Financial Services and Markets Bill [HL]

Baroness MacLeod of Camusdarach Excerpts

2nd reading
Monday 8th June 2026 Lords Chamber

[Baroness MacLeod of Camusdarach (Lab)]

My Lords, it is truly humbling to hear from so many noble Lords today with such expertise. As many have said, there is much to commend in this legislation. Any measure that strengthens the financial services in this country is welcome. As was laid out in the Leeds reforms last year, every encouragement should be given to banks or individuals who want to invest in the United Kingdom.

The ambitions of the Scottish financial services industry, a hugely important employer in Scotland—in fact, the biggest—chimes with the Government’s ambitions. It is incredibly important and it hopes that the new legislation will shake up the planning system and reduce red tape for investors. In this legislation, among other measures, emphasis is put on the Government’s support for lending and investment. We hope that the reforms will unlock more finance for UK businesses, and that improved competition in small and medium-sized enterprise lending will help small businesses to access finance.

I will not talk about regulation; I will leave it to the experts among noble Lords. Investment in SMEs, particularly in Scotland, is what I want to talk about today. Basically, it is not happening as it should and I am not exactly sure where this Bill will make the difference that is needed. This is a cri de coeur to the Minister. There are entrepreneurial, far-sighted men and women wanting to start a business, to contribute to their communities, to employ people in the communities, all the time contributing to the UK economy, but there are many obstacles in their way, not least accessing the financial support they often need to confidently take the first steps to create a business. Many areas of Scotland are struggling. Not only are they stranded where Scotland’s ferry system does not function but there is not enough housing and there are too few jobs. There will be even fewer jobs unless SMEs are able to access investment. Throughout Scotland, businesses are struggling to get investment. One of the reasons given is that it is too remote. Perhaps it is time that people in London or Edinburgh think of themselves as remote, rather than those who live beyond a metropolis.

We know that bank lending to British businesses has fallen to its lowest level for many years. Perhaps the banks and other lenders did not read the memo from Leeds but, until they change their behaviour, there will be little chance of stronger economic growth. It may be timely to remind the banks that they owe us: hardly one of them would be standing if it were not for the Labour Government’s Herculean support during the financial crisis of 2008. When bank lending fails, SMEs are disproportionately affected, and banks have pivoted away from SME lending because it can be riskier and less profitable. Banks do not want to invest in start-ups; they only want to help when business is established and any risk has been minimised. Surely it is not unreasonable to suggest that banks could take more responsibility to invest in the country’s most enterprising and entrepreneurial sector. Banks tell you that there is no lack of lending capacity but little demand. It seems that many SMEs are less like likely to apply for credit for fear of rejection, so it becomes a self-reinforcing loop. One senior figure at a UK bank, quoted in the Financial Times recently, said there was no lack of lending capacity:

“All the banks are issuing bold lending targets, but if there is no demand as no one wants to borrow there isn’t a lot we can do”.

I would suggest to that senior banker that they find out what more they can do to get money out the door.

Levels of investment in Scotland are typically lower than in the best-performing countries in the OECD. In areas such as research and development, investment has been chronically low in comparison with the OECD and below the UK average, yet Scottish universities’ contribution to R&D is among the best in the OECD countries.

SMEs form the backbone of the Scottish economy. There are 350,000 of these important companies, employing over 1.3 million people. They are hugely important in farming, retail and hospitality, and increasingly in life sciences and space technology. There is great innovation in AI, digital assets and tokenisation in Scotland, but these modern-day pioneers need investment. According to the business sector, they are underserved and, if they are ever to scale up and contribute meaningfully to our economy and the funding of public services, that needs to change.

Too often, start-ups have had to leave Scotland to seek investment since investment banks, venture capital and private equity no longer have offices in Scotland. The investment community is very heavily centred in London. That is a pity, and a blow to the Scottish economy, as it is to other parts of the UK outside the south-east of England. It is important that Scottish firms connect with London-based investors and that those investors visit Scotland to properly understand its vast potential—and there are huge opportunities, if only they knew about them. Nobody wants to undermine London’s economy, but it is a waste of potential if investment horizons in the UK remain so limited.

There is confusion about the responsibilities of the UK and Scottish Governments. There is a suspicion that too many UK civil servants think that Scotland’s machinery is completely separate from the UK’s, and that needs to be cleared up. The City of London joined forces with No. 11 to set up a single investment portal for the UK, which allows all potential investors to see what opportunities there are. Unfortunately, there has been little take-up in Scotland and it may be that politics are getting in the way, while business north of the border thinks Scottish civil servants may be too many sceptical about anything that comes from London. So I appeal to both Governments to work more closely together to take advantage of any facility that might help.

In conclusion, I have four specific asks for the UK Government, which I hope they can consider, in this legislation. Please set out a clear vision and structure for accessing funds to grow businesses. Please fly the flag for the whole of the UK when talking to overseas investors. Please encourage banks to be more courageous and take risks. Lastly, please tell investors to think beyond London and go to other places from time to time, as they will find opportunities. If the Government can embrace these asks, I am sure that this Bill will feel ever more relevant.