Financial Services and Markets Bill [HL]

Lord Vaux of Harrowden Excerpts

Committee stage
Monday 6th July 2026 Grand Committee

[Lord Vaux of Harrowden (CB)]

My Lords, this group is really two separate groups as far as I can see, and I am not quite sure why they have been lumped together. One is on operational readiness and the other is on the different treatment of wholesale and retail activities. I will add my support briefly to the principles behind the latter, on wholesale and retail activities, and to Amendments 142A and 142C, tabled by the noble Lords, Lord Hunt and Lord Ashcombe. These bring us back to proportionality, which we have debated a number of times. The Minister can probably see a few themes coming through, and proportionality is definitely one.

In this case, the question is whether the regulators treat wholesale businesses with no retail customer exposure proportionately. By definition, wholesale businesses are dealing with sophisticated customers on a much more equal basis. It cannot be controversial to suggest that the regulation of these businesses could be lighter touch than for those dealing with retail customers.

The report of the Financial Services Regulation Committee on the secondary competitiveness and growth objective gave a number of examples where it appears that the FCA may not be doing enough to differentiate between these two parts of the market, while recognising that this is not always a clearly defined black and white boundary. Howard Davies put it well in his witness evidence:

“In wholesale markets, you are aiming to produce a fair contest, whereas in the retail markets you know it is not a fair contest because there is a significant information asymmetry problem between the consumer and the firm”.


The noble Lord, Lord Hunt, quoted the committee’s conclusion on this matter, so I will not repeat that. Whether this means that we need a separate wholesale markets and firms division within the FCA, as the amendments propose, is debatable, but I will be interested to hear how the Minister proposes to ensure that businesses that are primarily or wholly wholesale in operation are regulated proportionally.

[Lord Holmes of Richmond (Con)]

My Lords, I support Amendments 142A and 142C from my colleagues, the noble Lords, Lord Hunt and Lord Ashcombe. As has been said, this can be summed up in one word: proportionality. We have debated these themes on previous days in Committee and they are still as strong as they were when we mentioned them on day one. To “proportionality” I would add “specificity” and “applicability” because, without making this critical distinction—though difficult in some of the marginal cases—we are effectively saying that rules apply across the piece, which inevitably means increased burdens, increased costs, a lack of specificity, inapplicability, and holding firms and the UK economy back.

As the noble Lord, Lord Hunt, rightly said, we have the at least odd situation right now where pet insurance is treated the same as marine or aviation insurance. I can see only one potential case where this would be appropriate: if many people were petting flying fish. As I do not believe we have an increase in flying fish petting, I believe that proportionality, specificity and applicability would be achieved by embracing the principles set out in Amendments 142A and 142C.

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[Baroness Bowles of Berkhamsted (LD)]

My Lords, I support these amendments. They almost follow naturally from the debate that we had earlier about the need for a structurally competent wholesale function within the FCA. It is clear that you cannot produce a credible cost-benefit analysis without a credible evaluation capability. The PRA has understood that and already has the beginnings of an evaluation function, as the noble Baroness, Lady Noakes, said.

I can understand that in part, because prudential regulation requires modelling, capital assessment and an understanding of how rules transmit through markets. The PRA’s world is balance-sheet solvency, capital modelling and risk transmission, so it already employs actuaries, quants and economists, and the evaluation office therefore fits more naturally into that culture. The FCA is different; its culture, as we have discussed, is overwhelmingly consumer focused. That is appropriate for retail regulation but it means that the FCA has never developed the technical machinery for the evaluation of wholesale market impacts. Consumer protection does not require the modelling of liquidity, pricing dynamics or market structure, but wholesale regulation does.

It occurred to me only when I was thinking about this in the context of this amendment that the need for an evaluation office points again to the different sides of the FCA and why somehow upgrading, or separating the wholesale side, becomes more relevant because functions are missing due to the consumer focus. We have heard that the FCA tends to do the minimum of cost-benefit analysis required by statute and then largely ignores it—again, probably because it thinks that it is not relevant to consumer protection, but I would say it is to the particular detriment of the wholesale side. That is an additional reason for supporting these amendments.

[Lord Vaux of Harrowden (CB)]

My Lords, I am sorry that I was not able to be here last Wednesday for the debates on the amendments tabled by the noble Lord, Lord Bridges, and others that proposed the creation of an office for financial regulatory accountability. I have read the debates in Hansard and there is a remarkable similarity to three years ago when we debated similar amendments. This was a significant error in 2023 during the passage of the last Financial Services and Markets Act. It would have been a significant improvement to the ability of Parliament to hold the regulators to account—a complement rather than a replacement.

I shall touch briefly on the ability to scrutinise the proportionality of specific rules. I shall look closely in Hansard at the Minister’s comments during the second group, when he seemed to agree that the specific scrutiny of the rules is in fact important, contrary to the approach that the Bill now takes. This holding of the regulators to account by Parliament has become only more important and more difficult, I think, as we give yet more responsibilities to the regulators under the Bill with, as we have heard, the move of the PRS, the Consumer Credit Act and so on.

Amendment 142 would provide an alternative way of achieving something similar to the amendments that were discussed on Wednesday that might perhaps be easier for the regulators and the Government to accept. It proposes the creation of offices of regulatory evaluation within both the FCA and the Bank but, unlike the office for financial regulatory accountability proposed by the noble Lord, Lord Bridges, it would lie within the regulator, although it would probably have much the same role. Whichever way we do it, I am sure the Minister will have heard loud and clear the concerns that are shared across the Committee about the accountability of the regulators to Parliament, another of the main themes that are emerging as we load ever greater responsibilities upon them.

[Baroness Kramer (LD)]

My Lords, I cannot improve on the three speeches that have been made. I rise simply to make clear that on these Benches, we think that this amendment is really important.

We can see in Committee that it is purely random that we have the capacity to raise many of the issues. The noble Baroness, Lady Noakes, and my noble friend Lady Bowles have a deep understanding of the market, as does the noble Lord, Lord Vaux, but it is purely random that they happen to be in the Lords. If we did not have the noble Lord, Lord Holmes, we would struggle to deal with many of the issues around digital assets and the revolution that is taking place. We have no system of ensuring that, in any part of the parliamentary process, there is the capacity to get to the relevant pieces of information, understand the underlying issues and play the role that Parliament should be playing—whether at committee level, with a Special Standing Committee, or as associated with the passage of a piece of legislation. None of that can be done without genuine, adequate and well thought-through information.

Looking at other Parliaments around the globe, in the US, the Senate and Congress have vast numbers of staff available to make sure that those who represent the voice of the people are truly informed in great detail with proper understanding of the articles that are before them and the regulations that they seek to uphold or overturn. We lack this here. We are still an amateur body, which is not appropriate for a modern society. This is a very significant change, but it must be a change in the right direction. From these Benches, we very much support it.

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[Baroness Noakes (Con)]

My Lords, in moving this amendment, I will speak also to Amendment 153 and the Clause 37 stand part notice.

I am instinctively suspicious of Clause 37 because I think that the best people to judge whether overseas financial services firms should be able to operate in the UK, and to determine the terms on which they operate, are the regulators. The Bill hands major judgments to the Treasury, which means that they are likely, at least in part, to be political judgments. Although new Section 408A requires the Treasury to have regard to various things, that list is not exclusive, so there is nothing to stop the Treasury taking into account factors other than those listed in new subsection (2). Decisions could be made, for example, in pursuit of foreign policy aims against a wider background of international relations in relation to the EU reset. Financial services could also be traded away in the context of international trade agreements. Even if the Treasury sticks with the list of “have regards” in new subsection (2), that subsection has no hierarchy of criteria. Financial stability is on a par with international competitiveness and growth.

This is in stark contrast to the regulators, where international competitiveness, growth and competition are secondary objectives that cannot override their core objectives. I fully support the Government’s quest for economic growth and the pursuit of international trade agreements but, under new Section 408A, the Treasury could set aside any concerns about the integrity and stability of the UK’s financial system because it favours facilitating international competitiveness and growth. Is this really what the Government are trying to enable?

We know that some countries, such as China, seem to have technical compliance with many international financial services standards although, in practice, the degree of state control and the weakness of local regulators leave a lot of questions to be answered about the organisations in their financial services sectors. We know that the Treasury wants more trade with China. Will it let Chinese financial services firms freely into the UK in order to facilitate that? How will the Treasury ensure that it gets a good deal for British financial services firms? Some countries, such as India, give the appearance of allowing foreign firms to operate in them. However, in practice, India places many hurdles in their way, and many organisations give up the struggle after a while. Does the Treasury really have the granular understanding of what is happening in these countries?

My own view is that it would be dangerous to let the Treasury loose on this area, and that the independent financial services regulators are the best people to determine who can operate in the UK and on what terms. This is why I oppose Clause 37 standing part of the Bill. However, I have heard from some in the City that they welcome this new overseas recognition regime, because the regulators do not prioritise negotiations with their foreign counterparts and there is little faith that they ever will. That has a ring of truth to it. The FCA has far too many other things to do, and the Bank and the PRA are exceedingly cautious. For that reason, I have tabled Amendments 152 and 153 in order to emphasise the important role that the regulator should have in the process.

Amendment 152 would add a requirement for the Treasury to consult the regulators when it uses the power under Section 408B. As currently drafted, the Treasury has to consult the regulators only if it exercises the power to recognise overseas firms to operate in the UK under Section 408A. The Treasury does not have to consult the regulators if it uses the Section 408B power to recognise overseas territories. My amendment poses the question: why not? The regulators are likely to know more about financial services and regulation in the overseas countries than the Treasury.

Amendment 153 is aimed at improving the information given to Parliament when the Treasury brings forward regulations to use these new powers. It would require the Treasury to publish any information or advice received from the regulators in connection with the use of the powers. As I mentioned, the Bill requires the Treasury to consult the regulators on only one of the two powers, but then the Treasury could completely ignore the information or advice that it receives from the regulators and Parliament would be none the wiser. This should be more transparent. The Treasury must be prepared to say why it has ignored or overridden the advice that is received, if that is indeed the case. It must therefore be prepared to share any relevant information with Parliament.

We all know that secondary legislation processes give Parliament no effective power over the Executive. That does not mean, however, that Parliament can be ignored. I believe it is necessary to force a bit of daylight into the process and not tolerate the suppression of relevant information from Parliament. Consistent with the stance I have taken throughout this Committee, if the Minister wishes to move his Amendment 154, I shall call, “Not content”. I think even the noble Lord, Lord Wilson, will accept that this amendment is not a small technical amendment.

I had hoped that the Treasury would have organised an all-Peers letter by now. It has had two weeks to do so since I first raised the issue. I was informed on Friday that the Government think it is okay just to write to the Front Benches on some government amendments. Since I was the only Peer who had tabled amendments in relation to Clause 37, I believe it was, at a minimum, discourteous not to have written to me at the same time.

I do, however, stick to my broader point that the whole House should be informed. The scrutiny of Bills is not something that belongs in a cosy club of Front-Benchers. Someone needs to stand up for Back-Benchers and that is what I am doing in this Bill. I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I will be very brief. I am sympathetic to ensuring that the overseas recognition regulations are as pragmatic and seamless as they can be to enable easier international competition. But I have quite a lot of sympathy with the comments of the noble Baroness, Lady Noakes, about giving these powers exclusively to the Treasury.

I want to ask one question of the Minister. New Section 408A(2) sets out a list of areas that

“the Treasury must have regard to the importance of”

when making regulations. As an aside, that is quite odd wording; normally it is “have regard to”. I am still not sure I understand what difference

“must have regard to the importance of”

makes to the meaning. Maybe the Minister might explain that. New Section 408(1) does something similar but in a slightly different way. It seems that one area is missing from the lists of “have regards”: the question of economic crime, particularly anti-money laundering and the transparency of ownership in the relevant jurisdictions. Can the Minister say whether he agrees that those are important and explain why they might be missing from the list?

I will just finish with something I should have said earlier today, given that I think we are finishing early and the Minister is going to get some of his evening back: I wish him a happy birthday.

[Baroness Lawlor (Con)]

I endorse the concern of the noble Baroness, Lady Noakes, about the political pressure that the Treasury will be under to recognise certain countries. Without adequate scrutiny, wider advice and deep analysis, the problem of overleveraging in some banking systems, despite them appearing perfectly respectable, would expose the UK and its financial sector to the dangers of debt and contamination.

I therefore have doubts about the economic implications of the Treasury making these calls on account of political reasons. We see this all the time, whether on international agreements—I sit on that committee—or on European affairs, whose committee I previously sat on. There is constant pressure by Governments to sign treaties that are rather bad for the UK and its various sectors, including financial services. I would have concerns if there were no adequate scrutiny and no proper advice taken on whether such recognition is a good thing for our systems.

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[Lord Stockwood (Lab)]

My Lords, I thank noble Lords for their warm regards. The fact that this is the most attractive way to spend my birthday probably tells them something about how my life has changed in the past 11 months. I will turn first to Clause 37 and explain why it should stand part of the Bill. I will then cover the amendments, including the government amendment.

The UK is a truly global financial services hub. We are the largest global net exporter of financial services, totalling £103 billion in 2025, representing half of the UK’s services export surplus. Excluding the US, UK financial services exports in 2025 were greater than those of the rest of the G7 combined. Different counties have different rules for the same financial activities. As such, many countries have frameworks to recognise where rules are comparable to their own. For example, the EU has equivalence regimes, and the US has comparability determinations.

At EU exit, the UK assimilated more than 270 EU equivalence decisions across 40 EU equivalence regimes. However, the UK has no way to grant these kinds of decisions except where we have inherited that power from the EU. In new areas of regulation, such as stablecoins, the Treasury currently has no ability to create recognition regimes nor, consequently, to recognise overseas jurisdictions where they have high standards and our firms want to do business.

Clause 37 enables the Treasury to make new overseas recognition regimes. Creating these regimes is done through the affirmative procedure, meaning that no regime can be created without debate in Parliament. Designation under those regimes must then be made by regulations, with the evidence base clearly set out before Parliament each time.

A number of noble Lords, including the noble Baroness, Lady Noakes, and the noble Lord, Lord Vaux, asked me how the “have regards” that the Government must consider will function, and why they have been drafted in the way they have. I have been told that this is a complex piece of drafting, so I will write to them to explain the “have regards” in more detail and why the Government have taken the approach that we have.

Turning to the amendments, there are established processes in place that support the creation and operation of recognition regimes. I assure noble Lords that the points raised in Amendments 152 and 153 speak to matters for which current processes already exist, which support clear and balanced scrutiny of these regimes. The Treasury will always, as part of its designation process, summarise the evidence that it has received and considered in relation to other jurisdictions and their regulatory frameworks. That includes advice received from the UK’s financial services regulators.

The Treasury published, in July last year, guidance on overseas recognition and a memorandum of understanding with the regulators detailing the role of regulatory advice in the decision-making process for recognition designations. Within those documents, the Treasury has already committed to seeking advice from the relevant regulators in all but exceptional circumstances.

On Amendment 164D, tabled by the noble Lord, Lord Holmes, and spoken to by others, the Government recognise the potential benefits of working towards recognition arrangements on crypto assets with compatible jurisdictions. As I have mentioned, this supports the case for the Treasury to have the powers in Clause 37. However, the Government have the tools they need to be able to respond appropriately to international regulatory developments to facilitate the UK’s access to global markets and vice versa, while ensuring that consumers are adequately protected. These tools include the powers in Clause 37 alongside the existing power to create mutual recognition agreements that was introduced in the Financial Services and Markets Act 2023.

I reassure the noble Lord, Lord Holmes, that this does not reflect any desire on the part of the Government to be insular in the development of crypto asset regulation. The UK continues to play an active role in the development of international standards for crypto assets, including through the financial stability board and the work of the International Organization of Securities Commissions. The Government also remain committed to working closely with international partners through multilateral fora on our approach to crypto assets.

I turn now to the amendment in my name. When the Bill gains Royal Assent, there will already exist a number of overseas recognition regimes created using existing powers inherited from the EU. This amendment is a transitional provision that enables the Treasury to restate the existing regimes within the new overseas recognition regime framework. The power is narrowly framed; it can be applied only to regulations listed in a specific schedule to which the overseas recognition regimes are currently added once they are in force, and it can be used only to create substantially the same effect as the existing regulations. This is essentially a tidying-up exercise. Without this amendment, overseas recognition regimes created before and after Clause 37 comes into effect will be rooted in different legislation. As my noble friend Lord Wilson said, parliamentary counsel has agreed that this amendment is minor and technical. However, I understand that the noble Baroness, Lady Noakes, objects to this amendment, so I will not move it.

I thank noble Lords for this debate, and I hope that I have sufficiently explained the Government’s intentions. I ask the noble Baroness to withdraw her amendment.

[Lord Vaux of Harrowden (CB)]

The Minister has not answered the question I asked about why the “have regards” do not include the economic crime issues of anti-money laundering and transparency of ownership. If he wants to write on that, that would be fine.

[Lord Stockwood (Lab)]

I will write to the noble Lord.

Financial Services and Markets Bill [HL]

Lord Vaux of Harrowden Excerpts

Committee stage
Monday 29th June 2026 Grand Committee

[Lord Vaux of Harrowden (CB)]

My Lords, I have added my name to the Clause 17 stand part notice. As has been explained so clearly, the Government’s intention appears to be to put most of the consideration of the regulatory principles and “have regards” into the five-year strategy created by Clause 16. They believe that, having done that and thereby provided long-term clarity as to how those principles and “have regards” will be met at a strategic level, it is no longer necessary to apply them to the nitty-gritty of individual rule-making, which is why Clause 17 effectively removes them from that process. Rightly, the Government consider the secondary competitiveness and growth objective to be extremely important, so they have singled that one out for special treatment in Clause 20, and it alone must be reported on annually. That, at least, is to be welcomed but does have the somewhat odd effect of making the secondary objective more important than even the primary objectives, or any other principles which are not subject to specific reporting.

As we have heard, there are very real problems with this overall approach in terms of the impact on the ability of Parliament to scrutinise the activities of the regulators, including the committees that have been established for that purpose. As the Minister is aware, the Financial Services Regulation Committee of this House, of which I and a number of others in this Grand Committee are members, has taken the unusual step of writing to the Minister to set out our unanimous concerns in that respect. I very much look forward to the meeting that he will attend next week on that.

In passing, just before we started today, we received a letter and a Treasury note from the Minister. Point 15 in the Treasury note would slightly bring together the strategy and the Clause 17 elements, in that it says:

“The Bill will require the regulators in their annual reports to update on the extent to which, in their opinion, they have implemented their long-term strategy”.


I spent a fair bit of time since I received that trying to find where the Bill actually says that. I may be being very dim, but I cannot find it, so perhaps the Minister could point out specifically where that is. I may well have missed it, and I apologise if I have.

I also spent part of the weekend reminding myself of what the FCA’s existing 2025-30 strategy document looks like. I lead a very exciting life, as you can see. While “vacuous” might be too strong a description, it is a classic of its type, being full of motherhood and apple pie generalities and lots of attractive diagrams and pictures, but very little of real specificity or genuine measurability. Statements such as

“We will be a smarter regulator; predictable, purposeful and proportionate”,


sound great, but is this really something that could be meaningfully scrutinised? When I compare the rules in Clause 16 with what is actually in the current strategy, it appears to me that the current strategy would actually comply with Clause 16.

During the previous day in Committee, the Minister said, in reply to a question from the noble Baroness, Lady Noakes, about the existing strategy and whether it is the model on which Clause 16 is based:

“this is the starting point. There is definitely work to do and it needs to be improved”.—[Official Report, 24/6/26; col. GC 337.]

I cannot see how Clause 16 would improve it— I think it already complies—so I have no argument with the FCA having to have a longer-term strategy, but Clause 16 does not provide a sufficient basis on its own for parliamentary scrutiny and accountability, and that is where Clause 17 becomes such a problem. Clause 17 removes the need for the regulators to have regard to the regulatory principles and other “have regards” when going about its general duties, so apart from the annual report on competitiveness and growth in Clause 20 that I mentioned earlier, the only time the regulators will have to consider the regulatory principles—including, but not only, the critical issue of proportionality—will be in its five-year strategy. This would remove the need for regulators to explain how the regulatory principles apply to any draft regulations, at a time when they should be explaining not only the application to individual regulations but the cumulative impact of those regulations.

We debated last week how there is scope for an overhaul of the regulatory principles and other “have regards”, which have a tendency to proliferate. Perhaps that is where the Bill ought to be concentrating its efforts. Clause 17 represents a considerable downgrade on the ability of Parliament and indeed the Treasury to hold the regulators to account. Even as the Bill delegates ever-increasing activities to those regulators, this is a move in the wrong direction. So, by all means let us have a long-term strategy, but that does not substitute for the need for the regulators to have regard to the principles and other “have regards” when setting regulations, and to explain how they have been met. Clause 17 should be removed from the Bill.

[Lord Eatwell (Lab)]

My Lords, I want to follow on from the noble Lord, Lord Vaux, who commented that the committee was unanimous in its letter to the Minister. It was indeed: Conservative, Liberal Democrat, Labour and Cross-Bench Members were unanimous in rejecting Clause 17. The reason is that Clause 17 embodies the requirement to remove the principles from consideration by the committee. But those principles are the essential toolkit of the committee. This actually neuters the committee and leaves it just examining five-year strategies and annual reports, and without the ability to deal with specific proposals, which is the reason why the committee was established in the first place. By removing that ability, the Bill also weakens the regulators.

I am sure there are regulators in some office who thought that that was a neat way of getting rid of a very awkward committee. But it weakens, because, as the noble Baroness, Lady Bowles, pointed out, of the need for political cover—the need for a relationship between the political decisions and regulatory decisions. At the moment there exists this “proposal, accountability, critique” relationship between the regulators and the Financial Services Regulation Committee of your Lordships’ House. Remove that and the regulators are exposed to significant issues in a way they would not have been before.

I cannot see how in any way this measure improves a regulatory system that was built on the principles relationship established in FSMA at the beginning. It became particularly important once we left the European Union and the responsibility to examine the regulatory structure shifted from the European Parliament to this Parliament; and now, Clause 17 is taking away parliamentary accountability in any serious operational sense. It really should not stand part of the Bill.

Financial Services and Markets Bill [HL]

Lord Vaux of Harrowden Excerpts

Committee stage
Wednesday 24th June 2026 Grand Committee

[Lord Vaux of Harrowden (CB)]

My Lords, I have a number of amendments in this group that relate to the PSR. Before I run through those, I want to comment on Amendment 47A, moved by the noble Lord, Lord Holmes of Richmond. I must say that I am attracted by the idea of a payment systems panel. Payment systems are such a critical part of our financial services structure. They are used more often by more people and more businesses than any other financial service. If they go wrong, or become too expensive, or fail to prevent fraud or error effectively, the impact on individuals and businesses would be very significant. The abolition of the PSR risks dilution of attention to payment systems, so the creation of a panel has very real merit, and I will listen to the Minister’s answer with interest. I will also be interested to hear why the payment systems competition objective in the Bill is missing elements originally included in the Financial Services (Banking Reform) Act 2013, as the noble Lord, Lord Holmes, has pointed out.

I move on to my Amendment 49, which is simply a request for clarification and understanding. I have read new subsection 131Z3(2)(d)(ii), inserted by Schedule 2, a number of times, but have been struggling to understand the double negative in it. I think I now understand that it means that any system that includes any arrangements using digital settlement assets may be a payment system even if that system’s primary purpose is not that of enabling persons to transfer funds. Is that correct? If so, why is that? Why do we treat systems not primarily intended to be used for the transfer of funds, but which include digital settlement assets, differently from systems that do not include digital settlement assets?

Amendments 50 to 53 are all related and designed to reduce the discretion of the Treasury to designate or not designate a payment system as a regulated payment system. As it stands, the Bill gives the Treasury complete discretion. The Bill sets out when the Treasury may designate a payment system to be regulated, but whether it does so is entirely at its discretion, subject only to some consultations. If it does not wish to designate a payment system as a regulated payment system, it does not even need to consult. Similarly, new Section 131Z6 gives it complete discretion to withdraw any designation at will at any time. Why does that matter? That might be best illustrated by a completely hypothetical and obviously completely made-up example. Stablecoins are generally recognised as being primarily a payment system. Let us imagine that there might be a politician who has received a donation of, shall we say, £5 million from an overseas billionaire who is a major shareholder in the world’s leading stablecoin issuer. Perhaps that politician may not have registered such a donation. Let us imagine that that politician gains a position of influence over the Treasury and feels that the interests of his benefactor might be assisted if stablecoins, or indeed a particular stablecoin, were not designated as a regulated payment system. The Bill, as drafted, would allow exactly that to happen. Does the Minister agree that this feels somewhat inappropriate and open to potential abuse?

My amendments would reduce that discretion so that the Treasury must—“must”, not “may”—designate a payment system as a regulated payment system if it is satisfied that any deficiency in the design of the system, or any disruption of its operation, would likely have serious consequences for those who use or are likely to use the services provided by participants in the system. It would have to withdraw a designation if satisfied that those grounds are no longer met.

My Amendment 55 is another request for clarification; I recognise that it may not be required. Prior to being abolished, the PSR does not have a secondary competitiveness and growth objective such as that of the FCA. It has an objective to promote effective competition in the market for payment systems and services and an innovation objective, but those are different things. It was not clear to me when I read this whether, as the PSR becomes part of the FCA, the regulation of payment systems will become subject to the FCA’s wider set of objectives or not. This amendment aims to put that beyond doubt, but perhaps the Minister could confirm the position.

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Amendments 55A, 55B and 55C seek to amend the FCA’s payment systems competition objective. I agree that the FCA must be able to consider user access and market entry by infrastructure—

[Lord Vaux of Harrowden (CB)]

I am not sure I fully understood the Minister’s response to Amendment 55. Does the FCA’s secondary growth and competitiveness objective apply to payment service systems under the Bill? That was the clarity I sought.

[Lord Stockwood (Lab)]

It does indeed. Returning to Amendments 55A, 55B and 55C, I agree that the FCA must be able to consider user access and market entry by infrastructure and payment service providers. The Bill already achieves that. The FCA’s payment systems objectives are intended to be equivalent in substance and scope to the PSR’s existing objectives.

The noble Lords, Lord Holmes and Lord Vaux, asked about drafting differences between the FCA and the PSR objectives. Changes in drafting of the FCA’s payment systems objectives are for simplification only. The FCA’s payment systems objectives retain the substance of the PSR’s objectives.

Turning to Amendment 57, the Government are committed to improving financial inclusion, but a new levy on payment system participants is not the right mechanism. The better course is targeted and proportionate action, including through the Government’s financial inclusion strategy and the recent allocation of £132.5 million in dormant assets funding to Fair4All Finance.

On Amendment 101A, the Bill already provides for the secondary competitiveness and growth objective to apply to the payment systems’ general functions. Any reporting on that secondary objective would include its application to payment systems’ regulation, as appropriate. Therefore, the Government consider the amendment unnecessary and are satisfied that the Bill already gives the FCA the right objectives to support innovation, competition and growth.

Finally, Amendment 48 seeks to introduce maximum and minimum lengths for the consultations undertaken by the FCA and PRA. I understand the desire to ensure that, where regulators consult on proposed rule changes, stakeholders have a fair opportunity to consider the proposals and respond properly. However, this amendment would impose a rigid statutory timetable on consultations, which will cover a very wide range of issues that vary considerably in complexity, urgency and market impact. The Government’s view is that it is appropriate to allow the regulators to determine the appropriate consultation period, rather than being bound to timings set in primary legislation.

The noble Lord, Lord Vaux, is right on how we describe the interpretation of the drafting; I commend him for his skill in reading a very technical provision that I have had difficulty reading. He asked why payment systems that involve digital settlement assets are treated differently. This reflects the particular characteristics of digital settlement assets and the way the market is developing. It also reflects the existing arrangements under the PSR framework.

The Bill preserves flexibility to bring relevant systems within the scope of payment systems regulation, where they support payment activity. That does not mean automatic regulation. The system must still be designated by HMT before the FCA’s main powers apply. This approach ensures that the new framework is both future-proofed and proportionate. The noble Baroness, Lady Neville-Rolfe, raised the issue of consultations with industry. The FCA works closely with industry, and the Bill sets out clear consultation requirements on the FCA to support this as it takes on this new role.

As I said at the start, I cannot accept these amendments, but I appreciate the spirit of where they come from. The Bill is aimed at ensuring that we have the right institutional framework for this part of the sector, while ensuring that we do not weaken those consumer protections. I therefore ask the noble Lord to withdraw his amendment.

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[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will speak to Amendments 72 and 75 and to my opposition to Clause 16 standing part of the Bill. I also support the other amendments in this group and their intentions: I think we could talk quite a lot longer about them all.

My Amendments 72 and 75 would require the regulators’ long-term strategies to include a review of their rulebooks, with the aim of identifying outdated or unnecessary requirements. That is a sensible and uncontroversial idea. No one disputes that the regulatory rulebook should be kept under review or that unnecessary or duplicative requirements should not be removed. Indeed, the FCA’s own handbook review consultation acknowledges that parts of the rulebook are outdated, unclear or internally inconsistent. I hope that this review idea can be taken up.

However, these amendments presently sit within Clause 16, which is where the problem lies. Clause 16 creates a statutory duty for the FCA and the PRA to produce long-term strategies. In principle, that is not objectionable; regulators have produced strategy documents before, and it is entirely proper that Ministers should be able to input as long as it is transparent, but there are other problems that have been elaborated on by the noble Baroness, Lady Noakes, which I do not need to repeat. In practice, however, Clause 16 is the delegation engine for Clause 17. It is part of a process of downgrading the day-to-day requirements, the regulatory principles on rule-making, into a commentary in a five-year strategy document. This is a profound change in the constitutional architecture of financial regulation. What were once operational regulatory principles, enforceable by judicial review—even if that route is rarely pursued—become strategic aspirations, influenced by Ministers, unchallengeable by others and reviewed only every five years. The long-term strategy is being used as a vehicle to downgrade regulatory principles and apply them in a minimalist, non-operational way—just talk, no walk. If Clause 16 is to remain, it must be made significantly better and not simply operate as a Trojan horse.

The key thing about regulatory principles is how to make them sensibly relate to operational matters— I say sensibly because that has not happened. That is the problem. It may work for some of them to be dealt with more thematically and rather more regularly than five-year intervals, but others need consideration at the rule-making and supervisory level. While Ministers are meant to stay clear of day-to-day operational interference, like the noble Baroness, Lady Noakes, I query whether Clause 16 overly restricts ministerial input. FSMA 2000 has always had a difficult settlement to keep government away from day-to-day decisions, but—as the financial crisis showed—it is inescapable that the buck stops with government. Clause 16 does not strike the right balance there.

My Amendments 72 and 75 point to rulebook review. As I said in a previous group, and as noted by the Lords Financial Services Regulation Committee, it is effectively the regulators’ system that is cluttered, fragmented and difficult to navigate. It is a lot harder to navigate than a few regulatory principles that the regulators complain about, but which are the only way to challenge that regulatory clutter. In the Lords committee report, a central finding was that culture change, not structural tinkering, is what is needed. Regulators must be clearer, more predictable and more proportionate in how they exercise their powers. The Clause 16 regulatory strategy does not deliver that; it substitutes what were enforceable operational requirements about proportionality with unenforceable talk.

It rather looks as though the regulators will avoid having to step up to the mark. They did not much like the committee’s report or its suggestions of culture change, and, as we will discuss when we get to Clause 17, in the words of one City commentator, it looks like the regulators have done a job on Parliament. Clause 16 is not about transparency, nor is it new in suggesting a strategy document. It is just a vehicle to diminish the accountability and effectiveness of the regulatory principles, and I oppose it.

[Lord Vaux of Harrowden (CB)]

I have added my name to three of the amendments tabled by the noble Baroness, Lady Noakes, in this group. To be honest, I am not quite sure why I did not add my name to her other two; I should have done, so I apologise. The noble Baroness has already explained those with her usual clarity, so I will try hard not to repeat what she said.

Briefly, on Amendment 70, I was going to say that I assumed that the omission from the FCA’s strategic priorities of its secondary objective was an oversight. The noble Baroness, Lady Noakes, has kindly shared with me an email she has received from the Minister that effectively confirms that, and that it will be sorted out at a later stage. Can I very gently say to the Minister that when he writes to noble Lords, it should be copied to all who have signed an amendment? On Amendments 73 and 76, I will listen with interest as to why the Treasury should be able to make recommendations to the FCA and the PRA only in relation to the long-term strategies—that is, every five years. I suspect that the Treasury will come to regret that restriction.

I have also added my support to Amendments 72 and 75 in the name of the noble Baroness, Lady Bowles, both of which would require the FCA and PRA to carry out a review of their regulations as part of the five-year strategy process, with a view to eliminating any unnecessary regulations. Rulebooks have a habit of growing—being added to—and scope has a tendency to creep, so a five-year spring clean must be a good thing and would be a good discipline that I would wholeheartedly support. I finish by saying that I share the reservations that have already been raised about the whole of Clause 16.

[Lord Massey of Hampstead (Con)]

My Lords, the Bill reflects the very substantial transfer of power, as mentioned by my noble friend Lady Neville-Rolfe, from Parliament and from existing regulators, such as the PSR and the 22 professional bodies with specialised knowledge of the sectors, as we discussed earlier. This reflects a high degree of centralisation of regulatory supervision, which may lead to a lack of clarity and, in some cases, as my noble friend Lord Mackinlay mentioned, double regulation for small firms. As the noble Baroness, Lady Bowles, said earlier, the system is also already overloaded. In that context, given the extensive proposed changes and the real possibility of unintended consequences, it seems that the Government should consider the setting of strategy for the future as an important component of the Bill.

Although I support all the amendments in this group, I emphasise the need for consultation with regulated firms and the regular review of the rulebooks as provided for in Amendments 71, 72, 74 and 75. The Bill indeed provides for the publication of a document and consultation with one party—the Court of Directors of the Bank of England is specifically mentioned as a party that will be consulted—but seemingly not with any regulated firm, despite the fact that regulated firms could clearly be very helpful in the setting of long-term strategy. Amendments 71 and 74, proposed by my noble friend Lady Noakes, therefore seem essential additions to the Bill, as would Amendments 72 and 75, proposed by the noble Baroness, Lady Bowles, and the noble Lord, Lord Vaux.

--- Later in debate ---

I have much sympathy for the regulators who must navigate an array of “have regards” as they do their work. The whole “have regard” area could do with a review, which is what I initially thought the Government’s Leeds reform was going to do. That is clearly outstanding business. My amendment, as I said earlier, starts with the regulatory principles, but that is not by any means the whole of the problem. I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I hope to keep the noble Lord, Lord Wilson, happy by being very brief. One of the things that came out of the committee’s report was the proliferation of principles and “have regards”, et cetera. It is ripe for a review and an overhaul, and I agree with the noble Baroness, Lady Noakes.

[Baroness Kramer (LD)]

My Lords, I very much suspect that the noble Baroness, Lady Noakes, and I would find significant differences in our ideal list of the regulatory principles in Section 3B(1) of FSMA. I will argue in the next group for a “have regard” to the risks of the private credit market to financial stability. In group 8, my colleagues will argue for a “have regard” on sustainability and in group 10 for a “have regard” on financial inclusion.

These are all probing amendments, but they reflect the need for principles to be reviewed, debated and potentially changed by Parliament, so that a review would have input from the regulators and from the Government, but the final decision would rest with Parliament, as it has always done in primary legislation.

To pick up one of the issues that the noble Baroness, Lady Noakes, made about durability, constant churn is unacceptable and would leave the regulators and the financial sector in confusion, and none of us wishes for that. But I think that on the whole, we can look back and say that Parliament has behaved responsibly. Not everybody likes all the principles, but the financial system and the regulators have not had difficulty in delivering, or considering and making sure it is having regard to, those particular principles, particularly when financial stability is at stake.

To me, what underlies all this is the democratic process. I do not believe that principles can be abdicated to a regulator, which is what happens with the Bill—they go off into the long-term strategy. I believe this is for Parliament, and I would very much always support a review. Parliament has that right and that responsibility.

Some of us rather suspect that the removal of the principles to the five-year strategy has been to provide a covert way to diminish the climate change principles. The noble Baroness, Lady Noakes, whom I respect, would move them through the front door, but for many of us there is a strong suspicion that this is removing them through the back door so that the Government do not get the opprobrium that would follow from groups that are concerned about net zero and climate change. Some in the financial services sector are actually very dedicated to achieving climate change targets, but there are also plenty of voices that regard every climate change target and every net zero as a cost and a regulatory burden, and it seems to me that those voices have had very strong sway with the Government.

I suspect, frankly, that we would never have had climate change in among the principles had it not been for Mark Carney, and I very much doubt they will survive in any substance as part of the long-term strategy unless there is something of a volte- face in attitudes as we keep going through very extreme weather conditions and it becomes apparent that there is a huge financial cost and a huge risk to financial stability from the extreme weather conditions and the consequence damage to our overall economic circumstances.

As I say, if the Government wish to change the principles, they should do it through the front door in the way that the noble Baroness, Lady Noakes, proposes: raise the issues, tell Parliament that they wish to make changes and argue in favour of those changes. But that is a fundamentally different approach from taking principles, which I suspect they dislike, and moving them to a long-term strategy so that they will, over time, dwindle but without visibility or any parliamentary input.

Financial Services and Markets Bill [HL]

Lord Vaux of Harrowden Excerpts

Committee stage
Monday 22nd June 2026 Grand Committee

[Lord Vaux of Harrowden (CB)]

My Lords, as this is the first time I have spoken on the Bill, I would normally apologise for not taking part in Second Reading but—how I can put this—I was enjoying my temporary retirement from the House.

[Noble Lords]

Oh!

[Lord Vaux of Harrowden (CB)]

It is very nice to be back to do another Financial Services and Markets Bill. As it is the first time I have spoken, I should declare a registered interest in Fidelity National Information Services, Inc., which is a large American company that provides services and software to a wide range of financial services companies around the world.

I have tabled Amendment 26 and given notice of my intention to oppose that Clause 3 stand part of the Bill. I have also added my name to a number of amendments in the name of the noble Baroness, Lady Noakes.

I have another interest to declare. I lost my local bank branch in my village some years ago, and I have just been informed that the last remaining bank in my nearest town is also about to close. To visit a bank branch for me will now involve a 100-mile round trip, so I am sympathetic to the idea that we need to do something to ensure continuation of access to banking services, especially in rural areas such as mine. At the same time, I am conscious that I probably visit a bank branch less than a couple of times a year, so I understand why banks feel it necessary to close them. They are not economic. We need to find a sensible balance to this. I accept that we may need to do something, but what?

There is the old joke: “We need to do something; this is something, so let’s do it”, but Clause 3 is not even something. It is just a vague—I was going to say promise, but it is not even that—intention to do something completely unspecified at an unspecified time, or indeed times, in the future. This Government have an unfortunate track record of putting sweeping powers into legislation before deciding what they actually intend to do with them, and this is yet another example. As the Delegated Powers and Regulatory Reform Committee pointed out really strongly, this is a very sweeping power with no meaningful limitations at all other than, as we have heard, the need to have regard, and only to have regard, to the independent review currently being undertaken by Richard Lloyd.

Clause 3(3), which has only examples rather than limitations, is one of the widest I have seen. It includes the express ability to make changes to any Act of Parliament, a really strong Henry VIII power. It starts by saying:

“Regulations under subsection (1) may (among other things)”


do the things listed below that. Will the Minister explain what these other things might be? Am I being old-fashioned to suggest that this is not the right way to create law? It would surely be better to wait until after the review has been undertaken, decide what is needed and then legislate—if legislation is actually necessary, since, as the noble Baroness, Lady Noakes, says, we got these banking hubs without legislation—and have the legislation subject to proper scrutiny by Parliament, which it will not be if we go down this route.

The Minister will no doubt try to reassure us about how this power will be used. Of course I—and, I am sure, everybody else in this Room—will have complete faith that the Minister would not try to misuse the power, but he will not always be the Minister. That may be a comment that has particular resonance today. Who knows? It is even possible that this Government may not always be the Government, but this power is unlimited and will be the law for the foreseeable future. Who knows what a future Government might wish to do with such an unlimited power? Indeed, as written, they could even use it to reduce the rights of access to banking.

I have a few specific questions for the Minister. First, will he explain in more detail how the Government currently expect, subject of course to the review, to use this power? What do they expect to do with it and when? Secondly, will he explain which Acts of Parliament he has in mind that might be changed under Clause 3(3)(b) and what changes he would expect to make to them? I put on record now that if I do not get a very convincing answer as to why this wide Henry VIII power is required, I will push Amendment 26, which would remove the power to amend primary legislation, to a Division on Report.

Finally, the Explanatory Memorandum recognises that this is a broad power. It says it is “necessarily broad”. At the same time, and in contrast to that, it also seems to recognise that it is broader than really needed, as it goes on to say,

“the Government would expect to narrow it once the review has concluded”.

I am somewhat baffled by that. We are in Grand Committee now, and the timetable for the Bill seems pretty tight. Will the Minister explain how it would be possible to narrow it, given that the Bill is likely to have completed all its stages before the review is completed and they have worked out what they want to do with it? Once the Bill has become law, the power cannot be narrowed.

This is another example of the Government trying to show they are doing something before they have decided what they want to do, and therefore giving themselves inappropriately broad powers that avoid proper scrutiny when they do finally decide. It is not the right way to make laws that will outlast this Government, and I do not believe this clause should stand part of the Bill without at least very significant narrowing and safeguards.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will speak briefly to Amendments 24 and 27 in my name. I support what has just been said by the noble Lord, Lord Vaux. To some extent, we are again fishing in the same constitutional pond that regulators are not Parliament. Parliament should not give away powers it cannot get back, and it should not make decisions before we know what we are deciding about.

Amendment 24 would ensure that any regulations made under this clause can only make provision that arises directly from the statutory review. A review is not a blank cheque. If Parliament asks for a review of access to banking services, the regulation-making power should be, if not confined to, at least in some way related to what the review identifies and not what a future Minister or regulator might wish to do. That is my real target. It may be that I have drafted he amendment a little too tightly but, as has been explained, this is a very open-ended power to do anything. Looked at constitutionally, the fact that the consultation has not yet been completed and assessed more than stretches proper procedure.

Amendment 27 addresses a different but related concern. As drafted, the Bill creates machinery in which FCA rules effectively drive changes to legislation, including primary legislation. The FCA pulls the lever, the Treasury presses the button and the law moves to reflect the regulator’s rulebook. The Government will no doubt say that Parliament can always reject the regulations, but we all know how that plays out: Parliament is presented with take-it-or-leave-it unamendable statutory instruments, and if it dares to reject them, we are told we are precipitating a constitutional crisis. That is not meaningful parliamentary control.

I am not opposed to the FCA modernising rules or streamlining processes—far from it—but where those rules have the effect of altering rights or obligations that were created by Parliament, the change must meaningfully come back to Parliament. Otherwise, we risk creating a system where the regulator can, in substance, rewrite Acts of Parliament by changing its rulebook. That is not proportionate regulation; it is law-making without accountability. Again, this seems not to be the sort of thing expected under the Legislative and Regulatory Reform Act. These amendments do not prevent modernisation; they simply ensure that modernisation happens within a statutory framework, with Parliament retaining oversight of the rights it has created. It does not mean going into the detail, but it does mean monitoring the rights. I hope the Minister will recognise that these are modest but important constitutional guardrails.

--- Later in debate ---

[Lord Stockwood (Lab)]

My Lords, I will begin by setting out why Clause 3 should stand part of the Bill. The way that UK citizens bank has changed significantly in recent years, with many customers choosing to use digital channels such as mobile banking. As such, we have seen many firms reviewing how best to meet these changing needs, and banks are closing branches in response.

However, for some people who require access to in-person banking services, these changes may have resulted in detriment. The Government are committed to ensuring that people who need in-person banking, including vulnerable customers and those with specific needs, can continue to access essential services. Last month, as mentioned, the Government launched an independent review into access to banking services led by Richard Lloyd, former executive director at Which? and a former board member of the FCA. I encourage noble Lords to engage with him. As they have noted, he conducts this critical work. I am glad to hear much agreement from many noble Lords today as this is a critical issue and the Government are right to be exploring it.

Clause 3 ensures that we can act swiftly and proportionately if the evidence from the Access to Banking Services review supports intervention. Once the Access to Banking Services review has concluded and made its recommendations, the Government will assess whether any further legislative change may be required. I appreciate that the power is broad and that many of the amendments in this group are aimed at scrutinising or reducing the breadth of that power. I also recognise that the Delegated Powers and Regulatory Reform Committee has drawn Clause 3 to the attention of the House and recommended that the power be removed from the Bill. The Government have considered that report and will be responding in writing in the normal way before Report.

We accept that this is a broad power, but we consider that it is needed now so that, once the independent review reports, the Government can respond promptly and proportionately in light of the evidence and recommendations that it provides. As the review is still ongoing, it is not yet known what detriment exists, which customer segments are most affected, whether further intervention is needed or what form it should take. The Government are committed to keeping all aspects of this power under review as the independent review completes its work.

I pass on my personal welcome back to the noble Lord, Lord Vaux. His comments about Ministers changing is indeed pertinent on a day such as today. I am not casting too far in the future; indeed, I keep checking my phone just to see whether I make it through Committee stage.

The noble Lord whether this power could be narrowed. I can confirm that the Government expect to narrow the power once the review has concluded in October and we have had the opportunity to consider the recommendations. This will provide further clarity on any appropriate interventions that will allow the power to be refined.

[Lord Vaux of Harrowden (CB)]

If the review is going to be completed in October, presumably there will then be a period of time when the Government will consider it. In my experience, that usually takes several months, by which time the Bill will be law. I struggle to understand how the power can be narrowed, given that we are probably at the end of the year before proposals have come forward.

[Lord Stockwood (Lab)]

I was coming on to that point. The noble Lord asked what the power can do and how that scrutiny can take place. It allows the Government to introduce targeted secondary legislation or to confer functions on the FCA, including the power to make rules in the future. When using this power, the Treasury must have regard to the recommendation made by the Lloyd review.

I think the noble Lord made a point about what legislation could be amended. I can only answer this in part at this time: the Treasury expects to use the power if needed to amend relevant legislation, for example, financial services legislation.

--- Later in debate ---

[Lord Vaux of Harrowden (CB)]

My Lords, I have a number of amendments in this group on the subject of fraud and scams. I have also added my support to the lead amendment, which was tabled by the noble Baroness, Lady Kramer, and to which she has just spoken. Most of my amendments arise, at least in part, from the abolition of the PSR and the absorption of its activities into the FCA; I will quickly run through each of them.

The noble Baroness, Lady Kramer, has already explained the need for her Amendment 46, which would require the FCA to make rules to ensure that the tech or communications company on whose platform or service the fraud arises is responsible for a proportion of the cost of reimbursing the victims. Whether or not the mechanism in her amendment is the right one, the principle here is obvious. At the moment, it is the banks that must compulsorily fully refund victims of fraud. There is some sense in the banks having to reimburse victims, because almost every fraud goes through some sort of bank account to allow the fraudsters to cash out. It is clear that the mandatory reimbursement requirement has incentivised banks to do more to protect customers. However, we also know that fraud does not originate from banks’ services. According to UK Finance’s latest report, some 66% of scams arise on online services and a further 17% originate via telecoms. Let us be clear: the highest proportion of that arises on Meta platforms.

Despite voluntary charters, this is not improving at all. Your Lordships’ Fraud Act 2006 and Digital Fraud Committee, of which I was a member, recognised this in its report nearly four years ago; if the Minister has not read it, I recommend it as some bedtime reading. It said:

“Until all fraud-enabling industries fear significant financial, legal and reputational risk for their failure to prevent fraud, they will not act”.


We were right. Nothing has changed since then to change that conclusion. If anything, matters continue to worsen as technology such as AI starts being used by criminals. It is time that the platforms were at last forced to step up and take financial responsibility for the losses that arise from their platforms, not just leaving it to the banks to pick up the full liability. I say this to the Minister: in your answer, please do not tell us that the Online Safety Act will solve this. It is too limited; it covers only directly paid-for advertising and is unlikely to make much difference.

The Government’s fraud strategy recognises all this. It says that,

“if industry partnership and market incentives alone remain insufficient to drive improvements, the Government will take legislative action within this Parliament”.

This has been going on for years. The voluntary online fraud charter was signed three years ago. Nothing material has improved. Fraud is still around 45% of all crime, and the percentage arising on tech platforms has not fallen; if anything, it has risen. The Bill is the perfect opportunity finally to take action on this and not leave it until thousands more people have fallen victim. We know that tech companies will not take action unless they have to—they continue to prove that—which is why the Government are at last taking action in respect of child protection. This is no different. It is now time to act without further delay.

My Amendment 47 would introduce a requirement for the mandatory reimbursement rules for APP fraud, which came into force in October 2024, to be reviewed after three years of operation. It is unlikely that we got everything right at the first attempt, so a review of how effective they have been in meeting their objectives of protecting consumers and incentivising the banks to improve protections—as well as, importantly, whether there have been any unintended consequences—must make sense.

I have tried to set out in the amendment—I will not go through all the detail—the key matters that were discussed when the requirement was introduced in 2022-23 as the matters that ought to be reviewed. I would have also included the tech platforms, but I did not want to duplicate the amendment that we have just discussed.

I completely agree with the noble Lord, Lord Holmes, who sadly is not with us at the moment, on his Amendment 58, which would add specific fraud prevention duties on payment service providers. I also have a lot of sympathy with the principle behind his Amendment 125, which would introduce a financial fraud prevention secondary objective to the FCA, although I caveat that by saying that I am not sure that adding yet more objectives to the regulators is necessarily the right way to go.

My Amendment 59 is designed to ensure that the FCA continues to collate and to publish the fraud data that the PSR has been collating and publishing for the past few years. This has been extremely valuable. It has identified several PSPs that were clearly not taking their fraud prevention duties seriously and led to action being taken against them. The pressure of shining a light on some of the bigger players has clearly incentivised them to step up and improve their systems. The information identifies very clearly which PSPs are protecting their customers best and which are doing it worst, which is important information for consumers when choosing a bank or payment provider.

To give just one example to show the value of this reporting, the last report by the PSR identified that, for every 1 million transactions received by Guavapay, 109,744 were APP scam payments—that is more than 10%. As a result of that information, the company has been forced to close by the FCA. In the meantime, consumers would have been able to see that this was an unsafe operator if the report had been issued in a timely manner—an issue that I will come to in a second.

This reporting was started as a result of efforts by Members of the House during the passage of FSMA 2023, and it followed undertakings by the then Minister. But there are already signs that, since moving the PSR’s activities into the FCA, this has started to slip. As I said, the last report of this nature was for the period up to 7 October 2024, when the mandatory reimbursement requirement was introduced. That was not published until February 2026, some 16 months later. My amendment would add a time limit of three months for the publication of these reports. No further report has been published since, so I hope that the Minister will recognise the value of this reporting, and that he will confirm that it should continue and that this amendment—which does not create any new burdens at all but just continues the status quo—should be accepted.

Amendment 64 would reverse the deletion of Clause 72 from FSMA 2023—it was the clause that introduced the requirement to introduce a mandatory reimbursement requirement. In the Explanatory Memorandum, the Government explain that this is being removed because it has already happened. But Clause 72 does not only introduce the requirement; subsection (9) also includes the ability

“to vary or revoke a relevant requirement”

or

“to impose further relevant requirements”.

So I am not sure that deleting it in full works—that is something to look at. Most importantly, can the Minister confirm that the mandatory reimbursement requirement is intended to continue, even if reviewed and amended in the future—particularly in relation to tech companies, which we have talked about—and that this Bill is not intended to change anything in that respect?

[Baroness Neville-Rolfe (Con)]

My Lords, for reasons that will become apparent, I start by referring to my register of interests, including my shareholding in Meta.

I am grateful to the noble Baroness, Lady Kramer, the noble Lord, Lord Vaux, and my noble friend noble Lord Holmes, who is absent, for bringing forward this important group of amendments. I am sorry that this debate is so late and that the Grand Committee is so thin under the new five-hour arrangements—of which I am not a fan—because, collectively, these amendments raise an important and timely point. As online retail platforms and digital marketplaces become more popular and AI makes fraud easier, there has been a concurrent increase in the risk that people face from online fraud, as we have heard from the noble Lord, Lord Vaux.

We have seen concerning figures suggesting that Facebook Marketplace is now the single most scammed UK consumer platform. Very large sums are stolen through it every day in the UK, and a very high proportion of UK purchase fraud begins there. We have also seen banks such as Santander taking active steps to block suspected Marketplace transfers to protect customers. Those examples raise very important questions: how easy is it for consumers to obtain redress when they are defrauded in this way? Who holds ultimate responsibility when a fraud is facilitated through an online platform, and how can the regulatory framework ensure that the firms best placed to prevent the fraud have a real incentive to do so? It is also important to consider how changes can be made without introducing new rafts of regulation that put up costs and prices.

Banks and payment service providers have significant responsibilities, and rightly so. They process the payment, have duties to their customers, and have tools available to detect and prevent suspicious transactions. Yet they are often not the place where the fraud originated, and may see only the final payment instruction, by which point much of the harm has already been set in motion. By contrast, technology companies and online marketplaces may be much closer to the source of the problem. They host the listings, provide the communications infrastructure, enable the interaction between buyer and seller, and in many cases have access to data which could help identify suspicious behaviour before money ever leaves a consumer’s account.

Amendment 46 is based on the principle that fraud should be paid for by those best placed to prevent it, not simply those who happen to process the payment at the end of the chain. If platforms know that they may share liability where fraud is facilitated through their systems, they will have a much stronger incentive to identify fraudulent listings, remove scam accounts, improve verification, share data and co-operate with banks and regulators, and indeed help consumers to avoid fraud, as we can do a lot ourselves as consumers. This is not about saying that technology firms should always be liable in every case, nor is it about absolving banks of responsibility. Yet it recognises that the current model may place too much of the burden on one part of the system, while allowing other actors, including very large and profitable tech companies, to avoid the financial consequences of fraud which often begins on their platforms.

The goal should be to stop fraud before it happens, which means better consumer warnings, transaction monitoring, real-time data sharing, and use of technology by all relevant firms. It also means transparency. If particular platforms, channels or types of transaction are consistently associated with fraud, that information should be visible. Sunlight is an important tool of accountability, which is why Amendment 59 is valuable in principle. As the experienced noble Lord, Lord Vaux, has explained, regular publication of data on APP fraud performance, including where fraud originates, would help Parliament, regulators, firms and consumers to understand the real shape of the problem. It would put pressure on firms whose systems are repeatedly linked to fraud to improve their performance.

Before we take a definitive view on these amendments, I would be grateful if the Minister could address several questions. First, what is the Government’s view on the principle of shared liability for APP fraud across the wider ecosystem, including technology companies and online marketplaces? Secondly, is there a place for greater transparency on APP fraud performance? Thirdly, what discussions have the Government had with tech platforms about fraud originating on their services, and what more does the Minister believe those firms should be required to do? Fourthly, does the Minister accept that online platforms should have stronger incentives to prevent fraud where they host the marketplace, the listing or the communication through which the scam takes place? Finally, how do the Government envisage tackling this problem? Do they have plans to introduce legislation on this issue, or do they believe that changes within the existing framework will be sufficient?

APP fraud causes real harm to individuals, families and businesses. It can undermine confidence in digital payments and online commerce, which is increasingly the direction of travel. It also imposes costs on the wider financial system. I recognise that this may go even wider than our Bill, but this is an important group and I look forward to the Minister’s responses, and to seeing how we can improve this important area.

Employment Rights Bill

Lord Vaux of Harrowden Excerpts

Consideration of Commons amendments and / or reasons
Tuesday 16th December 2025 Lords Chamber

I declare my interest as a practising barrister who, in years past, appeared for clients, both employers and employees, in employment tribunals. I remind the House that for many years there has been no statutory cap on compensation for discrimination claims— sex discrimination, race discrimination or disability discrimination. That has not led to the chaos to which the noble Lord, Lord Sharpe, referred.

[Lord Vaux of Harrowden (CB)]

My Lords, at Second Reading in March—nine months ago, although it feels longer ago—I said that

“the Bill will damage growth and, most importantly, the employment opportunities of the most vulnerable people”.—[Official Report, 27/3/25; col. 1907.]

After nine months of debate and scrutiny, it is less damaging, but I still believe it is not a good Bill. It still piles cost and regulation on businesses and on the public sector at a time when we should be doing exactly the opposite.

But this House has done its job well and responsibly. We have pointed out the unintended consequences that the Bill may have, the potential damage to the employment prospects of the young and others, and the disproportionate impact on the backbone of our economy—smaller businesses. We have given the other place several opportunities to think again and, to be fair, it has done so in a number of areas. In particular, the Government have compromised on what I believe was the most damaging aspect, day-one dismissal rights.

We have also quite rightly registered our constitutional disapproval of the introduction of a material change at the very last minute—the abolition of the cap on unfair dismissal, which is the subject of Motion A. The Minister stated last week that the amendments were “context- and Bill-specific”. I take this and her reference to

“discussions with the Leader of the House on how she and other Members would like to conduct business more regularly”—[Official Report, 10/12/25; col. 276.]

as confirmation that the Government accept that this should never be seen as a precedent. This House would be right to reject it if it were ever used as a precedent in the future.

I have a lot of sympathy with the Motion proposed by the noble Lord, Lord Sharpe, but I am afraid I will not support it at this stage. We are in danger of over- egging the impact of the removal of the cap. I do not support it, but the water bosses, for example, will be remunerated if they are fired for contractual reasons, which is unlimited anyway. It is not going to be under the unfair dismissal rules. I am not convinced that it makes an enormous difference, but the noble Lord is quite right that we do not have an impact assessment yet.

Despite our giving it the opportunity to think again on many aspects, the other place has disagreed with our changes and decided that it wants to go ahead. That now also includes the cap on unfair dismissal claims. The time has come for us in this House to respect the will of the elected Chamber and let the Bill pass, regardless of any remaining concerns that I and many others still have. I will vote against the amendment for that reason.

I end with a final plea to the Minister. She will be aware of the latest employment figures and the worsening trend. She will also be aware that what the ONS described as this “subdued labour market” is disproportionately affecting young people. We should all be very concerned about that. The Resolution Foundation is also clear on this:

“As is typical in economic downturns, young people have been hit hardest. With unemployment expected to stay elevated, Government should be cautious about any further increases in labour costs”.


Much of the implementation of this Bill will be by regulation, which will follow over the coming years. I urge the Minister to ensure that the concerns that have been raised in this House and elsewhere are kept front and centre, and that the unintended consequences that may arise, especially for young people, are thought through very carefully while the regulations are being created.

It was encouraging that the Government listened to business organisations in the later stages of the Bill, especially around the unfair dismissal question. I urge the Minister to ensure that the Government continue to listen constructively to the concerns of those who will create the growth and jobs that will drive the economy, and especially that they make a much greater effort to hear the concerns of smaller businesses which are feeling rather ignored and concerned at the moment. That said, it is time to let the Bill pass.

[Lord Fox (LD)]

My Lords, this time last week I said that much had happened in the preceding interval. Today, the opposite is true. We are now down to one issue, but the arguments on that issue remain as they were last week. For that reason, unlike last week, this speech will be short.

There remain concerns about the removal of the cap on compensation, as we have heard. As he did last week, the noble Lord, Lord Sharpe, has taken those concerns and amplified them, to the seeming exclusion of the wider strategic position of what we are discussing. I understand the motives, and those motives became ever clearer just now. If the noble Lord would like to have a face-off on the water industry, I would be very happy to discuss with him the hundreds of thousands of tonnes of sewage that went into the rivers under the Conservative Government and the compensation terms that he very helpfully enumerated, which happened on his watch. However, this is not the arena for that argument, and I will pass without comment. My critique of the noble Lord’s amendment to the Motion is unchanged. We believe there are better ways of dealing with the cap than derailing the package that got the key concession with which we are all very pleased.

As set out last week, reiterated in the Minister’s letter and by the Minister just now, the Government will publish an enactment impact assessment for the Bill. They will do so prior to commencement regulations which would put in place the dismissal package. That was what we on these Benches were asking for and we were pleased to receive that assurance. Further, the impact assessment will be publicly available, and I was pleased to hear the Minister say that we will be engaging the community of business in the process of developing that impact assessment.

Many UK business associations and organisations share the feeling that there is nothing to be gained from the opposition amendment today. They are asking the opposite. As the Minister set out, six of the major organisations have sent a letter. It is a longish letter, as the noble Lord, Lord Sharpe, demonstrated by selectively picking elements out of it. But as the noble Lord, Lord Pannick, pointed out, the conclusion is clear and actually unambiguous, in saying,

“we believe that the best way forward is to keep working with the government and trade unions to find balanced solutions through secondary legislation. To avoid losing the 6 months qualifying period, we therefore believe that now is the time for Parliament to pass the Bill”.

I said that last week, and it is truer this week.

I also pointed out last week that, as the business organisations said, the key to enacting the Bill will be through secondary legislation. If His Majesty’s loyal Opposition care about how the Bill is brought into life, it is on those statutory instruments that they should focus their attention. Their critical actions must extend to include the possibility of fatal Motions to vote down secondary legislation and keep the Government focused on the needs of British business. That is the real arena that we should be working in.

If the amendment from the noble Lord, Lord Sharpe, is put to a vote and he seeks to extend ping-pong to yet another round, that will clearly be against the advice of the business groups which have been cited. I urge your Lordships to heed the advice of those organisations, and the advice of the noble Lords that we have heard opposite, and pass the Bill now.

Employment Rights Bill

Lord Vaux of Harrowden Excerpts

Consideration of Commons amendments and / or reasons
Wednesday 10th December 2025 Lords Chamber

The Minister has observed how the amendments from the House of Commons detail some further ways of making the process of opting out easier, but these relate much more to issues of timing, rather than the whole question of how difficult it is to exercise the right to opt out. I continue to hope that Ministers can be persuaded to reconsider their position to remove the obstacles—preferably to go down the route that I have suggested—and to make this process of opting out as easy as possible. Otherwise, I fear that we will have to go down this route many more times in the future.

[Lord Vaux of Harrowden (CB)]

My Lords, I thank the Minister and the noble Lord, Lord Collins, for meeting with me earlier today. It allowed us to sort out some misunderstandings, for which I am very grateful.

I will speak only to Motions B and B1. I somewhat regret that this is not the speech that I had originally intended to make—in fact, I had written it. I had intended to make a very short speech thanking the Minister and the Government for listening to the House, almost every business group, the Resolution Foundation, the Tony Blair Institute and their own impact assessment, and reaching a sensible compromise based on what this House proposed.

I was very pleased that the Government held talks between the business groups and the unions, and that all had agreed that the compromise was workable. Contrary to some of the more irresponsible comments that we have seen in the press—some coming from the other place, sadly—this was not a case of out-of-touch Peers blocking a government Bill. It was a good example of this House doing its job of scrutinising legislation and asking the other place to think again. We do not block legislation; we seek to improve it. I do not underestimate how difficult it was for the Government to make the important concession on day-one unfair dismissal rights that they have made.

Sadly, though, I cannot end my speech there. The Government set out the compromise they reached in an announcement on 27 November. It said that agreement had been reached on a six-month qualifying period, which would be changeable only by primary legislation —so far, so good. It also very briefly mentioned the lifting of the compensation cap, something that has never been discussed during the passage of the Bill. Then I saw the actual amendment, which goes somewhat beyond lifting the compensation cap. The amendment abolishes it altogether so that compensation for unfair dismissal will be unlimited, which I suggest is different from lifting.

As we have heard from the noble Lord, Lord Fox, it is at best ambiguous. I note that the Minister is now referring to removing the cap, which I think is more accurate. As we have heard, this does not appear to have been equally understood by every party to the agreement between the employer organisations and trade unions. A number of employer organisations are still expressing concerns about it.

Does this late change matter? The amendment removes the current cap on what can be claimed in an unfair dismissal claim. Currently, it is the lower of 52 weeks’ pay or £118,223. While it might be true that few claims go over that, that may well be because higher-paid people will generally reach agreement, knowing that the cap exists, rather than taking the matter to the tribunal. This change may incentivise more higher-paid people to turn to the already overburdened tribunal system. There is no downside to them doing so with the hope of a higher payout, or at least a strengthening of their negotiating position. As we have heard, the irony of this is that the main beneficiaries are likely to be senior employees on high salaries who are moving towards the end of their careers, not the workers the Government claim to be helping.

The noble Lord, Lord Sharpe, gave the example of the water industry. I was trying to think of an example and one rather closer to this House occurred to me. When the noble Lord, Lord Mandelson, was fired from his position as ambassador to the United States, there was a lot of speculation in the press that he might be able to claim for unfair dismissal due to the summary nature of his dismissal. Obviously I do not know the details of his contract, what has been agreed or anything else—it would be interesting to know what was agreed—but is this really the sort of situation the Government want to give the possibility of unlimited compensation to? It would certainly strengthen the negotiating hand of the employee in any such situation.

The truth is that we do not know what the effect will be or whether this matters. It has been introduced without warning at the last possible moment in the Bill, with no consultation, no impact assessment and no scrutiny. Whatever one thinks about the merit of removing the cap on compensation, this is not the right way to do it. I would go as far as suggesting that it is testing our constitutional processes to the limit. Legislation should not be decided in—I do not think I am allowed to say “smoke-filled” any more—darkened rooms as a deal between a limited number of interested parties. It is not the way we do things. This is a material change, and it deserves to be properly consulted on, impact-assessed and debated. It should have been introduced much earlier.

The amendment proposed by the noble Lord, Lord Sharpe, is admirably constructive; I thought it would go further. Rather than remove this new clause altogether, it proposes a review of unfair dismissal compensation to take place within three months, and sets out that the review

“must include a consultation with … employers’ organisations … trade unions … employment law practitioners, and … such other persons as the Secretary of State considers appropriate”.

That is a fair and constructive approach.

However, we must be pragmatic. This is the third stage of ping-pong. Whatever we do at this stage is unlikely to move in the other place, and I am conscious that I do not want to see the key concession of a six-month qualifying period being unpicked as a result of our actions. As I said, I accept that that was a big step for the Government to make.

I thank the Minister for her confirmation that there will now be an impact assessment, which will be published as soon as possible. I did not hear clearly that there will be a full consultation with other parties. Currently, this has been consulted on by six organisations and I do not know how many unions. That is not a wide consultation on such a big change. Will there be a proper consultation process on this before it comes into effect?

Assuming the answer to that question is to the positive, reluctantly, and while protesting in the strongest possible terms that introducing such a significant change at such a late stage runs a coach and horses through the proper process of scrutiny of legislation, I am minded to bring this to an end and accept the Government’s amendment. But, as I said, I will listen to what the Minister says before I make that final decision.

I have one final request. This late insertion of a material change to legislation in the third stage of ping-pong must not become a precedent. Can the Minister confirm that the Government see this as a one-off, extraordinary case, and not something to be repeated?

[Lord Sentamu (CB)]

My Lords, I thank the Minister, who is new at the Dispatch Box, for explaining things quite clearly. I am thankful for the Government accepting that amendment, which has clearly enabled the country to feel, when people take on jobs, that there is a qualifying period, although not an indefinite one. I said in your Lordships’ House that I was like a gramophone playing a record that was stuck in a groove. The Government have given me a new needle and I am out of that groove, so I thank them very much.

Mobile Phone and Broadband Prices

Lord Vaux of Harrowden Excerpts

Tuesday 9th December 2025 Lords Chamber

[Baroness Lloyd of Effra (Lab)]

That experience indeed shows that good connectivity can provide opportunities for young people to participate in the economy and society. It is our aspiration that all people should have those opportunities.

[Lord Vaux of Harrowden (CB)]

One of the big phone companies has started to charge extra to warn customers of fraud and spam calls. Does the Minister agree with me that part of the basic service of a mobile phone company should be to protect its customers and that it should not charge extra for doing that?

[Baroness Lloyd of Effra (Lab)]

The issue of fraud and telecoms is very important. My noble friend Lord Hanson of Flint recently launched a telecoms fraud charter to emphasise how important it is for all telecoms companies to take action on that.

Employment Rights Bill

Lord Vaux of Harrowden Excerpts

Consideration of Commons amendments and / or reasons
Monday 17th November 2025 Lords Chamber

[Lord Burns (CB)]

My Lords, I support Motion B1. As the Minister has set out, the Government wish to go back to an arrangement where all new members automatically pay the contribution to the union’s political fund unless they take the initiative of opting out.

My own view is that it should be equally easy for a person to choose to contribute or not to contribute to the political fund at the point of applying to join the union. That is what my amendment seeks to do. The alternative approach supported by the Government is to have arrangements designed to minimise the number of new members who will exercise their legal right not to contribute to political funds. They want to do this by requiring action to opt out but not requiring any action to opt in, but, surely, an equal choice can be given only by respecting people’s personal preference.

Clearly, the Government wish to reduce the number of people exercising their right not to contribute. As one Labour Member in the House of Commons stated when opposing my amendment, they aim to avoid

“a reduction in the ability of working people to speak with a collective voice”.—[Official Report, Commons, 5/11/25; col. 975.]

That is a wonderful euphemism for putting barriers in the way of people exercising their true preference.

I accept that opting out has been the dominant arrangement for political funds since 1945. However, as I said last time, the rest of the world has moved on. Technology and widespread use of online applications and communications have made it much easier and less burdensome for members of an organisation to make a clear and convenient choice. Additionally, the standards that are now accepted for dealing fairly with people exercising their choice have changed significantly. Active, explicit consent has become the accepted standard.

I have examined the existing application forms for five unions which have political funds and whose application forms are easy to access without having to initiate the online application process myself—which I thought would be a rather risky thing to do. Two forms stand out. The version of the UNISON form, which I have seen, already provides a clear choice. There are two parts to the fund, one for the benefit of the Labour Party and another for general campaigning. Applicants are asked to tick their preference between the campaign funds, Labour Link, and “no thank you”. The GMB form, which I have also seen, offers a clear choice in response to the question:

“Do you want to opt-in to the political fund?”


There are two boxes. Applicants are asked to select the “yes” or “no” box. The other three application forms simply ask whether new members wish to contribute to the political fund. However, importantly, all of them have clearly decided that it is in their own interests to ask applicants to opt in at the point that they apply to be members—I will come back to this in a moment.

My goal remains to find a solution that provides genuine freedom of choice, avoiding the need for repeated arguments with each change of government. My amendment requires all unions to adopt the approach taken by the GMB and UNISON unions under the present law. It would give members a clear and transparent choice when joining a union that gets away from a focus on opt-in or opt-out. Under the amendment, all applicants to join a union with a political fund would be required to answer a simple question: do they wish to contribute to the political fund or not? It is an equal choice with no bias. That question will be on the application form.

I worry that this amendment, as it is set down on the amendment paper, may seem rather lengthy and complicated, but the essence lies in Amendment 72D—the remaining amendments are all subsidiary to the key provision of that amendment.

In rejecting my previous amendment, the Minister in the House of Commons stated, and we have heard it from the Minister in this place again this afternoon, that reinstating automatic contributions to the political fund, unless members choose to opt out, would

“restore balance and fairness in union operations”.—[Official Report, Commons, 5/11/25; col. 958.]

But what could be more balanced and fairer than the present UNISON and GMB forms, where applicants have a clear choice which they exercise at the time that they apply to join?

The Minister further claimed in the other House that the current opt-in system did not improve transparency or strengthen members’ choice, but how can that possibly be true of the amendment I put forward today? What could be more transparent or strengthen choice more than presenting two options side by side, along with the case for having a political fund, and allowing members to choose between them?

The Minister in the House of Commons, and the Minister this afternoon, have emphasised that under the proposed arrangements in the Bill, members will be informed on the application form of their right to opt out of contributing to the political fund and that opting out will have no impact on other aspects of their membership. However, I notice that there has been no commitment to being able to exercise a choice to opt out by ticking a box on the application form. Perhaps the Minister could explain why this simple option was not mentioned and apparently will not be required. Even under the opt-out system proposed by the Government, it would improve transparency and strengthen choice if members could exercise their choice not to contribute on the application form. If they are required to apply subsequently for an opt-out form to complete, does this improve transparency? Does it strengthen choice? Of course not.

I have had very helpful conversations with the Minister, and I must say I am very sorry to find myself in dispute with the Government on this. I have no political interest in this debate but continue to press the issue because this is not the way we expect organisations to operate today. It is a step backwards from the hard-fought cross-party compromise of 2016, and it is a stark reversal of everything we have learned in recent years about making choice more transparent and ensuring that decisions better reflect people’s true preferences.

[Lord Vaux of Harrowden (CB)]

My Lords, I want to speak to Motion B1. Like, I think, many noble Lords, I start to become a bit uncomfortable when we have multiple rounds of ping-pong; and I generally hesitate to vote against the Government in more than one round, but I am expecting to make an exception in this case, for four main reasons.

First, I firmly believe that introducing day-one unfair dismissal rights will cause real and permanent harm to young people and others who are seen as higher-risk hires, such as those who have been on benefits for a long period, ex-offenders and people who have had long career breaks, perhaps because of parental or other caring obligations. When I say permanent, I mean that; if you are unemployed for a year, it becomes considerably more difficult to get on to that ladder and to make a success of your career. This is really important.

I am supported in that belief by every business group. The noble Lord, Lord Sharpe, has listed many such groups; I would add another: the Institute of Chartered Accountants in England and Wales, of which I am a member. There is the Resolution Foundation, the Tony Blair Institute, and perhaps most importantly, the Government’s own impact assessment, which is very clear on this. I would love to hear the Minister’s views on his own impact assessment—he has never actually addressed that point. None of the several Ministers in this place or the other place has made any coherent argument to the contrary. So I put the question very simply to the Minister: will restricting the reasons that may be used to dismiss someone during a probation period, and thereby opening up the risk of an employment tribunal from day one, make it more or less likely that an employer, especially a smaller employer, will take a risk on, or give a chance to, a young person with no experience? Is it more or less likely? It is very simple. I think most of us know the answer to that. Is he going to argue that his own impact assessment is wrong?

Secondly, this measure directly contradicts other government policy. The Government’s youth guarantee, something I am strongly in favour of, will offer every eligible young person who has been on universal credit for 18 months guaranteed paid work. To do that, you need employers who are willing to give them a job and to take that risk. Why would an employer do that if they can be taken to the employment tribunal from day one if the employment does not work out? It does not make sense.

Thirdly, despite, frankly, the clear harm that this will do, the Government have not provided any evidence that the change will create any material tangible benefits for workers. No evidence has been provided to show that the qualifying period is being abused or is causing actual harm. There is no evidence provided in the impact assessment; there is evidence that doing this will cause harm, but none about the harm we are trying to solve. No evidence has been provided in this or the other place.

The Resolution Foundation is also very clear: if we are going to harm the life chances of young people, which is what the Government confirm in their impact assessment, we must have real evidence that there is a genuine greater benefit, not just the usual statement that it cannot be right that someone can ever be dismissed for no reason.

Fourthly and finally, I want to look more closely at the claim that this is a manifesto commitment. It is in the manifesto, but it is part of a wider commitment that includes the explicit commitment:

“We will consult fully with businesses, workers, and civil society on how to put our plans into practice before legislation is passed”.


We have heard several times today that the Government will consult afterwards. They might argue that that is because the rules for the probationary period will be in a statutory instrument.

Let us unpick this light-touch probationary period the Government are talking about. The problem is that the Bill expressly and specifically sets out the reasons why someone can be dismissed from day one during that probationary period, meaning that it is not genuinely a probationary period. Under the Bill, it cannot become a light-touch probationary period; that is simply impossible, given the way the Bill is drafted. I would love to understand more about the light-touch probationary period because we have had no detail about what it really means. However, the employer is obligated by the Bill—the Act, should that come to pass—to give specific reasons which are limited by the Bill. It cannot be light-touch, so I would like to understand better what the Government mean by that.

There is a possible way forward, however, which is where I start, perhaps, to part company with the Opposition. It is because the Bill sets out that there have to be specific reasons for dismissal that is the problem—that is what allows the employment tribunal to get involved during a probationary period and all the rest of it. I wonder—I am thinking aloud—whether there is a solution to the problem by taking that element out.

For those reasons, I am inclined to support the Opposition on Motion B1. I urge the Minister to take this seriously. As the Resolution Foundation put it so well, let us not

“needlessly put employers off hiring”.

[Lord Fox (LD)]

My Lords, we have heard four very good speeches, and I do not intend to repeat them. I listened very carefully to the Minister and, unusually, I will read what he said in Hansard rather than just saying I will, because there was some interesting stuff there. I picked out the phrase, “We will not compromise on the fundamental principles of the Bill”. It would help if those could be set out because they are currently in the eye of the beholder.

The Minister also raised the notion that someone who had worked just less than two years should not be unfairly dismissed. The amendment of the noble Lord, Lord Sharpe, recognises that point fundamentally but there are 730 days between day one and two years. We do not have to go from 730 to one; there are stages. We may disagree on that.

The noble Lord, Lord Vaux, pulled out the issue of light-touch rules and the criteria for fair dismissal in the Bill. I have some problems with the noble Lord’s suggestion, because if it is not in primary legislation, it will come as secondary legislation. We all know that His Majesty’s loyal Opposition never kill secondary legislation—I am looking at them. We would like to from time to time because it should happen; there should be a sense of jeopardy in secondary legislation, which currently there is not. Without that sense of jeopardy, I am not happy with taking things out. However, if it is in primary legislation, the consultation is not worth anything because it is already there, so we might as well forget about that.

Employment Rights Bill

Lord Vaux of Harrowden Excerpts

Committee stage
Tuesday 24th June 2025 Lords Chamber

I conclude by saying that, if the Government are confident in the righteousness of their reforms, let them subject them to proper scrutiny. If they wish to maintain credibility when they speak of reducing red tape, let them apply that logic consistently and not selectively. I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I will speak to Amendment 326A on behalf of the noble Baroness, Lady Penn, who apologises that she is unable to be here.

The amendment is simple: it would require the Secretary of State or the relevant devolved counterpart to have regard to the impact of any regulations made under the Bill on the economic growth and competitiveness of the United Kingdom. It is very similar to Amendment 325, just introduced by the noble Lord, Lord Sharpe of Epsom, which itself mirrors the wording of the secondary objective for financial regulators, which was introduced in the Financial Services and Markets Act 2023. I would support either one; they ultimately have the same goal.

As we heard on many occasions in Committee—we are reaching the end, at long last—this is a skeleton Bill, where an enormous amount of the detail will be added later by regulation. I counted 173 regulation-making powers in the Bill—a quite staggering number. Call me old-fashioned, but I rather think that we should do the work first and then legislate, not the other way around.

We also have an impact assessment that accompanies the Bill that, as we were just told, was described by the Regulatory Policy Committee as not fit for purpose. In many cases the impact assessment makes no effort at all to quantify the costs or benefits, precisely because it is not yet known what will be in the final regulations that follow the Bill. The Government themselves concede in the impact assessment that many of the measures in the Bill will have negative consequences. For example, the Government expect that, overall, the measures in the Bill will impose costs to business of around £5 billion. They also state very clearly that these costs will fall disproportionately on small businesses. The potential negative impact on growth and competitiveness from that is obvious.

Some of the negative aspects could be minimised if the regulations are well designed. To give just one example, I have been concentrating my efforts on the Bill on the introduction of day-one unfair dismissal rights. The impact assessment is very clear on the potential negative impacts from that on businesses and, in particular, on the potential hiring of employees who are seen as higher risk, such as younger people. That is my top concern in that respect.

After describing the potential negative consequences, the impact assessment rightly says:

“The impact of hiring and labour mobility will ultimately depend on the final regulations on what is permissible in the ‘initial statutory period’ of employment”.


I agree; a well-designed probationary period could negate many of the impacts that the Bill could cause, which is something that I hope the Minister will be prepared to discuss before Report. However, at the moment, we have no idea what the final regulations will be and neither, it appears, do the Government. They still have not carried out the relevant consultation.

That is a really good example of the importance of this amendment. The final consequences of the Bill will depend on the detail that is to be added later or amended by regulation. We should not just take that on trust. Although I of course have the greatest faith in the Minister, this Government cannot speak for or bind future Governments.

The Government have consistently stressed the importance of growth and competition, although it is fair to say that their actions have not always followed their rhetoric. To quote the Chancellor in January this year:

“Economic growth is the number one mission of this government … most of all … without economic growth … we cannot improve the lives of ordinary working people”.


Surely that last point is the main point of the Bill: to improve the lives of ordinary working people. It must be essential, and I assume agreed, that where the measures in the Bill could have negative impacts on growth, those negative impacts should be identified and taken into account when adding the details to the Bill by regulation.

In the same speech, the Chancellor went on to say:

“The strategy that I have consistently set out … is to grow the supply-side of our economy … recognising that first and foremost … it is businesses, investors and entrepreneurs who drive economic growth … a government that systematically removes the barriers that they face—one by one and has their back”.


It is hard to disagree with that, so surely we should ensure that the Bill does not do the opposite and create barriers for business.

There is a good precedent for including a growth and competitiveness objective in a Bill such as this. The Financial Services and Markets Act 2023 introduced a secondary objective for financial service regulators to facilitate international competitiveness and growth, something that the current Chancellor has been vocal in her support of and has rightly put pressure on regulators to follow, including through the issuing of new growth-focused remit letters to the regulators.

Having such an objective, or in the case of these amendments just to have regard to, is not new and is entirely consistent with stated government policy. Given the potential negative impacts the Bill may have—by the Government’s own admission—the sheer volume of detailed regulation that must follow and the difference that could be made to the consequences of the Bill if those regulations are well designed or badly designed, we must surely have some clear objectives for those regulations. All that these amendments would do is ensure that growth and competitiveness must be taken into consideration. Surely that is not too much for us to ask.

[Baroness Neville-Rolfe (Con)]

My Lord, I have added my name to Amendment 326A in the name of the noble Baroness, Lady Penn. I agree with all that has been said by the noble Lord, Lord Vaux of Harrowden, in introducing it, and, indeed, with the convincing analysis by my noble friend Lord Sharpe.

Noble Lords may recall that I come to the scrutiny of the Bill constructively, having worked for Tesco for many years and enjoyed excellent relations with the USDAW union, the noble Lord, Lord Hannett of Everton, and with the trade unions in general, under the noble Lord, Lord Monks, at that time. We always tried to treat people well, and the success of the business was a testimony to that. We complied with the law.

However, the law is now changing, and I am afraid that this Committee has shown that the Bill needs further work. As drafted, it will be a huge check on growth and will undermine the competitiveness of which we have rightly been very proud in the UK. My noble friend Lord Hunt of Wirral mentioned earlier the worrying research by the Institute of Directors that reveals that seven in 10 business leaders surveyed believe that the Employment Rights Bill will have a negative impact on UK economic growth.

I have two particular examples, which I hope the Minister will look at again. First, Ministers—or rather their civil servant agents, and possibly even the trade unions—will be able to take a legal case where an employee is unwilling to pursue a complaint. That is inappropriate and unfair; consent is such an important principle. It also risks putting further pressure on the already struggling tribunal system.

Secondly, and I apologise that this example has already been mentioned, the Bill will radically reduce the effectiveness of the labour market by giving employees the right to claim unfair dismissal from day one of their employment. Other employees will be disadvantaged, as those who are slack, do a poor job or play the system will not be able to be dislodged without a long tribunal case. This will hit good employees who need to cover for their fellows.

The Minister has very helpfully agreed that there should be a probation period during which suitable arrangements can be made in such circumstances, but we have no detail. All of that will go into regulations, which we will not be able to reverse. That is why I feel so strongly about this evening’s amendment on growth and competitiveness. This would apply when regulations were being made by Ministers. There is, unfortunately, a plethora—a cornucopia—of powers in the Bill. It is essential that Ministers, here and in the devolved Administrations, to which our amendment refers, should be required to look at the impact on UK economic growth and competitiveness when they are making regulations. Otherwise, I fear that the growth objective of this Government is for the birds.

Employment Rights Bill

Lord Vaux of Harrowden Excerpts

Committee stage
Wednesday 21st May 2025 Lords Chamber

Debate on whether Clause 23 should stand part of the Bill.

[Lord Vaux of Harrowden (CB)]

My Lords, we now come to the general subject of unfair dismissal rights from day one, which we have just touched on in relation to apprentices. Many of the same arguments are going to apply more widely. For me, this is most damaging part of the Bill because the unintended, but well understood, consequence is that it will damage the life chances of the young and the most vulnerable. I thank the Ministers for their time last week; I am not sure if I persuaded them, but I will try again now.

At Second Reading, I asked why these changes are required. What is the evidence that there is a genuine problem, or that the qualifying period of two years is being abused in any material way? The Minister did not answer the question, so I have therefore given notice that I intend to oppose the question that Clause 23 and Schedule 3 stand part of the Bill, so that I can probe further into what problem these changes are intended to solve.

Rather than hearing my views on the subject, I am going to tell noble Lords what the Government’s views are, and what they think the impacts of these changes to the qualifying period will be. According to the impact assessment,

“it is likely employers will make changes to hiring, dismissal and management practises to minimise the risk of litigation for dismissal and minimise unproductive employee-job matches. The burden of these changes could be in the hundreds of millions per year”.

It goes on to say:

“The impact on businesses is expected to be negative and driven by familiarisation costs, and administrative costs from providing a written reason for dismissal, as well as the costs associated with additional early conciliation and tribunal cases, which is also likely to create additional burdens for the Employment Tribunal system”.


So, the Government agree that there will be a substantial cost to business, an increase in litigation risks and additional burdens on the tribunal system. They also state that these impacts will fall disproportionately on smaller businesses. I assume that nobody in this Chamber thinks that any of those are a good thing.

More importantly, what are the impacts on employees, especially those who are trying to find work? The impact assessment is pretty clear on that too. It says that

“there is some evidence of a negative relationship between stronger dismissal protections and hiring rates … this suggests that if not implemented with care ‘Making Unfair Dismissal a Day One Right’ could damage the employment prospects of people who are trying to re-enter the labour market, especially if they are observed to be riskier to hire (e.g., younger workers with less experience, ex-offenders, etc.)”.

It later says that

“there is evidence that the policy could negatively impact on hiring rates. For example, employers may be slower to take on workers due to the liability and increased protections, particularly for those that are seen as riskier hires”.

Again, I cannot believe anyone thinks those are good things.

The Government accept that this policy will create costs in the hundreds of millions for businesses, add burdens to the already stretched tribunal system and, most importantly, damage the hiring prospects—the life chances—of the very people we should be helping to get into employment. I hate the term NEETs, but we have heard a number of comments about the nearly 1 million young people who want to get into work. It goes directly against the Government’s admirable policy to get people off welfare and into work. So, why do this? Surely there must be some hard evidence that the current two-year qualifying period is causing some genuine problems, or evidence of material abuse, to justify these changes that will have all the damaging consequences that the Government themselves accept.

However, the impact assessment makes no such claims. It provides no evidence whatever that there is a problem. It simply makes a number of very vague and unquantified statements about people benefiting from increased job security. For example, it suggests a direct benefit to households driven by the welfare benefit arising from increased job security, with absolutely no attempt to quantify it. It also goes on to say that there are benefits from

“additional settlements and awards from additional early conciliation and employment tribunals”.

That last one really is extraordinary. This Bill has been described as a bonanza for employment lawyers; the Government appear to be confirming that, and actually seem to be suggesting that it is a good thing.

To read or listen to what the Government say, noble Lords would be forgiven for understanding that there are currently no protections from unfair dismissal for employees during the qualifying two-year period. That is quite wrong. There is a whole list of reasons for dismissal that are automatically unfair from day one. I will give a few examples, rather than go through the whole list—I do not want to keep everyone here all night. They include dismissal for reasons of a protected characteristic, such as age, disability, race or religion, et cetera; for being pregnant or on maternity leave; for being a trade union member or representative; for taking part in industrial action; and for being involved in whistleblowing. There are many others. So, let us stop this idea that new employees are unprotected from day one. It is just not true.

I ask the Minister, as I did at Second Reading, when she did not answer: why are the Government doing this? What evidence do they have that the qualifying period is really a problem? Presumably, there must be some tangible benefits from the policy to justify all these disadvantages that the Government have described. What are they?

The amendments in the name of the noble Lords, Lord Sharpe and Lord Hunt—and happy birthday to him—would require impact assessments of the changes, which I support, but surely it would be better to get this right in the first place. The impact assessment does say:

“The impact of hiring and labour mobility will ultimately depend on the final regulations on what is permissible in the ‘initial statutory period’ of employment”.


That is absolutely right, and that is what the rest of this group tries to deal with: to reduce the negative impacts of this change.

Paragraph 3 of Schedule 3 says that the Secretary of State may make regulations about dismissal during the initial period of employment, which is generally called a probationary period. My Amendment 104, along with Amendment 334, is intended to make it a requirement that the Secretary of State “must” make, rather than “may” make, such regulations. I thank the noble Lord, Lord Morse, for his support on this and other amendments. He sends his apologies that he is unable to be here tonight.

As the Bill stands, the two-year qualifying period can be abolished and not replaced with anything. I understand that is not the Government’s intention, and we heard earlier about the nine-month preference, but it is what the Bill says. Having no probationary period at all would be extremely damaging, so it is important that it should become a requirement that these regulations are issued, and not just a “may”.

My Amendment 108 would ensure that any probationary period is at least nine months long. What is important is that the employer should have adequate time to assess whether the new employee is right for the business, including by giving them a good chance to get up to speed through training and so on. I agree that the current two-year period is very long, and from discussions I have had with business groups and from my own experience in business, I am confident that the shorter period would be acceptable to most businesses. I think the Government’s suggestion of nine months is workable, and that is what I have proposed in the amendment, so I hope it is not particularly controversial from that point of view.

The other critical factor for a probationary period is that it must work in a way that enables an employer to give the person the benefit of the doubt, rather than acting as a disincentive to hire them, especially for the riskier hires that the Government described and that I mentioned earlier. For that to be the case, it is essential that the employer can dismiss them without having to give a reason during the probationary period.

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[Lord Hendy (Lab)]

Of course; that is always the way whenever there is litigation. Whatever the subject matter, people do not want the burden of defending the case and the people bringing the case do not want the burden of bringing it. That is just the reality of litigation.

I will say one last thing before I sit down. The argument that the noble Lords and noble Baronesses opposite have put forward is all about what they perceive to be the consequences of this matter, which my noble friend Lord Monks just addressed. But nobody can seriously advance the case that employers should have the right to dismiss anybody unfairly and without recourse to the law.

[Lord Vaux of Harrowden (CB)]

Does the noble Lord accept that these are not simply arguments that people around this Chamber are putting forward but matters that are in the Bill’s impact assessment? It is the Government’s own statement that the Bill will have these impacts. It is not being made up by any of us: the Government accept that this will be the impact.

[Lord Hendy (Lab)]

That may very well be, but it still does not remove the fundamental point: what is being proposed is a category of worker who can be dismissed unfairly for the most extreme reasons without resort to any justice.

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[Baroness Jones of Whitchurch (Lab)]

The noble Baroness is absolutely right. She will know that I share her ambitions for the tech sector. The UK remains the number one country for venture capital investment, raising $16.2 billion in 2024—more than either Germany or France—and since last July we have secured £44 billion in AI investment. Strengthening employment rights and giving day-one protections can help support talented people to take the leap into a start-up company.

I turn to Amendment 104, tabled by the noble Lord, Lord Vaux. Setting a statutory probationary period during which light-touch standards will apply is a crucial part of our plan to make work pay. I can reassure the noble Lord that setting out the detail in regulations is fundamental to fulfilling this commitment. It is not necessary to make this a requirement in legislation.

The noble Lord, Lord Vaux, asked a number of questions. He, the noble Baroness, Lady Coffey, and others asked why the Government are doing this. The UK is an outlier compared to other OECD countries when it comes to the balance of risks and entitlements between the employer and the employee. We believe that it is an important principle that employees should have greater security at work. Our reforms will mean that around 9 million employees—31% of all employees —who have been working for their employer for less than two years will have greater protection against being unfairly dismissed.

[Lord Vaux of Harrowden (CB)]

I hate to interrupt the noble Baroness at this late hour, but that is just a repeat of what has been said before; it is not a tangible quantified reason for doing this. Yes, for a short period of time, they will have greater security in theory, but the downsides of this—they are in the Government’s own impact assessment—are really clear. The Government say that this will reduce the life chances of people who are riskier hires. It will cost business hundreds of millions of pounds. There is no quantification of that benefit against those downsides, and I am still not hearing that.

[Baroness Jones of Whitchurch (Lab)]

I will talk about the impact assessments in more detail shortly, but the noble Lord will know that it is a lot easier to identify the costs in impact assessment than the benefits. We have worked with academics who are looking at this subject. I reassure the noble Lord that we have looked at this and are confident that the benefits in this particular case will outweigh the risks.

I will pick up the point made by other noble Lords about cultural fit and other reasons why an employer might want to dismiss somebody during their probationary period. Dismissal for “some other substantial reason” is a catch-all category designed to allow employers to terminate an employment contract where no other potentially fair reasons apply. There can be cases where dismissal is legitimate and reasonable; “some other substantial reason” dismissals depend on the facts and circumstances of the employment relationship. “Some other substantial reason” is broad, and case law supports personality clashes in workplace teams or a business client refusing to work with an employee being a potentially fair reason for dismissal. The Government do not believe that an employee not being a cultural fit within an organisation should be a fair dismissal per se. We would expect an employer to be able to dismiss someone fairly only if any cultural misfit was relevant in a reasonable manner to the employer’s business objectives and the needs of the workplace.

The noble Baroness, Lady Noakes, mentioned employees with spent convictions. I gently point out to her that dismissing an employee solely for having spent convictions is currently unfair and potentially grounds for an unfair dismissal claim—

--- Later in debate ---

[Baroness Jones of Whitchurch (Lab)]

I can assure the noble Baroness that not only have we thought about this but we are working very closely with the business sector to get this right. We understand that some of these things will take time. It takes time to change systems, and a lot of it is about changing computer systems for processing and so on. We are aware of this and, when the noble Baroness sees the implementation plan, it will reassure her that we have allowed space and time for it, as well as proper consultation with those who will be affected.

[Lord Vaux of Harrowden (CB)]

My Lords, it has been a long debate so I will try not to detain the Committee much longer. I thank the many noble Lords across the Committee who have contributed. It has been long because this is really important. I confess that I come out of the end of this debate feeling somewhat depressed. I still have not heard really why we are doing this, and what the real, tangible benefits are, to offset against the very real negative impacts, particularly on those who are looking for employment and are perhaps disadvantaged in one way or another: they have not worked before, they are young, they have a gap—we heard all the various examples. The Minister did not really address that point terribly clearly in her speech, and it is so important.

This may be, as the Government have regularly called it, a Bill for workers. However, as I said at Second Reading, it is not a Bill for people who want to work—the potential workers who were mentioned by the noble Lord, Lord Elliott. He stole my Charlie Mayfield quote, but I will not worry about that. It is true that Denmark has much easier hire and fire, and he was using that as a paragon of virtue because it allows people who are harder to hire to get into employment, which is so important.

In the interests of being constructive, I hope the Minister understands the real concerns about those people and the impact the Bill is going to have on them, and the negative impacts this section of the Bill will have. I hope that she will be prepared to spend a bit of time with us between now and Report to try to find solutions to those negative impacts, to minimise the problems and downsides that they will cause. I say to the noble Lord, Lord Monks: I am not making this up, or crying wolf, as with the national minimum wage, as the noble Lord suggested. This is what the Government say will be the impact. I cannot emphasise that enough. It is not me saying that; the Government say this will be impact. If we can try to work together before Report, to try to find ways of knocking the edges off this and reducing the negative impacts, that would be very helpful. With that, I will not oppose Clause 23 standing part of the Bill.

Clause 23 agreed.