Financial Services and Markets Act 2023 (Addition of Relevant Enactments) Regulations 2024

Baroness Kramer Excerpts

Monday 2nd December 2024 Grand Committee

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, these regulations will add four pieces of legislation, known as “enactments”, to the list set out in Section 17(3) of the Financial Services and Markets Act 2023, so that those enactments can be temporarily modified as part of the financial market infrastructure sandboxes.

A financial market infrastructure sandbox is designed to provide a regulatory environment in which existing legislation and regulation are temporarily removed or modified. Firms that participate in a financial market infrastructure sandbox are able to test new and developing technologies and practices that would otherwise be inhibited by existing legislation. If an activity in a financial market infrastructure sandbox is successful, the Treasury can make permanent changes to legislation—only after laying a report before Parliament.

The Treasury was granted the power to make provision for financial market infrastructure sandboxes by Section 13 of the Financial Services and Markets Act 2023, and the list of enactments that the Treasury can temporarily modify is set out in Section 17(3). The Treasury also has the power to add further enactments to this list, set out in Section 17(6) of the Financial Services and Markets Act 2023. This is because the testing of new technology and practices, by its nature, evolves over time, and the list of legislation in scope would likely need to be added to. The ability to add further enactments to the list is therefore a way of ensuring that the financial market infrastructure sandbox regime can be used to its full potential, ensuring that the testing of new technologies and practices can continue to take place as new legislative changes are identified.

This statutory instrument exercises the power set out in Section 17(6) of the Financial Services and Markets Act 2023 so that new enactments can be added to support two financial market infrastructure sandboxes; namely, the existing digital securities sandbox and the future private intermittent securities and capital exchange system—known as PISCES—sandbox. The digital securities sandbox will enable firms to test new and innovative technology across financial market infrastructure activities, while the PISCES sandbox will allow private companies to have their shares traded on an intermittent basis on a new type of stock market.

This statutory instrument will bring the following legislation into the scope of the power to make temporary modifications in future financial market infrastructure sandboxes: the Stock Transfer (Gilt Edged Securities) (CGO Service) Regulations 1985, which I will refer to as STRs; the Government Stock Regulations 2004, which I will refer to as GSRs; the Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which I will refer to as MLRs; and Regulation (EU) 2017/1129 of the European Parliament and of the Council, also known as the prospectus regulation, which we inherited from the EU.

Temporarily modifying the STRs and GSRs will enable us to support a digital gilt issuance through the digital securities sandbox. The MLRs will be modified to facilitate an exemption from the MLRs crypto asset regime for digital securities sandbox participants; this is on the basis that digital securities sandbox activity will involve regulated securities and conventional anti-money laundering legislation will be applied. The new UK prospectus regulation will be modified as part of the PISCES sandbox so that prospectus requirements can be disapplied in favour of bespoke disclosure requirements in the PISCES sandbox.

I should note at this point that this statutory instrument does not make any temporary changes to the enactments themselves. Under the procedure stipulated by Financial Services and Markets Act 2023, this will be done as part of further negative SIs to be laid before Parliament, which will provide all the relevant explanatory information for the changes being made to each enactment. For example, the Government published a draft of the instrument that will set up the PISCES sandbox in November for public comment. Similarly, the digital securities sandbox has already been established by a statutory instrument laid last December, although changes to the MLRs will require a further statutory instrument.

In closing, this statutory instrument will make changes consistent with the powers established by the Financial Services and Markets Act 2023 and will support the continued development of the digital securities sandbox and future financial market infrastructure sandboxes, such as the PISCES sandbox. The Government believe that this will help support innovation through each of these financial market infrastructure sandboxes. I hope that noble Lords will  feel able to support these  regulations and their objectives. I beg to move.

[Baroness Kramer (LD)]

My Lords, the more times I read this statutory instrument—even after writing myself a cheat sheet on its alphabet soup of acronyms—the more I realise that I lack the expertise in the digital financial services and crypto space to really understand what is happening, the context and the implications. However, I have always supported the sandbox approach as a creative way for the regulator to understand innovations in financial services and how to appropriately regulate them.

This is a high-level SI that will, as the Minister said, be followed by detailed—although negative—SIs to address specific cases. I am a bit concerned that we will need to spot these cases in order to question them, but I have no intention of opposing the regulations before us today. PISCES is a slightly different issue but, frankly, without seeing the new prospectus regime, I have absolutely no idea how to comment on the changes contained in this SI.

I do, as always, have a few questions. First, I want to understand how this SI and what lies behind it ties in with the competition and growth objective. Are the Government taking the view that future growth in financial services is largely linked to digital business models, including blockchain infrastructure and crypto assets, and that shaping the FCA to be a benign regulator will make the UK a leading player in designing, holding, trading and marketing new instruments? Or are the Government concerned that digital and crypto create a new potential for market manipulation, mis-selling and money laundering, such that the FCA needs to find ways to counter, with different approaches to monitoring supervision enforcement? In other words, are the Government playing offence or defence? I would like to hear the Minister’s view.

Secondly, and related to that, with this instrument and the related activities, are we ahead of the curve, with the curve or behind the curve compared with other international regulators? I am afraid I do not have the global reach to understand, and it would be helpful if the Minister could tell us.

My lack of knowledge in this area led me to contact a friend in the industry to seek advice, and I was stunned by the response. In summary, I was told that the innovators who bring new and innovative models to the regulator’s sandbox are the smartest people in the room, but the regulator views the sandbox as a means to decide on monitoring procedures, compliance algorithms and approaches to enforcement. The innovators, by contrast, use the sandbox to identify the regulator’s points of weakness and then build them into their models to escape regulatory control. Innovators in the sandbox explore the regulatory perimeter, for example, to design products that will fall just outside; the mini-bonds are an example. They identify transaction sizes that will slip under the radar and coding approaches that will prevent multiple transactions that are essentially identical to be linked together and therefore escape both supervision and action. Those are just examples, but, increasingly, the industry seems to regard observing the intent of the regulator as purely voluntary. Does the Minister have any concerns that the regulator is outmanoeuvred, underpowered and underresourced?

I will end on my hobby-horse, which applies very much in these circumstances. Does the Minister recognise that, in this very fast-changing world, when so much is global and so much is digital, an effective whistleblowing system is absolutely vital, and our current system is a serious weakness?

[Lord Altrincham (Con)]

My Lords, it is a privilege to address the Committee on the Financial Services and Markets Act 2023 (Addition of Relevant Enactments) Regulations 2024. These regulations serve to bring various legislation under the remit of the financial market infrastructure—FMI—sandbox. The sandbox regime is an important part of the Financial Services and Markets Act, giving expression both to good prudential regulation and economic growth by supporting innovation.

As we heard, the regulations being transferred to the FMI sandbox are: the STRs, or stock transfer gilt-edged securities regulations 1985—the digital gilt area that is likely to be an enormous focus of the government team in the coming months; the GSRs, or Government Stock Regulations 2004; the MLRs, or Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017; and the UK prospectus regulation, Regulation (EU) 2017/1129 of the European Parliament and of the Council.

Since our departure from the European Union, the British Government have pursued an ambitious programme of reform to establish a regulatory framework that is better tailored to the strengths and opportunities in UK financial services. These regulations further enhance our ability to adapt and thrive in a competitive global financial environment. The instrument is more than a technical adjustment; it is a demonstration of our commitment to dynamic regulation in financial services and support for innovation. The instrument ensures that our laws continue to reflect the highest standards of probity and innovation while giving the financial services sector clarity and confidence.

As Conservatives, we believe in the power of free markets, tempered by fair rules and effective oversight. These regulations are a testament to that philosophy, and they ensure that the UK remains the jurisdiction of choice for global financial institutions and investors, which in turn helps the country secure tax revenues needed to fund public services. By updating and expanding the scope of the Act, we are aligning our regulations with emerging opportunities including advances in financial technology, green finance and digital assets—areas in which Britain has already established itself as a global pioneer.

The FMI sandbox scheme commenced under the previous Conservative Government and was a success, with the digital securities sandbox—the DSS—proving useful to business. Three of the pieces of legislation being brought into scope would facilitate activity in the first FMI sandbox, known as the DSS: the STRs, the GSRs and the MLRs. Bringing the GSRs and the STRs into the scope of the FMI sandbox powers under the Financial Services and Markets Act 2023 would facilitate the possibility of sovereign debt issuance, using distributed ledger technology, under the DSS.

International Banking: Payments

Baroness Kramer Excerpts

Thursday 28th November 2024 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question. On the potential move by the forthcoming Trump Administration, the UK will continue to work closely with the US on a range of security issues, including sanctions, to advance our shared priorities. I do not think it would be appropriate for me to comment on the Trump Administration’s future policies. In terms of actions by the BRICS, we obviously respect each country’s right to choose its own path and partners, but we will continue to collaborate with our international colleagues around the globe, including BRICS members, in forums such as the UN and G20, to build an open, stable and prosperous world.

[Baroness Kramer (LD)]

My Lords, because of my complex family, I need to transfer funds across international borders several times a year. The system assumes I am a terrorist, the banks have rip-off charges and exchange rates and obstructive technology. Even the new online apps, for which I had high hopes, have very severe limitations. Do western Governments, including ours, understand that if they fail to remedy this absolutely hapless international payments system, and the BRICS devise any international payment that is even halfway efficient and reasonably priced, users will simply flock to the BRICS system out of sheer frustration?

[Lord Livermore (Lab)]

I share some of the noble Baroness’ frustrations in this regard. I am always happy to vouch for her that she is not a terrorist; I am very certain of that fact. The noble Baroness is obviously making a very serious point. Clearly, fragmentation along the lines that she describes would be very damaging to the global economy—we must ensure that this does not proceed. The evidence of the extent to which fragmentation has occurred is mixed, and we should keep an eye on the data. I very much bear in mind the points she makes.

Financial Services: Mansion House Speech

Baroness Kramer Excerpts

Thursday 21st November 2024 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, the Chancellor’s speech at the Mansion House covered a wide range of very important topics which we will need to discuss over the coming months. I can touch on only a few of them today. However, perhaps first we should note that very recent developments include an unexpected reduction in the rate of economic growth and an increase in the rate of inflation; and, today, an increase in monthly borrowing to £17.4 billion—the highest level ever outside the pandemic.

The reduction in the growth rate in the fourth quarter was brought about in part by the unwise and inaccurate remarks on the state of the British economy that have been made frequently by both the Prime Minister and the Chancellor since taking office. Taken alongside the problems of the Budget, it has not been an auspicious beginning for the Government. Some of the effects on hard-working citizens, small businesses and farmers were brought to our attention outside this very building only this week. Furthermore, the UK gilt market has taken a hit, meaning that the cost of servicing our debt has risen. The last time yields on 10-year gilts were this high, Labour promised it would ensure that it never happened again; and, of course, higher bond yields mean higher debt-servicing costs. How do the Government intend to square this particular circle?

One major sector covered by the Chancellor’s very comprehensive speech was pensions, which are important for almost everyone. We share the Chancellor’s aims of securing greater returns for pension savers while at the same time enabling pension funds to contribute to funding increased infrastructure spending here in the UK. These objectives are not necessarily incompatible, but it will be difficult to bring about both. We on these Benches will take a keen interest in how this initiative is taken forward in the forthcoming pensions Bill and elsewhere. When can we expect more details?

We are also keen to know more about how, precisely, the proposed pension megafunds will work and, in particular, what rules they will need to follow as regards UK and foreign investments. We all know about the massive investment that Australian and Canadian funds have made in UK infrastructure. Will the proposed UK funds be able to invest in a similar fashion overseas? The Government have proposed consolidating 86 local authority pension funds into eight. When will this occur and on what criteria? How will the interests of those in well-run funds be protected from the ravages of the less successful ones?

Lastly, I return to the Government’s stated first aim of improving the rate of economic growth. We want them to succeed; really, we do. Per capita growth is the right measure of success. All economic policies should have growth as one of their aims, so I note with particular satisfaction that the Chancellor has recently impressed on several economic regulators that this should be their objective also. Otherwise, unfortunately, the Government have made a poor start on achieving growth and managing inflation. When we left government, we had the fastest-growing economy in the G7. Now that has greatly diminished. Let us hope, for the sake of our citizens, that the Government will do better in future.

[Baroness Kramer (LD)]

My Lords, my party is determined to see growth in the UK economy and to use tools such as reform of the financial services sector to drive that growth, though we would put much more emphasis on a revival of community banking and financing for SMEs. High risk, however, is not for all. For people with small pensions, safety—not a jackpot—is the goal. Will the Minister assure this House that, in all the various changes, small pensions will in some way be backstopped from losses generated through higher risk, including illiquid investments? In Canada, which seems to be a template for the Government, public sector pension funds are, in effect, wholly backstopped by the state.

Members on these Benches remember the financial crisis of 2007, which destroyed growth for a generation. It was enabled by gullibility and naivety in dealing with the financial sector, both by Conservative and Labour Governments and by the regulators. The Bank of England is re-looking at the regulation of CCPs to allow greater derivates risk; the PRA now allows insurance companies to hold illiquid assets without relevant reserves; the bank ring-fence is being undermined, and the FCA plans to gut the clawback on bankers’ bonuses and downgrade the certification of senior managers. We are back to jobs for the boys.

Much more—if I understand the Chancellor correctly in the Mansion House speech—is to come. I sat for two years on the Parliamentary Commission on Banking Standards, listening to the pernicious incompetence of masters of the universe who were turning a deliberate blind eye to market manipulation, mis-selling and money laundering, with no acceptance of responsibility. Will the Minster read the reports of the PCBS before he proceeds with any further weakening of regulation? If this is not done with extraordinary care, we risk seeing the reseeding the next financial crisis.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I am very grateful to the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, for their comments and questions. May I take this opportunity to welcome the noble Baroness, Lady Neville-Rolfe, to her place and say how much I look forward to working with her in the period ahead? I am very grateful to both noble Baronesses for the “cautious”—I think I should say—welcome that they gave to various aspects of these reforms.

The noble Baroness, Lady Neville-Rolfe, began by talking about growth and, of course, we all know that growth was one of the biggest failures of the previous Government. In her Budget last month, the Chancellor set out a number of important measures to fix the foundations of our economy, restore stability to our public finances and rebuild our public services. They included a new approach to public investment to help deliver high levels of economic growth.

As the Chancellor made clear at the time, however, the Budget was not the limit of our ambition. Increasing private investment and reforming our economy are also central to realising the UK’s growth potential. That is why, last Thursday at the Mansion House, the Chancellor placed the financial sector at the heart of the Government’s growth mission and set out a plan for investment and reform. The financial sector employs 1.2 million people and makes up 9% of GVA, and it is one of the largest and most successful in the world, but we cannot take the UK’s status as a global financial centre for granted. The Chancellor therefore set out a commitment to developing a comprehensive plan to grow that financial services sector.

In the spring, the Government will publish a financial services, growth and competitiveness strategy to give the financial services sector the confidence it needs to invest for the long term. It will be published alongside our modern industrial strategy and be clear-eyed about our strengths, proposing five priority growth opportunities: fintech, sustainable finance, asset management and wholesale services, insurance and reinsurance markets, and capital markets.

In her Mansion House speech, the Chancellor also announced plans in the key area of pension funds, which the noble Baroness, Lady Neville-Rolfe, focused on. I am grateful for her supportive words about the objectives behind those reforms. As she knows, the UK has one of the largest funded pension markets in the world, but pension capital is often not used enough to drive investment and growth in our economy. Our system remains highly fragmented and pension funds cannot bring their full financial weight to bear due to limited investment in more productive assets. This holds back investment in infrastructure and for our most innovative companies.

For this reason, the Chancellor announced the publication of the interim report for the pensions investment review. The plan in the report will deliver a significant consolidation of the defined contribution market and the Local Government Pension Scheme in England and Wales, harnessing the collective size of our pension funds and creating larger funds and pools of capital. The noble Baroness asked about the timescale. A consultation on our pension reform changes opened last week and will run until 16 January. To give the market the necessary time to prepare, these changes will not apply in full until at least 2030. Local Government Pension Scheme changes are expected to be completed sooner, by March 2026, given the arrangements already in place.

The Chancellor also set out plans for reform. We will upgrade our regulatory regime across our economy, including reviewing the guidance we give to the Competition and Markets Authority and other major regulators, to underline the importance of growth. The noble Baroness, Lady Kramer, talked about the global financial crisis; I am very happy to read the reports she recommends. While it was right that successive Governments made regulatory changes after the global financial crisis to ensure that regulation kept pace with the global economy, these changes resulted in a system which often sought to eliminate risk-taking and, in some cases, had unintended consequences that we must address. Regulation has costs as well as benefits; when spending large sums on compliance, firms are not using that money to innovate and grow. It can also have costs to consumers, such as by restricting access to financial advice that could help them plan for the future.

While maintaining important consumer protections and upholding international standards of regulation, we must rebalance our approach. I think this was cautiously welcomed by the noble Baroness, Lady Neville-Rolfe. Alongside her Mansion House speech, the Chancellor issued new growth-focused remit letters to the financial services regulators to make it clear that the Government expect them fully to support our ambitions on economic growth.

The noble Baroness, Lady Kramer, asked about risk-taking. Enabling more responsible and informed risk-taking will support innovation and investment to help drive growth. Our aim is to maintain a sound and stable financial system with appropriate consumer protections while allowing businesses and consumers to make informed choices about the level of risk they take on. Protecting consumers is central to these reforms; the remit letters are clear that the regulators must maintain high regulatory standards, including to adequately protect consumers, in the process of embedding their secondary growth and international competitiveness objectives.

--- Later in debate ---

[Lord Livermore (Lab)]

The noble Baroness raises a very important question and I am grateful for her support around the reforms of the Financial Ombudsman Service; she brings a great deal of expertise to it. Her point about the role of consumers is a good one, and I will write to her on that specific matter.

[Baroness Kramer (LD)]

My Lords, I pick up the issue of consumer protection that the Minister mentioned, as well as a number of other speakers. Does he recognise that the consumer duty, as it is currently fashioned by the FCA, definitely has cost for businesses—it is very box-ticking? But what it does, which very much pleases businesses, is to deny individuals who have been injured a right of private action. It is that right which allowed the sub-postmasters to challenge the abuse that they suffered. That is not available to people within the financial services sector, and quite deliberately so. Without it, essential consumer protection is, to my mind, very much undermined. Will the Minister take a look at that issue?

[Lord Livermore (Lab)]

I thank the noble Baroness for her question. She brings out quite eloquently the trade-offs that the regulator has to make across these different protections. I am happy to look at what she says, of course, but I do not believe there are any plans in that respect.

Exports to the European Union

Baroness Kramer Excerpts

Wednesday 20th November 2024 Lords Chamber

[Lord Livermore (Lab)]

I agree with some of my noble friend’s sentiment; I am not entirely sure what the question is. However, it is important to recognise the significance of the EU to our trade. Four of our top five export markets are in the EU, and eight out of the top 10. The EU accounts for nearly 50% of our trade; total trade with EU is worth over £800 billion and 41% of total exports go to the EU.

[Baroness Kramer (LD)]

My Lords, will the Minister confirm that part of our loss of trade to the global world outside the EU has been because, since Brexit, we can no longer guarantee to meet European standards for products, and because going through European supply chains was usually our entry point to meet final clients for independent exports? Both those routes have now been damaged.

[Lord Livermore (Lab)]

As so often on this topic, I agree with the noble Baroness. According to the Resolution Foundation, the previous Government’s Brexit deal imposed new trade barriers on business equivalent to a 13% increase in tariffs for manufacturing and a 20% increase for services. Reducing those trade barriers is a key priority for our European reset.

Autumn Budget 2024

Baroness Kramer Excerpts

Monday 11th November 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, let me begin by congratulating the noble Lord, Lord Booth-Smith, on his maiden speech in which I think he warned us to be alert for the unknown unknowns. We should take note of that, and I hope to pick it up later in my speech. I also have to apologise to the House: this has been a brilliant, incredibly varied debate, so this will be a very limited summation on my part.

I do not dispute the tough situation faced by the new Labour Government. Noble Lords heard that same tone and concern from these Benches, and it was very much picked up on the Labour Benches. I noted that the noble Lords, Lord Hannett and Lord Bach, and many others raised that issue. Public services are, frankly, in a dire state, both through the lack of funding and the lack of meaningful reform, as we heard from the noble Lord, Lord Murphy of Torfaen, and quite a variety of speakers on both sides of the House. We also heard discussion of an economy that has been, at best, stagnant for years. I too, like the noble Baroness, Lady Wheatcroft, commend the speech of the noble Baroness, Lady Moyo, who grasped a very difficult nettle and expressed it well for the House as a whole. There have been dismal levels of investment, persistently low productivity, as the noble Baroness, Lady Neville-Rolfe picked up and elaborated on, and workforce and skill shortages, as the noble Lords, Lord Fox, Lord Liddle, Lord Monks, and others addressed.

I noticed that, when speakers on the Conservative Benches talked about economic hard times, they were keen to focus on the impact of Covid and the consequences of the Russian invasion of Ukraine, but they were remarkably silent on the impact of Brexit—the hardest blow, the deepest scar and the most persistent to our economy. I say that to the noble Lord, Lord Johnson, and the noble Baroness, Lady Lea, who both addressed those issues and carefully ignored the B-word. This House will not be fooled by that omission.

I recognise that we have to move on from the past. My party recognised in its manifesto—I am picking up the words of my noble friend Lord Razzall—that taxes would have to be raised in the circumstances that we face, but we chose a different taxation approach to that chosen by the Government. I think the noble Lord, Lord Young, also proposed a different range of taxes. Let me repeat that we were looking at the oil and gas companies, the banks, social media companies, online banking companies, share buybacks and reform of capital gains. Let me suggest to the Government that they look very closely at the package that we proposed. It comes to some £7 billion to £10 billion per year. I suggest they might want to use it not to increase the overall tax take but to allow them to remove elements of the tax rises they have announced that, on reflection, they find are perverse or are hitting groups unable to cope. I will elaborate a little.

We have become, in many ways, the voice of the social care sector. I know others have long been engaged, but that is the way it is breaking today. We welcome in the Budget the increase in the earnings threshold for those on carer’s allowance, as did many others throughout the debate, but we, like many others, are utterly dismayed that the Budget had so little to offer—some £600 million—for social care services, some of which are very precarious. I join others—I think this was mentioned by the noble Lord, Lord Empey, by my noble friends Lord Fox, Lady Tyler and Lord Shipley, and on the Labour Benches by the noble Lord, Lord Whitty, and the noble Baroness, Lady Lister—who called for the Government at the very least to give this sector an exemption from the increase in employers’ NICs to remove the precarious situation in which it sits and to recognise that GPs need the same exemption just to meet the need for appointments. That group should be treated like the public part of the public sector of the NHS. We in this House widely recognise that without a major step change in social care and primary care, much of the money going into the NHS will simply be swallowed up.

My party has also found itself, in the most extraordinary way, becoming the voice of small business. Micro businesses receive some protection from tax increases through the higher employment allowance, but the increase in employers’ NICs and especially the lower starting threshold directly worsen one of the UK’s major economic problems: the failure of firms to scale up from micro. We are very good at starting businesses, but they fail to scale up to small and medium. This new tax burden is simply going to make that problem worse. Will the Government look again? Upscaling is vital to achieve growth.

I want to put in a particular plea for the 700,000 working people who are contractors working through umbrella companies and who pay their own employers’ NICs. Very few will be in a position to renegotiate their contracts to cover the increased cost. The noble Earl, Lord Clancarty, talked about the creative industries in this context. The noble Lords, Lord Bilimoria, Lord Londesborough and Lord Howell, addressed the issues of small firms, and we ask the Government to look again.

I think more people in this debate spoke on the future of family farms than on any other issue. We join in those deep concerns that many families will be forced to sell. Those families are the backbone of our rural communities and our agriculture industry. The noble Earl, Lord Devon, made a tour de force speech in describing the issue, and he was joined by many others including the noble Lords, Lord de Clifford, Lord Berkeley of Knighton, Lord Shinkwin and Lord Empey, the noble Duke, the Duke of Wellington, my noble friend Lady Humphreys, who spoke clearly from these Benches about the problem in Wales, and the right reverend Prelate the Bishop of Newcastle. They were the kind of speeches that we have to ask the Government to take notice of. Again, let us remember that our party has offered a different tax route that could enable the Government to have the flexibility to make a change.

Only the noble Lord, Lord Oates, mentioned the 50% rise in the cap on bus fares for many young and minimum-wage workers. This could be extraordinary; it could cost them £500 a year. I will not have another discussion on the winter fuel allowance. It was a mistake; I have said it before and I will not go through it again. But my party also believes very strongly that independent schools should not face VAT; education is an investment in our future. I join the noble Lord, Lord Lexden, in the comments that he made.

Somebody talked extensively about business rate reform, but I forgot to note whom. It should have gone much further than just the sticking plasters in this Budget, and even the sticking plasters exclude many types of small businesses.

On our Benches, my noble friend Lord Fox expressed great support for the industrial strategy, except to say that the question is: how do you deliver it? We will be watching that.

Many people also addressed the change in the fiscal rules. I want to say something to the noble Lord, Lord Lamont. He is possibly one of the most literate in economics and finance in our House, but he did not seem to grasp that the new fiscal rule deals with net financial liabilities. A new hospital building, or a new school, does not fall into that set of definitions; it is investments that yield a financial return. I feel that I am coming to the rescue of the Government on this one. We seem to have extraordinary confusion.

I will say to the Government, as I have said it before, that it will be important to see how those guardrails work. There is an extraordinary capacity for additional borrowing that I suspect the Government will not take advantage of if they use their guardrails properly, but we will have to observe those guardrails and make sure. This is not an issue raised just by my party. It was raised also by the noble Lords, Lord Burns, Lord O’Neill, Lord Young, Lord Altrincham, Lord Monks and Lord Empey—my apologies, some of those remarks were on skills, but a whole range of people discussed that set of issues.

The Government have tied their colours to the mast and will be judged on improvements in public services, especially the NHS, and growing the economy. I want to finish by going back to the point raised by the noble Lord, Lord Booth-Smith, about the unknown unknowns. We are in very turbulent times, and global events matter. If we find ourselves facing a protectionist trade war, the shock will hit UK growth by more than 0.5% each year. If the US abandons Ukraine, leaving the Baltics and Poland exposed to Putin, or if Taiwan is seized by China, the consequences will more than reverberate here. They will affect everything in our lives, including the economy.

US disengagement from countering climate change would destabilise the world, not only immediately in the economy but in driving many new waves of migration. I join the noble Lord, Lord Razzall, and others in saying that this is the time to build alliances with those with whom we have common cause. That means getting closer to Europe far more rapidly than the Government have previously anticipated. We need to rebuild our economic ties to the EU and remove the trade barriers raised by the Tories; it is an obvious route. It was an issue raised by others, but I want to stress it from these Benches: this is an issue that has gone from a nice-to-have to urgent.

United Kingdom Declining Birth Rate

Baroness Kramer Excerpts

Wednesday 6th November 2024 Lords Chamber

[Lord Livermore (Lab)]

I am afraid I cannot agree with my noble friend on that, but I agree with him that alleviating poverty should be central to the Government’s objectives. Clearly, work is one of the best routes out of poverty. Equalising women’s participation rates in the economy with those of men would add 1.3 million economically active people into the workforce, which is why helping women back into work is central to the Government’s goals.

[Baroness Kramer (LD)]

My Lords, our demographic profile lies at the heart of this Question. I quote from the ONS, which said that

“the population is projected to age twice as quickly under zero migration than under a high migration scenario”.

Facing our dependency ratio, which is worsening by the year, should we not be resetting the conversation on immigration to recognise the role that it plays both in prosperity and in the provision of public services? Does the Minister share my fear that we are ceding this issue to a right wing that has decided that raising resentment and scapegoating is a glide path to power?

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. I agree with much of the sentiment that sits behind it. The Government recognise and value the contribution that legal migration makes to our country. We will continue to strike a balance between ensuring that we have access to the skills that we need while encouraging businesses to invest in the domestic workforce.

Crown Estate Bill [HL]

Baroness Kramer Excerpts

Report stage
Tuesday 5th November 2024 Lords Chamber

[Lord Howard of Rising (Con)]

My Lords, I support my noble friend. In Committee, the Minister was good enough to agree that controls on borrowing by the Crown Estate must be in place and that they would be set out in a memorandum of understanding between the Crown Estate and the Treasury at a loan-to-value ratio not to exceed 25%. This figure is more than I would have wished for, and using asset value rather than capital reserves in the definition allows a still greater level of borrowing. Nevertheless, I am grateful that the Minister acknowledges that there should be a limit on borrowing. However, there must be a tighter control than a memorandum of understanding. Amendment 1 proposes an affirmative statutory instrument to achieve this. It requires the Government to limit borrowing to net debt-to-asset value of no more than 25%, purposely copying the wording of the Minister’s comment in Committee.

Should His Majesty’s Government need more flexibility in the future, this statutory instrument would provide for that. It would be better if the limit on borrowing were in primary legislation, but in seeking a solution which His Majesty’s Government might find acceptable, the amendment would be a fair compromise, retaining any flexibility that the Government might need while providing a stronger safeguard than a memorandum of understanding. As the Minister said, this limit is unlikely to be of concern to the present Government. Therefore, I hope he will accept this very modest suggestion to safeguard the Crown Estate for the future.

[Baroness Kramer (LD)]

My Lords, I think I started this hare running at Second Reading, when I basically said to the Minister that the Government were asking us to give borrowing power to the Crown Estate but we did not have the business case that argued why it needs a borrowing power—it is not evident from the annual report. Also, the framework agreement, which at that time governed the relationship between the Treasury and the Crown Estate, was silent on the issue of borrowing, other than to say it was not allowed, so clearly we needed changes to the framework report and we did not have them at Second Reading.

I am so impressed by the Minister’s response—and appreciative, because I have sat on these Benches looking at a Conservative Government for quite a number of years when every attempt to get transparency was rejected, I was handed documents based on Henry VIII powers and there was complete resistance to oversight by Parliament. Instead, the Minister has provided us with the business case—which is, frankly, virtually unheard of. It is an excellent document that completely clarifies why the change that this legislation contains has come to us. We can now understand that. It provides the draft changes to the framework document that we expect to see fully negotiated and enacted by the end of the year, we hope, but well ahead of any borrowing. Even more importantly, it provides a document that we usually cannot extract from the Treasury’s fingers, which is the memorandum of understanding that takes us into the much greater detail behind the whole rationale and sets out the rules in a very open and public manner.

This is the way that Governments should handle situations such as this. I want to respond from these Benches to those actions by the Government in a completely positive way. I understand that the Conservative Benches feel that opposition is a very different role from government and therefore they behave completely differently in opposition from the way that they would choose to do in government—that is their choice—but I am very content with the information that has been offered to us. As it has been given to us by the Government, it will last and will survive passage through this House and the other place. I think we can say with confidence that borrowing and financial liability in the Crown Estate are within a sensible and appropriate framework. Therefore, I ask that these Benches do not support the amendment proposed by the Conservative Benches and instead grasp the opportunity of a very responsible and appropriate offer from the Government.

Bank Resolution (Recapitalisation) Bill [HL]

Baroness Kramer Excerpts

Report stage
Monday 4th November 2024 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, my colleagues from the Financial Services Regulation Committee are rather confused on two issues; that is very unusual, but they do seem to be. First, there is the idea that somehow, if MREL were exceeded in a financial crisis, that would be a regulatory failure. The only way to prevent such a regulatory failure is to have MREL at 100%; that is to avoid the total failure of the financial system. That would be a disaster for lending in this country. At the moment, MREL is set at levels that are deemed to be a reasonable buffer under circumstances that might reasonably, even in extremis, be expected to occur. As we saw in 2008-09, even events that are deemed to be events that would occur only once in a millennium can occur several times in a week in a severe financial crisis. An MREL which can never be exceeded is 100% and if my colleagues are seeking to impose that on the British financial system, I would be very surprised.

The other point that seems to be neglected—it is why I deem this amendment to be irrelevant—is that my colleagues should recall that, in one of the letters from the Financial Secretary, he pointed out there was a cap on the amount that would be raised from the financial compensation scheme for these purposes. That cap, as I recall, was £2.5 billion. In those circumstances, £2.5 billion would never be sufficient to deal with the collapse of one of the big banks. So the cap itself defines these regulations as fitting only relatively small banks.

[Baroness Kramer (LD)]

My Lords, perhaps I could be helpful at this point. That £2.5 billion is certainly not in the Bill. If that is the argument being made by the noble Lord, Lord Eatwell, is it an interesting one but not one that the Government have grasped.

Perhaps I should clarify the issue of the threshold at which MREL kicks in, because that was the point to which my noble friend Lady Bowles referred. The UK demands MREL or bail-in bonds as the mechanism for resolution in the case of the failure of a much smaller bank than in any other country across the globe. The differential between us and everybody else is very large. That, we assume, is why the Government want to keep this mechanism available for banks that have been required to have MREL: they are trying to deal with that small to medium-sized group that, quite frankly, should probably never be in the MREL group in the first place.

--- Later in debate ---

[Lord Vaux of Harrowden (CB)]

My Lords, I support both the amendments in the names of the two noble Baronesses who have just spoken. I probably have a slight preference for Amendment 16 on the expenses—it is more direct—but we need something in the Bill that reminds the Bank of England that it is spending other people’s money, and that it needs to do that carefully and with care. These amendments are aimed primarily at that end, so I support them both.

[Baroness Kramer (LD)]

My Lords, I will speak briefly in support of Amendment 7 in the names of the noble Baronesses, Lady Bowles, Lady Noakes and Lady Vere, but I am not as minded to support Amendment 16 for the following reasons. Some in this House will know that I dislike intensely the competitiveness and growth objective that has been attached to the PRA and the FCA. If you were going to set out a pattern to repeat the crash of 2007-08, those two objectives would be essential paving stones on that route, so I do not look to attach that particular amendment to the Bank of England in its overall resolution role in, for example, setting MREL. It should be setting MREL to reduce risk, not to follow the lowest common denominator in the international banking arena.

Ironically, if you take the growth and competitiveness secondary objective and just apply it to recapitalisation, it turns on its head and becomes a risk-reduction tool, because it basically limits the ability of the collapse of one bank to then infect all the other banks within the system. That seems to me to be a risk-reduction strategy, so I am very much in favour of the way in which it has been crafted under Amendment 7. I say that to reassure others in this House who may be afraid that playing fast and loose with the competitiveness and growth agenda is always a risk-increasing agenda rather than a risk-reduction agenda. In this narrow role, it works in the opposite direction.

[Baroness Vere of Norbiton (Con)]

I rise briefly to speak to Amendment 7 in the name of the noble Baroness, Lady Bowles of Berkhamsted, and Amendment 16 in the name of my noble friend Lady Noakes.

On Amendment 7, I will not reiterate the points raised. I deeply appreciated the explanation by the noble Baroness, Lady Kramer, as to how she got to her supportive position. From our perspective, we feel that Amendments 7 is a reasonable objective that would ensure the Bank facilitates the international competitiveness of the UK economy and economic growth in the medium term—that is very clear. It also has the ability to look at the level of risk within the banking sector over the medium term. Given the Government’s stated objective of focusing on economic growth, I am very interested to hear the Minister’s view on these amendments.

Amendment 16 in the name of my noble friend Lady Noakes, which I have signed, seeks to minimise the net costs recouped from the banking sector via this mechanism. Again, it is a very sensibly drafted amendment that would improve the Bill, and I look forward to hearing the Minister’s response.

--- Later in debate ---

[Baroness Noakes (Con)]

My Lords, I added my name to the amendment but I am glad that the noble Lord, Lord Vaux, will not be pressing it because, as he explained, there are difficulties with it.

I pay tribute to the noble Lord for chasing this issue down because it is a very real issue that could arise in certain defined circumstances, as he explained. I am not convinced that the solution of simply transferring assets into the bridge bank actually works. The complexities of a bank mean that you have liabilities—that is how you fund yourself from market sources—and in practice it may well be difficult. I hope the Government will take this away and find a way of minimising the likelihood that that ever happens, whether in the code of practice or otherwise, in discussion with the Bank of England.

[Baroness Kramer (LD)]

My Lords, the point that the noble Lord, Lord Vaux, has been making is significant and crucial in shaping the way in which the Bank of England approaches the resolution of banks when they fail.

Unlike the noble Baroness, Lady Noakes, I think there is a potential path of looking at the sale of the assets rather than the sale of the equity. That is the normal practice that one would follow in order not to transfer liabilities over to the new recovering entity. I fully understand all the complexities, and I hope the Minister will take this up with the Bank of England in his discussions. It requires a lot more work but it could get us out of some very nasty traps in future, and it will be more likely to do so if there has been thought beforehand rather than it being a reaction in a situation of emergency.

Budget: Taxes and Borrowing

Baroness Kramer Excerpts

Monday 4th November 2024 Lords Chamber

[Lord Livermore (Lab)]

My noble friend is absolutely right in what he says. We faced a £22 billion black hole at the heart of our public finances, which we had to take steps to address. We also faced promises for compensation payments, which the previous Government had completely failed to put a single pound behind, and we had to repair public services simultaneously. In the process, though, we kept every single one of our manifesto commitments to restore stability, invest in our public services and protect working people.

[Baroness Kramer (LD)]

My Lords, the Budget basically ignored social care providers, even though the sector is on its knees and taking the NHS with it. Will the Minister take seriously the need to exempt care providers from the increase in employers’ NICs?

Fiscal Rules

Baroness Kramer Excerpts

Tuesday 29th October 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

My Lords, over the next 24 hours the Chancellor is likely to break promises that she made to the British people in the run-up to the election, and I am in no doubt that that was always going to be the plan. This is why the Treasury team magicked up a fictional black hole—a black hole which, rather incredulously, contains spending decisions made by the current Government. This fictional black hole will be invoked once again at the Budget Statement tomorrow, to act as a fig leaf to cover tax rises which will put more juice into the phrase “taxing people until the pips squeak”. It is an audacious strategy, given its utter predictability, but my concern is for the people and businesses across the country who are just trying to get by and who will bear the brunt of Labour’s tax plans.

Tax rises are only part of the plan. The second part of the Chancellor’s plan is to increase borrowing—but how could she, given the fiscal rules? These are the fiscal rules that the Chancellor explicitly said she would not change. She stated that she would not “fiddle the figures” to get different debt figures. She confirmed that an incoming Labour Government

“will use the same models the government uses”.

Now the Chancellor has performed a screeching U-turn and broken her promise not to—in her words—fiddle the figures. The Chancellor has announced a £50 billion change to the UK’s fiscal rules; she announced this important change at a conference in the United States, not to Parliament. Can the Minister confirm that the announcement at a conference in the United States was made in haste to reassure the bond markets?

More worryingly, the country currently has new fiscal rules but no knowledge of what they actually are, because the Chancellor has failed to outline any details of what that new rule change involves. She also chose to make this announcement without an accompanying OBR report. I am sure the noble Lord, Lord Livermore, will remember that the very first Act passed under this Labour Government was one which gave more power to the OBR to scrutinise the Government’s actions. Does he agree that these actions with respect to the fiscal rules do not abide by the spirit of what was in that first Act passed under this Government? We are left in a situation in which the UK does not have an operational definition of public debt. Can the Minister explain what definition of public debt the Government are currently providing to lenders?

There is a debate to be had about whether these changes to the fiscal rules make things better or worse, but what is absolutely clear is that fiddling with the debt rule does not magic up free money. Indeed, the independent Institute for Fiscal Studies has specifically warned that changing the UK’s debt rule to allow for higher borrowing is not free money. The IFS has cautioned that the Government’s new fiscal rule will cease to be a constraint on borrowing. Can the Minister explain how much new borrowing the Government intend to take on under these new rules, and how much the annual interest cost of that debt will be?

I have no doubt at all that this is all part of a plan dreamt up long before the general election, and the next episode in this sorry tale is to be released tomorrow.

[Baroness Kramer (LD)]

My Lords, we on these Benches have long called for vital investment into infrastructure, not least to fix our crumbling hospitals and schools, to tackle the failings and gaps in our transport system, and to deliver the affordable housing needed by so many. Infrastructure investment, including private investment, must be scaled up to drive sustainable economic growth across the nation, including the green energy revolution. But fiscal responsibility remains crucial.

These Benches have argued before for the use of the public sector net fiscal liabilities as the appropriate measure to sit behind a borrowing rule, because it allows productive investment to be considered separately from day-to-day spending. I tried without success to persuade the noble Lord, Lord O’Neill of Gatley, to look more closely at this issue during the Conservative Government.

Changing the measure also means reshaping the borrowing rule and the guard-rails to make them appropriate to that new measure. This Statement so far offers only the vaguest language, so I hope very much that we will hear a proper discussion of the rules and the guard-rails tomorrow in the Budget. Will the draft charter for budget responsibility, which I understand should contain much of that, be among tomorrow’s documents?

There also seem to be a number of referees to oversee the rule and its implications, from the OBR to the national infrastructure and service transformation authority, an office for value for money and the NAO. How does this fit together and what oversight will be before Parliament?

We cannot have a repeat of the Truss mini-Budget, which nearly wrecked the public finances with £40 billion in unfunded tax cuts. Does the Minister agree that the Budget must be credible to the markets, the interest burden on our public finances must be tackled and, at the same time, we must make good our infrastructure deficit—investing to fix hospitals and schools but also driving economic growth? None of it is easy, but all of it is necessary.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I am very grateful to the noble Baronesses, Lady Vere of Norbiton and Lady Kramer, for their comments and questions.

Let me start by setting out the context in which our fiscal rules will be set. The Budget that my right honourable friend the Chancellor will present tomorrow will be driven by this Government’s number one mission: to deliver sustainable growth after a decade and a half of stagnation. That growth can only be built on stable foundations, so the first and most important task in the Budget will be to turn the page on 14 years of instability and uncertainty, which have deterred investment and undermined business confidence.

I agree with the noble Baroness, Lady Kramer, about the importance of fiscal responsibility—that is why the fiscal rules are so important. They will set the basis for stable fiscal policy, prudent management of day-to-day spending and responsible investment for growth. That commitment to responsibility and stability requires us to address in tomorrow’s Budget three challenges.

First, there is the £22 billion black hole in the public finances that the noble Baronesses, Lady Vere, helpfully reminded the House about, which we inherited from the previous Government, and the vast majority of which will persist into future years. Secondly, the compensation payments for those who have suffered because of the infected blood and Horizon scandals were announced by the previous Government but never budgeted for. Thirdly, the state of the UK’s public services means that they cannot survive a return to the austerity that has done so much damage over the past 14 years, including by holding back growth.

The noble Baroness, Lady Vere, mentioned our manifesto commitments. Our manifesto set out in our fiscal rules that

“the current budget must move into balance, so that day-to-day costs are met by revenues and debt must be falling as a share of the economy by the fifth year of the forecast”.

Our manifesto also said:

“These rules allow for prudent investment in our economy. This represents a clear break from the Conservatives who have created an incentive to cut investment; a short-term approach that ignores the importance of growing the economy”.


To deliver on these manifesto commitments, the Government’s fiscal rules will do two things. First, and most importantly, the stability rule will mean that day-to-day spending will be matched by revenues, as committed to in our manifesto. We will meet this rule within this Parliament. Given the state of the public finances and the need to invest in our public services, this rule will bite hardest. Alongside tough decisions on spending and welfare, the Chancellor has been clear that this means that taxes will need to rise in tomorrow’s Budget to ensure that this rule is met.

The Government’s second fiscal rule—the investment rule—will deliver on our manifesto commitment to get debt falling as a proportion of our economy. That will make space for the necessary increases in investment in the fabric of our nation, and it will ensure that we do not see the falls in public sector investment that were planned under the previous Government. The plans that we inherited would have seen public sector investment decline to the lowest level in over 10 years. The noble Baroness, Lady Vere, seemed to confirm that that would still be the Conservatives’ approach. That cannot be right. If we continue on this path of decline, we will continue to miss out on the opportunities of the future, and other countries will continue to seize them. To rebuild our country, we must increase investment, in partnership with the private sector. The UK lags behind every other G7 country on business investment as a share of our economy, and the IMF has been clear that weak investment and low productivity are holding back growth.

We must create the conditions for the private sector to invest, by stabilising our economy and introducing reforms to planning and skills. At the recent International Investment Summit, we saw £63 billion of new private sector investment committed to our economy, creating nearly 38,000 new jobs. The Government must invest alongside business, through expert bodies like the new national wealth fund, multiplying the impact of public money. However, there is also a significant role for public investment. For too long, we have seen Conservative Chancellors cut public investment and raid capital budgets to plug gaps in day-to-day spending. The result of that approach is clear for all to see: hospitals without the equipment they need, our schools literally crumbling, sewage in our rivers and growth held back. We cannot continue on this path of decline. We need to invest more to grow our economy and seize the huge opportunities that exist in digital, tech, life sciences and clean energy. To do this—to grow our economy, free up more money, invest in capital and meet our manifesto commitment to remove the incentive to cut investment—the Chancellor has said that, in tomorrow’s Budget, we will change the Government’s measure of debt.

As the noble Baroness, Lady Kramer, said, it is of course important that every pound of taxpayers’ money that is spent gets value for money and delivers returns for the taxpayer when we invest in capital projects. So we will put in place guard-rails with the National Audit Office and the Office for Budget Responsibility, enabling them to validate the investments we are making to ensure that we deliver value for money, and give markets confidence that there are rules around the investments we can make as a country.

The Chancellor will set out the Government’s full fiscal plan, including the precise details of our fiscal rules, in tomorrow’s Budget, alongside an economic and fiscal forecast produced by the OBR—and the noble Baroness, Lady Vere, helpfully reminded us that the disastrous Liz Truss mini-Budget failed to commission one. In our Budget, we will turn the page on the past 14 years, fix the foundations of our economy and restore economic stability to our country. We will invest to rebuild Britain and begin a decade of national renewal.