Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Baroness Kramer

Committee stage
Monday 6th February 2023 Grand Committee

[Lord Tunnicliffe (Lab)]

My Lords, this group contains Amendment 120, signed by me, my noble friend Lady Hayter of Kentish Town, the noble Baroness, Lady Altmann, and the noble Lord, Lord Morse. Our amendment would facilitate further parliamentary and public

“scrutiny of the work of the FCA to protect consumers by requiring the Financial Services Consumer Panel to lay an annual report before Parliament outlining”

the extent to which the FCA is successfully fulfilling

“its statutory duty to protect consumers.”

We have included the provision that the Consumer Panel must comment on the “adequacy and appropriateness” of its use of its powers; the measures it

“has taken to protect vulnerable consumers, including pensioners, people with disabilities, and people receiving forms of income support”;

and its “receptiveness to the recommendations” of the panel. We need a mechanism to encourage the FCA to exercise its regulatory duties more readily and consistently.

This is all in the context of very serious FCA failings. I am thinking particularly of the British Steel pension scheme scandal to which the FCA was found to be “slow to respond” at every turn, according to the Public Accounts Committee. If the Government are inclined to reject this amendment, I would appreciate further work in this space in the interests of all those who have fallen foul of FCA failures. I urge the Minister to look seriously at this amendment, given its cross-party support across the House and in the other place.

[Baroness Kramer (LD)]

My Lords, I am speaking a little earlier than I usually do on my amendments in case others want to join in on the Equitable Life issue. I thank the noble Baroness, Lady Altmann, for signing my first amendment; it is hard to tell what happened with the second. I hope she signed both of them. Yes? Fantastic.

I want quickly to follow up on the comments from my noble friend Lord Sharkey. Perhaps the Minister can clarify this for me. She will remember that the PPI scandal was widely spread across the industry. It was not unique to one or two companies, therefore no company that invested in that mis-selling was behaving as an outlier. Again, when interest rate caps were inappropriately sold to small businesses, it was not the action of one or two particular banks. It was industry-wide, therefore nobody was the outlier. Can she explain to me what this new consumer duty will contribute to enabling the FCA to act on these kinds of abuses? She will note that the FCA did not act until there was a major scandal and a huge amount of public pressure and pressure in Parliament because, when it looked at it, it could see no basis for action. Perhaps she might tell us how the consumer duty would have worked in those two key cases. I am sure that the Government must have tested those cases in coming to their decision to support the consumer duty, so I think she will be able to give us clarification on that.

Both of the amendments in my name arise out of the Equitable Life policyholder cases. I thank the Equitable Members Action Group, which has been frankly magnificent in support of the victims of the collapse of Equitable Life. It has fought for them in the past and continues to fight for justice.

Amendment 225 is a direct plea for compensation. When Equitable Life collapsed, 1 million people lost a significant part of their retirement savings. In 2008, the Parliamentary Ombudsman concluded that the victims’ losses were directly attributable to a decade of serious, serial regulatory maladministration.

The ombudsman made 10 determinations of maladmin-istration: one against the DTI; four against the Government Actuary’s Department; and five against the FSA, which

“resulted in the true financial position of the Society being concealed and misrepresented”.

I cannot think it extraordinary that, in a situation such as that, one would have expected the loss to the victims to have been remedied in full. In recommending redress, the ombudsman said that she would

“normally expect that, where appropriate, such a loss should be remedied in full”

and she called for the Government to

“fund a compensation scheme to put those people who have suffered a relative loss back into the position that they would have been in had maladministration not occurred.”

The Government later accepted that the amount of compensation to achieve that would have amounted to £4.5 billion but only £1.5 billion in compensation was announced by George Osborne. Some 37,000 with-profits annuitants were fully compensated but a further 10,000 received only £5,000—or £10,000 if they were on pension credit—because they took their annuities before September 1992. The vast majority of the victims—895,000 people who were not with-profits annuitants—received only 22.4% of their acknowledged losses. My amendment would carry out the recommendation of the Parliamentary Ombudsman and put everyone back into the position that they would have been in had maladministration not occurred.

This leads to my second amendment, Amendment 226, which would establish in law a requirement that, when the ombudsman finds maladministration by the regulators or government departments, all consumers affected

“are put back into the position they would have been in had that maladministration not occurred.”

Just imagine how we would react if a bank decided that, instead of paying the full compensation it owed, it would pay just a portion of it. I cannot see why the Government should be treated differently from an entity such as a bank. We would expect compensation to be paid in full.

How can we ask people to turn with confidence to the Parliamentary Ombudsman when recommendations are watered down after the fact? How we ask people to save when a rogue society—I think that describes Equitable Life quite well—cheats them? The Government make appalling mistakes to the level of maladministration —that is a very high bar; it is not a low bar—and then will not make it right. Many of the victims are now in their eighties and nineties so time is running out for justice; indeed, many have died without justice. That is the reason behind my two amendments. I very much hope that there is support for that perspective; indeed, I hope that we will finally see support from government.

In making a brief comment on the amendment proposed by my noble friend Lord Sharkey, on a return to a proper duty of care—it is one of the most important amendments that we are considering today —I want to stress, in this context, the private right of action. It seems to me that, without a proper duty of care or private right of action, we can never make banking institutions or other regulated financial services sector institutions live up to their full responsibilities to consumers.

Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Baroness Kramer

Committee stage
Wednesday 1st February 2023 Grand Committee

[Baroness Kramer (LD)]

The noble Earl may find that this is already a requirement of the regulator, but this is not about that. If the amendment were taken in the way that I suspect the noble Earl reads it, I might feel reasonably comfortable with it. However, as we listened to the discussion, we saw where this was going. The noble Viscount, Lord Trenchard, captured that: the industry is looking at these kinds of amendments as a mechanism by which it can find leverage to enhance the status of the international competitiveness and economic growth objectives. If we could find a balance, in asking for the kind of language that the noble Earl, Lord Kinnoull, is after, but making sure that that does not become weaponised and potentially raises those objectives to an equal status to financial stability, I would feel much more comforted.

[Lord Tunnicliffe (Lab)]

My Lords, we are on day three of six. I cannot possibly envisage the seventh day, so I will make short speeches. Our amendments in this group are 118 and 119. Amendment 118 would give the FCA a duty to report on mutual and co-operative business models, covering how it considers the specific needs of credit unions, building societies, mutual banks, co-operative banks, regional banks, mutual insurers and co-operative insurers. Amendment 119 would do the same for the PRA.

Following Second Reading, I read the Minister’s letter on this topic with interest and was pleased with her assurances on the matter. However, a letter has little substance; virtually nobody knows about it, to start with. Therefore, as a minimum, I hope the Minister will repeat the assurances in that letter about mutuals, et cetera, and get them on the record in Hansard.

I hope the Minister will assure me that the department takes a keen interest in the growth of the mutual and co-operative sector. The UK has a smaller industry than some international economies, particularly in Europe. I would be interested to know what the direction of travel is in government on this. If we are committed to consumer choice and a diverse, dynamic financial services mix, a strong mutuals and co-operatives sector is surely an important part of it.

There are many amendments in this group and, in general, I like the direction they take. I hope the Government will look at the thrust of these amendments and, as the debate on the Bill develops, try to come back with proposals that take the best of them.

I am very interested in the introduction of the word “proportionality”. My career has been in aviation, in railways, in nuclear and, indeed, even in the military. Proportionality, done well, is undoubtedly the optimal way of introducing and managing regulation. Of course, it is a dynamic concept. As things change, if you really do believe in proportionality, your interpretation of proportionality has to change with the changing facts.

The problem with this is that it needs very able and mature regulators. That is why so much of safety regulation and, in a sense, financial regulation is prescriptive. One knows how to interpret prescriptive regulation: you do what it says and, when you cannot agree, you go to a court. I hope that we persist with proportionality, but I feel that we will need a very special regulator to do it. If that can be achieved, it will give a dynamism to the regulation in this Bill.

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[Lord Tunnicliffe (Lab)]

My Lords—sorry.

[Baroness Kramer (LD)]

Thank you. We are desperately trying to work out what we do to remain winding speakers but, thanks to the flexibility, that is allowed in Committee. It disappears at Report, but it has been very useful.

I wanted to make a few comments because I want to ensure that we focus strongly on the issues raised by my noble friend Lady Bowles: looking at the international competitiveness objective through the lens of efficiency of the regulator. When I talk to the industry, its beef is typically not with the regulation but with the way it is applied. It is the endless paperwork, delays, time-wasting, and everything else. The amendments that she has tabled get us laser-focused on that and tell the regulator, “This is unacceptable. It may mean that you need more resources, but then open your mouths and ask for them, because I think you would find that Parliament would row in behind you to ensure that you have that capacity to deliver that effective, efficient regulation.”

I was slightly taken aback by the example of a one-week approval authorisation in the Bahamas only because I am very conscious that the 2007-08 crash was finally tipped over the edge by AIG, the major US insurance company, saved at the last minute by a bailout of $150 billion. It has rectified itself today. I would hope that our regulators would take more than four or five days to look at authorisation for company with the capacity to bring down a very large part of the world’s economy. I just turned pale for a moment. I hope that we will not take that as a continuing example.

I also do not see the regulators as typically capricious—inefficient, but not really capricious. I am therefore concerned about the amendments from the noble Lord, Lord Lilley, to the extent that they would remove agility. All of us who work in some way or other in relation to the financial services industry recognise that we are in a period of the most extraordinary change. Technology and globalisation are driving it, and all kinds of innovation are out there. We need a regulator that can cope with the pace of change that is taking place and does not come late to the table.

When I first got involved in politics, fintech was new. I remember asking every member of the fintech industry to meet me, and there were 12 people around the table. Now the leading figures associated with fintech would not fit in the Royal Albert Hall. That is brilliant—but I remember the difficulty then in trying to explain to the regulators that we needed a completely different regulatory environment, if fintech was going to develop. It wanted regulation. Being without regulation led the industry to fear that rogue players would suddenly enter that would disgrace the industry and cause a regulator to come on to its lawn with tanks blazing. There was a real desire to get appropriate and sensible regulation in place, but it had to be different and innovative and had to recognise the features of the industry.

When it comes to the word “predicted”, it seems to me that for a court it would be very hard to go through that kind of analysis, and to understand the business issues and the differences and risks in various industries, to understand whether or not predictability applied. When I looked at this issue, I thought, “My goodness, I bet this was drafted by lawyers because it looks rather like a lawyers’ charter.” I do not think that providing additional business to some of the law firms in the City is one of the purposes of the Bill. I have some real concerns, and they centre very much on that area. I hope we will think this through extremely carefully. Anyway, I consider that I have wound up, and I will sit.

[Lord Tunnicliffe (Lab)]

My Lords, we have no amendments in this group. I have listened to this interesting debate. It comes back to the classic dilemma in all parts of life, from family dilemmas right through to how you manage an industry, and it comes right to this proportionality issue. It is very easy to create rules so simple that you cannot see what they are trying to achieve. It is very idealistic to try to create some ideas that the industry should contain. I look forward to listening to the Minister’s reply, but I have enormous sympathy with her, and I hope she might perhaps give some thought to whether we might try to develop some mechanism between now and Report to see if we can create common ground on this extraordinarily important issue.

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[Baroness Kramer (LD)]

My Lords, I start by speaking to my own two amendments in this group and will then move on to winding for the Liberal Democrats.

In a sense it is quite pertinent that I follow the noble Lord, Lord Sikka, because, as members of this Committee will know, I have some real concerns about the competitiveness objective and its effect and implications. It comes from people who are very much founded on the experience of the financial crash of 2007-08 and a fear at the time that lessons would be learned very briefly but the industry would very quickly push back as it is now, hoping that the crisis has been forgotten. I notice that all the speakers who are in favour of the competitiveness agenda seem very careful not to go back to that time, and they describe in some way why this is inherently different from then. If that cannot be done, or if they have all forgotten exactly what the experience was in that period, we are moving into difficult territory.

My amendments are quite specific and are very definitely probing—I hope that the Minister will disabuse me. When talking with a leading player in the industry, who was encouraging me to support the competitiveness objective, I took the government and regulators’ line: “It is a secondary objective—financial stability is clearly the priority.” I was told, “No, you haven’t read the Bill. You need to look at the section that refers to mutual recognition agreements. You have to read the two together. When you look at mutual recognition agreements, that gives us the leverage, combined with the competitiveness objective, to force the regulator to always adopt for the UK whatever is the standard that is embedded in that mutual recognition agreement.”

I am extremely troubled by that strategy, but from reading the language I can see where that thinking comes from. The attractiveness of the mutual recognition agreement to this individual was that it was an arrangement—in effect a treaty or an agreement—that was not negotiated by regulators. They might have a discussion with regulators and there might be input from regulators, but ultimately it was negotiated by businesspeople, and therefore that would be the guiding principle, not concerns about financial stability—those are not the concern of a trade negotiator—but arrangements, while measures within a trade negotiation contain a lot of compromises and trade-offs. This disturbs me hugely, and I would like the Minister to explain how those concepts and clauses work together. I was talking with someone who was using their imagination, but there was a lawyer present who was confirming what was being said, so I am really quite concerned about that interaction. We need to understand how that works as we proceed with this Bill.

I very strongly support my noble friend Lady Bowles. I am not going to repeat the arguments that she made, which were really important, but I want to pick up on the issue of relevant international standards. Like others, I am troubled by the idea that we might have slavish adherence to a set of rules that are made elsewhere, but on the other hand I am trying to trade off in my mind what we do if we do not have international standards in significant areas of financial services. We may say, as the Americans often do, that we know better than everybody else, that the way we structure our industry means that international standards do not really apply to us and that their capital requirement standards veer quite considerably away from the standards that were agreed at Basel and were largely adopted within the EU. But how do we turn to other places and say that they need to use international standards or that they should not fall below them if we say that that is allowed to us? I am trying to work my way through that thinking process because we live in a very globalised world.

The financial crash of 2007-08, which essentially exposed huge weakness, abuse and mismanagement in the UK, was triggered by events in the United States—the way in which subprime mortgages there had been packaged up and sold as collateralised debt obligations. As I mentioned earlier, subprime mortgages brought down the largest insurance company in the world, AIG, which was rescued by the American Government who, when Lehman Brothers began to collapse, said “Wait a minute. Enough. Suddenly we’ll have to rescue everybody if we’re not careful. We draw the line here.” The consequences reeled not so much through the United States but through the UK, exposing all our various weaknesses.

With this globalised world, what happens in one country, what is done by one regulator, impacts others. How do we manage this unless we have some sort of standing for international standards? I am not arguing against the amendment tabled by the noble Baroness, Lady Noakes; I am just saying that we somehow need to think this through, how it works, how we scrutinise it and how we consider it. It seems to me that it ought to be on only an exceptional basis that we decide that we do not apply those standards in the UK, but we need a mechanism for that and it seems to me that this should be largely something that Parliament determines, because it has significant consequences and would fit with much of the parliamentary accountability agenda that we have talked of today.

I want to pick up on the sustainability issue. Forgive me if I have the wrong person, because I had done that before, but I think it was the noble Lord, Lord Naseby, who mentioned sustainability and said, “How vague can you get?” As far as I remember, we have used sustainability in a lot of prior legislation, so I think there is a body of understanding. Some of the energy legislation that we dealt with certainly had the word “sustainability” in it, so there is a body of definition that sits behind that. I am one of those who would very much like to see sustainability attached to the words “economic growth”. I am not so concerned by the secondary economic growth objective, but I want growth to be sustainable. For me, that encompasses sustainability in every sense, both environmental—as it is often used—and economic.

As I say, I remain concerned about the competitiveness objective. We need to be very clear about its implications. If there are other levers that I have missed in the loan agreement that provide it in a non-obvious way with additional power and strength and the ability to get court rulings in its favour, I hope the Minister will explain them to us because I would find that very necessary for our future discussion.

[Lord Tunnicliffe (Lab)]

My Lords, I do not wholly associate myself or my party with my noble friend Lord Sikka’s comprehensive description of the finance industry, but I go back to one important area. I mentioned earlier that my previous career had a lot to do with safety. One of the things that it brought out was that people readily forget the catastrophic because the catastrophic occurs so rarely that attention drifts away and they get on with the day to day.

We broadly support the growth and competitiveness concept, although its impact will be modest. It would be a miracle if it added 1% per annum to the growth of the UK. If we read Alistair Darling’s autobiography—and yes, I am aware of the Mandy Rice-Davies test, “He would say that, wouldn’t he?” but it reads pretty convincingly—we see just how close we came to a totally catastrophic situation. It was only saved by a number of individuals, including Alistair and Gordon Brown, taking the very brave decision to do what had never been done before, which was essentially to throw the whole economy at a guarantee of the banking system. That is a pretty dodgy thing to do and, frankly, if you look at the timeline, it got very close to a catastrophic situation.

When one is looking at catastrophic risk—a low probability, perhaps, but catastrophic—you have constantly to bear that in mind. I do not think that the average practitioner in the finance industry works like that; I feel that day to day they are making trades and so forth. The sense of the primary objective is that that should be the salient thought behind all their decision-making: “We must not create another catastrophic situation.” To be fair to the Government, over the past decade or so quite a lot of sensible legislation has been introduced to protect ourselves from catastrophic risk. The Bank of England has a department working away at the regulation of financial institutions to make sure that they are orderly, safe and so on.

I have forgotten what the words are, but the concepts of stability, security and probity must be there in the primary objective and must be well-defined and clearly prime—the top objective. After that, competitiveness, growth and so on would be great.

Our Amendment 65 was a probing amendment and it has worked very well. The noble Baroness, Lady Noakes, assured me—perhaps the Minister will use similar words—that there is no question about the primacy of the objectives, that it is set in other rules and that if I looked at all the rules together, I would not be worried about it. I think that is basically what she said, and I hope it is right, because it is absolutely right that we bear in mind protection from catastrophic risk.

I note the assurances that the Minister gave in her letter following Second Reading, but I am still not clear about the specific mechanism whereby the primary objectives are expressly meant to take precedence in FSMA. To me, it appears that they are indeed split up, but there is nothing to define what it means to be primary. I may be wrong in that concern, and I am here to be persuaded that I am wrong. The more effort that is put into persuading me, the more will go on the record and form the environment in which financial services are delivered. I feel concerned that there is nothing in legislation, in the regulators’ rulebook or elsewhere to guarantee the primacy of the FCA’s and the PRA’s most important objectives. However, as I said, that is an open question, and this debate has been good.

Regarding the international dimension, I see the concerns being expressed about giving it too much primacy—although I do not want to use that word, because it has the wrong effect. My memory is useless but, about two years ago, we had what I will roughly call the Basel III Covid legislation. Many of us were there to debate it. If I remember rightly, it took out the EU law and made space for the regulators to create the situation we are talking about now. My recollection is that aligning with Basel III and the FSB—or whatever it is called—became an objective within that. I see the Minister is nodding, so my memory has some fragments of it.

Once again, it is clearly a good idea to be that bit looser if we are to be innovative. The probing worked brilliantly, as I far as I am concerned. The noble Viscount, Lord Trenchard, quite openly said that competitiveness and growth should be equal to the regulators’ concern about stability and safety. Arguably, that is a properly viewed position, but it is not my position. Failure must be avoided—not quite at all costs but, wherever there is a debate between bigger risk and modest profit, the bigger risk should be avoided.

Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Baroness Kramer

Committee stage
Monday 30th January 2023 Grand Committee

[Baroness Kramer (LD)]

My Lords, my noble friend Lady Bowles’ speech was so powerful that I saw a lot of heads nod, but perhaps that has discouraged other noble Lords from standing up to speak on this occasion.

I am not going to attempt to repeat an excellent speech which made the points which such clarity. I just want to underscore two things. Whenever I have conversations with the FCA and whenever you read its articles, it prays in aid the complexity of the regulatory perimeter so that on so many occasions it is hard to know exactly where it is and how it is applied. However, when you look at abusers and scammers, they have absolutely worked out where the regulatory perimeter stands and know exactly what scope they have, and they make sure they use every scrap and every inch of that space which is provided to them. That is addressed by these amendments.

The second issue that I want to underscore was raised by my noble friend. It is that, culturally, the FCA seems to be very timid about pushing to the limit of the perimeter the regulatory powers it already has. It is so because it is very afraid of stepping over the boundary at any point. These amendments provide not only much more clarity but some backbone for the FCA to take a far more positive stance. It is quite shocking to most people that the key financial regulator can be absolutely aware that abuse is taking place, that mis-selling is taking place, but feels that it is unable to do or say anything because there is a regulatory perimeter after which the issue is caveat emptor and those who are defrauded can turn only to the enforcement agencies, which relies on finding a local police force that has the resources and capacity to pick up the issue. We know that with the Lloyds Reading case small businesses that were very badly abused went to police force after police force and were turned down until they went to Thames Valley Police, which had more resources, and the police and crime commissioner, Anthony Stansfield, whom I utterly praise in this issue, decided to take on the case—a very rare instance. They got no help from the National Crime Agency or the Serious Fraud Office because they considered that the fraud that everyone recognised was taking place was too small fry to occupy them. Frankly, it is a shocking situation to be in. Many people have said that this must be remedied. I congratulate my noble friend on bringing forward an amendment that aptly provides that remedy. I very much hope that the Government will take it up.

[Lord Tunnicliffe (Lab)]

My Lords, I am impressed by the arguments made by the noble Baronesses, Lady Bowles and Lady Kramer. To me, the fundamental issue seems to be the asymmetry in both power and information between those who have been defrauded and the fraudsters. These amendments are a useful vehicle to try to adjust that asymmetry, at least in part. I look forward to the Minister’s response and hope that she says something positive.

Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Baroness Kramer

Committee stage
Wednesday 25th January 2023 Grand Committee

[Baroness Kramer (LD)]

I apologise; it was the noble Baroness, Lady Noakes. I have attacked the wrong conspirator, as it were. I say to her that my concern, from listening to various people argue for changes in the rules that govern short selling, is that that is exactly what they have in mind, the argument being that if we allow short selling then illiquid markets will suddenly become much more liquid because many more players will be attracted into that particular end of the market. There is a great deal of risk at play, so I am quite nervous about making that kind of change. We always assume that the investors who would engage in these products would be highly sophisticated and understand fully the risks they are involved in, but the practical reality that we see in everyday life is that many people get involved who, frankly, have insufficient understanding and find themselves very much at risk.

It is for a similar reason that I say to the noble Viscount —I think accurately this time—on ending regulatory criteria for listing, that the listing issue is quite complex. I was one of the people who agreed with the IoD—I do not agree with the IoD all that often—on the changes that the London Stock Exchange made to enable a secondary listing for Aramco. It did not end up with the business, but the IoD was very concerned that the LSE compromised its approach to corporate governance to get that listing, which would obviously have been a highly profitable activity. That issue made the IoD very irate. It described it as

“an opportunistic attempt at boosting short-term primary issuance which ignores the longer-term implications for the overall UK corporate governance regime.”

This is actually quite a contentious area, so removing it completely from the regulatory sphere strikes me as rather dangerous.

I will bring my comments to a halt, except to say to the noble Lord, Lord Stevenson, and to the Government that the noble Lord should not have to fight such a difficult battle to try to deal with such a potential abuse. I wonder whether the Minister might, on a very personal basis, take up the cudgels here, because Ministers sometimes are in a position to get the relevant action that has been sitting many pages back on the back burner. I remember the battles we had to get rid of payday lenders. In the end, the noble Lord, Lord Sassoon, working very closely with all parts of the House on a very personal basis, was able to bring in the legislation that brought an end to that kind of abuse of consumers. The Minister has a very good precedent in the noble Lord, Lord Sassoon, and his capacity to use financial services legislation to deal with an aberration that puts people at risk.

[Lord Tunnicliffe (Lab)]

I am not persuaded by the amendments in this group, apart from the one from my noble friend Lord Stevenson. Obviously, I shall listen to the debate and check Hansard before we come to Report. My noble friend’s amendment may not be the right way to address this problem, but, in all honesty, it has been five and a half years since this issue was spotted. There has been a perfectly good Law Commission report, as I understand it, which makes a very strong case. It is no good saying that we will cover this elsewhere, or that it has to be integrated. There is a solution to this problem, and it is important that the solution happens in this Bill. I strongly commend to the Minister that she “does a Sassoon” and comes up with an acceptable compromise so that an end is put to what I would call almost an evil practice.

UK Infrastructure Bank Bill [HL]

Debate between Lord Tunnicliffe and Baroness Kramer

3rd reading & Lords Hansard
Monday 11th July 2022 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, much has happened since last week’s Report stage, when your Lordships passed two sensible amendments. These changes would considerably strengthen the Bill’s climate and levelling-up credentials, ensuring greater external support for the bank and its work.

The Prime Minister has rightly said that the business of government must go on over the coming weeks and months. In that spirit, I hope that the Treasury will reconsider its opposition to these amendments. This will ensure that the next Prime Minister gets a stronger Bill on the statute books. If Ministers, whether the current crop or their successors, do not like the current wording, they are welcome to change it. However, simply overturning the amendments would show poor judgment. The economic picture has become gloomier, while dealing with the climate and biodiversity crisis is ever more pressing. Through this revised Bill, the bank can play an important role in both battles, supporting the creation of good jobs and doing more to protect nature. When one of the many leadership hopefuls assumes the office of Prime Minister, these issues must be at the front of their mind.

Until then, I thank the noble Baroness, Lady Penn, and the noble Viscount, Lord Younger of Leckie, for taking this Bill through its Lords stages. They have been ably supported by a range of Treasury officials, to whom I am also grateful. I am even more grateful to my Labour Party policy adviser, Dan Stevens, for his invaluable advice and help.

In the meantime, I wish the bank well as it continues to find its feet and comes to its initial investment.

[Baroness Kramer (LD)]

My Lords, obviously my colleagues and I support the creation of the UK Infrastructure Bank. We regret that it does not have the genuine operational independence that was a clear statutory characteristic of the Green Investment Bank, which was sold off by this Government as soon as the coalition ended, but we are where we are.

The work of this House has improved the Bill significantly. The Government amended it to provide absolute clarity on the UKIB’s role in supporting investment in energy efficiency; we thank the Minister for that. Noble Lords from all sides of the House also supported further changes to establish that the bank’s objectives extend to nature-based solutions in a circular economy. I hope that the Government will not attempt to reverse these meaningful improvements.

However, the Bill has followed what has become a consistent government thrust: diminishing Parliament and enhancing the power of the Executive; I will not repeat all our previous arguments about Henry VIII powers and the power of direction. The Government have promised to amend the framework document by the end of the year to assure us that not only the directions, including their content, but any objections made by the bank to such directions, including letters of reservation, will be made public. This transparency is vital; I thank the Minister personally for making sure that we got a meaningful response to this issue with a commitment not just to removing the gagging clauses originally in the framework document but to ensuring full transparency through the publication of the relevant documents.

I thank the Minister and her team for their openness and willingness to meet. I thank Peers around this House who worked together to get improvement—they are too many to name—but I believe that the Government’s nightmare is an amendment in the name of the noble Baroness, Lady Noakes, supported by the noble Lords, Lord Tunnicliffe and Lord Vaux, the noble Baroness, Lady Bennett, and me.

Last of all, I thank my own ranks. I thank Sarah Pughe and Mo Souidi in the Whips’ Office, who provided us with organisation and backing. I thank my noble friends Lord Sharkey and Lord Teverson, who brought their particular and extensive expertise to bear on this Bill; they have earned and enjoy the respect of this House.

UK Infrastructure Bank Bill [HL]

Debate between Lord Tunnicliffe and Baroness Kramer

Report stage
Monday 4th July 2022 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I am going to be exceedingly brief because so much has been said which I support. I want to make a couple of comments on Amendment 12 in the name of the noble Lord, Lord Tunnicliffe, and others, that I have been pleased to sign. I want to make a point that I think has not been hit on. It is really important because it signals to those who put together projects and then turn to the investment bank and look for resources and funding that they are going to have to meet tests such as improving productivity and making sure that they are delivering well-paid jobs.

Putting that in the Bill would take it away from being a passive measure by which the bank looks at and decides whether to support projects and moves it into the active category. Those who are going out and investing will look closely at whether they are delivering against those various tests. There is so much that is good in the various amendments within this group—I very much support my colleague on Amendment 2—but I particularly wanted to underscore the message-signalling that is deeply inherent in Amendment 12.

[Lord Tunnicliffe (Lab)]

My Lords, I am grateful to all noble Lords who have spoken in this important debate. I am particularly grateful to the noble Baroness, Lady Bennett, the noble Lord, Lord Ravensdale, and the right reverend Prelate—who is not present—for their support in tabling Amendments 4 and 5. Those texts are similar in intent to my Amendment 12, and those colleagues made a powerful case for tightening up the bank’s second objective.

I thank the noble Baroness, Lady Kramer, who joined the noble Lord, Lord Ravensdale and the noble Baroness, Lady Bennett, in signing Amendment 12, which I shall turn to now. The Government say their absolute priority is to deliver their levelling-up agenda. Ministers say they will use every tool available to them to ensure left-behind communities can catch up economically, compared to London and the south-east. However, anybody reading the Bill would be hard-pressed to identify that intent. Yes, the bank should be operationally independent from government, but that does not mean it cannot support the levelling-up agenda in its day-to-day work.

Amendment 12 would, in essence, place the first mission from the Government’s recent Levelling Up White Paper in the Bill. The amendment would not prevent the bank from acting in a manner that deviates from that mission. It will be free to invest in climate-related schemes or projects in wealthier parts of the UK; that would remain the bank’s prerogative. However, the amendment would introduce a general requirement for the bank to have regard to the public interest in targeting funds in a manner that will improve productivity, jobs, pay and living standards.

The Government say they want to create good jobs, lift people’s pay and improve life chances. However, at the same time, Ministers are slashing the size of the Civil Service and washing their hands of responsibility for pay negotiations in sectors where the Government have a direct interest. We still await an employment Bill that has been promised for many years. That Bill was not deemed a big enough priority to be included in the Queen’s Speech, meaning many workers will lack important statutory rights.

The aforementioned White Paper mentions that by 2030, the Government want to see the gap between the best and worst performing regions of the UK narrowing. We want to see that gap close, too, but let us be realistic: it will require concerted action, not just warm words.

The year 2030 is not very far away. Let us consider the current economic context: the economy is on the brink of recession and is forecast to flatline in 2023. The cost of living crisis is squeezing household incomes to an extent not seen for decades. There is not a huge amount of time to turn this picture around. If we are to do so, we need urgent action to create secure, well-paid jobs, and the bank can help only if it is explicitly encouraged to do so.

Amendments to the framework document or strategic steer are not enough to target the bank’s mind or provide comfort that the Treasury is sufficiently invested in following through with its stated ambitions. It is regrettable that the Government have not brought forward their own amendment at this stage in proceedings. We have pushed for this in meetings with the Minister but have not succeeded.

We will listen carefully to the Minister’s response today but feel that this is an important issue which deserves to be in the Bill. Unless the noble Baroness is able to commit to an amendment at Third Reading, I am minded to test the opinion of the House when Amendment 12 is called.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I will be very brief. I thank the Minister, particularly, for establishing that the review will be carried out by an independent body. That is absolutely crucial; we really could not have had the Treasury marking its own homework. That is now going to be established on the face of the Bill.

In terms of the review period, I am totally with the noble Lord, Lord Vaux, on this one. I add one reason to the many powerful arguments that he made. The two issues that this bank is set to address, climate change and levelling up, have a great deal of urgency behind them. Therefore, the decisions that the bank makes in its early days, even if they have a long tail to them, will be crucial. If that direction needs to be changed, the bank needs to know that that is Parliament’s view before we get to seven years out, at which point, particularly around climate change, it will be far too late to change a direction that is not meeting the needs of our climate change agenda. So, particularly for this bank, because it is tied to very specific objectives, a much earlier review phase is crucial.

I join the noble Lord, Lord Vaux, in being interested in how the Minister will lay out these other reviews that are meant to fill that gap. Why should we be having partial reviews that partially fill parts of the gap, rather than the comprehensive reviews on impact that could be managed under various amendments before the House today?

[Lord Tunnicliffe (Lab)]

My Lords, although I see an attraction in a higher frequency than the Government are proposing, equally, I think that, in many ways, even five years is too long. I take comfort in what I hope to hear from the Minister: that we will have much of the information we need to come to a judgment about the success, and effectiveness—crowding in and all those issues—annually in the report. Her assurance on that matter is crucial, but I have confidence that she will be able to give it.

UK Infrastructure Bank Bill [HL]

Debate between Lord Tunnicliffe and Baroness Kramer

Committee stage & Lords Hansard - Part 2
Tuesday 14th June 2022 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I want briefly to join this conversation because, like the noble Baroness, Lady Noakes, and the noble Lord, Lord Vaux, I believe strongly that the purpose of the bank is additionality. It is not to substitute for financing that is available out there, or even to provide it at a freckle below what might otherwise be the market price—although I note that the UK investment bank has to make a commercial return anyway. I think we can help towards that by strengthening the objectives that we discussed earlier, so that it is clear that they focus on those areas which we recognise today are crucial but which are finding it very difficult to access finance. That would be a step forward. I also very much agree with the noble Baroness and the noble Lord that additionality needs, in one way or another, to be in the Bill.

I have one minor caveat, which is that I think it is tricky to craft the language, but that does not mean it is impossible. The reason I say that is that I notice that in the noble Baroness’s amendment, she wants to ensure that the bank carries out its activities only if there is an undersupply. In one of the financings I was deeply involved with, which was one of the very early mobile phone financings in Eastern Europe, we tried to bring in private financing, but until we managed to lock in a commitment from the European Bank for Reconstruction and Development and some KfW money, the private sector was unwilling. Once that kitemark was there, that reassurance that entities which they felt had understanding of both the sector and the potential risk were engaged, private sector money came in. Some of it came in pari passu with the EBRD and KfW. If a person were to look backwards at that transaction, they might say, “Well, wait a minute, private finance was willing to take exactly the same risks that EBRD and KfW were, so, essentially, those two organisations were crowding out private finance”, but the reality was that without their presence, the private money would not come in. So we need to be a little careful about how we frame this, but the underlying principle is crucial.

[Lord Tunnicliffe (Lab)]

My Lords, I must admit that I do not have a view on this, because it seems to me that if this bank is to be used only when the risk is such that the private sector is not willing to take it, it suddenly involves a definition of the money that the bank will be using and the extent to which it is de facto underwritten by the state. We know that in the past, when Governments have sought to disguise money provided or underwritten by the state, most notably in Network Rail, when a body came along—I think it was Eurostat—and said, “No, I’m sorry, this is a public loan”, the whole basis of that business had to change. I await clarification and hope it meets the test of being capable of being understood by a bear of little brain.

--- Later in debate ---

[Lord Tunnicliffe (Lab)]

I am sorry; I have tried to be consensual in my responses. My understanding from Her Majesty’s Government—though I am beginning to be somewhat doubtful of this—is that, post Brexit, we were going to do things better than Europe did. I have constantly referred to well-paid, important, skilled jobs, wherever possible in my various amendments.

[Baroness Kramer (LD)]

I will come very quickly to the rescue. Because we are so often together on finance Bills, I can absolutely assure the House that the noble Lord, Lord Tunnicliffe, uses the phrase “well-paid jobs”, as well as “good jobs” and “quality jobs”, very frequently, even if the short-hand today has been just “jobs”.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I will speak first to the generality and then to my amendment in this group. As to the generality, all the proposed changes or enhancements to Clause 9—reviews of the banks, effectiveness and impact—seem significant and important; it is a clause that we definitely need to improve. The two areas that reviews currently have to cover, namely

“the effectiveness of the Bank in delivering its objectives, and … its impact in relation to climate change and regional and local economic growth”,

are interesting, but they have not covered even a small portion of the questions raised on the floor just today. A much more comprehensive review strikes me as exceedingly worth while and something one would anticipate the bank to be eager to deliver.

My Amendment 67 deals with the UK Infrastructure Bank. I admit that it arises from a frustration that the national infrastructure strategy is not on a statutory basis. Our cycling and walking strategy is on a statutory basis but not, apparently, our national infrastructure strategy. It seems important that, if any respect is to be given to that strategy, it should be linked in some way to the work of the UK Infrastructure Bank. Where there are differences, we should at least be aware of them, and that could lead either to the strategy being amended or indeed to a rethink of some of the objectives of the bank.

I am trying to take some steps on what others have described earlier in various ways—to pull together things that seem to cover the same territory, rather than constantly having fragmented reports going in one direction, funding in another and decision-making in another. It seems that the review mechanism may be the lightest-touch way to pull together these various strands and give us a sense of coherence about what is happening with the development of infrastructure in this country.

[Lord Tunnicliffe (Lab)]

My Lords, we can know whether the bank is meeting its objectives and strategic priorities only if the periodic reviews of its work cover the right areas. We will turn to the timing of the reviews shortly, but the number and range of amendments in this group suggest a scepticism around the current provisions. As I said during an earlier debate, we have no desire for parts of the Bill to resemble a shopping list. However, Clause 9 is currently incredibly high level, to the point where it provides virtually no steer whatever.

At a minimum, I urge the Minister to seriously consider Amendment 56 in the name of the noble Lord, Lord Vaux, and Amendment 67 from the noble Baroness, Lady Kramer. These requirements would add value. I imagine that some of the other amendments in this group, although tabled with the best of intentions, will be covered by other mechanisms, including the bank’s own annual reports. I hope the Minister can clarify that.

National Insurance Contributions (Increase of Thresholds) Bill

Debate between Lord Tunnicliffe and Baroness Kramer

3rd reading & Committee stage
Wednesday 30th March 2022 Lords Chamber

[Lord Tunnicliffe (Lab)]

I thank the Minister for her courtesy and for making herself available to discuss the Bill.

[Baroness Kramer (LD)]

I join in those words from the noble Lord, Lord Tunnicliffe. We did not need to meet the Minister because, at this point, everything was looking very straightforward, but she made a very kind offer and it was appreciated.

National Insurance Contributions Bill

Debate between Lord Tunnicliffe and Baroness Kramer

Consideration of Commons amendments
Monday 14th March 2022 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I will be brief because we have a heavy agenda today, and we are going to be talking about the Economic Crime Bill, which is not unrelated to the issue I want to raise, which is that of freeports. The amendment this House introduced would have made that register of beneficial ownership of businesses in freeports public. There may have been a mistaken impression sometimes—I am sure the Minister did not intend this—that that information would be available to people, either through the properties register or through the revised Companies House register. But that is not the case except in the very rare circumstances where the business in the freeport would be a headquarters for the entity and therefore its legal address, or where the entity had sought to purchase property. Those are mistakes that no criminal organisation or kleptocrat would make. They would take advantage of the lack of disclosure that otherwise frames freeports.

I found the reasons the House of Commons gave quite extraordinary. It said this amendment was rejected:

“Because it affects a charge on the public revenue.”


If there is to be a register of beneficial ownership of businesses in a freeport, uploading that to a public website rather than the internal site essentially has no cost difference. So, public revenue cannot possibly be the reason that this is an issue. So, where could public revenue come in? It is because the additional transparency that allows civil groups, activists, journalists and others to look at what is happening in the freeports would, in effect, deny to criminals, money launderers, kleptocrats and others of similar ilk the ability to claim exemptions in national insurance contributions. In other words, it would have reduced the demand on the public purse; it would have reduced the demand for public spending. Yet that seems to be the reason being given for overturning this particular arrangement. So I would just be curious to know, if the Minister speaks again—but we can deal with this in relation to other cases—why denying to criminals and money launderers various tax exemptions and reductions in national insurance payments is considered to be an issue of public revenue and therefore a reason for not including this particular measure. I am exceedingly confused.

On other matters, I supported the issues raised by the noble Lord, Lord Tunnicliffe, and I am sure he will speak to them. But I do regret that both these measures have been overturned.

[Lord Tunnicliffe (Lab)]

My Lords, we need to move quickly to today’s main business, so I will be brief. During Prime Minister’s Questions on 9 February, the Conservative MP Stuart Anderson asked

“whether veterans will always be at the heart of this Government’s strategy and whether everything will be done to see that they always get what they need.”

The Prime Minister responded that

“we ensure that veterans receive particular support and encouragement in employment, and we encourage employers to take on veterans as well.”—[Official Report, Commons, 9/2/22; col. 940.]

The Minister knows that we welcome the new NICs relief for employers of veterans. Our amendment did not compel the Government to do anything. It merely gave Ministers the option of extending the 12-month relief, if that would have had a beneficial impact on veterans’ employment and retention. I struggle to understand why both the Prime Minister and Mr Anderson voted against that proposition, given their stated support for veterans. However, in a phrase I have heard throughout my career, we are where we are. Your Lordships’ House has fulfilled its role and, having done so, should now let this Bill pass.

Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2022

Debate between Lord Tunnicliffe and Baroness Kramer

Wednesday 23rd February 2022 Grand Committee

[Baroness Kramer (LD)]

My Lords, I will start by addressing the social security regulations. Struggling through the alphabet soup that characterises these SIs brought home to me how hard hit so many low-wage people will be by the Government’s additional national insurance contributions levies. With inflation running at 7%—now some are expecting 8%—energy prices up by as much as £700 a year and most wages barely rising, this is not the time to hit low-income people with a 1.25% increase in NICs.

Using NICs rather than income tax to raise government revenue was always cruel because it drags in workers on wages below the income tax threshold and excludes a raft of high-income people. But the SIs reveal further subtle changes which I had not appreciated. The Government have been clear that income tax thresholds will be frozen to drag more low earners into income tax and more modest earners into higher-rate tax. But I—and, I suspect, others—did not anticipate a read-across into national insurance contributions. The upper earnings limit, the upper secondary threshold, the apprentice upper secondary threshold and the upper profits limit are all frozen, if I understand the SIs correctly, instead of increasing with CPI. They will pull more people into higher NICs payments, including many young people and apprentices. I would like to hear from the Minister how many people are impacted by the decision not to increase these thresholds by CPI and how much additional money is being raised by the Treasury as a consequence.

On the other side of the coin, CPI is being used to raise the lower earnings limit above which an earner gains access to certain state benefits; in other words, it will reduce the number of people eligible. What will the impact be on benefit recipients, how many will lose benefits, and how many will get reduced benefits and by how much? Why was there no consultation on issues that, frankly, are so significant? These are presented to us as though they are “routine changes” but they are not routine changes to people’s lives, as the Explanatory Memorandum tries to claim.

We then come to changes in the state pension. Pensioners are now being driven into poverty, certainly fuel poverty. How can the Government justify excluding the earnings component from the triple-lock calculation, and increasing pensions by only 3.1%, particularly with inflation galloping away? As I say, it is now expected to hit something between 7% and 8% over the year. I suppose that if next year inflation continues to be high, the Government will exclude CPI from their calculation, arguing that this year set a precedent for manipulating the formula while paying it lip service.

I notice that the notes suggest that raising the state pension by 8.3% this year, which would happen if it was based on average earnings, would increase the pension base and, over time, compromise the National Insurance Fund. If one is concerned about the health of the fund, why are the Government deliberately depleting it by offering employers NICs at zero rate in freeports? I think I have described this before as a fundamental problem. Freeports attract money laundering and other forms of crime because of their lack of transparency and now there is the possibility of an attractive tax package as a further incentive and, indeed, a depletion of the National Insurance Fund as a consequence, which presumably justifies many of the increases that we have seen in these SIs. Will the Minister finally tell us the cost of that giveaway of national insurance contributions at zero rate in freeports? I have been struggling to find the number; it may well be available, but I have struggled to find it.

My last comment is on the other statutory instrument, the tax credits SI, which raises by CPI the annual rates of working tax credit and child tax credit, and weekly rates of child benefit and guardian’s allowance. Although this meets the formula, today’s experience for people on low incomes is one of very high inflation, especially on the basics of life, including heat and food. Many would say that we are facing a crisis now, but that the economic pressures on families will get far more acute as the year moves on.

I have here a very brief note from the Child Poverty Action Group. It points out that

“benefits are due to increase by 3.1%, just as inflation is predicted to peak at 7.25%.”

I think that may be understated; people are now talking about a higher rate of inflation. The note continues:

“Energy bills are due to increase by 54% in April, and these families are set to spend three times the share of their income on energy, compared to better-off families … The council tax rebate scheme will mitigate around 40% of that cost through spring and summer, leaving families in poverty to cover around £35 in additional energy bill each month.”


I come from a part of London where house prices are extremely high, and many fundamental homes are above band D, but the people living in them are on very low incomes. They, of course, will get none of that council tax rebate benefit. The note goes on to say that

“180,000 families subject to the benefit cap will see no increase in their benefits come April. The cap hasn’t increased since 2016, while the cost of living has increased by around 16% in that time.”

Are the Government prepared to rethink? This is an exceptional year of inflation, so choosing the figure of 3.1% has a great artificiality to it; it would not in most years, but it does in this one. Will they simply restore the weekly £20 uplift in universal credit, which would make a substantial difference to the families who will be hit? Will they reconsider the national insurance contribution increases and shift instead to a money-raising mechanism that looks at income tax and higher earners? Will they unfreeze the tax thresholds, which is a way of increasing income tax without obviously saying that one is going to do it? Frankly, one way to pay for all of this would be a windfall tax on the fossil fuel companies whose profits have soared because of world conditions, not because of their own efforts.

I am not going to oppose this SI, but I hope that the Government will not be complacent and think that the changes have gone through with their consequences unrecognised.

[Lord Tunnicliffe (Lab)]

My Lords, I am grateful to the Minister for introducing these two measures. As she outlined, the first instrument increases the primary threshold above which people start to pay national insurance. It also freezes the upper earnings limit to ensure consistency with the equivalent limit for income tax. The lower threshold is being lifted by the level of CPI inflation in September last year; that is, 3.1%. We welcome any help for low-paid workers, given the enormous pressures on household budgets at the current time. The second instrument provides for a 3.1% uplift in the annual rates of working tax credit, child tax credit, child benefit and guardian’s allowance. We support these increases.

Of course, when it comes to inflation, the picture has changed quite significantly since September 2021. CPI is currently running at 5.1% and economists fear it could exceed 7%. We must also consider these changes against the backdrop of the withdrawal of the £20 universal credit uplift. Yes, the Government have amended the taper rate for some claimants, but many others gain very little or nothing at all. Finally, the 1.25% increase in national insurance contributions for 2022-23 and the longer-term introduction of the health and social care levy will be an additional hit to household finances.

National Insurance Contributions Bill

Debate between Lord Tunnicliffe and Baroness Kramer

Report stage
Monday 7th February 2022 Lords Chamber

[Baroness Kramer (LD)]

My Lords, this group of amendments includes government Amendments 13 and 14, which, as the Minister described, respectively change Clause 3(1) on freeports and Clause 6(6) on veterans, so that any extension to the zero rating of employers’ NICs in these schemes is subject to the affirmative, rather than the negative, resolution procedure. Changing negative to affirmative for both these clauses was an important recommendation of the Delegated Powers and Regulatory Reform Committee. The noble Lord, Lord Tunnicliffe, and I both asked for the changes that it recommended to be enacted, and I thank the Government for delivering them on Report.

As the Minister knows, I was particularly exercised by the original drafting of Clause 10, which designates that payments under certain “self-isolation support schemes” should not be included in computing NICs. I have no problem with the principle but, unamended, the clause would have allowed new schemes to be added without any change to the regulations or any reference to Parliament. The Delegated Powers Committee objected that this offered far too much leeway, and recommended that any designation under the relevant parts of Clause 10 should be “contained in regulations” and subject to the negative resolution procedure. Again, I thank the Minister for delivering on that.

I read the remaining amendments in this group as being technical, and we have no objection. The Delegated Powers Committee will not be fully satisfied by these amendments because certain recommendations have not been agreed by government—for example, the recommendation that the power to modify the criteria for the schemes in freeports should be affirmative, not negative. But we have made progress on some important points, and I hope that the Minister will make sure that the message goes back to those who draft Bills that it is important to take note of the appropriate constitutional balance. He has done so, and I thank him for it.

[Lord Tunnicliffe (Lab)]

My Lords, I am grateful to the Minister for bringing forward these amendments. As he outlined in his introduction, several of the texts clarify the upper secondary limit for the 2021-22 and 2022-23 tax years, with future amounts to be set in regulations. Given our proximity to the new tax year, it seems sensible to include these figures on the face of the Bill, rather than rush to lay regulations following Royal Assent. Oh, I should take my mask off; that is much better.

The remainder of the Minister’s amendments address three of the five recommendations put forward by the Delegated Powers and Regulatory Reform Committee. It is disappointing that the Government have chosen not to constrain the powers conferred by Clause 3(3), which the DPRRC labelled “inappropriate”. However, we have got quite a bit further than anticipated, following the Minister’s remarks in Committee. We thank him for this but, as a generality, we hope that the Government will get back to the convention of taking the DPRRC’s recommendations more seriously; I think that is a fair comment. However, the concession on Clause 10 is important, and I look forward to the short debates that will follow regulations made under Clause 3(1) and Clause 6(6).

National Insurance Contributions Bill

Debate between Lord Tunnicliffe and Baroness Kramer

Committee stage
Monday 10th January 2022 Grand Committee

[Baroness Kramer (LD)]

My Lords, I shall try not to add too much to the hot air in the Room so that we can crack through all of this.

Free ports have historically been a magnet for illicit activity, including, and these days almost especially, money laundering. Some of the UN reports give people a sense of how large the scope of money laundering is; the reports reckon that something like $800 billion up to $2 trillion a year—2% to 5% of the world’s GDP—is put through the laundry machine. In May 2020, RUSI’s Centre for Financial Crime and Security Studies said in written evidence to the International Trade Committee of the other place:

“there is evidence of criminal activity taking place in multiple freeports around the world. It often involves trade in counterfeit goods, drug trafficking, smuggling of untaxed goods or trade-based money laundering”.

By definition, free ports do not require declarations that are associated with customs, excise or tax, which are the principal ways in which transparency as to the nature of imported items, their origins, destinations and ownership, is achieved. When extensive processing of those imports is also available in the free port site, especially when, as in this case, the processing is granted all kinds of fiscal favours, including the waiver of national insurance contributions, the lure for criminals and money launderers is very much magnified. Obviously, the more processed the illicit product, the harder it is to trace or track and the harder it is for enforcement. Exploring safeguards against illicit behaviour is the motive behind Amendment 1, which I recognise is very much a probing amendment.

I thank the Minister and his office for taking this issue seriously in our meeting last Thursday. It was a very useful meeting, and we appreciate it. The follow-up information provided has alleviated some of my concerns, because, as the email from the Treasury explained, some relevant measures were included in the freeports bidding prospectus, which says:

“the Freeport Governance Body will be required to maintain a record of all the businesses operating or applying to operate within the tax site.”

Up to date information will be held on the “beneficial owner” of each business and the body will be required to make

“reasonable efforts to verify the beneficial owner”.

This information will be made accessible to HMRC, the NCA and Border Force. However, as it stands it will not be available for public scrutiny; the Minister will correct me if I have got this wrong. HMRC will spend little effort looking at what is happening in free ports; by definition, there are no customs, duties or tax requirements. Therefore, the NCA becomes, as it were, the strongman for enforcement in this case. This led me to look at the National Crime Agency inspection report from July 2021. I will quote from the summary—it was a fairly scathing report:

“There is insufficient capacity in the investigations command to meet the demand being developed by the intelligence command and the reactive demand (such as seizures at the border).”


In other words, we have a problem. The National Crime Agency, even without the addition of free ports, is significantly underresourced and needs to upskill, although this is less to do with the capacity of the people; there is also a lack of technical resource. We are turning to that body at the same time as introducing new avenues for money laundering and other illicit behaviours.

This House and this Government have always taken the view that it is the public nature of any register of beneficial ownership that brings the necessary scrutiny and deterrence to make that register effective. The UK already has a public register of the beneficial ownership of UK companies, and the Government have promised a public register of the beneficial owners of UK property. In addition, the Government insist that they have been working very hard to achieve public registers in the overseas territories and Crown dependencies, so it seems really odd to create a new situation here where one of the primary tools will be a register of beneficial ownership that is not being made public. At the very least, this undermines those discussions with the overseas territories and the Crown dependencies.

I would very much like the Government to have a rethink and see whether they can make this information publicly available, at the very least. It would also be really helpful to know whether some additional resource will be put into the National Crime Agency, because without that we will be on a very uncomfortable wicket in this world where money laundering is frankly a growth industry, not a declining one.

[Lord Tunnicliffe (Lab)]

I start by reiterating the Labour Party’s position on the Bill, as originally stated at Second Reading. We have never understood the Government’s fanaticism over free ports and are sceptical that they will deliver the scale of economic benefit promised in recent years. Nevertheless, we do not intend to oppose the various measures, some on free ports and some on other issues, contained in the legislation. The Government will get their Bill through and it will be up to Ministers to prove that their way is the right way. If that proves not to be the case, they must own their failures of judgment.

As a general point, there are several important questions that the Government were unable to answer in the other place or at Second Reading. Today is an opportunity to explore some of those concerns in more detail. It is also a chance for me to record my thanks, along with those of the noble Baroness, Lady Kramer, to the Minister and his officials for their engagement between Second Reading and today. Not all our questions were answered, but I hope they will be addressed as the Minister responds to the nine amendments before us.

Amendment 1, tabled by the noble Baroness, Lady Kramer, has enabled a short debate on beneficial ownership. As she noted in her introduction, we have been waiting for quite some time for the Government to deliver on their numerous promises in this area. I am sure the Minister himself has delivered assurances on at least a few occasions. The case for stronger action has been made time and again. Light is cast on shady practices, yet despite stern warnings from the Chancellor, meaningful action never seems to materialise. I hope colleagues will forgive the slightly dry analogy, but as we are in January it is almost as if the Treasury and BEIS are treating this like a new year’s resolution. It sounds positive, and we are promised that the Government will follow through, but within weeks or months the ambition quietly falls away. Questions about beneficial ownership are not best dealt with in this Bill, but I appreciate the noble Baroness’s efforts to raise them. I doubt the Minister will be able to offer all the assurances that we seek, but I hope he can go some way to proving me wrong.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, this amendment reflects the concerns of the Delegated Powers and Regulatory Reform Committee. I suspect that everyone, including the Minister, is familiar with its comments, and I shall be interested to hear the Minister’s response above and beyond the letter that was sent to us. The position of the DPRRC, which has a great deal of logic, is that the powers conferred by Clause 3(3) are inappropriate. They would enable the Treasury to rewrite the conditions that employers must meet to receive NICs relief.

The Treasury in its memorandum asserted that it had two purposes behind those powers. The first is a potential change in economic circumstances, although that must apply to every Bill that comes through this place. It is impossible to conceive of urgency when it comes to the nature of free-port rules. However, should that urgency arise, Parliament is frankly very good at dealing with urgent legislation, as we have proved over the last couple of years.

The second purpose the Treasury discussed is the need to make the relief compatible with a subsidy control regime that is not yet in place. The committee recognised that concern, as do I, so the amendment allows powers to make changes to achieve that compatibility.

But the powers sought by the Government are actually much wider than either of the purposes mentioned by the Treasury. Indeed, they can be exercised for any purpose. In effect, regulation can almost without limit change the primary legislation that designates the character of free ports. This amendment therefore fundamentally seeks to limit the untrammelled nature of the powers. I say to the Government more broadly that they need to mend their ways, because we constantly see legislation of this kind—Bill after Bill. I am glad that the noble Lord, Lord Tunnicliffe, is also speaking on this amendment because it is clear that the Labour Party would benefit from untrammelled powers should there ever be a change in power. Perhaps it is a salutary thought for the Government that, if they constantly pursue the shift of power to the Government away from Parliament, it will not revert when the day eventually happens and Governments change.

[Lord Tunnicliffe (Lab)]

My Lords, I was pleased to add my name to Amendment 2 and several other amendments to be discussed later today, which aim to implement the recommendations of the Delegated Powers and Regulatory Reform Committee. It goes without saying that the Government and the DPRRC will not always see eye to eye on these matters. However, we have long trusted the committee to take a balanced approach to the scope of ministerial powers, so that the Government can meet their objectives while respecting the vital role of Parliament. I will pick up the noble Baroness’s challenge about the hazy days of summer when we are in power. I am old enough to remember when we were in power, and we almost always implemented the recommendations of the DPRRC or whatever was its equivalent at that time, so I am sure we will receive her approval in how we behave.

The power in Clause 3(3) does not appear to strike the appropriate balance. As the committee notes in its 11th report of the Session, the current draft is significantly broader than required to fulfil the indicative purposes listed in the Treasury’s memorandum. The noble Baroness, Lady Kramer, has adopted the terminology suggested by the DPRRC and we support that. Maybe there is some middle way, which will give the Treasury some but not all of the flexibility that it seeks.

I am grateful to the Minister for sending me a copy of his response to the committee, enabling us to have a more informed debate today than would have otherwise been the case. Sadly, like the noble Baroness, Lady Kramer, I was disappointed by his response, particularly in relation to the power in Clause 3(3). I continue to side with the committee in relation to the non-binding status of the Treasury’s memorandum. While the historic example of the 2014 Act was somewhat interesting, I am not sure that makes the argument persuasive. I hope that he can provide some further detail today, but what we will really need in the run-up to Report is a change in attitude from the Treasury.

It would be better if the department were to think again of its own accord but, if that is not possible, I would not be surprised to see a similar amendment tabled at a later stage of the Bill.

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[Baroness Kramer (LD)]

My Lords, I must apologise—three in a row, here—but this amendment deals with rather a different issue from those which we have so far discussed. Your Lordships will be well aware from Second Reading and other comments that I have made that one of my main concerns about free ports is that they displace growth in businesses, jobs and opportunities from other areas of disadvantage rather than create additional growth. There is a very interesting study by the Centre for Cities, which showed that in the first five years of enterprise zones in the UK—2012 to 2017—only a quarter of the predicted jobs were created but, of those, a third came as the result of displacement, and the jobs were overwhelmingly low skilled. That ran counter to all the expectations, discussion, promises and arguments. Other experience also suggests that SMEs do not benefit: if anything, it is larger companies that benefit, so it is not a pro-SME strategy.

We have plenty of global experience to demonstrate that free ports do not aid economic growth. Very few people would look at existing free ports and argue that they have contributed in any significant way. There is now a different argument about the United States, which has intermediate taxes on processing, an entirely different situation which does not exist in the UK. That is usually the only example anyone can come up with that has any weight behind it, but its circumstances are so utterly different that it does not apply in this case. We have really no evidence that free ports aid economic growth, and neither do we have evidence that enterprise zones create economic growth. In effect, this policy combines the two in one location. That is pretty unlikely to overcome the weaknesses of either. Because of that, I am very concerned that we have a prompt review of the impact of the Bill, because we will have to see whether a course correction is required. That is what the amendment would do in a number of different but, to anyone reading the amendment, obvious ways.

[Lord Tunnicliffe (Lab)]

My Lords, this is a very straightforward amendment, and one which mirrors the Labour Party’s text tabled at this stage in the House of Commons. I shall not detain the Committee with a lengthy contribution, as the case for a review of the NICs relief enabled by Clause 1 has already been well made. We may quibble over the timescale and precise details of any review, but it appears sensible that the Treasury outline whether the realities of this policy live up to the expectations. As stated earlier this afternoon, Ministers must own their decisions. An amendment along these lines would significantly increase the accountability attached to this tax break.

Although I am sure he will argue that such a review does not need statutory underpinning, I hope the Minister will respond positively to the proposal. A concrete commitment to a review along these lines would be of great comfort. Others, including the National Audit Office, will no doubt analyse the performance of free ports in the months and years to come but, in the interim, it would be a shame if the Treasury were not open about the successes or otherwise of its measures.

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[Lord Tunnicliffe (Lab)]

This new NICs relief will be hugely beneficial for veterans in the first group, but I fear that it does nothing for the second. Indeed, I worry that, if you are an individual who cannot get up to speed with civilian life within 12 months, there is the chance that you will be left behind as firms seek the savings of hiring somebody from the next batch of new veterans.

I have always been concerned about the covenant. I feel that I have been representing the Labour Party on defence ever since it was first mooted. I have always been deeply suspicious that it is all about words and very little about resources. However, the forces’ charities, particularly the Royal British Legion, have argued that it is a force for good. Here, we have something real; we have real resources being devoted to the covenant to make it work. The Government clearly believe that it will make a difference. Clearly they have accepted the principle. All we are debating is the price.

It seems to me that three years would be fairer. It is difficult to see why a very generous three years will be there for free ports, whereas people who have laid their lives on the line for their country will have to manage with one year. It would be better for society as a whole. Unfortunately, too many veterans do not fit into society very well. They become if not a drag on society then nothing like the contribution that they could make. Time is required to make a difference. I know and meet some of these individuals. I suppose I tend to meet the ones that have successfully merged into civilian life. They talk about how difficult it is at first and how surprisingly long it takes them to settle down and into jobs that are productive for society and good for themselves as individuals. The extension to three years will be especially useful for what I loosely call “difficult cases”.

I am very committed to this and will undoubtedly come back on Report if no progress is made in any discussions that we might have in the meantime. All that is clear to me at this stage is that the scheme, although a step in the right direction for veteran support, is also a missed opportunity. Let us seize the opportunity and do better. I beg to move.

[Baroness Kramer (LD)]

My Lords, my comments will be brief, but I hope the Minister will not read that as meaning that I lack an interest in this. I am passionately supportive of this amendment and thank the noble Lord, Lord Tunnicliffe, for bringing it forward.

We all know that military veterans have a wide range of skills to offer civilian employers, especially SMEs, but we also know that quite a few—although far from all—veterans need support to make the adjustment to the civilian workforce, whether that be in updating skills or dealing with the adjustment back to civilian life or with service-related trauma. I have always looked at the zero rating that the Government propose not as a saving for the company as an incentive to employ the veteran but as a means to enable that company to provide the necessary support—the upskilling and the more social forms of support—to enable the veteran much more quickly to belong and be part of the company that he or she has joined, and to be successful in that role. For that reason, three years seems eminently sensible. The idea that it is a virtually instant process for someone to make that transition from military to civilian life is, I think, artificial.

If I understood it correctly from some of our off-piste discussions, the cost of providing support is in the range of £20 million a year. That is trivial in terms of any departmental budget. To, in effect, triple that, which is what this proposal is doing by calling for three years, does not seem an unreasonable ask—nor does the amount of money involved. It will disappear somewhere to the right of the decimal point in the Treasury accounts. I hope the Minister will take this opportunity to rethink. It would look well for the Government to take a more generous approach, and it would also underpin the success of what is, I think, a good strategy.

[Viscount Younger of Leckie (Con)]

My Lords, Amendment 4, tabled by the noble Lord, Lord Tunnicliffe, and supported by the noble Baroness, Lady Kramer, seeks to extend the veterans relief from one to three years, as has been pointed out.

Stable and fulfilling employment is a vital part of a successful transition from the Armed Forces to civilian life. The Government provide an effective career transition package to service personnel leaving the Armed Forces, which, the latest figures indicate, supports 84% into employment. The training, experience and resources available to service personnel ensure that veterans have a valuable skill set to offer employers, as the noble Lord, Lord Tunnicliffe, described so eloquently. However, 7% of veterans using this service remain unemployed up to a year after leaving the Armed Forces.

The noble Lord and the noble Baroness both put it well. To an extent, their thoughts chime with mine. This relief has been introduced to support veterans as they transition into civilian life and to encourage employers to utilise the vast skill sets of veterans. Between 10,000 and 15,000 people leave the Regular Armed Forces each year; their employers will be able to benefit, in the 2021-22 tax year, from up to £5,500 worth of relief.

This measure fulfils the Government’s 2019 manifesto commitment and builds on the UK-wide Strategy for our Veterans, launched in November 2018, which includes specific commitments to support veterans to “enter appropriate employment”. The Government have also established an Office for Veterans’ Affairs and have launched initiatives including the Civil Service’s guaranteed interview scheme for veterans. In March 2021, the Government also announced the Op COURAGE service, creating a single point for veterans to access mental health services, and NHS England published Healthcare for the Armed Forces Community: A Forward View, which included commitments to help the transition to civilian life and to improve veterans’ and their families’ mental health.

Although the free port relief is available for three years, as is well known, employers of veterans have a higher threshold before they pay any NICs. These reliefs have been designed in this way because they serve fundamentally different purposes. The free port relief is part of the Government’s levelling-up agenda and is aimed at incentivising long-term investment and employment growth. By contrast, the veterans relief is aimed at reducing the barriers to employment that some veterans face when they leave the forces to transition into civilian life. Therefore, it provides a relief for a shorter duration but at a higher threshold, providing employers up to £5,500 in savings per veteran they employ, as was mentioned earlier.

The Government consulted extensively on the relief, including a policy consultation which ran from July to October 2020 and a technical consultation which ran from January to March 2021. A significant number of respondents agreed that this relief was a positive step towards supporting the recruitment of veterans and could break down the barriers and negative perceptions surrounding veterans. The cost savings were also welcomed by stakeholders, with the Federation of Small Businesses and X-Forces Enterprise jointly welcoming the announcement.

If such an amendment were passed by this House, it would reduce receipts into the National Insurance Fund and therefore create a cost to the Exchequer. Financial matters are normally the responsibility of the other place, as both the noble Lord and the noble Baroness will know. With those reassurances and broader explanation of why we see one year as appropriate as opposed to three years, I hope that he will withdraw his amendment.

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[Baroness Kramer (LD)]

My Lords, I will be quite quick. The noble Lord, Lord Davies, does himself a disservice; this is a very important issue. I certainly missed it, and I think only someone with his expertise and acuity would have picked up this very fundamental point of principle. The National Insurance Fund and its Northern Ireland equivalent are used to pay social security benefits, as the noble Lord said, including the state pension. Messing with the state pension certainly reverberates with the general public. Without the change proposed by the noble Lord, Lord Davies, these funds are in effect being raided by the Government to pay for economic growth subsidies. Is that now their purpose?

The Government may argue that their new national insurance contribution social care levy, to be used for the NHS and perhaps eventually for social care—many of us doubt we will ever get there—sets the precedent for raiding the fund. We come back to the word “precedent” yet again. I doubt that this has been declared openly to the British people. It matters not just because of the promises inherent in the fund and its role but because NICs fall on workers earning well below the tax threshold. To raid their contributions—which they will have thought are paid towards benefits and pensions—to provide a subsidy for businesses is certainly a fundamental change of purpose.

I hope we can have some explanation from the Minister, because this seems to me a point of principle. With precedent established, I very much question where this whole track will take us. I again thank the noble Lord, Lord Davies, for raising a very fundamental point of principle which needs to be answered and dealt with openly.

[Lord Tunnicliffe (Lab)]

My Lords, I will not make much of a speech because it would dilute the excellence of the points made in the debate so far. It seems that we are on an edge here; if we do not do something about this, we will throw away these terms. They will become meaningless unless we preserve them.

There is a big debate about what I loosely call hypothecation, and so on; sometimes we wander into it and sometimes we do not. However, if you are going to wander into this area, you should keep it clean. The use of this fund in this way pollutes the concept and is a retrograde step. I hope that the Government will think twice about it. We do not object to what is being done in the Bill but, somehow or other, a device needs to be found to keep these terms clean. I support the amendment.

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[Baroness Kramer (LD)]

I thank the noble Lords, Lord Davies and Lord Tunnicliffe, for a little relief from leading off. I shall be very brief. Amendments 6, 8 and 9 again revert to the recommendations of the DPRRC.

I start, briefly, with Amendment 6. I really do not understand the Government’s argument that they should be able to create new self-isolation support schemes and make them exempt from NICs without even alerting Parliament, never mind providing any public notice or any means of scrutiny. That is the problem that Amendment 6 seeks to tackle.

The Treasury’s view, as I understand it as written in the legislation, is that it can create as many schemes as it likes without a statutory instrument, provided that, in its view, they are “similar” to the schemes listed in the Bill. I deal on such a frequent basis with the Treasury, and the Treasury’s view of “similar” is, frankly, as long as a piece of string.

This turns into yet another precedent for being able to create all kinds of schemes, with just some sort of underpinning or general linking theme, without any scrutiny. All that the DPRRC asks is that these powers should be subject to a negative resolution. At least then there would be something that the public can look at and some element of scrutiny. That is not a big ask and one that the Government should be prepared to provide.

Amendments 8 and 9 are rather different, in that they would require affirmative rather than negative resolution for all of Clause 3, not just Clause 3(3), all dealing with free ports, and Clause 6, which deals with NICs relief for veterans. I cannot understand the Government’s position that the Henry VIII powers they seek are, again, trivial; I am entirely with the DPRRC on this. The various subsections in Clause 3 enable free ports to be extended to 2031 and widely change the conditions to be met. Surely that needs affirmative resolution. Similarly, in a strange way, Clause 6 sets no limit on the number of years that can be added to the veterans scheme and how often. Again, surely that is sufficiently significant, as the committee said. With the free ports issue, I would say that in some cases it is even controversial. I am very grateful to the DPRRC for its vigilance, and the arguments for Amendments 8 and 9 is that the provisions are of a standing that meets the test for an affirmative rather than a negative resolution.

[Lord Tunnicliffe (Lab)]

My Lords, once again, I welcome the various amendments tabled by the noble Baroness, Lady Kramer. I am pleased to support them and remain disappointed that the Government are refusing to accept any of the DPRRC’s modest suggestions. As with the previous amendment on this topic, we will hear the Government’s defence arguments for these additional delegated powers. The Minister suggests that, in relation to Clauses 3(1) and 6(6), considering the extension of NICs relief beyond the original end dates is somehow not a worthwhile use of parliamentary time. I am not sure why the Minister feels able to speak on behalf of Parliament in this matter. I can assure him that I would find a debate on the opportunity cost of extending NICs reliefs for free ports far more worthy of debate than some of the very narrow debates we hold on Treasury instruments subject to the affirmative procedure. He may counter that I and the noble Baroness, Lady Kramer, would be welcome to table regret Motions, but this ignores the principle that Parliament should be afforded a proper scrutiny role when it comes to the use of public finances. I will not go through each of the other justifications in the Minister’s letter to the chair of the committee, but suffice it to say that I am yet to be dissuaded from backing the committee’s recommendations.

Financial Services Bill

Debate between Lord Tunnicliffe and Baroness Kramer

Consideration of Commons amendments
Wednesday 28th April 2021 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I will be brief. My noble friend Lord Sharkey comprehensively answered the points raised by the Economic Secretary on Monday and by the noble Earl, Lord Howe, today in rejecting this amendment. I should point out that if the Government thought that the amendment was not quite correctly finessed, they could easily have brought in an amendment in lieu that would have achieved relief for mortgage prisoners, and they have chosen not to do so.

The nub of the problem is straightforward. Would the financial experience of a mortgage holder be the same if his or her mortgage had been sold by the Government to an active, rather than an inactive, lender? Even the Government do not deny that the answer to that is no. The difference in experience between those whose mortgages were held by active lenders, compared with those whose mortgages were sold to inactive lenders, has been markedly different. Those whose mortgages were held by active lenders that did not collapse in the 2008-09 crash have been able to take advantage of the fact that rates have fallen very sharply and have been offered a whole variety of new and different deals, as part of the normal practice of banks in dealing with their mortgage opportunities and portfolios. Those who ended up in the hands of inactive lenders have faced between limited options and none, and have been unable to take advantage of interest rates falling exceedingly sharply.

That is the only issue at play here. To compare those mortgage prisoners to people today seeking a mortgage is to look at an entirely false set of circumstances. I am concerned that the Government are choosing not to rectify the situation. It was the Government who chose to sell those mortgage assets to inactive lenders. They did so in good faith and without any expectation that the mortgage holders would end up in a different position from their peers who had taken out mortgages with institutions that did not fail. I understand that that was not an intentional process, but, regardless, the Government remain responsible for their decisions when they sold off those assets.

People are genuinely suffering and I ask the Government that the very small measure that my noble friend Lord Sharkey begged for at the end of his speech—that those individuals could at the very least be protected from foreclosures as we exit from Covid and the rules change on repossessions—could be put in place. The Government would then have an opportunity to justify the arguments made in both Houses that they are genuinely trying to find a solution to the problems and devastation that so many individuals face.

[Lord Tunnicliffe (Lab) [V]]

My Lords, we have not made as much progress on this issue as many people, including thousands across the country, would have hoped. That is not through any lack of effort. The noble Lord, Lord Sharkey, and my noble friend Lord Stevenson have been tenacious in their pursuit of change. However, for that to be possible, both sides must want to work towards a favourable outcome.

I said on Report that we were not convinced that this amendment provided the answer to the long-running problems experienced by mortgage prisoners. It certainly provides an answer, but I accept the argument that there would be consequences for the mortgage market as a whole. With this in mind, colleagues offered an alternative option in what was then Amendment 37B. Your Lordships’ House has a reputation for being constructive and, in that spirit, the noble Lord, Lord Sharkey, and my noble friend made further offers to look at any text that the Treasury would be prepared to bring forward. Unfortunately, Ministers chose not to put an amendment on the table.

The Economic Secretary has, to his credit, demonstrated knowledge of the challenges in this area. Every time he has spoken, I have believed his wish to identify workable solutions. The noble Earl, Lord Howe, and the noble Lord, Lord True, have said similar things in our meetings; again, I have viewed their comments as earnest. The problem is that warm words do not pay bills—nor do they generally lead to lenders taking the kind of steps that are required. The initiatives launched to date have helped only a tiny fraction of mortgage prisoners, so one would have thought that the case for further action was overwhelming.

We wanted—and continue to need—the Government to take proper ownership of this issue. We welcome the fact that the FCA will conduct a further review of the options available to mortgage prisoners and that the Treasury will revisit its data on the different cohorts of affected customers. As well as following these processes closely, we will of course continue to press the Economic Secretary to do what is needed.

It is regrettable that we have not been able to achieve a satisfactory outcome on this legislation, which should have been more than another false dawn. However, Conservative MPs have rejected the case for action, and it is hard to imagine meaningful progress being made unless Ministers revise their red lines. Accordingly, we do not believe we should press this matter any further today and look to the noble Lord, Lord Sharkey, to withdraw his amendment. However, I can assure the Minister that we will return to this issue at the next legislative opportunity.

Financial Services Bill

Debate between Lord Tunnicliffe and Baroness Kramer

3rd reading & Report stage
Monday 19th April 2021 Lords Chamber

[Baroness Kramer (LD)]

My Lords, the amendments in this group all deal in one way or another with the digital world and its implications for financial services. We all understand that we are in the midst of a revolution which will gather pace, rapidly expand, and reshape how we lead our lives. It is important that the UK is at the front of the curve in delivering those changes, to underpin its financial services industry. I was very pleased to see that the Bank of England and the Treasury have just announced the creation of a joint task force on central bank digital currency, a potential linchpin to those changes.

These amendments are all extremely useful. On digital identity, the noble Lord, Lord Holmes, hit the nail on the head, when he talked about the importance of engagement with the public. There are a lot of issues around identity, including issues of privacy. It is not an easy issue but a complex one. I hope that this engagement is dealt with more broadly. It may well be that the kind of targeted examples that the noble Baroness, Lady Neville-Rolfe, is concerned to see delivered much more quickly are easier to deal with, but of course, they will always lead to further questions, and this is something that we must confront head on.

We will be discussing access to cash in another group, as the noble Lord, Lord Holmes, has a specific amendment related to that, but it also points out how when we go through revolutionary change, there are always people who will be part of the “left behind”, either by choice or by capacity. Those people have every right to be able to pay a full part in our society and in our communities. Finding those mechanisms may be expensive, since it is much more efficient to go with a single strategy, but we must recognise the full complexity of the societies in which we live, the different pace at which people accept change and the degree to which they need support through that change.

I very much hope that we see something strategic coming from the Government, because we are dealing with each issue in a rather piecemeal way. We have reached the point where we need that fundamental underpinning, and I hope that we can begin to develop that strategic view, and quickly.

[Lord Tunnicliffe (Lab) [V]]

My Lords, we welcome the amendments tabled by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Holmes of Richmond, on digital ID and other, broader, fintech issues. They provide the Government with an opportunity to elaborate on the responses given in Committee. I hope that those who tabled the amendments will forgive me for not speaking to each in turn, but to do so would be to repeat many of the points already made.

While we would not necessarily endorse some of the timescales envisaged in the amendments, the questions asked by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Holmes, are sensible. In commissioning a review of fintech, the Government have demonstrated a level of interest in it, but the key question is how that is developed into concrete initiatives that grow the financial services sector while also improving the customer experience. The use of distributed digital identification could bring about a fundamental shift in how individuals and financial service businesses operate and interact on a day-to-day basis.

Properly considered implementation of digital ID could empower consumers by giving them greater choice in the services that they can access and better control over their personal data. The latter point is crucial. Any steps to further digitise the sector must come with security and privacy safeguards built in. It may not be possible or desirable to roll out digital ID overnight, but it would be interesting to hear more on the steps being taken by the Treasury and others to assess the opportunities and risks that exist. I hope that the Minister can also speak to potential timescales, even if they are not as ambitious as those spelled out in the amendments.

Amendment 37E in the name of the noble Lord, Lord Holmes of Richmond, appears to be a probing amendment, but I hope the Government will take seriously his suggestion of studying the links between digital and financial exclusion. In an earlier debate I referred to the need to tackle some of the bigger, more complex issues that contribute to financial exclusion. Without concerted effort now, one can envisage a scenario in which certain sections of the population already susceptible to financial exclusion will be unable to avail themselves of the products and services facilitated by new technologies.

We are at an interesting point in the fintech debate following publication of the Kalifa review. Items such as digital ID are mentioned in that document, albeit in the context of the need to establish international codes and standards. The UK has long been a leader in this sector. If we are to continue being so, both government and business must seek to participate fully in relevant cross-border discussions and initiatives.

I note from my latest perusal of the House of Lords business that the ever-tenacious noble Lord, Lord Holmes, has secured an Oral Question on 27 April regarding the Government’s response to the Kalifa review’s recommendations. I hope the Minister can provide sufficient reassurance that the Treasury recognises and wishes to harness the potential of fintech, but I am sure that any gaps in the response today will be revisited in just under two weeks.

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[Baroness Kramer (LD)]

My Lords, unfortunately, I did not bring with me a copy of the letter that the noble Earl, Lord Howe, kindly sent me in response to my question about the Ministerial Code. I expect that a copy is in the Library and available to everyone, but I am sure that the Minister will follow through. While reading the content was reassuring, I do not want it to be a distraction—it is one of the reasons that I have not signed this amendment—from the underlying issue of whether there is adequate transparency to act as the cleansing light that we need in an industry sector that will always be subject to misbehaviour. There is just too much money and opportunity, and an awful lot of power, washing through this industry. Insight, clarity and visibility are probably more important than in almost any other sector of our economy.

The noble Baroness, Lady Neville-Rolfe, talked as if all the misbehaviour was in the past, but we are talking about Greensill today and I have questions. I know that there are many task forces and investigations going on, but I still have no understanding of how a company with as many red flags against it as Greensill got through the accreditation process to enable it to participate in the CBILS. Other than writing to the British Business Bank—and I doubt that I will get an adequate answer—I am not sure what mechanism I can possibly use to get to the bottom of that. We do not have transparency in the areas where we need it.

I remember many conversations, in the midst of the 2008 financial crisis and subsequently, with regulators that were anxious not to rock the boat. The economy and industry were fragile enough, and they were disinclined to investigate. It is to that which I have always attributed the FCA’s inaction with regard to HBOS. I support the description of the HBOS crisis given by the noble Lord, Lord Sikka. It was purely by chance that the fraud—it was literally fraud that sent people to jail for 10 years—at HBOS was exposed. Thames Valley Police decided to investigate when all the regulators, the Serious Fraud Office and the most relevant and obvious police forces had refused. Part of that was due to a lack of resources, from the police forces’ perspective.

I do not think I have ever forgiven the Treasury for its actions in this regard. It cost £7 million for Thames Valley Police to investigate that fraud and it was never reimbursed that money. The fine, of about £45 million, went to the Treasury and was deliberately not shared with the police force. Had it been, it would have encouraged and enabled police forces around the country to be more acutely aware and engaged when there was evidence of fraudulent behaviour. Even today, the various companies that were defrauded have not yet been fully compensated. Nearly 14 years on, it has not been resolved. We have two more bodies now involved in trying to clean up that mess.

The other area that leaves me with great concern is that the response I always get when I raise issues around transparency and enforcement in financial services is: “We now have the senior managers regime.” I was on the Parliamentary Commission on Banking Standards, which drove a lot of the thinking that led to that regime, but, as we have often discussed in this House, it has been holed below the waterline by decisions of the FCA not to pursue senior executives. We know mostly about Barclays and Jes Staley—who had hired private investigators to track down a whistleblower—being fined but not declared unfit to hold his position. The fine was of a size that was more than made up by the bonuses he received in the following years, so it was pointless.

We have an underlying problem. It is not that the senior managers regime does not do some good—it establishes some procedures and processes—but it focuses on more junior people and does not hold people accountable at the senior level. With Greensill coming into the picture now and triggering a much wider discussion, I very much hope that the Government will take back the message that they have to sit the regulators and the various enforcement bodies down, and work out a way to make this system more effective. They are up against powerful forces and there is inequality of arms, but this industry has to be kept under oversight and control because, when it goes wrong, it takes a large part of our economy with it, as well as creating many individual victims.

[Lord Tunnicliffe (Lab) [V]]

My Lords, my noble friend Lord Sikka facilitated perhaps one of the most interesting debates in Grand Committee. The amendments raised several important questions about the independence of the FCA, as well as the nature and success, or otherwise, of its past investigations. My noble friend was not happy with the response provided by the Minister last time; nevertheless, I felt that we had a helpful initial response in Committee, with references to legislation that requires FCA action in certain circumstances and allows a Minister to initiate an investigation in others. The response was perhaps a little light on the limits of ministerial power; recent times have shown that the Ministerial Code is not always considered binding. I hope that we will hear more on this later.

Some of the concerns that my noble friends cited related to events preceding the financial crisis, and I wonder whether this is an area where Ministers can go further today. For example, the noble Earl mentioned Section 73 of the Financial Services Act 2012, which imposes a duty on the FCA to investigate in the event of certain regulatory failures. As the measure was introduced after the global crash, it is clearly of no use in shedding light on events that took place before it. However, is he confident that, if some of the instances cited by my noble friend were to happen today, the current legal provisions would be sufficient to trigger an independent investigation?

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[Baroness Kramer (LD)]

I suspect that the noble Viscount, Lord Trenchard, was referring to the loss of the noble Lord, Lord Judd, which was just announced, rather than the noble Lord, Lord Dubs. I join with him; I am still feeling slightly in shock, frankly, at the news. We have all lost too many people of significance to this House over this last year. I think we all want to pay tribute to all of them, but we are all struggling a little with some of the very significant people who will not be here for future debates.

On this amendment, I will speak briefly. I understand where some of the thinking of the noble Lord, Lord Sikka, is coming from, but I cannot say that I see a supervisory board as the answer to the issue he raises. I am much more taken with the proposal made by my noble friend Lady Bowles in Committee, for an expert body—it takes experts to really understand how the regulator functions—regularly to follow the Australian model and review the regulators. This could be every three years; the number of years is not exactly the key issue. It would not second-guess the decisions the regulators have made but look at operations, resources and effectiveness. With the regulator now so detached in many ways, that is essential.

I would want the Treasury to be a good distance from anything like this because, like it or not, the Treasury will always be seen as an influencer of decision-making. An expert view is needed to help us ensure that our regulators are functioning in the way that they need to, given the enormous challenges and responsibilities that they have. With that, I have to say that I cannot support this amendment.

[Lord Tunnicliffe (Lab) [V]]

My Lords, I am grateful to my noble friend Lord Sikka for bringing back this amendment. In Grand Committee, it was discussed in the context of our wider debates on parliamentary scrutiny and the financial services regulators. My noble friend was not content with this, and while I believe that there is a degree of overlap, I accept the point that his amendment focuses on detailed day-to-day oversights rather than taking what some might call a “helicopter view”.

In his previous response, the Minister indicated that supervisory bodies are not necessary because of the various panels that must be consulted by the PRA and the FCA as they fulfil their duties. However, while these panels undertake valuable work, the extent to which the regulators take their views on board is unclear; for example, I sense that the FCA’s consumer panel would take a very different view on the duty-of-care amendment passed on day 1 from the positions taken by both the Treasury and the FCA.

The Minister also pointed to the future regulatory framework review as the correct vehicle for taking this issue forward. I have some sympathy with that view: I will be very surprised if the review endorses the status quo. If it does, we have had assurances that there will be further primary legislation and that means further opportunities for my noble friend to pursue this initiative.

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[Baroness Kramer (LD)]

My Lords, I think we may end up coming to something like a UK Finance Watch, but I hope not, because I hope Parliament will step up to the plate. The kind of issues described here ought to be part of parliamentary accountability, but that will take support from significant expertise that I do not think currently exists for many of the committees we operate. This is such an important industry; it is so huge, complex and powerful. That specialist knowledge will be necessary.

I was on the Parliamentary Commission on Banking Standards, and it is fair to say that the noble Lord, Lord Tyrie, then in the Commons and chair of that commission, had to beg and borrow to find the staff we needed to support that commission. It was scratched together probably with the minimum number of staff with which it could have operated. We were so lucky; we had brilliant people totally dedicated and working the most ridiculous hours. That commission was a good demonstration of how we often underresource around critical issues. That is going to have to be remedied.

I hope Parliament, as it works out how it is going to manage this process of accountability, will take all that on board, so we will come back and look at this amendment for UK Finance Watch and see that a lot of what it proposes has been ticked off as “satisfactory,” because it has been embedded in the support and expertise that will be provided to Parliament. But anyone who thinks that two meetings a year with the Treasury Select Committee, and ad-hoc meetings on whatever happens to be the issue of the day, is anything close to satisfactory, and anyone who thinks that the annual report—never one of the most informative documents from any organisation—is accountability, completely misunderstands the animal with which we are now dealing.

I hope we will not have to go back and resort to an equivalent to the EU Finance Watch body. We may have to, but I would almost regard that as a mark of failure by this House and the other place. Our committees that look at these issues are going to need to be resourced and provided with the real expertise that they need to deal with both the quantity and the quality of the investigation and challenge that they will have to undertake.

[Lord Tunnicliffe (Lab) [V]]

My Lords, the noble Baroness, Lady Bennett, gave us fair warning that she was likely to bring an amendment back on Report for further debate, which is reasonable given the time constraint we faced in Grand Committee. As with the amendment of the noble Lord, Lord Sikka, we agree that implementing the right forms of oversight is of utmost importance. In Committee, several speakers mentioned the potentially valuable contributions to policy debates that could come from academics, think tanks and others, if they only had access to the data they needed. We agree that more must be done to facilitate such research, and I hope the Minister will say something on this.

The noble Baroness’s redrafting of her amendment addresses some of the points raised in the previous debate. However, her original pitch was for

“a network, not reinventing the wheel, not creating a whole new institution.”—[Official Report, 10/3/21; col. GC 735.]

Yet Amendment 124 from Committee and today’s Amendment 36 would create a whole new institution. I believe that the comments from the noble Baroness, Lady Kramer, bear consideration. Surely the first thing we should do is to make sure that this role is fully taken up by Parliament. We have already established, informally at least, that much more scrutiny of how the FCA and the PRA work will be necessary, and I look forward to how well Parliament reacts to this challenge. It is also important to recognise that resources may be needed to give parliamentary scrutiny the expertise necessary in this complex area.

One area that interests me is the impact of the financial services sector on the real economy. We are all familiar with the arguments advanced by the Minister last time on jobs, tax take and so on, and colleagues will remember that I reflected on the successes of the sector at Second Reading. However, as the UK comes out of the pandemic and as government support schemes begin to disappear, we will need to monitor the extent to which lenders continue to support business expansion and other aspects of the economy. This brings us back to the point about ensuring the availability of data.

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[Lord Tunnicliffe (Lab) [V]]

My Lords, this is a very significant Bill. At the point of discontinuity between the days of EU involvement and control to the new world after leaving the EU, the depth of involvement that we have had with both other parties and the Government has been significant. We have had conversations on the Floor of the House and in other meetings, and we have all at least understood one another. We have gone some way to address the central point of the Bill, which is how to scrutinise the regulators while, at the same time, leaving them independent and effective. We will see whether the compromises that have been agreed work, over the next several months, in both the day-to-day examination of the regulators’ output and the development of subsequent law.

I thank the noble Earl, Lord Howe, the noble Lord, Lord True, the noble Baroness, Lady Penn, and their teams, for all their efforts. The leader of the Labour side in this debate was of course my noble friend Lord Eatwell who, unfortunately, was not able to be with us today, but he asked me to read the following statement. These are his words, not mine.

“Standing at the Dispatch Box for the Opposition, I have always believed that my job is to oppose; to expose the flaws in the Government’s erroneous and sloppy thinking. It has, however, been a very new experience working on this Bill with the noble Earl, Lord Howe. It was evident from the start that his objective was to achieve something useful—a constructive experience that I value and for which I am grateful.”

I was less surprised than my noble friend Lord Eatwell, because I have been on the opposite side of this Chamber from the noble Earl, Lord Howe, for many years, and have always found him very committed to finding a consensus way forward, where possible.

I thank my researcher, assistant and speechwriter, Dan Stevens, for all his work, because I would not have survived without it. Finally, I thank the House for its tributes to Frank Judd. He was a wonderful person and he carried on being a wonderful person right to the end. He was voting last week—the right way, of course. I was also his whip, but it really felt the other way round, because he was always so supportive. I have lost not only a member of my team but a very good friend, who has always supported me and been helpful. I thank the House once again for its tributes.

[Baroness Kramer (LD)]

My Lords, once again I thank Lord Judd, because he contributed to this Bill, so it is entirely appropriate to reference him, as we close and the Bill passes. This was originally presented as a “limited, technical Bill”. Whoever thought up that phrase is probably now assigned to writing detailed amendments on obscure financial practice, because it has been anything but.

From my perspective, we had three major areas to tackle in this Bill. We have talked about the constitutional issues of regulator accountability to Parliament, which are overwhelmingly important to this House and the other place. We have also dealt with extensive legislation that impacts ordinary consumers. One can never overstate the importance of dealing with issues such as debt, mortgage prisoners, sharia finance, access to cash or financial exclusion. They are crucial to the people of this country and to everyday lives, so I am very glad that they formed a major part of this Bill. Thanks to the noble Lord, Lord Holmes, we have had some particular success—and perhaps will have more success with the amendments that we passed.

We also dealt with the environment and made some real progress in that area. I regret that by one vote only—because it was a tie—we did not get our capital adequacy amendment through but I think the House will, at some point in time, be back discussing that issue. I also suspect that, at some point, the PRA will announce the changes to capital adequacy ratios that reflect the underlying stranded assets associated with fossil fuels in various forms. That, too, I see as a work in progress but it was an important discussion and put down some very significant markers.

I want to thank the Public Bill Office. I cannot remember a piece of legislation where so many amendments appeared in each round, both in Grand Committee and on Report. Its work in turning around those amendments to ensure they were in an appropriate form was very much appreciated.

I join in thanking the noble Earl, Lord Howe, the noble Baroness, Lady Penn, and the noble Lord, Lord True. I say to all three of them that we appreciate that they listened to what we had to say and, whether they agreed or disagreed, always responded to us with respect and looked for common ground. Frankly, I regard the noble Earl, Lord Howe, as the Conservative Government’s secret weapon because he certainly brings us to a common point that finds a way through when relatively few other people could.

I really want to thank others for the co-operative working across the House. We have worked closely with all those on the Labour Benches, but it has been with the Conservative Benches as well. It really shows this House at its best when it deals with issues of fundamental importance.

On my own team, Sarah Pughe in the Whips’ Office kept us co-ordinated; she also kept us informed, which was quite some challenge. My noble friends Lord Bruce, Lady Sheehan and Lady Tyler stepped in to contribute some special knowledge. I thank in particular my noble friends Lady Bowles, Lord Sharkey and Lord Oates, each of whom took on one of those three areas that I categorised as crucial in this Bill and brought to them absolutely exceptional levels of expertise, real dedication and hard work. They supported their positions with extraordinary diligence. Sometimes when people come with not only expertise but passion and concern, they can make an effective difference in the way they communicate with the House. I have to say to those three how much I appreciated them.

My noble friends Lady Bowles and Lord Sharkey are off at the Industry and Regulators Select Committee. I understand that the noble Lords, Lord Eatwell and Lord Blackwell, are there. I am sure they are missing the noble Baroness, Lady Noakes, today but I hope she will make that up at the next meeting and ensure that her imprint is on the work of that committee.

This has been a real pleasure. I believe we have achieved something. It is not all I would have wanted but, as I say, this is only the beginning of a long process.

Financial Services Bill

Debate between Lord Tunnicliffe and Baroness Kramer

Report stage
Wednesday 14th April 2021 Lords Chamber

[Baroness Kramer (LD)]

My Lords, the two amendments in this group are significantly different from each other, so I am afraid that I will have to address each one separately, starting with government Amendment 14. We obviously support this step, but some comments need to be made. First, the very fact that legislation has to be passed for these financial transactions to be captured by the regulator demonstrates some of the flaws in the whole approach of using a regulatory perimeter as the mechanism for deciding which activities are regulated or not.

The buy now, pay later industry has been growing at an astonishing rate over the last several years. The largest player is Klarna, which I think was valued in its last funding round at $31 billion—three times its value six months earlier. That gives noble Lords the idea of the pace. Anybody who wants to look up buy now, pay later on the internet will find company after company. This issue has galloped away without the regulator becoming involved. It suggests to the Government that some real rethinking needs to happen, given the pace of innovation that we now see generally in finance.

Secondly, I was concerned by some of the language the Minister used when talking about this as a relatively low risk and rather benign form of financing. There is no free lunch. There is no such thing as a delayed payment that does not have an interest cost embedded in it. I understand that with buy now, pay later, it is the retailer that pays fees to the intermediary providing the advance payment. Those costs then fall on everybody buying products from that particular company. We get to the point where you are a fool if you pay up front, because within the cost of the product is embedded an element of financing that is falling on you. If you are a bit like me, you see the price and you pay it, but I know that I am paying more than I should because I am picking up the cost of financing that has been given to other people using the buy now, pay later product. There certainly is cost embedded in all of this; it is not a free lunch.

Martin Lewis gave evidence to MPs in December, pointing out that this is a product very much targeted at the under-30s, although I know that Klarna disputes this. It is having the impact of getting them into debt. Again, I looked to a quote from Jane Clack, a money adviser at the debt advice firm PayPlan. She was talking about what had happened over the two-year period. She said:

“This form of introduction to credit … supports the ‘I want it now’ purchases of items people may not be able to afford. We have seen a worrying increase in the number of young people contacting us for free debt advice. It now makes up more than a fifth of our total client base.”


This is a mechanism that is getting a lot of young people into overpurchasing and consequently into debt. Indeed, the advertising on websites directed at retailers, encouraging them to sign up to buy now, pay later firms, tells them that the average spend will go up by 20% if they sign up to a buy now, pay later scheme because individuals feel, “My goodness, if that’s all it costs I can spend even more.” Noble Lords can see the pattern that is developing. Frankly, there is a lot of risk associated with all this, and I hope it is with that perspective that the whole consultation will go forward and regulation will be structured.

I say this because we went through the same process in this House of saying “it is largely benign” when we looked at payday lending. That was the argument made by the regulator. If this House remembers, the regulator had the power to take action in a serious way against abusive payday lenders. It showed a light touch because it saw payday lending as relatively benign. It was only when this House forced the regulator’s hand by passing regulation that required it to start using interest rate caps that that industry was brought under control. Indeed, most of the players instantly disappeared, because without the abusive part of their activities the other part could not be sustained. This issue should be taken very seriously by the regulator, which should not get caught up in the idea that this is low risk or in some way benign. I am always troubled when I hear that something is interest free. No, it is not; the interest is differently packaged.

On Amendment 35, I continue with apologies from my noble friend Lady Tyler, who is the former chair of the Lords Select Committee on Financial Exclusion. As the Deputy Speaker said, she is speaking in Grand Committee and has had to scratch here. She very much appreciates the spirit of the amendment of the noble Lord, Lord Holmes, but I will quote a sentence from the speech she wrote that I think captures the fundamental issue: “What is still missing is an overarching strategy and responsibility across government, regulators and industry proactively to promote financial inclusion.” In a way, that is the issue that the noble Lord, Lord Holmes, is picking up and addressing and that I hear echoed in the words my noble friend would have used.

The noble Baroness, Lady Noakes, made the case that the Bank of England is really not the place to have a basic bank account, and I want to pick up on this important issue. The current high street banks that provide basic bank accounts do so, as the noble Baroness said, reluctantly. It does not make any sense in the context of their business plan, their overheads or the clientele that they want to build.

There is an important strategy that could be addressed, certainly by the PRA, along the lines of, “As a condition of your banking licence, perhaps you don’t have to provide a basic bank account, but you do need to support the civil society groups that can service this excluded community”—because that is a community that often needs a detailed helping hand. That is one of the reasons why opening a basic bank account at the Bank of England would not get people in that community very far. Typically, they are people who need particular services and particular kinds of support to become financially included, and to get the advantages that come with being financially included in our modern society.

That takes me to the issue raised by the noble Baroness, Lady Neville-Rolfe; it is a canard that needs to be captured very quickly. The Community Reinvestment Act in the United States, to which she referred, was passed in 1977. It was not a play into the sub-prime mortgage crisis. I lived in Chicago in those years, so I know that it came about as a civil rights Act, because disadvantaged communities—primarily black ethnic communities—had been literally red-lined by all the major banking players, which would take deposits from them but would never lend back to support mortgages or businesses. It was a crucial Act that completely changed the nature of financial inclusion in the United States, and it was probably one of the most important pieces of legislation there. I have always regretted that we have not picked up its themes and extended them here, because it created a layer of community banks and credit unions that serviced this community, and did so very well throughout the years of recession.

The sub-prime crisis was, on the one hand, sheer fraud—as I think the noble Baroness, Lady Neville-Rolfe, knows—and, on the other, the packaging up of fraudulent loans into portfolios against which securities were then issued on the grounds that diversification within the portfolio removed the risk. This was not a case of lending into communities in the responsible way driven forward by the Community Reinvestment Act. I hope that we will pick up the lessons of that Act, because in the United States people are not unbanked and excluded to the extent and breadth that they are here in the UK.

[Lord Tunnicliffe (Lab) [V]]

My Lords, the Government’s response to the Woolard Review was swift and positive. As doubts remained over exactly when and how Ministers’ promises on buy now, pay later products would be delivered, this Bill appeared to us to be the perfect vehicle—although, sadly, the Treasury initially disagreed with that view. In Grand Committee the Minister stressed the complexity of the issue, and the need to work with the industry to get the scope of future regulation right.

Of course we agreed on the necessity for the Treasury and the FCA to get this correct, and we are realistic about the difficulty of striking the right balance. As I have said before, we would not wish forthcoming regulatory changes to impact on the availability of certain short-term payment agreements, such as for gym membership or sports season tickets, which have proved to be relatively low risk. We also recognise that there is a growing market for buy now, pay later, and that many of the people using such services experience no problems with them. Indeed, we are grateful to the providers that have engaged with us in recent weeks and shared their ideas on next steps.

In March the boss of Klarna expressed disappointment about the concerns voiced about buy now, pay later products. He said he was “emotionally upset” by comparisons with the former payday lender Wonga. I am sure that this was not aimed at your Lordships’ House, but let me be clear that we recognise the differences. However, just because two business models vary, that does not mean that we cannot and should not learn lessons from past regulatory failure. These products may not have interest charges attached to them, but that does not mean they are risk free. That was recognised by Chris Woolard in his review when he warned that there was significant risk of consumer detriment if the market continued to grow at pace without the implementation of appropriate consumer protections.

In his recent comments, Klarna’s boss acknowledged that his firm had made mistakes, particularly in relation to how it had advertised its products in the past. Such self-reflection is hugely important, and I am sure that advertising is one of the areas that will feature in the future regulatory framework.

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[Baroness Kramer (LD)]

My Lords, I will be very brief. In Grand Committee I gave a precis of some of the experiences of would-be students who had been deterred from going on to higher education or who had done so but then had to limit their life and activities as students because every single penny was hard to come by. As a consequence, they really did not benefit from so much of what is on offer in higher education.

I do not think that I can add anything to the incredibly powerful words of my colleagues, my noble friends Lord Sharkey and Lady Sheehan. I completely support the action that they contemplate but do so in the great hope that the Government will now make a statement that will make it unnecessary for the House to divide.

[Lord Tunnicliffe (Lab) [V]]

My Lords, I am grateful to the noble Lord, Lord Sharkey, for moving this amendment, with support from my noble friends. As I noted in Grand Committee, the Labour Party has long supported facilitating access to sharia-compliant financial services, and we therefore backed previous powers for the Government to act on the provision of appropriate forms of student finance.

As outlined both in Grand Committee and again today, the wait for the introduction of sharia-compliant finance products has been lengthy. I will not repeat the timeline cited by others but will say that we were unconvinced by the Minister’s response to the earlier amendments of the noble Lord, Lord Sharkey. Of course, we accept that there is complexity involved, but, in my experience, such challenges can be overcome when there is genuine ambition to find a solution.

The Minister previously said that the Department for Education is faced with designing a system in which students

“do not receive any advantage nor suffer any disadvantage through applying for alternative student finance.”—[Official Report, 8/3/21; col. 558GC.]

That is indeed a challenge, but it is one that I am sure can be met.

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[Baroness Kramer (LD)]

My Lords, I shall be extremely brief. It is absolutely clear that bills of sale legislation is fraught with problems both legally and practically, including allowing goods to be repossessed on a single default, and giving no protection to purchasers who unwittingly buy goods subject to bills of default. The Government promised us reform, and they had a draft Bill from the Law Commission in 2017, but then they changed their mind and decided not to legislate. If they can change their mind once they can change it twice, so I hope they will now change their mind again, and take action.

[Lord Tunnicliffe (Lab) [V]]

My Lords, I shall be brief in responding to the amendment, which was ably introduced by my noble friend Lord Stevenson of Balmacara. We are grateful to the Minister and officials for their time discussing this and other consumer issues during the passage of the Bill. Those meetings have been useful, particularly for better understanding the numbers of people affected by financial agreements enabled by the antiquated bills of sale Acts referenced in the amendment. We understand that the Government cannot simply accept the amendment, because of the complexity of the issue and the scope for unintended consequences. Normally we would roll our eyes on hearing that phrase, but, as my noble friend noted, this amendment was tabled as a means of starting a conversation. We hope the Minister can give a strong commitment from the Dispatch Box that the Treasury will undertake a proper review of this part of the credit market, and will have regard to the earlier Law Commission recommendations when deciding on a policy response.

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[Baroness Kramer (LD)]

My Lords, I think the case has been extremely well made. I usually really respect the opinions that the noble Baroness, Lady Noakes, puts forward, but it seems to me that she completely fails to understand the circumstances that led these people into being mortgage prisoners. They took out loans under credit checks and it was entirely appropriate, but the banks from whom they borrowed the money crashed in the 2008 financial crisis, largely through poor regulation, which lies at the Government’s door, not the door of those who took out mortgages. People with absolutely identical credit profiles who took out their mortgages with a bank which did not crash have had many opportunities to refinance, which is normal in the life of the mortgage. A standard, typical bank knows that it will vary the characteristics of its mortgage over the life if that option is sought by the mortgagee.

The group of people who took out their mortgages with banks that crashed in many cases found that those mortgages were stripped out as part of the asset rescue process that the Government went through, and the Government then sold those mortgages to completely inappropriate buyers under inappropriate terms in order to get the maximum return. I understand their motivation—maximum return for taxpayers—but they removed all of the normal relationships and embedded rights in those relationships that a mortgagee has when they take out a mortgage with a viable financial institution.

The noble Baroness treats many of those mortgage prisoners as people who are now of poor credit. These are people who have aged—we all do that. The mortgage that we take out at the age of 30 is not the same one that we would be able to take out at the age of 55, because we have got older and our career profile is different. Some of them have become ill, and therefore had reduced earning capacity. Any standard bank dealing with a mortgagee in those circumstances makes adjustments. Mortgage prisoners are not able to seek such adjustments and they have been left in dire circumstances.

The fault lay with the Government when they sold mortgages under inappropriate terms to inappropriate buyers to manage them. It treated them as though they were abstract assets, rather than a special category which has a lot of convention embedded in it, in order to maximise their sale. I very much hope that the Government will realise that they have a responsibility. They took those additional revenues, they took the benefit of selling off those mortgages under terms and conditions that they should never have permitted, and they now need to offset that by stepping forward and making sure that those mortgage prisoners can have the same access to flexibility that would have been theirs had they taken that loan out with a financial institution that did not collapse in 2007-08.

[Lord Tunnicliffe (Lab) [V]]

My Lords, this is an emotive issue for a lot of people. Although we recognise that the Government have taken steps to help a proportion of so-called mortgage prisoners to access alternative products, so far, we have not been satisfied with either public or private assurances received on this matter. We are familiar with the Government’s view of the importance of market freedoms and the need to keep interventions to a minimum. However, despite the initiatives that we will hear about from the Minister shortly, the fact is that the market is failing a substantial number of people.

Financial Services Bill

Debate between Lord Tunnicliffe and Baroness Kramer

Report stage
Wednesday 24th March 2021 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I join in congratulating the noble Lord, Lord Stevenson of Balmacara, on his amendments in Committee and again here on Report. He has clearly found a mechanism for engaging very fruitfully with the Government, and therefore we all have the benefit of a letter that lays out some of the important and significant elements of statutory debt repayment plans; for that, I am grateful.

I join with the noble Baroness, Lady McIntosh, in being rather perturbed—I think the noble Lord, Lord Stevenson, was as well—that the implementation date is 2024. I think that the noble Lord, Lord Stevenson, said that it was towards the end of 2024. I advise the Government not then to use terms such as “at pace”, which they use extensively in the Financial Services Bill—usually to argue that there is no time for a statutory instrument to be approved by Parliament, which takes a matter of weeks.

I am rather troubled and it suggests that the Government might want to think of some kind of stopgap to deal with the very significant number of people who will find themselves with debt problems as we come to the end of furlough. People will find that they have been moved into permanent redundancy and that other jobs are hard to obtain, and a lot of young people coming out of university courses will not find the usual opportunities.

We are going to go through a very rough period where quite a number of people will find themselves loaded down with private debt, not because they have behaved inappropriately in any way but because the way events have hit them. They will need some additional support and rescue, rather than just the schemes that are in place. The SDRPs would almost certainly have been ideal for many of them. So I hope the Government will look at the events that are going to force a lot of people into a very difficult position.

Amendment 12, tabled by the noble Baroness, Lady Bennett, would do what I think Amendment 55 in Committee was intended to do. This time I think it would do it. It is designed to enhance opportunities for people who have signed up to SDRPs to pay off their debts early at a discount. It will need some structure and engagement from social enterprise groups and perhaps even the Government providing some measure of support, because seed funding will be needed to get a scheme such as this off the ground. I hope that the Government will think some of that through. It seems the kind of scheme that would enable people to get back into the financial mainstream more quickly, which is surely something we want to achieve. Again, the need for that will be more acute because of the extraordinary number of people who will find themselves in debt as a consequence of Covid. I do not think it actually requires legislation, so I am glad that the noble Baroness, Lady Bennett, will choose not to move it.

These two amendments highlight the need for some serious thinking on how the Government can best support people who will come out of Covid and find themselves in fairly difficult circumstances. When we work with people who have debt problems, a fundamental issue usually has to be dealt with that has led them into that corner. Sometimes it is to do with lifestyle choices, but very often it might be mental health issues or family breakdown. The group who will find themselves in problems because of the impact of Covid do not fall into that category. Therefore, with a proper helping hand at the right time, they could quickly and easily be returned to a position where they are no longer financially excluded or in financial difficulties. That is absolutely necessary if we are to see the recovery that we all hope for. I hope the Government will look at these amendments and continue to build on them, rather than consider them concluded because Report has passed.

[Lord Tunnicliffe (Lab) [V]]

My Lords, we welcome the re-tabling of Amendment 11 by my noble friend Lord Stevenson, which provides the Minister with an opportunity to give more detail on the intention behind the Government’s introduction of the statutory debt management scheme. We are grateful to the Minister and his officials for the various meetings that have taken place in recent weeks. We hope that, even once the Bill has passed, there will be opportunities for further cross-party dialogue on issues relating to personal debt, financial resilience and so on.

There was a lively debate on this issue in Grand Committee, and various amendments were tabled by colleagues from across the Committee. Despite the number of amendments, almost all noble Lords were united in saying that the Government must get on with introducing the scheme. Amendment 12 from the noble Baroness, Lady Bennett, co-signed by the right reverend Prelate the Bishop of St Albans, deals with some slightly broader issues relating to problem debt. We hope that the Minister can provide a full response to those points, either now or in writing.

Looking at these amendments and the next group on BNPL and financial exclusion, I am struck by just how important it is to adopt a more holistic approach to personal finance, as proposed by my noble friend Lord Stevenson in his previous amendment on the concept of financial well-being. Helping people with debt has to be important. I have trouble understanding how people cope with that situation. It is the role of the state to provide structures to allow people to take on their debt problems in a managed way. I look forward to the Minister’s response to my noble friend’s amendment.

Financial Services Bill

Debate between Lord Tunnicliffe and Baroness Kramer

Committee stage
Wednesday 10th March 2021 Grand Committee

[Baroness Kramer (LD)]

My Lords, I have taken a vow to try to be brief in all my responses today, recognising the time pressures of the day. I also listened carefully to my noble friend Lord Sharkey and the noble Lord, Lord Stevenson, and I am not sure that the case could be better made.

However, I must follow the noble Lord, Lord Griffiths of Burry Port, in picking up an issue raised by the noble Baroness, Lady Noakes, who described mortgage prisoners essentially as problem debtors. These are people the overwhelming majority of whom would not have any problem with their debt if they had been allowed to take advantage of the changes in interest rates and mortgage terms that have been available much more widely. The case to act for their protection is simply overwhelming. If we had not had the financial crash and they had remained with regulated lenders, the vast majority of them would not be facing any issue. They would have had their mortgages restructured to lower rates and they would not be facing stresses and strains today.

I have been sent information from a significant number of people who find themselves to be mortgage prisoners and, frankly, the stories are often heart-breaking. I heard this morning from someone who is desperately ill in hospital, but the stress of the financial challenges that he faces makes every day far worse and far more difficult to deal with. To me, it is inhuman that action is not taken. The Government recognise that action must be taken, given the circumstances and the stress that so many people face and the corners that they have been pinned into. Surely such action should be taken now and not be kicked down the road yet again.

[Lord Tunnicliffe (Lab) [V]]

My Lords, the case for reform in this area has been overwhelmingly made by my noble friends Lord Stevenson and Lord Griffiths, the noble Lord, Lord Sharkey, and the noble Baroness, Lady Kramer. I wish not to delay the Committee any longer, but simply to advise that the Labour Front Bench supports my noble friend Lord Stevenson’s amendment and the generality of those proposed by the noble Lord, Lord Sharkey.

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[Baroness Kramer (LD)]

My Lords, after all those excellent speeches, I shall try to be brief but I need to declare my interests in the register because they apply to this group of amendments.

Fintech is an extraordinary success story in the UK. In 2011, shortly after having the privilege of being appointed to this House, I sought out and invited the chief executive of every fintech in the UK that I could find to come to a meeting. We needed only a small conference room over in Millbank House. Today, the QEII Centre would not be adequate. That alone speaks to the extraordinary success of the industry, much helped by an enlightened view from the Financial Conduct Authority, which had to be dragged kicking and screaming into looking benevolently upon the industry and understanding that it required appropriate regulation to grow. However, once it got there, the FCA has been incredibly positive and powerful.

I want to plead against complacency, which is a rather British weakness. In the days before Brexit, many of our fintechs chose to expand into continental Europe, using passporting and the e-commerce directive. They also attempted to go into the United States but few have been successful, partly because of the competition there and the difference in structure. The European market is incredibly important for expansion. We also know that it has been important for recruitment, which raises many issues around visas. A single person is perhaps not so hard to attract but someone whose wife or husband is unable to work may not be so cheered in taking up a visa to come to the UK. That is an underlying problem that we face for entrepreneurs and skills.

Many issues have been raised in this debate, including AI and fintech: the two merge over some significant territory. The issues raised by the noble Lord, Lord Holmes, are important and will, I hope, be a prod to make sure that we continue to deal with them at pace and to understand that there is no easy time. Berlin has, frankly, become a centre for tech within Europe and it would not be so very difficult to swivel that around and begin to absorb fintech. We do not want to put ourselves into that situation.

I wanted quickly to make two other points, picking up on points raised by the noble Lord, Lord Holmes. Digital fiat currency is now the issue of the moment. We have a relatively small window in which to decide whether we want to play in that area in such a way as to make us a significant player. One could say that sterling is not a natural global currency and we therefore need to be first mover. Picking up on the noble Lord’s point, I hope that we will look more at that area.

AI obviously brings with it extraordinary complexities and question marks but they are issues that can all be worked through if we focus on them. They will not become easier over time; they are just as difficult now as in the future, so one might as well deal with them as is. The issues raised by the noble Lord, Lord Holmes, deserve a proper debate on the Floor of the House and I am sure will draw in many more people than those who focus on financial services issues alone. I very much look forward to that opportunity as well as listening to the Minister’s response.

[Lord Tunnicliffe (Lab) [V]]

My Lords, I am grateful to the noble Lord, Lord Holmes of Richmond, for tabling this group of amendments, which deal with various aspects of fintech. His contributions on this Bill have been thoughtful, and nobody should be surprised by him pushing this agenda today, given his role as co-chair of the relevant APPG. As other noble Lords have mentioned, this debate is a topical one, following the publication of the Kalifa review on fintech last month. We welcome that review and hope that the Government will support our world-leading fintech sector to continue innovating and do so in a way that spreads opportunity to all parts of the country.

When we refer to things being life changing, we often do so in a hyperbolic manner. However, it is no exaggeration to say that technological innovation in the financial services sector has fundamentally altered our understanding of and everyday experiences with money. The pace and scope of change has been incredible; the journey from cheques to mobile phone payments, for example, has been a swift one. Many young people conduct virtually all their banking activity online through the apps of high-street banks or using entirely digital services such as Monzo. Elsewhere, terms such as crowdfunding and crypto currency have become common parlance, with the emergence and increasing use of new technologies, including artificial intelligence and blockchain. The possibilities are almost beyond comprehension.

Taken collectively, the noble Lord’s amendments point to the crux of the issue: how can we maximise the opportunities that undoubtedly exist in the sector while guarding against the risk inherent in the use of new technologies and working practices? Artificial intelligence is an interesting case in point. AI tools, which are regularly deployed in a number of sectors, have the potential to assist with a variety of issues which we have covered in previous debates, such as identifying fraudulent or otherwise suspicious transactions. However, Amendments 112 and 118 refer to some of the ethical considerations that arise from automated decision-making.

In a recent piece for the House magazine, and again in his opening remarks, the noble Lord issued a challenge to the Government that they should take steps now to foster the potential for our fintech sector or risk losing talent to our competitors, falling behind in the global tech arms race and, ultimately, having to play catch-up. I am not necessarily convinced of the case for legislative requirements for reports and reviews on these issues. The noble Lord is right to seek more information on the Government’s intentions. If London is to be the world-leading financial centre that the Chancellor and many others would like it to be, how do the Government plan to strike the balance that I spoke of previously? In striking that balance, how do Ministers plan to ensure that consumers and citizens are placed at the heart of a digital finance package? With technology touching all our lives, it is only right that we should all reap the benefits of change. However, as I mentioned previously, we must also take steps to identify and mitigate the risks.

There is probably far more that could be said than time allows. I look forward to seeing how much ground the Minister is able to cover.

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[Baroness Kramer (LD)]

My Lords, I very much agree with the noble Lord, Lord Sikka, that regulatory capture is a real risk. We certainly saw that prior to the 2008-09 crash, and many people would say that the soft hand of the regulator has ever since reflected an ongoing degree of regulatory capture. I am less focused on the revolving door issue but am much more concerned that the regulator says, “Wait a minute. If we go hard after whichever institution has done wrong, particularly if it is a major one and would involve going after senior people, we will disrupt financial stability. For that greater good, we must go softly and gently”. That approach has not served the industry or the country well.

We have talked extensively about accountability. I see this matter as an extension of that conversation. We have talked about the importance of accountability being extremely well informed in a way in which it is not today, and about the importance of transparency. Numerous ideas have come forward during the process of this Grand Committee. This is another, different approach that essentially tries to get to the same place —a regulator that has to be transparent and which provides genuine, sufficient and high-quality information that can be assessed by people of a relevant skills base, and that is accountable to Parliament. It should not be a regulator that just meets with Parliament and gives it an explanation once or twice a year but one that is actually accountable.

[Lord Tunnicliffe (Lab) [V]]

My Lords, the interesting amendment tabled by my noble friend Lord Sikka is another demonstration of the considerable unease felt on all sides of the Grand Committee about the governance of the FCA and the PRA, and their relationship with one another. The amendments moved on Monday by the noble Lord, Lord Blackwell, addressed similar concerns. The question still to be answered is: what would be the composition and terms of reference of such a supervisory board? Is the Treasury not deemed to be performing that role? How can we be confident that the supervisory board would have the authority and expertise to perform a task that my noble friend Lord Sikka rightly identified as being necessary?

I am sorry to sound like a broken record. Are not my noble friend Lord Sikka’s concerns another example of the lack of an effective mechanism of parliamentary scrutiny? Whether an effective parliamentary mechanism can be created is a question that we do not hear or have the ability to address but it must be addressed. I am sure that the Minister will agree.

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[Baroness Kramer (LD)]

My Lords, I am going to be very brief again on this issue, because I cannot pretend that it is my area of expertise. I remember the period when George Osborne was very proud of saying that not only would he make country-by-country a requirement but that it would be published. My understanding is that that was reversed in 2016. Perhaps the Minister will correct me, but that information is no longer published at a national level and the UK has been fairly instrumental in blocking the OECD from publishing the data at an international level. I apologise if I have got that wrong: I am reading from a Tax Justice Network report. Its calculation is that, as a consequence of not publishing, and therefore not having the cleansing impact of transparency, the UK misses out on collecting something in the range of £2.5 billion in corporate taxes a year.

Again, this is not my area of expertise, but I shall wish to hear from the Minister. We as a country have always said the answer is transparency. We have insisted that publication is the mechanism for cleaning up abuse. I would be extremely troubled if the regulators felt they were now in a position to weaken in any way country-by-country reporting requirements.

[Lord Tunnicliffe (Lab) [V]]

My Lords, the provision of country-by-country data by banks and investment firms will be an important step forward both in combating financial crime and in addressing the vexed question of the fair taxation of international entities. These problems will be solved only by international negotiation and agreement. It is important that we are seen as an exemplar, and satisfactory country-by-country reporting is surely part of that.

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[Baroness Kramer (LD)]

My Lords, I think I understand where the noble Baroness, Lady Bennett, is coming from. I am not sure that I personally would want to let the Treasury get its hands on an assessment of the UK financial services sector, because it seems that so much depends on the lens through which you look. But what I would like to be sure of is that the relevant information and statistics—those kinds of metrics that would enable you to assess impacts on the real economy—would be available, because we have quite a number of institutions, including think tanks and academic institutions, that could do really good work on all these areas which would then inform Parliament. I would very much like that to happen.

Perhaps this all feeds back into the issue that we have looked at over and over again, which is that, absent some significant change, the necessary information is just not available, whether one is trying to look at the macro level or the micro level. That information has to be available, or else accountability in any proper sense just cannot exist.

[Lord Tunnicliffe (Lab) [V]]

My Lords, I think the whole subject of supervision and the presentation of information for decision-making is very important. I do not think that it could be shoehorned into this Bill. I hope that the Government will note the concerns about this and meet it where we can in parts of the Bill, but perhaps there has to be an ongoing debate, which will hopefully come to some consensus about how we improve the supervision and accountability of the financial services sector.

Financial Services Bill

Debate between Lord Tunnicliffe and Baroness Kramer

Committee stage
Monday 8th March 2021 Grand Committee

[Baroness Kramer (LD)]

My Lords, any one of us can go on to our smartphone and find an app for halal financing for someone who wants to buy a car or a house—they are called “halal mortgages”—or who needs money to support a small business. It is incredible and quite incomprehensible that we do not have a sharia-compliant version of student loans. It is not as though we do not know how to do it or the institutions do not exist in the UK. I suspect that many noble Lords have been, like I have, at general meetings of the financial services industry where, as well as talking about being world leading in terms of green finance, we have talked about London as a very important centre for sharia-compliant finance as we attempt to expand and have a much greater global reach. Six years is an incredible time to wait. It has been four years since enabling legislation was put in place.

I was looking at a Metro article on the web about students who were interviewed in 2019. Some had managed to put together a way to pay their student fees. One said:

“I was constantly broke as a student and never, ever did anything remotely fun. I always felt too guilty if I spent any money on myself.”


Students who started out and found that they just could not keep going left and went to work, but then found that, as this lady said,

“to progress further I need that degree so the plan is to go back.”

However, this young woman has no idea how to finance it. Another youngster talked about the stress of

“having to live scrupulously and scrape up enough to pay each instalment in time.”

We really should not be putting any student into this situation. I do not understand the delay. There does not seem to be an obstacle in terms of designing the appropriate facility or the appropriate legislation. I hope that the Ministers who are here, all of whom are people of understanding and sympathy, will go and put pressure on the Government to take this from the bottom of the in-tray and put it at the top. It could be a minor amendment that we make on Report.

[Lord Tunnicliffe (Lab) [V]]

My Lords, the last Labour Government were supportive of facilitating access to sharia-compliant financial services, and we understand—and welcome—that Her Majesty’s Government have made similarly helpful noises during their time in office. This is an interesting time for financial services as some firms prioritise divesting from fossil fuel projects, and so on. If such moves are possible, surely we can make progress on services that do not have involvement in industries such as gambling or alcohol?

Amendment 88 raises the issue of sharia-compliant student finance, which was subject to a recent e-petition on the Parliament website. In their response, the Government recalled their consultation on the matter back in 2014 and said that they intend to publish an update on progress later this year. While we appreciate that it takes time to engage with communities to understand their needs, evaluate feedback, devise new schemes and ultimately make them operational, there has been a significant wait for new products, and we need evidence from the Minister that we will soon turn a corner.

Financial Services Bill

Debate between Lord Tunnicliffe and Baroness Kramer

Committee stage & Lords Hansard
Wednesday 3rd March 2021 Grand Committee

[Baroness Kramer (LD)]

My Lords, I spoke at length on the previous group, so I am going to pay penance and try to be much briefer on this one, even though this is an issue that I also care about passionately. I do not think I can start without acknowledging all the incredible work done by the noble Lord, Lord Stevenson, in this arena. He has genuinely moved the issue on by sheer determination, a baton now picked up by the noble Baroness, Lady Coussins.

The statutory debt repayment plan element of the debt respite scheme needs to come into effect as soon as possible. I suspect that we all acknowledge that, but the impact of Covid makes it more important than ever. When we talk about a timetable—I am thinking of the speeches by the noble Baronesses, Lady Morgan and Lady Ritchie—we know that a group of people who will probably never have experienced financial difficulties will now be drawn into a system where they are overwhelmed by their debts. One can see that this is an opportunity for the less scrupulous to take advantage. Even those who regard themselves as perfectly professional and ethical will look for weaknesses in the system in order to get paid. There is pressure on both sides. I have therefore added my name to Amendments 52 and 67.

The noble Lord, Lord Lucas, raised a number of interesting issues but he can probably take comfort in the fact that there is a sort of Scottish template, if you like, in that experience in Scotland will help to make sure that the programmes in England—I assume this covers Wales as well—will benefit and learn any necessary lessons. That should remove a lot of the anxiety and some of the teething problems.

The amendment in the name of the noble Baroness, Lady Meacher, is completely new to me. It seems entirely logical that we should have a proper framework of oversight for bailiff enforcement.

I also strongly support Amendment 111, in the name of the noble Lord, Lord Holmes, to bring lead generators for debt advice and debt solution services under FCA regulation. I have worked on many financial services Bills over the years, particularly on the consumer side, and it is almost breathtaking how many people and groups are totally unscrupulous and use any opportunity to gouge people when they are anxious and worried. One can just see the exploitation that could happen here. I ask that the issue be taken more broadly, that the FCA go on the front foot and anticipate where unscrupulous individuals might try to exploit the situation, and that we see if we can to some extent head it off at the pass. We are quite good at doing something when thousands of people are complaining that they have been taken advantage of; it might be very useful if we turn that around and try to anticipate where trouble could come from and see whether we can deal with it.

The issues have been so well laid out by others that I will not repeat them, but I join in asking the Government to respond to these amendments, particularly those on the timetable, with some very strong assurances at the very least.

[Lord Tunnicliffe (Lab) [V]]

My Lords, we have spent an hour and a quarter debating a clause that is two thirds of a page long in a 182-page Bill. This, at first sight, might seem unreasonable, but when you look at the clause from the point of the view of the individual citizen, it is probably one of the most important in the Bill, so it is right that we have done so. There are an amazing 19 amendments to this clause, which would normally imply concerted opposition. In fact, that has not been the mood of the debate at all.

To sum the clause up, it has dealt well with one of the concepts, but we have too little detail. My noble friend Lord Stevenson of Balmacara seems in many ways to have been the father of this concept, and I congratulate him. We have adjacent desks, and I have seen him busily dealing with issues such as this. His two amendments seek to flesh out how the clause would bring in proper regulation, a degree of reasonableness and recognition of the role of bodies related to national and local government; they also address the importance of protection from bailiffs, and funding.

The noble Baroness, Lady Coussins, brought in the idea that we must have a hard deadline, and the noble Lord, Lord Holmes of Richmond, introduced the concept that we need advice for individuals. A timetable of December 2024 was gazumped by the noble Baroness, who suggested instead May 2024. It is important that the funding issues be addressed, especially if this fine concept is improved, because it could always go wrong if they are not faced up to. Again, this brings home the importance of regulation.

Finally, we have the 11 amendments from the noble Lord, Lord Lucas. I hope he will not mind me saying that they are very “Lord Lucas-like”, with each small detail adding value to this legislation. I say that in order to illustrate that most of the amendments are complementary.

I ask the Minister to recognise the degree of clear, cross-party consensus on this important clause. Many people have urged him to make concessions. My experience is that Ministers making concessions on the hoof is considered rather dangerous; hence, this is unlikely. But I do strongly urge him not to reject too many of these ideas. His brief probably says that the wording will not work. Wording never works when it is from the Back Benches, but the ideas work, and these ideas are powerful and need to be taken account of. I hope there will be a further round of conversations before Report, and that the Government will come back with a composite proposal that improves this important clause. I fear that if that does not happen, we will spend a lot of time on Report, and there will be a more muscular approach from those who tabled and who support these amendments.

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[Baroness Kramer (LD)]

My Lords, the noble Baroness, Lady Noakes, and I very rarely seem to agree on the types of issues covered in this amendment, but on this one we are totally of one mind. I am very grateful because I tried to write an explanation of how this process would work and it was so inferior. The noble Baroness, Lady Noakes, not only explained it very clearly, step by step, but included numbers, which makes it much more evident.

I think there must be some misunderstanding. As the noble Baroness, Lady Noakes, explained, it is perfectly normal for an originating company to sell off the loans it has, sometimes because it can sell them to someone who has a different funding profile or a different tolerance for the average duration of the book of loans being sold, or because somebody may take a different view on how many of the loans will pay in full, pay in part or default. It is a perfectly standard process and provides liquidity to the market. As the noble Baroness, Lady Noakes, said, if an organisation had to keep all the loans it generated on its books and could not sell them off, it would find very quickly that it was constrained in doing any new business. That would be hugely damaging to many of the people who go out and borrow. It tends to be a completely different business that will buy loans in the secondary market.

The question that underpins this is: is the Statutory Debt Repayment Plan right and fair when it is put in place? If that is true, it should not matter if the money is paid to the originating company or to the secondary buyer. Within the portfolio, there will be some people who can and do meet the full obligations of the Statutory Debt Repayment Plan, and surely that is appropriate. There will be others who fail and end up in bankruptcy, and whoever is holding the loan will lose out.

My question is whether there is any read-over from the kind of issues we have had with mortgage prisoners. It is important that where there are expectations about how the original lender will behave, they are carried over to the secondary lender. For example, if the original lender is quite likely to offer an alternative loan or new terms and conditions or whatever else, you would expect to see that reflected in the secondary lender. I would not want a situation where the secondary lender was able to levy additional charges or put additional costs on the borrower that would not have been expected by the original lender but perhaps are not covered in the minutiae of the contract.

Otherwise, the honest truth is that I just do not understand this amendment. I am absolutely certain that it completely seizes up any possibility of having a secondary market, and the people who will pay the greatest consequence for that are those who need to go out and borrow from time to time and are at the margins of being appropriate borrowers.

[Lord Tunnicliffe (Lab) [V]]

My Lords, I think this debate brings out the fact that we do not fully understand this area. There is obviously a case for a great debate. We are, sadly, going to see many more people in heavy, chronic debt and we will see people—to use a colloquial term—fall apart. When people have debt and cannot see how they are going to cope, they lose their equity in society.

Perhaps I am being unfair, but I see a conflict here between people—human beings—and loan books and technocrats. That is not a very useful comment. I cannot argue that this particular amendment should be pressed, but the debate about it brings out that we almost certainly do not have all the mechanisms, and the understanding of the human beings involved, to face the many more people who will be in chronic debt when we, who are not in that situation, are talking about the Covid crisis being over. Those people need society’s help, and for them to have that, we need a much better understanding of the impacts on those people and how we can make sure that the excesses of the people who hold the books are restrained.

Economic Update

Debate between Lord Tunnicliffe and Baroness Kramer

Tuesday 12th January 2021 Lords Chamber

[Lord Tunnicliffe (Lab) [V]]

My Lords, as ever I am grateful to the Minister for putting this Statement on the record and leading our scrutiny of it. The picture painted by the Chancellor yesterday was a bleak one. Given that his personal brand centres on optimism, it is clear why he has resisted appearing before the Commons until now. Before turning to yesterday’s Statement, I gently say to the Minister that announcing £4.6 billion of expenditure via a Written Ministerial Statement last week was wrong. I hope he will assure us that both Houses will receive verbal updates in future.

As outlined in the Statement, economic performance in 2020 was understandably poor by conventional standards. The Minister will doubtless disagree with me, but this was arguably exacerbated by the stop-start nature of the Government’s response to the pandemic. The outlook for the economy this year and beyond is equally worrying. Even with nifty accountancy tricks, the projections fall far short of where we would like to be. I have commented previously about the speed at which the OBR predicts annual economic growth will flatten out at an unremarkable 2%. I have regrettably seen and heard nothing from the Government which resembles a plan for addressing that concern. We recognise, as we have at all stages of the Covid-19 crisis, the colossal scale of state intervention over recent months. It has been unprecedented, but there is no doubt that challenging times call for such measures.

The Minister will know that we are fast approaching a calendar year since the first national lockdown and the launch of various economic measures that accompanied it. Despite the passage of so much time, current support still falls far short of the Chancellor’s pledge to do “whatever it takes” to help the nation through these tough times. The Government say that not every job can be saved, but more could have been rescued had Mr Sunak provided greater certainty on employment support last year rather than trying to extricate himself from it at the earliest opportunity—in the face of all available evidence. As sure as night follows day, the U-turn came, but the harm had already been done. It is ironic that he now appears to champion the furlough scheme as one of his greatest achievements.

We needed swifter intervention in the creative industries, to support hospitality firms and supply chains, and to support the aviation sector. Despite their worth to our economy, many unanswered questions remain about the future of these sectors. Ministers have shamefully refused to address well-documented shortcomings of the Self-employment Income Support Scheme, where arbitrary criteria have left millions relying on universal credit, which is already insufficiently generous and at risk of a significant cut from April. We would have accepted a declaration of intent in the event of full details not being ready; as it happens, we did not get even an acknowledgement of the problem.

The Chancellor could and should have used yesterday’s Statement to outline his plans for addressing these issues and many more, including backing local authorities rather than forcing them to raise council tax. Compliance with guidance on self-isolation is believed to be heavily influenced by an individual’s financial circumstances. The Chancellor knows this yet failed to announce new incentives to help people do the right thing. His Statement was also a missed opportunity to provide much-needed additional help for the homeless, who have, tragically and literally, been left out in the cold. Can the Minister shed any light on why these issues were not directly addressed in the Statement? Can we expect them to be addressed soon, or will the Government continue to hide behind flimsy and unsubstantiated claims?

We are trying our best to support the Government as they tackle this pandemic, and will continue to do so. However, to rebuild public confidence in their response, we need greater honesty, accountability and consistency. The arrival of multiple vaccines against this coronavirus is crucial in our fight to overcome it, but we are still getting different messages and timeframes depending on which member of the Cabinet we hear from. Whether it is in respect of the number of Covid-19 infections and deaths, the state of our economy, the struggle to end inequality or even Brexit disruption to supply chains at border crossings, Ministers warn almost daily, apparently without contrition, that things are likely to get worse before they get better.

We understand that the new strain required changes to plans over Christmas, but, as with the furlough U-turn, clarification came much too late. Despite that experience, the Government have set themselves the target of schools returning after the February half-term and life beginning to look more normal by Easter. Does the Minister stand by these dates? If it transpires that they will be missed and children will remain at home, will the Government look for additional help for teachers and a legal right for parents to request paid, flexible furlough? Can the Chancellor announce future financial support at the earliest opportunity, to give businesses and workers maximum certainty?

[Baroness Kramer (LD) [V]]

The Chancellor has once again responded to a long-term economic crisis with only very short-term measures. The evidence from the Resolution Foundation of sharply growing inequalities is scary, frankly, as low-income families have to spend more to survive the pandemic. Will the Government at least make permanent the £20 uplift in universal credit?

Economic recovery cannot take hold before the summer even with a successful vaccine rollout, so will the Government now extend furlough, SEISS, the loan and various other support schemes at least to July, if not beyond?

Why have the Government continued to exclude 3 million of the self-employed from help, especially now that the Federation of Small Businesses has devised a scheme that avoids the risk of fraud? The FSB has also pointed to the recapitalisation crunch that could destroy businesses in 2021. Where is the long-term economic plan for recovery that businesses need to enable them to hang in, protect jobs, invest and grow again?

Future of Financial Services

Debate between Lord Tunnicliffe and Baroness Kramer

Wednesday 11th November 2020 Lords Chamber

[Lord Tunnicliffe (Lab) [V]]

My Lords, I am grateful to the Minister for dealing with the second Treasury Statement in as many days. This Statement is billed as a prelude to the Financial Services Bill, which we will be able to scrutinise following its Commons stages. The process promises to be an interesting one, and I hope the Minister will avail himself of the expertise that exists across your Lordships’ House.

The Chancellor was correct to outline the importance to our economy of the financial services sector. It is a huge employer, generates a significant amount of economic activity and makes a large contribution to the Exchequer. It is vital that we harness the potential of financial services to grow our economy, particularly in terms of green growth.

It is a shame that this Statement has come only now. As it stands, we are weeks away from leaving the transition period without an agreement giving UK firms preferential access to the EU markets that are so important to their day-to-day operations. The Government have unilaterally published equivalence decisions for EU and European Economic Area member states, but the Minister will concede that that gets us only so far.

In his Statement, the Chancellor reiterated the Government’s position that an equivalence determination for UK firms should be simple and swift as we start from a point of regulatory alignment. If that were true, why were the Government not able to secure equivalence determinations by the deadline set out in the political declaration? The Chancellor has sought to blame the EU, but when the Government were asked to complete various questionnaires to aid that process they managed just four out of 28 by the June deadline.

While we may start at a point of alignment, decision-makers in the European Commission will no doubt be studying the Financial Services Bill in detail. Equivalence may not require total alignment, but it seems odd for the Government to amend UK regulations at the same time as demanding that our EU colleagues take a snapshot of them. Does the Minister believe that the contents of the Financial Services Bill are likely to have any bearing on the ongoing discussions? Is it possible that the EU will delay a ruling until that Bill is on the statute book? We will scrutinise the Bill closely, not only in the context of equivalence but to ensure that the reforms do not lead to a deregulatory race to the bottom that puts investors and financial stability at risk.

I turn to the green components of the Statement. The Government would have us believe that their commitment to tackling climate change is second to none, but those of us who share an interest in recent legislation will be sceptical, to say the least. We are told that everything done by Ministers is with a net-zero future in mind, but time after time they oppose sensible climate amendments, most recently on the Agriculture Bill. While the various green finance initiatives announced in recent days represent a degree of progress, the Treasury has not gone as far as many would like. It is certainly not the comprehensive green agenda that is needed to make swift and decisive progress towards the 2050 net-zero target and our wider international obligations. As the shadow Chancellor observed in her response in the Commons,

“Over the last decade, the UK has pumped £6 billion into overseas fossil fuel projects via UK Export Finance”.—[Official Report, Commons, 9/11/20; col. 621.]


There is no indication that this behaviour will be banned, undermining any meaningful action taken in the UK.

The Financial Conduct Authority has signalled a change in approach to firms’ disclosure of climate-related information, which we support. However, mandatory reporting will not be implemented until 2025. Why are the Government not being more ambitious? Green gilts are another case in point. How can we be sure that the money will represent genuinely new investment? Why have the Government waited until 16 other countries have introduced their own schemes, rather than taking the lead on the issue of green financing?

I wish I could be more optimistic, but, sadly, I remember the story of the Green Investment Bank. The institution, proposed in the last Labour Government’s final Budget, should have been key to improving the UK’s environmental record. Instead, just years into its existence, it was sold off by the former Business Secretary Sajid Javid. Earlier this year, a government Minister suggested at a roundtable event that the “Green Investment Bank 2.0” could materialise in the future. Can the Minister confirm whether this is being looked at and, if so, when we can expect news?

[Baroness Kramer (LD) [V]]

My Lords, I declare my interests as listed in the register. I agree with the Chancellor that financial services are fundamental to Britain’s economic strength. However, I recommend that anyone looking to assess their future ignore the hype in the Chancellor’s statement—he seems to have drunk the moonshot Kool-Aid—and look at reality. Our failure to negotiate mutual recognition, or at least equivalence-plus, with the EU is a serious problem. If only the Government had taken as much interest in this area as they do in fishing or, as Catherine McGuinness of the City of London Corporation is quoted as saying in today’s Times, finance risks being

“the neglected child of an acrimonious divorce”.

Over £1 trillion in assets have already transferred from the UK to the EU. Last year, Ministers seemed to think that half the financial services business with EU clients, which is about 15% of total UK financial services, had left or was in the process of leaving, including swathes of insurance and asset management. Is 15% still the number, I ask the Minister? The size of these asset transfers suggests that the actuality is well above those expectations. Job transfers are unclear because of Covid, but we do know that, even in 2019, the recruitment of graduates who do not have EU passports had pretty much collapsed for anything except retail banking.

The EU, which I once thought had a 10-year strategy to remove, slice by slice, most EU and euro-related financial services back to the 27, seems to have accelerated that programme. For example, Mr Dombrovskis has cautioned EU businesses to shift a significant portion of their clearing activity out of the UK in the next 18 months. Without dominance in clearing euro-denominated derivatives, the UK’s global role is seriously at risk. Does the Minister agree?

On fintech, many firms have made it clear that they will have to move EU business if we cannot agree on the rules that govern data. Where are negotiations on this, because at the last look they were pretty dire, with the UK determined to please the United States by watering down data protection?

I am delighted that we are finally going to issue a green sovereign. We may be a leader in green finance now, but every single significant financial centre is committed to the green agenda. I note that the EU is expected to issue €200 billion in green bonds as part of its Covid recovery fund, none of which will be issued through London. But will the Government replace the Green Investment Bank? The noble Lord, Lord Tunnicliffe, mentioned it; it was sold off in part because, along with the British Business Bank, it was associated with Vince Cable, but that was also a deliberate act of environmental vandalism. Will it be replaced?

We are entering a period of regional economic blocs. The United States has actively repatriated a great deal of dollar financial services. China and Asia generally, contrary to the expectations of George Osborne, are using Hong Kong and Singapore rather than London, even with all the disruption in Hong Kong. India is developing Mumbai, so I caution the Government not to misread the potential of dialogue with India. We are now outside all the regional blocs. We have capacity and skills in financial services, but everyone else has the clients and issues the major currencies. You can move capacity and skills, but you cannot move the clients. London will remain a global centre but, I fear, one of gradually less significance. Will the Government give us a reality check on the future of this crucial industry and a proper assessment of the damage that their hard-line Brexit is delivering?

Economy Update

Debate between Lord Tunnicliffe and Baroness Kramer

Tuesday 10th November 2020 Lords Chamber

[Lord Tunnicliffe (Lab) [V]]

My Lords, I am grateful to the Minister for presenting this Statement. It is the latest in a series of announcements and, while there are aspects that we very much welcome, it is a tremendous shame that it has taken so long and required so much frustration and anxiety among businesses and working people. The Labour Party has called for clarity on job support for months. In that time, rather than providing certainty, the Chancellor proceeded with winding down the furlough scheme. That decision was taken despite its apparent success at keeping people employed and warnings of the impact of a perceived cliff edge in support.

Instead of protecting as many jobs as possible, Mr Sunak was honest about the fact that he had decided to focus on so-called viable jobs instead. The replacement scheme was announced with little accompanying detail and, when the information finally emerged, it became apparent that the Job Support Scheme—JSS—would not do, even in the revised form announced mere days before its planned commencement. We now find ourselves with the Coronavirus Job Retention Scheme—the CJRS —extended to March, with a review of the proportions paid by the Treasury and businesses themselves to be carried out in January. This finally provides a degree of certainty to businesses, and we are pleased that they can now plan accordingly. However, not for the first time, the decision came much too late.

This entire process raises several important questions, which I hope the Minister will address. I appreciate that our time is restricted, so I would welcome a letter with any detail he is unable to set out today. What evidence base did the Chancellor draw on when announcing the planned shift from the CJRS to the JSS? Did that modelling predict that jobs may be lost in the short and medium term as a result? If so, how many? How does this match up to the reality reflected in recent figures? Does the Treasury anticipate any of these job losses being reversed and, if so, how many?

I now turn to the continued issues with the Self-employment Income Support Scheme. In last week’s response to an Urgent Question, the Minister cited the number of claims made under the SEISS and assured noble Lords:

“We keep under review the whole issue of trying to protect those who have fallen through the cracks.”—[Official Report, 4/11/20; col. 708.]


I accept the point he made in relation to certain changes to universal credit, which marginally improve the situation for some of those excluded from the SEISS. However, this ignores the key issue, which is that so many people remain beyond the scope of the Government’s core coronavirus economic support and are, instead, forced to rely on an inadequate social security system.

How can Ministers and their officials not have found a solution to this in the past six months? Is the problem that the Minister and the department do not believe there is one, or is there a lack of political will to bring one forward? What would he say to those who, by the end of the current package, will have been outside the scope of government support for a full calendar year?

Finally, I was grateful for the promise of correspondence on self-isolation payments and the technicalities of that system. I have some further points on this. A study by Independent SAGE suggested that only approximately 20% of people in England who experience Covid-19 symptoms go on to follow fully the Government’s self-isolation guidance. Now that we find ourselves subject to a new lockdown, what steps are the Government taking to address this worrying trend, so that there is higher compliance when the current restrictions are eased?

I touched last week on people being ineligible for self-isolation payments if they receive notification via the mobile app rather than an NHS contact tracer. There are many other issues with eligibility, meaning that only one in eight workers is covered by it. In the gig economy, the situation is potentially even worse. Those workers do not enjoy statutory protections and often cannot afford to miss even a day’s work. While some digital platforms have put in place their own measures, this relies on good will and discretion rather than providing guarantees to those in need. What, if anything, do the Government have planned in this area? How soon are we likely to see the details?

[Baroness Kramer (LD) [V]]

My Lords, last week the Minister was not a bit keen on my call for an extension of the 80% furlough scheme to June. Now it looks as though I will get that until at least April, unless there is a poison pill in the January review—though I suspect, quite frankly, that the Government would not dare. I also called on the Government to feed the kids. What a difference a week makes. I am glad they have finally faced up to the realities and have U-turned on quite a range of issues.

They should still do more for the self-employed, whose income support grant ends at the close of December. They cannot be left out in the cold at the turn of the new year. Again, not a thing has been done for the 3 million excluded. The clue is in the name: excluded. There is no point in the Minister quoting programmes that these people cannot access and use. Letting them down is unacceptable.

On the same day the Chancellor made the furlough announcement, the Bank of England announced another £150 billion of QE, which will bring its holding of government debt to over £900 billion. There is a widespread market sentiment that this policy has come to the end of the road. Will the Government comment on that and the implications of negative interest rates, which are now being explored by the Bank? Are we really saying that savings are worth nothing, and that ordinary people need to take increased financial risk in a time of such uncertainty, created by not just Covid but an imminent economic Brexit?

Covid-19: Economy Update

Debate between Lord Tunnicliffe and Baroness Kramer

Tuesday 27th October 2020 Lords Chamber

[Lord Tunnicliffe (Lab) [V]]

My Lords, as ever, I am grateful to the Minister for presenting this Statement. When we last discussed the economic update from the Chancellor on 28 September, he was rather unhappy with my characterisation of it as

“another example of Ministers reacting to events, rather than attempting to shape them—of allowing problems to grow, rather than acting quickly and decisively to prevent them in the first place.”—[Official Report, 28/9/20; col. 18.]

The fact that we find ourselves discussing major revisions to the package of measures outlined just a month ago suggests, sadly, a lack of strategic thought in both No. 10 and No. 11 Downing Street. While some of the changes outlined by the noble Lord are to be welcomed, there is too little detail on how others will operate in practice. We know with financial Statements that the devil is in the detail, but on too many fronts we are still waiting for that detail to be finalised.

I have no doubt that the noble Lord will tell us not to worry and that everything is under control. However, in an ideal world, the Treasury would not be redesigning the Job Support Scheme a matter of days before it went live. That it is having to revisit its plans will have done nothing to address the anxiety of businesses and workers, which I referred to during our previous discussion. The revisions to the JSS and the announcement of an increase to the third grant for the self-employed are small steps in the right direction. Additional support for businesses operating in tier 2 and tier 3 areas is also welcome, although the announcement of new funding for such businesses makes it puzzling that some of that support was withheld when requested by the Mayor of Greater Manchester earlier last week.

We hope that changes to the formula for the JSS will encourage businesses to keep on more workers. However, as a range of commentators have noted, the late arrival of the announcement means that many thousands of jobs that may otherwise have been safeguarded have already been lost. As I said last time, each job loss is a personal tragedy. More needs to be done to protect people’s jobs and that requires a concerted government effort. Despite the changes announced last week, many workers still face noticeable reductions to their pay.

Despite taking home less, people will still have bills to pay, including mortgages and rent. The Government previously chose not to extend the statutory protections from eviction in place during the first wave of the pandemic. For homeowners, the ban on repossessions comes to an end on Saturday. Will the Minister confirm whether either policy is being revisited in light of the second wave’s arrival and the very real likelihood of unemployment continuing to rise?

The noble Lord will no doubt have seen the headline in the Resolution Foundation’s latest research on the Government’s Self-employment Income Support Scheme. The organisation echoes what we have said for some time: the programme has been poorly targeted and often missed those who are most in need. Its analysis suggests that a substantial number of beneficiaries have lost either no or minimal income as a result of the pandemic, whereas half a million people have received nothing, despite being left without work. The Treasury has had time to look again at the furlough, so why has it not properly revisited the self-employment equivalent? Will the Minister commit to doing that and, if so, can he provide a timescale? Will he also outline the rationale for the third grant being equivalent to just 40% of pre-crisis profits, rather than the higher levels of previous rounds? Why is the work of the self-employed suddenly less valuable than it was previously?

We appreciate the unprecedented nature of this public health crisis and the scale of interventions required. However, I hope that the Minister recognises that this is an equally challenging time for businesses and working people across the UK. They need meaningful support and early sight of the details so that they can make the right decisions for the future. The Government’s habit of last-minute announcements, often without accompanying detail, is severely undermining public confidence. This has been the case for not only economic measures but public health measures. I hope that the Minister can provide assurances that future announcements will come earlier and with more clarity. People’s jobs and our wider economic recovery depend on it.

[Baroness Kramer (LD)]

My Lords, this feels like déjà vu. Once again, the Government are forced to revise and increase their support for businesses. We need them to give up their bravado and recognise the depth of the economic crisis coming both from Covid and from the harmful economic realities of Brexit, undercutting investment and jobs, even with a deal. Frankly, we desperately need a new OBR forecast, even if without a Budget. While I understand the Government choosing just a one-year spending review, we should be getting open kimono on the long-term issues and choices for discussion in this House and elsewhere. This is not the time for secret spells cooked up in No.10. The situation that we face is far more dire and needs the resources of everybody’s minds and energy.

I want to make two pleas to the Government. First, feed the kids. I know that we have just taken a PNQ on that subject but the money provided to local government under the local authority welfare assistance fund and others was never intended to cope with the present scale of demand, when much of the country is necessarily closed down again, many people are facing redundancy at the end of the month in just a few days’ time, homelessness is rising, and mental health and other demands on local services are increasing exponentially. Many Liberal Democrat, Labour and Conservative councils have stepped in to provide food vouchers to children on free school meals, but that is at the price of financing other needs. Families who qualify for free school meals have by now exhausted any savings, borrowed anything that a respectable lender will let them have and tapped out family and friends. Please will the Government put in place a voucher system to at least carry us over to next Easter?

Secondly, will the Government finally step in to help the 3 million excluded people? They consist primarily of self-employed contractors with personal service companies but also include a range of other people in the self-employed arena. There has, by now, been plenty of time to set up appropriate schemes. The Government argued from the beginning that the issue was complicated, but there has been time to sort it out. As the Resolution Foundation pointed out, and as the noble Lord, Lord Tunnicliffe, described, the SEISS has been badly targeted. The self-employed have suffered an even bigger market shock than employees, and with so many people facing redundancy and needing to look to self-employment for any future income, it is absolutely crucial that proper support is put in place for the self-employed, under whatever arrangements they have established.

Economy

Debate between Lord Tunnicliffe and Baroness Kramer

Monday 28th September 2020 Lords Chamber

[Lord Tunnicliffe (Lab) [V]]

My Lords, I am grateful for the chance to respond to this Statement. The timing, just over a month before the winding up of the furlough scheme—which has caused anxiety for millions across the UK—is regrettable. Other countries have been quicker to provide businesses and workers with certainty, and bolder in the steps they have taken.

The Statement fits the now-familiar pattern of the Government’s handling of coronavirus. It was not scheduled in the usual way and instead announced at short notice, in response to an Urgent Question submitted by the shadow Chancellor, Anneliese Dodds. The Treasury says it replaces the planned Autumn Statement. It is another example of Ministers reacting to events, rather than attempting to shape them—of allowing problems to grow, rather than acting quickly and decisively to prevent them in the first place. We have seen it on test and trace and now on the economy.

We recognise and welcome that the Government seem to have acknowledged what we have been saying for months: that action was needed to avoid a cliff edge for workers. The Statement offers a degree of certainty for some, even if it is not as comprehensive as we would like. The continuation of the scheme for the self-employed, for example, is a positive step, even if its well-known shortcomings remain. A new form of wage support is also welcome. It is not perfect but it is something. However, my overall impression is that the measures offered amount to too little, too late.

In relation to the new job support scheme, it is worth noting that Labour has long called for a change in the Government’s approach. The Chancellor has been asked to reconsider the planned one-size-fits-all withdrawal of job support on no fewer than 40 occasions. The Treasury cannot pretend that there was not time to get this right. While it is of course welcome that some workers will enjoy the protection of the new scheme, the cracks are beginning to show. Labour Party analysis observes that it will be cheaper for many businesses to retain one full-time member of staff than to preserve two jobs on short hours. The impact of that on unemployment could be, and probably is, profound.

As with the current furlough arrangement, there is virtually no conditionality on businesses. No commitment must be made to keep jobs open in the medium-to-long term. Instead the Chancellor is now admitting that jobs will be lost. He says that the new scheme has been designed with that in mind, with his priority to protect those jobs and people whose futures are deemed “viable”. What a callous word to use. Many loyal, talented and hard-working people will lose their jobs as a result of the economic difficulties we are facing. It will be no reflection on their character or ability; in many cases, businesses will agonise over the arbitrary decisions that they are required to make. Many businesses are operating with low capacity, not because they are not viable but because they are compliant with HMG’s public health guidance.

On 12 August, the Chancellor promised that

“no one will be left without hope or opportunity”.

For probably more than a million people, there will be no opportunity. Does the Chancellor believe that these human beings should survive on hope? I have been unemployed three times in my career. My abiding memory is one of terror, not hope. Until one has faced the loss of self-worth after multiple rejections, one cannot understand unemployment.

We accept that it is not possible to save every single job. However, each job loss is a personal tragedy and deserves to be recognised as such. I hope that the Minister takes that on board and ensures that he uses different language. Can he outline why the Government have not offered meaningful support to those who have already lost their jobs? Why is there no mention of help for those who may be about to lose their jobs as a result of recent policy decisions based on the Treasury’s modelling? Just how many jobs are expected to be lost during the lifetime of the scheme? Why is there nothing substantive on skills and training? Labour and the trade unions have consistently called for concrete action to help to reskill people so that they can find good-quality jobs when the economy recovers. Why are the Government content to leave certain people behind?

Why are the Government still not providing tailored support for those sectors most in need of help? Hospitality venues are required to close early, having only recently reopened. Theatres and music venues are still unable to reopen, and we are familiar with the challenges facing sports clubs outside the top tier. Tourism and aviation will also continue to be impacted, probably for quite some time. The Minister will no doubt point to various pots of money that have been found over the past six months. However, consistent with my earlier point, such funds have been established only when sectors have reached breaking point. Early assistance could have made more meaningful differences.

I recognise that the Government cannot single-handedly fix every problem faced by the UK economy. However, the points that I have raised are neither new nor likely to go away. A competent Government would have addressed them long ago. Just how long are we going to have to wait?

[Baroness Kramer (LD)]

My Lords, the Government have not really grasped the double whammy of Covid and our departure from the single market and the customs union, even assuming that there is a free trade deal.

The measures announced last week, including job support modelled on the German Kurzarbeit, are welcome but fall far short. Many jobs in sectors such as the creative industries, sports and hospitality are long-term viable if they can survive the next six months, so can the Minister explain why the Chancellor has not targeted the necessary funds to get them through that six-month period? Three million members of our workforce were excluded from support the first time around, especially a swathe of independent contractors. Why are they excluded again, especially when so many who have become redundant will become independent contractors if they are to live?

The pace of companies being dropped from European supply networks is accelerating. Future FTAs outside the EU only marginally offset the lost business. This is completely aside from the issue of chaos at the borders. Why are these injured firms and workers not getting meaningful help? Are they now considered non-viable? Where are the scaled-up and innovative retraining schemes that are needed to deal with over a million redundancies by year end? Firms of all sizes are accruing levels of debt that will cripple their future growth. Where is the fund to recapitalise overindebted SMEs? Can the Minister explain how Scotland and Wales can meet their constitutional responsibilities to set a budget with no Budget this year from the UK? When will we hear from the OBR and get a good working forecast that deals with the situation as we now understand it? Being £2 trillion in debt may be something which the Government are comfortable with, but most of us would like to know what the principles are going to be on how that will be tackled and how it will eventually be reduced and repaid.

Economy: Update

Debate between Lord Tunnicliffe and Baroness Kramer

Tuesday 28th April 2020 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I am grateful to the Minister for repeating yesterday’s Statement and to the entire Treasury team, Ministers and officials, for their continued work in response to coronavirus.

As the Chancellor said in his Statement, these are tough times. The Minister read out the number of new universal credit claimants, as well as the staggering figure of 4 million furloughed jobs. He also warned that things are likely to get worse before they get better. Even if the figures do not grow, they are clearly worrying in the economic context. We have seen the projections of the OBR, the statistics in relation to business confidence and the analysis of a variety of economists and think tanks. However, throughout all this we must remember that behind the numbers and statistics are real lives and hard struggles to keep households running and businesses afloat.

Yesterday, the shadow Chancellor asked what steps the Government are taking to convert initial universal credit loans into grants to ease the burden on new claimants. She noted that the issue appears to be with the IT system behind universal credit, rather than a lack of political will. In response, the Chancellor listed a number of benefit reforms introduced by the DWP. However, he failed to answer the particular point on the IT problem, so I hope the Minister can comment. For the avoidance of doubt, do the Government agree that initial universal credit loans should be converted into grants if the IT problems can be overcome? If the answer is yes, what is being done to solve those IT problems?

Turning to the wider economic response, we welcome the many measures announced thus far and have, I hope, played a constructive role on occasions such as these. My honourable friend the shadow Chancellor has had multiple meetings and exchanges of correspondence with the Chancellor; I hope she receives a speedy reply to the questions attached to her latest letter.

The announcement of so-called bounce-back loans, which will be 100% guaranteed by the Government, is a welcome step. We are grateful to the banks for getting the scheme up and running so quickly and hope it will ease some of the concerns and cash-flow issues of SMEs across the country.

Problems remain for those firms seeking more than £50,000 of support. Many will rightly question why they are not able to access funds as quickly or easily. I therefore hope that the Minister can offer assurances that the Government are looking at ways to make the main coronavirus business interruption loan scheme faster and less cumbersome. The long-term cost of not improving the system could be significant. That said, we appreciate the speed at which the Treasury has worked to formulate its response to Covid-19, and that the calls from SMEs, backed by the Labour Party, for swifter access to business loans have been heeded, at least in part.

While we accept that the initial government response had to be reactive, I hope the Minister can comment on what is being done to shift thinking towards a more proactive, whole-economy view, whereby sector-specific problems are identified earlier. It is vital that further coronavirus support schemes are designed and rolled out when they are of most use, rather than when the situation on the ground has become critical. Specifically, is cross-departmental work being undertaken to produce a whole-economy view? If the answer is yes, who is responsible? If the answer is no, why not?

One example of this concerns pubs and restaurants. These businesses play a vital role in communities across the country, both in the pleasure they bring and the employment they support. However, they face perhaps the greatest uncertainty of all. They are likely to be the last to reopen and, assuming social distancing remains in place for some time, their capacity, and therefore their earning potential, will be much reduced. This raises a number of questions.

The Minister will know that Section 82 of the Coronavirus Act 2020 affords increased protections for commercial tenants, in the event of their being unable to pay rent. However, these protections will lapse at the end of June unless extended by a negative SI. Will the Government be extending this provision and, if so, until when? He will know that the equivalent protections in Section 81 for residential tenants run until the end of September, offering greater certainty. Further, can the Minister confirm whether the Government are looking at what forms of additional support may be provided for such small businesses, even once they have reopened? If firms are having to operate differently because of government guidelines, they should surely not have to accrue debt as a result.

Finally, if the earning potential of pubs and restaurants is limited for an extended period, what protections can the Government put in place to ensure that landlords do not begin to seek other tenants, such as fast-food chains or takeaway restaurants, which are likely to be perceived as safer options? There are many other examples of where long-term, proactive thinking is required, so I hope the Minister will make himself available for further exchanges in the future.

[Baroness Kramer (LD)]

My Lords, the bounce-back loans are clearly welcome, but I am going to press for more help for the self-employed who have fallen through the gaps in all the various rescue packages, especially the independent contractors who take much of their income in dividends and the newly self-employed. When we come out of lockdown, self-employment will be critical. It is a path for those who will have lost their jobs because of the pandemic and cannot return to them, and we will need innovation. As the Government know, a lot of innovation is embedded in these self-employed individuals, and I hope they will look again, because they must support this sector.

We all kept a minute’s silence today for key workers who have died, but many such key workers are very low earners with insecure work. Will the Government show their respect for these individuals by reviewing their funding of both social care and local government to ensure that those workers are properly paid, with proper employment rights, in recognition of the vital role they play and the vital contribution they make to all of us?

At the end of lockdown, public sector net debt will be at a historic high—certainly by the end of the pandemic. As the Government grapple with paying that debt down, will the noble Lord take action to tax the digital companies that have so far managed to pay very little tax in the UK though they now dominate large sectors of our economy? Indeed, they are doing well in the pandemic. I do not say that as an insult, but it increases the tax they should be contributing. Indeed, there are others who are, frankly, doing well out of the pandemic. Quite a number of traders have made windfall profits. Does the Minister agree that the Government should look for these companies to pay windfall taxes?

Civil Liability (Information Requirements) and Risk Transformation (Amendment) Regulations 2020

Debate between Lord Tunnicliffe and Baroness Kramer

Monday 16th March 2020 Grand Committee

[Baroness Kramer]

Of course, as the years went by it became evident that it no longer made sense. If I remember right—if I am wrong, the noble Lord, Lord Hodgson, will correct me—the way in which the lump sum is calculated is that award is made on an estimate of the length of time the individual will live, and the degree of injury and cost that will be consequent over that time. Therefore, the discount rate is the mechanism for bringing it back to a number which creates the lump sum. Even a very minor variation in that number creates a very different lump sum.

As we and the Treasury hunted around, it became impossible to find a reference rate that would work for all purposes: hence the move to say that the Lord Chancellor should make that decision, but with the advice of an expert panel. The expert panel was seen as an important part of it because there were so many changing and subjective elements that, in a constantly changing set of economies, would undoubtedly have play. All we were certain of was that 2.5%, the old rate, was not right and that minus 0.75%, which as I remember was the result of the Treasury finally going back and looking at its reference rate using the same methodology as in 2001, was obviously complete nonsense. It assumed that if you had a lump sum and were going to invest it, you would, first, do so on a risk-free basis and, secondly, look at such a narrow range of instruments into which to invest it that you would get only negative yield. None of us could think that even the most incompetent financial adviser would suggest investing money in that way, when there were plenty of secure ways. Even putting it into a bank savings account with a guarantee on it would have yielded far more, so it was clearly all wrong.

What has distressed all of us—I join the noble Lord, Lord Hodgson, in this—is that the advice of that expert panel was not taken. It was overridden, and instead of a number somewhere between 0% and 1%, which gave a lot of discretion to the Lord Chancellor, we ended up with minus 0.25%. That was not as bad as the minus 0.75%, which is obviously devastating as a discount rate, giving you a huge lump sum as a consequence. But it was still a number that most people felt could be justified only by someone looking at an ultra-conservative, unrealistically constrained investment strategy of that lump sum which would have to, as it were, deliver over the remaining life of the individual who had been injured.

We were all very concerned not to disadvantage someone who was being given a proper award for injuries they had sustained. That was never the purpose. Nor was it the purpose to be unfair in the way we treated insurance companies—less because we all love insurance companies and very much more because we know the cost is passed on. We heard a great deal from those who spoke up for young drivers, who often carry the highest premiums and, as a consequence of the original assessment of minus 0.75%, were going to see huge increases to their annual premiums, perhaps as high as £75 a year added on to the premium. We all knew that was completely inappropriate.

I ask the Minister as part of this—even though it is not within the language of the statutory instrument itself—to go back and try to understand why the recommendations of the expert panel were set aside. It seems we have never heard a sufficient explanation as to why it happened. If the expert panel is not going to be the answer, it seems we have to go back and look at some other system that everybody can rely on and have faith in.

As for the SI itself, I join the noble Lord, Lord Hodgson, in thinking, “Come on, guys—2025?” We are all slightly cynical and would like assurance a lot earlier that the revenue accrued, as a consequence of the change, is being passed through to the customer. That was an assurance given to us by the industry. I know that many of us who spoke up in favour of finding a new way to provide a personal injury discount rate did so only because we had that absolute assurance from the industry: that the money would be a pass-through and not a further distribution to shareholders.

I have no problem with the more technical aspects of this SI. It is just a good lesson that statutory instruments drafted in haste nearly always need to be changed sometime within the following 18 months. This is an introduction to that for this Minister. I am sure we will meet again around the table, changing statutory instruments—I seem to spend a large part of my life doing that. I thank again the noble Lord, Lord Hodgson, who covered all the issues. I support anything he said.

[Lord Tunnicliffe (Lab)]

My Lords, I take it from conversation that this is the Minister’s first appearance; I congratulate him on that. As he can now appreciate, Treasury SIs are somewhat intimate affairs. I thank the noble Lord, Lord Hodgson, and the noble Baroness, Lady Kramer, for their interesting speeches. Having done most bits of Treasury legislation over the last 10 years, I managed—uniquely—to dodge the bullet on this one and therefore was not part of these late-night parties, so my comments will be rather narrower.

We support this measure. Indeed, Part 2 deals with some of the concerns raised during the passage of the 2018 Act. I am generally not one for being overtly political, but I say to Ministers that exercises such as this should influence the Government’s approach to primary legislation. There may now be a large majority in the Commons. However, members of the Opposition and outside organisations will continue to offer sensible suggestions as legislation goes through Parliament. Rather than resisting amendments and having to introduce changes later on, Ministers would be better advised to engage on key issues and ultimately pass better legislation.

Following the passage of the 2018 Act, this instrument seeks to ensure that insurers pass on to consumers any savings generated from the changing calculation of the personal discount rate. This is achieved by requiring insurance firms to provide figures on their premiums, as well as the total value of claims, to the FCA.

In the Commons, the honourable member for Oxford East, Anneliese Dodds, asked the Minister what would happen to firms if they chose not to comply with the directive. That was an eventuality she deemed realistic, given that the Government have decided to legislate rather than pursue this informally. In his response, the Economic Secretary to the Treasury asserted that both the FCA and the Competition and Markets Authority already have the relevant powers in this scenario. I hope the Minister can confirm where such powers reside, so consumer groups can be reassured.

Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2020

Debate between Lord Tunnicliffe and Baroness Kramer

Tuesday 3rd March 2020 Lords Chamber

[Baroness Kramer (LD)]

My Lords, we are indebted to the noble Baroness, Lady Lister, for illuminating the underlying policy issues that underpin these statutory instruments. There is a real fear in my party—and I know in hers—that the changes that are taking place today embed, in effect, austerity for those on benefits and those on the lowest incomes. However, because we are looking at statutory instruments, I am going to make my comments extremely narrow. I recognise that for the annual rerating of NIC contributions and various other benefits, we are simply implementing a mechanism that has been through a normal parliamentary process. Frequently, this has been part of a Budget; it would certainly have been debated in both Houses, and MPs would have had an opportunity to express an opinion in the Commons if they wished to make changes. However, I am somewhat at a loss—and perhaps the Minister will help me—as to how any of that applies to the changes in PT and LPL.

It is not that I have a particular objection to the changes, but it appears that their basis lies in the Conservative manifesto, not in actions taken in the other place either in the form of a Budget—because the Budget is not due for another week—or in a finance Bill, which is where I would expect fundamental changes such as this, which affect most working people, to be embedded. It is hard to accept that changes are being made to national insurance contributions, which have a major impact on the Budget, but not within the context of the Budget. I am rather concerned that the Government might be returning to a pattern that we have seen in the past, when major policy change was introduced by statutory instrument rather than through primary legislation or being put into the Budget framework, where full debate and challenge could take place. It happened with universal credit, as I think everybody who is present in the House today will remember, and I am now concerned to see this appearing here within two of these statutory instruments. So that is where I would like the Minister to focus: to explain why a change which, as far as I can see, perfectly belongs to next week’s Budget and a finance Bill, is appearing in a statutory instrument, where, by definition, the debate is extremely limited and challenge is, frankly, near impossible.

[Lord Tunnicliffe (Lab)]

My Lords, I will take a similar self-denying ordinance to that of the noble Baroness, Lady Kramer, and speak relatively briefly. I would like simply to put on record my support for the excellent speech by my noble friend Lady Lister. I join with the noble Baroness, Lady Kramer, in failing to understand why this is not part of the Budget. Because it is not part of the Budget, it is lacking in process. In some senses, virtually all the changes that the Minister described are designed to introduce the CPI increases of 1.7%. Insomuch as that has previously been announced in budget processes, I cannot object, except on the wider basis that my noble friend Lady Lister outlined.

There is one particular increase, however—the increase in PT, which I am told is the “primary threshold”—which is not in line with inflation. Its excuse for being introduced is that it is in the Conservative manifesto. I have a copy of that manifesto and I have to admit that I could not find it. Fortunately, a member of the Treasury was able to advise me that it was on page 15—which was conveniently not numbered, but never mind. It says:

“We not only want to freeze taxes, but to cut them too. We will raise the National Insurance threshold to £9,500 next year—representing a tax cut for 31 million workers.”


I thought that a basic rule of introducing a change of policy would be that it would be properly costed. Just to make sure that this was not trivial, I did a few sums. The effect, as the Minister said, is to increase the threshold by £868; it would have increased a little anyway because of the 1.7%, but the policy impact is something like a real £720 increase. If you multiply that by the 12% rate and the 31 million people involved, you get a figure of, say, £2.7 billion. My concern is that such a sizable sum ought to have been properly set out and illustrated.

The Explanatory Memorandum says:

“A Tax Information and Impact Note has not been prepared for this instrument as it gives effect to previously announced policy and it relates to routine changes to rates, limits and thresholds.”


Well, it does not. This one is clearly a policy change, and clearly the cost is a few billion pounds. Will the Minister tell us how much it will cost? Why was it not set out in the Explanatory Memorandum? Surely it is improper to introduce a national insurance change that is a reduction in taxation without calculating its cost and putting that in the public domain.

Employment Allowance (Excluded Persons) Regulations 2020

Debate between Lord Tunnicliffe and Baroness Kramer

Tuesday 3rd March 2020 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I will be extremely brief. I am supportive of this change. It seems appropriate that the employment allowance is focused on the smallest businesses. I fully accept what the Minister says: that small businesses will be far more motivated to take on additional staff than any large business by this—in effect—grant.

On reading this, it seems that one of motivations is to make sure that the employment allowance is covered by only the de minimis regulations in the EU. Am I correct that it is the Government’s long-term policy focus to direct this aid towards small businesses, and that this is not just an accommodation to what they see as an EU framework—in other words, that it portends the future? Can the Minister give us any further assurance that any money saved will be redirected into the small business community?

[Lord Tunnicliffe (Lab)]

My Lords, the Explanatory Memorandum states:

“The purpose of this reform is to target the Employment Allowance to support smaller businesses.”


It directs us to Employment Allowance: Excluded Persons Regulations 2020, a document published in January this year, which repeats that statement:

“This reform is designed to focus the Employment Allowance at the original intended beneficiaries: smaller businesses.”


This is rubbish. You have businesses that can currently claim this £3,000, you have a very large group of businesses whose NI bill is less than £100,000—for which the rules will not change one iota as a result of this SI—and you have another group in the £100,000-plus category that will get nothing. It may be the Government’s intention to focus on smaller businesses, but this SI has no such effect. In fact, the sole impact of this SI is to save the Government money. I do not mind this, and the statutory instrument is perfectly reasonable. I just do not like the fact that false claims are made in this document. Unless the noble Lord is able to give me the assurance that the noble Baroness, Lady Kramer seeks, it seems improper to claim that taking money from one group while doing nothing about another somehow focuses more money on the group that you are not going to change.