothing. Can the Minister explain what assessment the Government have made of the corrosive impact of profiteering on people’s standard of living and what they will do about it?

[Baroness Penn (Con)]

My Lords, I note that the noble Lord referred to the recent IMF analysis, which looked at the euro area. The Governor of the Bank of England recently said that it does not see a higher trend in non-North Sea corporate profits. Of course, we have the energy price levy in place with respect to North Sea corporate profits, but we keep it under close scrutiny. I am sure the noble Lord will be pleased to know that, yesterday, the Chancellor of the Exchequer met with the main regulators and agreed a new action plan to ensure that consumers are being treated fairly and to help those struggling to meet their bills.

Energy Profits Levy

Lord Sikka Excerpts

Tuesday 7th February 2023 Lords Chamber

[Baroness Penn (Con)]

Renewable levies have helped drive the successful track record I referred to earlier, but we are always conscious of consumers’ bills rising. That is why we have put in the significant support that we have.

[Lord Sikka (Lab)]

My Lords, unlike those of many other countries, the UK version of windfall tax, which the Government like to call the excess profits levy, excludes excess profits made at forecourts, at refineries and through trading, otherwise known as speculation. Can the Minister explain why these exemptions were created?

[Baroness Penn (Con)]

The profits levy builds on the specific tax regime we have in place for oil and gas production in the UK. Perhaps I can reassure the noble Lord that the 75% headline tax rate applied to the sector is one of the highest among comparable North Sea basins, which include Norway at 78%. Other comparable regimes include the Netherlands at 65% and Denmark at 64%.

Financial Services and Markets Bill

Lord Sikka Excerpts

Committee stage
Monday 6th February 2023 Grand Committee

[Lord Naseby (Con)]

My Lords, I support Amendments 67 and 75—obviously, as I added my name. I will speak only to Amendment 67. I have spent nearly 50 years in Parliament, legislating on issues that needed urgent attention. I cannot think of any issue more important in monetary affairs, now or in previous years, than the one before us in this group of amendments.

In particular, I am very grateful to the UK Finance Annual Fraud Report, which highlights in some detail what is happening. Indeed, one of the paragraphs at the end says that the Bill before us, which the Government proposed, will legislate to deal with it. Look at the figures and the sheer scale of it:

“Most notable is the rise in impersonation scams and in authorised push payment (APP) fraud overall. In 2021 communications regulator Ofcom found that eight out of ten people that were surveyed had been targeted with scam texts or phone calls, intended to convince them that they were from trusted organisations such as banks, the NHS or government departments.”


The report goes on to say:

“The majority of APP fraud starts with some type of social engineering. As well as scam texts, phone calls and emails, more and more of us are paying for goods and services remotely”,


which opens the door to the fraudsters.

I will say no more other than this. My friend the noble Baroness, Lady Bowles—I greatly respect the work she does in this area—has produced a very simple amendment, but it is very powerful and clear and I highly recommend it to His Majesty’s Government.

[Lord Sikka (Lab)]

My Lords, I find all the amendments and all the arguments made by various speakers very persuasive, and I hope the Government take note of that.

I have some concerns that I do not think have yet been aired. Do we have the regulatory architecture to deal with fraud? There are at least 41 financial regulators. Just think about the duplication and buck-passing. Is it not time for us to have a British version of the Securities and Exchange Commission, or something equivalent, to deal with that? It may help not only to save resources but to have a co-ordinated approach.

The people perpetrating banking fraud do not live in one particular district of the UK; they are spread all over. The police in Bristol cannot go and raid somebody in Reading or Glasgow; they need permission from and to co-ordinate with somebody there. We do not have a national police squad to look for or investigate fraud. They are utterly fragmented. That itself encourages buck-passing.

--- Later in debate ---

The noble and learned Lord, Lord Thomas of Cwmgiedd, asked how we are engaging other sectors on the development of the fraud strategy, specifically the accountancy and legal sectors. I reassure all noble Lords that the Government are working closely with the private sector in tackling fraud, because as part of the fraud strategy it will play a key role in removing the vulnerabilities that fraudsters exploit. The Home Office has agreed sector charters with the private sector to deliver voluntary, innovative action to counter fraud in relevant industries. The accountancy sector charter was published in October 2021, and the Home Office also intends to launch one for the legal sector. Those sectors are being engaged on this.

[Lord Sikka (Lab)]

I am encouraged by the Minister’s determination to tackle fraud. Can she answer the three specific questions I asked? First, can she give us a commitment that a copy of the Sandstorm report in relation to BCCI, which is now more than 30 years old, will be placed in the Library of this House? Secondly, can she make a statement now or come to the House soon to tell us why the Government covered up criminal conduct by HSBC in the US and how many other instances there are of that kind of cover-up?

Thirdly, in this country we have virtually eliminated the risk of bankruptcy for major banks and insurance companies. That then raises questions about the pressure points on directors to behave and act honourably. Fines are fairly puny and have not made much of a difference. Personal prosecutions of directors of banks hardly ever take place, and neither do they face any personal fines. Can the Minister explain what the pressure points are on the directors of major financial institutions to act with honesty and integrity?

[Baroness Penn (Con)]

I am afraid I will not be able to address the noble Lord’s first two points, but I will happily write to him. On his third point, I referred to the fact that, as part of the Economic Crime and Corporate Transparency Bill, we are looking to take forward the issue of corporate criminal liability and the offence of failure to prevent fraud, which would strengthen action in the areas he talks about.

I was talking about our work with other sectors. My noble friend Lord Northbrook and the noble Lord, Lord Sikka, raised the issue of online fraud. There is an intention to bring forward a tech sector charter with industry, to include public and private actions to drive down fraud in this area. Of course, fraud has been brought into the scope of the Online Safety Bill to better protect the public from online scams through, among other measures, a new stand-alone duty requiring large internet firms to tackle fraudulent advertising, including that of financial services.

The Government also recognise the particularly devastating impact that fraud can have on the elderly and the most vulnerable people in society and on people’s mental health. They have taken various steps, including banning cold calls from personal injury firms and pension providers and supporting National Trading Standards to improve the quality of care available to vulnerable fraud victims. More broadly, the FCA’s guidance on vulnerability explores how firms can understand the needs of vulnerable customers. This includes those who are older or have mental health conditions and sets out how the sector can provide targeted services for this cohort, including in the context of fraud. Where firms fail to meet their obligations to treat customers fairly, the FCA will take further action. I hope noble Lords are assured that further work is being taken forward on data sharing and on supporting older people and those with mental health conditions who are victims of financial fraud.

The noble Lord, Lord Davies of Brixton, mentioned measures in the Online Safety Bill, as have I. I have also mentioned the measures in the Economic Crime and Corporate Transparency Bill and revisions to the Data Protection Act. I am cognisant of the need to ensure that this work is well co-ordinated and that the progress we are making in other Bills is co-ordinated with the work we are doing on this issue more generally.

I turn finally to Amendment 217. Currently, the proceeds of such fines imposed by the courts must, by law, be paid—

--- Later in debate ---

[Baroness Tyler of Enfield (LD)]

I support Amendment 76 in the name of my noble friend Lord Sharkey, to which my name is attached. I will say briefly that I support Amendment 77, which we have just heard set out very persuasively by the noble Lord, Lord Davies of Brixton. The links between money problems and mental health are now very well established. They were covered in some detail by the 2017 Lords Select Committee on Financial Exclusion, which I have already referred to. We had a number of recommendations in this area. Five years on, the case is stronger than ever. I hope the Minister will be able to respond sympathetically to that point.

Turning to the duty of care to replace the consumer duty—indeed, having a duty of care was another of the Select Committee’s recommendations—I concur with the sentiments expressed by my noble friend Lord Sharkey. A consumer duty of the sort in the Bill and which was brought forward for consultation by the FCA is not a duty of care. The former has many exemptions and, critically, does not provide wronged consumers with the right to secure monetary redress through litigation. This point was made very compellingly by my noble friend. While the purpose of the consumer duty is to deliver improved outcomes for consumers, because the proposals are diluted from the duty of care—which was voted on in Parliament and enshrined in the Financial Services Act 2021—we have to ask why this has happened.

The external bodies calling for a duty of care, the financial services Consumer Panel, many consumer organisations and the House of Lords Liaison Committee were all clear that what they wanted was a duty of care, not a consumer duty. I would be grateful to the Minister if in summing up she can explain why this move from a duty of care to a consumer duty was made and why it was allowed to happen. In terms of accountability and parliamentary sovereignty it is of real concern that, after Parliament passed the Financial Services Act 2021, the regulator chose to consult and bring forward rules on something different. This amendment provides an opportunity to remedy a very unsatisfactory state of affairs.

In my view, the consumer duty provides little more consumer protection than is in the existing “treating customers fairly” principle. Nor do these proposals really help to rebalance the power and information imbalance between financial services providers and vulnerable customers, which is a real concern of mine. We need a convincing explanation of how the consumer duty enhances the “treating customers fairly” principle and how this new approach will provide the regulator with more of an ability to ensure better outcomes for consumers than at present. I must say that is not at all clear to me.

Finally, the problem is that, as currently drafted, the consumer duty places the responsibility on consumers to understand the benefits and risks of different products and services. There needs to be less emphasis on what consumers should be able to discern for themselves and more emphasis on what should be in place to stop firms exploiting that power and information imbalance between themselves and customers. This is something that a duty of care amendment would do.

[Lord Sikka (Lab)]

My Lords, I will speak to Amendments 229 to 231. They overlap with the amendments tabled by the noble Lord, Lord Sharkey; I congratulate him on his excellent speech and the wonderful case that he made for a duty of care.

The key theme of these three amendments is the empowerment of consumers—that is, enabling consumers to secure redress from negligent authorised persons for failure to act with due care as well as enabling them to seek compensation from regulatory bodies for their failures. Empowering consumers generates pressure points for regulatory bodies and authorised persons to ensure that they act diligently, efficiently, honestly, fairly and with some care.

The key element in these amendments is a duty of care, about which the noble Lord, Lord Sharkey, has already said a few things; I will add just a few more. The FCA has failed to carry out the mandate given to it by Section 29 of the Financial Services Act 2021. The consultation was fundamentally flawed; indeed, the wording of its questions indicated the bias against its mandate to create a duty of care.

I have time to go through only one example. Question 12 on the consultation paper was very badly designed. As an academic, I have carried out many questionnaires over the years, but I have never written a question like this with so many questions in one:

“Do you agree that what we have proposed amounts to a duty of care? If not, what further measures would be needed? Do you think it should be labelled as a duty of care, and might there be upsides or downsides in doing so?”


That is supposed to be one question. This question and the accompanying information provided in the consultation paper are severely misleading. The FCA asks, “Do you agree that what we have proposed amounts to a duty of care?” Does it not know what a duty of care is? Has nobody there ever studied any English case law from the 20th century to understand what it is? What a strange question to ask.

First, it was not for the respondents to inform the FCA whether or not it had proposed a duty of care; that was for the FCA itself to do. Secondly, if it is not a duty of care but the majority of respondents believe it to be one, does that make it so? Thirdly, if it is a duty of care but the majority of respondents believe it not to be, does that mean it is not one? It is very strange. Fourthly, if it is a duty of care then the FCA has proposed such a duty without asking the question, specifically mandated by Section 29 of the 2021 Act, as to whether there should be one. Fifthly, if it is not a duty of care then the FCA has proposed that there should not be one. If you look at it on logical grounds, none of it makes any sense. The questions and the accompanying statements do not make any sense, so the FCA has not really consulted on a duty of care.

The FCA’s consultation paper says that a duty of care “may have different meanings”—in other words, that is why it did not really want to go down that route. That is misleading. Just because the meaning of duty of care evolves does not mean that the FCA should not carry out its statutory duties. The principle of duty of care is well established in English law, especially since the 1932 case of Donoghue v Stevenson. It is found in fields as diverse as sale of goods and professional negligence, but it seems to have eluded the FCA.

The FCA has failed to create a duty of care as that phrase is commonly understood in law. What it has done is propose general rules about the level of care that must be provided to consumers by authorised persons. That is not a duty of care. Principle 2 of the FCA’s handbook does not create a duty of care because a breach of the FCA’s Principles for Businesses does not give rise to a right of private action by parties injured by a breach thereof. That has already been commented on; unless consumers can enforce something, it is not really a duty of care.

The FCA’s chair, Charles Randell, rejects the commonly accepted legal definition of the term “duty of care” and states that, for the FCA, it means nothing more than

“a positive obligation on a person to ensure that their conduct meets a set standard.”

That does not sound like a duty of care. Randell further commented in relation to the consultation paper that

“whether or not a private right of action for damages should attach to the duty … there would be alternative ways of enforcing such a duty. These include not only voluntary redress or a restitution order, but also our routine supervision and enforcement activities. And individuals have the ability to seek compensation by referring complaints to the Financial Ombudsman Service, which would have regard to the duty in its decisions.”

In a sense, I have no problem with regulatory remedies being in place in addition to the private right of action—I welcome them—but they cannot be a substitute for that right, which is what Amendment 229 calls for. There are two reasons for rejecting the FCA’s position. First, elsewhere—for example, in the sale of goods or professional negligence—a breach of a duty of care is by definition actionable, so why is that prevented in the world of finance? Why are the financial services and the FCA an exception to it? Secondly, the alternatives listed by Randell and the FCA have consistently been shown to be unsatisfactory. Individuals are therefore left in the lurch with nowhere to go.

A right of private action is desirable and creates a pressure point for financial services providers. While the consumer duty has many exclusions and qualifications I do not welcome, attaching a private right of action to it would materially strengthen consumers’ rights in relation to wrong scores and be of benefit to consumers. A right of private action would enable consumers to seek redress and compensation in the event that they are dealt with badly by a financial company. In the absence of that right, consumers, investors and pension savers remain dependent on the FCA. As we have already heard, the FCA is always dragging its feet to do anything. We need to set consumers free. In essence, I am supporting what the noble Lord, Lord Sharkey, said.

--- Later in debate ---

[Baroness Penn (Con)]

With apologies, the lack of redress is around the right to private action. I will come to that point and, when I have said my piece, the noble Lord can intervene, if it is not sufficient.

Amendment 231 from the noble Lord, Lord Sikka, is similar in intention and would introduce a statutory duty of care owed by authorised persons to consumers. Again, this proposal was considered by the FCA, and it sought views from stakeholders through its consultations. As noble Lords have noted, this issue has been under consideration for some time. In its 2019 feedback statement on a duty of care and potential alternative approaches, the FCA explained that most respondents, including industry stakeholders and a number of consumer groups, did not support a statutory duty of care. Of course, the two subsequent consultations were undertaken by the FCA in response to the amendment put down by Parliament and included in the Financial Services Act 2021.

The new consumer duty comes into force on 31 July for new and existing products. It represents a significant shift in regulatory expectations, and there is a large programme of work under way within the sector to implement it. It would be wrong to seek to replace it now or seek to duplicate it with an additional statutory duty of care before it has been given a chance to succeed.

Amendment 229, along with Amendment 76, seeks to attach a private right of action to the consumer duty. This is an issue that the FCA has considered and consulted on extensively as it developed the consumer duty.

[Lord Sikka (Lab)]

Could the Minister clarify something? If I buy a bar of chocolate, the producer owes me a duty of care and, if I get injured, I have a right of redress. If I buy financial services, why can I not have the same rights?

[Baroness Penn (Con)]

My Lords, the concept of a duty of care in financial services may be different to the concept of a duty of care in other contexts. This was considered very carefully and consulted on by the FCA in 2019 and in 2021. It considered these questions and the issues we have discussed in the Committee today.