Secondary International Competitiveness and Growth Objective (FSR Committee Report)

Lord Vaux of Harrowden Excerpts

Wednesday 11th March 2026 Grand Committee

[Lord Vaux of Harrowden (CB)]

My Lords, I start by declaring an interest: I have a registerable shareholding in Fidelity National Information Services Inc. It has been fascinating to be a member of this committee, which for this report, as we have heard, was so ably chaired by the noble Lord, Lord Forsyth of Drumlean, who, as we all know, has moved on to greater things. I also thank our new chair, the noble Baroness, Lady Noakes, for introducing this debate with her usual clarity.

The noble Lord, Lord Kestenbaum, said that this report is timely and I agree with him, but I would not go as far as to agree with him about the timing of this debate. The report was published almost nine months ago and I confess that it has taken me a little while to get back up to speed and remind myself what it said. I hope that future reports will be considered in a more timely manner.

At the outset, it is worth saying, as we do in our report, that the secondary growth and competitiveness objective has provided a valuable stimulus for the regulators to consider the impact of their activities on growth and competitiveness. We should recognise that they have taken this seriously. Of course, there is a balance to be reached between looking at the impact of regulation on growth and ensuring that risks, both systemic and to the consumer, are proportionately managed. There is a sense that, following the 2008-09 financial crisis, the pendulum has swung too far towards eliminating risk, but we clearly need to be alert to the danger that it might swing back the other way, as we rightly put greater emphasis on growth. We must also recognise that a stable, predictable, even dull regulatory environment has been and is an important aspect of the attractiveness of our financial services sector, but it must be proportionate.

It is a long report, so I will highlight just one or two of the points that we raised. First, as the noble Lord, Lord Kestenbaum, pointed out, concerns were raised about the culture of the regulators. It was very noticeable that witnesses seemed much more prepared to be candid with us in private sessions than in public. Miles Celic, CEO of TheCityUK, put it rather bluntly when he said:

“There is a concern … that, as one person put it to me, being critical of the regulator publicly will result in an enforcement punishment beating later”.


That is concerning. It implies a lack of trust between the regulators and the industry. The regulators should recognise that and do everything possible to overcome it.

Mr Celic also gave us the example of an American company with operations in both the UK and the US, which said that

“regulators in the US … started from the position of asking, ‘What will the impact of what we are doing be on growth?’ But his experience in the UK was that the regulatory starting point was, ‘What will the impact of what we are proposing here be on risk?’”

It seems more difficult than one would expect to make international comparisons of the burden of regulation and there seems to be a reluctance on the part of both the regulators and government to research this fully. We received plenty of evidence that the UK regulatory burdens are significantly greater than those in comparable jurisdictions such as the US. The CEO of Marsh McLennan told us that

“on a direct cost-only basis, the UK is at least six times more expensive than our next most expensive country from a regulatory perspective”.

The Investment Association told us that

“industry headcount for Compliance, Legal and Audit has almost tripled from 2009”,

and other witnesses gave us stark examples of the amount of data that has to be provided, often for unclear purposes, as the data requirements are greater in the UK than in other countries. This may be anecdotal, but it is clear that, at the very least, the UK has gained a reputation for being a disproportionately high-cost environment from a regulatory perspective.

Rigorously analysing compliance costs internationally may be difficult, as the regulators and other analysts make clear, but unless we gain a clear understanding of how we compare to other countries it will be very difficult to understand if and where regulation is creating barriers to growth. This really must be addressed and measured to the extent possible.

However, the Government say in their response that “direct comparison is difficult”, which, to be frank, is pretty weak. They go on to say:

“The government and regulators will continue to consider how the regulators’ efficiency and performance can be meaningfully compared to those of international comparators”.


That was over six months ago, so perhaps the Minister can update us on what further consideration they have carried out in those six months.

The driver for this apparently higher level of regulation in the UK is the risk-averse culture that our report highlights. Regulators understandably became more risk averse after the financial crisis. I have some sympathy for the regulators here; it is very easy for us politicians and the Government to tell the regulators that they should tolerate greater risk, but the regulators know that if some serious risks were to crystallise, the blame would still fall squarely on them. If the Government want to see greater risk tolerance and a lighter-touch regulation, which I think we all want to see, they need to be much clearer about what is acceptable and to accept their share of responsibility if the risk crystallises, not just blame the regulators when it goes wrong.

We also mention in our report regulatory mission creep. Again, there is always a tendency for this—regulators will regulate—and it is right to call it out. But again, we in Parliament and those in government need to take some responsibility for this, too. We keep putting an ever-growing list of objectives, and in particular have-regards, on to the regulators. I know that I am guilty of this myself; I supported the net-zero have-regards in the FSMA 2023, which I now regret, having gone through this process. It can be no surprise that, if we keep adding to regulators’ remits, they will react by adding rules, data requirements and other onerous burdens to meet those. There needs to be a regular review of the objectives and the have-regards so that regulators are able to concentrate on their core purpose and reduce unnecessary burdens on the firms that they regulate. The Government and we as politicians need to be more disciplined about adding to the mission creep of regulators.

It is welcome that the FCA appears to be learning lessons from other jurisdictions. A good example is the creation of a Singapore-style concierge service to support international investment, which is very welcome. I look forward to seeing real metrics about how effective that has been once it has been up and running for a while.

The committee had a lot of discussions about what we mean by growth and competitiveness. First, there is the growth and competitiveness of the financial services industry itself. It is a very significant part of the economy, as the noble Baroness, Lady Noakes, said, so growth of the industry will have an impact on overall GDP of itself. But the secondary objective goes beyond the industry itself, requiring the regulators to consider the international competitiveness of the economy of the United Kingdom and its growth in the medium to long term. It is there that the secondary objective becomes rather less clear.

The link between financial services regulation and wider economic growth does not seem to be widely understood or well researched. Economic growth is driven by new investment into and by business and into productive assets. We saw very limited evidence of how regulation has much impact on that and a lack of data on how much investment is made by the financial services sector into productive assets or growth companies. This needs to be improved. Perhaps the Minister can tell us what the Government are doing to improve that understanding, as we recommended.

I will finish by referring to a current piece of legislation that is going through the House—the Pension Schemes Bill, to which we will be returning on Monday and indeed on which we had an exchange just 45 minutes ago in the main Chamber. Our report highlights that the pension industry is fragmented and underinvests in UK productive assets. I, and I think the committee, agreed with the Government that action should be taken to improve this, which the industry has also agreed. The Pension Schemes Bill tries to address that and a lot of what it includes is good. For example, the proposed value-for-money framework should encourage funds to look more at returns rather than just fees, which should allow funds to consider a wider range of investment types. However, the Bill also includes the blunt instrument of giving the Government the power to mandate asset allocation by pension funds, which the committee raised serious concerns about.

I will ask this Minister exactly the same question that I asked the Minister in the Chamber 45 minutes ago and that I did not receive an answer to. I have asked this several times and still have not received an answer, so I hope the Minister will actually answer it this time. If not, I would be perfectly happy for him to write to me with a real answer, rather than the platitudes that I have received so many times so far.

It is really simple: why do the Government think that pension funds have been so reluctant to invest in these UK productive assets that the Government are so keen for them to invest in? They keep telling us that these are fantastic assets and that there are fantastic returns to be made from them, so why are pension funds not doing it? This is not a rhetorical question, and I really would like an answer.

The reason I ask is that surely a better way to encourage pension funds to invest in UK productive assets would be to identify and remove the barriers that are preventing such investments from being made, and to make those investments more attractive. Surely that is a better way than forcing pension funds to make investments that they do not wish to make.

WhatsApp: Ministerial Communications

Lord Vaux of Harrowden Excerpts

Wednesday 8th March 2023 Lords Chamber

[Baroness Neville-Rolfe (Con)]

I feel that that is completely impractical. We live in a modern world, where people use WhatsApp, private mail and SMS. What we need to do is have sensible rules and training for Ministers and parliamentarians to teach them what they can do and what is risky. I personally had an excellent briefing on my first day as a Minister at the Cabinet Office. I was given my own devices and was told about the risks of social media in a way that I found encouraged me to conform very closely.

[Lord Vaux of Harrowden (CB)]

My Lords, is it appropriate for a Minister to hand a cache of WhatsApp messages—government messages—to a journalist for personal gain?

[Baroness Neville-Rolfe (Con)]

I will not be drawn on the individual case, but I will point to what the Government are doing and also refer the noble Lord, who is a friend, to the Covid inquiry. My understanding is that Mr Hancock has said that he will ensure that all appropriate material is given to the inquiry, and I understand that the Department of Health and Social Care is ensuring just that.

Economy: The Growth Plan 2022

Lord Vaux of Harrowden Excerpts

Monday 10th October 2022 Lords Chamber

[Lord Vaux of Harrowden (CB)]

My Lords, I will concentrate on the energy support package. But I will say first that while I—like everyone, I think—support the focus on growth, I am not at all convinced that the top tax rate of 45% really acts as any drag on growth. I suggest that when the economy is able to support tax cuts, the Government might want to prioritise those anomalies in our tax system that do act as a disincentive. Two jump to mind immediately: the 60% marginal rate that kicks in as personal allowances are withdrawn, and the absurd way that the lifetime cap on pensions works.

As I said, my main concern is the way that the Government intend to support people through the energy price crisis. We all agree, obviously, that something had to be done, and this was something, but the Government are treating the symptom, not the cause, and are dangerously loading the economy and future taxpayers with debt as a result. The world gas price has increased substantially because of Mr Putin’s actions, but the cost of the generation of around 60% of our electricity has actually fallen. Most renewables in recent contracts for difference auctions have been set at below 5p per kilowatt hour—even nuclear comes in at around 10p per kilowatt hour—but electricity pricing is based on the highest marginal unit, which is now gas. That electricity is now being sold to the consumer for up to 34p per kilowatt hour, plus an additional 17.8p per kilowatt hour paid by the Government. That is a total of 52p per kilowatt hour, 10 times the typical cost of generating much of our electricity—a 900% markup. So clearly somewhere in this chain an outrageous profit is being made, now subsidised and guaranteed by the Government.

The same is true for gas. The cost of production has not changed, yet the gas companies are exploiting the situation and making profits, to the point where even they are embarrassed. British Gas is already giving 10% back, while Shell says, “Give us a windfall tax.” Mr Putin must be delighted.

We cannot do much about the gas that we import but we produce about 50% of our own gas. I asked the Minister at Oral Questions in September whether it is right that the taxpayer should subsidise these excessive profits. He was kind enough to say that I had a powerful point but did not give an answer. Perhaps he might answer it today. How much of the £60 billion or whatever cost of the support scheme is actually supporting these excessive profits?

Where I part with Labour is that instinctively I do not like windfall taxes. They introduce unwelcome uncertainty into the tax system. It is much better to address the underlying market failure. In the long term, that means addressing how electricity prices and so on are calculated, but in the short term we should cap the level of profits being made and stop those companies exploiting the crisis that Mr Putin has caused. I read over the weekend that the Government may actually now be considering that. Perhaps the Minister might like to comment on that.

I realise that the situation is more complicated, with contracts for difference and forward sales, and we really do not have time today to go into all that, so would the Minister be willing to arrange a meeting for interested Peers in which the electricity market could be explained in more detail, including whether and where excess profits are actually being made?

The Minister has previously told us that a review of the electricity market is under way and will report in mid-2023. That is way too late; we must act now to prevent companies exploiting the situation to make excessive profits at the cost of both the consumer and the taxpayer. The later we leave it, the more we weaken our economy in the long term and the more difficult we make it to fix. The debt levels will pile up.

There are good reasons to borrow. Subsidising excess profits is not one of them.

Restoration and Renewal: Location of House of Lords Chamber

Lord Vaux of Harrowden Excerpts

Monday 16th May 2022 Lords Chamber

[Lord True (Con)]

No—I take it as the highest duty that I have to come before your Lordships and answer questions and explain things. I repeat: decisions on how to proceed in this are a matter for Parliament, and the Government do not wish to prejudge Parliament’s decisions on it. However, following what was said by the noble Baroness, whom I greatly respect, I say that it makes sense for government and Parliament to work together to support the decisions of Parliament on this matter and, yes, secure outcomes that deliver for the public and taxpayers.

[Lord Vaux of Harrowden (CB)]

My Lords, does the noble Lord agree that the restoration of Parliament and making this iconic building safe will succeed only with real collaboration between the Lords, the Commons and the Government? Could he please answer the question that the noble Lord, Lord Forsyth, asked earlier—namely, which Members of this House were contacted or consulted in advance of the letter sent on Friday?

[Lord True (Con)]

My Lords, I cannot answer that specific point. No doubt the Secretary of State could explain. The noble Lord takes the very point that I made in my previous answer—that it makes sense for government and both Houses of Parliament to work together, as he said, to create and support decisions on this matter.

Economy: Update

Lord Vaux of Harrowden Excerpts

Tuesday 28th April 2020 Lords Chamber

[Lord Vaux of Harrowden (CB)]

My Lords, while they are obviously very welcome, the bounce-back loans and other measures can be only a short-term fix. Many businesses that are currently allowed to operate are not doing so at the moment and others—garden centres, for example—could operate safely. Does the Minister agree that it would be better if businesses which could operate safely did so to minimise the damage to the economy? What help, financial and practical, can the Government offer to businesses which adapt their operations to enable a safe return to work as soon as possible?

[Lord Agnew of Oulton]

I am afraid the noble Lord rather broke up on me. Madam Deputy Speaker, did you hear the question?

--- Later in debate ---

[Lord Vaux of Harrowden]

Certainly. Many businesses that are currently allowed to operate are not doing so while others that could operate safely are not currently allowed to do so. Does the Minister agree that it would be better if businesses that can operate safely do so? What help can the Government offer to businesses to alter their operations to enable a safe return to work as soon as they do so?

[Lord Agnew of Oulton]

I share the noble Lord’s concerns about businesses that could be operating. I think we are seeing a gradual return to work. Businesses have now worked out how to manage the requirements of social distancing. Putting the health of the nation first is the Prime Minister’s priority, but if we look at the existing rules, a business can ask its employees to come in if they are not able to work at home effectively, if the employee is fit and well and is not living with someone who is self-isolating for fear of infection or who is on the official medically vulnerable list and if they are able to avoid crowded public transport, which may mean more flexible working hours. The key point the noble Lord makes is that businesses can adapt to provide reasonable social distancing measures in the workplace. That is already in the rules; I expect to see further clarification.

Brexit: European Investment Bank (European Union Committee Report)

Lord Vaux of Harrowden Excerpts

Tuesday 16th July 2019 Lords Chamber

[Lord Vaux of Harrowden (CB)]

My Lords, this is the first committee report that I have been involved in since I joined this House. I add my tribute to the noble Baroness, Lady Falkner, for her excellent chairmanship of the sub-committee during this inquiry and more generally. I do not think that our new chairman has officially been appointed yet, but they have big boots to fill. I also thank our excellent clerk and policy analyst, Matthew Manning and Erik Tate, for the extremely hard work they have done on this report. Perhaps I may also take the opportunity to wish the Minister a happy birthday; it is very good of the noble Lord, Lord Young, to choose to celebrate it with us tonight.

The European Investment Bank is not a subject that creates many headlines, and before we started this inquiry, probably like many noble Lords, I had not fully appreciated just how important it has been to the UK in financing critical infrastructure and, through its subsidiary the European Investment Fund, investing in SMEs. Since it began, more than €118 billion has been lent in the UK, with the amount peaking in 2015 when €7.8 billion went to 47 projects. This financing has covered a range of areas, including notably renewable energy, transport, higher education, social housing and water.

Just as important as directly providing finance, as we have heard, a key benefit of the EIB is its ability to de-risk projects and thereby encourage and enable private sector investment—crowding in. A good example of this is offshore wind, where witnesses told us that private sector investment would not have been there without the EIB taking on some of the project risk and technology risk. Many witnesses cited, as a particular advantage, the EIB’s independent expertise and due diligence, and its team of 3,000 full-time staff, which underpin its ability to “crowd in” other private sector investments. If the EIB lends to a project, that gives a strong stamp of approval to other lenders who can then piggy-back on the EIB’s work and expertise. Despite not being required to make a profit, the EIB has been consistently profitable, making a surplus in every year of its existence. This has enabled it to grow its capital base substantially, without further recourse to its owners.

This leads to the most headline-grabbing element of our report, which a number of noble Lords have already mentioned. On withdrawal, we will receive only the €3.5 billion that we have paid in, with no share of the increase in capital that has accumulated during our membership. It is worth noting that this repayment is being paid out over 12 years, so it is effectively an interest-free loan for that 12-year period. When describing this outcome, the Government conveniently ignore the concept of the time value of money—the well-recognised idea that £1 today is worth more than £1 in a year’s time. Doing a back-of-the-envelope calculation, it looks as though the present value of the repayment is actually only about €2.8 billion, so we are not even getting the value of our money back, let alone any share of the additional value that has been created during our membership.

What is the reason for such a poor deal? The explanations we were given during the inquiry were, frankly, weak and simply seemed to be that there were no statutes governing withdrawal, so this was the best we could do. While it is debatable that our share of the accumulated profits, approximately €7.6 billion, is the correct figure, it is extraordinary that we do not even seem to have tried to obtain some share of the increase in the capital that has accumulated during our membership, nor any compensation for the 12-year payback period. I note that the Government’s response to our report completely ignores this point. It will be interesting to hear what the Minister has to say about this. Does he really believe this was a good deal?

Much more important than this one-off piece of apparently poor negotiation is the future for the financing of infrastructure investment. Since 2016, the level of financing by the EIB into the UK has fallen off a cliff, dropping by almost 90%, and this is while we are still a full member. One of the more depressing aspects of our inquiry was the apparent lack of ambition of the Government to seek any future relationship with the EIB. The EIB itself has stated that it would like such a relationship but, because of the separation of the withdrawal agreement from the future relationship, there seems to have been no meaningful discussion about how we might work with the EIB going forward. This is despite the EIB continuing to benefit from our paid-in capital for the next 12 years, and our leaving our share of increased value on the table. One might think that this could have given us some leverage to find a way to continue to benefit from EIB financing after Brexit. However, when pressed on the ambitions for a future relationship, David Lunn, the director for EU exit at the Treasury, said:

“We would go into it with an open mind and try to deliver a mutually beneficial relationship on the scale that made sense for it to be on”.


This lack of ambition is depressing. If you go into a negotiation with no clear goal for what you want to achieve, you are guaranteed to fail.

It seems likely that we will lose any meaningful access to the EIB, losing both the financing it provides and the crowding-in benefits from its expertise and credibility which has been referred to. Although the Government have taken action to replace the SME financing provided by the EIF by putting extra money into the British Business Bank, the position on wider infrastructure financing is much less clear, and the one-and-a-half page response to the report was, to be diplomatic, disappointing. It read a bit like the thank-you letters I used to write when I was 12, repeating the final paragraph and so on.

The Government have been running a consultation on the infrastructure finance review, which ended on 5 June. It would be interesting to hear if the Minister is able to give any initial feedback on this. However, it is not good enough for the Government simply to hide behind this consultation and twiddle their thumbs in the meantime. We effectively lost access to EIB infrastructure financing three years ago. Ensuring that the financing gap is filled is critical, as is replacing the expertise and credibility that the EIB brings. I hope that the Minister can tell the House what the Government’s current thinking is, and what their views are on our recommendation that they should consider the establishment of a UK infrastructure bank to support the future financing of key infrastructure after Brexit.

Banks: Fraud Prevention

Lord Vaux of Harrowden Excerpts

Monday 20th May 2019 Lords Chamber

[Lord Young of Cookham]

We should welcome the steps forward I announced. Three initiatives are being taken by banks: confirmation of payee; the interception or interrogation of large sums; and the voluntary code. I will reflect on what the noble Baroness said and see whether there is a case for legislation, but we are making good progress with the steps I announced.

[Lord Vaux of Harrowden (CB)]

My Lords, are we not getting this the wrong way round? All, or most, frauds have one thing in common: the money is received and processed by another bank account, usually in the UK. Should we not make the receiving bank—the bank that has handled and processed the stolen money—automatically liable for the loss? If we did, banks would have a real incentive to stop accounts being used by fraudsters. We do it for credit cards.

[Lord Young of Cookham]

Again, that is a very helpful suggestion. This is not my specialist subject but it seems that it is too easy, in some cases, to open a bank account. That account is then emptied instantly by whoever has committed fraud and no one is left to seek compensation against. I like the noble Lord’s suggestion that, where they have not undertaken due diligence to establish the real identity of the person opening an account, the banks should be held liable.