Small and Medium-sized Enterprises: Mistreatment

Baroness Kramer Excerpts

Thursday 27th June 2019 Lords Chamber

[Baroness Kramer (LD)]

My Lords, RBS’s inappropriate handling of its SME customers predates the period examined by Promontory and goes back to at least 2005. We know this because there have been whistleblowers, key among them Mark Wright, who gives me permission to use his name in this debate and who alerted senior management at RBS—up to CEO level as early as 2005 and chair level as early as 2006—and followed up with successor CEOs and chairs. When he got nowhere he alerted the FSA and its successor body, the FCA. I became involved in 2016, when the whistleblower’s Member of Parliament, Norman Lamb, was reduced to utter frustration after years of attempting to get the evidence of abuse of customers properly heard and to obtain fair treatment for Mr Wright. None of this is discussed by the FCA in its report on senior management. Nor did the regulator ever act to prevent retaliation against the whistleblower; indeed, it seems it even shopped him to RBS. Needless to say, much of the whistleblower’s life has been seriously damaged.

The FCA commissioned the Promontory report not out the goodness of its heart but because of charges laid in the Tomlinson and Large reports commissioned by my good friend Vince Cable, then Secretary of State at BIS, who had heard so many stories from SMEs. Further pressure came from the Parliamentary Commission on Banking Standards, on which I served. The FCA chose not to publish Promontory and produced its own summary, which—I am being polite—watered down and undermined every criticism and applauded RBS for its tepid and inadequate voluntary compensation scheme. That was whitewash number one. We know what Promontory found thanks only to a leak to an Irish website in 2018, which triggered a demand for publication by the Treasury Select Committee. Instead of allowing Promontory to complete its work with a follow-up report on senior management and its involvement, as originally envisaged, the FCA decided to carry out that second step itself: this report. Surprise, surprise: whitewash number two.

It matters. Promontory made many key findings: one in six SMEs put into the GRG was deemed “potentially viable” but was “caused material financial distress”—in other words, driven to liquidation—as a result of serious,

“failings in GRG’s governance and oversight … and of the priorities GRG pursued”.

That included failings in “second” and “third line oversight”—compliance and audit, to you and me. The report identifies that the notorious Just Hit Budget document instructing staff,

“to get a customer to agree chunky fees and upsides”,

was not an isolated document. The West Register model—West Register was the property arm of RBS, as we have heard—

“was inappropriate and severely flawed”.

Are governance, oversight and priorities the responsibility of junior or senior management? If they fail, is there any possibility other than culpability or incompetence? While Promontory, as I have explained, was specifically required to avoid investigating senior management, it could not help identifying its collusion in this overweening focus on the bank’s interests and lack of concern for SMEs and their owners. The report again and again highlights the conflict between the “commercial interests” of the bank and its duty to its customers. Commercial interest won hands down; I could cite page after page.

That leads me to my concern with the regulator. I fully share my colleagues’ frustration at the inadequate powers of the regulator. This concept of a regulatory perimeter over which the regulator dare not step is indeed a limit, but the regulator also uses it as an excuse, enabling it to avoid rocking the established big banks, no matter where justice lies. I believe that the regulator’s motive for not cracking down is embedded in a belief that the system must not be shaken; financial stability means that SME abuse must, to a significant degree, be tolerated. In the case of RBS, propping up the share price as government seeks to sell off public ownership probably plays a role.

The FCA has never vigorously used the “fit and proper” determination. In the three years it has had the senior management regime, it has used it only once—and then to give a fine of less than 3% of his pay package to Jes Staley of Barclays for using both internal staff and private investigators to hunt down a whistleblower. The industry expected him to be fired. Rather than seize on information from whistleblowers, the FCA prevaricates and leaves them to hang. Nathan Bostock, head of risk and restructuring at RBS from 2009 to 2013, with direct oversight of GRG, has been not black-marked but rewarded, becoming chief executive of Santander UK, and his £1.8 million bonus from RBS was not withdrawn but protected.

New players are changing the landscape of SME lending, but the FCA has just taken steps to discourage people from investing in peer-to-peer platforms, even if low-risk and diverse, by requiring that investors must declare themselves to be sophisticated and experienced to put in more than 10% of their assets. Word on the street is that banks lobbied hard to get these constraints on these upstarts, who are now finally poaching their most attractive SME customers and the savers to whom the big banks never offer more than a pittance.

Will the Minister agree that we need changes? We need a change in culture in the regulator to aggressively pursue wrongdoing and the senior management on whose watch it takes place, using every power to the limit and demanding more if necessary; removal of the regulatory perimeter for all SMEs, and potentially altogether; positive encouragement to whistleblowers, including granting the FCA powers that made its US equivalent, the CFTC, a driver of global clean-up; compensation and the right of the regulator to sue any company that retaliates against a whistleblower; and finally, a rebalancing of regulation to support alternate lenders, even as they grow big and threaten the establishment, rather than to protect the established, large players.

National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

Baroness Kramer Excerpts

2nd reading (Hansard): House of Lords
Wednesday 26th June 2019 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I intend to be very brief on the Bill and I certainly will not oppose it, but I want to pick up a couple of issues raised by the noble Lord, Lord Macpherson, from a slightly different angle. I follow the logic of keeping national insurance contributions so that, essentially, they track the pattern of income tax—though I am delighted by the Minister’s assurance that this is not mission creep and we will not very shortly see coming down the track an attempt to apply a national insurance tax on the employee. We are looking at employees at a fairly critical and difficult phase of their lives. That is one thing you can be fairly sure of when somebody’s employment ends, especially when it is an unexpected redundancy. That is the issue I want to raise.

Our tax system deals very badly with earnings that spike in one particular year. To give a redundancy example, somebody who is made redundant in one year and receives a substantial payment might then not be employed for the next three years. It makes you question whether applying the taxes we do was appropriate in the way that it was attached to that redundancy payment. We do not do things such as income averaging, which other countries use. As we look at the whole world of work and how it is changing—with changes in how people are employed and paid, and the mixed and portfolio lifestyles they have—we need to step back and look again at how we track both income tax and NICs. I have no problem bringing them into alignment if that can be workable, though the transition looks absolutely terrifying and near impossible. At some point, however, we have to look much more fundamentally at whether these systems actually work with the way people work and earn their living today.

With that exemption, and taking the Minister entirely at his word that there will be no move to suddenly apply NICs to the employee, I support this legislation. The Minister was kind enough to meet us earlier and clarified a couple of questions in his opening statement, but I want to know whether there is any further information on one issue: do we have any evidence that this was being abused? Logically, one could work out how it could be abused, but I am not quite sure how much evidence there is that anyone was abusing it. That is rather an interesting question when we look at this legislation today.

GDP per Capita

Baroness Kramer Excerpts

Tuesday 11th June 2019 Lords Chamber

[Lord Young of Cookham]

The noble Lord makes a powerful case for a generous shared prosperity fund. The Government have tried to do what they can to reduce the disparity; extra funds were allocated to Wales in the 2018 Budget, giving the Welsh Government a £550 million boost. The GVA figures for London are slightly distorted by including people who commute into London but do not live in London. None the less, there is a regional imbalance. Public expenditure per capita is much larger in Scotland, Wales and Northern Ireland than it is for England. That is one of the ways that the Government seek to redress the imbalance the noble Lord just referred to.

[Baroness Kramer (LD)]

My Lords, the impact of the 2008 financial crash and the economic troubles that followed it was far greater outside London and the south-east than it was in this area. Since we are going into a period where the economy is weakening—we have had very poor first-quarter figures and the US economy looks like it is beginning to move into recession—what measures do the Government have in place to make sure that regional imbalance is countered? Have efforts such as the northern powerhouse and the Midlands engine actually delivered, or are they largely discussion and the creation of institutions that are not yet having any impact?

[Lord Young of Cookham]

I challenge what the noble Baroness said about the economy weakening. The economy has grown continuously for nine successive years. Employment is at a record level. Real wages are rising. The public finances are now under control. We are in the middle of the pack for future growth in the IMF forecast. Some of the issues she raised are matters for the spending review—both the amount of grant for local government and the shared prosperity fund—but she is unduly pessimistic in painting that scenario.

National Health Service: Pensions

Baroness Kramer Excerpts

Monday 10th June 2019 Lords Chamber

[Lord Young of Cookham]

We join the noble Baroness’s husband in wishing her a very long life. So far as the issue she raises is concerned, the BMA asked us to introduce this flexibility earlier this year. The chair of the BMA council said:

“This is a step in the right direction”.


The Secretary of State is willing to discuss other models for pension flexibility; we very much hope that, if we make these changes, high-earning clinicians will be able to attend to more patients while saving for their retirements without incurring significant tax charges.

[Baroness Kramer (LD)]

My Lords, senior officers in the armed services face the same problem. I raise this because I know that the Minister will follow up on it. One showed me his tax returns: a £5,000 increase in income led to an additional tax payment—in just the first year—of just under £17,000. This is driving away not only senior officers but especially the high-fliers who, with early promotion, get into this conundrum very early in their careers.

[Lord Young of Cookham]

My Lords, the Armed Forces Pension Scheme continues to be one of the best available defined-benefit occupational schemes. Service personnel on the AFPS are not required to contribute towards their pension throughout their career. However, we continue to monitor the differences between the various schemes to ensure that they are fair and provide appropriate support to the workforce.

Banks: Fraud Prevention

Baroness Kramer Excerpts

Monday 20th May 2019 Lords Chamber

[Lord Young of Cookham]

If I got a telephone call from the bank, I would hang up and then ring back. An additional measure will be introduced later this year for larger payments and payments where the banks think that there is a risk, in that they will have what they call multifactor authentication. In that case, they would text my noble friend saying that a payment was going through and asking him to confirm it. In the case my noble friend referred to, as I said, my instinct would be to hang up and ring the number on the back of my card.

[Baroness Kramer (LD)]

My Lords, it is beyond me why this code remains voluntary, creating an opportunity for banks to opt out of the system if they so wish when it offers only the most basic and minimal protection against fraudsters. Anyone going into a bank to move money by wire transfer, which I do for safety’s sake, is asked a series of questions about the payee; the bank also takes other steps because it knows that the responsibility will fall on it and that it is required by law. Should not the same strength be put behind online banking?

[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.

Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019

Baroness Kramer Excerpts

Tuesday 7th May 2019 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, the Treasury has been undertaking a programme of legislation, through SIs introduced under the EU withdrawal Act, to ensure that, if the UK leaves the EU without a deal or an implementation period, there continues to be a functioning legislative and regulatory regime for financial services in the UK.

The SIs made before 29 March covered all the essential legislative changes that needed to be in law by exit to ensure a safe and operable regime at the point of exit. While the deficiency fixes covered in this SI are important, it was not essential for them to be in law at exit, as long as they could be made shortly after. This SI will help ensure that the UK regulatory regime continues to be prepared for withdrawal from the EU. The approach taken in this SI aligns with that of previous SIs laid under the EU (Withdrawal) Act, providing continuity by maintaining existing legislation at the point of exit, but amending where necessary to ensure that it works effectively in a no-deal context.

This SI has four components. First, an important aspect of our no-deal preparations is the “temporary permissions regime”, which enables EEA firms operating in the UK via a financial services passport to continue their activities in the UK for a limited period after exit day, allowing them to obtain UK authorisation and complete any necessary restructuring. We also introduced a run-off mechanism via the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019, made on 28 February, for EEA firms that do not enter the temporary permissions regime or that leave the regime without full UK authorisation.

This SI does not amend the design of these regimes but introduces an additional safeguard for UK customers of firms that will enter run-off. Specifically, it adds an obligation on firms that enter the contractual run-off regime—part of the run-off mechanism established by the Financial Services Contracts Regulations—to inform their UK customers of their status as an exempt firm and of any changes to consumer protection. This ensures that EEA providers must inform their UK customers if, for example, there are changes to consumer protection legislation in the firm’s home state or in the EEA that affect UK customers. Part 3 of this SI introduces similar obligations for electronic money and payment services firms in the contractual run-off.

The second component of this instrument concerns the post-exit approach to supervision of financial conglomerates. An EU exit instrument fixing deficiencies in the UK’s implementation of the financial conglomerates directive was made on 14 November last year. As part of the EU exit instrument made on 22 March this year, which makes amendments to the Financial Services and Markets Act, Parliament approved a temporary transitional power giving UK regulators the flexibility to phase in regulatory changes introduced by EU exit legislation. As part of work to apply this power, the regulators proposed that, in certain circumstances, changes to the supervision of financial conglomerates should be delayed in order to give affected firms time to reach compliance in an orderly way. To achieve this, a transitional arrangement needs to be introduced to the FiCOD regulations in respect of the obligations on the regulators to supervise financial conglomerates.

The Treasury and the regulators engaged with industry on the temporary regimes and on the approach to phasing in onshoring regulatory changes in order to minimise disruption for firms. TheCityUK, with representation from a number of different trade associations and law firms, expressed support for the approach to transitional arrangements, describing them as “prudent and pragmatic”.

Thirdly, this SI makes a clarificatory amendment to the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018. Here, the drafting approach resulted in the FCA having only the implicit power to cancel the temporary deemed registration or authorisation of an EEA-authorised payment institution or EEA-registered account information service provider that is providing account information services, which lacked the insurance cover currently applicable to EEA passporting firms conducting this activity. This instrument makes this cancellation criterion explicit.

Finally, this instrument makes corrections to earlier EU exit SIs. All the legislation laid under the EU (Withdrawal) Act has gone through the normal rigorous checking procedures. However, as with any legislation, errors are made from time to time and it is important that they are corrected.

Certain provisions in the Financial Services Contracts Regulations 2019 relating to the run-off regimes incorrectly referred to “EEA fund managers”. These references are now removed, as EEA fund managers will not be able to make use of these regimes. In the Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019, made on 20 February, references to “European long-term investment funds” were not fully replaced with the term that will be used for UK-only funds. In the Capital Requirements (Amendment) (EU Exit) Regulations 2018, made on 19 December last year, a redundant paragraph on EU member state flexibility in the liquidity coverage delegated regulation was not deleted as it should have been. This SI corrects these drafting errors.

As I explained in my opening remarks, it was not essential for the additional measures and corrections covered by this instrument to be in law by the original exit day of 29 March, and that is why this instrument has not been considered by your Lordships earlier. Now that the Article 50 process has been extended for six months, we can ensure that these provisions are in place and that the UK’s regulatory regime will continue to be prepared for withdrawal from the EU in all scenarios. I hope that noble Lords will join me in supporting these regulations. I beg to move.

[Baroness Kramer (LD)]

My Lords, I am so glad I did not have to write the content of this SI; it was hard enough trying to work one’s way through it when simply reading it. It is obviously the result of a combination of “Oops!” and communication with customers. I see absolutely no reason to oppose it. If anything, this underscores the complexity of trying to make arrangements for dealing with a no-deal scenario. I hope we never have to use it, because we would run into more “Oops!” if we ever found ourselves in that situation. I hope the Treasury is going ahead with a mapping exercise to try to link this all together, because how anybody who functions in the industry can ever work their way through all this is completely beyond me. Frankly, if you ever needed an argument for remaining, it seems that this alone provides it.

[Lord Tunnicliffe (Lab)]

My Lords, this is one of many no-deal SIs on which I have been forced to represent Her Majesty’s Opposition from the Front Bench—a pretty unattractive pastime. The principal reason for this is the fact that most of these SIs amend an SI that amends an SI that amends an Act that is many years old, which makes it fundamentally difficult to understand them. When one has put all the intellectual effort into understanding the so-called no-deal SI, one then discovers that the actual substance of the SI is frequently merely technical or consequential.

I found that this SI, and particularly its Explanatory Memorandum, really won the prize for being the most difficult to understand yet. In my frustration, I thought I would find out to what standard an Explanatory Memorandum should be created. I had the inspiration to go along to the Secondary Legislation Scrutiny Committee offices to seek guidance. I was once on that committee when it had a much grander title, the Merits Committee, and the staff there were always helpful and competent. I asked, “What is the guidance on the creation of SIs?” They said there were two pieces of guidance: that given by the committee itself and the Government’s guidance, which—for reasons I do not understand—is actually issued by the National Archives. The guidance from the committee itself is some 17 pages long. The latest version is from July 2016. Its objectives are caught in one particular paragraph:

“The purpose of the EM is to provide members of Parliament and the public with a plain English, free-standing, explanation of the effect of the instrument and why it is necessary. It is not meant for lawyers, but to help people who may know nothing about the subject quickly to gain an understanding of the SI’s intent and purpose. Legal explanations of the changes are already given in the Explanatory Note which form part of the actual instrument”.


The latest government guidance from the National Archives, the fifth edition on statutory instruments, dated 27 November, states at paragraph 2.9.2:

“The purpose of an EM is to provide the public with an easy-to-understand explanation of the legislation’s intent and purpose—why the legislation is necessary. Avoid repeating content you have included in the Explanatory Note. Your explanation should be concise but comprehensive, and should not generally exceed four to six pages. Use plain English and avoid … jargon”.


I put it to noble Lords that this document fails.

I then turned to the EM itself, which at paragraph 15.2 states:

“Katie Fisher, Deputy Director for Financial Services EU Exit Domestic Preparation at HM Treasury, can confirm that this Explanatory Memorandum meets the required standard”.


She is wrong. It does not.

However, in my frustration, I rang the number given at paragraph 15.1 to try to understand a little more and my conversation resulted in an email from Richard Lowe-Lauri. At long last, after much toil, I feel that I do largely understand the Explanatory Memorandum, as prompted and helped by that useful email. What did I find? I found at the end of this exciting process that the issues tackled in this SI are technical, consequential or merely corrective. Therefore, I have nothing to object to, except for one very minor question about paragraph 2.4, the last sentence, which happens to be about five lines long. It states:

“It also inserts provisions into other temporary regimes, allowing EEA financial services firms to continue to service existing contracts with their UK customers post-exit, and mitigating risks faced by UK firms using services provided by non-UK central counterparties and trade repositories”.


I could not find anywhere how and what the risks were that we were mitigating and how they were being mitigated. Otherwise, I have no objection to the SI.

Making Tax Digital for VAT (Economic Affairs Committee Report)

Baroness Kramer Excerpts

Monday 29th April 2019 Lords Chamber

[Baroness Kramer (LD)]

My Lords, what a brilliant debate. I almost hesitate to speak for fear of diluting what has really been extraordinary. When a unanimous voice comes with passion from so many Benches, I am sure that the Minister will take on board and take back to HMRC and the Government that this is not a party-political issue or an attempt by one faction to embarrass the Government or make life difficult for HMRC; it reflects a genuine, sincere and deep concern among people who have looked at the powers and the way in which HMRC is implementing programmes and feel that there is a real risk that it is undermining its own reputation, as well as the respect that the collection of tax has within the United Kingdom. That respect is critical if taxpayers are genuinely to believe that, when they are asked to pay, it is on a fair basis and they will get appropriate and fair treatment.

I was privileged to be a member of the finance sub-committee and I thank the noble Lord, Lord Forsyth, for his extraordinary and skilled chairmanship. I know that he does that every time, but it is not an easy thing to do and I hope that he will not mind if we all take this opportunity to thank him for exercising that skill and leadership.

I am also a member of the All-Party Parliamentary Loan Charge Group, which started taking evidence essentially as the sub-committee’s process came to a close. I will try to use some of the information that I have received from participating in those hearings, some of which is quite shocking.

I shall turn briefly to the report on Making Tax Digital. I suspect that everybody would agree that making tax digital over time is entirely appropriate and that it is reasonable to start with VAT. It is a programme that must be implemented well and effectively—but that is not the experience that the sub-committee heard about when it took evidence. My noble friend referred to the fact that nearly 20% of small businesses impacted by this requirement have absolutely no idea, and many more have not been able to access relevant software.

Regarding the cost, I would far rather go with the estimates from the Federation of Small Businesses than with the, frankly, rather silly numbers that we heard from HMRC, which seem to suggest that it is completely out of touch with the real world of software costs in the marketplace. I point out that HMRC has allowed a delay for what it considers to be large and complex organisations—big businesses with a swathe of staff and several departments to take them through this process—while small firms are being told that they now have to report their tax through this new digital process. We understand that there will be some sort of leeway for those who attempt but fail—but, frankly, given HMRC’s lack of ability to relate to or communicate with small businesses, I am not sure that many have a great deal of faith in it.

Communication with that particular group is unbelievably weak. There really is no excuse, because HMRC knows every small business that is liable to pay VAT, so, if it chose, it could communicate with them directly. The answer that we frequently get is that information was put on the website on the “Spotlight” page, as I think it is called. That is considered to be communication, but it makes absolutely no sense. We heard from many people who were represented by accountants and specialists. My great fear—and, I think, that of the committee—is for the many people who do not have that representation and who are completely in the dark. As I said, this ought to be a good programme. It should be on a voluntary basis and have all the time that it needs, but poor implementation undermines what could be a long-term programme of significance.

However, I want to focus much more on the tax powers report. I agree with all those who have raised the extraordinary issue of the denial of rights to appeal accelerated payments notices and follower notices to tax tribunals, and who totally object to the disproportionate penalties for appealing follower notices and GAAR decisions. Justice is fundamental, and I wish that HMRC would understand that and take it on board. I cannot understand the argument for extending the time limit for assessing offshore tax to 12 years. Who in their right mind keeps records for 12 years, particularly on a small property or a few shares? This is nonsensical. HMRC is merely making up for the fact that it has been lax in pursuing cases where it believes that there is something to investigate. It should not be throwing the burden of its own incompetence, I might say, on to the taxpayer.

But I want to talk mostly about the loan charge. I agree with all those who have said that it is the little people who get no understanding from HMRC. In a sense, HMRC has not recognised that this is the pool of people it is dealing with when it comes to the loan charge. Many of the people who ended up becoming self-employed did so because of outsourcing. The majority worked once for local or central government, or for bodies such as the BBC, or even for HMRC. They did not seek to become self-employed. They were told that the only way to do this particular line of work was to become self-employed. Indeed, they were told, “If you want to be recruited, this is the agency we are using. Go to them, they will provide you with the advice and mechanisms to allow you to become self-employed and continue with your job”. This goes all the way from social workers to IT contractors.

HMRC denies engagement in this process but is totally culpable. On the All-Party Parliamentary Group we heard from people who were consultants to HMRC and are now being faced with a loan charge. This is perhaps a very good example, because the individual from whom we got the most detail was told that, to work as a contractor for HMRC, they would have to go to a particular recruitment agency—which had been retained, and was presumably being supervised, by HMRC—that would provide them with various options to enable them to structure themselves as self-employed.

[Lord Forsyth of Drumlean]

I am most grateful to the noble Baroness, and very interested in what she says. As she may recall, we did ask officials at HMRC whether any people involved with it had been involved in a loan charge. At first, the question was not answered. Then, on the second or third occasion, we were told that it was not aware of any evidence of this. So it might be useful to make that information available to HMRC so that we are not misled in the future.

[Baroness Kramer]

I think that the individual has made HMRC aware and happens to have an email trail, which makes the process rather easier to understand. On many of these occasions, people were not told, “You are going into a loan scheme”, or that they were going into some form of disguised remuneration. They were told that there were two or three ways in which they could structure themselves as self-employed. The word “loan” was rarely used. They were told that the advantage of scheme X—it always had a fancy name—was that the administration of it was quite simple. For many people, it was not financially particularly advantageous, because they paid a huge fee for the administration of the scheme: 18% was the standard charge. When that is added to the tax they were paying, they were not taking home more, and they had every reason to think that they were working in an approved situation.

Some people perhaps knew that one scheme was more advantageous in tax terms than another—not everybody is in the same position—but virtually everyone we talked to said that if they had had any clue that HMRC was troubled by this, they would of course have stepped away. When they did find this out, many did step away but were then put into another scheme with similar characteristics. So we have a population here who did not understand what they were getting into. They did not intend this—and intent is significant and important when you go after people for what effectively are their life savings.

HMRC says that it understands about vulnerable customers, but there is plenty of evidence that people have now sold businesses, sold their homes or gone bankrupt. Families have split up because, I am afraid, money can become very significant in shattering a family structure, particularly when someone has to dissolve their whole pension pot to meet a very large bill that comes in over one year. Being told that it could be spread over three years is pretty meaningless because the number is so fantastically large. Many people on the receiving end of a loan charge are no longer employed and have no way to pay.

I was horrified that some of the 70 individuals who submitted evidence to the APPG—I am not sure how many—have actually been called by HMRC, with messages left on their answerphone that have been picked up by business partners and family members who had no idea that there was an issue. We need an answer about that from HMRC. I was even more shocked that on 24 April, giving evidence to the Treasury Select Committee, the Chancellor claimed that the secretariat to the APPG was partly staffed by people who were promoters of loan charge schemes, which was absolutely not true. I hope that that has been retracted by this point in time.

When I pulled these notes together—the situation now may be slightly different—only a single promoter of a loan charge scheme, Hyrax, had been successfully prosecuted, but on the grounds that it breached DOTAS rules, not because it sold the schemes to people. Indeed, it has been allowed to keep its 18% fees that were charged to users. Hyrax’s penalty appears to be a requirement that it discloses the users’ names to HMRC so that they can be pursued. On the six other promoters that HMRC has been investigating, we hear that charges will not be pursued because they did not breach DOTAS; only the users of the schemes will be pursued. As far as I know, no one has yet gone and asked the employers—which ultimately would of course include HMRC, a beneficiary of this move to outsourcing and to self-employment under tax-advantage pricing—and nor do I believe that they have yet gone to local government, to central government departments or to the various public bodies.

Surely this is a real abuse. I understand that HMRC is under extraordinary pressure, but I believe that at the decision-making level people are completely detached from those on whom they have an impact. They have very little sense of the world of contracting and self-employment, very little understanding of how people made those decisions and what their capacities and capabilities were, and very little understanding of the impact of their decisions. With a body that is responsible for implementation, it is key that that changes.

I totally support the various recommendations in these two incredibly powerful and important reports, but I hope that, in addition, the Government will now consider not just a report but a proper review of the loan charge and a minimum delay of six months in implementing. I know that it is officially implemented, but that can always be delayed. On Making Tax Digital, surely we could now initiate a delay for small businesses, look again and make sure that it is implemented properly and effectively. It could be a superb programme and it should not be undermined.

--- Later in debate ---

[Lord Young of Cookham]

I am sure that if my noble friend and I had been on the Finance Bill at the time, we might have raised some of the issues that he has now raised. I make the point again that the legislation went through all its stages in the other place after its publication in draft.

I was grateful for what my noble friend Lord Tugendhat said about HMRC in some generous words, which I know will be well received by the hard-working public servants in that department. I believe all Governments, and both Houses, are committed to striking the right balance between helping the compliant majority to fulfil their obligations, and providing appropriate support to customers who need extra assistance to get things right, while taking robust action against those who seek to avoid paying their fair share of taxes. For this reason, the Government welcomed the committee’s detailed contribution to this important debate.

I say to my noble friend and to others who have taken part in this debate that my comments will reflect the Government’s response to the reports, including the updated response which we published in March. I will share with the Chancellor and other Ministers in the Treasury the tone of the debate and the deep concern expressed by Members on all sides about some of the actions that have been taken. Again, without any commitment, I will see whether within the confines, which I hope the House understands, there is any flexibility available to reflect the anxieties that so many Lords referred to.

Several noble Lords spoke more specifically about the charge on disguised remuneration loans. My noble friend Lady Noakes made this the focal point of her speech. As acknowledged by the report:

“Disguised remuneration schemes are an example of unacceptable tax avoidance that HMRC is right to pursue. All individuals using these schemes must accept some degree of culpability for placing an unfair burden on other taxpayers”.


It is the Government’s view, supported by a unanimous Supreme Court ruling, that these schemes are not and have never been effective, and that tax was always due. It is unfair to the vast majority of ordinary taxpayers who pay all their taxes to let anyone benefit from contrived tax avoidance of this sort. I am sorry to disappoint the noble Lord, Lord Kerr—

[Baroness Kramer]

The Minister is doing his best and because he referred to the Supreme Court, he will be aware that that ruling focused on the culpability of employers. There was no expectation in any of those Supreme Court discussions that action would be taken against the ordinary user. That has been a source of a great deal of the fury around this issue.

[Lord Young of Cookham]

With respect to the noble Baroness, the unanimous decision of the Supreme Court was that the tax was due and is payable by the employee and not the employer. I will come on to the employer in a moment. I was about to disappoint the noble Lord, Lord Kerr, on one of the questions he put to me. But if it was always the case that the tax was due, as I have just said, the loan charge is not retrospective, as he implied. I am not sure that he meant to imply this, but it does not have to be paid in the current tax year. It becomes liable, but I hope that people will engage with HMRC and agree terms that may cover a longer period.

[Lord Young of Cookham]

My understanding is that the tax now due accrued over a period of time, and was payable in the year in which it was accrued. That has been consolidated and crystallised into the loan charge. If I am wrong, I will write to my noble friend.

The Government are committed to tackling the promotion of tax avoidance and that is why HMRC has been investigating more than 100 promoters and others involved in marketing tax avoidance, including many who sold disguised remuneration arrangements. HMRC recently won a legal case, mentioned by the noble Baroness, Lady Kramer, over a contractor loan avoidance scheme promoter, Hyrax Resourcing Ltd. This will help collect over £40 million in unpaid taxes.

The charge on disguised remuneration loans has been criticised by those who say that it ought to be the employer who has to pay the tax that is outstanding. I agree, so let me be clear that HMRC will seek to collect the loan charge from employers in the first instance, and will pursue individuals for the tax due only where it cannot reasonably do so from the employer; for example, if the employer is no longer in existence or is offshore. In those cases, HMRC seeks to collect the tax liability from the individual who benefited from the tax avoidance.

[Baroness Kramer]

Since most of the employers in these cases were local government, they would pay any bill that HMRC thought was appropriate. Central government departments would also pay. Collecting from HMRC itself ought to be quite simple, and there are various public bodies, such as the BBC. Is the Minister now giving a reassurance to all those who have received a loan charge demand but were working for those public entities that they, at least, will not be pursued, because their employer will be paying?

[Lord Young of Cookham]

The safest thing I can do is repeat what I just said: HMRC will seek to collect the loan charge from employers in the first instance, and will pursue individuals for the tax due only where it cannot reasonably do so from the employer; for example, if the employer is no longer in existence or is offshore. The BBC is still there and is not offshore, as are the other employers mentioned by the noble Baroness, so HMRC will indeed seek reimbursement from them first, before it seeks to collect the liability from the individual. By the end of 2018, about 85% of the yield in advance of the charge was from settlements with employers. Since the 2016 Budget announcement, around 6,000 have agreed settlement, raising £1 billion for the Exchequer. These numbers will continue to increase as more settlements are agreed.

The Government recognise the impact of this legislation on the individuals affected and the importance of them receiving appropriate support. Some individuals are facing large tax bills, often as a result of using these schemes over a number of years or receiving large sums through the schemes. That is why the best thing for anyone concerned about paying what they owe is to get in touch with HMRC, which is expanding its specialist service for customers with additional needs to help them meet their obligations. HMRC has a good track record of supporting customers to pay their tax debts and has made it clear that it will not force anyone to sell their main home to pay their disguised remuneration debts. It does not want to make anyone bankrupt; insolvency is considered only as a last resort and few cases ever reach that stage. HMRC is determined to work with individuals to reach manageable, sustainable payment plans wherever possible.

My noble friend Lord Forsyth spoke about suicides and my noble friend Lady Noakes about the Samaritans. HMRC has been informed that a customer who had used DR schemes has taken their own life. Out of respect, and given HMRC’s duty of taxpayer confidentiality, the Government are not in position to comment further, but we continue to improve support to vulnerable customers and will extend HMRC’s valued needs enhanced support service to customers undergoing compliance checks. HMRC works alongside the voluntary and community sector to improve its support and to ensure that vulnerable customers receive adequate support beyond getting their tax affairs right.

[Baroness Kramer]

I do not want to keep stressing the issue of suicides, but in the one case that I am personally aware of is the Minister aware that HMRC is now pursuing the heirs for the loan charge?

[Lord Young of Cookham]

I was not aware. Of course, I understand the sensitivities of the issue and will raise the matter with HMRC.

HMRC has introduced simplified payment arrangements for those who approached it to settle by 5 April this year so that individuals will not have to pay the loan charge. Regardless of whether the individual decided to settle their taxes or whether the loan charge applies, for those who need more time to pay there is no maximum period for payment.

Resources for HMRC were raised during the debate. The Government have always provided HMRC with the resources that it needs. At the 2015 spending review, they invested £1.3 billion to transform HMRC to make it quicker and easier to deal with. In addition, since 2010, the Government have invested £2 billion in HMRC to tackle avoidance and evasion.

My noble friend Lord Forsyth raised the right of appeal on accelerated payment notices and follower notices. As my noble friend knows, the rules do not affect a taxpayer’s right to appeal against an HMRC decision or assessment concerning their tax liability. If the taxpayer successfully appeals the actual liability, the follower notice penalties will no longer be due. Again, Parliament granted HMRC these powers to discourage tax avoidance.

My noble friend also asked about retrospection. I think that I have dealt with that, if not wholly to his satisfaction. It is a new charge on DR loan balances outstanding on 5 April. It does not change the tax position of any previous year or the outcome of any open compliance checks.

My noble friend asked what the position was on the powers review. We agree that HMRC has to balance tax collection with important taxpayer safeguards. The powers review was a major project coming alongside the merger of HMRC and Customs and Excise. There has not been a similar fundamental change to justify another such review, but I say in response to my noble friend that we keep the tax system under review and will consider options for reviewing and updating the tax administration framework to ensure that it is effective in modern tax administration.

A number of noble Lords spoke about low-paid employees and social workers being affected by the loan charge. HMRC’s analysis shows that around 3% of those individuals who used a disguised remuneration loan scheme worked in medical services and teaching.

My noble friend Lord Tugendhat raised the issue of naming. Again, Parliament has legislated to allow taxpayers to be named in limited circumstances. These are prescribed explicitly in legislation. HMRC places importance on taxpayer confidentiality, and no one can be named simply for disagreeing with it. I hope that HMRC never engages in what my noble friend called “innuendo”.

In view of the number of interventions, I may claim a bit of injury time on the question about HMRC inaction on loan charges. The Government’s view, as I think I have already said, is that these schemes never worked. Compliance activity has been taken ever since the schemes were first used, including the use of thousands of inquiries into scheme users, successful litigation and agreement of settlements. The loan charge was introduced to draw a line under all outstanding DR loans, but HMRC has always warned against the use of DR schemes, with the first spotlight being published in 2009. Many scheme users did not disclose details of their scheme use, or disclosed partial information which did not enable compliance—this is in response to an issue raised by the noble and learned Lord, Lord Judge. Where DOTAS numbers were provided, HMRC routinely opened inquiries, and it will look carefully at cases where individuals provided evidence that they fully and properly disclosed their use of a DOTAS at the time and where HMRC closed an inquiry with that evidence. However, it does not believe that there are many cases where that has happened.

I am conscious that I have not said anything about Making Tax Digital, so I will say a few final words about that report. We want every individual and business to develop the skills and confidence to seize the opportunities of digital technology. In a world where businesses are already banking, paying bills and shopping online, it is important that the tax system keeps pace. Making Tax Digital gives UK businesses more control over their finances and allows them to manage their tax more easily so that they can focus on what they do best—innovating, expanding and creating jobs. The Enterprise Research Centre found in 2018 that web-based accounting software delivered productivity increases for micro-businesses of 11.8%. One should set that against the costs mentioned by my noble friend Lord Forsyth and the noble Baroness, Lady Burt.

I was asked what the position was on small businesses unable to go digital because of the absence of broadband. Businesses that are unable to go digital will not be forced so to do. If it is not reasonably practical for a business to join MTD for reasons of age, disability or remoteness of location—which can affect broadband connection—it may qualify for an exemption.

I am deeply conscious that I have not done justice to the many serious questions that have been raised, and I am already over my time. In conclusion, I thank noble Lords for their contributions to this stimulating debate—

Small and Medium-sized Enterprises: Clydesdale Bank

Baroness Kramer Excerpts

Tuesday 19th March 2019 Lords Chamber

[Lord Young of Cookham]

I am grateful to the noble Lord for his response. It makes sense to wait for the expansion of the financial ombudsman’s scheme, which I and he referred to, and which comes into effect next month. I also believe that the two voluntary schemes to which he referred are better than the alternative—a statutory independent tribunal, which the Treasury Select Committee considered. We gave that serious consideration, but agreed with Simon Walker’s conclusion that that would not be the right approach. It would involve primary legislation, setting up a tribunal and probably costs for the SMEs that wished to access it. I think a dispute resolution system, as outlined, would be much quicker, much less expensive and not constrained by a narrow interpretation of the law. An ombudsman could see whether a contract was fair and reasonable, for example.

The noble Lord asked whether the standard lending practice was voluntary. Yes, it is a voluntary scheme. It sets the benchmark for good lending practice in the UK, outlining the way registered firms are expected to deal with their customers throughout the entire product life. We believe that this is the right approach to resolving complaints, but we have not ruled out other options if it does not deliver.

[Baroness Kramer (LD)]

My Lords, do the Government recognise that people have been waiting for more than six years for justice? Those SMEs were maltreated by Clydesdale, RBS and Lloyds. They were viable companies paying their loans that were put into bankruptcy so that their assets could be stripped for profit and advantage, and the Government have at every step of the way dragged their feet, as has the regulator. Now, rather than the limited, partial voluntary schemes that the Minister proposes for the future, will the Government understand the reality of the experience of so many people, take a much firmer hand following the Australian example, do a complete retroactive review and ensure that everyone is compensated by the Government’s initiative, not wait for people who have been badly damaged to come forward to battle yet again?

[Lord Young of Cookham]

If there was inaction for the past six years, that covers a period when we were both Ministers together in the coalition Government. The noble Baroness asked whether it was fair to ask people to wait. What we propose would bring a swifter solution to those who have already waited a long time—as I agree—than the alternative of a statutory scheme which, as I said, requires primary legislation, regulations controlling SME lending, which is not regulated at the moment, and then possibly expensive access to the tribunal through legal representation for SMEs.

The banks have a good record of observing the recommendations of the financial ombudsman scheme, so we should let them have the opportunity to show that they will also honour the recommendations of the two schemes being announced today, which will be up and running in the autumn—far sooner than a statutory scheme.

[Lord Young of Cookham]

I recognise that there are more cases than the one that has generated the interest. There has been a lot of press interest in some RBS schemes. Looking at the FCA estimates, we estimate that the expansion in eligibility for the FOS scheme will result in no more than an additional 1,300 cases from businesses on top of the existing 6,000 cases from microenterprises. To put that in context, the employment tribunal received over 109,000 cases in the financial year. We think the FCA’s planned expansion of the FOS to include small businesses is the right and proportionate response. We look forward to the next steps and to these vital pieces.

The noble Lord then asked me a number of questions about the incentive loans or interest rates that banks sometimes offer and some of their other practices. I am not sure whether they fall precisely under the remit I have just announced but, if the noble Lord will permit, I will write to him when I have received further clarification.

[Baroness Kramer]

My Lords, since I can now follow up with another question, I remind the Minister that during the coalition years Vince Cable, in his role at BIS, commissioned the first investigation into the many complaints against RBS, its abuse and its behaviour. As a consequence the FCA, as it is now—the regulator—was asked to act. The regulator commissioned a consultant called Promontory to produce a report, which was utterly damning—but we did not know that, because it was not published—and the summary the FCA produced was 180 degrees different from the underlying report. It was only its leakage and its exposure that brought this to much wider attention. Essentially, Members on all sides of this House—and in the other House—have been dragging this Government to try to deal with this and to get the FCA and the other regulators to deal with their underlying responsibilities. Would it not be appropriate to make sure that, where an institution is to any degree regulated by either the FCA or the PRA, they take fundamental responsibility for its ethical behaviour and not limit themselves to the narrow regulatory perimeter behind which they hide?

[Lord Young of Cookham]

I do not disagree with the recommendation the noble Baroness made at the end: that they should have a broader remit in their responsibilities and not confine themselves to the narrow remit that may be set out. Again, perhaps I can write to her, as she has strayed just a little from the rather narrow case that brought me to the Dispatch Box. She raises an important point about the broader responsibilities of regulatory bodies, which I will write to her about.

Uncertificated Securities (Amendment and EU Exit) Regulations 2019

Baroness Kramer Excerpts

Monday 25th February 2019 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I declare my interest, as in the register, as a director of London Stock Exchange plc. I am glad that we are debating these two instruments together, because they seem to go together and to form a continuum. Indeed, in some ways it is rather strange. The first says that it would not be appropriate to give the Bank of England powers pre Brexit, but then in the second the powers are being given to the Bank of England. That arises largely because the uncertified securities regulations are largely about transposing EU legislation under the European Communities Act.

I too was interested in the consultation done in 2015 and noted that there seemed to be variably one, two or three comments on various sections. That certainly determined me to step up my rate of response to consultations. The report says that changes have been made, but it leaves you having to compare the before and after. All that was getting a bit too much on a sunny Sunday, as the noble Lord, Lord Tunnicliffe, said. What struck me particularly was the explanation on page 6 of the Explanatory Memorandum to the uncertified securities regulations, which said that,

“the Treasury is taking a proportionate approach to implementing Article 49(1)”.

Given that they are regulations, and you cannot change what is in the regulation done by the EU, I am curious as to what this more proportionate approach entails. Does it imply that the first draft had been gold-plated in some way? What was in and has been taken out? I did not find a great deal of guidance in the documents.

My next comment is a very general one. In both of these statutory instruments, and in particular in the second one dealing with exchanges and so forth, there is a large number of changes to the Financial Services and Markets Act. As we have discussed at some length before, that is not up to date on legislation.gov.uk— although, of course, it does give you a list of the things you might want to go and explore, to see if you can work out what an up-to-date version might be, or you may be thrust into the hands of one of the commercial organisations that will do that for you. However, by the time we have ploughed through all 60 statutory instruments that we are told we have to deal with, and then whatever other number we may get regarding corrections and re-workings—some of which are coming along now—FSMA will be even more incomprehensible on the legislation website, and so too will be any sensible comparison of how EU legislation has been retained with regard to the EU originals.

That might be relevant. If we are ever trying to argue for equivalence, the first thing we will be asked to do is to show it. Page 3 of the Explanatory Memorandum for the investment exchanges SI names six other SIs involved in the onshoring of the Securities Financing Transactions Regulation—so one regulation goes to seven SIs, each of which further redistributes powers and requirements over a range of other instruments. As I have said, we are also getting into second-order corrections and additions, with further SIs winging their way through the system.

It is not my idea of a lawful democracy for laws to be so obscure and inaccessible. It is actually quite a mockery to make a fuss about the accessibility and clarity of wording in individual documents while it remains impossible to find out their cumulative effect. I have long been shocked at this unwholesome situation, but Brexit is making it far worse. What is the Treasury going to do about it? Clearly, check tables have to be used in the Treasury. I am coming to the view that we are reaching a stage at which Parliament should refuse to amend law that is not available in an up-to-date format. At the very least, could the Treasury share the various schedules that point out what has been put where, so that those of us who are expected to scrutinise this do not have to spend an awful lot of time getting frustrated as we try to work out the true current state of the law? If we cannot do it, and we are responsible for it, how is the ordinary citizen supposed to know what is the law, when ignorance is no defence?

[Baroness Kramer (LD)]

My Lords, I concur with all the comments made by my colleagues on these Benches. I want to raise again the issue that I picked up in relation to the earlier statutory instrument: namely, the responsibility or duty to exchange information between the UK regulators and the EU regulators. As far as I am concerned, this gets even worse in these two statutory instruments. I will not comment much on the first statutory instrument because, to me, it is a combination of in-flight and onshoring, and I can see why it is essential. Obviously, I am also not going to object to the second statutory instrument.

However, I want to draw the House’s attention to the significance of regulating CCPs. Following the crash of 2008, the G20—quite appropriately, most of us think—realised that to underpin financial stability in the future it would be necessary to require that derivatives be cleared through central counterparties rather than just exchanged between institutions, because in the financial crash it was impossible to work out who owed money to whom, and that caused much of the system to freeze up and undermined liquidity. But everyone has also recognised that, by running all derivative contracts through a limited number of central counterparties, we are cumulating risk in one location. A mistake by a CCP in understanding a risk, in requiring margins and in recognising the creditworthiness of various players has potentially huge consequences because so much is now gathered in the one location—it has become absolutely critical.

Securitisation (Amendment) (EU Exit) Regulations 2019

Baroness Kramer Excerpts

Monday 25th February 2019 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I declare my interests, as set out in the register, as a director of London Stock Exchange plc and of Prime Collateralised Securities (PCS) Europe ASBL, which is the Belgian not-for-profit parent company of third-party verification entities. I have no comments on the usual way in which the onshoring has been done, switching to the regulators being UK rather than EU ones, or the way in which infrastructure is dealt with in that.

However, one thing on securitisation caught my eye. Sometimes what is not there, or has been crossed out, is more interesting than what remains. I noted that there was some removal of draft regulatory standard criteria in Article 6.7(a) and (b) of the EU regulation, covering,

“the modalities for retaining risk … including the fulfilment through a synthetic or contingent form of retention”,

and measurement of the level of risk retention. I can fully understand why it might not be desired to go into those, or have them dangling as an invitation for people to lobby. It may make no difference, because those were just examples; they could perhaps be brought in again. However, I was curious about why they had been specifically deleted, or has something else which I have missed taken care of it?

Article 45, regarding a feasibility report on a simple, transparent and standard synthetic securitisation and the subsequent action relating to it, is also omitted. I can see that, in the case of Article 45, the report date—2 July 2019—is close, but I would have thought that there were ways other than deletion to retain the policy that one investigates synthetic securitisation. The deletion of synthetic criteria from both the list and the article makes me question whether a policy decision has already been taken not to have synthetics within STS at all in the UK in future. I can understand that some might wish that to be the case, but this instrument is not the place to make such a policy decision. Is there some other explanation? I see no reason why the criteria for binding technical standards, in Article 6.7(a) and (b), should be removed nor why we could not have some kind of report, even at a later date.

[Baroness Kramer (LD)]

My Lords, I will focus briefly on the second of the two statutory instruments. I need help from the Minister, because I am struggling to understand the consequences of this, and I am looking specifically at STS recognition. The Minister will understand that achieving classification as an STS is advantageous because it is very likely to lead to preferential capital treatment. That is very important to banking institutions, which obviously want to keep their capital requirements as low as possible. At the moment, to qualify for STS classification, all the parties to an STS securitisation have to be located within the EU. If I understand the change that flows from this statutory instrument, if we were to leave without a deal, the regime we would move into says that in the UK an STS can be recognised provided that just one of the relevant players is located in the EU—most likely the sponsor. I raise this issue because it sounds as though securitisations in the EU and in all third countries now become available for classification as an STS.

I raise that concern because we are all very aware that the United States has gone back to its old tricks in mortgage lending, and asset-backed paper, backed by US mortgages, is once more beginning to raise some fairly significant issues of concern. We have been protected from that to some degree by the STS regime, which requires that all relevant players are within the EU. If I understand this correctly, that protection is now removed, and since third countries can now get STS classification and therefore preferential capital treatment, we increase the risk or the attraction quite possibly—or rather, quite likely—to UK institutions to once again start playing in that environment of US mortgage-backed securities, where we already know there is incipient trouble; I hope it is genuinely incipient, but some people are using much stronger language than that. I would therefore like the Minister to explain that.

The other issue on which I had a question was under exposures to national promotional banks. At the moment, national promotional banks located in the EU, again, are eligible to be provided with preferential treatment. It would therefore encourage a financial institution to invest in those national promotional institutions because if it lends to them, it faces a lower capital requirement. What is the situation that will fall out of the picture, according to the Explanatory Memorandum? It seems to be KfW, which is the German state-owned development bank. A UK investor who is lending money to KfW would no longer get that preference as it calculated its required capital ratios.

To me, this is the equivalent of “have gun, shoot foot”. KfW is a major player in funding small businesses in the UK. It has sat alongside the European Investment Fund and the European Investment Bank in putting significant blocs of long-term patient capital into large-scale infrastructure in the UK. I know that we have the British Investment Bank, but it is minuscule compared to the EIB, the EIF and KfW, and nothing I have heard from government suggests a scale-up to anywhere like the same dimensions. Why, then, would we, in a situation like this, try to discourage KfW from looking at opportunities to put its money into projects in the UK, and especially into that much-needed arena of small business? I find it slightly perverse but that is one of the things that this SI apparently intends to achieve. As I said, I am very fond of the British Investment Bank but, boy, does it have a long way to go before it can possibly replace those other institutions. Surely we should be encouraging KFW—we cannot do anything about the EIF or the EIB because of European rules—to keep it as a player.

[Lord Tunnicliffe (Lab)]

My Lords, I studied these two SIs with great care and could not object to their general direction. I even managed to think of three penetrating questions, which the Minister unfortunately answered in his opening statement, so I shall not repeat them. I thank the noble Lords, Lord Sharkey and Lord Deben, for their contribution. The noble Lord, Lord Deben, was concerned about the FCA costs. To some extent, that does not worry me nearly as much is whether there are competent resources. I worry whether there are enough people who want to work in a regulatory atmosphere who have enough competence to take this mess called falling out of the EU, fit it all altogether and discharge all their responsibilities. I can only just bring myself to ask this as a question, because I know that the Minister has a standard answer.

Building on the comments made earlier, the facts of life are that this is a dreadful deal. There is nothing wrong with the instrument, but if you are going to get into a dreadful situation, there are dreadful consequences. Although the Minister may say, as I am sure he will, that the issue of reciprocity is not nearly as bad as we all make out because the other side will want to do reciprocal deals, my experience of negotiation is that it is not that straightforward. They hold the cards, and if reciprocal agreements are made, good, but I fear that they will be somewhat one-sided.