Financial Services: Mansion House Speech

Baroness Penn Excerpts

Thursday 21st November 2024 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to my noble friend for his points. In the letter that the Chancellor sent to the chief executive of the Financial Conduct Authority, she made it very clear that the importance of competition, growth and risk-taking is to be seen in the context of its regulatory duties. She said that:

“The financial services regulators are key to driving forward”


growth;

“we must have proportionate, effective regulation that allows firms of all sizes to compete, innovate and grow, creates a stable, attractive environment which encourages businesses to establish and expand in the UK, and adequately protects consumers”.


She recognises that there are trade-offs to be made, but she would like to see a greater emphasis on achieving that secondary growth objective.

On supporting small businesses and their access to finance, my noble friend is absolutely right that, to date, the UK has been a very good place to start a business but a less good place to scale one, and access to capital is a vital part of improving that. He mentions the British Business Bank, which is incredibly important; it has been very successful in providing some of that finance, and we need to go further. Colleagues in the Department for Business and Trade will also be coming forward with proposals to help small businesses scale and grow.

[Baroness Penn (Con)]

My Lords, I welcome the inclusion in the Statement of work with tech platforms and telco networks to tackle fraud. Can the Minister confirm whether that work is just the implementation of the charter, launched about a year ago under the previous Government, on voluntary action from those companies, or whether it will move towards mandatory action if sufficient progress is not made? Can he also update the House on the implementation of the measures in the Online Safety Act to tackle fraud online?

Autumn Budget 2024

Baroness Penn Excerpts

Monday 11th November 2024 Lords Chamber

[Baroness Penn (Con)]

My Lords, we have had a long debate today, where, as usual, your Lordships’ House has brought its considerable expertise to bear, dissecting last month’s Budget. Not least, the eloquent maiden speech by my noble friend Lord Booth-Smith demonstrated the value that he will undoubtedly bring to this House. I shall try not to delay us much further, but the large number of speakers that we have had is befitting of a Budget with such large sums involved.

It has been the largest tax-raising Budget in history, with the tax burden now at a historic high. There will be an additional £142 billion of borrowing over the forecast, with debt interest payments of £100 billion every single year—all to fund an additional £70 billion of spending, on average, every year.

The Minister has tried to claim that Labour has a mandate for this Budget, but it does not. And what is the result of these decisions? Lower wages and lower living standards, lower growth and lower private investment, and higher inflation and higher interest rates. People’s bills will go up and their wages will go down.

I turn first to tax. Before the election, the Chancellor promised people that Labour’s policies would be

“fully funded and fully costed—no ifs, no ands, no buts”.

Just last month, the Prime Minister made an absolute commitment to not raise taxes on working people. When the former Prime Minister, my right honourable friend Rishi Sunak, told people that Labour would raise their taxes by £2,000 over the next Parliament, Rachel Reeves and Keir Starmer said he was lying. To be fair, he did get the figure wrong: it was not £2,000 over the course of the next Parliament but £2,000 every single year.

The Government continue to not be straight with people now, claiming that the £25 billion rise in national insurance is not a tax on working people. National insurance is literally the only major tax that exclusively hits working people. If noble Lords do not believe me, ask the Chancellor, who said the problem with national insurance was that

“it is a tax purely on people who go to work and those who employ them”.

If, understandably, noble Lords do not quite trust the Chancellor on this after October’s Budget, how about the Resolution Foundation, which has said that national insurance is a tax on jobs? Meanwhile, the IFS has described it as a straightforward breach of a manifesto commitment. I know that those in the party opposite will not take any advice from these Benches, but perhaps they will listen to Paul Johnson of the IFS, who said:

“The continued pretence that these changes will not affect working people risks further undermining trust”.


However, the problem with this Budget is not just the scale of the tax rises but the choices they have made. By reducing the threshold at which employers pay national insurance, they have increased proportionately the cost of employers employing workers at lower wages the most, making it more expensive to take on entry-level workers and to employ people part time. The noble Lord, Lord Londesborough, set out eloquently the wider impacts of this change. Can it really be the right decision at a time when one of the biggest challenges for this Government is to support people off benefits and into work?

As many noble Lords have pointed out—including the noble Baronesses, Lady Warwick, Lady Thornton, Lady Tyler and Lady Bull, the noble Lord, Lord Shipley, and my noble friend Lord Dobbs, among others—nor does it seem that the Government have thought through the impact of an increase on this scale when it comes to their other policy commitments. GPs, care homes, nurseries: the Government are asking them all to deliver more, but with the national insurance rise they are making it harder and more expensive for them to employ the people they need to do it.

Combined with Labour’s £5 billion bill for its employment rights legislation, the change further increases the incentive for self-employment, distorting people’s decisions in the labour market and taking them out of employee protections, employee benefits and the pensions system, and I am not sure that is something that people on the Benches opposite want to see.

What about other taxes? The tax on family farms makes it impossible for family farms to be passed on to the next generation and threatens the position of tenant farmers. I hope the Minister will listen carefully to the strength of feeling, and the strength of the arguments made, in this House today on that issue.

A tax on family businesses, just at a time when Labour claims it wants to encourage investment and long-term stewardship, means it is making it harder for the very kinds of businesses that often take this the most seriously. There are higher taxes specifically for first-time buyers, who find it hardest to move on to the housing ladder, and further increases in stamp duty, which the IFS has warned will drive up rents. There are taxes on education and on savings. As the former Prime Minister said during the election campaign, “You name it, they’ll tax it”.

The noble Lord, Lord Desai, had some ideas to add to this further and, with the Labour Party’s new approach to taxation, maybe he will be welcomed back on to its Benches some time soon.

I turn next to borrowing. Before the election, the Chancellor promised she would not

“fiddle the figures or make something different to get better results. We will use the same models the government uses”—

referring to public sector net debt. But changing the measure of debt used in the new fiscal rules is a multibillion-pound fiddle.

We have heard in the debate today, from both sides, the case for more investment in our economy. I agree, but there are still choices to be made in where that investment comes from and how to make sure that it delivers growth. On the first point, the last Government took action to promote higher investment from the private sector, for example through the introduction of full expensing. Under this Government, the OBR predicts not only that private sector investment will fall over the forecast period but that it will fall by even more than the amount of extra investment caused by public investment going up.

This brings me to my second point. As my noble friend Lord Lamont and others pointed out, we need to be really clear-sighted that investment is not an end in itself. The test is: does it lead to greater economic growth? There is very little in this Budget to give us confidence that it does. Indeed, as my noble friend Lady Finn pointed out, areas such as transport are being cut, where you would expect to see higher levels of investment if you were focused on growth.

The scope for waste and inefficiency with this additional spending is significant. The Government have reassured us that this will not happen because they are establishing a new office for value for money. As my right honourable friend the leader of the Opposition has said, if you need an office for value for money, what is happening across the rest of government? Surely, value for money needs to be built in to how all public money is spent.

This brings us to another challenge that the Chancellor may face with her new measure of debt: its volatility. With such little headroom against her fiscal rules already, small changes such as increases in borrowing costs or the threat of tariffs from a major trading partner could easily blow her off course. That would lead us back to the worst of all worlds of stop-start investment, driving up costs and undermining confidence from private investment.

Record taxes and record borrowing lead us to record levels of spending. The challenge is to make sure that additional spending is not simply going to be absorbed by higher wages but drives reform in the public sector. But I am afraid that, after less than 20 weeks in office, we have already seen Labour’s tax record and it does not look good. It has cancelled plans to reduce the Civil Service to pre-pandemic levels, increased the salaries of train drivers by £10,000 and given junior doctors a 22% pay rise, all without asking for a single productivity improvement in return, and all while removing the winter fuel payment from three-quarters of a million pensioners on low incomes.

The incredible front-loading of the additional planned spending will make it incredibly difficult for the Government to spend effectively, but the Chancellor has promised that she is not coming back for more. But what about the commitment to grow defence spending to 2.5% of GDP? As we have heard in this debate, we live in a more dangerous and uncertain world than ever. What about the commitment to restore aid spending to 0.7% of GNI? This was called for by the noble Lords, Lord McConnell and Lord Oates, and also committed to in the manifesto of the party opposite. What about the commitment to fully decarbonise the grid in just six years’ time—a commitment that has been estimated as needing £40 billion of investment a year to deliver? Perhaps the Chancellor is keeping her fingers crossed that improved economic growth will ride to the rescue. I hope, for not just the Chancellor but the country, that this will be the case. But the OBR is not so sure. It forecasts growth down, investment down, inflation up, interest rates up and living standards down.

The Minister will doubtless say in his winding-up speech that these are Labour’s choices and it stands by them. But I would say to the noble Lord, and to all noble Lords opposite, that these were not Labour’s choices to make. They were choices that it should have put to people at the general election. But Labour did not trust people to make up their own minds and, in return, I doubt, after this Budget, that the public will put their trust in this Government for very much longer.

Budget: Taxes and Borrowing

Baroness Penn Excerpts

Monday 4th November 2024 Lords Chamber

Asked by

[Baroness Penn]

To ask His Majesty’s Government what assessment they have made of the impact of the Budget on levels of taxes and Government borrowing.

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

My Lords, the Budget raises taxes by £40 billion as we repair the public finances and rebuild our public services. Borrowing falls from 4.5% of GDP this year to 2.1% of GDP by the end of the forecast. The current budget moves into surplus from 2027-28, ensuring that we do not borrow to fund day-to-day spending.

[Baroness Penn (Con)]

My Lords, after delivering the biggest tax-raising Budget on record, the Chancellor rightly said at the weekend that she was wrong to rule out those tax rises ahead of the election. She also said that this Budget

“wiped the slate clean … set the spending envelope for the remainder of this Parliament”,

and that

“we don’t need to increase taxes further”.

Will the Minister repeat the Chancellor’s reassurances today and rule out any further tax rises in future Budgets, or should we not believe what the Chancellor has said this time round either?

[Lord Livermore (Lab)]

We had to take some very difficult decisions in the Budget. They were the right decisions to clear up the mess that we inherited from the party opposite, to rebuild the NHS after years of neglect, to choose investment and not decline, and to keep our promises to working people. However, the noble Baroness is absolutely right and of course I agree with what the Chancellor said. This was a very significant Budget, because of the need to repair the public finances and rebuild our public services simultaneously. We have now wiped the slate clean, meaning we never have to do a Budget like this again. The noble Baroness asks about tax, and I point out that we have kept every single promise that we made on tax. Her Government, when she was a Treasury Minister, froze income tax thresholds, costing working people nearly £30 billion. We could have extended that but we chose not to.

Public Spending: Inheritance

Baroness Penn Excerpts

Tuesday 30th July 2024 Lords Chamber

[Baroness Penn (Con)]

My Lords, I take this opportunity to welcome the Minister to his role. I am sure he will bring the same intellect and consideration to the Government Benches as he did in opposition.

My right honourable friend the shadow Chancellor set out clearly yesterday why the Statement we are debating today is nothing more than a political ploy by the Government to lay the ground for tax rises that Labour was not honest about during the election. He asked the Chancellor several important questions and I listened very carefully to her failure to answer them. So it is welcome that the Minister is here today to give things another go.

First, will the Minister confirm to the House that, since January, in line with constitutional convention, the Chancellor had meetings with the Permanent Secretary to the Treasury? Will the Minister tell the House whether they discussed the public finances, including any of the pressures included in yesterday’s Statement? If so, why are we hearing about the response to those only after the election, during which the Government promised no new tax rises?

Secondly, we are just three months into the financial year. Can the Minister confirm that, at the start of the year, the Treasury had a reserve of £14 billion for unexpected revenue costs and £4 billion for unexpected capital costs? Can he explain why yesterday’s Statement did not account for the Treasury’s ability to manage down in-year pressures on the reserve by £9 billion last year alone? Why did it apparently not account for underspends typically of £12 billion a year?

Will the Minister further confirm whether the Government have abandoned the £12 billion of welfare savings planned by the last Government? That is apart from yesterday’s announcement of a cut to the winter fuel allowance. The Chancellor yesterday admitted she was well aware that take-up of pension credit was woefully low; therefore, can the Minister tell this House how many pensioners living in poverty will now have their winter fuel allowance taken away from them? Can the Minister also confirm whether the Chancellor has abandoned £20 billion of annual productivity savings planned by the last Government, and if not, why they were not in the numbers published yesterday?

Thirdly and importantly, just five days ago the Chancellor presented to Parliament the Government’s estimates for their spending plans this year. Yesterday, my right honourable friend the shadow Chancellor wrote to the Cabinet Secretary with questions on the difference between the figures the Chancellor asked MPs to approve last week and the document she presented yesterday. Perhaps the Minister can speed up the process by answering them today? Can the Minister confirm that senior civil servants signed off on the main estimates and that they were presented in good faith? Can he explain why is there a difference between the plans signed off by senior civil servants in estimates and plans presented yesterday by the Chancellor? If the estimates are wrong, will accounting officers be sanctioned for signing off departmental spending plans for this year which are based on a forecast of requirements that is incorrect?

The Government have also not been straight about their economic inheritance. When BBC Verify asked a professor at the London School of Economics about the claim that Labour had inherited,

“the worst set of economic circumstances”

since the Second World War, he responded:

“I struggle to find a metric that would make that statement correct”.


In fact, the metrics speak for themselves: inflation is 2% today—nearly half what it was in 2010; unemployment is nearly half what it was then, with more new jobs than nearly anywhere else in Europe. So far this year, we are the fastest-growing G7 economy, and over the next six years the IMF says we will grow faster than France, Italy, Germany and Japan. In addition, the forecast deficit today is 4.4%, compared to 10.3% when Labour was last in office.

Every Chancellor faces pressures on public finances, and after a pandemic and an energy crisis those pressures are particularly challenging. That is why, in autumn 2022, the previous Government took painful but necessary decisions on tax and spend. We knew that, if we continued to take difficult decisions on pay, productivity and welfare reform, we could live within our means and start to bring taxes down. On the other hand, Labour ran a campaign knowing that, in government, it would duck those difficult decisions. In just 24 days, the Government have announced £7.3 billion for GB Energy, £8.3 billion for the national wealth fund and around £10 billion for public sector pay awards. That is £24 billion in 24 days—£1 billion for every day the Chancellor has been in office—leaving taxpayers to pick up the tab.

Will the Minister confirm that around half of yesterday’s supposed black hole comes from discretionary public sector pay awards—in other words, not something that the Government have to do, but something on which they have a choice? In accepting those recommendations, was the Chancellor advised by officials to ask unions for productivity enhancements before accepting above-inflation pay awards to help to pay for those awards, as the last Government did? If she was advised to do that, why did she reject that advice? Can the Minister reassure the House on another promise the Chancellor made, on her fiscal rules? Can he confirm that, in order to pay for the Government’s public sector spending plans, the Chancellor will not change her fiscal rules to target a different debt measure so that she can increase borrowing and debt by the back door?

The difference between yesterday’s Statement and 2010 is that, when the Conservatives came to office, we were honest about our plans, saying straightforwardly that we would need to cut the deficit. The party opposite has just won an election promising over 50 times that it has no plans to raise taxes. Yesterday was simply a political exercise to lay the ground for breaking that promise.

[Baroness Kramer (LD)]

My Lords, in the debate on the economy following the King’s Speech, I particularly noticed the speeches made by the noble Baronesses, Lady Noakes and Lady Vere, and the noble Lord, Lord Bridges, in which they lauded the state of the economy that the Conservatives were handing over. I welcome the noble Baroness, Lady Penn, back to her place on the Conservative Front Bench, but I have just heard a repeat of exactly the same. I find myself thinking today, as I thought back then, how out of touch can the Conservative Party be? Ordinary folk are seriously struggling with the cost of living; businesses are short of workforce and facing costs and barriers to trade with Europe, our major market; productivity and business investment are both stagnant; public debt and taxes are at record highs; and public services are in as dire a crisis as I can ever remember.

My party recognises that the new Government face a huge challenge to deliver both fiscal stability and economic growth, but like my colleagues in the Commons, I ask the Government whether they will give significant priority to the NHS and social care. The two are totally intertwined. It is not just a case of humanity; thousands of people who are trapped in ill health or overwhelmed by caring responsibilities are the potential workforce who could change our economy. I was very sad to hear of a further delay in the introduction of the Dilnot cap, but, frankly, I never had any confidence that a Conservative Government, had they followed the election, would ever have implemented it. However, that nettle has got to be grasped, and I very much hope we will soon hear that there is at least going to be a royal commission to get some final answers to what is an absolutely fundamental ulcer in the health of our overall economy and civil society.

During the election, my party pointed out that there are potential sources of funding: restoring the levy on the big banks, a windfall tax on oil and gas giants without huge loopholes and a fair tax on the online and tech giants are simple examples. There are ways to look at the broader shoulders in order to meet some of those funding gaps. Moreover, infrastructure cannot be neglected. I ask the Government, even if a particular transport or green project—I give those as examples—cannot lever in private funds directly, but on the other hand has the potential to release new opportunity that follows on from private investment, and which will drive economic renewal, will those projects be on the priority list as we move forward? Furthermore, a long-term, reliable industrial strategy is essential, and I very much welcome it. I also welcome and very much approve of plans for new transparency and accountability in the numbers and forecasts provided to give us a sense of the health and state of the public finances.

In closing, I repeat: will the NHS and social care be very high on the list of choices the Government will have to make? They are essential to the future of both the UK economy and the structures of civil society.

Bank Resolution (Recapitalisation) Bill [HL]

Baroness Penn Excerpts

2nd reading
Tuesday 30th July 2024 Lords Chamber

[Baroness Penn (Con)]

My Lords, as has been the case with certain previous Treasury Bills, we have had a small but expert group of contributions today, and we have heard some common themes. From the Opposition Front Bench, I say first and foremost that we support the Bill. That should come as no surprise, given that it draws on proposals that were consulted on when we were in government.

As we heard, the genesis was the response to the period of banking stress in spring 2023, particularly the failure of Silicon Valley Bank. It is worth recalling that, at the time, Silicon Valley Bank was successfully sold to HSBC—I do not know whether the pound was actually paid—customers were able to access normal banking services and their deposits were protected in full, at no cost to the taxpayer. This was a significant success.

However, those events raised several questions, one of which is being addressed today: the potential risk to public funds of any resolution action for a small bank, given that, unlike larger banks, they are not required to hold a portion of their own equity and debt above minimum capital requirements to support their resolution. The solution put forward in the Bill is the use of the Financial Services Compensation Scheme levy to meet the costs of recapitalisation that may be needed to support the operation of a bridging bank or facilitate a sale to a private sector buyer.

As I have said, we are supportive of the Bill, but it would be helpful to our scrutiny of it if the Minister were able to give further detail on three areas. The first, which we have had some debate on today, is the approach to resolution versus insolvency. The PRA has set out that it does not seek to operate a zero-failure regime, but rather to work with the Bank of England to ensure that any firms that do fail do so in an orderly way. Prior to the failure of SVB, for smaller banks this was assumed to involve insolvency. With resolution now a viable alternative for smaller banks, it would be useful to understand the extent to which the Government expect resolution to be used, as opposed to insolvency.

The second area is the question of costs. A number of concerns were raised in response to the Government’s consultation with regard to the costs of the new FSCS levy. In particular, reassurance was sought that the most cost-effective mechanism would be used by the Bank of England in considering what course to take. Of course, those two questions are related. I was pleased to see the Government publish a cost-benefit analysis alongside their consultation response—although, as the noble Lord, Lord Eatwell, has noted, it is not without its limitations. That analysis seeks to provide reassurance that resolution, rather than insolvency, will often be the less costly option, both in terms of direct costs and the wider benefits of customer continuity and public confidence in the banking system. Although that may be welcome, it is hard not to conclude that resolution may become the default option when it comes to managing the failure of a small bank; indeed, the noble Baronesses, Lady Bowles and Lady Kramer, have said they would welcome such a move. If that is the case then the proposals we are debating amount to more than just a minor modification of the resolution regime—as is contended by the Government.

This is also an important point as the Government put forward the alternative of insolvency as a check against the inappropriate use of resolution in the case of small banks. For example, in addressing concerns around recapitalisation being used alongside the private purchaser tool, where it may otherwise be reasonable for the purchaser to recapitalise the bank, the Government point to insolvency as an alternative option, providing

“an important safeguard against any inappropriate use of the new mechanism alongside the Private Sector Purchaser stabilisation option.”

That argument is also deployed with respect to any impact of the proposals on market discipline. The Government

“considers this to be a manageable risk when set in wider context, given that insolvency remains an important part of the toolkit.”

Therefore, when the Minister responds, it would be useful for him to set out whether resolution will be the preferred approach to failure over insolvency for small banks. If not, can he give an example of a scenario where insolvency may be used over resolution?

I expect the Minister will likely refer me to the framework in which the Bank of England can deploy its resolution powers in order to answer that question. It will be for the Bank to determine the appropriate response within the resolution conditions and objectives set out in the Banking Act 2009, and in particular the use of the public interest test, which seems to bear significant weight for guiding the operation of the resolution process and providing safeguards to the Government and the banking industry in providing value for money. Again, that may be wholly appropriate, given the need for flexibility in response to scenarios that can be planned for but which invariably play out in unexpected ways. However, we have already heard from the noble Lord, Lord Macpherson, about some of the risks, or misalignment of incentives, with so much of the decision-making lying with the Bank of England.

That brings me to the third area where further detail from the Minister may be of help: the scrutiny of and accountability for the use of these powers—a favourite theme from our discussions on the then Financial Services and Markets Bill. The consultation response acknowledges the importance of this, and points to Sections 79A and 80 of the Banking Act 2009, which require the Bank to report to the Chancellor of the Exchequer where it has used resolution powers to transfer a bank to a private sector purchaser or a bridge bank. The report must comply with any requirements specified by His Majesty’s Treasury, which could include requiring the Bank to disclose the estimated costs to industry of the options that were considered.

I am pleased that the Government have said they intend to update the Special Resolution Regime code of practice to reflect the introduction of this new mechanism, and expect that they will confirm that His Majesty’s Treasury will stipulate that reports produced on the use of this new mechanism would require the Bank to disclose the estimated costs to industry of the options considered. I also welcome the expectation that the Treasury will expect to make such reports publicly available, including laying them before Parliament where required to do so under the Banking Act.

However, given the importance of this, it would be useful to see proposed updates to the SRR code of practice alongside this legislation, rather than once it is complete. Could the Minister commit to publishing the proposed updates ahead of the Bill reaching Committee? There is an expectation that such reports would be made public, including laying them before Parliament, but would Minister commit to strengthening this expectation to a commitment? Could he elaborate on where the Banking Act requires such reports to be laid before Parliament and, crucially, where it does not?

The Government have also committed that the update to the Special Resolution Regime code of practice will address the fact that, for larger banks, the new FSCS levy could be seen as charging them twice for the same risk, given that revenues from the existing banking levy can already be drawn upon to support resolution, if needed. One could argue that larger banks are paying for the same risk not twice but three times, as they meet their own MREL requirements to support their resolution. While I understand the Government’s desire to spread the cost of this mechanism across the whole sector to avoid disproportionately burdening smaller banks, as the noble Baroness, Lady Kramer, asked, what consideration have the Government given to the impact on medium-sized banks that are required both to meet their own MREL requirements and contribute to this new levy?

Finally, I share the concern of many noble Lords that the Bill does not limit the use of this mechanism to the resolution of small banks. Can the Minister confirm that the Government remain of the view that MREL remains the appropriate route for the resolution of larger banks? Is the intention that this mechanism cannot be used for that purpose but is reserved only for smaller banks without MREL in place? This is important to understand whether the scope of the Bill is just a minor adjustment to the resolution regime or a more fundamental shift in how we are approaching failing banks.

These Benches support action taken to update the resolution regime. We acknowledge the need to have a flexible system in place that allows for action to be taken swiftly in response to rapid changes in circumstances, but it is also important that the costs and benefits of such action are properly understood, and that there is transparency and accountability in place for when such powers are deployed. I look forward to the Minister’s response.