Draft Financial Services and Markets Act 2023 (Prudential Regulation of Credit Institutions) (Consequential Amendments) Regulations 2025 Draft Financial Services and Markets Act 2000 (Regulated Activities) (ESG Ratings) Order 2025

Chris Coghlan Excerpts

Tuesday 2nd December 2025 General Committees

[Lucy Rigby]

It is a pleasure to serve under your chairmanship, Mrs Harris.

I turn first to the environmental, social and governance ratings order, which I note the Secondary Legislation Scrutiny Committee flagged as an instrument of interest in its 41st report. The draft order will bring the provision of ESG ratings within the regulatory perimeter of the Financial Conduct Authority. Regulation will improve standards in the market, boost investor confidence and reduce greenwashing, and it has strong support across the financial sector.

As hon. Members will be aware, ESG ratings are a spectrum of products usually marketed as providing an assessment of the ESG profile, characteristics, risk exposures or impacts associated with a company, fund or other financial instrument. ESG ratings are widely relied on by investors to guide investment decisions in line with sustainability risks, opportunities and preferences. Of the £10 trillion-worth of assets under management in the UK in 2024, half had integrated ESG factors into the investment process. In the UK in 2024, more than 5,400 firms were using ESG ratings.

However, the ESG ratings market has developed rapidly and without formal oversight. This has led stakeholders and users to raise concerns about transparency, governance, internal controls and potential conflicts of interest within ESG ratings providers. Identifying these concerns, the International Organisation of Securities Commissions published recommendations for ESG ratings and data providers, calling for higher standards and sufficient oversight in the sector. The Government have acted quickly to deliver progress on this important agenda.

[Chris Coghlan (Dorking and Horley) (LD)]

The Liberal Democrats welcome this measure, but what work have the Government done to ensure that the regulation will be in line with that of international regulators such as the Securities and Exchange Commission, to reduce the burden on our businesses?

[Lucy Rigby]

We remain open to the prospect of regulatory alignment with other regimes. We want to get this done first, but the hon. Gentleman raises an important point.

As I say, the Government have acted quickly to deliver progress. As hon. Members will know, a consultation was issued by the previous Government; this Government have ensured that the consultation response and draft legislation were published for technical comments as part of the Chancellor’s first Mansion House speech. That draft legislation has been refined into the ESG ratings order before the Committee.

The draft order will create a new regulated activity of providing an ESG rating where that rating is likely to influence a decision to make a specified investment. This will require providers of ESG ratings to be authorised and be supervised by the FCA. In recognition of the fact that ESG ratings are provided by a range of different persons, the scope of the regulated activity is designed to be proportionate to the risk of harm, avoiding dual regulation and maintaining consistency with the existing regulatory framework. The draft order contains specific exclusions to that effect, for example where a firm is providing ESG ratings as part of another regulated activity.

To support the integrity of the UK market and ensure a level playing field, ESG ratings that are provided to a UK customer by an overseas provider will fall into the scope of the regulated activity, except where those ratings are provided without remuneration or financial incentive. The Government support open, competitive and internationally connected financial markets, and we therefore intend to give further consideration to market access arrangements for overseas ESG ratings providers.

In the interests of allowing plenty of time for industry to engage, while also delivering a regulatory regime in a timely manner, the FCA launched its consultation on the specific regulations for ESG ratings providers on 1 December, on the basis that the draft order had been laid on 27 October. The FCA rules will be designed to be proportionate and tailored to address harms while protecting innovation, in line with the regulator’s secondary growth and competitiveness objective.

The proposal to bring ESG ratings providers into regulation has received strong support from industry. The move will strengthen market integrity and boost investor confidence, helping the sector to attract new users and providers. The draft order is a core part of the Government’s agenda to drive growth in the UK’s sustainable finance market.

The draft prudential regulation of credit institutions regulations are a technical instrument that makes changes to support reforms to UK banking regulation. The regulations will keep our legislation for financial services effective, and they will assist the Treasury in applying the FSMA model of regulation to set a prudential framework for banks. The regulations do not introduce any new regulatory requirements for firms.

As hon. Members will be aware, banks are required to follow a set of prudential regulations to manage their risk appropriately and maintain adequate levels of capital to protect against any losses. In addition, the biggest banks are required to hold additional loss-absorbing debt to ensure that they can be allowed to fail without the need for taxpayer-funded bail-outs such as those seen during the global financial crisis.

A significant amount of prudential regulation is set out in the capital requirements regulation, or CRR, which formed part of domestic law during our time as an EU member state. Following our exit from the EU, the Government have been tailoring the existing financial services framework to the UK’s needs. That includes the CRR, which will be removed from the statute book and largely restated in the Prudential Regulation Authority’s rulebook, providing more flexibility and allowing the PRA to set the relevant requirements.

To do that, legislation has been passed to revoke the CRR—notably in FSMA 2021 and FSMA 2023. In that context, the Government have brought forward these technical regulations to make a small number of consequential amendments to pieces of legislation that refer to specific CRR articles—specifically, they amend the Banking Act 2009 to ensure that definitions relating to share capital instruments and banks’ own funds reflect the revocation of certain CRR articles.

In summary, although these draft regulations are technical and do not introduce any new rules, they are nevertheless a necessary step in continuing the reform of our banking regulation to ensure that our regulatory framework remains coherent. I commend the regulations to the Committee.

[Gareth Davies (Grantham and Bourne) (Con)]

It is always a great pleasure to see you in the Chair, Mrs Harris. I will follow the Minister’s lead by starting with the ESG ratings order before moving on to the draft regulations.

The Minister usefully and clearly set out the Government’s view of the ESG ratings order and what it aims to achieve. I want to ask two questions in particular, straight out of the gate. First, although she referred to this slightly in answering the hon. Member for Dorking and Horley, could she go into more depth about the approaches taken in other jurisdictions—particularly the United States and the EU? What are the specific implications for our competitiveness? She mentioned that she is open to alignment with other jurisdictions, and she specifically said that she is open to allowing the ratings of overseas ratings providers to be recognised in this country. But will she address the specific point about competitiveness and where the order stands in the global ecosystem of ESG ratings regulation? It would be helpful to understand that.

Secondly, I understand that in the responses to the consultation concerns were raised about charities being granted an exemption. Is the Minister concerned that charities, and particularly household names, might publish ESG scores against certain companies and sectors that investors take seriously, despite there being a lack of transparency on how those scores were reached? I have taken a particular interest as that legitimate concern stood out from the consultation.

As the Minister considers those answers, it is useful for us to step back as we think about ESG to ensure that, as we scrutinise the draft order, we talk about the overall effectiveness of ESG in supporting the interests of savers and investors in the country. My view, having led an ESG team in my previous life—I think this view is shared by a lot of savers and investors in the industry— is that investment managers should always act with the aim of delivering sustainable returns for investors. From the teacher who has paid into their pension their whole life to the entrepreneur who has just sold their business and invested all their money, many people from all walks of life entrust their money to investment firms and portfolio managers, and they rightly expect financial professionals to uphold their fiduciary responsibilities.

In recent years, however, many, including me, have expressed the view that the rise of ESG has allowed and encouraged some fund managers to impose their own values on investment portfolios, thereby potentially impacting the returns achieved for thousands of investors. Of course, where individuals have enough money for a separate account, or where other retail investors choose to invest in a dedicated ESG fund, that is their choice. They may well pay a premium for not investing in certain industries and be comfortable with that.

[Chris Coghlan]

The shadow Minister makes an interesting point about the personal views of some fund managers. What is his view on including defence stocks in ESG portfolios, given the change in the geopolitical situation?

[Gareth Davies]

If the hon. Gentleman will allow me, I will come on to that point. It is a very hot topic right now, in terms of our national security, and I think there are implications when it comes to ESG ratings and the overall ESG approach that many fund managers take.

As I was saying, the overall picture is that there is a risk that everyday savers might miss out on returns because of the values and ideals pursued by a particular fund or fund manager, without their expressed wishes necessarily being taken into account. If we accept, as many do, that this is a problem for funds, it follows that it extends to those who provide ESG ratings, too. Therefore, more transparency, which this measure achieves, could and should help to mitigate the risk for savers.

At a broader level, I have made very clear my personal opinion that ESG has gone too far towards values-driven investing, while neglecting to include our collective national, strategic and economic interest. At a time when the world is increasingly geopolitically unstable, and with an aggressive Russia at the door of Europe, is it really responsible or ethical to shun investment in defence companies?

I believe this mindset undermines our national security effort, but it also means that savers and investors could miss out on better returns. The FTSE 100 index is up around 19% for the year to date, compared with shares in Rolls-Royce, which are up 77%; shares in BAE, which are up 38%; and shares in Babcock, which are up 118%. Those companies form the bedrock of the British defence industry. Over the past year, they would have delivered better-than-average investment returns for savers, but so many savers have been excluded from investing in such companies, perhaps without their knowledge.

Similar national importance could be attached to oil and gas companies and investments. Even the Climate Change Committee has been clear that the consumption of oil and gas will be needed for years to come as part of our energy security. Yet just last week, the National Energy System Operator warned that Britain could face gas shortages by 2030 if the industry—

Oral Answers to Questions

Chris Coghlan Excerpts

Tuesday 4th November 2025 Commons Chamber

[Rachel Reeves]

I thank my hon. Friend again for raising the opportunities in Portland. As he knows, we are working closely with Dorset council, the project and him to bring that to fruition.

[Chris Coghlan (Dorking and Horley) (LD)]

The Chancellor knows that I agree with her that the use of public research and development is one of the most effective levers for economic growth, but it will not significantly increase over the entire five-year spending review period. If the Government are serious about economic growth, they must find a way to increase public research and development. Does she agree?

[Rachel Reeves]

We are increasing spending on research and development in real terms and in every year of this Parliament, for exactly the reasons that the hon. Gentleman mentions. But we are doing more than that: we are supporting start-up and scale-up businesses through our pensions reform, through the British Business Bank and through UK Export Finance. We are absolutely determined to ensure that the money that goes into R&D in this country turns into great businesses that stay in this country.

Spending Review 2025

Chris Coghlan Excerpts

Wednesday 11th June 2025 Commons Chamber

[Rachel Reeves]

My hon. Friend is absolutely right: what this spending review does, through its investment in infrastructure, is create jobs in our supply chains for small businesses in communities right across our country. The investment in some of our foundational industries, such as steel, offers real opportunities for good, unionised jobs that pay decent wages, and I am really proud to be able to set out that investment and the jobs that young people in Darlington and around the country will be able to access because of the choices we have made today.

[Chris Coghlan (Dorking and Horley) (LD)]

As the Chancellor knows, our economy will only escape its difficult place if we raise economic productivity. On the Treasury Committee, I introduced the Chancellor to London Business School’s Paolo Surico’s research on how using public R&D, and especially defence spending, can help us to do that. In the spring statement, the Government used Professor Surico’s research to upgrade long-term GDP forecasts by £11 billion a year—that is how we pay for it. I strongly welcome the Government’s commitment to investing in public R&D in the spending review, but how will the Chancellor follow through to ensure that the R&D will be used to crowd in and stimulate public investment—especially from the more innovative, high-tech start-ups and venture capital firms—which is necessary to realise the potential of Professor Surico’s research?

[Rachel Reeves]

Every £1 of Government investment in R&D crowds in £2 of private investment and returns £7 of benefit to the wider economy. That is why we have put £86 billion of investment into R&D over the course of this spending review.

Spring Statement

Chris Coghlan Excerpts

Wednesday 26th March 2025 Commons Chamber

[Rachel Reeves]

I thank my hon. Friend for that question. One of the reasons we have put an additional £13 billion into capital spending over the forecast period is to invest in the infrastructure that our country needs, including transport infrastructure, which I know my hon. Friend, as Chair of the Transport Committee, has a keen interest in. She is absolutely right: we do need to look more at how we can leverage in private sector funding for a whole range of projects, including the lower Thames crossing.

[Chris Coghlan (Dorking and Horley) (LD)]

I declare an interest as an alumnus of London Business School. The Chancellor will recall that in November, when she came to the Treasury Committee, I asked her to look at a London Business School paper on using specific public R&D on defence spending to boost economic growth. I was delighted to hear that the Treasury did evaluate that paper by Professor Paolo Surico as part of the spring statement, and has listened to me and the Liberal Democrats. Does the Chancellor agree that using defence spending focused on public R&D is one way to not only keep us safe, but raise productivity and boost economic growth?

[Rachel Reeves]

I thank the hon. Gentleman for his question, and look forward to taking more questions from him at the Treasury Committee next week. When I visit defence companies or meet our armed forces, they tell me about the amazing abilities of new technology and innovation to help them to better do their jobs and keep our country safe. As we invest more in defence and get to 2.5% of GDP, it is absolutely right, as I have set out today, that more of that money is used for innovation, R&D and new technologies.

Finance Bill

Chris Coghlan Excerpts

2nd reading
Wednesday 27th November 2024 Commons Chamber

[Chris Coghlan (Dorking and Horley) (LD)]

It is a pleasure to speak in this debate as a member of the Treasury Committee. After suffering the highest fall in living standards since records began, the United Kingdom desperately needs economic growth, yet the OBR forecasts that the policies in the Government’s Finance Bill and Budget will have no impact on growth over the next five years. The recessionary impact of the tax rises, combined with a focus on current spending that crowds out the private sector, largely offsets the fiscal stimulus of one of the largest fiscal events in recent decades, and of borrowing an extra £32 billion a year.

There are potential upsides to the growth forecasts in the Budget, mainly from the impact of planning reform, but this Budget and Finance Bill are a missed opportunity for growth. That matters, because there are chronic structural problems in the British economy that we must address. Indeed, given that public sector net debt is now approaching 100% of GDP, the Government’s ability to borrow to invest in the future, or to cope with an unforeseen shock, is severely constrained.

Many Labour Members have spoken about the importance of public investment, which I agree with, so I would like to address the following points. Since the 2008 financial crash, the UK economy has been hampered by productivity growth collapsing to 0.6% per year—the second worst in the G7. Unless and until we solve the productivity crisis, the UK will not escape its downward economic spiral of higher taxes, an ageing population, ever crumbling public services and ever higher debt. A key cause of that is chronically low public and private investment. In 24 of the last 30 years, the UK has had the lowest total investment of any G7 economy, yet as the OBR testified, under the Budget, public investment will remain flat as a share of GDP, so the Budget is unlikely to help solve the productivity crisis. This is why the OBR is forecasting that for every £1 borrowed by the Government, the economy will grow by only 60p next year, and that these effects will reverse in five years.

[Mr Luke Charters (York Outer) (Lab)]

The hon. Gentleman knows that I hold him in high regard, but I am slightly perplexed because he welcomes this Government’s investment in public services, the NHS and so forth, yet his colleagues oppose many of the revenue raisers in this Finance Bill—and perhaps he does, too. Can he help me square that circle?

--- Later in debate ---

[Chris Coghlan]

As the hon. Member will know, the Liberal Democrats have alternative measures for raising those revenues, but my fundamental point is that, yes, I welcome public investment, but it is flat in the Budget; it is not enough, in my view, and furthermore, it is not focused on the right areas.

By contrast, economists have found that optimal forms of public investment are able to raise GDP by £1.50 for every £1 invested. The best public investments for raising economic growth are investments in intangible capital such as knowledge, research and development, patents and licenses. That can bring greater gains in productivity because knowledge can build on existing knowledge, and it can crowd in private investment, as it lowers the financial risk of participation for private investors.

Indeed, the most effective form of R&D is targeted on a specific goal. For example, the Kennedy Administration in the ’60s had stunning success in increasing US productivity and growth by having the very specific goal of the moon landings. I was excited to see that R&D to solve targeted problems was in the Budget, on page 76, but then I saw that of the £70 billion in spending in the Budget, only £25 million will be spent on the best type of R&D to drive economic growth. That is about double the budget of my local district council. That is not really appropriate for the world’s sixth-largest economy.

We stand on the cusp of a new industrial revolution in artificial intelligence, and this country has just one chance to gain the first mover advantage, and to harvest the productivity gains and growth that could result. Indeed, combined with innovations in the life sciences and climate technology, which are mentioned in the Budget, this could be our route out of this downward economic spiral, yet in the 164-page Budget, the words “artificial intelligence” appear once. I call on the Government to redouble their efforts on public investment and R&D, because I would like to live in a country that has the resources that it needs to provide opportunities for our citizens, and this Budget is a missed opportunity to do that.