Finance (No. 2) Bill

Baroness Kramer Excerpts

2nd reading & Committee negatived & 3rd reading
Friday 24th May 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I welcome the noble Baroness, Lady Hazarika—talk about getting in under the wire in this Parliament. It was a brilliant maiden speech, in both tone and content, and it seemed to me that it reflected someone intending to challenge, but with respect, and that surely is the very best of this House. I very much look forward to hearing her in the next Session. One of the great joys for all of us here is that we know we will be back.

I will also use this opportunity to pay my respects to the Minister, the noble Baroness, Lady Vere. She has served with real vigour in her role and mastered an incredibly complex portfolio. If anyone doubts that, they should listen to today’s speech from the noble Lord, Lord Davies of Brixton. She has always treated all of us on our Benches with courtesy, even in the rough and tumble of politics. We do not know what will happen in the coming election, but I thought it was important to mark our appreciation of the service that she has given on this portfolio.

I will turn to the topic of the day. This is definitely a No. 2 Finance Bill, and it is mostly a tidying up exercise. I am so glad that I do not have to pursue the point raised by the noble Lord, Lord Davies—I leave that to the Minister to cope with—but, knowing the noble Lord, it is a significant point, and it is worth a follow-up.

I am particularly pleased with the support in the Bill for the creative industries. Most of the measures that are being dealt with in a wash-up process are relatively minor. We dealt with the key elements of the last Budget in numerous debates on many pieces of previous legislation and Statements, so I have decided that my comments will be fairly brief because we have behind us a whole queue of legislation, and people will be anxious to move forward.

The Government keep using phrases, as they talk about the economy, such as “turning the corner” and “returning to normal”. If the Government think that the economy has returned to normal, they really have absolutely no understanding of normal people’s lives. People are facing relentless cost of living pressures and, when I am on the doorstep, I find there is a general horror at the collapse of so many public services. I will not detail those, but I say to the Minister: if this is the new normal, my sense on the doorstep is that people do not want it.

The freezing of tax thresholds has squeezed people on low and modest incomes in some of the harshest times, while oil companies really got away with it thanks to loopholes in the windfall levy; and today in this Bill, they were handed some additional goodies. Again, when I am out on that doorstep, the anxiety about the state of the NHS and social care is dominating so many people’s minds, and we have come to a terrible pass when the police are told not to arrest criminals because we cannot provide prison places. We heard today about the new energy cap—that is, obviously, good news. But people will still pay on average £400 more for their energy in a year than they did before the pandemic—and, frankly, any benefits on that side look as though they will be stripped away by the behaviour of the water companies. I looked at the applications that they made to Ofwat; it looks like my personal bill will go up by something like £350 a year. Today, I read the assessment of bonuses going to senior managers within the water companies—they amount to £54 billion for this year. The Government are completely hapless in trying to deal with these issues, and I hope that we will get some real change following the election.

In the corporate sphere, which underpins our economy, we have low and stagnant business investment and productivity. We face worker shortages and a shortage of skills. Trade has diminished significantly. We have ongoing trade weakness—for a country that lives or dies by trade. The emergency summit this week on the Stock Exchange is just one example of the worsening scarring of Brexit. We hear that our problems are caused by the pandemic and Ukraine—that is true—but the biggest and most persistent scarring is coming from Brexit and that is worsening, not easing.

My party will fight for a fair tax strategy, a proper industrial strategy and an apprenticeship scheme that actually works. We will rebuild exports, including to our former markets in Europe. I say to the Minister that, as we come to the end of this Session, there is hope for our economy. We are right to try to take an optimistic and positive line, but we cannot rebuild our economy until her party leaves office.

Defence Funding

Baroness Kramer Excerpts

Thursday 16th May 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I am grateful to the noble and gallant Lord for his intervention, but the Government have committed to increase NATO-qualifying defence spending to 2.5% of GDP. That will make us the biggest defence power in Europe, and second only to the US in NATO. If all other NATO members were to increase their spending to the same levels, that would mean an additional £140 billion to be spent by allied nations.

[Baroness Kramer (LD)]

My Lords, the UK’s green gilts have been justified as necessary to promote London as a global centre for green finance, and they have been successful, but defence bonds would bring no such advantage and surely should be funded from core taxation. What would be the impact of defence gilts on general gilts issuances, on the national debt, on our annual interest payments and on funds for other public services?

[Baroness Vere of Norbiton (Con)]

Of course, I do not have the answer to those questions because the Government are not intending to issue defence bonds. However, the noble Baroness mentioned one of the rationales for issuing green gilts—ensuring that the City of London is a global financial centre—and she is absolutely right. Indeed, we are the No. 1 financial centre for green finance.

Building Societies Act 1986 (Amendment) Bill

Baroness Kramer Excerpts

2nd reading
Friday 10th May 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, we on these Benches support the Bill. The main, important provision here is to exclude MRELs, minimum requirements for own funds and eligible liabilities, from the wholesale funding limit for building societies. I had rather hoped that the noble Lord, Lord Kennedy, would explain in opening what MREL was; he wisely avoided that task, so I will just explain it in one line for those who do not spend their time in financial services debates. In effect, it is a layer of debt that automatically converts to capital in case of a failure of the institution, with the notion that that would then protect the taxpayer. I hope that is an adequate summary.

This Bill carefully does not challenge the principle of having that layer of protection but stops the double-counting that goes on when the current rules are applied to building societies, in contrast to banks. I and other members of my party have been calling for years for the unique characteristics of building societies to be accommodated when the UK regulator sets the MREL rules. All of that is permitted under the Basel III regime from which MREL emanates—the regime that came into play after the financial crisis of 2008 to try to find ways of protecting global economies from failures within the financial services sector.

I am also very conscious that raising the non-preferred or subordinate debt, which is the typical constituent and primary instrument of the MREL layer, is very difficult for building societies to do at a reasonable price. It is a very limited market, so having double-counting in the building society system was, frankly, reasonably unforgivable. I take the view that the regulator could have sorted this all out without primary legislation; I am told that the Treasury for a while thought the same but has decided that primary legislation is necessary. So be it. If it is necessary, I am glad that we have it in front of us today.

Like others, we on these Benches are convinced that a revitalised building society sector can fill the geographic and demographic gaps in our financial services provision. The sector and mutuals generally play a crucial role in bringing financial services, including mortgages, to a broader section of our population, especially first-time home buyers.

However, in the context of what some would call an argument for weakening a resolution regime, I should say that I am not going soft. I remain deeply concerned at the steps taken by this Government and the financial regulators to water down the protections brought in after 2008 to prevent a repeat of that kind of financial crisis. Elements of Solvency UK, parts of the proposed Edinburgh reforms, the breaching of the ring-fence in HSBC’s purchase of Silicon Valley Bank UK and the lifting of the cap on bankers’ bonuses are all examples of key shifts that have begun to undermine the protections that were put in place. When these issues are raised, the Government typically say—I wonder whether they will do so again today—that we can afford to encourage much more risk in the financial sector because we now have a powerful resolution regime in place, of which MREL is a key part.

This is not the day to go into detail, but I hope that parliamentarians are aware that, in the two instances when we have had bank failures in the global banking sector following the creation of the resolution regimes, Governments have chosen not to use the regimes, because the collateral damage from enforcing the bank failure and the consequent almost wiping out of those who are holding the preferred debt that is part of MREL, as well as the shareholders, has been assessed as being so great that, in effect, the taxpayer has become the means of resolving the problem. The two examples are the failures of Silicon Valley Bank in the UK, including its UK operations, and of Credit Suisse. The US, UK and Swiss Governments all looked in the face of that resolution regime and decided not to exercise it. This stresses the importance of not having a crisis in the first place—which takes us back to making sure that those initial protections remain strong and powerful.

The other features of this Bill make sense to me, so I will not elaborate. I do want to say quickly that I am conscious that some noble Lords—I have had letters about this—wish to use this Bill to challenge some aspects of the Nationwide purchase of Virgin Money. It is important to say that amending this Bill will simply kill it, as it is a Private Member’s Bill, which would achieve nothing for anyone. So I hope others will support the Bill and I wish it swift passage.

Bank of England (Economic Affairs Committee Report)

Baroness Kramer Excerpts

Thursday 2nd May 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, first, I congratulate the noble Lord, Lord Moynihan of Chelsea, on his maiden speech. He speaks with great expertise. I suspect that occasionally we will agree, but frequently we will disagree, but that is the purpose of the House.

I was privileged to be on the Economic Affairs Committee when it developed the report and so this is my opportunity to thank our chair, the noble Lord, Lord Bridges of Headley, for his outstanding leadership on this and other issues. I miss participating in the EAC.

I will speak later about accountability and the lessons that we have to learn that are embedded in this report and the Bernanke report. But to my surprise, I think it is very important that I first state clearly and unwaveringly the support of my party for an operationally independent Bank of England. It seems to me that in the debate today that has been called into question—along a spectrum, perhaps with the noble Lords, Lord Frost and Lord Blackwell, at the more extreme end—but it is crucial if we are to have credibility in domestic and international public markets and with the public at large. If there is one body that the public mistrusts more than the Bank of England, it is certainly politicians. I thank the noble Lord, Lord King, for giving us in great detail examples of how it is just impossible for anyone at a senior level in politics not to seek to manipulate issues such as interest rates and inflation when there is electoral and political victory at stake.

As I said, the report contains many recommendations that I hope will be taken up. The one that captures me the most, and this was picked up by virtually every speaker, is the issue of groupthink. The noble Earl, Lord Effingham, quoted Ben Bernanke, whose observation that the Bank’s

“deficiencies were characteristic of the central banking community in general rather than the Bank alone”

speaks to the broad groupthink that affected the whole central banking community globally.

I fully endorse the recommendations in our report for more diversity of thought at the Bank and the proposal that the Court of the Bank should play a stronger oversight role. Back in 2016 I opposed the Government’s decision to reduce the number of non-executives on the court and abolish its oversight committee. It is now vital that challenge be brought back into the system, at both court and monetary policy level. I will talk about accountability later, but the element of challenge is vital. It is just improbable that people of sufficient calibre and expertise, across a variety of thought, cannot be recruited into the various and appropriate bodies within the committees of the Bank.

I turn to the Bernanke report. Like the noble Baroness, Lady Liddell—and the noble Lord, Lord Lamont, may have said the same thing—I was shocked to realise just how out of date the tools are that underpin economic forecasting at the Bank. For those who have not read the report, the phrases include:

“Some key software is out of date and lacks functionality … insufficient resources … makeshift fixes … unwieldy system”.


That is really quite damning. How we got here I do not know, but I suspect that everyone in the House would agree that it needs to be changed quickly, and the noble Baroness, Lady Lane-Fox, is certainly someone I would turn to for advice in this arena.

Once we got a grip on the fact that the forecasting is inadequate at present, I began to have some understanding of why neither the Bank nor the Treasury seems to capture and understand the risks of continuous quantitative easing, including the fiscal implications of, in effect, swapping nearly half the public debt overnight from long-term fixed rates to volatile rates, halving duration and aggravating asset inflation. We have to recognise that quantitative easing was a vital tool in dealing with liquidity problems, certainly after the 2008 crash and in the early days of Covid, but it is not an elixir to drive forward economic growth. That issue should have been caught if we had had much better forecasting and ranges of scenarios as well as diversity of thinking.

We now face quantitative tightening at a time when the Treasury is also issuing high levels of public debt and one of the major purchasers of gilts, the DB pension funds, have far less appetite for those instruments. We are in a difficult place, and it is going to take some time to unwind all this. I go back to the argument that these issues need to be resolved by the Bank objectively looking at the economy, not by political interference.

As well as fixing the system at the Bank, we have to ensure that the Treasury and the Bank can at least communicate properly with each other, without compromising the Bank’s independence, to ensure that fiscal policy and monetary policy are made with an understanding of what is happening in each arena. As our report says, that co-ordination responsibility falls primarily with the Government; they set the inflation target for the Bank and control fiscal policy. However, as we took evidence, I could not see any clear lines of responsibility or clear communication mechanisms. It seems to me that the issue is handled largely informally, and I think we would all ask for more clarity. I strongly endorse the report’s recommendation that the Bank and the Debt Management Office of HM Treasury should publish an MoU on the interaction between monetary policy and debt management. Like the many others who have said this, I simply do not understand why the Treasury does not publish the deed of indemnity—that is completely beyond me.

Our report—this is where I probably differ from some others on the committee—focuses quite strongly on the remit of the Bank, which has of course expanded significantly in recent years, and recommends far more transparency and debate around that remit, especially in Parliament. I agree with that process of debate and transparency, but I think this issue is getting seriously overplayed. Staff and resource the Bank properly and, it seems to me, it can cope with more than a single remit. In terms of shaping our economy to tackle climate change, I would be very worried to see the Bank of England step out of that arena in the crisis that we face.

Let me close on the issue of the accountability of a body as central as the Bank is to the functioning of our economy. Independence is not in conflict with accountability; for that reason, I believe that aspects of the work of the Bank should be looked at by our new Financial Services Regulation Committee. That committee is a significant step forward, but the Bank could make that work, and parliamentary scrutiny, easier if it effectively ensured a flow of information to us. Information seems to come out in unquestioned bites or has to be extracted through very brief committee evidence sessions. I would like to see a much more open and constant flow of information. For example, in the case of quantitative easing, it could have helped Parliament greatly had we had a detailed discussion of the economic risks from significantly expanding the Bank’s balance sheet. To do that, we have to have a committee that is properly resourced and powerful.

I very much agree with the noble Lord, Lord Bridges, that Parliament has a responsibility, as a whole, to step up its level of oversight. I hope we will seize on that. I hope indeed that the Government, and all sides of this House, will provide support to the proposal from the noble Lord, Lord Bridges, and the committee that we have a detailed five-year review, so that this discussion is regularly in front of us. Also, there should be no no-go areas. Why should we not discuss issues such as the inflation target? Discussion and challenge are very different from political interference and taking over control. Because we know that there has been a failure to provide diversity in appointments, it also seems to me that somehow bringing Parliament into some element of a confirmation process makes a great deal of sense.

I believe that there is a lot we can do and lessons that we can learn. I very much endorse the support of the committee and I am pleased we have got the Bernanke report. I wish it was all being taken a bit more seriously by both the Bank and the Government. Again, I thank the committee for the privilege of allowing me to have been one of its members.

HMRC Self-assessment Helpline

Baroness Kramer Excerpts

Tuesday 26th March 2024 Lords Chamber

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, I do not have the details of who was told at what stage, but even though HMRC is a non-ministerial department and has a close relationship with the Ministers with oversight of HMRC, operational decisions are taken by HMRC’s management. The decision on the helpline followed two trials last year, the evaluations for which were published, showing that closing access to those helplines for certain people had no adverse effects at all. A commitment has been made that the helplines will remain open over the year ahead, but we are focused on listening to feedback and ensuring that as many people as possible can make the transition to online services, which have a far higher customer satisfaction rate than the phone lines.

[Baroness Kramer (LD)]

My Lords, it is not just this particular shambles: HMRC’s own surveys, which you can read in its annual reports, show that customer service has pretty much collapsed within that departmental agency. Its leadership has failed to recognise that the huge shift to self-employment, contract work and gig work has pushed swathes of ordinary people into a tax minefield. I ask that the Government provide HMRC with more resources to deal with this issue, but will they also tackle the culture at HMRC, which, at the top, remains focused on compliance through aggressive enforcement rather than through proper customer service and support? Most people want to pay the right tax; they just do not know what it is or how to do it.

[Baroness Vere of Norbiton (Con)]

I do not fully recognise the picture that the noble Baroness paints. Over the course of this Parliament, the amount of funding provided to HMRC has increased from £4.3 billion in 2019-20 to £5.2 billion in 2024-25, and the overall customer satisfaction across phone, web chat and online is 79.2% versus a target of 80%. However, I recognise that there are certain elements within the HMRC offer where taxpayers need to get a better service. That includes answering correspondence for some of the more complex and hard-to-reach people: the vulnerable and the digitally excluded. That is exactly why, quite frankly, we need to move resources from taxpayers who can and should use online and ensure that those resources can be targeted at those areas where customer service is not as good as it should be. That is what we intend to do.

Electronic Payment Devices

Baroness Kramer Excerpts

Tuesday 19th March 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

My noble friend raises a wide suite of issues. Underpinning all the work the financial services industry is doing is the Financial Conduct Authority, which is responsible for regulating the sector. Principle 6 of its principles for business says that the sector must take particular care in the treatment of vulnerable customers. The FCA is reviewing the needs of vulnerable customers and may update its guidance shortly.

[Baroness Kramer (LD)]

My Lords, the Minister and other noble Lords have mentioned the FCA, and I would like to continue that conversation. When we left the EU, the credit card companies seized the opportunity of the loss of regulation to increase credit card interchange fees in the UK fivefold—a Brexit dividend for the card companies of some £200 million a year, the cost of which effectively falls on the consumer. Why have neither the Government nor the FCA as regulator acted to reverse what could be called the Brexit penalty?

[Baroness Vere of Norbiton (Con)]

I am grateful to the noble Baroness for her question. Unfortunately, it goes slightly beyond my briefing today, but I will write.

Spring Budget 2024

Baroness Kramer Excerpts

Monday 18th March 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, as the first of the winding-up speakers, I start with three very quick comments. To the noble Lord, Lord Kempsell, who is racing to get back into his place, I say: what an excellent maiden speech. But I suggest that his taste for the nitty-gritty in evaluation and analysis means that he is in the right House and the right portfolio. We look forward to his engagement in the future.

I say to my colleague, the noble Lord, Lord Lee, that his proposal that some of the NatWest shares currently in public hands should be shared with secondary schools as part of inspiring financial education and creating a new way of looking for so many of our young children is a brilliant idea, and I hope that the Government will take that up.

I say to the noble Lord, Lord Bird, who made those comments on social housing—in effect, that it should be a launchpad and not a trap—that that was an important piece of discussion in this debate.

Perhaps I should say sorry to the noble Lord, Lord Sherbourne, because of his most recent comments, but most normal people have already forgotten what is in this Budget. The Chancellor’s headline measure —a reduction in the rate of national insurance contributions—has been dismissed, as people realise that it is just a reduction in a relentless tax rise driven by the freezing of thresholds. Indeed, I quote the OBR:

“Tax as a share of GDP is forecast to rise to 37.1 per cent of GDP in 2028-29, 4.0 per cent of GDP higher than the pre-pandemic level”.


Meanwhile, public borrowing will increase by

“an average of £8 billion a year”.

Frankly, it leaves us in a fiscal vice.

The IFS—the Institute for Fiscal Studies—describes living standards as remaining “dismal”. I pick up on the excellent discussion of the noble Lord, Lord Horam, which others have mentioned, about GDP per capita by comparison with other countries. It is a woeful position to be in at this moment in time. Looking at a narrower group, pensioners, the Resolution Foundation forecasts that they will, on average, be £1,000 worse off per year by 2027-28.

My party will not oppose the national insurance rate cut, given the ongoing struggle of so many people with the cost of living. But the focus for the Liberal Democrats remains the dire state of the NHS and the missed opportunity in this Budget to provide it with the resources needed; closing loopholes in the oil and gas windfall tax, which noble Lords may remember was extended but the investment loophole through which everybody storms had been left wide open; attacks on share buybacks, as most of us wish to see investment not share buybacks, which have become increasingly popular; and restoring the levy on banks, which, frankly, have been raking it in thanks to high interest rates, and not passing it on to savers. All those kinds of sources could have helped us make a real difference on resources for the NHS.

However, we had two debates around most of those issues in February and I do not want to rehash all the things I said then—I am sure most people are tired of them. I want to look forward, and I do so with a certain real anxiety for what the UK faces. I want to understand what this Conservative Government plan for public services and for local government, recognising the dire state that most are in. We have a few pieces of information. The Government have instructed the OBR that real departmental spending on public services will fall by 1% of GDP over the next five years. According to the IFS, this means a fall in public capital and infrastructure spending of £18 billion a year in real terms, and a fall in day-to-day departmental spending for the unprotected departments, again in real terms, by £20 billion a year. That number is absolutely huge. I pick up the concerns of the noble Baroness, Lady Lister, about local authority cuts.

The Government constantly tell us that they have a plan for public services. What I am now asking the Minister is: show us that plan. When I look for where these public spending cuts will be replaced with new public productivity, the only thing I can really see is some vague notion that artificial intelligence or other kinds of digital change will deliver this kind of extraordinary efficiency. I share the scepticism of the noble Lord, Lord Lamont, about productivity improvements coming so easily, and the noble Lord, Lord Macpherson, told us how he had seen many an efficiency plan come and go. I say to the Government: tell us the plan and tell us in detail so that we can judge how credible that crushing reduction in expenditure and investment in public services is going to look.

We also have a promise from the Chancellor that national insurance will be abolished. It is not in the Budget, but in effect it accompanied it. That step would remove £46 billion a year in revenue from the Exchequer. Will that mean huge new borrowing? Will it be 7p on the basic rate of income tax? Will it again mean a decimation of public services? If so, which and when? That amount is virtually the whole schools budget, or that for justice and defence put together. We need to understand where the money to replace that national insurance abolition will come from.

Once, innocently, I thought the Government’s freezing of tax thresholds was a temporary, emergency measure, but it is now becoming clear to all of us that using threshold freezing to bring the lowest earners into tax is actually a key part of the Conservative plan. I remember the days of coalition: lifting tax thresholds to remove tax from lower earners was a central Liberal Democrat policy, and many on the Conservative Benches—I see some here; you know who you are—were furious with the Liberal Democrats for forcing it on the coalition because they felt very strongly that tax cuts should go to top earners, not people down at the bottom. It now seems this is actually the Conservative plan: to return to a focus on low-income people as a major source of new tax revenue. Indeed, it is well under way: we have seen the freezing of the thresholds and it carries on now for further years. Perhaps the Minister will openly confirm the change of direction: lower earners to pay more and more tax.

I end by turning to the vital issue of economic growth. The OBR is more optimistic than other forecasters, but even it sees only the most anaemic growth—here I pick up the comments of the noble Baroness, Lady Moyo—of 0.8% this year rising to 2% in the middle of the decade, and that estimate depends on immigration higher than previously anticipated. UK businesses are desperate for skills. Where is there anywhere in this Budget or in policy a proper reform of the apprenticeship levy? The Government announced some useful steps today, but they are not the fundamental overhaul that is absolutely needed to drive up the quality of skills in this country. The post-Brexit fall in trade intensity was initially forecast at 15%. It now looks as though the actuality is significantly worse. Our trade in services is strong, but the UK’s growth in goods trade is well below expectations and well behind the rest of the G7. That in turn has a huge impact on productivity.

Where is the trade plan that means reviving our trade with Europe? Let us not pretend that the new trade deals, although they are much vaunted, are more than, frankly, a rounding adjustment with some modest potential. Where are the mechanisms to seriously raise investment in UK businesses and infrastructure? Many in this debate focused on that issue—the noble Baroness, Lady Moyo, perhaps most particularly—but in a sense it was the subject of the speech by my noble friend Lady Bowles, focusing on investment trusts, which are a key vehicle that is disappearing because of slow government action. Where are these mechanisms to help us increase that investment? The new British ISAs and the Edinburgh reforms are useful but let us be frank: neither is a game-changer. The Government seem to have made some useful changes on the definition of SMEs, but could the Minister please tell us what the scope is of that and what the implications are? She can write if she does not have that to hand.

Behind this scattering of limited changes, there is no long-term policy certainty and no meaningful commitment to priorities. Every policy is unstable. That includes tackling the major crisis that my noble friend Lady Sheehan focused on: climate change. The number one request from businesses, according to research by the Business Magazine is:

“A clear and concise industrial strategy”.


Will the Minister please tell us why we do not have one?

We have a workforce shortage made far worse by NHS waiting lists of 2.7 million people. Others have talked about the huge number—9 million—who are of working age but inactive. The economically inactive range across the young as well as the old. As the noble Lord, Lord Sherbourne, said, most of them, or a very good number of them—one-third—are inactive because of long-term sickness. Few measures would drive our economy forward more rapidly than fixing the NHS, which is the mechanism to get so much of our inactive population back to work.

Andy Haldane, the former chief economist of the Bank of England, described these Budget measures as “macroeconomic marginalia”. I thought that a brilliant description. I suspect most of your Lordships agree. I say to the Minister: this is not a Budget that meets the needs of our times.

Alternative Investment Fund Designation Bill [HL]

Baroness Kramer Excerpts

2nd reading
Friday 1st March 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, as the first of the winding-up speakers, I will just say that in this area I lack the expertise of everyone who has spoken up to now, so I will not attempt to summarise the contents of the Bill or discuss the detailed nature of the industry. However, I hope the Government understand that although the Bill may have many highly technical elements, in fact a much more fundamental issue is being addressed. Frankly, it is about the survival of a crucial and key part of our financial sector that makes up both the life of the City of London and of Edinburgh, and of our financial services industry more generally.

I do not think I have ever before participated in a debate where every speaker from every side of the House—for example, the noble Lord, Lord Davies of Brixton, on the Labour Benches, and there is another Labour Member to follow—is of the same view, be it the noble Lord, Lord Hannan, the Cross-Benchers, the Liberal Democrats or the Conservatives. I hope that the Minister will understand the message embedded in that. We are looking at an issue of real significance and urgency, and I stress the word “urgency”.

The one group resistant to tackling this issue in a timely way, minimising the damage already done and preventing further damage, appears to be the regulator, the Financial Conduct Authority. The Government are in a position, through Treasury, to invite the FCA to take a look again at the regulation it has in place and encourage it—I know they cannot instruct it—to act much more rapidly to stem the issues raised today and the sense of anger across this House, because the regulator seems quite complacent in its response to a deep and underlying problem.

It is clear from today’s speeches that we are dealing with the most extraordinary misapplication of legislation and gold-plating, and I doubt whether a single person in either Chamber would defend those two fundamental approaches. I join others in giving special thanks to the noble Baroness, Lady Altmann, and my noble friend Lady Bowles. It is extraordinary that, although we have an expert regulator, we have had to rely on the chance factor of expertise in the House of Lords in order to perhaps be able to force action. I hope the Government will look at the expertise and resources embedded in the FCA, because I cannot believe that if it truly understood this issue, it would be taking the complacent approach it seems to be taking.

There are obviously beneficiaries from this approach, but none of them are British. The United States will be a major beneficiary of the outflow of business, as will, ironically, Luxembourg, Paris and Dublin. As I say, it is very much a gold-plating issue, as many of us here today have discussed.

I wanted to pick up on an issue the noble Lord, Lord Reay, raised: the FCA’s focus on diversity in financial services. I hope my speech will not be seen as an endorsement of that. It is important that our whole industry and every sector understand the issues of diversity, but in no way should that be a distraction from dealing with a fundamental issue concerning the listed investment companies.

In conclusion, these Benches are entirely behind the noble Baroness, Lady Altmann, my noble friend Lady Bowles and the others who drafted and shaped this legislation. I recommend that the Government hand them the pen, as they really have the ability to sort this problem out. However, if they cannot do that, will they turn directly to the FCA and again invite it to take the necessary steps? I think there are powers they can use to issue that invitation in fairly strong language and with strong impact, in order to get a resolution—and rapidly.

--- Later in debate ---

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, I, too, congratulate my noble friend Lady Altmann both on securing this important Second Reading debate on her Bill and on her excellent contribution setting out the challenges that she hopes to fix. I am grateful to her for her engagement on this issue; I hope that it will continue as we continue our work in this area. I am also extremely grateful for all the contributions made in your Lordships’ House today. I note that there was violent agreement that something must be done; I hope to set out the Government’s plans to do this, but I will ensure that my colleague, the Economic Secretary to the Treasury, has a look at Hansard because it is important that he understands the breadth of feeling and some of the important issues that were raised.

As noble Lords have heard, this Bill would amend the Alternative Investment Fund Managers Regulations to remove listed investment companies, also known as investment trusts, from scope. It would also make amendments to other assimilated law, formerly retained EU law, in order to make changes to cost disclosure requirements for listed investment companies.

The Government share my noble friend Lady Altmann’s drive to champion the investment company sector and ensure that the UK’s capital markets continue both to thrive and to drive forward our economy. It is true that, over the past two years, there have been relatively few initial public offerings globally; the UK has not been immune to those trends. This market turbulence has also impacted the investment company sector, in which the UK is undoubtedly a world leader. However, London continues to be Europe’s leading hub for investment; it raised more capital in 2023 than Frankfurt and Amsterdam combined.

The Government are committed to building on the UK’s strong foundations in this area by taking forward, through the smarter regulatory framework, ambitious reforms to streamline the regulatory rulebook, boost investment into UK markets and improve the competitiveness of the UK as a listing destination.

Investment companies are a wonderful British—more specifically, Scottish, according to the noble Lord, Lord Macpherson; he is right—invention dating back more than 150 years. The way in which they have become such a backbone of our investment economy is quite incredible. I assure all noble Lords that the Government are committed to supporting this very important sector.

However, I must express some reservations about my noble friend Lady Altmann’s Bill, although we recognise the rationale behind its being brought forward. I will first address the amendments that would exclude listed investment companies from the Alternative Investment Fund Managers Regulations, or AIFMR. Amending the scope of these regulations could have a significant impact. It would not be appropriate for the Government to change the regulatory perimeter using this Private Member’s Bill in isolation, without proper and appropriate consultation and further consideration.

As part of building a smarter regulatory framework for financial services, the Government are already carefully considering how to make AIFMR more streamlined and more tailored to UK markets. The Government recognise the concerns about regulatory inefficiencies for listed investment companies under AIFMR. However, we are also conscious that some investment companies value being regulated financial services providers; at this point, I note the warnings put forward by my noble friend Lord Hannan.

Given the spectrum of views on this issue, it is vital that the Government provide an opportunity for all impacted stakeholders to comment. It is for this reason—this is the first time that it will be publicly known, I think—that the Government will consult in the next quarter on how the UK should approach AIFMR. This will, I believe, fulfil my noble friend Lady McIntosh’s requirement for some consultation. Obviously, we want to do this as speedily as possible, but we need to get information from the industry, the investment companies sector and beyond about how to take it forward. Once we have that, we should be able to move fairly rapidly.

We know that only through careful consultation and consideration can we provide listed investment companies with the longer-term certainty of an appropriate regulatory framework. I agree with the noble Lord, Lord Macpherson: sometimes, it is really important to get these things right. Although some people often criticise the Treasury for taking too long and being—dare I say this as a Treasury Minister? I am not sure—a bit staid and sober, we have to get things right.

[Baroness Kramer (LD)]

I have a question for the Minister. With much of this gold-plating, I am not sure that the regulator consulted on implementing it. Why would it then have to consult on removing it?

[Baroness Vere of Norbiton (Con)]

I will come on to gold-plating. I am not entirely sure that everybody is in alignment on whether or not this regulation is implemented, but consultation is just good government. I do not see us making substantial changes to the regulatory scope on the basis of having not done it before we are not going to do it now. We need to get it right, but we absolutely support the investment company sector and want to get on with this. That is why I am so grateful to my noble friend Lady Altmann for bringing this forward, allowing us to have a conversation in the Treasury and beyond.

I turn to the second element: cost disclosures. My noble friend Lady Altmann has rightly identified that EU-derived legislation is not currently fit for purpose, as many other noble Lords, the Government and the Financial Conduct Authority would agree. The packaged retail and insurance-based investment products regulations, commonly and more easily known as PRIIPs, were originally meant to provide more transparent and standardised disclosure for retail investors across the European Union. Noble Lords are well aware that there are many problems with the EU PRIIPs regulation. It is prescriptive, misleading to retail investors and prioritises comparability over a wide range of financial products at the expense of consumer understanding.

That is why, as part of the Edinburgh reforms, the Chancellor announced that, as a priority, the Government would reform PRIIPs. We have already made significant progress on delivering this commitment. Most recently, at the Autumn Statement last year, the Government published a draft statutory instrument to replace PRIIPs with a new framework tailored to UK markets.

We understand industry’s concerns regarding broader legislation that prescribes firms to calculate their costs as they are required to do so now, and so the Government and the regulator have not stopped there. At the same Autumn Statement, the Government announced that they would bring forward the repeal of relevant cost disclosure provisions in the markets in financial instruments directive, or MiFID, alongside the replacement of PRIIPs.

Many noble Lords have mentioned that the FCA has published the forbearance statement, and some feel that it has not gone far enough. I will ensure that the FCA is made aware of the debates that noble Lords have had today. There has been significant criticism, which it will no doubt be interested in, and some suggestions of how it might be able to go forward.

I hope that this brief summary has provided sufficient reassurance to my noble friend Lady Altmann, and to all noble Lords, that the Government are treating this as a priority. We have a comprehensive plan to alleviate the harms faced by the investment company sector, but are committed to making sure that we get it right for the long term, to ensure that 150 years already gone by becomes another 150 years in the future.

I have mentioned consultation, so I will move on from that to cover some points raised in the debate on timelines. I accept that, for many noble Lords, and indeed Ministers, it is never fast enough. This was mentioned by my noble friend Lord Hannan and the noble Lord, Lord Macpherson. We are delivering a very ambitious programme to build the smarter regulatory framework for financial services. At Mansion House, the Government removed almost 100 pieces of unnecessary EU legislation from the statute book, and now we are looking at wider reforms—those mentioned in the debate today and others, including Solvency II—that will deliver the biggest potential benefits.

I note that my noble friend Lord Hannan would have liked us to go through things in a different way. The Treasury is very much focused on looking at where we can have the biggest and quickest potential benefits to economic growth. We are conducting a phased approach to bringing in this change of regulation because we must also ensure that the system and different financial sectors can cope with this change in legislation.

I note the invitation from the noble Lord, Lord Macpherson, to make commitments from the Dispatch Box on certain matters. I am not able to do so just yet—maybe soon.

There is debate around gold-plating. I hope that that will all be laid to rest as we are able to reform this and ensure that we have the right framework going forward.

My noble friend Lady Altmann mentioned investment companies being removed from platforms. We note and recognise the frustration that some investment companies feel at having been removed from investment platforms. I reassure her that, although this is a commercial decision, the Government and the FCA are well aware of this issue and are carefully considering what options are available. Ditto in the use of the EMT, the MiFID template. This is a voluntary template, but we understand that it may not be providing the best information to retail investors at the current time.

Many noble Lords have noted the competitiveness of the UK capital markets. That is what underpins the smarter regulatory framework. Despite recent challenges, the UK has many vibrant and dynamic capital markets, and they remain some of the deepest and strongest globally. However, we cannot rest on any laurels; we have to keep moving forward in this area. That is why the Government are delivering on my noble friend Lord Hill’s listings review, the wholesale markets review, and the Chancellor’s Edinburgh and Mansion House reforms.

The noble Lord, Lord Davies, mentioned the FCA’s activities and scrutiny of the regulator’s role. My noble friend Lord Reay mentioned the FCA’s D&I work, as did the noble Baroness, Lady Kramer. Parliament does have scrutiny over the FCA and many other regulators. Assimilated law is being replaced, in line with the UK’s domestic model of regulation. This means that the UK’s independent financial services regulators will generally set the detailed provisions in their rulebooks, instead of firms being required to follow EU law. This approach was following two consultations and it received broad support across the sector. Parliament debated this approach during the passage of the Financial Services and Markets Act 2023, and it secured parliamentary support then.

The Government recognise the importance of effective parliamentary scrutiny of the regulators, including their approach to rule-making and other activities that they may choose to undertake. That is why FiSMA 2023 introduced additional mechanisms to strengthen Parliament’s existing ability to scrutinise the regulators’ work, including requirements for the regulators to notify parliamentary committees, such as the new Financial Services Regulation Committee, of their consultations and to explain, when publishing final rules, how representations by parliamentary committees have been considered. I warmly welcome the formation of that committee. It will be hugely helpful, and it is quite right and proper that independent regulators are held to account by Parliament.

I will write with a few further comments on the investment in the UK capital markets by UK pension funds and on a few other issues which have arisen and need a fuller response. For the time being, I am very grateful to my noble friend Lady Altmann and many other noble Lords for their continued championing of the investment company sector.

Overseas Territories: Tax Haven Status

Baroness Kramer Excerpts

Monday 26th February 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

As the noble Baroness will know, there is an enormous amount of work going on at the moment around international tax. That has been led by the OECD and the inclusive framework, involving 130 countries and jurisdictions from around the world working on two pillars: one for the greater share of group profits to be taxed in market countries, and the second a global minimum tax, where all profits will be subject to a 15% minimum effective tax.

[Baroness Kramer (LD)]

My Lords, from these Benches I join in with the shock and sense of loss at the death of Lord Cormack. He was such a big figure in this House and I know it is a very personal feeling for many of us sitting here, as well as for those across all Benches.

On 8 February—this month—a jury in Florida found the former Premier of the British Virgin Islands guilty of drug trafficking and money laundering while in office. Do the Government understand that that kind of corruption would have been much more difficult had there been in place the long-promised public register of beneficial ownership? The Government had guaranteed to this House that it would be in place for all overseas territories by the end of last year. Where are we in this process, and do the Government recognise their crucial role in stemming corruption?

[Baroness Vere of Norbiton (Con)]

The Government absolutely recognise their crucial role in stemming corruption; we work very closely with the overseas territories on all sorts of issues when it comes to illicit finance. I refer the noble Baroness to the Written Ministerial Statement from my honourable friend in the other place, the Minister for the Americas, Caribbean and the Overseas Territories; in that is a helpful summary that sets out where each of the overseas territories is in relation to introducing a public, accessible register of beneficial ownership.

Finance Bill

Baroness Kramer Excerpts

2nd reading & Committee negatived & 3rd reading
Wednesday 21st February 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, as the first of the winding speakers, I will say I have some sympathy for the Minister, who has been hit with a wall of technical expertise that is probably not matched in almost any other sector of debate. I wish her great luck in answering the details.

I draw the Minister’s attention in particular to the comments of the noble Lord, Lord Davies of Brixton, on the pension allowance, because that issue is so mired in complexity, and the scheme needs complete reform. This does not really affect the private sector, which managed workarounds for this long ago; it is people in the public sector who are caught. The judges have been exempted, as the Minister will know—they have their own special scheme—but senior consultants, senior members of the military and some senior civil servants are caught up in this mess. A straightforward reform would be far more effective than this constant chipping away at the edges and getting it wrong, which is the pattern of the last few years.

This Government are, frankly, living in a parallel universe. The economy is in recession. Many people remain under crushing pressure from the cost of living. Real GDP per capita has fallen for seven successive quarters, and, as I mentioned during Questions earlier, according to the Resolution Foundation, that equates to a loss of nearly £1,500 per household. But, just as significantly, the fundamentals that power the economy and economic growth would, if they were put into a risk assessment analysis, be in the red zone for high risk. But the Government have not responded to this kind of risk and this element of real danger for the economy with a coherent strategy. They have failed to take the action that we need to achieve economic recovery and, frankly, to go out and talk more commonly with people on the doorstep, as I do. People have had enough.

The Autumn Statement of 2023, which sits behind this Finance Bill, is often described by the word “fiction”. The cut in the national insurance rate, which the Minister referred to, is in reality a small reduction in tax increases because of the effect of frozen thresholds. I am stunned that the Minister does not understand the impact of this threshold freeze and in fact suggested that thresholds had risen significantly. You would have to go back to 2010, but we are talking about our more recent period, which is what is impacting people. Frankly, if trading standards looked at the Government’s statements and flagged misleading claims from the Government the way it does with retailers, the Government would not be able to make those claims that the national insurance rate is actually a tax cut; it would be recognised as a reduction in a tax increase.

In evidence to the Economic Affairs Committee, the OBR’s chief executive, Richard Hughes, pointed to the fictional nature of the forecast headroom that the Government claimed in the Autumn Statement and I fear will claim again in the Budget. He explained that the OBR is required to use the Government’s assertions on future tax and public spending, even in the absence of either credibility or detail. I say to the noble Lord, Lord Leigh, who was talking about growth and debt reduction: go back and look at those comments from the OBR in detail.

No one believes that this is just one example, or that the fuel duty escalator—this is one of the tax examples—will be reactivated, but, without it, the tax revenue numbers in the forecast are nonsense. Look at the public spending forecast. Richard Hughes suggested that calling it “fiction” was “generous”. With fiction writers, he said,

“someone has bothered to write a work of fiction, whereas the Government have not even bothered to write down their departmental spending plans”.

Slashing future public spending continuously as a percentage of GDP, which is embedded into that forecast— it is required to be so by government—is either vicious or a con.

Every public service is in dire straits. I am not talking just about the NHS: schools face record deficits, local governments are slashing essentials, the police are short of capacity, prisons are bursting and, frankly, I could go on with every area of public sector activity. Investment in infrastructure, which is absolutely key to our economic future, has not been adjusted by a single penny for inflation, which surely is a recipe for economic self-harm.

We need to focus, with open eyes and real vigour, on economic growth. As we discussed in February, given our older population and its growing dependency, our shortage of working age population is becoming relentlessly more serious. Improving our skills base can help in some sectors, but it requires a revolution in the role of apprenticeships and a complete overhaul of the apprenticeship levy. The drag on our economy of our sick working age population—by percentage, the highest in Europe—requires us to revive the NHS, which is faltering on so many fronts, from GP appointments to long waiting lists. The Government are fiddling at the margins of these issues and not driving forward fundamental change.

A sustained and high growth in productivity is vital—a return to over 2% a year productivity growth instead of the current stagnation. This requires business investment, which continues to be painfully low and has been despite a decade of low corporate taxes—here I agree with the noble Lords, Lord Desai and Lord Sikka. Low taxes have not generated investment, and we have years of experience and evidence for that. I support the full expensing of measures in the Finance Bill, but the OBR figures show that its benefits are actually quite small, and the other measures on R&D and those for the creative industries are useful but, frankly, small fry.

The Government should learn from their own experiences. As I say, low taxes do not persuade businesses to invest, but a proper industrial strategy would attract investment. Policy certainty, instead of shifts in the wind, would attract investment. Reducing friction in our access to the EU market would attract investment. A focus on small businesses, including reforming business rates, would attract investment. In productivity terms, the Government have simply failed to take advantage of the digital revolution. Work practices have changed, but UK productivity has not benefited; it remains utterly stagnant. This Government will waste the potential of the AI revolution unless they change their mind and put in place a coherent strategy.

Trade growth is lacklustre. All the Government’s vaunted trade deals utterly fail to offset the 4% scarring of the economy from Brexit, and we now face the trade consequence of world tensions, anti-globalisation and security concerns, not least with China. I am always stunned when the Government talk about the great trade potential outside Europe—they are essentially referring to either China or countries that fall within the Chinese sphere of influence, where we have so many security and trade issues that looking for that as our rescue is, frankly, a very inadequate response.

Our national debt is running close to 100% of GDP. The OBR, if we take away the requirement that it must give this kind of fake forecast, does not see that number coming down—look at the evidence it gave to the Economic Affairs Committee. There are huge fiscal consequences to running debt at 100% of GDP. We have a very high exposure to variable interest rates, thanks to both quantitative easing and our exceptional volume of index-linked gilts—I think we have twice the amount of any other developed economy; it is extraordinary. Unlike in other major economies, our gilt markets depend on investment by foreigners. It is called the kindness of strangers, and, in volatile times, it is very risky. At times of risk, people exercise a home bias; no one needs to be investing in sterling. We have got ourselves a very risky exposure, as we try to sustain the coherence of the gilt market.

I have not yet referred to the greatest risk of all: climate change. The EU’s climate service announced that global heating exceeded 1.5 degrees across an entire year for the first time last year. That is years earlier than was anticipated. Dealing with climate change is not a “nice to do”; it is a survival issue. I say both to the Government and to Labour: if we do not progress rapidly now, the consequences will be crushing, not least for our economy.

We will soon have a Budget. It is very strange to be discussing a Finance Bill with a Budget less than two weeks away, but I hope that the Government will begin to redeem themselves. Ordinary people are still feeling pain, and that pain will get worse before it gets better. We are in recession, but the downturn in the standard of living has been far greater. The fundamentals of the economy and of economic growth are sounding the alarm. Climate change is coming relentlessly. I say to the Government that looking for the populist vote by floating tax cuts is not the answer. Leaving a scorched earth for the next Government—which I fear is what they have in mind—is not responsible. Let me repeat what I have heard on the doorstep: enough is enough.