Alternative Investment Fund Designation Bill [HL]

Lord Hannan of Kingsclere Excerpts

2nd reading
Friday 1st March 2024 Lords Chamber

[Lord Hannan of Kingsclere (Con)]

My Lords, I congratulate my noble friend Lady Altmann on introducing this proportionate, timely and sensible measure. I also congratulate the noble Baroness, Lady Bowles, on setting out clearly where the existing legislation is going wrong. Some 11 years after the event, I belatedly offer an apology to the noble Baroness and some of her colleagues in the European Parliament. We served there together, representing the same region. In common with a number of Conservative MEPs, I used to tease our Lib Dem colleagues by saying, “They will sign anything that is put in front of them from Brussels. They never read it; they unambiguously support it”. But that was not really true—and it was not true on this occasion.

For all the reasons we have heard, this legislation was using a sledgehammer to miss a nut. This was legislation intended as a response to the financial crisis, but, as somebody put it, when there was a general melee in the bar brawl, instead of looking for the person who started it, they just hit the nearest person.

I remember the unanimity in this country against the AIFMD in 2013, in the industry itself, in the City more widely and among all the political parties. I remember one of the fund managers saying, “This is such a needless and costly measure that we are exploring whether just to break it and pay the fine and call that a fee. We think that that may be less intrusive than having to assimilate the compliance costs”.

I assumed that, the day after Brexit, this would be at the top of the list of the measures to be axed, since it had literally no support. In fact, I had assumed—rather innocently and naively, I now see—that the first response of the Government after Brexit would be to go back and look at all the measures that the UK had opposed and voted against in council, and at the departmental arguments raised against them, and then see whether those still applied. I am afraid that that has not happened. I had underestimated what Milton Friedman called the tyranny of the status quo: the way in which, however irrational and arbitrary your arrangements, some people have found a way of making a living out of them and become opponents of change.

I am afraid that this is one of the dynamics that makes deregulation very difficult. AIFMD is maybe not the best example, but it is an example none the less of the entire industry opposing something, yet, once people have assimilated the compliance costs themselves, they lose interest in repeal. Indeed, in some cases it is not just that they lose interest in repeal; they do not want the next guy to come in and undercut them, so they sometimes perversely become advocates for the thing they used to oppose, because they now see it as a barrier to entry.

By the way, this goes way beyond the field of financial services. It applies to some of the more bizarre SPS and food safety things we have inherited, right the way through to the REACH directive. People say, “Well, the industry is now in favour of it”. Of course they are—once they have taken on the compliance costs. However, the role of a Minister and of a Government is not just to act as the agent, tool or mechanism of the existing producer interest, but to think about the companies that do not yet exist and about the consumers, the start-ups and the entrepreneurs.

As some of your Lordships know, I was quite wet about Brexit: I wanted a Swiss-type deal all the way through, and I argued that we should have maintained a lot of the accumulated single market measures, which would have solved a lot of problems. We did not do that. The Theresa May Administration took a different attitude, and we paid a fairly high price in the disengagement talks for the right to regulatory autonomy. Okay; I am on board with that if that is the policy. However, surely we can all agree that the worst of all worlds is to pay that price in the talks and then not use the regulatory autonomy. It is bizarre to insist on the ability to have these freedoms and then, even in a case like this, where all sides agree that we are doing something costly and needless, we do not use them.

I get that there will be probably a majority in this House who, in other areas, want a much closer deal now with the EU and to go back into some kind of customs union arrangement. Fine; but I think we are all agreed that we are now autonomous and competing globally in financial services, and we need to make the City of London a place where people want to invest.

I close by saying to my noble friend the Minister that when she sees my noble friends Lady Altmann and Lady McIntosh of Pickering, and the noble Baroness, Lady Bowles—and indeed, I assume, the noble Baroness, Lady Kramer, although she has yet to speak—all effectively lining up and saying, “We need to be doing more to take advantage of our Brexit freedoms”, perhaps something has gone wrong and this is the time to act.