Inheritance Tax, National Insurance and VAT

Debate between Baroness Neville-Rolfe and Lord Livermore

Monday 27th January 2025 Lords Chamber

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

My Lords, I begin by congratulating the noble Lord, Lord Morrow, on securing this debate and on his opening speech. I am grateful to all noble Lords for their contributions this evening. Due to the popularity of this debate, I know that noble Lords have been restricted to very short contributions. Fortunately, we have had previous opportunities to debate the measures covered by the Question during the Budget debate and the recent Conservative Party debate on agricultural property relief. We will of course have further such opportunities to discuss these important issues during the passage of the National Insurance Contributions (Secondary Class 1 Contributions) Bill and the Finance Bill. As I address the three measures covered by the Question this evening, I assure noble Lords that I have listened carefully to all the points made and that I understand and respect the concerns of all noble Lords.

I begin by considering the context of the decisions that we took on tax at the Autumn Budget, the reasons they were taken and the economic challenge that confronted this Government upon taking office. The Government inherited three distinct crises: a crisis in the public finances, as the noble Baroness, Lady Kramer, said; a crisis in the public services; and a crisis in the cost of living. As the Chancellor has said, this was therefore a once-in-a-generation Budget, on a scale commensurate with the challenging inheritance that we faced.

The Government inherited a £22 billion black hole in the public finances, consisting of a series of commitments made by the previous Government which they did not fund and did not disclose. Public services were also at breaking point, with NHS waiting lists at record levels, children in portakabins as school roofs crumbled, and rivers filled with polluted waste. Working people had suffered from the worst cost of living crisis in a generation, with inflation having reached 11%, coupled with a decision by the previous Government to freeze income tax thresholds, which cost working people some £30 billion.

Faced with this reality, any responsible Government would need to act. That is why this Government took action to wipe the slate clean, repair the public services, protect working people and invest in Britain. We did so in the fairest way possible, by keeping our promises to working people not to increase their national insurance, VAT or income tax. That involved taking some very difficult other decisions on spending, welfare and tax.

One such difficult decision we took in the Budget was the reforms to agricultural property relief, the first measure mentioned in today’s Question and addressed by the noble Lords, Lord Morrow, Lord Thurlow and Lord McCrea, the noble Duke, the Duke of Somerset, my noble friend Lord Davies of Brixton, the noble Baroness, Lady McIntosh of Pickering, and the right reverend Prelate the Bishop of Lincoln. Under the previous system, the 100% relief on business and agricultural assets, introduced in 1992, was heavily skewed towards the wealthiest landowners and business owners. According to the latest data from HMRC, 40% of agricultural property relief is claimed by just 7% of estates making claims. That amounts to just 117 estates claiming £219 million of relief. It is neither fair nor sustainable to maintain such a large tax break for such a small number of claimants given the wider pressures on the public finances.

A secondary issue relates to the purchase of farmland. The reality today is that buying agricultural land is now one of the most well-known ways to shield wealth from inheritance tax. This has artificially inflated the price of farmland, locking younger farmers out of the market. That is why the Government have changed how we target agricultural property relief and business property relief from April 2026, in a way that maintains significant tax relief for estates while supporting the public finances in a fair way. Under the new system, individuals will still benefit from 100% relief for the first £1 million of combined business and agricultural assets. Above this amount, there will be 50% relief. That means inheritance tax will be paid at a reduced effective rate up to 20%, rather than the standard 40%. All estates making claims for these reliefs will continue to receive generous support, at a cost of £1.1 billion to the Exchequer in the first year.

The reliefs also sit on top of other spousal exemption and nil-rate bands which exist. Therefore, a couple with agricultural or business assets will typically be able to pass on up to £3 million of assets without any inheritance tax having to be paid. This change will apply in the same way across all nations and regions, and we expect that up to 520 estates across the UK will be affected in 2026-27. The Government are also investing £5 billion over this year and next to support farming and food security.

The second measure in today’s Question is the increase in employer national insurance contributions, raised by the noble Lords, Lord Morrow, Lord Morse, Lord Browne and Lord Elliott. To protect small businesses, the Government have also more than doubled the current employment allowance from £5,000 to £10,500 and expanded its eligibility. Of course, I understand that some of these measures mean asking businesses to contribute more, and we have consistently acknowledged that the impacts will be felt beyond business too. These are difficult decisions, and not ones we wanted to take. But, taken together, the measures mean that more than half of businesses with national insurance liabilities will either see no change or see their liabilities decrease; 865,000 employers will now not pay any national insurance at all, and over 1 million will pay the same or less than they did before.

These changes will apply in the same way across all nations of the UK. The Government are also setting aside support for the public sector across the UK of £5.1 billion by 2029-30. This support will be allocated to departments, and we have already confirmed that the devolved Governments will receive a share of the £4.7 billion the UK Government have set aside. As the noble Baroness, Lady Kramer, said, the devolved Governments will receive this funding through the Barnett formula in the usual way. Exact allocations will be confirmed in due course; however, this is the normal operation of the funding arrangements between the UK Government and the devolved Governments.

The Government do not publish data covering detailed regional or national impacts. The location of the headquarters of a business and the location of its economic activity are not necessarily the same and are often split across multiple locations. However, the Government have published a tax impact and information note, which sets out a comprehensive UK-wide analysis of this tax measure.

The final measure covered in the Question is the introduction of VAT on private school fees, raised by the noble Lords, Lord Morrow, Lord Kempsell, Lord Weir and Lord McCrea. Nine out of 10 children in this country attend state schools; however, too many children do not get the opportunities they deserve because too often these schools are held back by a lack of investment. That is why the Government introduced VAT on private school fees from 1 January this year: to secure the additional funding needed to improve educational outcomes across the UK, in all nations and regions. Together with our changes to business rates, this will raise around £1.8 billion a year by 2029-30 and just under £500 million in this year alone.

VAT is a reserved tax, and our objective is to maintain consistent VAT treatment of different types of schools across the UK. Therefore, all schools across the nations and regions that meet the definition of a private school, as set out in the Finance Bill, are within scope of this policy. Education is of course a devolved matter, and the circumstances of individual schools will vary across the UK.

Business rates are also fully devolved. Scotland has already enacted legislation removing charitable rate relief from private schools, and the Welsh Government have published a consultation. The Government do not expect that private schools will pass on the full amount of VAT in fees, and the increase in fees in recent years suggests that private school fees are highly demand inelastic.

I can also assure noble Lords that our changes will not impact pupils with the most acute special educational needs, where these can be met only in private schools. Currently, local authorities fund pupils’ places in private schools where their needs can be met only in a private school. In these cases, local authorities will be able to reclaim the VAT from the Government. As the noble Lord, Lord Kempsell, said, we have also chosen to support our diplomatic staff and serving military personnel, who are required to be mobile and are often posted overseas. That is why we have increased funding for the continuity of education allowance, which provides support for school fees to serving diplomatic and military personnel so that their children’s education is not disrupted.

To support children in the performing arts, the Government have also adjusted the music and dance scheme bursary contribution for families with income below £45,000, ensuring that the total parental fee contributions for these families remain unchanged.

This debate has addressed the difficult decisions this Government needed to take, but in doing so, we should not lose sight of the fact, as my noble friend Lord Davies of Brixton said, that public services right across the UK will benefit significantly from and only as a result of those decisions. Overall, the devolved Governments received the largest spending settlement in real terms of any settlement since devolution. Each has seen their budget increase in real terms in 2025-26; and each will receive at least 20% more per person than equivalent government spending in the rest of the UK, a figure which rises to over 24% for the Northern Ireland Executive when including the funding received as part of the 2024 restoration package.

Across Northern Ireland, Scotland and Wales, this translates to £16 billion extra to invest in schools, housing, health and social care, and other public services. People in businesses in the devolved nations will also benefit from our UK-wide tax decisions taken in the Budget. For example, the uplift to the national living wage to £12.21 per hour will benefit an estimated 270,000 workers across Scotland, Wales and Northern Ireland.

The Government will continue to work in partnership with devolved Governments and English regions to drive economic growth and support working people. That is why we have established the Council of the Nations and Regions and the council of mayors. We are also working with local areas in England on the upcoming English devolution White Paper as they develop local growth plans, and we have put “place” at the heart of our upcoming modern industrial strategy.

This Government had to take difficult decisions in the Budget, but they were the right decisions to restore stability, protect working people and invest in Britain across all our nations and regions. As we take forward our strategy of stability, investment and reform, the Government remain committed to delivering a shared economic future for the whole of the United Kingdom, underpinned by higher and more sustainable economic growth. I look forward to continuing to work with all noble Lords who have spoken in this debate on this vital agenda.

[Baroness Neville-Rolfe (Con)]

Will the Minister say a little bit more about retail and hospitality, which have been particularly impacted by the NICs changes? I am interested in understanding his attitude to that.

[Lord Livermore (Lab)]

We had to take difficult decisions in the Budget. In multiple debates on that issue, the noble Baroness has never said whether she wants higher borrowing, higher taxes or lower spending as a result of the decisions that she is putting forward.

Agricultural and Business Property Reliefs: OBR Costing

Debate between Baroness Neville-Rolfe and Lord Livermore

Monday 27th January 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, I refer to my register of interests: a third share in two small Wiltshire fields—what is left of the marginal family farm of my childhood.

I am not surprised that the increases in agricultural and business property taxes in the Budget have proved to be friendless, except in some deeply urban areas. This was demonstrated in last week’s debate on this Question about costs in the other place.

The truth is, the Government have miscalculated. They expected a vindictive tax grab on large estates to be welcomed by those of an envious disposition. Instead, the difficulties faced by the working family farms which produce so much of our food have been noticed, even by the supermarkets. Elderly farmers are especially desperate.

The Government have the ghastly choice of brazening the matter out or making some sensible concessions. There are already whisperings about the latter. Will the Minister help to ensure that the Government reduce the harm to agricultural investment and food security of this misguided policy?

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

My Lords, I am grateful to the noble Baroness for her question. I do, however, totally dispute her characterisation of this policy. At the Budget, we had to take some very difficult decisions on welfare spending and tax that were necessary to fix the public finances and support our public services. We had to do that to address the mess that we inherited from the previous Government. We took those decisions in a way that makes the tax system fairer and more sustainable.

As a result of the measures we are taking, individuals will continue to be able to claim 100% relief for the first £1 million of combined business and agricultural assets, and 50% thereafter. Given the nil-rate bands, that means a couple can pass on up to £3 million between them to a direct descendant inheritance tax-free. In answer to the noble Baroness’s question, the measures will go ahead as planned.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Debate between Baroness Neville-Rolfe and Lord Livermore

Committee stage
Tuesday 21st January 2025 Grand Committee

[Baroness Neville-Rolfe (Con)]

My noble friend makes an excellent point. It is a question of the dynamics. I know, having once been a Treasury Minister, that dynamics always worry it. But the fact of the matter is that, if we can get things done and get people out of hospital quicker, as my noble friend suggests, that would make a real difference.

I feel that the proposals that we are faced with for hard-working businesspeople and for social enterprises are a huge slap in the face. They are being discussed on a day when unemployment is rising and job opportunities are falling. I believe that that reflects the impact of the £23.8 billion hit on employers’ national insurance. It is a veritable jobs tax and the gloom that the Government have admitted for the first six months of their tenure has not helped. That is why my noble friend Lord Forsyth was right to regret that we were debating this not on the Floor of the House but in Grand Committee. I hope that none the less we will attempt to give the Bill proper scrutiny here, because if we do not, that would be a big failing.

In that respect, one of the things that annoys me most is the lack of a proper impact assessment. We have a very inadequate impact note, which was published on 13 November. That gives a run of the yield to the Exchequer year by year but does not break it down into the three categories: the costs of the increase to 15%, the lowering of the threshold, which is extremely regressive, and the welcome benefit from the rise in the employment allowance—and indeed anything else included in the figure of £23.8 billion, which was by far the biggest change in the Budget and which is why so many people are here today worrying about the Bill.

There is also an unexpected dynamic effect highlighted by the OBR, which means that, following the reduction in wages, profits and employment, this tax will raise over £5 billion less than the Treasury forecast, raising £18.3 billion in 2025-26 and nearly £10 billion less than the forecast in 2026-27. So there is a great deal of pain for wealth creators and effective employers, but not a lot of gain.

I cannot see how we can scrutinise the Bill without proper impact information, and I look forward to a proper discussion during the debate on Amendment 13. However, I think the Committee would also like to have authoritative, disaggregated figures on the impact on the health and care sectors under discussion today. That is why I am raising this now, and I hope the Minister will consider what he can do to assist the Committee so that we can have proper understanding and proper scrutiny. We want to do the right thing here.

It is against that sombre background that I shall speak to my Amendments 38 and 42, which have been grouped with this amendment. They seek to increase the employment allowance in the primary care sector. My purpose is to probe the Government’s openness to helping the sector a bit more through an increase. Perhaps the Minister could clarify the facts. The BMA has said that, as public authorities, they are unable to access support via the increased allowance and the noble Lord, Lord Scriven, made a similar point in relation to dentists. The Committee needs to know whether that is true.

Mine is a probing amendment and the first of several relating to Clause 3. To reply to the noble Lord, Lord Eatwell, as someone who has tried to reform taxes in the past, originally with the help of my noble friend Lord Heseltine as part of the deregulation initiative, it is very difficult to get simplification of the tax system. That is one reason why I have tabled an amendment relating to the employment allowance, because it comes at the matter in a different way.

Primary care is vital to the Government’s plans to improve the NHS. My fear is that the NICs changes, especially the lowering of the threshold and with part-time working so common in primary care, will lead to further problems in GP surgeries, increasing chronic conditions and waiting times for appointments across the NHS, and having the perverse effect that I think we will come back to as this Committee progresses.

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

My Lords, it is a great pleasure to respond to the debate on this first group of amendments, and I thank all noble Lords who have contributed so far. It is also a pleasure to see so many noble Lords in the Grand Committee. I know that some noble Lords are unhappy about being here, but the noble Baronesses, Lady Kramer and Lady Neville-Rolfe, in particular, and I know what it feels like to be in this Grand Committee on our own, so it is, at least, I have to say, nice to be popular.

Before I address each of the amendments in this group, I shall very briefly set out at the outset the context in which the Budget decisions contained in the Bill were taken. I would like to do so since this context is why we are here today and underpins the debates that we will have, not just on this group of amendments, but on all further groups. As noble Lords will know, the Government inherited three distinct challenges: the need to repair the public finances; the need to rebuild public services; and the need to protect working people.

The most pressing of these challenges was the need to repair the £22 billion black hole in the public finances as a result of a series of commitments made by the previous Government which they did not fund. The previous Government also made no provision for costs that they knew would materialise, including £11.8 billion to compensate victims of the infected blood scandal and £1.8 billion to compensate victims of the Post Office Horizon scandal. These pressures have to be funded, and it falls to this Government to do so.

Noble Lords will also know that the country inherited acute problems in public services, with NHS waiting lists at record levels, children in Portakabins as school roofs crumbled around them and rivers filled with polluted waste. Yet since 2021, there had been no spending review and no detailed plans for departmental spending were set out for beyond this year. Working people had also lived through a cost-of-living crisis, with inflation peaking at 11.1% and remaining above target for 33 consecutive months. Combined with the previous Government’s decision to freeze income tax thresholds—

--- Later in debate ---

[Baroness Neville-Rolfe (Con)]

I asked a question which, in relation to dentists, echoed by the noble Lord, Lord Scriven. It was about the definition of “public authorities” and how that affects payment of the employment allowance. I raised it at Second Reading as well. It would be helpful to have a judgment on that point.

[Lord Livermore (Lab)]

The definition is set as it was previously. We have no intention of changing that definition.

[Baroness Neville-Rolfe (Con)]

To be clear, that means these bodies will not have access to the employment allowance if they are public authorities. It would be helpful to know what the costings of that look like. I know that the Minister does not want to make any changes, but we are trying to understand what the numbers are here and in some minor areas, such as hospices. The Minister says that hospices will have extra money, but they will also have to pay a lot extra in national insurance. We are trying to understand all that to give him helpful feedback on the Bill; obviously, we are as keen as he is for it to succeed.

[Lord Livermore (Lab)]

I would be very happy to look into the specific point made by the noble Baroness. I will feed back in my responses on a subsequent group.

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, I am very grateful to all noble Lords who have spoken in this debate. I will address the amendments tabled by the noble Baronesses, Lady Smith of Newnham and Lady Kramer, and the noble Lord, Lord Randall of Uxbridge, which seek to exempt veteran salaries from the employer national insurance changes. These amendments would create a different employer national insurance rate and threshold set at the current levels for salaries of veterans. The Government of course recognise the huge contributions made by the UK Armed Forces and veterans in this country, and I completely understand the intention behind these amendments.

As some noble Lords have mentioned, there is already an employer national insurance relief available for the earnings of veterans, meaning that employers are not required to pay any national insurance contributions up to £50,270 for the first year of civilian employment. At the Budget, the Government decided to extend the national insurance contributions relief for employers who hire veterans to support veterans in their first year of civilian employment for a further year. Despite the challenging fiscal inheritance this Government face, this means we are maintaining this relief and it is not changing as a result of this Bill.

Further to this, we have more than doubled the employment allowance to £10,500, meaning that more than half of businesses with national insurance liabilities either gain or see no change next year. Businesses and charities will still be able to claim employer national insurance reliefs, including those for under-21s and under-25 apprentices, where eligible.

On veterans more widely, this Government have taken action to demonstrate our commitment to renew this nation’s contract with those who have served. We have awarded £3.7 million in veterans housing grants, veterans will be exempt from the local connection test for social housing in England and veteran cards are now accepted ID for elections. We are progressing veterans support programmes at pace, including a centralised referral pathway designed to support veterans who are homeless or at risk of homelessness, an NHS mental health specialist service designed to help veterans and their families in England and an NHS physical health specialist service designed to help veterans and their families in England.

Before I sit down, I shall also address the questions raised by the noble Baroness, Lady Neville-Rolfe, about dentists, which I was unable to answer during the debate on the previous group. As I said, the criteria have not changed, including the exclusion of those doing 50% of their work in the public sector. The eligibility is down to individual businesses, and the proportion of their work in the public sector may vary year to year. All charities can claim, including hospices.

[Baroness Neville-Rolfe (Con)]

My point was in relation to the points made by the BMA and the dentists. There are two separate points. It is not in this group, but it might be as well to have a discussion on this so that we can be clear about this and on the impact on these important areas for the future of health in the NHS.

Financial Assistance to Ukraine Bill

Debate between Baroness Neville-Rolfe and Lord Livermore

2nd reading & Committee negatived & 3rd reading
Wednesday 15th January 2025 Lords Chamber

[Lord Livermore (Lab)]

I do not have that information to hand, but I will happily check for the noble Lord.

The noble Baroness, Lady Neville-Rolfe, asked whether the UK’s contribution to the scheme would increase if the United States or another participant chose to withdraw. I can confirm to noble Lords that this would not affect the UK’s contribution, which will remain at £2.26 billion. We are clear that that is the right and balanced approach, reflecting our fiscal pressures and Ukraine’s needs. The £2.26 billion figure is also proportionate to our GDP share within the G7 and the EU. We will of course continue to co-ordinate with G7 partners on the scheme going forward.

The noble Baroness, Lady Anelay of St Johns, asked for an update on the proceeds from the sale of Chelsea Football Club. The Government are working hard to ensure the proceeds from the sale reach humanitarian causes in Ukraine as quickly as possible. The proceeds are currently frozen in a UK bank account while a new independent foundation is established to manage and distribute the money. Creating an organisation of this scale is complex and officials continue to hold discussions with relevant parties to reach a resolution. As you would expect, we must review the details of any such arrangement to maintain the integrity of our sanctions regime.

In conclusion, we must ensure that Putin has no path to military victory in Ukraine. That means continuing to provide military and economic support to enable Ukraine to defeat Putin’s war machine. The combined $50 billion of new funding, delivered together with our allies in the G7 and backed by profits from immobilised Russian assets, will provide a crucial boost to Ukraine as it continues its third winter at war. It represents an investment not only in Ukraine’s future but in the security and prosperity of Europe more widely, and it demonstrates the shared resolve of the international community in the face of ongoing Russian aggression. I welcome the fact that noble Lords from all sides of the House have been united in saying that we must stand with Ukraine for as long as it takes. This Bill will allow us to honour that commitment.

[Baroness Neville-Rolfe (Con)]

Before the noble Lord sits down, there was one question about the announcement on the 2.5% of GDP. The noble Lord helpfully clarified that the money in this Bill was extra, which is good news, but I think several of us were concerned to know when decisions would be taken on the timing of the 2.5%.

[Lord Livermore (Lab)]

I answered that exact question from the noble Baroness. As we have said all along, we will set out a path to 2.5% at a future fiscal event.

UK-China Economic and Financial Dialogue

Debate between Baroness Neville-Rolfe and Lord Livermore

Tuesday 14th January 2025 Lords Chamber

[Lord Livermore (Lab)]

I commend the noble Earl for his efforts to try to portray the previous Government’s record on the economy as some kind of success, whereas everyone listening both in the Chamber and outside knows that it was 14 years of total catastrophe. He mentioned inflation as if 33 months in a row above the Government’s target was something to be proud of, when we know that it hurt family finances dramatically over that time. He tried to say that the previous Government did well on growth, when we know that growth was one of their biggest failures. They took investment out of the economy at a vital moment with their austerity programme. They reduced GDP by 4% as a result of their Brexit deal, and then the Liz Truss mini-Budget crashed the economy, sending mortgage rates soaring by £300 a month, for which ordinary working people are still paying the price. I really reject the fundamental basis of the noble Earl’s question. He asked about timing. He knows very well that it is very difficult to turn around 14 years of failure. We cannot do that in six months, but we are determined to do it and will do whatever it takes to turn around the British economy.

[Baroness Neville-Rolfe (Con)]

I am not sure I am supposed to speak, but I would just say that there was also something called Covid and an energy crisis and Ukraine. It would be good if the Minister sometimes mentioned those as well as some of the other factors.

[Lord Livermore (Lab)]

I know the noble Baroness is desperate to find any scapegoat or excuse for her party’s total failure on the economy. Of course, there are international factors at play, but perhaps she could tell us why the UK was worse affected than any other country in the G7 and any other European country as a result of those things. It is because their austerity and their Brexit left this country more exposed and we therefore suffered far worse than any other country.

Sterling: Rise in Yields on 30-year Gilts

Debate between Baroness Neville-Rolfe and Lord Livermore

Tuesday 14th January 2025 Lords Chamber

[Baroness Neville-Rolfe]

To ask His Majesty’s Government what assessment they have made of the impact of the rise in the yields on 30-year gilts to 5.37 per cent, the highest level since 1998, and the effect of this on sterling.

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

My Lords, the Government do not comment on specific financial market movements. Gilt yields are determined by a wide range of international and domestic factors and it is normal for the price and yields of gilts to vary when there are wider movements in global financial markets. The Government are committed to economic stability and sound public finances. Meeting the fiscal rules is non-negotiable and growth is our number one mission.

[Baroness Neville-Rolfe (Con)]

My Lords, the annual cost of servicing the national debt is now over £100 billion and is estimated to have grown by £12 billion since the Budget. Gilt yields have leaped up, with the critical 10-year rate now at 4.88%—the highest since 2008. The Government need to grasp the seriousness of the situation and the concern that the OBR report is more than two months away. Their own fiscal rules are in jeopardy. Which of their commitments do they propose to break—not cutting expenditure or not raising taxes? Can the Minister rule out an emergency Budget?

[Lord Livermore (Lab)]

As the noble Baroness knows, financial markets are always evolving so it is a long-standing convention that the Government do not comment on specific financial market movements. She will also know that the Chancellor has commissioned the Office for Budget Responsibility to carry out an updated economic and fiscal forecast for 26 March, which will incorporate the latest data. Only the OBR’s forecast can accurately predict the effect on the public finances of any changes in financial markets or the economy, and I will not pre-empt it. However, there should be absolutely no doubt of our commitment to economic stability and sound public finances. That is why meeting the fiscal rules is non-negotiable.

Public Finances: Borrowing Costs

Debate between Baroness Neville-Rolfe and Lord Livermore

Thursday 9th January 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, the Government made their first objective high economic growth and, so far, they have not had that much success. Another prime objective, reiterated by the Minister, was economic stability; again, they have not yet got very far with that. Survey after survey has shown that business confidence has simply collapsed and we can see this in the market. In the last 48 hours, borrowing costs have reached a 27-year high and, of course, every pound that we spend on debt interest is money that we cannot spend on public services. In the Budget, the Chancellor hiked up taxes, increased borrowing by an average of £32 billion a year and conveniently adjusted her fiscal rules. Given that she appears to be about to break those rules, does the Minister stand by the Chancellor’s statement that she is not coming back with more taxes? Yes or no? We are keen to have a clear answer.

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. She is absolutely right that growth was one of the biggest failures of the previous Government. We are determined to turn that around. She is also correct to say that there should be no doubt of the Government’s commitment to economic stability and sound public finances. That is why meeting the fiscal rules is absolutely non-negotiable. I am not going to pre-empt future fiscal events or spending reviews now, but the Chancellor has been absolutely clear that she would not repeat the likes of the October Budget and is focused on growing the economy so that people in every corner of the UK see an improvement in living standards. We have set very tough fiscal rules, tougher than those of the previous Government, which we meet two years early. We have set the envelope for the second phase of the spending review, which we will stick to. That will involve tough choices on spending, but they are choices we are prepared to make, and our reform agenda will be central to improving services going forward.

Silicon Valley Bank UK Limited Compensation Scheme Order 2024

Debate between Baroness Neville-Rolfe and Lord Livermore

Tuesday 17th December 2024 Grand Committee

[Baroness Neville-Rolfe (Con)]

I also welcome the draft Silicon Valley Bank UK Limited Compensation Scheme Order 2024. It rightly confirms in law that no compensation is due to shareholders of Silicon Valley Bank UK Ltd on the transfer of shares to HSBC UK Bank plc in March 2023, when, as the Minister explained, the former experienced rapid deposit outflows.

The swift action that the last Government took to facilitate the sale averted a potential catastrophe for tech start-ups and small businesses dependent on that bank—precisely the kind of enterprises that can help to drive Britain’s growth and innovation in the decades to come. The special resolution regime reinforced trust in the financial system while reminding us that stability is the foundation upon which innovation thrives.

Although I welcome this order, can the Minister clarify how the lessons learned from this well-handled crisis will inform future regulation of mid-sized banks? Further, can he elaborate on how the scheme aligns with our wider growth agenda? To my mind, the tech sector is critical to Britain’s global competitiveness, and maintaining its trust in the financial system is key to sustaining our position as a world-leading hub for innovation—an ambition that is under some challenge, as I mentioned earlier. But I am very happy with this order.

[Lord Livermore (Lab)]

My Lords, I am grateful to the noble Baronesses, Lady Kramer and Lady Neville-Rolfe, for their support for the compensation scheme order.

The noble Baroness, Lady Kramer, asked whether this SI was genuinely needed. In terms of the specifics, I can assure her that I would not be standing here if it was not, but I will write to her about the hypothetical that she raises.

I am grateful to the noble Baroness, Lady Neville-Rolfe, for the points that she made. I agree very much with what she said about the importance of the action that was taken. She asked whether we have learned the lessons from that for future regulation. I point to the bank resolution Bill that I have just taken through the House. It is absolutely informed by the experience of the Silicon Valley Bank episode and directly flows from it.

The noble Baroness also asked how this order relates to the growth agenda. As I always say, stability is the first pillar of the growth agenda. Financial stability is as important as economic stability and I believe that this order will help to ensure financial stability as that platform for growth. With that, I commend it to the Committee.

Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024

Debate between Baroness Neville-Rolfe and Lord Livermore

Tuesday 17th December 2024 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, I rise to address these three significant pieces of legislation, which collectively aim to refine and enhance the regulation of our financial services sector. The measures come at a pivotal time for not only our financial services industry but the broader economy, as we navigate the challenges and opportunities presented by our post-Brexit regulatory autonomy.

My overall concern is that we are moving too slowly and too modestly to reduce the constraints that existed in the EU regime, and to encourage the competition and dynamism that we need for growth. This means that the US financial services industry and the industry in newer markets, such as Singapore, are eroding our prime position despite our dual advantage of time zone and the English language. Questions have been asked about the effectiveness of our stock market; indeed, that was highlighted today by the reaction to the Canal+ listing in London, which, obviously, we all welcomed. We look forward to debating the reforms announced in the Mansion House speech.

In the light of all this, the instruments demand careful scrutiny. I will also follow the sequence on the Order Paper. The first measure under consideration deals with the supervision and enforcement of designated activities. This legislation builds on the regulatory framework of the Financial Services and Markets Act 2000, empowering regulators to oversee specific activities that pose systemic or consumer risks. From our perspective, this is a necessary and prudent step. By focusing regulatory attention on designated activities rather than institutions alone, we can ensure that oversight remains targeted and proportionate.

Yet it is vital that this power is exercised judiciously. Overzealous enforcement could stifle innovation and deter smaller players and start-ups from entering the market at all. We would like to see a regulatory approach that provides clarity and certainty, enabling businesses to thrive while protecting consumers and market integrity. We also want to keep compliance costs down for business, especially smaller business. Historically, that has not always been the way of the financial regulators—nor, I am afraid to say, of the Treasury. Does the Minister agree that financial regulation should be more careful about the costs that it imposes? I know from the Mansion House speech that the Chancellor wants to be more competitive; I would like to see that reflected in financial regulation.

Incidentally, I was surprised to see this in paragraph 9.1 of the Explanatory Memorandum:

“The government does not generally assess successful enforcement action—such as fines levied after a breach of rules—as a cost to firms”.


From my experience, enforcement can be very costly to a firm: in legal fees, to fight any unfairness and possible reputational damage; in diversion of management time and talent; and in finding money from tight budgets for any fine. That is a good reason for a firm to comply with the established rules but it is also a reason for our regulators to work hard, in order to make compliance with the law easy, and not to judge themselves on the amount of fines they levy.

There is a related point on which I would very much welcome a response. The Minister may be aware of the huge concerns raised by the financial services sector about the FCA’s proposals earlier this year to name and shame firms involved in FCA enforcement action. It is consulting again, I am glad to say, on modified proposals. Can the Minister say whether the FCA intends to apply these new rules to the persons who are within the designated activities regime, which is at issue today, rather than, or as well as, the authorised persons regime? I know that the Chancellor, like her predecessor, has expressed concerns about naming and shaming. Clearly, we need to tread with great care in this area.

I look forward to hearing the answers to the questions from the noble Baroness, Lady Bowles of Berkhamsted, about tribunals and speed. I should like to say that her grasp of technical aspects of financial services law is extremely helpful to this Committee in the scrutiny of complex SIs such as these; we owe her a great deal. However, I have to say, I am not sure that I completely agree with her on FCA objectives, as I think that responsible growth and dynamism need also to come through in the way the FCA behaves.

That brings me to the second measure, which addresses short selling—an activity that has long been a point of contention in financial markets. Short selling, when responsibly undertaken, contributes to market liquidity and price discovery, as the Minister explained. Personally, I would have been more radical in moving away from the EU regulation, and perhaps in giving the FCA narrower rule-making powers. However, the proposed regulations seek to establish a robust framework for managing the risks of short selling while preserving its legitimate role, for example in times of crisis; I think that “exceptional circumstances” was the term the Minister used.

Moreover, on public disclosure, I welcome the move to a list of securities that are within the scope of the rules—this is in paragraph 5.11 of the second SI’s Explanatory Memorandum—rather than having a list of shares the FCA considered to be exempt. This will be clearer and easier. However, I urge the Government to ensure that the reporting and compliance burdens on market participants arising from this new instrument remain proportionate. Excessive red tape hinders the competitiveness of our financial markets, and I believe that we still have too much of it.

I say in response to the noble Baroness, Lady Kramer, that I, too, have learned a lot from history. She mentioned what I think she called “casino banking” but, as a former bank non-executive director—long after the financial crisis—I can vouch for the thoroughness of the checks that are made on personnel with responsibilities. My only concern is that this might be a less leisurely process because, obviously, personnel changes are often needed to run organisations well.

The third and final measure relates to amendments to the ring-fencing framework established in the wake of the global financial crisis. Ring-fencing was designed to protect retail banking operations from the risks associated with investment banking. Although this principle remains sound, the financial landscape has evolved considerably since the original provisions were enacted.

The proposed amendments rightly seek to introduce greater flexibility into the ring-fencing regime. This is a sensible response to changing market dynamics and the need for regulatory frameworks to evolve. Having said that, I think that increasing the limit from £25 billion to just £35 billion is timid, especially given recent inflation. Like the noble Baroness, Lady Kramer, I would like the Minister to remind the Grand Committee which of our banks will need to be ring-fenced going forward and to name some of those that will escape and be able to grow and diversify, both here and overseas, more easily.

In other respects, I say to the Minister and his officials that the Explanatory Memorandum and de minimis assessment on this instrument were very thorough and helpful.

As Conservatives, we understand the critical importance of maintaining the UK’s status as a global financial hub. This requires not only robust regulatory frameworks but a willingness to adapt and innovate in response to new challenges and opportunities, such as AI. I urge the Government to continue the processes of dealing with retained EU law and of engaging with industry stakeholders in order to ensure that domestic measures are implemented effectively and without unnecessary burdens or delays. In doing so, it should be possible to foster a competitive financial services sector that drives economic growth and innovation, creates jobs and enhances our nation’s global standing.

[Lord Livermore (Lab)]

My Lords, I am extremely grateful to all noble Lords who have spoken—specifically, the noble Baronesses, Lady Bowles, Lady Kramer and Lady Neville-Rolfe—for their comments and questions and for, as others have observed, the extraordinary level of expertise that they bring to this debate and, as a result, the level of scrutiny that they are able to provide. I apologise for speaking to the instruments in an order other than that on the Order Paper.

The noble Baroness, Lady Bowles, began by focusing on the designated activities SI. She asked about the direction power. The designated activities regime provides a power of direction to the Financial Conduct Authority. The Treasury can, by regulations, switch on that direction power for the Financial Conduct Authority’s supervision of any given designated activity. This statutory instrument sets out additional procedure for how that power may be exercised, but it does not create or switch on the direction power itself.

The noble Baroness, Lady Bowles, also asked for some statistics on the frequency of tribunals. I will write to her on that, as she requested. If she does not mind, I will also write to her on her second question, which was about the differences in the power of direction between CCIs and short selling.

The noble Baroness then went on to focus on the short selling SI. She asked how the views of consumers were considered. These reforms were informed by extensive industry engagement, taking into account views from a wide range of market participants, including consumers. The new UK regime will ensure that the regulation works effectively to protect against the risks of short selling while improving UK competitiveness.

--- Later in debate ---

[Lord Livermore (Lab)]

Since I am going to write to the noble Baroness on those other two points, it is probably best that I write to her on that one, so that we can be absolutely clear.

In the meantime, I move on to the questions on the ring-fence from the noble Baroness, Lady Kramer. She spoke about a return to casino banking, but she will understand that I disagree with her on that point. These are sensible, technical reforms on which the Treasury has undertaken detailed work with the PRA. The PRA is satisfied that they maintain the appropriate financial stability safeguards. The Treasury has considered the combined overall risk of reforms to the sector, alongside detailed cost-benefit analysis through an impact assessment. That impact assessment concluded that the reforms will improve outcomes for banks and their customers by making the ring-fencing regime more flexible and proportionate, while maintaining appropriate financial stability safeguards and minimising risks to public funds.

The noble Baronesses, Lady Kramer and Lady Neville- Rolfe, asked which specific banks will be removed from the ring-fence as a result of these measures. The reforms create significant new optionality for banks, with the eventual benefits depending on their commercial decisions. It is for the banks to announce how they will utilise the new flexibilities created in the regime and the Government do not comment on specific firms.

The noble Baroness, Lady Kramer, also asked about firms being taken out of the ring-fence as a result of the primary threshold. No firms will leave the regime as a result of increasing the core deposit threshold.

The noble Baroness, Lady Neville-Rolfe, in contrast to other noble Lords, spoke of these reforms being too slow and modest. She also asked what assessment the Government had done on the impact of these SIs. We published impact assessments alongside both the ring-fencing and short selling statutory instruments, which set out their estimated impacts on firms. Both these statutory instruments are estimated to result in a net cost saving for industry.

The noble Baroness also asked how these SIs will deliver growth. There are several measures in the ring-fencing SI that have an impact on growth. We are increasing the core deposit threshold at which banks become subject to the regime, allowing them to grow, as well as exempting retail-focused banks from the regime. We have also introduced new flexibilities for ring-fenced banks to invest in UK small and medium enterprises. The Short Selling Regulations introduce a streamlined short selling regime, which reduces costs for firms and improves UK competitiveness, while still effectively protecting against the risks of short selling.

The noble Baroness also asked about the powers that the supervision and enforcement statutory instrument provides. Those regulations extend the normal powers that the Financial Conduct Authority already has over designated activities. They will allow the Financial Conduct Authority to supervise designated activities even where those carrying on the activities are not authorised persons. They mean that it will be able to gather information on and launch investigations into persons carrying on designated activities, and to enforce its designated activity rules, by publicly censuring or imposing financial penalties on persons who breach them. The Financial Conduct Authority will also be able to restrict or prohibit persons from carrying on the activity if necessary. I will write to the noble Baroness, Lady Neville-Rolfe, on the broader FCA enforcement approach.

[Baroness Neville-Rolfe (Con)]

Before the Minister goes on, I want to ask about naming and shaming. Is it to be done at the stage when enforcement becomes public? Can we be clear when the naming and shaming will take place? The Government are still considering exactly what they are going to do on naming and shaming, I think. It would be good to have confirmation on that because this area is of particular concern to the industry, for an obvious reason: the reputational hit of naming and shaming is substantial.

[Lord Livermore (Lab)]

If there is anything more that I can usefully add, I will include it in the letter that I will write to the noble Baroness.

A final question was asked about why we have increased the limit by just £10 billion. It was recognised when the ring-fencing regime was originally designed that the threshold would need to be adjusted over time to reflect the evolution of banking practices and growth in the deposit base. The Treasury considered several metrics, as well as financial stability and competition considerations, in proposing the £10 billion increase.

Increasing the deposit threshold will provide smaller banks with more headroom to grow before being subject to the requirements and costs of ring-fencing. This will support domestic competition in the retail banking market. A competitive and dynamic market improves outcomes for depositors. The reforms may also encourage inward investment in the UK, as new entrants to the UK banking market will have more room to grow and develop economies of scale before becoming subject to the regime.

I hope that I have covered all noble Lords’ questions. As I say, I will write on the points that I indicated.

Economic Productivity

Debate between Baroness Neville-Rolfe and Lord Livermore

Thursday 5th December 2024 Lords Chamber

[Baroness Neville-Rolfe]

To ask His Majesty’s Government what plans they have for increasing productivity in the UK economy.

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

My Lords, in the decade from 2010 the UK economy saw the lowest productivity growth since the Napoleonic Wars, which led to the lowest growth in living standards ever recorded. Reversing that performance is the number one mission of this Government. As part of our growth strategy, we have set out far-reaching plans to increase productivity, including restoring economic stability, reforms to planning, to skills and to the labour market, record levels of investment in R&D, new investment in transport connectivity, a modern industrial strategy and a 10-year infrastructure strategy.

[Baroness Neville-Rolfe (Con)]

My Lords, I believe the Government missed an important opportunity by failing to impose productivity conditions alongside their costly public sector pay rises. I do know that productivity is a complicated area. On most metrics, public sector productivity has been significantly lagging that of the private sector. What measures will the Government adopt to ensure that it increases towards private-sector levels?

In particular, the Minister mentioned planning. Does he agree that speeding up and simplifying planning, and reducing the cost of electricity for businesses, rather than doing endless review, should be important components of the plan that he set out?

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her Question. To answer her first point, she is incorrect to say that we did not impose any productivity criteria. We have introduced a 2% efficiency and productivity target in the NHS for this year and next year. We have also gone further than the previous Government did by extending that target to all government departments to ensure that we are improving the quality of public services while also improving value for money.

The noble Baroness mentioned planning. A significant programme of planning reform was announced by the Chancellor on her very first day in the Treasury. The previous Government had 14 years to announce those things but never did anything.

International Banking: Payments

Debate between Baroness Neville-Rolfe and Lord Livermore

Thursday 28th November 2024 Lords Chamber

[Lord Livermore (Lab)]

That is very much the spirit that lies behind the Financial Assistance to Ukraine Bill, which will shortly be before your Lordships’ House. The Financial Assistance to Ukraine Bill provides spending authority for the UK to implement our commitment to the G7 Extraordinary Revenue Acceleration Loans to Ukraine scheme, a landmark agreement which provides a collective £50 billion to Ukraine.

[Baroness Neville-Rolfe (Con)]

My Lords, there is much evidence that the international order is undergoing a process of major and very troubling change. The BRICS proposal is just one manifestation of this phenomenon. Given what we have heard from my noble friend Lord Lamont, does the Minister agree that we must be even more clear-sighted as to where our national interests lie? In particular, can he outline what the Government are doing to protect our substantial interests in the financial services industry and indeed in the interconnected system that he mentioned?

[Lord Livermore (Lab)]

I absolutely agree with the noble Baroness that we should of course always proceed from a position of our own national interest. The Chancellor in her Mansion House speech two weeks ago set out a very comprehensive programme to ensure that our financial services industry was examined from that position of our own national interest and set out a comprehensive set of proposals in that regard.

Financial Services: Mansion House Speech

Debate between Baroness Neville-Rolfe and Lord Livermore

Thursday 21st November 2024 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to my noble friend for the question. I do remember the conversations we had in the past and I am, of course, happy to continue to discuss these issues with my noble friend. He talks about partnership; it is a key part of our investment plans. Partnership between public and private investment is key to our national wealth fund, with our public sector investment leveraging greater amounts of private sector investment into exactly the kind of green technologies that my noble friend references. I understand and sympathise with the spirit behind his question, and I am very happy to continue discussions with him on that point.

[Baroness Neville-Rolfe (Con)]

My Lords, I thank the Minister for his welcome; I too look forward to a constructive relationship in the traditions of the House. Can he comment on my point about gilt yields? My concern is their impact on compliance with the Chancellor’s fiscal rules. There has been a worrying increase of about 0.5% in the gilt yields, and I was interested in his reflections—perhaps in writing—on that.

[Lord Livermore (Lab)]

The noble Baroness is kind enough to give me the opportunity to write, and I will happily do so.

United Kingdom Declining Birth Rate

Debate between Baroness Neville-Rolfe and Lord Livermore

Wednesday 6th November 2024 Lords Chamber

[Lord Livermore (Lab)]

My noble friend makes some very interesting points. I assure him that the Treasury is working closely with the Department for Science, Innovation, and Technology to advance the things that he mentions.

[Baroness Neville-Rolfe (Con)]

My Lords, we have just had a Budget which the OBR says will lead to a loss of jobs and the first ever taxes on education. What does this do for family life and for the birth rate in the shorter term?

[Lord Livermore (Lab)]

To clarify, the OBR is very clear that, over the next five years, employment will grow by 1.2 million people.

Working From Home: Public Sector Productivity

Debate between Baroness Neville-Rolfe and Lord Livermore

Wednesday 23rd October 2024 Lords Chamber

[Lord Livermore (Lab)]

I am not sure I am going to be able to answer that right now, but, as set out by the noble Lord, Lord Darzi, in his investigation into the state of the NHS, productivity in the NHS has fallen significantly and is far too low. Improving productivity in the NHS is a key priority. What the noble Lord said about management was really interesting. Emerging studies show that, where workforces are well managed, productivity can rise with working from home. This is a point that the noble Lord who asked the original Question raised in a previous debate on this subject, which I read: the quality of management has a key impact on productivity when working from home.

[Baroness Neville-Rolfe (Con)]

My Lords, although good management certainly makes a difference, there is strong evidence from academic studies that working from home reduces productivity—although there are other benefits. So far, this Government have been coy about publishing office attendance figures for government departments, as we used to do. Will the Minister ensure that the publication of such figures is restarted and that working from home is limited to those areas where efficiency is not compromised?

[Lord Livermore (Lab)]

This Government have exactly the same policy in terms of civil servants working from home as the last Government: civil servants should be in the office for a minimum of 60% of the time. That is unchanged and those figures will of course be published in exactly the same way. The noble Baroness said that working from home reduced productivity: that is not actually the case, according to many studies. I read one from the IMF recently that said that the positive and negative effects of working from home roughly offset each other, generating no net productivity impact.