(1 year, 3 months ago)
Grand CommitteeMy Lords, I am going to talk to the crypto assets SI only. This is a vital SI at this point in time. I am delighted that the objectives are,
“improving consumers’ understanding of the risks associated … and ensuring that cryptoasset promotions are held to the same standards as for broader financial services”.
The taskforce reported way back in 2018 and, my goodness, the world has changed dramatically since then. Paragraph 7.3 of the Explanatory Memorandum records what happened to the market a few months ago. Recent failures happened in November and, for all we know, there may be some just around the corner.
My noble friend and those who decide these things are absolutely right that the FCA should now be involved. However, I, too, question whether the four-month gap after the SI is passed is really necessary. In today’s modern world, I would have thought three months would be the absolute maximum—if even that long is needed. We also know, as highlighted in paragraph 10.3, that since the publication of this SI, the Government have recognised
“that risks to consumers have increased”
and they are still increasing.
I am no longer involved in the world of advertising and promotion, but I was in a previous incarnation. People are extraordinarily creative when it comes to financial promotion. Direct mail, in all its varying forms, and telephonic communications, in all their current sophisticated manners, are a very difficult area to control and to have a regime for. Therefore, His Majesty’s Government must look at this very carefully, take the best advice of those doing the communicating—I hope my noble friend has access to the genuine people who are communicating—and look at what developments are happening in communication. In paragraph 13.4 the Government quite rightly say that they do
“not have an estimate of the number of small or micro businesses in the UK that are liable to be affected by this measure”.
I know from experience that number is growing. Therefore, this is needed urgently. Again, I emphasise that four months is a little too generous.
Finally, I see in paragraph 14.3 that the Minister with responsibility for small business, enterprise and employment has claimed that this SI does not need a review clause. If there is a market that really needs a review clause, this one is a wonderful case history. I cannot believe that we really believe that. It is up to His Majesty’s Government to decide at what stage there should be a review, which is entirely right, but this is a market that needs to be kept in total focus, otherwise things will go wrong again.
My Lords, I am grateful to the Minister for introducing these orders. Let me also express thanks to the Secondary Legislation Scrutiny Committee for flagging the orders as instruments of interest in its 36th report of the Session. As the Minister outlined, the first order brings crypto assets into the regulatory regime for financial promotions. This is not the first time we have debated the risks associated with crypto assets, and I doubt it will be the last.
As the Explanatory Memorandum notes, crypto assets have been subject to severe market instability in recent years. Some assets have seen significant reductions in their value, and we have also witnessed the failure of several high-profile firms, including the bankruptcy of FTX late last year. With that instability in mind, we welcome any steps to reduce the risk posed to consumers, particularly through the misleading advertising which seems to have become commonplace as crypto popularity has soared.
However, this order is only one piece in an increasingly complex regulatory puzzle, with supplementary steps being taken through other vehicles, including the ongoing Financial Services and Markets Bill. I hope the Minister can provide assurance that the Treasury and the regulators are moving as quickly as they can in this area. Financial regulation is iterative and new measures need to be properly consulted on, but the Minister will understand concerns that remaining regulatory gaps will continue to be exploited. The implementation period for this measure has been shortened, which appears to be a sensible step. Can the Minister comment on the likely implementation period for related future measures?
The Explanatory Memorandum helpfully explains the exemptions granted to UK-based businesses on the FCA’s anti-money laundering register. However, the SLSC’s comments on the exemption raise an important question: if it is intended to be temporary, why has no end date been specified? I appreciate that this order is part of a bigger package but, in the interests of good legislating, can the Minister identify at what point a review of the exemption is likely to be carried out?
Finally on this topic, the Minister will be familiar with the suggestion that the Government regulate stablecoins in a similar way to bank deposits—that is, protect funds under the Financial Services Compensation Scheme. What consideration, if any, is the Treasury giving to that proposal? If the Government do not plan to take that approach, how will the Treasury and the FCA ensure that consumers are aware that their stablecoins holdings are not protected?
The second order relates to commodity derivatives and emission allowances, specifically when relevant firms will need to be authorised as investment firms. The Explanatory Memorandum promises
“a simpler and therefore lower cost regime”,
with the EU-derived markets in financial legislation regulations rolled back in favour of a new principles-based approach, to be implemented by the FCA. Again, this is part of a broader reform package being undertaken by the Treasury, with part of that package contained in the Financial Services and Markets Bill.
We recognise that the current ancillary activities test is too complicated and burdensome. However, can the Minister outline the proposed timelines associated with these changes, with a particular focus on the FCA’s creation of the new regime? As with crypto assets and many other areas of financial regulation, the FCA is being left to do a lot of heavy lifting but questions remain as to whether current parliamentary oversight of the financial regulators is sufficient. I realise that there are ongoing discussions on this subject between the Minister and interested colleagues across the House, but does she feel that we are getting any closer to a satisfactory outcome? While the risks associated with changes to these elements of financial regulation might be low, that should be as much a judgment for legislators as it is for Ministers and regulators. I hope that we will be able to achieve consensus on that matter as the aforesaid Bill proceeds to Report.
We support the passage of these orders but, as I am sure the Minister will acknowledge, they do not offer the final word on either subject. These are small pieces of a much bigger, more complicated puzzle. I hope that she will be able to speak to that bigger picture in her response and provide both answers and reassurance around some of the issues raised in this debate.
(1 year, 4 months ago)
Grand CommitteeMy Lords, I am grateful to the Minister for introducing this order. I begin by reiterating the Labour Party’s thanks to the officials at the Treasury, the Bank of England and the regulators to secure a rescue deal for the UK arm of Silicon Valley Bank. While there will be important lessons to learn from SVB’s collapse, it was vital that swift action was taken to preserve financing for the life sciences and tech companies that will play such an important role in our future economic growth.
I also thank the noble Baronesses, Lady Kramer and Lady Noakes, for bringing out areas of concern, which I certainly have not seen raised in the same sharp relief. I hope that the Minister will be able to give us some feel as to the extent to which this reach of the ring-fence will be of significance or not, and, if it is significant, why it is intended to be made perpetual by a subsequent order. Equally, when we are discussing lessons learned, the noble Baroness, Lady Kramer, shone a light on the issue of the speed of collapse. The physical queues outside Northern Rock created time; today, very little time need be created between an area of significant concern turning into total collapse. I hope that the regulators, when doing a proper lessons-learned exercise on this will ponder on that point, to see what, if anything, we need to do to be better able to manage the rate of collapse that is potentially available.
The collapse of SVB was the catalyst for several other major events in the global financial system, including the very serious difficulties faced by Credit Suisse. In many senses, the UK regulatory system has functioned as hoped, which we welcome. It certainly makes the many hours spent on previous legislation worthwhile. Financial institutions and regulators in other countries have taken their own steps in recent weeks to deal with issues with entities in their own jurisdictions. The collective action seems to have calmed the markets, which is important for us all. However, I hope that the Minister can assure us that the Treasury, the Bank and the regulators continue to monitor the situation very closely, and that they stand ready to act, should that be required. With inflation still in double digits, and with the implications that is likely to have on interest rates in the short to medium term, will the Treasury finally commission a review of the risks that this could present to the financial system?
On SVB itself, the Government have thus far been unable to provide a proper justification for exempting the bank from ring-fencing requirements, which makes the four-year transition period turning into a perpetual one all the more puzzling. In another place, the Minister sought to reassure colleagues that they need not worry about the potential implications of this exception, as the number of SVB UK customers is low, particularly as a percentage of HSBC’s total client base. Is that really the most that the Treasury can say, or does the Minister have more to offer, given that this debate comes three and a half weeks after the Commons one?
Another question in that debate was on potential reform to ring-fencing requirements in this country. Andrew Griffith promised that
“there will not be any tinkering, but there might … be appropriate reforms”.—[Official Report, Commons, First Delegated Legislation Committee, 27/3/23; col. 7.]
I am not sure that those words are particularly reassuring. We expect news on those reforms in advance of the Autumn Statement, but can the Minister be a little more specific about dates and processes? How swiftly would any reforms be implemented once announced, for example? Will changes require primary legislation? If so, could this come in the Financial Services and Markets Bill, or would the Government bring forward a further Bill?
The action taken to protect SVB UK worked because it provided certainty. Customers of that bank knew within days that they would be able to continue their relationship with it, because of the acquisition by HSBC. However, in other areas, certainty is in short supply. The Prime Minister says he has a plan to halve inflation and bring interest rates down, but inflation remains in double digits and the Monetary Policy Committee is expected to announce a 12th consecutive rate hike. Under this Government, our economy is weaker, prices are out of control and never have people paid so much to get so little in return.
My Lords, I thank all noble Lords for their detailed questions on this statutory instrument. While everyone agreed that we reached a good resolution in this instance, it is absolutely right that we look at how it was delivered in detail and how we should reflect from this instance on the resolution regime in our wider regime. The noble Baroness, Lady Kramer, asked explicitly—but I think all noble Lords wanted to know—what the Government will do to ensure that we can learn lessons from the events around SVB UK. The Treasury and the Bank of England are working together to ensure that we properly reflect on these events and will consider how best to draw on the lessons learned and share them as needed in future.
The noble Lord, Lord Tunnicliffe, remarked on wider financial stability events, including Credit Suisse. I reassure him that the UK financial sector is fundamentally strong. The resolution of SVB UK on 13 March highlights how the resolution regime can be effectively used to protect UK financial stability. However, we continue to monitor the situation closely and remain in close contact with the Bank of England, the Prudential Regulation Authority, the Financial Conduct Authority and relevant foreign and international authorities. We are absolutely committed to protecting the stability of the UK banking sector, which is key for supporting economic growth and for the UK’s world-leading financial sector.
The noble Lord, Lord Tunnicliffe, also asked whether we would commission a review of the risks that higher interest rates pose to the financial system. I reassure noble Lords that the Bank of England already has in place processes to monitor and assess risks to our financial sector and banking system. In particular, each year, the Bank of England carries out a stress test of the major UK banks, which incorporates a severe but plausible adverse economic scenario. The 2022 stress test scenario includes a rapid rise in interest rates, with the UK bank rate assumed to rise to 6% in early 2023, as well as higher global interest rates.
Before my noble friend leaves this point, I do not think she has addressed the question of why the ring-fence resources had to be used to do this. HSBC is very large and has very large UK operations that are not within the ring-fence, so I have been probing—and I know that the noble Baroness, Lady Kramer, is also interested in this—why the ring-fence has to be used. Why did the ring-fence exemption have to be used, because it is clearly not necessary in any absolute sense for HSBC to provide liquidity support to Silicon Valley Bank out of the ring-fence?
In bringing this back to us, as the Minister will have to do for the second SI, and responding to these questions, can we have some analysis of the competitive advantage that HSBC will get out of this transaction?
That point was also raised by my noble friend, and I was hoping to come to it. Whether my answers mean that we will not have a further discussion on it either on the Bill or when the future SI comes forward remains to be seen. I shall try to address some of the points around the ring-fenced bank, the need to go down that route and whether SVB UK needed to be purchased by HSBC’s ring-fenced bank. That was a commercial decision made by HSBC, and it would not be appropriate for me to comment further on it.
Can the Minister confirm whether I have understood this correctly? My understanding was that we are assured that any impact on the ring-fence regime will be brought about through primary legislation.
It is important to distinguish between the near-term reforms that the Skeoch review recommended—I listed some examples of what can be taken forward through secondary legislation—and any more fundamental changes, which are the subject of the questions in the call for evidence, which would need primary legislation to be amended to take forward. So it is possible to make alterations to the ring-fence regime through secondary legislation; in fact, the Government have been quite clear about their intention to do so. We will consult on that before we do so, and we will set it out then. However, the call for evidence sets out more fundamental options, and that would require primary legislation. So there is a mix, but anything such as abolishing the ring-fencing regime, or other more fundamental changes, will be set out in primary legislation. I hope that provides sufficient clarity on that point.
The noble Baroness, Lady Kramer, asked about the interaction between SVB UK and its parent in the US. I will write to her on that subject. It was a UK subsidiary, was subject to UK regulation, and had its own requirements under that regulation. However, to provide absolute clarity on that point, I will write to her. I will also look back on this debate because it has been detailed and technical—as well as very important—and will endeavour, where I can, to improve on my answers to noble Lords in writing. However, there may be areas where there is nothing further to add, even if that is not to the satisfaction of noble Lords.
It is worth concluding on the more positive note that most noble Lords started with: that the outcome of the Government’s action, together with the Bank of England, to facilitate the sale of SVB UK protected its customers and UK taxpayers. It was a good result in that respect, but the Government will continue to monitor the financial system and consider ongoing events. The final note of reassurance I offer is that the Bank of England has confirmed that the UK banking system remains safe, sound and well capitalised. I beg to move.
(1 year, 4 months ago)
Lords ChamberMy noble friend is a persistent campaigner on this issue. He is right that, in leaving the EU, we were not able to maintain the previous policy of offering tax-free shopping to non-EU citizens only; it would have to be extended to all visitors, which would come with a significant cost. However, I reassure my noble friend that we keep all taxes under review, and we welcome representations to help to inform future decisions on tax policy.
My Lords, the Government were slow to back the tourism sector during the coronavirus pandemic, U-turning on a special deal for airports and airlines and missing the opportunity to tie support to green initiatives. Their flip-flopping on the issue of tax-free shopping for international visitors and slowness on the issue of arrivals duty free have led many in the sector to question whether the Treasury truly understands the challenges that the industry faces. What plans, if any, do the Government have to bring forward a cross-departmental strategy for boosting British tourism?
My Lords, I reassure the noble Lord that the Government fully understand the contribution that tourism makes to our economy. To pick up his point about the Covid pandemic, through the pandemic the UK Government provided over £37 billion to support the tourism, leisure and hospitality sector in the form of grants, loans and tax breaks. Since then, the Government have contributed to various successful campaigns to stimulate recovery, including the £10 million National Lottery Days Out scheme and efforts by VisitBritain to deliver its international marketing campaign.
(1 year, 5 months ago)
Grand CommitteeMy Lords, it is a pleasure to follow the noble Baronesses, Lady Worthington and Lady Sheehan, and to offer Green support for this amendment, which is obviously urgently needed. I essentially agree with everything that the two noble Baronesses said, particularly the point made by the noble Baroness, Lady Sheehan, that off-sets are essentially a con that should not be used to trade off against continuing fossil fuel emissions. None the less, we are where we are and they are certainly going to happen.
The complexity is really well illustrated by a recent report by HSBC, which found that $246 billion-worth of hydroelectricity depends on water provided by threatened tropical cloud forests. We think about where the funding, support and credits should go, but to maintain that electricity supply, surely the people producing the electricity should fund that. This is also a carbon store. It is a real demonstration of the way that, as the Treasury’s own Dasgupta report illustrated, the economy is a complete subset of and entirely dependent on the environment, which we are fast trashing.
The problems with the current “wild west” system have been clearly demonstrated already. In a paper this week in the journal, Frontiers in Forests and Global Change, the Berkeley Carbon Trading Project presented a study of nearly 300 carbon off-set projects, representing nearly 11% of global carbon off-set projects to date. It found that the projects were systematically overcrediting their results and delivering extremely dubious carbon off-sets. Apparently respected registries did not follow standards to make sure that projects were having a real and tangible impact on carbon levels. A particular area of difficulty was whether the projects would have happened anyway, whether or not the extra carbon credit was claimed.
I will make one final point. The noble Baroness, Lady Worthington, sought ways in which the Government might see this as an advantage. In this wild west, there is a need for extensive due diligence for any financial body to be able to claim that it has genuine, honest carbon credits that will deliver over the long term—because the climate emergency is of course a long-term project and not just for one year or five years. There is a significant cost for any company going into this and wishing to protect its reputation. If it is a regulated sector, that will make it a great deal easier for people to do due diligence and to rely on it, and not to have to do the work themselves at considerable cost, facing considerable complexity and carrying considerable risk.
The need for this amendment is obvious. The problems with off-setting both carbon and biodiversity are very clear. We should not be where we are, but we are where we are, and the amendment offers one way forward that would be good for the financial sector as well as for the planet.
We do not have a fixed view on this proposal and therefore will listen to the response of the Government. At an individual level, when invited to pay my off-sets to British Airways, I am deeply suspicious of them making any useful contribution. My general view on this Bill is that good regulation is important, because the problem with the financial services industry is that any areas of weakness can escalate into a significant wider impact. I take the point that this area of activity will almost certainly expand and there is a good prima facie case that it should be regulated.
My Lords, the Government recognise the potential for off-setting to enable businesses to address emissions that cannot be reduced through decarbonisation strategies. As the Climate Change Committee has set out, they can play an important role in the transition to net zero.
Done well, and centred around high integrity, climate and nature off-sets through voluntary carbon credits can increase climate ambition, help mobilise finance to developing countries and provide a credible tool for the 1.5 degree transition. Done badly, and without integrity at their core, the potential for “greenwashing” clearly exists. Therefore, it is important that the voluntary carbon credits used by companies reflect genuinely additional removal of or reduction in greenhouse gas emissions.
The Government recognise that it is important to ensure the integrity of these markets if they are to play a role in mobilising investment. Concerns around the integrity of carbon and nature markets, from the supply of voluntary credits, their trading and green claims made by buyers through offsetting, must be addressed.
My Lords, I too support these amendments. I cannot usefully add anything in relation to the super-affirmative procedure. It seems that this an admirable proposal—but I want to say a few words about the proposed new subsection in Amendment 241G, introduced by the noble Lord, Lord Sharkey.
To begin with, it seems that, if Parliament authorises the alteration, as Parliament can do anything—as one is taught from one’s earliest days—it must be able to do something as minor, in theory, as this. Furthermore, as she always does, the noble Baroness, Lady Noakes, made a very good point that this is a very important step, but why is this not the Bill to start? There are three reasons. First, the financial services industry is of vital concern to the UK. Secondly, these instruments are drafted not by parliamentary counsel but by no doubt very competent lawyers in the Treasury—but there is a difference. Thirdly, it seems that, if the draftsman knows that bits can be corrected, that is a very good supervision of the drafting process.
However, although this is in theory a minor step, it is surprising to say that Parliament can amend statutory instruments and there are obviously consequences for our procedures. It might be appropriate for this Committee or someone—I am not sure how it is done—to say, “The appropriate committees and the clerkly authorities in this House should report on the practicality of doing this”. If it is a procedure, how likely is it to be used? More importantly, we can always find an excuse to say, “Let’s push it down the road”. This is the admirable place to start an important reform for our most important industry.
My Lords, I do not formally have a view on these amendments. It seems that they would have wide-ranging implications, and I shall consult with colleagues throughout Parliament about how we should come back to this issue. If a piece of legislation is proposed and supported by the noble Lord, Lord Sharkey, the noble Baroness, Lady Noakes, and the noble Viscount, Lord Trenchard, you have to think that it is pretty wide-ranging—in fact, close to impossible. Whether this is the right place to address this issue is a much bigger question than whether it is a good idea. It seems a pretty good idea, but I shall listen to the Minister’s response to the key point about the right place and the right mechanism.
My Lords, these amendments would introduce new parliamentary procedures when exercising the powers in the Bill, and the Government do not believe that they are necessary.
The Government have worked hard to ensure that every power in the Bill is appropriately scoped and justified. This was recognised by the DPRRC, which praised the Treasury for
“a thorough and helpful delegated powers memorandum.”
The DPRRC has not recommended any changes to the procedures governing the powers in the Bill. That may, in part, answer the question from the noble Lord, Lord Tunnicliffe, about the right place. I have worked on enough Bills to know that that is not a frequent conclusion from the Delegated Powers Committee.
This includes the powers in relation to retained EU law. While they are necessarily broad, they are restricted in a number of important ways. First, they are governed by a set of principles that are based on the regulators’ statutory objectives. Secondly, they are limited in what they can be used for. For example, they cannot be used to create new offences. Thirdly, the powers over retained EU law are strictly limited to a subset of legislation. They can be used only to modify or restate retained EU law in financial services legislation, as set out in Schedule 1. Finally, only a small amount of primary legislation is included in the scope of this power, and it is all listed in Schedule 1, Part 4.
The intention is to allow for the restatement within EU law or to adapt it to a situation or circumstances within the UK. As I have said, in undertaking that work the Government will seek to undertake a combination of formal consultation and informal engagement appropriate to the changes being made. As set out in the Government’s policy statement on the repeal of retained EU law in financial services, the Government aim to balance the need to deliver much-needed reforms with the need to consult industry and stakeholders. They will take the decision on the approach to this on a case-by-case basis.
I wanted to address my noble friend’s specific question on the prospectus regime. The Government intend—
Would the noble Baroness accept that we have heard that speech before? With every complex Bill where we have sought ways to have more control over statutory instruments, we get the same speech—that it has all been worked through, that the constraints are there and so on. Those of us who have to sit through statutory instruments are growing more and more uncomfortable at the increasing number of occasions when we want more involvement and commitment. We want a situation where some variation in the instruments would be possible and this is a way forward. It may not be the right way, but this is an area of powerful area in the House—the relationship between Parliament and the Executive.
The noble Lord, Lord Sharkey, I believe, referred to two pieces of work that looked at the wider concern around procedures when it comes to statutory instruments and the House’s involvement and ability to respond to them. I can talk only in relation to the Bill before us. Our approach is consistent with the policy approach to the regulation of financial services that the Government have set out and consulted on—the FSMA model. That delegates some policy-making both to the Treasury and then, significantly, to the regulators. In the context of the Bill, we are comfortable that our approach is appropriate to the model of regulation that we are advocating in these circumstances. I recognise the wider debate but, in the context of the Bill, we are confident that our approach is right and appropriate.
Coming to my noble friend’s specific question, I think the concern is around the definition of “securities” in the prospectus regime. The Government intend to include certain non-transferrable securities within the scope of the new public offer regime that is being developed as part of the review of the prospectus regime, which delivers on a recommendation of Dame Elizabeth Gloster’s review of the collapse of London Capital & Finance. We intend to capture mini-bonds and other similar non-transferable securities that may cause harm to investors if their offer is not subject to greater regulation.
The Government are keen to ensure that business that does not affect retail investors or is already regulated elsewhere, such as trading in over-the-counter derivatives, is not unintentionally disrupted by the reformed regime. We have been engaging with stakeholders on this point to understand the concerns of industry, and we are considering what changes we can make to the statutory instrument to address them.
The Government do not agree that the use of the super-affirmative procedure in this case is appropriate. Examples where it has been used include legislative reform orders made under the Regulatory Reform Act 2001 and remedial orders made under the Human Rights Act 1998. In both cases, the powers in question can be used very broadly over any primary legislation, due to the nature of the situations that they are intended to address. The delegated powers in this Bill are not comparable with these powers, and I have already explained how the powers over retained EU law are restricted and appropriately scoped. Therefore, in the case of the Financial Services and Markets Bill, we are confident that normal parliamentary procedures remain appropriate. I therefore ask the noble Lord, Lord Sharkey, to withdraw his amendment.
(1 year, 5 months ago)
Grand CommitteeMy Lords, I thank His Majesty’s Treasury for sharing its policy on the Edinburgh reforms last month. This Government, following their initial floating of the HMT intervention powers, have given parliamentarians serious cause for concern regarding their judgment. We should be slow to trust that they have the judgment and operational competence to implement the changes in the Edinburgh reforms safely and effectively. Could the Minister give an indication of the Government’s intentions and/or direction of travel concerning both ring-fencing and the senior managers and certification regime?
We heard from the Bank of England governor this week that the Government’s version of Solvency II reform increases risks for insurance firms by 200% more than the Bank’s preferred option. I think we are vindicated in our general concern about the Government’s gung-ho approach to financial stability. Sweeping changes to ring-fencing and the senior managers and certification regime are too important to be left to statutory instrument. The amendments from the noble Baroness, Lady Kramer, are sensible safeguards that the Government should consider thoroughly.
We have seen chaos in two banks this week—Silicon Valley Bank and Credit Suisse. What is the Government’s assessment of whether other systemically important banks are safe and sound? Did we see SVB and Credit Suisse coming? Did the regulators? What are they proactively doing to protect UK consumers and investors?
My view on Amendment 216 is not yet fully formed; I want further discussions with colleagues. I agree with the general view on Amendments 241C and 241D that the issue is really about scrutiny and accountability. In my view, it is impossible to argue that a relaxation of either ring-fencing or the senior managers and certification regime is other than very significant. The present method of accountability through an affirmative instrument is clearly insufficient and I commend the device of the noble Baroness, Lady Kramer, which she has included in these two amendments. The Government should support them.
My Lords, I will speak first to Amendment 216, which pertains to the Government’s announced reforms to Solvency II, made possible through the Bill’s revocation of retained EU law.
The Government are reforming Solvency II, the rules for prudential regulation of the insurance industry currently set by the EU, to reflect the UK insurance market’s unique features. These reforms will provide incentives for insurers to increase investment in long-term productive assets by more than £100 billion. They will also benefit consumers by increasing insurers’ ability to provide a broader range of more affordable products.
The Government have committed to make changes to the matching adjustment, an accounting mechanism whereby insurers can match their long-term liabilities with long-term assets and hold less money to pay out claims. These reforms will incentivise firms to invest significantly more in long-term productive assets such as infrastructure. This investment will support growth across the UK and the Government’s climate change objectives.
The noble Baroness’s amendment would instead result in a stricter treatment for some assets than under current rules. I reassure noble Lords that the Government’s reforms to Solvency II strike a careful balance between boosting growth across the economy and maintaining high standards of policyholder protection. Insurers will still be required to hold extra capital to safeguard against unexpected shocks, they will still have to adhere to high standards of risk management, and they will still be subject to comprehensive supervision from the PRA, our world-class independent regulator.
The noble Baroness, Lady Kramer, asked whether we would replicate the Canadian Government’s position with regard to pensions and insurance firms in this context. She referred to statements in the Budget about pension funds—although I think they were focused more on defined contribution pension funds than defined benefit pension funds. I do not know the detail of the specific Canadian regime, but the reforms proposed here do not pose risks to financial stability. As I said, each insurer must still hold enough capital to survive a 1-in-200-year shock over one year. Insurers will still have to adhere to the high standards of risk management. The Government and the PRA have announced a series of additional supervisory measures that the PRA will take forward to ensure that policyholders remain protected. For example, the PRA will now require insurers to take part in regular stress-testing exercises.
My Lords, I will make two general comments about these amendments—first, on Amendment 218 in the name of the noble Lord, Lord Holmes.
When I was chairman of the Jersey Financial Services Commission and therefore the regulator in Jersey, I was continually lobbied about the issue of digital identification simply because of the high cost of repetitive KYC investigations that institutions had to go through. It seems that the possibility of having a system of digital identification which would be generally acceptable and generally accepted within financial services would significantly reduce the costs of KYC and would provide a much sounder foundation for the credibility and respectability of the individuals attempting to transact within financial services. So this is broadly a good idea. It is very complicated, as I discovered when I tried to introduce it in Jersey, and it raises very important privacy issues, but, none the less, this is the way that the world is going and we need to think this through extremely carefully. It could be of great benefit to the whole KYC problem.
With respect to digital currencies, the one comment I will make is to remind the Committee of the debate that we had about the decline in the acceptance of cash and the fact that a significant number of people in our country are being deprived of money, since cash no longer works as money—it is no longer generally acceptable in discharge of a debt, which is the definition of money. Therefore, there will be a responsibility for the state to provide a digital form of money, because digital payment, as the noble Baroness, Lady Noakes, argued strongly at the time, will become the standard form of payment and cash is basically going to disappear —apart, perhaps, from the Tooth Fairy.
The issues of digital currency and digital identification are both hugely important for our future and, as the noble Lord, Lord Forsyth, argued—I agree with him most strongly—they require very careful parliamentary consideration.
My Lords, on the digital pound, we support the Bank of England’s work exploring the potential benefits of a safe and stable central bank digital currency, but the Government’s overall approach to crypto remains unclear.
With the collapse of FTX, it is clear that crypto can pose a real threat to normal people in the real economy and therefore may pose a systemic risk in future. The approach HMT has taken to the digital pound is a welcome contrast to this Administration’s eagerness to lean into a crypto Wild West in the recent past. We need to get serious about attracting innovative fintech companies to the UK by safely harnessing the potential of new technologies. How will the Government do this?
On the amendments in general, the issue of accountability has come up once again. The concept of using primary legislation to have a check on these ideas is clearly practical and therefore very attractive, but it will have problems. If the Government would only embrace our concerns about accountability and come forward with a proper and comprehensive accountability structure, perhaps we would be able to develop a more sophisticated approach than the rather raw power of primary legislation. However, as a fallback it is very attractive.
My Lords, the Government have been transparent about their plans to enable the use of digital identities in the private sector, including in financial services, and we are committed to ensuring the scalability, flexibility and inclusivity of secure digital identities.
The Government initiated their digital identity programme following industry calls for the Government to take the lead in developing common standards for digital identity across the whole economy. We continue to believe that a whole-economy approach is the right way forward, and we are working with stakeholders to deliver this at pace.
For example, the UK digital identity and attributes trust framework has already enabled right to work, right to rent and criminal record-checking processes to be digitised, making these checks quicker and more secure. In addition, measures in the Government’s Data Protection and Digital Information (No. 2) Bill, which was introduced to Parliament on 8 March, go further by securing the reliability of digital identity services across the economy for those businesses and consumers who wish to use them. The Government also recognise that greater clarity with respect to how digital identity services certified against the digital identity and attributes trust framework support requirements under the Money Laundering Regulations will be key for market uptake. As set out in the Government’s 2022 Money Laundering Regulations review response, we have committed to considering this too.
I hope that I have reassured my noble friend Lord Holmes that the Government remain committed to enabling the use of secure, reusable digital identity products across the UK economy and that Amendment 218 is therefore not necessary.
Turning to Amendments 220 and 221, also from my noble friend, the Centre for Data Ethics and Innovation guidance has not been designed to form the basis of regulatory requirements relevant to financial services and is unlikely to address AI risks specific to that sector. Appropriating CDEI guidance for the basis of regulation that is aimed at the wider governance of AI through non-regulatory tools and industry-led techniques is therefore likely to lead to unintended consequences; however, I appreciate my noble friend’s point that he used the CDEI for illustrative purposes.
I assure my noble friend that the newly created Department for Science, Innovation and Technology is already developing a cross-economy, pro-innovation framework for AI regulation, underpinned by a number of cross-sectoral principles to strengthen the current patchwork approach to regulating AI directly. Further proposals for the new regulatory framework will be published in a White Paper in the coming weeks. Through our proposals for a new AI regulatory framework, we are building the foundations for an adaptable approach that can be adjusted to respond quickly to emerging developments. The vast majority of industry stakeholders we have engaged with agree that this strikes the right balance between supporting innovation in AI while addressing the risks.
Furthermore, the FCA, the PRA and the Bank of England recently published a discussion paper on how regulation can support the safe and responsible adoption of AI in financial services. Therefore, to avoid unintended complications with the use of digital identities and artificial intelligence in the financial services sector, I hope that my noble friend will not press his amendments.
Finally, I turn to the important topic of central bank digital currencies and Amendments 241F and 241FD, both ably introduced by my noble friend Lord Forsyth. The Government have been clear that they consider that Parliament will have a vital role to play in the future of any digital pound. As I set out to my noble friend Lord Bridges in a previous debate in the Chamber, when we discussed the findings of the report to which my noble friend referred, the Government expect to fully engage Parliament, including through any possible legislation, in an open and transparent manner to ensure that there is full and proper scrutiny of any proposals over the coming years. As the joint Treasury and Bank of England consultation paper published on 7 February set out, the legal basis for the digital pound will be determined alongside consideration of its design; this is the subject of ongoing work.
These are some of the questions that we want to consider through the consultation that is currently open and any further work. That consultation recognises the financial stability implications of developing such a proposal; we will want to consider them as we take this work forward.
I hope that the Minister anticipates consultation and research. To me, “consultation” means coming back to the industry. The industry comes from a perfectly respectable position but it is one position. We need basic research, modelling and all the various techniques to explore the potential risks.
The noble Lord is right that the public consultation phases of this work are one element of the work that will be done by the Treasury and the Bank of England in developing this concept. There are many other strands of work that will also be undertaken. As we discussed in the previous debate, any such project would be a significant infrastructure project with significant financial implications so we would need an appropriate approach acknowledging that.
We are at an early stage of this work. As I said, we have not taken the decision to go ahead with a CBDC but we think that there is sufficient evidence to justify further exploratory work. At this stage, it would be premature to include any provision in the Bill. I reiterate my previous statement that the Government expect to keep Parliament fully engaged in this work as it progresses. I therefore hope that my noble friend Lord Holmes will withdraw his Amendment 218.
That word, “engaged”, flummoxes us all. We do not see a mechanism in our system. Will the Minister write to us and spell out what “engaged” means?
My Lords, although I agree with everything my noble friend Lady Noakes said, I point out that I have discussed Peter’s case at a very senior level with his bank and I can absolutely understand the decision the bank made. It looked at it very carefully, but it cannot take the risk because it is dealing with Ukrainian businessmen of whom it knows very little.
There is no official Labour Party position on this, but I feel enormous sympathy for the position of the noble Earl, Lord Attlee. I hope the Minister will take this away, not as a legislative proposal but as a problem to be solved, and ensure that it is considered at a very senior level in the Treasury.
My Lords, before I speak to his Amendments 223 and 241FB, I first thank my noble friend Lord Attlee for his engagement and for bringing to my attention the specific example he has raised today as context for his amendments. I commend his staunch support for Ukraine, and the Government remain fully committed to supporting Ukraine in the face of the relentless Russian bombardment.
I reiterate to the Committee that the money laundering regulations are a vital part of the UK’s comprehensive economic crime response. The regulations are designed to combat illicit finance but should not be barriers to legitimate customers, including those connected with the export of military equipment to the Ukrainian defence forces.
As the Prime Minister has set out, the Government are fully committed to helping Ukraine emerge from the war with a modernised economy that is resilient to Russian threats. Of course it is important that those contributing towards this are not prevented unnecessarily from carrying out their business, but this needs to be balanced with the existing controls which protect this country, and international partners, from risks of money laundering.
It is important that we do not take steps that might allow the money laundering regulations to be circumvented by bad actors, even in circumstances such as this. It is therefore right that financial services firms continue to be empowered to carry out their own, risk-based due diligence when financing the export of armoured vehicles or military equipment, or individuals who are engaged in the international defence industry.
The money laundering regulations are purposefully not prescriptive and are designed to allow firms to make their own decisions about how to comply, balancing their understanding of the risk with proportionality. The Government do not and will not involve themselves in commercial decisions of individual firms but we can be clear that, where all the correct licences are in place, the money laundering regulations should not be a barrier to the financing of legitimate export activity.
I rise briefly to support this amendment. It was with some surprise that we also discovered that this sector is unregulated, but we entirely understand how important it is to the small business community. In that respect, it is hard to see why it is not regulated and why it should not be regulated. It is hard to see how any Government could resist the force of the noble Lord’s amendment—but we may see a demonstration of that in a moment or two.
My Lords, I first welcome my noble friend Lord Leong to this very special club, the Financial Services and Markets Bill club. I am sorry that it is a little thin on the ground. I will say no more than that the case, as presented and supported, seems strong.
One of the sad things about occupying this position is that, every time credit comes up, you get abusers. The large companies are frequently the abusers, and payday loans are a classic example of that. Anywhere there is credit, you end up with pockets of abuse. I unashamedly believe in regulation. I do not believe in bad regulation; I believe in good regulation and I think it should enter this field. But that is not a formal position, so we will listen to the Minister before concluding our point of view.
My Lords, I thank the noble Lord, Lord Leong, and others noble Lords for their contributions on this amendment headed “Regulation of factoring companies”.
As noble Lords know, invoice factoring is a type of invoice finance where suppliers effectively sell their invoices at a discount to a finance provider in exchange for an advance. This means that suppliers can receive payments sooner, helping them to manage cash flow. Invoice factoring is an important product for British businesses, helping them to grow sustainably when they might otherwise struggle to do so. It is a relatively standardised product designed to help businesses manage their cash flow and support growth.
Businesses benefit from a diverse finance market made up of high street banks, smaller banks and a range of non-banks to ensure that they can continue to access suitable finance. This is particularly important to ensure that UK SMEs are accessing finance to support their goals and contribute to the UK’s growth agenda. We have discussed the approach to regulating small businesses in an earlier debate but, as noble Lords know, invoice factoring is not considered credit, because it is an advance on invoices already generated; therefore, any small businesses using these products do not benefit from protections such as those under the Consumer Credit Act, which apply to the smallest businesses taking out loans.
However, invoice factoring is generally used by larger SMEs that would not benefit from protections under the Consumer Credit Act in any case. UK Finance estimates that its members advanced invoice finance and asset-based lending facilities to just 35,000 firms in 2022, representing less than 1% of all UK businesses; in comparison, according to the SME Finance Monitor, 36% of SMEs—nearly 2 million of them—were using external finance in 2022.
However, the Government believe that businesses using invoice finance are well protected in other ways. The banking and finance industry has recognised that businesses should be able to use invoice factoring with confidence, so has taken steps to ensure that businesses have adequate protections. UK Finance members, representing between 90% and 95% of invoice factoring by volume, are subject to a standards framework and code, which set the standards that firms should meet when supplying invoice factoring facilities. They include an independent complaints process focusing on the requirements of those smaller businesses using invoice factoring, which might otherwise be reluctant to raise concerns about their treatment. For invoice factoring among larger firms, these businesses will have the financial and legal resource available to take action through the courts.
Bringing invoice factoring into regulation would likely increase costs for businesses. This would negatively impact the ability of these businesses to manage their cash flow in a flexible, cost-effective way at a time when it is important that they have the confidence to invest and expand. There is a fine balance between the costs and benefits when bringing activities into the regulatory perimeter. It requires careful consideration to ensure that there is an appropriate balance between several factors, including ensuring that consumer protection is in place and that businesses are allowed to innovate.
Overall, the Government believe that the current approach—enforcing standards through industry bodies and voluntary codes while facilitating innovation and competition—is more likely than new regulation to drive positive outcomes for businesses that rely on invoice factoring. I therefore ask the noble Lord, Lord Leong, to withdraw his amendment.
Before I start, would the Government Whip like to give us some indication as to how we are going to end this session?
The Grand Committee is scheduled to run until 7.45 pm, which gives us half an hour. However, in the usual way, if the debate has not concluded by that point, the debate on this group will continue into the next day of Committee.
Thank you. I rise to move Amendment 241FA. Patient, long-term capital is crucial for both the growth of innovative companies and investment in green infrastructure to support the transition to net zero. One of the key sources of patient and venture capital is institutional investors, in particular pension funds in the City. Compared with our peers, such as Canada, the Netherlands and Denmark, the UK sees relatively little patient capital funding coming from pension funds; while around 70% of venture capital funding in the US comes from pension funds, in the UK, the figure is under 20%. The Government must do more to enable pension funds to invest in the British economy.
I have tabled Amendment 241FA, which would compel the Government to review how to incentivise defined contribution and defined benefit pension funds to invest more in high-growth firms and diverse long-term assets in the UK. The review would cover three areas. First, we know that a significant barrier to increasing DC pension fund investment is the relatively small size of many UK DC funds. The Government could raise the threshold at which schemes are required to produce a value for members’ assessment; they previously legislated to do this for schemes smaller than £100 million but a review could explore raising the threshold significantly —up to £5 billion, for example—to deliver real change. I would appreciate the Minister replying to the merits of this particular point, if possible, but this figure is something that the review could explore.
Secondly, we know that Local Government Pension Scheme funds have around £340 billion of assets under management, of which £30 billion is already invested in alternative asset classes such as VC. In order to mobilise some of this capital into regional green infrastructure and business, a review should look at adjusting the terms of reference for LGPS funds so that they could consider regional development as an investment factor.
Thirdly, a review should explore how the British Business Bank could put the necessary framework in place to allow DB pension funds to invest alongside it. DB pension funds have nearly £3 trillion in assets under management; unlocking even a small proportion of this would be a substantial boost to the amount of additional financing available to British companies and projects.
It is helpful that the Chancellor referenced exploring unlocking pension funds’ potential in his Budget speech. I would appreciate an update from the Minister on HMT’s work in this area. I am aware that the FCA is currently consulting on the value for money framework for DC pension schemes, for example, but does that work fit into a wider government strategy to incentivise DC schemes to invest in UK firms and green infrastructure?
I beg to move.
My Lords, I thank the noble Lord, Lord Tunnicliffe, for introducing this amendment. I have chosen to address simply the green infrastructure parts, and at this time of the evening I shall park the high-growth debate in the interests of not sidelining the main issue.
The idea of a review is useful here, because the evidence we have of other measures the Government have tried to take to encourage green investment is perhaps mixed—that is the charitable description. I refer to a survey published this month by Pensions for Purpose, which looked at the first wave of obligatory reporting of the scheme introduced in October 2021 based on the Task Force on Climate-Related Financial Disclosures being done by the larger occupational pension schemes and authorised master trusts. That study found that this introduction by the Government was having very limited effects and that it was, to a large degree, being treated as a tick-box exercise. Where it was having an impact on investments, it was not driving towards green investment but rather to a portfolio decarbonisation—a stepping away from things rather than into the kinds of investments we need. This is something we are also seeing implicitly, in that the pension regulator is about to launch a publicity campaign for pension trustees, stressing the need to look at ESG responsibilities, particularly around climate issues—that has been its responsibility since 2019. It is clearly thought necessary to have a publicity campaign about this.
We really need to see steps forward and to see things joined up here. I am reminded of a debate last week with the same Minister, when we finally finalised the UK Infrastructure Bank Bill, which, of course, is looking at another source of investment going into green. I am very encouraged by the Government’s decision to include nature-based solutions there, which is obviously a cross-reference to our need to see much more private investment in nature-based solutions as well. Dare I say it, it would be nice to see some circular economy as well—if I can just put that in there.
On the idea of a review, we desperately need to see money going into green infrastructure. All the evidence we have says that is simply not happening. I also note that the Government need to create the frameworks in other areas of policy to make this happen. I was sitting here, thinking of when I was in this very same Room a few weeks ago with the Energy Bill. One of the things that could be a very good target for investment would be that if we are to get community energy schemes up and down the land—if we get delivery of the widely-backed Local Electricity Bill, as it is in the other place—that would be a great area to see pension funds investing in and supporting. I was at an event this morning debating social value and the importance of that in procurement.
We need to tie all these things together. All these things are running off at different angles, but we are still not creating an environment where people who are putting money into their pensions, seeking to invest in their own future, will have a liveable future for that pension to pay out in.
My Lords, I thank all noble Lords who have spoken in this debate.
The noble Baroness, Lady Bennett, went banging on about the green issue again. In many ways, I cannot think of a better day to do so, with the report from the United Nations that came out yesterday. This is the challenge not particularly of my lifetime but of the community’s lifetime and younger people’s lifetimes—our children, grandchildren and so on. This green issue is not optional. It is central to our survival and the survival of our civilisation as we know it.
I thank my noble friend Lord Eatwell for his support. Getting this right is not trivial; you have to get the balance right. The LDI issue, as I understand it, was essentially about pension schemes wanting to nudge in this direction, discovering that they could not do it in a straightforward way then finding a way around the back without actually realising how destabilising that scheme was. We need good-quality thought in moving this forward so that we get growth, yield and safety all in the same package.
I agree with the noble Lord, Lord Sharkey, particularly on the definition of “green”. This brings me to an adjacent issue, which is the whole concept of the green taxonomy. I hope that this will develop and grow and that it will become an international standard; it will provide a basis for the development of this type of initiative and, of course, all sorts of other initiatives.
As for the Minister, I cannot see why she is not accepting my amendment. I know that the Government like to chew them up so I am looking forward to a government amendment coming forward on Report to embrace this useful and sensible thrust. I beg leave to withdraw Amendment 241FA.
(1 year, 5 months ago)
Lords ChamberMy Lords, the Swiss authorities were in the lead in the solution for Credit Suisse but my noble friend is right that, given the significant presence of Credit Suisse in the UK, the Treasury has remained in close contact with the Bank of England and the Swiss authorities in recent days. We welcome the comprehensive set of actions set out by the Swiss authorities to support financial stability. The UK authorities are going to take a number of actions to support that action, including PRA plans to approve a change in control application for the Credit Suisse subsidiaries in the UK. The resolution of the Credit Suisse situation was for the Swiss authorities, but the UK remains in close contact.
My Lords, we welcome the Bank of England’s swift action on SVB UK and its recent statements about the safe nature of the UK’s banking system. Nevertheless, events elsewhere, including those relating to Credit Suisse, are creating uncertainty in the global financial system. With this in mind, will the Treasury and the Bank of England commit to undertake a systemic review of the impact of interest rate rises and wider events in the system on our own financial sector and banking system?
My Lords, as with any major event, the Treasury will reflect on the lessons to be learned and how improvements can be made. I assure noble Lords that, each year, the Bank of England carries out a stress test of the major UK banks that incorporates a severe but plausible adverse economic scenario. The 2022 stress test scenario includes a rapid rise in interest rates, with the UK bank rate assumed to rise to 6% in early 2023. The results of that test are taken forward by the PRA in its supervision of the banks. The results will also be published this summer.
(1 year, 5 months ago)
Lords ChamberMy Lords, I suggest that we adjourn the debate on the Motion in the name of my noble friend Lady Penn in order to take the Urgent Question repeat to the Foreign, Commonwealth and Development Office.
The Urgent Question repeat may run up to 10 minutes and then my noble friend the Deputy Chief Whip will adjourn the House for 30 minutes on the conclusion of the Urgent Question, so it will be roughly 40 minutes.
(1 year, 5 months ago)
Lords ChamberMy Lords, I begin by joining others in congratulating the noble Baroness, Lady Moyo, on her maiden speech. Her wide-ranging experience makes her an excellent addition to your Lordships’ House, and I very much look forward to her participation in future debates.
It is rare for your Lordships’ House to be given the opportunity to debate a Budget so soon after the Statement was made in the other place. With the Chancellor’s speech lasting for more than an hour, perhaps the hope was that colleagues would not have had sufficient time to fully digest his remarks or the Red Book. The Government’s economic plans have generally not held up to scrutiny, although the immediate reaction of many who watched yesterday’s proceedings may well have been: “Was that it?”
I am very grateful to the Minister for her introduction to this debate. Unfortunately, her speech painted a picture that many across this country simply will not recognise. Yes, the Office for Budget Responsibility’s short-term forecasts look better than in November, but growth expectations beyond 2025 have been downgraded and remain low compared to many of our neighbours and economic competitors. Yes, inflation is forecast to fall drastically by the end of this calendar year, but that does nothing to protect low and middle-income households from sharp increases in household bills—not just energy—or food inflation of around 17%.
Yes, there have also been changes to pensions to resolve specific issues faced by doctors and some other public sector workers, but the Treasury has chosen to do this in a way that also provides a handout to the richest 1%. In the words of Paul Johnson, the pension changes amount to using a
“sledgehammer to crack a … nut.”
The measure will cost taxpayers an estimated £70,000 for each person returned to the labour market, with the annual cost of maintaining the changes topping £1 billion by 2026-27. As families face rising bills, higher costs and frozen wages, this pensions bung is, as Rachel Reeves has said,
“the wrong priority, at the wrong time, for the wrong people.”
That is why a Labour Government will reverse this move, unless of course the Chancellor decides to perform yet another U-turn in the coming weeks.
As I just alluded to, life is currently a real struggle for so many across our country. Parts of this Budget may help certain people in limited ways, but the Chancellor’s Statement will have done little to instil that all-important sense of hope—I repeat, hope—for the future. The idea that 2% annual GDP growth is the pinnacle of what this great country can achieve is, frankly, laughable. That is why Labour has set the ambitious but achievable goal of securing the highest sustainable growth in the G7. We want to lead, while the Conservatives seem happy to languish at the bottom of the international league tables.
Despite various initiatives, relaunches and even ministerial reshuffles, our economy remains smaller now than it was prior to the coronavirus pandemic. I have been saying that for a year, so why does it remain true and what is the result? Not only are we the only G7 country which will see negative growth this year, but people across the UK are enduring the largest hit to their living standards, of around 6%, since comparable records begun. British families are now, on average, poorer than their French and German counterparts. Wages in real terms are lower now than 13 years ago. Real weekly wages are likely to remain below their 2008—yes, 2008—levels until 2026.
Meanwhile, the OBR says average interest rates on outstanding mortgages are now twice as high as was forecast back in 2021. A typical household remortgaging faces a Tory mortgage penalty of £1,950. Families and working people are therefore left paying the price of the Conservative Party’s failures.
As if higher mortgage bills were not enough, freezes to tax thresholds from April will mean an extra £500 on income tax for basic-rate taxpayers. The OBR believes that, by 2027-28, the threshold freeze will have brought 3.2 million people into paying basic-rate tax, with 2.1 million moving into the higher-rate bracket. People may accept that if they receive quality public services in return, but 13 years of Conservative control has seen many services sold off or run into the ground. The situation is perhaps best summed up by the Resolution Foundation, which describes Britain’s economy as being
“stuck in a deep funk”.
That respected body also says that even when people are supported into work, they are
“getting poorer, and paying more tax but seeing public services cut.”
That is not what people voted for.
Of course, there are things in this Budget that we welcome—in principle, at least. The promised expansion of childcare should be helpful for many parents. In his initial response to the Budget, Paul Johnson said that he doubted whether it would make “a big difference” to getting mothers back to work. How many people does the Treasury believe this policy will support back into employment?
We also know that childcare ratios will be relaxed, moving from 1:4 to 1:5, a move which the Early Years Alliance believes risks
“severely compromising the safety and quality of care”.
Can the Minister confirm whether this will be kept under review and, if so, how?
In addition, we welcome the decision to scrap higher tariffs for households with prepayment energy meters and to extend the £2,500 energy cap to the end of June. The Labour Party has been calling for these steps for some months, and the Government’s choice to drag this out has caused unnecessary additional anxiety for many. We do not mind the Government availing themselves of our ideas, whether on the price guarantee, the windfall tax or prepayment meters but, with billions of pounds of untaxed energy profits still left on the table, would the Chancellor also like to adopt our proposal to close the remaining holes in his energy levy?
We also endorse the decision to go through with the increase to corporation tax, given that it is accompanied by improved allowances for firms that invest in their UK operations. As outlined previously in relation to income tax, the personal tax burden is at the highest level since the Second World War. It is almost five percentage points higher than at the start of the pandemic, with no sign of the Chancellor finding the fiscal headroom needed to bring personal taxes down. Meanwhile, corporation tax rates in this country have gone up and down like a yo-yo. Not only has that shifted more of the tax burden on to working people, but it has created uncertainty that has made it harder for businesses to plan long term and to invest in this country’s future. Business taxes should not be unduly high, but firms must pay their fair share. Labour has committed to reviewing the business tax system across the board. It is only by adopting a new, fair and long-term framework that we can move past the short-term focus on share buybacks and dividends, towards a system with investment and job creation at its heart.
To conclude, this Budget was the chance for the Government to unlock the enormous promise and potential of Britain. Instead, it merely papered over the cracks of 13 years of Conservative economic failure. Despite the ministerial merry-go-round and policy U-turns of last summer, our economy remains on track to contract overall this year. We may avoid a recession, but the fact that Ministers are celebrating that shows just how low the bar has been set. People’s living standards remain on track to fall by an unprecedented 6% over two years, and the UK will remain towards the bottom of international league tables. The Budget has done nothing to change those facts or to resolve many of the major issues of the day, with many of the difficult decisions left until after the next election. Crucially, it has done nothing to give people a sense of hope for the future. Instead, it appears to be the latest step in our managed decline, as Conservative Britain once again becomes the sick man of Europe.
(1 year, 5 months ago)
Lords ChamberAn additional £24 billion is going in now as a result of the spending review 2020. The £11 billion announced at the Spring Budget includes £4.95 billion over the next two years. That does not include the spending on our commitments to Ukraine, which was £2.3 billion last year and will be £2.3 billion in the coming year.
My Lords, we have got figures, figures and figures. There is only one crucial question. The Defence Secretary said in February that the Government
“have hollowed out and underfunded our armed forces”.—[Official Report, Commons, 20/2/23; col.65.]
Yesterday, some new funding was announced. Do the Government believe that yesterday really represents a reversal of the Secretary of State’s analysis and, crucially, is sufficient to secure Britain’s national defence for the future?
I think the Secretary of State for Defence has been very positive about the money announced at the Budget and previously, and this Government have overseen the largest investment in defence since the Cold War. The British Armed Forces remain among the best in the world; that is why we are a leading NATO partner. Over the last 10 years, the UK has been NATO’s second largest defence spender, after the US, and we spent almost as much on defence as 20 other NATO members combined. Future Soldier, the Army’s response to the integrated review, will deliver the largest transformation of the British Army in more than 20 years. As the threat changes, we need to change with it, and we have set out a plan to do so.
(1 year, 5 months ago)
Lords ChamberMy Lords, I thank the Minister, both for her introduction today and for a helpful briefing held last week. When your Lordships’ House considered the Bill in the first half of last year, we were told that passing it should be a mere formality. The UK Infrastructure Bank was already operating, having made its first handful of investment decisions. The Bill was therefore essentially a technical exercise to give the organisation statutory underpinning. The Government resisted several sensible amendments, including one on worker representation on the bank’s board, partly on the basis that this legislation needed to be on the statute book quickly. I pause to note that the inclusion of a non-executive director at least moves in that direction. I thank the Minister, as I do for everywhere in the Bill where she has persuaded the Government to seek compromise.
However, in reality, it took some time for the Bill to get through the other place. The legislation having been introduced last July, Second Reading did not take place until November and Report not until last month. The delay was presumably the result of the Conservative Party’s summer of chaos, with a succession of Prime Ministers and Chancellors of the Exchequer, and—if I remember correctly—a short period when the noble Baroness was not a Minister on this subject. We are back to our familiar form. The extra time has seemingly allowed Ministers to reflect, in some areas at least, as evidenced by the various Commons amendments that we are debating today.
We welcome the clarifications around the definition of “public authorities” and the importance of costed plans should UKIB funds be used to support the work of water companies. The devolved provisions, which have facilitated the passing of legislative consent Motions—something of a novelty in recent years—are also welcome. We are also glad that the Minister and the Bill team have been persuaded of the merits of including nature-based solutions in the definition of infrastructure.
The noble Baroness, Lady Hayman, made a persuasive argument but, as we have often seen, that does not always lead to the Government making a concession. I pause again, however, to note, as happens with so many Bills, the extent to which she and her supporters are making incremental progress in embracing the green thrust. Even now, I have a bit of optimism that we might move quickly enough to save at least some of the planet that we now enjoy. It is good to see that thrust building on both sides of the House. I hope that in a couple of years the sides will change but, if one has that general direction in the membership and on the Front Benches, it is possible that we will get there. In another two years we may be passing green amendments that will amaze us when we look back five years, at when some official or other said, “You can’t put green in there because it is nothing to do with the Bill”. We have put green in here and have persuaded people that it is something to do with the Bill.
I understand the disappointment of the noble Lord, Lord Teverson, with regard to the circular economy, but that concept will become ever more apparent and he will no doubt have other opportunities to promote it.
I regret that the Government have overturned my amendment. Colleagues may think, “You would say that, wouldn’t you?”, but I remain unconvinced of the Government’s reasoning for removing their own levelling- up mission from the Bill. I reluctantly accept the offer to make changes to the bank’s framework document and articles of association after the Bill receives Royal Assent. It is not exactly where we want to be but it is a small step in the right direction.
Finally, we gladly accept the reduction of the interval between reports on the bank’s effectiveness. I was somewhat amused by this, as we were previously told that an interval of five years was simply not practical and could even somehow undermine the bank’s work.
Overall, while the Bill is a short, technical piece of legislation, the UK Infrastructure Bank could make a significant contribution to some of the big challenges that we face. We fully support the bank and, while there may be cause to revisit its mandate in the future, we wish it well in its work. Again we thank the Minister for her co-operation in bringing us to this consensus position.
My Lords, the Bill is mercifully short, so I shall also keep my remarks brief. I thank all noble Lords who have spoken today and who contributed when we took the Bill through its substantive stages in this House a while back. I reassure them that the time it has taken for the Bill to progress is not unusual: I was working on the skills Bill in this House, went off on maternity leave and was back in time for ping-pong, so it is not necessarily an unusual passage for a Bill in Parliament.
I reassure the noble Baroness, Lady Bennett, that the Government are committed to moving towards a more circular economy which will see us keeping resources in use as long as possible, extracting maximum value from them, minimising waste and promoting resource efficiency. I hope I made that clear in my opening remarks. When it came to including a legal definition of “infrastructure” in the Bill, that is where my remarks about the potentially imprecise nature of the terms lay, but it does not reflect a broader lack of understanding or commitment by the Government to that agenda.
I also reassure the noble Lord, Lord Teverson, that His Majesty’s Treasury is very much committed to ensuring that nature and climate change are on the agenda for the Government and that we meet our global goals, committed to both in terms of Paris alignment and the new framework agreed at COP 15 in Montreal at the end of last year. He knows better than most that we published the Dasgupta review that looked at the role of nature in our economy. We have had an amendment to the Bill today, and that commitment will be ongoing.
Most noble Lords were very kind in not replaying my words on the review period for the bank. All I can say is that it is always a pleasure to listen to the contributions of noble Lords and be persuaded of the art of the possible. I am pleased with the changes that we have been able to make to the Bill; I think these have shown how effective Parliament can be in scrutinising our legislation. The UK Infrastructure Bank has transformative potential, which I know is recognised and supported on all sides of the House. I beg to move.