Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2018

Lord Tunnicliffe Excerpts

Monday 25th June 2018 Lords Chamber

Finally, as we look at this crucial sector, the whole issue that is not being tackled is Islamic student finance. The Government did their consultation back in 2012, knew exactly what they had to do and now intend to rectify the problem—but not until 2020, leaving year after year of students who feel that they cannot take out a student loan on conventional terms but are unable to access that kind of financial support to go to university and to follow the studies that we all want them to be able to follow. Surely, as the Government recognise the urgency of making sure that the sukuk market is liquid, viable and growing in the UK, they could put their skates on to deliver something for our students, who need an equivalent instrument to deal with student finance.

[Lord Tunnicliffe (Lab)]

My Lords, I too thank the Minister for introducing this instrument. The noble Baroness, Lady Kramer, says that we all know that the sukuk is an important feature in the growing and important Islamic finance sector. I have to tell her that before Friday, I did not even know that the sukuk even existed, and this instrument has truly spoiled my weekend.

Clearly, I welcome London’s aspiration to become a major Islamic finance centre, and this caused me over the weekend to try to understand what the differences are and what is special about Islamic finance. I found six characteristics set out in one of my searches, which are quite positive. I will pick three of them. There is a,

“prohibition on uncertainty—to ensure that no party has an unfair advantage over another … prohibition on speculation—profit should be made through hard work and effort, not purely by chance”,

and,

“no unjust enrichment”.

At the level of principle, it seems that this style of finance is intrinsically moral and that we will have nothing to fear from it being a major part of our financial system.

I note that a sukuk, to comply with Islamic law, is like a bond, but it is based on an asset, not debt-based. I also note that they already exist; indeed, a major sukuk was issued here in February for £250 million. That started to confuse me—why do we want these instruments if they already exist? I therefore tried to understand it, and traced it back—for once I read the order, because I could not immediately understand the Explanatory Memorandum. I got as far as FiSMA Article 77A, and after that, I am afraid, I gave up. I could not see how the mechanism of the order was such as to embrace the sukuk as part of the legislation. I would be grateful if the Minister could take me through the steps. However, assuming that the order embraces the sukuk and fully integrates it into legislation, what are the consequences? What changes will there be to the way in which the instruments are supervised, sold, traded and taxed? I would also like to know of any other features of the instrument that are changed.

On the matters raised by the JCSI, which were admirably expressed by the noble Lord, Lord Lexden, and supported by the noble Baroness, Lady Kramer, I too agree with the conclusions of the 26th report. The committee says that the case for an order coming into force the day after it is made should be compelling, and repeats its proposal that the normal period of time should be a minimum of 21 days. Without going on about this point, I register my agreement with that. This is particularly worrying because it seems a bad precedent, going into a period during which we expect to handle many SIs. Setting that precedent at this point is bad news, and I put down a marker that we will continue to resist it as the SI scene develops in the light of Brexit.

I also make a plea about the Explanatory Memorandum. I am afraid that it did not work for me. I accept that I may be a bear of little brain, but that should be the test. A decent Explanatory Memorandum should, to a bear of little brain, be straightforward and readable without excessive prior knowledge of what the order does, and describe why and how it does it. For me, at least, this Explanatory Memorandum failed. It is important that the standards of Explanatory Memoranda are held to a high level. I remember making some major changes to FiSMA that introduced bail-in, and the Treasury wrote some brilliant memoranda explaining how it worked. I would hope that the high standard it achieved in the past could be repeated in the future.

Finally, returning to the sukuk, if the market in these instruments is to grow rapidly and become large, one has to recognise that it is innovatory in the sense that it has not been a big part of the market in London, and it could—I am not saying that it does—create systemic risk. After all, the crisis was caused by the way in which clever instruments reacted with each other. Can the Minister therefore assure me that someone—whether at the FCA, the Bank of England or the Treasury—has done an analysis to assure themselves that encouraging this style of instrument does not develop systemic risk in the marketplace?

[Baroness Morris of Bolton (Con)]

My Lords, I had not intended to speak, but I declare an interest as a chairman of the Centre for Islamic Finance at the University of Bolton. During the financial crisis, the Islamic banks were not affected in the same way, because there is a much better relationship between the customer and the issuer. I place on record my thanks to the Government for ensuring that Islamic financial instruments are not an odd investment on the side but are becoming part of the mainstream. Many people can now participate in them, and certainly in Asia, where the markets are booming, a lot of non-Muslims are also taking part in these instruments because they rather like the idea of them. I was going to sit very quietly, but I thought I would place that on record. I also thank the City, which has put a lot of effort into making the UK such a strong centre for Islamic finance.

--- Later in debate ---

The final question was from the noble Lord, Lord Tunnicliffe, who asked how this might work in practice. The reality is that the instrument expands the definition of AFIBs to allow these to be admissible for trading on additional types of financial trading venues, known as MTFs or OTFs. These are markets for the issuing of trading of debt securities, which are regulated on platforms operated. The London Stock Exchange’s Alternative Investment Market and International Securities Market are examples of markets in which these instruments would operate.

[Lord Tunnicliffe]

Can I check that point? My understanding is that these are not debt securities but asset-backed securities, and it is hoped that these platforms will change their rules so that it can be done.

[Lord Bates]

The securities that are there are allowed to deal with a variety of different securities; they are not limited in the asset class that they can use. It is simply a catch-all phrase to mean that they can be traded on those platforms. That is very much the view of the London Stock Exchange, which has drawn our attention to the fact that people are interested in using those particular markets for that purpose. This instrument will help the City of London to take advantage of these investment opportunities, which will create jobs and wealth for this country. I commend the order to the House.

Electronic Presentment of Instruments (Evidence of Payment and Compensation for Loss) Regulations 2018

Lord Tunnicliffe Excerpts

Wednesday 13th June 2018 Lords Chamber

[Baroness Kramer (LD)]

My Lords, first, I am delighted to hear the Government reaffirm that there is still a place in our financial lives for cheques. I remember that there was a time when the Treasury was considering their abolition. From looking at countries where cheques have in effect disappeared—talking to relatives in Germany, for example—it became clear that the way in which people compensated for that was to carry a lot more cash and leave a lot more cash at home. Much of that seem to be an invitation to petty thievery and street mugging, by which I do not think that any of us would be terribly charmed, so I am very glad that the Government have restated that today.

I looked through the regulations trying to think of something to say without finding very much. I have bank accounts in the United States, a legacy from my 20 years living there, and many states—I am not sure that it is all of them—already use this system of electronic presentation of instruments, so I have seen it first-hand and have never heard of any particular problems. There is a very good article in the Penn State Journal of Law in December 2015. The one issue it raises is that it is crucial to ensure that the rules minimise any surprises in any conflicting claims between the paper copy and its image. I understand from what the noble Lord, Lord Bates, said, that he feels that that issue is covered. If he can give me that assurance, I am delighted to welcome the regulations.

[Lord Tunnicliffe (Lab)]

My Lords, I, too, have worked my way through the instrument and the accompanying Explanatory Memorandum—I also spoke to James Evans of the Treasury—and feel that I understand it. I have no objection. It would seem a sensible, modern improvement to the system.

In looking around the instrument, I alighted on the fact that it is a further extension of the computer systems which underline modern banking. Reflecting on recent press comment, I started to look at just how many computer problems the banking system had had over recent years. I counted at least four for RBS since 2012, three from HSBC, three in Barclays, three at Lloyds and, of course, the recent TSB event where 1.9 million customers were locked out of their online and mobile services.

As we know, banks have a special role in our society. If they fail, the impact is not a mere difficulty, as it is when any large enterprise fails; it is catastrophic to our society. The Bank of England has put an enormous amount of effort into creating an effective resolution regime which, because I have been in this role since 2010, I have seen all the legislation on. It has a resolution directorate staffed with people ready to move in if there is a problem with a bank to solve it over a weekend. But the problem seems to me to be that, just as a bank cannot be allowed to fail for financial reasons, it is increasingly true that a bank failing because of its technical capability—because of its computer services—would have an equally catastrophic effect on society.

I therefore ask the Minister whether, as we hand further tasks to these ailing computer systems, the regulators have an equivalent regime to ensure that the banks’ computer systems will never fail.

[Lord Bates]

I thank the noble Baroness and the noble Lord for their questions. The noble Baroness is right to stress the importance of cheques continuing to be available. The evidence suggests that many voluntary organisations and charities, and some of the most vulnerable in our society, are the ones who rely on cheques the most, so it is important that their interests be safeguarded.

The noble Baroness asked about conflicting claims, and here we can draw on some historic legislation. The Bills of Exchange Act 1882 is explicit: should the payee’s bank compensate a customer for a loss in accordance with the proposed legislation, this does not preclude the payee’s bank recouping this payment from the party where actual liability lies. In addition, where there are competing claims, there is a process for resolving that issue. As I said, these regulations are very much a backstop to a system that we feel is already working quite well.

The noble Lord, Lord Tunnicliffe, who is always assiduous in going through the detail of such regulations, asked about the IT operations. He is absolutely right that, as we place greater and greater emphasis on IT systems, we should be cognisant that sometimes they can fail. The Cheque and Credit Clearing Company has assured the Government that the new clearing process will be as secure and reliable as the one we use now. The security standards used to design and build the ICS are industry-leading and were agreed by all the participants to the company’s security code of conduct. The ICS infrastructure has been fully tested and has been in live operation, processing digital cheques, since October 2017. It has already processed some 250,000 payments to date. Additionally, the ICS infrastructure operates out of two geographically distinct sites in order to provide resilience, and there is full duplication on both sites. Contingency plans and connectivity alternatives are available, should they be required. The infrastructure is 100% operated from within the UK.

I once again thank the noble Baroness and the noble Lord for their comments, and I commend these regulations to your Lordships’ House.

Cash Ratio Deposits (Value Bands and Ratios) Order 2018

Lord Tunnicliffe Excerpts

Wednesday 16th May 2018 Grand Committee

[Baroness Kramer (LD)]

My Lords, I noticed that when the Bank of England consulted on this scheme it received only three responses. That highly recommends that I be brief in my response. Obviously, we as a party very much value the independence of the Bank of England. I am reminded that Vince Cable spoke of it in his maiden speech in 1997, so we have a long history of wanting to see that independence firm and strong. Obviously, that means that the Bank of England needs the required resources to be able to function.

That is provided for under this statutory instrument, which permits both increases in the amount and indexation, which means that the amount can be reset according to shifts in the gilts on a six-monthly basis. That presumably reduces both volatility and risk to the Bank. The amount of money we are talking about is not particularly large. In most banking institutions it is somewhere lost well to the right-hand side of the decimal point.

As one of those who made the effort to respond noted, there is no assurance in any of the paperwork that we have seen that this is genuinely value for money and that the Bank has looked carefully at its expenditure. There appears to be no particular accountability for the way the money is spent. Will the Minister comment on that?

This also gives me the opportunity to raise a second level. Most of us here would agree that we are not really ready to see banks being let off the hook in terms of their contribution to the public purse. One could call this deposit scheme, in a strange way, a version of a hypothecated tax since it is a mechanism for providing funding to the Bank of England. I wonder whether the Government could provide clarity on their policy, because they are cutting the bank levy—a very significant amount of money—and raising this. Is there any relationship between the two? I hope that the Government will never pray in aid this particular increase as an argument that they are continuing to be tough on the banks.

I will make one last comment. This is exactly the kind of measure that should be dealt with through statutory instruments. It is exemplary. It is a relatively technical issue and relatively non-controversial. I hope that the Government will take on board that this is the kind of purpose for statutory instruments. They are not a mechanism for driving through policy, which we have seen in so many other areas.

[Lord Tunnicliffe (Lab)]

My Lords, I agree that this is clearly a measure that is appropriate for statutory instruments, but I wish that it had not landed on my desk. Of course, we will not oppose this. This will not be the one in 1,000 occasion this afternoon, I am sure the Minister will be pleased to hear. However, after I had taken the trouble to half understand the scheme, I could not believe its bizarre nature. I could not for the life of me see why there was not a straightforward fee-based scheme. The scheme is planned to raise £169 million per annum. Why does the Bank not simply send the banks a bill and raise the money directly? My real fear—which is rather the opposite of that expressed by the noble Baroness, Lady Kramer—is: what if this formula is wrong?

The functions covered by this income are absolutely vital. The austerity programme that this Government continue to pursue would be even more disastrous for the economy if it were not for the monetary measures taken by the Bank of England. This funding supports the MPC and the FPC, which are effectively seeking, through quantitative easing, the bank rate and the controls it puts on the banks, to control monetary policy and create an appropriate stimulus over this period of austerity. I see that the Bank has said that if the money is insufficient, it will reprioritise efficiency savings. I have worked long enough in the public sector to know what an efficiency saving is—it is called a cut in normal language. I cannot think of any area of the Bank’s activity, together with the resolution and recovery regime, that is more important. It is essential that it is properly funded.

The formula set out on page 5 of the Explanatory Memorandum has a number of components which I am afraid I do not understand. The first thing that it assumes is that the income required is fixed at £169 million for five years. Once again, I ask: what if that is wrong? The next factor in the formula is the aggregate eligible liabilities, which are fixed at £2.8 trillion—I hope that I have counted the number of noughts properly—yet the impact assessment assumes, from the various analyses that have been produced, that this figure will go up by 2.9% per annum. Why is it fixed if in fact the Government, in analysing the scheme, assume that it will increase?

In fact, the only real variable in the scheme is what is called on page 5 of the Explanatory Memorandum the “portfolio yield”—that is, the estimate of the yield from investments. It is made up of three parts: 55%, 42% and 3%. The 55%, labelled “a”, seems to be the only seriously variable one. It is a 13-year moving average. Why 55% and why 13 years? The second element, labelled “b” in the formula in paragraph 7.17(c), is calculated on a six-month average, but it is calculated only twice and is then fixed for the rest of the period of this notice. The 3% at the end of the formula is a six-month average calculated every six months. This is a ridiculously complex way to collect a modest amount of money. I believe that the whole system by which this money is collected needs to be reviewed. The fee-based approach would be simple to introduce. You could apportion the burden on eligible liabilities, which have to be calculated with this scheme. My biggest fear would then be coped with. A simple system could guarantee sufficient funds for this vital area.

[Lord Bates]

I am grateful to the noble Lord for delving into the algebra in the formula of “i” over “el” times “py”, which we all know arrives at the answer of the funding that is required. Before dealing with the explanation for that, I will deal with some of the points raised by the noble Baroness, Lady Kramer. She mentioned the consultation. The Treasury ran an informal consultation between 20 December and 15 January, contacting all the eligible institutions. A relatively small number of institutions contributed; 19 responses were received on that part. When it went into the public realm, between 8 and 9 March, three responses were received. One should not be surprised; it is a highly technical measure, as the noble Lord, Lord Tunnicliffe, said. Those were the points raised.

There was a point about what was being done to improve efficiency. There were changes to the way the Bank was to work. Cost-savings measures include a comprehensive programme of cost-containment and reprioritisation, coupled with an increasing amount of transparency, so we can track what is being spent at the Bank. Those elements are commendable.

The total tax burden on banks and building societies from the bank levy is significant. In 2016-17, £3 billion was raised from the Government bank levy above the £1.6 billion from the bank corporation tax surcharge. Those are significant sums contributing to the Exchequer.

The noble Lord, Lord Tunnicliffe, has been, as always, assiduous in the way he has delved into the detail of the Explanatory Memorandum and the order, and raised a number of pertinent points. He says: why not just have a levy, rather than an alternative means of funding that involves this level of complexity? The review considered a range of mechanisms by which the Bank’s monetary policy and financial stability functions could be funded—in particular, whether a move to a fee-based model or levy would be appropriate. The review concluded that:

“Such a proposal was not possible within the scope of the existing legislation and in the current CRD review period. A fee-based model would require more in-depth analysis, starting from first-principles in terms of how costs could be apportioned in a fair and efficient way”.


The noble Lord also asked about the formula: what drives the variables and the weightings attached to them? There are different weightings in the order which reflect the Bank’s long-term gilt holdings and investments over time. The long-term gilt holdings make up 55% of the total pool, hence the weighting of 55% is applied in the formula. Gilts that would be purchased in the coming months make up to 42% of the pool. Additional gilts that would be purchased over the remainder of the scheme to replace those that have matured amount to 3% of the portfolio.

He then asked: what happens if the Bank’s costs are below those expected? Do banks and building societies get their money back? That is a good question. The budget to be recovered by the scheme over the next five years is fixed and reflected in the order. Any surplus generated by the scheme as a result of underspend by the Bank will be retained by the Bank and will build up its capital base. This will in turn support the Bank’s monetary policy operations. Proposed amendments to the scheme seek to ensure that the Bank’s income profile is smoother over the next five-year period. That should ensure that a surplus or deficit does not arise under the scheme. Once again, I thank noble Lords for their questions and support on this. I commend this order to the Committee.

UK Convergence Programme

Lord Tunnicliffe Excerpts

Monday 16th April 2018 Lords Chamber

[Baroness Kramer (LD)]

My Lords, in a way this is a slightly poignant debate because, as the Minister has outlined, although the UK reports against the various economic benchmarks for the stability and growth pact, it is not required to take notice of any recommendations of the European Union that might follow from that but merely to promise that it will endeavour to avoid deficit. That is an example of one of the many ways in which the European Union accommodated the preferences of the UK and its desire to pursue some independence in certain areas, particularly the economic—greater than that enjoyed by other countries. It shows the mutual respect that framed the years in which we participated as a full and enthusiastic member of the European Union. When we consider how we have responded to the positive and creative ways of making sure that the most significant needs of the UK were always dealt with in a rational and reasonable way, it makes Brexit even sadder.

I just want to say a few words. Within the last few weeks we have had several debates on the economy, so rather than constantly repeat their content I want to make a couple of comments. The first is that I am concerned that the Government—weeks later—still have not recognised the significance of the very poor growth forecast for the UK that was presented by the OBR: 1.7% in this fiscal year, dropping to 1.5%. That is at a time when every one of our major export markets is absolutely going gangbusters, with growth in excess of 3%. Rather than take on board seriously the importance and relevance of responding to that issue, the Minister once again stands up and merely quotes reductions in deficit rather than dealing with the fundamental problems that we face.

Obviously some of those fundamental problems are around productivity. Again, the Government always cite the recent slight improvement in productivity. However, I remind the Government that, if they are minded to cite that again, it was caused by a drop in the number of hours worked—a very worrying warning sign—and not by improvements in output.

Today, again, we have reports on consumer spending, which continues to decline. Looking at the UK consumer spending index, I see that consumer spend declined by 2.1% year on year in March following a 1% year-on-year drop in February. Those are significant numbers, and they concern not just face-to-face spending—in other words, the high street retailers and shops. We know that there has been a shift from face-to-face spending to online spending, but now, for the first time, there is a significant fall in the online spending numbers as well. The Government have to take this very seriously, rather than simply assume that all is well and that the economy is in a positive state. We know from the many people we talk to that wage pressures are having a significant impact on individuals as they face inflation every time they go to the shops, and that the pressure on public spending has become completely intolerable.

Before I sit down, I will use this occasion to say once again that the Government have to tackle the lack of public spending in schools, in prisons and, above all, in the NHS and social care. This is the time to put in place a team to look at a dedicated tax to support the NHS and social care. If we do not start to do that soon, and to put in place the appropriate response to the needs of that critical service, we will find ourselves in a dire position.

Unfortunately, the Minister praised Brexit as the future for Britain, but we know from the Government’s own analysis—we have all gone and read it over in 100 Parliament Street and have heard it in other places —that the forecast is for the UK to function at a significantly lower level than it would have otherwise. We are looking at a dark economic situation, and for the Government to constantly present it as rosy takes away any confidence we can have that they will tackle these fundamental and underlying problems.

[Lord Tunnicliffe (Lab)]

My Lords, we are holding this debate today in the context of weeks of key Brexit debates ahead. It seems odd to be debating a Motion on the issue of convergence as we embark on weeks of debate about how we will leave the EU. I will not make this speech Brexit heavy but focus on what the Motion asks us to approve.

The Motion asks us to approve the Autumn Budget 2017 report and the most recent OBR economic and fiscal outlook for the purposes of Section 5 of the European Communities (Amendment) Act 1993. This is made difficult because we cannot be confident about what the economy will look like this time next year when, according to the Government’s Brexit timetable, we will no longer be a member of the EU—and presumably will no longer be holding this yearly debate. It is also made difficult by a number of other concerns.

I do not share the Chancellor’s view of light at the end of the tunnel, nor do the households for whom the squeeze on incomes and living standards is a daily pressure. The OBR forecasts from March are marginally better in the short term, but they have revised forecast growth down in both 2021 and 2022 since the Autumn Statement. Amid such uncertainty in the face of leaving the EU, how can we expect these to be revised up at any point? Last year, growth in our economy was the lowest in the G7 and the slowest since 2012. In the last quarter of 2017, GDP growth was just 0.4%. That means that Britain was the slowest-growing major economy across 2017, behind both Italy and Japan. OBR forecasts predict growth will fall below even the weak 1.7% level that the Chancellor spent most of the Spring Statement boasting about. So we are looking at having 1.5% growth in 2022, 15 years after the financial crisis, which is absolutely nothing to boast about.

This Government have missed every deficit target they have set themselves. Public sector borrowing is still higher than forecast a year ago, and debt is over £700 billion higher than when the Tories came to power. George Osborne’s target for a 2020 surplus is a distant memory. The Government may be quick to point to productivity growth. However, we know from the OBR outlook that stronger productivity has in fact reflected the fall in average hours worked in the second half of 2017, as the noble Baroness, Lady Kramer, said, rather than stronger output. The OBR forecasts in November actually revised down productivity and business investment every year for the next five years. We are lagging behind the rest of Europe, with the productivity gap between us and other G7 countries the widest it has been since 1991.

This Government are failing to support working people. We have an economy running on low pay and insecure employment. Some 60% of people in poverty in the UK live in households where someone is in work. Clearly something is wrong here. The Government say that the economy is growing, but the UK is the only major nation in which wages have fallen at the same time. Wages are still below their level in 2010 and wage growth is being outstripped by inflation. The IFS has said that real average earnings are expected to grow by just 3.5% over the next five years, meaning that their level in 2022-23 would be similar to 2007-08. The OBR has said that real earnings growth over the next five years is expected to remain subdued, averaging just 0.7% a year. Growth in real household disposable income per person is expected to average only 0.4% a year. The national living wage was once again revised down. It will not hit the £9 per hour that the Tories originally promised. In the Spring Statement, it was projected to be just £8.57.

The Government’s headline figures on the deficit exist only because debt is being pushed on to local councils, schools and hospitals. Our public services are suffering a government onslaught. National Health Service trusts will end this financial year £1 billion in deficit. Doctors and nurses are struggling and being asked to do more, while 100,000 NHS posts go unfilled. Recorded crime is rising, yet the Government have cut the number of police officers by 21,500 and the number of firefighters by more than 8,500. Our prison and probation services are in dangerous crisis, and yet another prison riot has been reported today.

This Government are responsible for the first real-terms per capita cut in school funding in 20 years and are today trying to deprive 1 million children of a decent school dinner. They have trebled student fees to £9,000 and abolished the maintenance grant, meaning that the average working class student leaves university heavily in debt. Local government will face a funding gap of £5.8 billion by 2020 and is drawing down more reserves. More children are being taken into care, yet children’s services alone are facing a £2 billion funding gap by 2020, while more than 1 million of our elderly people are living with their care needs unmet.

After eight years of failure on housing, from rising homelessness to falling home ownership, the Government have no plan to fix the housing crisis. Statistics released just before the Spring Statement reveal that housebuilding has still not recovered even to pre-crisis levels. The OBR was not able to adjust its forecast on housebuilding as a result of any policies in the Budget.

The Spring Statement missed an opportunity to prepare our economy for Brexit and was a missed opportunity to invest in the services that we as a country will rely on increasingly in the post-Brexit future. The Chancellor may have kept his promise of no new fiscal policies, but that means that struggling families with low pay facing benefit cuts to free school meals will have to wait until the autumn for any kind of relief. I am not sure that they can afford to wait that long.

[Lord Bates]

My Lords, the noble Baroness rightly pointed out that we have had a few of these debates. They tend to come down to a debate between the optimists and the pessimists, and I have to say that the Government and indeed I myself are very much in the optimistic territory on this. We believe that we can make a success of Brexit and that our best days are ahead of us. The forecasts which are made are not targets to be met but are there to be beaten. Evidence of that is in the OBR forecast last year, which was mentioned in the debate, and the Autumn Budget. The forecast for growth was 1.5%, but the actual outturn in growth was 1.8%, which is welcome and something we want to see continue to happen.

The noble Lord, Lord Tunnicliffe, accused us of failing to support working people. Well, there are a lot more working people around whom we are supporting with jobs. There are some 3 million additional jobs in the economy, and that level of employment is likely to increase over the period of the OBR forecast, so there is a significant amount going on.

The noble Lord also challenged whether we are doing enough on housing. The whole point and thrust of the Spring Statement and the Autumn Budget was in the housing area. I am sure that my noble friend Lord Young, who is of course a specialist in this matter and in his place on the Front Bench, is longing to leap to the Dispatch Box to correct the record on what incredible things we are doing to give people an opportunity to have a stake in the future.

The economy is 16.7% larger than it was in 2010, and the IFS has said that, by the end of this Parliament, government plans will see public investment increase to its highest sustained level in 40 years. As the noble Baroness almost anticipated that I would say, we have announced a £31 billion national productivity investment fund to tackle our productivity challenge head on, and we are seeing some encouraging signs in that area. Ultimately, while the people who have confidence in the economy may not be found on the Opposition Benches, they can be found in companies like Toyota, which has said that it will build the next generation of its Auris hatchback in Derbyshire; BMW, which has said that it will build a fully electric version of the Mini in Oxford; Boeing, which will open its first European factory in Sheffield; and Dyson, which has announced that it is to begin work on a second technology campus.

We on this side certainly take a positive view of the underlying strength of the economy, while not diminishing the challenges we face. They were set out in the Autumn Budget and expanded upon in the Spring Statement, and they are contained in the convergence document which is being presented to your Lordships’ House today and which I have no hesitation in commending for approval, should noble Lords so wish.

Money Laundering

Lord Tunnicliffe Excerpts

Monday 19th March 2018 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I thank the Minister for repeating the Answer to the Question. According to the Daily Telegraph, official figures suggest that £90 billion in crime proceeds is laundered through the UK each year. The UK has for many years been seen as a desirable place to hide suspicious wealth. Can the Minister explain why the Government have done relatively little to discourage this activity thus far? Does she agree that the current laws under which owners of overseas companies can buy UK property while hiding their identities are ripe for abuse? They have not only led to an influx to the UK of suspicious wealth, but further exacerbated the crisis in the housing market. Can she please explain why the Conservatives blocked the Labour Party’s amendment in Committee on the Sanctions and Anti-Money Laundering Bill, calling for the introduction of a Magnitsky clause? When will the Government take more effective action to tackle this problem?

[Baroness Williams of Trafford]

My Lords, I can agree with the noble Lord on one thing: the impact of money laundering in the UK. However, in 2016, 1,435 people were convicted of money laundering in England and Wales. The Government established the joint money-laundering intelligence task force in 2015 to tackle the issue, and between May 2016 and March 2017 it contributed to more than 1,000 bank-led investigations into suspect customers, the closure of more than 450 suspicious bank accounts and the freezing of £7 million in suspected criminal funds.

The noble Lord talked about Labour putting forward the Magnitsky amendment. I certainly remember that, under the Criminal Finances Bill, it was the noble Baroness, Lady Stern, who put forward the Magnitsky amendment in this House and Labour did very little to tackle serious crime and corruption in this country, so I do not accept the charge he makes that we have done nothing to address this issue.

Customs Clearance Arrangements at UK Ports

Lord Tunnicliffe Excerpts

Monday 19th March 2018 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I thank the Minister for repeating the Answer to the Urgent Question. According to the Guardian, Chris Grayling said:

“We will maintain a free-flowing border at Dover. We will not impose checks in the port … We don’t check lorries now; we’re not going to be checking lorries in Dover in the future. The only reason we would have queues at the border is if we put in place restrictions that created those queues. We are not going to do that. We will manage trade electronically. Trucks will move through the border without stopping”.


Does the Minister accept that it is both reckless and misleading for his colleague, the Transport Secretary, to imply that there will be no checks at Dover in the case of a hard Brexit? Can the Minister point out to the House other examples of countries that allow goods to flow through their borders unchecked without some form of customs agreement? Can he also explain to the House how HMRC will be able to implement customs checks post Brexit while the Government continue to close HMRC offices and when they have cut staffing levels by 17% since 2010? Finally, given the Government’s track record of delivering computer systems, does he honestly think that delivery of an upgraded system by March 2019 is in any way realistic?

[Lord Bates]

In response to the first question, what the Secretary of State for Transport described is pretty similar to what I said in the Answer to the Urgent Question about our desiring a frictionless border between ourselves and the European Union and a deep and ongoing partnership. Clearly, “frictionless” has connotations relating to particular checks which could be undertaken at roll-on, roll-off ferry terminals such as Dover, which are important to the economy.

On the second point, the noble Lord invites me to think about whether there are other examples which could be pointed to in this regard. But again, we are looking for something unique, innovative and different. We believe that it is possible; the fact that we are seeing agreement on the implementation period just today shows that it is possible with good will on both sides.

Finally, the noble Lord asked about HMRC and computer systems. That was one of the reasons why the Chancellor announced in his Autumn Budget that a total of £3 billion will be made available and, specifically, that £260 million will be made available to HMRC to prepare itself for the outcome. Therefore the resources are there. To touch on the point the noble Lord made about technology, that is interesting, because it is not as if at the moment the UK does not have any expertise in trading with the rest of the world. It does so quite frequently, and if you go down to Felixstowe or other places, you will see significant amounts of imports that come through and are dealt with in an incredibly efficient and effective way, using technology. We are seeking simply to take that technology and to give it wider usage so that it achieves our objective of a frictionless border that enhances both trade in the EU and for the UK.

Small Business, Enterprise and Employment Act 2015 (Consequential Amendments, Savings and Transitional Provisions) Regulations 2017

Lord Tunnicliffe Excerpts

Monday 22nd January 2018 Lords Chamber

[Baroness Burt of Solihull (LD)]

My Lords, I am grateful for that thorough and clear explanation by the Minister of what these regulations do. It took me a while to ponder them in order to reach the same kind of conclusion. It seems that everything in the instrument is technical and is required to smooth out the problems that can arise when there is insolvency in relation to financial services. I can understand how the legislation will benefit institutions with many creditors, such as a building society, a mutual or, indeed, a bank.

I have two questions for the Minister. No impact assessment has been produced for the regulations. I would be interested to know the reasons for that because if removal of the requirement for physical creditors’ meetings and allowing creditors to opt out of certain notices was explored in the insolvency red tape challenge, surely the conclusion must have been that this would make savings, otherwise why would you do it? Secondly, there are no plans to review these amendments. My question is this: how will the Government know that they have done their job and whether they are working? I have a bit of a bee in my bonnet about that because we should always look back at legislation to see whether it has in fact done its job. To some degree we have built in things like sunset clauses where it is clear that legislation is no longer required. If we are seeking to reduce red tape, I point out that assessing whether our legislation is working is a good way of enabling us not to have any extra red tape. There is plenty of it in HM Treasury, that is absolutely for sure. I would be grateful for the Minister’s comments on those points.

[Lord Tunnicliffe (Lab)]

My Lords, before I start I should apologise for what is going to be a rather scrappy and rambling speech. The reason for that is that rather lazily I started to look at this instrument only on Saturday, and I have to say that I pretty much regret that I did so. I had great trouble in trying to understand it, particularly the Explanatory Memorandum. Either these regulations are important or they are a trivial tidying-up exercise, but I could not work out which. They seem to centre on meetings and notices. I shall quote from the Explanatory Memorandum:

“insolvency law reforms enacted in sections 122 to 126 of, and Schedule 9 to, the Small Business, Enterprise and Employment Act 2015”.

Paragraph 7.4 sets out what the principal changes are. As the Minister said, they concern the removal of physical meetings for creditors and allowing them to opt out of receiving certain notices. That seems unobjectionable until one reads, together with paragraph 7.5, paragraph 7.6:

“This instrument therefore takes a staggered approach to the amendment of the Treasury’s financial services legislation, disapplying the reforms for the majority of its special insolvency regimes”.


The special insolvency regimes are enormously important. They culminate in the Bank of England’s approach to resolution, which is a combination of several Acts. I see the noble Lord, Lord Young, in his place. We have battled over the bits and bobs of these Acts—well, battled is not quite fair, but sought to understand them and how they fit together. Of course, the consequence of the Bank of England’s approach is that banks do not become insolvent. They are resolved before that. It is already quite complicated.

I thought, “Well, why don’t I break the normal rule and look at the regulations?”. It is pretty desperate when you have to look at the regulations because they are, as usual, pretty indecipherable, especially as they run to several pages, despite an apparently simple purpose of disapplying something in a particular place. Since it was so long I thought I would pick on something that I think I know a little about. That took me to page 5 of the regulations on the Banking Act 2009. Regulation 6(3)(a) requires that,

“the entry for section 141, in column 3 at the beginning insert … ‘Ignore the amendment made by paragraph 36 of Schedule 9 to the 2015 Act’”.

This is a form of legislation that I have never come across before. I am used to instruments changing the law and so on, but to say to disapply a law, or to read it as though it has not been amended, which is what this says, creates immediate problems. You can get into the Small Business, Enterprise and Employment Act and find out what is to be disapplied, but you then have to try to find what disapplying the Act means. It means going back to the Insolvency Act 1986 to see which particular amendments to that Act were in force before April came along and it was changed to something that these regulations want to change it back to. I failed. I could get a copy of Section 141 as enacted in 1986 and I could look up the section that now exists until these regulations become active. It proved why I am not a lawyer: while the words are different, I could not find any difference in the meaning.

It seems that the essence of this is: what is the damage if we do not approve? I hope that smiling and shaking of the head from the Minister means that he will write to me rather than try to answer me. I would like an answer to this in writing if the Minister cannot provide it tonight: what damage to the insolvency regime—particularly in the Financial Services and Markets Act 2000, the Banking Act 2009 and the other Acts mentioned in the regulations—would occur if we were not to approve these regulations? If the damage is trivial, that is fair enough. If the damage is that it puts in doubt the working of the special resolution regimes which the Treasury has developed and put into law, it is very serious. If those regimes are seriously damaged, the resolution approach which the Bank of England thinks it has may be at risk

One problem with bank resolution is that it is something that one never does. The trick is for the industry to know about it and think, “That is going to be so painful, we will be careful enough not to get into that position”. So we do not have any case law. However, we nearly had some case law: the Co-op Bank was within a whisker of going broke. The resolution regime worked in that the creditors, those who were owed money by the bank, thought that they would get an even worse deal under the resolution regime than by putting together their own deal, so they put their own deal together within hours of the point at which they would have run out of money. The resolution regime therefore worked by virtue of its existence, but is it fatally flawed until we approve this instrument?

If that is the case, it means that the 2015 Act contains a serious flaw, and we need to know how that happened. Was there not proper consultation in developing the Act? I assume that the original parent of the Act was BIS, as it was known then. The developer of the special resolution regimes is the Treasury. It seems to be either some trivial tidying-up or a serious mistake, for which I would look to the Minister to apologise. One thing I think I can ask him to apologise for is the Explanatory Memorandum. As a politician of average intelligence—you might call that a bear of little brain—I found it impossible to work out just how important this instrument is or is not.

[Lord Bates]

I am grateful for those contributions and for your Lordships displaying your usual assiduousness in these matters, which, as I outlined in my opening remarks, are technical in nature.

[Lord Tunnicliffe]

We should be clear that “technical” does not mean “trivial”. “Technical” can be at the essence of whether the law is working.

[Lord Bates]

I absolutely agree with that. Often in legislation we deal with the overarching principles and leave the technical aspects, which are not trivial but very significant, to be worked out through secondary legislation, which is the purpose of our discussion here.

I shall come on later to the points raised by the noble Lord but want first to address those made by the noble Baroness, Lady Burt, who asked about the general genesis of the regulations. Due to the considerable volume of legislation affected by the 2015 reforms, this approach is necessary while the impact of reforms on these types of institution is further assessed and decisions are made about implementation. In many ways, that is about trying to learn as we implement so that we do not overcorrect what we seek to introduce. Today’s regulations are consequential amendments to the financial sector insolvency regimes to take account of the April 2017 reforms. Given the limited amount of parliamentary time available, there are currently no plans to consolidate the legislation. Stakeholders who are directly affected by the legislation and therefore need a more granular understanding will be able to purchase consolidated versions of it from commercial providers.

I come to the point raised by the noble Baroness about impact assessment. BEIS carried out an extensive consultation before bringing forward the insolvency reforms. BEIS received information in this consultation which refined the policy, and it helped the impact assessment process to quantify the cost of these regulations. BEIS further undertook a full impact assessment for the changes brought in by the wider reforms and for the impact on the economy as a whole. It is a very important part of those principles that that is considered in that way.

--- Later in debate ---

[Lord Bates]

I shall double-check, but my feeling is that those impact assessments were published earlier in the sequence of legislation and reforms that I mentioned. I shall double-check but if that is not the case, impact assessments are normally a matter of public record and they will therefore be made available. The noble Baroness also asked how the financial sector will benefit from these changes. Where these regulations apply the reforms, firms in the financial sector will benefit from a modernised and streamlined insolvency process. The benefits include removing unnecessary burdens, such as requiring a physical meeting of creditors. Financial institutions will not be directly affected by these. As to the impact these regulations will have on the financial sector, these regulations apply the reforms where appropriate, ensuring that the benefits of the reforms are extended to the financial sector. Where the regulations do not apply the reforms, there will be no impact on the financial sector. As I mentioned, an impact assessment was undertaken.

I come to some points raised by the noble Lord, Lord Tunnicliffe. He focused on recalling the impact of the Banking Act 2009 and asked what the impact might be on the Bank of England’s resolution of banking problems to ensure smooth working. The insolvency regimes for financial sector firms that we are discussing today sit alongside the Bank of England’s powers under the special resolution regime established by the Banking Act 2009. Today’s regulations are required to update and maintain consistency in the legislation that concerns these special insolvency regimes. The regulations do not affect or amend the Bank of England’s powers under the special resolution regime.

The noble Lord also asked about the drafting of the statutory instrument, basically saying that it is not acceptable because you need to see the Banking Act 2009 before it was amended. Today’s regulations are consequential amendments that amend the financial sector insolvency regimes to take account of the April 2017 reforms. Given the limited amount of parliamentary time available, as I mentioned earlier, there are currently no plans to consolidate the regulations.

[Lord Tunnicliffe]

The thing that worries me is that the language the Minister uses suggests a progressive improvement while in fact this instrument disapplies—it does not update; it “undates”, for want of a better term, although I do not think that there is such a word. It suggests that the conclusion has been reached that the application of the 2015 Act in the area of financial services is actually doing harm. Nobody is going to disagree with the 2015 Act to the extent to which it reduces bureaucracy, but this instrument says, if I have read it properly, that it will not apply in these circumstances. It seems a very unusual instrument for that reason, and the only logic for it is that there is harm in it applying—unless I have totally misunderstood the instrument and the Explanatory Memorandum.

[Lord Bates]

The noble Lord has not misunderstood it, but in my opening speech I said that what is proposed here is to disapply while application of the other measures referenced went ahead. I would have thought that that could be supported. I accept the noble Lord’s point that it is perhaps unusual to do it in that way. However, it has been done in consultation with the businesses that are affected, which believe that this is an effective way forward. Clearly, that is why we are legislating in this way.

[Lord Tunnicliffe]

May I press the Minister just a little more? I recognise that we will not resolve this tonight—and, of course, as ever, we will not cause a constitutional crisis and vote against it. However, I would be grateful if I could have a detailed response by letter from the Minister setting out what would happen if this instrument were not passed. What harm is being done by the fact that the 2015 Act currently applies and has to be disapplied to the position before the Act in a set of particular circumstances, with particular reference to the Banking Act and the resolution regime?

[Lord Bates]

I am happy to do that. I will write in detail to set this out, and I hope that that will be helpful for the record. I am also happy to copy that to the noble Baroness, Lady Burt, as some comments were made about the Explanatory Memorandum, which I hope will be covered as well.

I reiterate that the impact assessments have already been published, and I will provide in my letter to the noble Lord, Lord Tunnicliffe, a copy of—or more probably a link to—that impact assessment. I hope that, with those reassurances and the commitment to write, noble Lords will accept these regulations, which I commend to the House.

Tackling Financial Exclusion (Financial Exclusion Report)

Lord Tunnicliffe Excerpts

Monday 18th December 2017 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I, too, thank the noble Baroness, Lady Tyler, and her committee for this excellent report, and add my thanks to those members of staff who supported it. It was a timely decision of the House to set up the committee. It is doubtful whether the Financial Guidance and Claims Bill would have got to the stage it has, preparing the way as it does for a new DWP Minister for financial inclusion, without the evidence and arguments presented in the report. A job well done—or was it?

Many noble Lords have commented on the length of time that it has taken the Government to respond to the report. It was clear that the work of the House on the Financial Guidance and Claims Bill would have been materially improved if the government response have been made available earlier in the Bill’s proceedings. Nevertheless, it is gratifying to learn that, of the 22 recommendations of the committee, four have already been implemented, with a further five partially implemented.

However, in my time today, I shall concentrate on the recommendations which the Government’s response indicates that they will not implement. Recommendations 3 and 12 concern annual reports on key indicators of financial inclusion. I wonder whether the Government have got this right. Why be so defensive about something which they are, at least in part, sorting out and making progress on? This is despite the fact that we have a new ministerial portfolio in an area that is of demonstrable interest to the wider public.

Recommendations 4 and 5 concern placing a duty of care on the FCA and financial inclusion being a key FCA objective. The question of duty of care has been debated time and again, and I would have thought that the Government would have made a better fist of it than they have in their current response. The FCA should have a duty of care to its consumers at the heart of its mission. It is simply not possible to achieve a good deal for consumers and protect those affected by financial exclusion by relying on a fair markets approach. In the case of payday lending, the FCA could operate only to reduce the number of companies making excessive profits and to cap the charges. What was required was a consumer detriment approach, which would have been to ban the usurious—very high —rates of interest that those companies were charging.

Recommendation 6 states that financial education should be added to the primary school curriculum. The case made in the report for a rethink about how we educate our children in the financial workings of our world is powerful and convincing, but it has been turned down flat. Frankly, there could be no better way of introducing children to mathematics, and particularly numeracy, than money. Can the Minister explain what discussions and negotiations have been carried out on this recommendation and fill out for us the reasons why DfE colleagues were unconvinced? It was good of the noble Viscount, Lord Brookeborough, to speak on this point, and I thought that his description of the Government’s response as “wishy-washy” was very much to the point.

Recommendation 10 concerns reasonable adjustment practices for disabled customers. The FCA’s Our Future Approach to Consumers document from November 2017 contains a good deal of discussion on the issue of vulnerability. However, the document makes very little reference to the particular problems experienced by disabled people. The Minister will be aware of the changes that have been put into the Financial Guidance and Claims Bill on the issue of services to vulnerable people. Does he think that the response to this recommendation meets the high standards that should apply?

Recommendation 11 concerns promoting basic bank accounts appropriately and effectively. Can the Minister explain why the Government are willing the ends of this policy but not the means? Is this not a simple regulatory issue? If not, what is the real problem? The noble Lord, Lord Northbrook, spoke on this matter and illustrated that Barclays—surprise, surprise—had miserably failed yet again in its duties. I was delighted to hear the noble Lord commending more regulation and controls. He joins my club on that matter.

Recommendation 14 concerns ensuring that non-digital access to social security benefits and other services remains possible. The response does not engage with issues such as universal credit phone lines not being free and the strong discouragement against applying for benefits offline.

Recommendation 21 is that tenants in receipt of universal credit should be allowed to decide for themselves whether their housing costs should be paid to them or direct to their landlord. The response notes that it is to be made quicker for registered social landlords to apply for a managed payment. However, there is no movement on the issue of empowering claimants. Indeed, the Government make it clear that they do not see managed payments to landlords as a permanent solution for any claimant if possible.

Recommendation 22 concerns a detailed, comprehensive cumulative impact study of how changes in social security policy resulting from the Welfare Reform Act 2012 might have adversely affected financial well-being and inclusion. The Government decline to begin any single comprehensive study of the impact of all welfare reform measures on financial well-being. My noble friend Lord McKenzie and others have made very strong representations in this debate about the lack of positive responses to their well-evidenced and well-argued concerns about the universal credit programme. Some movement was achieved in the Budget but it is clearly not enough. We look forward to the Minister’s response to these disappointing responses to the recommendations of the committee.

Finally, recommendations 17 and 18 concern widening credit union products and deepening financial support for them. The Government have said that they do not intend to provide revenue support to credit unions. They go on to say that they will consider grant funding only in relation to specific outcomes. Credit unions are one of the few places where financially stretched consumers can get access to credit without having to go to payday lenders or worse. In Ireland, virtually every village or town has a number of credit unions, which provide the bulk of necessary unsecured lending on a sustainable basis. Why are we not able to get this movement onto a sustainable basis and get it to grow to its potential? Why is no direct engagement with the arguments put forward in the report?

To paraphrase the curate, the Government’s response is good in parts. But let us go back to the basics—a point made by the noble Baroness, Lady Tyler, right at the beginning of this debate. This is about the poor and about how the poor are made to pay more. In his speech the noble Lord, Lord Patten, made the point —perhaps the only point I agreed with—that the recommendations in this report would cost very little money. Why cannot the Government, who have done so much to make the poor poorer, do more, as this report recommends, to help the poor, the old, the unconnected and the disabled to pay less? Please, Government, will you do more to help the poor to pay less?

Budget Statement

Lord Tunnicliffe Excerpts

Monday 4th December 2017 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, in opening this debate for the Opposition, I am somewhat in awe of the speakers list, in terms of both its length and, principally, its quality. I will therefore try to be brief. I look on this Budget as a confessional. Economic growth is the lowest it has been since the Tories came into office, and the Budget confirms that failure: growth is revised down in every year of the forecast. The Government have promised to eliminate the deficit by 2015, 2016, 2017 and 2020, and now I believe they say the mid-2020s, yet the answer—continuing austerity—remains the same. The long-term economic plan has been and continues to be a shambles.

The investment promise is inadequate. Labour would bring forward investment in infrastructure in every region and nation to create a high-wage, high-productivity society. Real wages are lower than they were in 2010. The Budget confirms a further hit to living standards in 2017. The national living wage will not be the £9 per hour that was promised when it was introduced; in March it was revised down to £8.75, and it has now been revised down to £8.56. By 2020, average full-time workers on the national living wage will be £900 per annum poorer. If Labour’s promise of £10 per hour had been introduced, they would be £3,000 per annum richer.

What is the overall growth effect of the Budget? This can be found in the OBR’s Economic and Fiscal Outlook, somewhat obscurely, in paragraph 1.19:

“The short-term fiscal loosening announced in this Budget boosts growth by 0.1 percentage points in 2018 and 2019, but its withdrawal then reduces it by the same amounts in the following two years”.


Plus 0.1 plus 0.1 minus 0.1 minus 0.1 equals zero. When have a Government, with an economy as in the doldrums as this one is, ever turned down an opportunity to stimulate it? So growth is low, deficit reduction has failed, investment is inadequate, real wages are static and the national living wage is down.

I turn now not so much to the Budget as to what is not in it. I would call it a hope-free Budget, looking at it from the point of view of the poor, the aspirant, the sick and the old. First I want to look at it from the point of view of the poor. I think few of us in this House really understand what it is like to be poor. I came from a modest background where my household income was certainly in the bottom quintile and probably in the bottom decile. However, they were different times: I lived in a council house where the tenancy was secure and rents were reasonable, and my father was a hospital worker but he knew he had a job and he had stability. Yes, there were things that we did not have, but we did not have fear. I put it to the House that today’s poor have fear in a way that probably very few here can understand.

So what have this Government done? By introducing universal credit, they have taken £3 billion per annum from the poor, and this Budget produces a miserly £300 million a year to try to ameliorate the impact. People will not particularly believe me because I am standing here at the Labour Front Bench, but today the Joseph Rowntree Foundation published a report whose key finding is:

“Over the last 20 years the UK has seen very significant falls in poverty among children and pensioners. Twenty years ago a third of children lived in poverty; this fell to 27% in 2011/12. In 1994/95, 28% of pensioners lived in poverty, falling to 13% in 2011/12. This progress is now at risk of reversing: poverty rates for both groups have started to rise again, to 16% for pensioners and 30% for children”.


Is there any relief in this Budget for the poor? No.

Let us turn to what I call the aspirant group. What makes society work is social mobility. In my day it was surprisingly more available than people tend to think, and I was lucky to enjoy social mobility. To be fair to previous Governments, this was recognised and a Social Mobility Commission set up, chaired by Alan Milburn. Now, all the commissioners have resigned. I quote from his resignation letter:

“For almost a decade, I have been proud to serve under Labour, Coalition and Conservative governments in various social mobility roles. I remain deeply committed to the issue, but I have little hope of the current government making the progress I believe is necessary to bring about a fairer Britain”.


Does the Budget bring any hope of improved social mobility? No.

I turn to the sick. Yes, there was money in the Budget, but because of demographic and other effects, it was effectively delivering a cut. I must commend NHS England on its openness in decision-making. It places on the web its board papers and minutes. Therefore, I was able to look at the paper that the board produced for the meeting immediately after the Budget, which took account of the Budget. Under the heading:

“Be realistic about what can be expected from the remaining available funds”,


it states:

“For example, new advisory NICE guidelines can only expect to be implemented locally across the NHS if in future they are accompanied by a clear and agreed affordability and workforce assessment at the time they are drawn up”.


That is distinctly different from the present situation, where NICE guidelines are based not on affordability but on whether they are effective and give value. That paragraph continues,

“and even assuming this year’s unprecedented elective demand management success continues, our current forecast is that—without offsetting reductions in other areas of care—NHS constitution waiting times standards, in the round, will not be fully funded and met next year”.

Press reports indicate that the paper was fully endorsed by the board. The NHS has been honest, but this does not contain hope. Is there any comfort for the NHS in the Budget? No.

Finally, I turn to the old—perhaps we have more empathy with this subject. Let us face it: we all have to think about the last few years of life. Sadly, we live in a society where, throughout our nation, we are likely to feel most insecure in our last few years, because adult social care has been steadily ignored. There is a particular crisis in the care home sector. In July this year, Andrea Sutcliffe, chief inspector of adult social care in the CQC, said:

“Last October, CQC gave a stark warning that adult social care was approaching a tipping point. This was driven by more people with increasingly complex conditions needing care but in a challenging economic climate, facing greater difficulties in accessing the care they need.


While this report focuses on our assessment of quality and not on the wider context, with the deterioration we are seeing in services rated as Good together with the struggle to improve for those with Inadequate and Requires Improvement ratings, the danger of adult social care approaching its tipping point has not disappeared. If it tips, it will mean even more poor care, less choice and more unmet need for people”.


That is the CQC’s view of the world.

Interestingly, on 30 November, the Competition and Markets Authority reported on care homes. It said:

“Our assessment based on larger providers is that self-pay fees are now, on average, 41% higher than those paid by LAs in the same homes. This represents an average differential of £236 a week (over £12,000 a year)”.


It then discusses what will be the effect of that on the market. It argues that the effect is absolutely obvious: care homes will be built where there is a big market for self-pay, not built to meet the needs of local authorities. The area is approaching crisis. It goes on to say:

“Our assessment is that if local authorities were to pay the full cost of care for all residents they fund, the additional cost to them of these higher fees would be £900 million to £1.1 billion a year”.


Is there any hope in this sector? No. The care home sector is in crisis, and adult social care is in crisis. For the poor, the aspirant, the sick and the old, this is a no-hope budget.

Scrutiny of Secondary Legislation

Lord Tunnicliffe Excerpts

Monday 6th November 2017 Lords Chamber

Moved by

[Lord Tunnicliffe]

That this House regrets that Her Majesty’s Government has introduced the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, the Information about People with Significant Control (Amendment) Regulations 2017 and the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 without sufficient assessment of the effectiveness and value for money of the bureaucratic process proposed; and notes, with approval, that the Secondary Legislation Select Committee has questioned “the seriousness with which the Government view the process of scrutiny of secondary legislation” (SIs 2017/692, 2017/693 and 2017/694).

Relevant document: 2nd Report from the Secondary Legislation Scrutiny Committee

[Lord Tunnicliffe (Lab)]

My Lords, I will speak, first, to the procedural issues to which the regret Motion directly refers and then turn to the anti-money laundering and terrorist-funding measures which these instruments have introduced.

Noble Lords will know that I take a great deal of interest in secondary legislation, particularly when it pertains to Treasury matters. I am therefore familiar with the reports that the Secondary Legislation Scrutiny Committee produces. In recent years I have rarely read such a scathing assessment from the committee about the Government’s approach to the checks and balances, such as impact assessments, public consultations and timetables, which underpin our legislative process. At the very least, I would expect the Government to learn from the errors that they have made. However, they appear not to have learned anything. In the Government’s response to the committee, Stephen Barclay MP, the new secondary legislation champion, stated:

“My officials have alerted me to a similar issue where the General Election purdah period has also had an impact on finalisation of the impact assessment for the implementation of the Payment Services Directive 2. The Government will shortly be laying the Payment Services Regulations 2017, which implement the Directive. Whilst a final impact assessment for implementation of the Directive has been submitted to the RPC, the Government will not be able to publish an impact assessment that has been through RPC scrutiny alongside the Regulations”.


I ask the noble Lord: how many more pieces of secondary legislation will be subjected to sub-standard preparation?

One of the most striking aspects of the Secondary Legislation Scrutiny Committee’s report is the number of occurrences of bad practice that it has noted. First, there is the timing. The three SIs in question were laid on 22 or 23 June and came into force on 26 June, thereby breaching the convention which expects instruments to be laid 21 days before they come into law. The Government go on to say that the general election held on 8 June made it impossible to meet the 21-day deadline, but the Treasury consultation closed in November 2016—nearly a year ago. Why did it take the Government until April of this year to publish the final regulations? It should be of concern to us all that, as the committee says, the Government’s default position is to reduce the time available for parliamentary scrutiny.

Secondly and perhaps even more significantly, despite the scale of the impact that this measure will have, the Government did not see fit to publish an impact assessment at the same time as the instrument. The net cost to businesses will be £5.2 million a year—not an insignificant impact. The absurdity of this situation can be summed up by paragraphs 11.2 and 11.3 of the Explanatory Memorandum published alongside the regulations. Paragraph 11.2 reads:

“The Impact Assessment will provide further detail on impact for small businesses”.


Paragraph 11.3 goes on to say:

“No specific action is proposed to minimise regulatory burdens on small businesses”.


Frankly, the Government had no idea whether action was required, given that the final impact assessment had yet to be published. What is the Government’s excuse this time? Will they say that the Regulatory Policy Committee was also affected by the general election? However, the committee makes the point that the RPC is an independent body. Do its role and functions change during a general election? Did all the RPC’s work cease?

We are as unconvinced as the committee was that the Government could not have published provisional or indicative figures in the memorandum. Given that the draft impact assessment was completed on 13 April 2017, that would seem to have been entirely possible. Why did the Government choose not to pursue this course of action and, given that this is clearly not going to be a one-off, will the Government commit to publishing provisional figures in future if an impact assessment is not available?

I should now like to address the substance of the three instruments. I start by making it very clear that we support efforts by the Government to tackle money laundering and terrorist financing. We agree with the Government’s objective of making the financial system as hostile as possible for illicit finance, and it is right that businesses know their customers and manage their risks. Indeed, we welcome the Government’s decision to clarify that an estate agent should consider that they enter into a business relationship with a purchaser as well as a seller. Estate agents must now apply due diligence checks to both parties and, in so doing, close an existing loophole.

It is also encouraging to see that the Government have acted on PEPs. A firm will now be required to assess the risk posed by each individual on a case-by-case basis. The FCA guidance states that UK PEPs should be treated as low risk unless the firm has identified independent high-risk factors. This is a common-sense change which we support.

However, as I am sure the Minister would expect, there are omissions from the regulations and elements of policy which we query, so I have a number of questions for him. Perhaps the most striking omission from the regulations is a reference to providers of gambling services other than casinos. The Government have explained that this decision,

“was based on evidence that indicated the gambling sector was low risk relative to other sectors”.

What evidence was produced suggesting that money laundering in the gambling sector was low? Whom did the Government consult beyond the gambling industry, and did those other stakeholders share different views about the potential for money laundering and terrorist financing?

Although I confess to being concerned by that omission, I am pleased that the Government have been explicit that this will be reviewed by 26 June 2018. This report— to be produced by the Treasury and the Home Office—must identify, assess, understand and mitigate the risks of money laundering and terrorist financing. This is a substantial piece of work and, given that one reason we are here this evening is the Government’s failure to meet a deadline, I would like the Minister to say how long they anticipate that this process will last. Whom do the Government intend to consult and, with particular reference to the gambling sector, what criteria are the Government using to determine whether the status quo should be maintained?

I turn to due diligence, which makes up a substantive part of the SI. Part 3 of the main money laundering regulations outlines the three different levels of due diligence that companies have to apply based on the specific nature of a business relationship. The Government have stated that they do not want to be prescriptive and, as such, they have made the decision not to publish guidance alongside these instruments. However, it strikes me that this is exactly the sort of area where prescription is required. I note that it will be up to the regulators—the Financial Conduct Authority, HMRC and the Gambling Commission—to produce guidance on how to carry out these checks. Have the regulators been in contact with each other to ensure that there is consistency where necessary, as well as delineation between the three due diligence categories? Businesses and the regulators will require clarity and this will be achieved only if there is integrated working.

On the matter of the regulators, this will place a further strain on their resource capacity. HMRC in particular has in recent years faced reduced budgets with increased demands. I would be interested to know whether HMRC, the FCA or the Gambling Commission have contacted the Government asking for additional resources. I am sure the Minister will highlight that the Government intend to hire an additional 5,000 HMRC staff, which is welcome news. However, how many of those staff will have anti-money laundering responsibilities?

On the specifics of enhanced due diligence—the highest category—the regulations stipulate that “additional independent, reliable sources” and increased,

“monitoring of the business relationship”,

are needed in order to fulfil the requirements of the legislation. But what practical differences would the Government expect to see under enhanced measures and what would be regarded as sufficient monitoring?

Alongside the additional screening and scrutinising measures, larger businesses will also have to make changes to their management, and in some cases perhaps their structure. This underlines that committee’s point about the significance of these regulations. Businesses will be required to appoint one individual from the board of directors or senior management team to take responsibility for compliance with these regulations. Furthermore, the company must establish an independent audit function to examine and evaluate the effectiveness of policies, controls and procedures adopted by the chosen board member, and make recommendations and monitor their compliance. How many companies will this affect, and when are they expected to have complied with this aspect of the regulations? Can the Minister say more about the independent audit function? Could it be incorporated in the company’s existing auditing arrangements, or are they expected to be separate?

My final point relates to the issue of failure to co-operate. What mechanisms are in place if businesses fail to comply with these changes? Have the Government indicated the scale and extent of the reprimand they can expect from the regulators?

The main intent behind this Motion was to get to the bottom of the procedural irregularities which took place in the preparation of the regulations. The Government are not short of problems, and I am sure that they do not want to be accused of undermining the crucial work of your Lordships’ House in scrutinising secondary legislation. We will of course support the Government in preventing money laundering and terrorist financing, but however noble and vital a policy may be, there are principles and procedures which are necessary components to our legislative process and which must be followed. I can only hope that the Government take heed of the warnings from ourselves and the Secondary Legislation Scrutiny Committee. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, by chance this Motion is being debated on the same day that we have had the Urgent Question on the paradise papers. I would like to make a couple of short points before I get on to the main issues of timing. Seeing the paradise papers means that we cannot avoid having many more debates on tax avoidance and money laundering. It shows yet again that more has to be done on the transparency of British overseas dependencies and territories. I would like to point to an extract I have seen from the Government in the context of money laundering, which comes from the Companies House annual report 2014-15 and says that the,

“benefit in having an open, and up to date, register means that it has ‘many eyes’ checking the information … The more open the data is, and the more it is viewed, trust and transparency will increase”.

That says it all about closed registers.

Turning to the Motion, I am not a member of the Secondary Legislation Scrutiny Committee, and am not yet an expert in the intricacies of how secondary legislation is scrutinised here, but I was quite expert at dealing with, and changing, comparable processes in the EU. I find myself asking why the Government organised themselves to make this regulation just in time for transposition so that there was then no breathing space to permit proper parliamentary scrutiny when a general election was called. Time did not have to be so tight, but I fear that it is part of a pattern of seeing scrutiny of secondary legislation as a mere fig leaf for due process.

The fourth money laundering directive was completed some time ago. All but the final trialogues were completed when still under my remit as chair of the Economic and Monetary Affairs Committee of the European Parliament. It was not a difficult directive. It closely followed the Financial Action Task Force recommendations that came out in 2012. Despite being slowed down by the election of a new European Parliament, the summer break, and the palaver of appointing a new Commission, it was done and dusted, translated and published by June 2015, setting two years for transposition.

What filled those two years? It took 15 months to get a first consultation out. The consultation was not opened until 15 September 2016 and closed eight weeks later on 10 November. There were a total of 186 responses to that consultation. I have not tracked down a breakdown, but that number covers all the responses from supervisors and other Government departments, as well as from NGOs and industry. It is not a huge number. Unfortunately, I have not managed to find publications of the actual submissions, but have seen a summary in the following consultation.

By then, the timing problem had been created, but there was a follow-up with a second consultation and draft regulation after another four months; it opened on 15 March 2017 and closed on 12 April 2017. The regulation would have got to a touchdown only just in time even if an election had not been called. That first 15-month delay is unacceptable, because it was scheduled in that Parliament would be given minimum time and scheduled in that there was no contemplation of a vote against, because there would not have been time for changes even without an election. I cannot find any excuse in the subject matter for delay. It is frequently iterated that the UK is a leader in FATF. Back in 2012, it was known what the provisions were and where flexibility lay. If the Government are so keen to say that they lead the field by example, which by all means they should as host to a centre of global financial services, why were they pushing up against the deadline?

I know that amendments by way of the so-called fifth money laundering directive were soon under way. It might have been convenient to delay and try to do this at the same time as transposing the fourth directive. That does not seem appropriate, but if that were a reason for delay it means that convenience was given priority over parliamentary scrutiny. The European supervisory authorities managed to complete their consultation and guidance by November 2016, even though it is guidance for supervisors that they do not have to follow until June 2018. However, it helps with how to deal with risk assessment, and has already been referenced in the consultation that the FCA has launched. There is a problem in and around how you deal with assessing risk. In that regard, the Government possibly did their best by publishing the annex of factors from the directive in the regulation. However, a lot of businesses will have been left dangling, and wondering what they are going to do.

--- Later in debate ---

I hope noble Lords will be reassured that the Government are taking action. We recognise the specific problems relating to these regulations and have sought to respond to them. I finish by again thanking the noble Lord, Lord Tunnicliffe, for giving me the opportunity to set out the position of Her Majesty’s Government on the future performance relating to secondary legislation on these important matters.

[Lord Tunnicliffe]

My Lords, I thank all noble Lords who have taken part in this debate. There was a degree of loyalty and nostalgia in my moving this Motion because for one and a half hard years I was a member of what at the time was much more romantically known as the Merits Committee, although we did the same work—and it is very important work.

I thank the noble Baroness, Lady Bowles, for setting out the timetable in more detail. It is clear from her speech that the Government could have done a better job if they had planned ahead more. I also thank my noble friend Lord Haskel for bringing out the frustration felt by the committee. I hope this debate will feed back to the committee that we take its work seriously and that we will be looking more and more to its work as the role of secondary legislation emerges in much of the legislation we are anticipating.

I thank the Minister, in particular for his response on the more detailed areas. I notice that the report on gambling came out on 26 October, and I hope he was implying in his remarks that this area would be kept under review; I think he said that directly. We hope that there will be another report in the not too distant future. I note the reliance on the Money Laundering Advisory Committee, and perhaps it is unfortunate that that did not come out in the Explanatory Memorandum because this area is very important.

I end by referring back once again to the committee. We will be looking at its work and its output, and we will act where we feel that there are flaws in the SIs the committee brings up, and particularly where there are lapses in procedure. For the moment, I am content to withdraw the Motion.

Motion withdrawn.