UK Economy

Baroness Kramer Excerpts

Wednesday 21st February 2024 Lords Chamber

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

I absolutely believe that our plan is working. It is critical that we continue along the path that we have set out. One of the biggest challenges we have faced in this country over recent months is high inflation. That is the biggest barrier to growth and that is why halving it is still our top priority. Thanks to decisive action, supported by the Government, inflation has fallen. If one looks at what happens when inflation falls, one sees that interest rates can also fall, which will also mean that growth will begin to rise. The noble Lord mentioned growth. It is the case that the Government have very clear policies for growth. Noble Lords will discuss them with me shortly, as we debate the Finance Bill.

[Baroness Kramer (LD)]

My Lords, the Resolution Foundation has reported that GDP per capita is now 4.2% below its path before the cost of living crisis. That is the equivalent of a loss of nearly £1,500 per household. The OBR has said that we are set to see the biggest fall in living standards since 1950. Do the Government understand that, for ordinary people, their plan is delivering real day-to-day pain and often deprivation? Nothing she has said or proposes to do changes that, as she will see if she looks at the forecasts.

[Baroness Vere of Norbiton (Con)]

What is absolutely clear is that the forecasts show that the UK is forecast to grow, and very strongly. The IMF has forecast that we are to grow faster than Japan, Germany, France and Italy over the next five years. I absolutely accept that the economy has seen some very significant challenges over recent years, with global instability in Ukraine and in the Middle East, and the legacy of Covid. I was a Minister throughout that period, and at no time did I ever hear any ideas from the party opposite or the Liberal Democrats that would have put the economy in a better situation than it is in now. They called always for more spending, for longer periods. We must fix the issues that appeared, mostly due to external factors, which is exactly what we are doing. The economy is turning a corner—indeed, it has turned a corner, thanks to our decisive action.

Buy Now, Pay Later: Regulation

Baroness Kramer Excerpts

Wednesday 7th February 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I agree with my noble friend that this is at the heart of it. Any credit facility, be it interest-free or not, has to be understood by those who use it. To that end, the national curriculum has included financial education since 2024. In primary schools, children learn about the uses of money. In secondary school, they go on to learn about budgeting and managing risk, which is of course incredibly important in the credit markets. They learn about financial products and services and raising and spending public money. We have put those elements in place.

[Baroness Kramer (LD)]

My Lords, a number of the firms that provide buy now, pay later—which are of course unregulated schemes currently—are seeking authorisation from the FCA also to offer regulated credit schemes. As we saw with the mini-bond scandal, this mixing of regulated and unregulated lulled ordinary people into misunderstanding the absence of supervision for unregulated products and led them into serious financial distress. Will the Minister advise the FCA not to authorise any schemes for buy now, pay later firms until buy now, pay later is itself properly regulated?

[Baroness Vere of Norbiton (Con)]

While it is fair to say that buy now, pay later itself is not regulated, many elements of getting out to consumers are regulated. The broader consumer protection legislation which exists provides such protections. For example, the FCA has rules and guidance on advertising and financial promotion. Only today, the FCA financial promotions gateway is in force. Buy now, pay later firms must also go through that gateway with all their marketing materials to ensure that they are not misleading, and that is to the benefit of consumers.

High Street Banks and Banking Hubs

Baroness Kramer Excerpts

Thursday 25th January 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, this has been a very short debate, but my goodness it has been a very powerful one—including the example we have just heard from the noble Lord, Lord Hacking. I have great empathy as I have spent hours in NatWest branches just to get an APPG account transferred from one treasurer to another. Let me congratulate my good and noble friend Lady Tyler on obtaining this debate on a crucial issue on which she has campaigned tirelessly.

The access to cash review, chaired by Natalie Ceeney, goes back to March 2019. That is nearly five years ago, and the problems were apparent long before that. Many of us have raised the issues over and again in this House. The Government have made progress, but it is glacial, despite the obvious truth that local banking services are vital to a very wide range of individuals and small businesses. We have, as others have said today, just 31 banking hubs. LINK has recommended over 100, but acknowledges that 1,000 could be needed just to provide cover for medium to large towns, and that is assuming that bank branches stay open in the largest towns and cities.

I am pleased that the FCA, as the new regulator, is conducting a consultation—but my it is narrow and missing many of the key issues. So I thought that I had better talk to some colleagues to see what they were picking up in their local communities. I was stunned when my colleague Jamie Stone, MP for the far north, reported that the Bank of Scotland is closing even its mobile banks, reducing even further the already skeleton access service that is provided. Tom Morrison, my LibDem colleague and the PPC for Cheadle, described the success of the local campaign to get a hub for the south part of Cheadle. However, as yet there is no agreement for a separate second hub that is needed to give access to face-to-face services to thousands of people in the northern part of Cheadle. Lisa Smart, another LibDem colleague and the PPC for Hazel Grove, asked me to thank LINK very clearly for responding to the request for a review of banking services in Bredbury and Woodley but to press for much faster action. A large number of colleagues have asked me both to praise banking hubs but to warn that they should not become an excuse to close branches. That must be reflected in FCA rules.

Therefore, I very much support the proposal of my great noble friend Lady Tyler that the last branch in town should not close until the banking hub has been established. That is the minimum. It must be obvious to every major bank that, if they insist on closing branches—I hope they will be very cautious in doing that—then banking hubs are an efficient way to deliver at least some critical service to the local community on a face-to-face basis. It must be obvious to the banks that local financial services are necessary if we are to grow the kind of economy that banks themselves require if they are to be profitable in the future.

Across the globe, there are a wide range of different models providing banking services, typically face to face, that meet local needs. There are community development banks in the United States, created under the Community Reinvestment Act; the Landesbanken in Germany, which support a local structure; and major credit unions in Ireland, which have a lot of face-to-face presence. Although different, these various models have demonstrably cushioned communities in difficult economic times and provided a resilience not available in the UK. I do not understand why our UK banks have not, in their own interests, seized on the banking hub model and participated with enthusiasm. Perhaps the Minister could tell us. Are they just uninterested, quietly hostile or what? They are the reason we have only 31.

Recently, I used the opportunity of Oral Questions to ask the Minister why bank participation in a banking hub is voluntary, even when a request for a banking hub has been shown by LINK to meet the qualifying criteria. She told me that putting the scheme on a statutory basis has removed what is effectively the bank veto that I was referring to. But, as I look in more detail, and as my noble friend Lady Tyler made clear, this statutory basis applies only to access to cash; banks need not co-operate in providing other services. But that seriously undermines this whole scheme. Communities desperately need access to cash but also to saving and investment products, to mortgages and business loans, to guidance in resolving system problems—indeed, a wide range of services. That simply comes in. As well as reinforcing my noble friend’s proposal on the last bank in town, I want to ask the Minister: will she now bring forward legislation that will take away the voluntary participation in providing the broader range of banking services? Will she say to banks, “You must participate in a banking hub where the criteria have been met showing that a banking hub is vital for this local community”?

Pension Investments

Baroness Kramer Excerpts

Tuesday 23rd January 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I should be delighted to meet with my noble friend to discuss these matters further. The UK has a world-leading investment trust sector representing over £250 billion of assets and is highly aligned with the Government’s priority to promote long-term productive investment. She will know that at the Autumn Statement, the Government published draft legislation to replace the packaged retail and insurance-based investment products, or PRIIPs, regulations. We also announced that we will bring forward the repeal of the relevant provisions of the Markets in Financial Instruments Directive. This will enable the FCA to put in place more proportionate cost disclosures.

[Baroness Kramer (LD)]

My Lords, I am keen to see increased domestic investment in the UK economy, but is it appropriate to put pension money from small pots—people who cannot afford to lose part of that pot —into liquid, high-risk start-up investments, as the Mansion House compact seems to contemplate?

NatWest: Account Terminations and Branch Closures

Baroness Kramer Excerpts

Wednesday 10th January 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

The Government do recognise that banks hold a key position in our society. We need to ensure that our banking system meets the needs of that society. Certain banks, as I am sure the noble Lord is aware, pride themselves on keeping their bricks and mortar on the high street. If customers require that sort of service, they should be able to vote with their feet.

[Baroness Kramer (LD)]

My Lords, I think we have something like 20 banking hubs—the Minister will correct me if I am wrong, but it is a piffling number. Will she assure me that, in the statutory instrument that is coming, the banks will be required to participate in banking hubs where their area meets the criteria standard? Everything I have heard up to now still leaves the banks with the ability to refuse to participate even where the standard is met.

[Baroness Vere of Norbiton (Con)]

The noble Baroness is absolutely right. That is why we are putting this voluntary provision on a statutory footing. The Treasury has the power to designate not only banks but the operators of the cash access co-ordination services—Cash Access UK—to do the banking hubs, so they must then follow the requirements set out in the legislation.

HMRC: Tax Returns

Baroness Kramer Excerpts

Wednesday 10th January 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

HMRC is an office-based organisation. However, officials can work from home for two days a week, if they can be fully effective in their roles. On average, advisers answer the same number of calls per day and work the same number of hours, whether they are in the office or at home.

[Baroness Kramer (LD)]

My Lords, I wonder whether the Minister is aware that so many people have become so intimidated and discouraged by the process of trying to claim a tax repayment that an industry has grown up. Tax repayment agents and companies are now stepping in as middlemen to provide that service to people, but there is no professional standard or certification, and there is no regulation of any of these bodies—so the potential for people to be abused and scammed is very great. Are the Government going to take action to deal with this, either by improving the service so that these people are not needed or else by regulating them if they are?

[Baroness Vere of Norbiton (Con)]

The noble Baroness may be aware that the HMRC made a very targeted intervention on overpayments over the summer, to enable a backlog that had arisen to be repaid. That is now cleared, and the self-assessment helpline prioritises queries relating to returns, repayments and other complex matters.

Financial Stability: Private Equity Firms

Baroness Kramer Excerpts

Wednesday 13th December 2023 Lords Chamber

[Baroness Vere of Norbiton (Con)]

My noble friend is absolutely right. We need the right flexible employment laws to ensure that private equity can continue to steward companies that employ millions of people. Indeed, the British Private Equity & Venture Capital Association estimates that private equity-related companies employ 2.2 million workers.

[Baroness Kramer (LD)]

My Lords, the Minister should take the Question from the noble Baroness, Lady Bennett, very seriously. A very large part of the private equity market is heavily overleveraged, although that is often disguised through complex financial engineering; it is not just Thames Water. At the same time, there are serious questions about the condition of the public debt market, with gilt rates so dependent on volatile foreign buyers for their gilt sales. Has the Treasury looked again at the stress tests being used by the Bank of England to see if they encompass potential issues in these two markets? There is a real risk that not just one but both could have serious problems at the same time, with systemic consequences.

[Baroness Vere of Norbiton (Con)]

I reassure the noble Baroness that the Treasury works with the Bank of England and other regulators to monitor the system.

National Insurance Contributions (Reduction in Rates) Bill

Baroness Kramer Excerpts

3rd reading
Tuesday 12th December 2023 Lords Chamber

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

My Lords, I am grateful to all noble Lords who have participated in the passage of the Bill. It delivers on the Government’s long-term plan to grow the economy and reform the tax system. It achieves this by cutting taxes for 29 million workers through three measures: a reduction in the main rate of employee class 1 national insurance contributions, or NICs, from 6 January 2024; a reduction in the main rate of self-employed class 4 NICs, from 6 April 2024; and the removal of the requirement to pay self-employed class 2 NICs, also from April 2024. Those who choose to pay class 2 voluntarily will still be able to do so. This simplifies the system for self-employed taxpayers, so that it is more closely aligned with the treatment of employees. The Government intend to fully abolish class 2 NICs, and further details about this reform will be set out next year.

Although this is a relatively small Bill, it has a big impact. It is an integral part of the Government’s long- term plan to grow the economy and reform the tax system but, most importantly, it is fair and it is right, because it stands by working people.

I would especially like to take the opportunity to thank all the Treasury officials for their enormous hard work in bringing the Bill to your Lordships’ House so quickly, such that it will deliver the benefit to workers from January 2024. I beg to move.

[Baroness Kramer (LD)]

My Lords, it is customary at this point to thank all those who have helped us with the Bill. The arduous task of taking it through has perhaps been one of the lighter moments of our parliamentary lives, but there was still a lot of hard work by the Bill team to prepare it. I would thank my staff, except that none of them worked on it. This is just to say a formal thank you to everyone who contributed to this process. We appreciate it.

Bill passed.

National Insurance Contributions (Reduction in Rates) Bill

Baroness Kramer Excerpts

2nd reading
Tuesday 12th December 2023 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I start by thanking the noble Baroness, Lady Primarolo, because the point she raised is one I think we did not raise in our discussion of the Autumn Statement and perhaps did not have the front of our minds as this Bill went through. The link between national insurance contributions and funding of the NHS is critical. In thinking about it, I am astonished that an impact statement did not discuss those consequences, and I do not remember them being raised by the OBR or in other discussion papers. The issue the noble Baroness has raised is critical, and I thank her very much for asking that we all share in the Minister’s reply. Again, I have sympathy for the Minister: I doubt very much whether she has these numbers at her fingertips.

The Liberal Democrat Benches are obviously not opposing the Bill, but I would like to set a bit of context. I shall refer to the work of the Resolution Foundation, quoted extensively by the noble Lord, Lord Sikka, which last week published the third and final phase of its report Ending Stagnation and provided us with updated numbers that graphically expose the price that UK households are paying for that economic stagnation. If real pay growth had continued to follow the trend from before the 2008 financial crisis, the average British worker would be £10,700 a year better off—a really significant figure. There are almost 9 million younger Brits who have never worked in an economy that has sustained rising wages. As a consequence of that impact on wages, the UK is now Europe’s most unequal large economy. That used not to be true. Our poorer families are now a staggering 27% worse off than their French and German counterparts. That is a measure we rarely look at, but it is critical. Obviously, when ordinary families are trying to cope with stagnant wages and a cost of living crisis, it is particularly unacceptable for a Government to dress up a rise in taxes as tax cutting.

By 2028-29, the freezing of the national income tax thresholds adds £45 billion a year—not over that time, but a year—to taxpayers’ annual tax bills, offset by the rate cuts we are discussing today only to the tune of £10 billion annually. If this Government were a private company, I suspect that trading standards would have a very dim view of an entity that presented an annual increase in charges of £35 billion as a cut. The public will be none too impressed when they find out the hard way, as I said in the Autumn Statement debate, that a typical earner will pay £400 more next year in tax and NICs after these measures, and a middle-income earner will pay £1,200 more. Like the noble Lord, Lord Sikka, I used that debate to point out the inequality of the distribution of the rate cut, with five times as much going to the top fifth of earners, compared with the bottom fifth. That distribution is a choice. Interestingly, the noble Lord, Lord Dobbs—who is not in his place today, perfectly understandably—described himself in that debate as a struggling self-employed person. When the Government decided that they needed to look most closely at and give most support to the top fifth of earners, perhaps they had the noble Lord in mind.

I note that the NIC rate cuts offer some relief to self-employed workers. This is a group that particularly lost out during Covid. The sector is, frankly, also suffering from HMRC’s harsh and shambolic loan charge regime, which is doing little to stop promoters mis-selling tax products, but is continuing to drive to breakdown and even suicide individuals who got caught up in the loan charge because they followed advice in good faith. To date, as the Minister will know, HMRC has referred 10 suicides to the IOPC, and three more are contested.

We have to change the way we deal with the self-employed sector. I very much hope that the Government will—as they often promise but never actually do—follow through on the 2017 Taylor review, which called for and fashioned principles for the update of working relationships, taking them from the past into today’s world of business. In that, there is new opportunity for the self-employed.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

My Lords, I am enormously grateful to all noble Lords who have taken part in this relatively short debate. As your Lordships might expect, I did not agree with all the points, statistics and bits of data that were shared, and I will obviously have my own, but I will try to stick within my wheelhouse and stay within the realms of national insurance today.

However, I want to comment on the general thrust from the noble Lords, Lord Sikka and Lord Livermore, and the noble Baroness, Lady Kramer. It was just extraordinary. I feel really pleased that everybody has now come round to the Conservatives’ way of thinking that taxes are too high, and we need to think about reducing them and we must do so responsibly. I am grateful for that vindication of the Conservatives’ policy when it comes to personal taxes. We agree that they are too high, but of course many of the tax rises that are forecast to come into place—I absolutely accept that taxes will go up, although this national insurance cut reduces them—are already announced and baked into the figures.

I did not hear many noble Lords recognising the reasons why we needed to put taxes up—

[Baroness Kramer (LD)]

I was very tactful not to point out that the Minister, as with all Conservatives— I think they have probably signed an oath somewhere—did not mention Brexit and the economic damage it has done, which is a fundamental part of all this. In giving the history of the things that have gone wrong, it is best not to lecture the House when the Government are deliberately leaving out one of the key culprits.

[Baroness Vere of Norbiton (Con)]

My Lords, I definitely was not lecturing the House—far be it from me to do so. However, it would obviously not be a debate without a Liberal Democrat mentioning Brexit.

I am going to move on from that general observation that I am pleased that there is this political groundswell now back behind the Conservatives for lower taxes, which is excellent—

[Baroness Vere of Norbiton (Con)]

The Minister is definitely not looking to expand the debate but is trying to make progress. I hear what the noble Lord says, and if he has read the Autumn Statement, which I am sure he has, he will have seen the announcements made in it about tax avoidance.

Moving on to comments made by noble Lords, I think it is probably not worth rehearsing and rehashing the elements around fiscal drag. Again, I want to put some numbers on record, because there is an opportunity to do so. Thanks to the cut in employee national insurance contributions announced at the Autumn Statement and to above-average increases to starting thresholds since 2010, an average worker in 2024-25 will pay more than £1,000 less in personal taxes than they would otherwise have done. That statement has attracted some interest, and I reassure noble Lords that the calculations underlying this statistic are based on public information, including a published estimate of average earnings. They are robust and could be replicated by an external analyst. This goes back to what I was trying to say about data. Lots of people will do calculations on different bases, but at the end of the day, from the Government’s perspective, we want taxes to come down—this is a start—but of course we will do it only in a responsible manner. However, personal taxes for somebody on an average salary of £35,400 have come down since 2010.

The noble Lord, Lord Sikka, asked about distribution analysis, and the national insurance cuts will of course benefit everybody who pays national insurance. That includes 2.4 million people in Scotland, 1.2 million in Wales, 800,000 in Northern Ireland, et cetera. The latest published HMRC data for 2021 shows that the largest proportion of income tax payers reside in the south-east, followed by London. It will be the case when one has a tax cut that those who pay the largest amount, and the numbers of people who pay tax if they are located in certain areas, are therefore going to see the largest reductions.

However, we have also looked at the impact on women—again, an issue raised by the noble Lord, Lord Sikka. NIC charges apply regardless of personal circumstances or protected characteristics. The equalities impact will reflect the composition of the NIC-paying population. Of course, that feeds into whether we would like women to be paid more. Of course we would. That is why rewarding work will see 28,000 people come into jobs—and I very much hope that they will be well- paid jobs and will be taken up by women.

The noble Lord, Lord Sikka, talked about better-off households. Distribution analysis published at the Autumn Statement shows that a typical household at any income level will see a net benefit in 2023-24 and 2024-25, following government decisions made from the Autumn Statement 2022 onwards. Low-income households will see the largest benefit as a percentage of income. Furthermore, looking across all tax, welfare and spending decisions since the 2019 spending round, the impact of government action continues to be progressive, with the poorest households receiving the largest benefit as a percentage of income in 2024-25. I know that the noble Lord feels that we do not focus on those on the lowest incomes, but he is not correct in that regard.

[Baroness Kramer (LD)]

You cannot eat a percentage of income. Going out and buying a loaf of bread costs you just the same whether you are a high earner or a low earner. So, using the percentage of income comparator to understand the cost of living pressures that people are living under and who is getting the most benefit is not the appropriate measure. If you use the cash number, you realise how much purchasing power arrives for people at the bottom end and how much more purchasing power arrives for people at the top end. That is the appropriate benchmark.

[Baroness Vere of Norbiton (Con)]

I absolutely accept that the noble Baroness is right to say that you can look at it in a different fashion but, in terms of whether what the Government are doing is progressive, it is fair to say that people on lower incomes are benefiting, as a proportion, to a greater degree. Of course, the Government have intervened when it comes to cost of living. That has been cash and that is not about percentage of income. It is all around our energy price guarantee, increases to the national living wage and looking at the uprating of benefits, which will rise by much more than inflation is forecast to be next year. So there are lots of different factors to take into account and sometimes one can be quite blunt when dealing with a tax cut that is, frankly, going to benefit 29 million people.

The noble Lord, Lord Sikka, asked why national insurance contributions do not apply on unearned income. National insurance contributions are part of the UK social security system, which is based on a long-standing contributory principle centred on paid employment and self-employment. ‘Twas ever thus. Of course, a future Government may make substantial changes to that which would again increase the tax burden—but this Government are content that we will maintain the contributory principle.

Banking Hubs

Baroness Kramer Excerpts

Monday 11th December 2023 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I think what the noble Lord has just set out is exactly what the Government are doing. The FCA consultation goes into an awful lot of detail on the criteria that will need to be met for banking services to continue. We accept that, while the use of cash has declined over time, it has possibly reached a plateau. But I reassure noble Lords that, for example, 97% of the urban population is within 1 mile of a free-to-use cash access point.

[Baroness Kramer (LD)]

My Lords, surely the Minister has hit the nail on the head: the weakness of the current banking hub system is its voluntary character. That could be corrected with a relatively simple statutory instrument so that, when a local community applies to Link and is shown to meet the criteria, a banking hub is guaranteed and it does not suffer what happens today—delay or refusal by the banks.