Bank Resolution (Recapitalisation) Bill [HL]

Lord Livermore Excerpts

2nd reading
Tuesday 30th July 2024 Lords Chamber

Moved by

[Lord Livermore]

That the Bill be now read a second time.

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

My Lords, I am sure that all noble Lords will be pleased to see the noble Baroness, Lady Penn, in her place today. I enjoyed working with her on the passage of the Financial Services and Markets Act in the last Parliament, when I was new in my role and she knew a great deal more about the Act than I did. Now I am new in my role again, and I am quite sure she still knows a great deal more about this Bill than I do; I am sure that I will enjoy working with her just as much. I am also pleased to see and work again with the noble Baroness, Lady Kramer, who probably knows more about this subject than the rest of us put together.

The Bank Resolution (Recapitalisation) Bill will enhance the UK’s resolution regime, providing the Bank of England with a more flexible toolkit to respond to the failure of banks. It ensures that, where failing banking institutions require intervention, in particular smaller banks, certain costs of managing their failure do not fall on taxpayers. It strengthens protections for public funds and promotes financial stability, while supporting economic growth and competitiveness by avoiding new upfront costs on the banking sector.

The resolution regime was introduced in the wake of the global financial crisis and implemented in the UK through the Banking Act 2009. It provides a number of additional tools to the Bank of England to manage the failure of financial institutions safely, helping to limit risks to financial stability, public funds and the economy. The regime was introduced in recognition of a global consensus that reforms were needed to end “too big to fail” and ensure financial institutions could wind up their operations in an orderly way. This regime has been developed and added to steadily over the past decade by a succession of Governments, giving the UK a robust regime and supporting its role as a leader in financial regulation, while also reflecting relevant international standards.

The regime was last used to resolve Silicon Valley Bank UK, the UK subsidiary of the US firm that collapsed in March 2023. The Bank of England used its powers under the Banking Act to facilitate the sale of Silicon Valley Bank UK to HSBC, delivering good outcomes for financial stability, customers and taxpayers. All the bank’s customers were able to continue accessing their bank accounts and other facilities, and all deposits remained safe, secure and accessible. In doing so, the Bank of England ensured the continuity of banking services and maintained public confidence in the stability of the UK financial system.

While the case of Silicon Valley Bank UK demonstrated the effectiveness and robustness of the resolution regime, the Bank of England, the Treasury and international counterparts have carefully considered the implications of this wider period of banking sector volatility. This builds on the proposals set out in consultation by the previous Government, following the work they did with the Bank of England after the Silicon Valley Bank case. This Government believe there is a case for a targeted enhancement to give the Bank of England greater flexibility to manage the failure of small banks effectively. I hope that, given the origin of these proposals, they will be welcomed by noble Lords from across the Chamber.

It is worth noting that small banks that fail are typically expected to be placed into insolvency under the bank insolvency procedure and are currently not expected to meet the conditions that must be satisfied for the Bank of England’s resolution powers to be used. These conditions include whether exercise of the powers is necessary to meet certain objectives of resolving a bank and is in the public interest.

Under the bank insolvency procedure, upon entering insolvency, the Financial Services Compensation Scheme compensates eligible depositors for account balances up to £85,000 per depositor within seven days, with higher limits for temporary high balances. This compensation is funded initially through a levy on industry and then, where possible, recovered from the estate of the failed firm.

Following the case of Silicon Valley Bank UK, the Government’s view is that in some cases of small bank failure, the public interest and resolution objectives may be better served by the use of resolution powers than insolvency. If, in future, a failing small bank were to require resolution, it may require additional capital. This may be needed for a range of reasons: for example, to meet minimum capital requirements for authorisation or to sustain market confidence. At present, these costs may initially have to be borne by taxpayers, as the Treasury would be the only available source of funds to meet these expenses. That is an undesirable status quo.

A key aim of the Bank Resolution (Recapitalisation) Bill, therefore, is to strengthen the protections for public funds where a small bank is placed into resolution instead of insolvency. Overall, this is a necessary and, I hope, uncontroversial set of reforms in order to ensure the regime effectively continues to limit risks to financial stability and to taxpayers.

It is important to note that the bank insolvency procedure will still have an important role in managing the failure of small banks. Relatedly, the Government do not intend to make widespread changes to a resolution regime that is already working well. Instead, this Bill reflects the view that there is merit in a targeted set of changes which ensure that, if needed, certain existing resolution tools can be applied to small banks in a way that achieves good outcomes for financial stability while also protecting taxpayers.

The Bill achieves this by introducing a new mechanism. This mechanism allows the Bank of England to use funds provided by the banking sector to cover certain costs associated with resolving a failing banking institution and achieving its sale, in whole or in part. The Bill does three things to create the new mechanism. First, it expands the statutory functions of the Financial Services Compensation Scheme, which will be required to provide funds to the Bank of England upon request, to be used where necessary to support the resolution of a failing bank.

Secondly, the Bill allows the Financial Services Compensation Scheme to recover the funds provided by charging levies on the banking sector. This is similar to the current arrangements for funding depositor payouts in insolvency, with the exception of the treatment of credit unions. In response to feedback from industry, the Government have decided to carve out credit unions from levy contributions in recognition of the fact that they cannot be put into resolution, and so the new mechanism cannot be used on them. It is important to note that this means the banking sector is levied only after the event of failure, not before, thereby avoiding new upfront costs on the sector.

Thirdly, the Bill gives the Bank of England an express ability to require a bank in resolution to issue new shares, facilitating the use of industry funds to meet a failing bank’s recapitalisation costs. Taken together, these measures give the Bank of England a more flexible toolkit to respond to small bank failures in a way that promotes financial and economic stability. Critically, they strengthen protections for taxpayers’ money, while avoiding new upfront costs on the banking sector.

The Bill consists of five clauses and is narrow in scope. I will now set out how each of them operates and the effect they produce. The first clause inserts into the Financial Services and Markets Act 2000 a new section which introduces the new mechanism. It allows the Bank of England to require the Financial Services Compensation Scheme to provide the Bank of England with funds when using its resolution powers to transfer a failing firm to a private sector purchaser or bridge bank. It sets out what these funds can be used for: namely, to cover the costs of recapitalising the firm and the expenses of the Bank of England and others in taking the resolution action. It also allows the Financial Services Compensation Scheme to recover the funds provided through levies.

The second clause sets out that the Bank of England must reimburse the Financial Services Compensation Scheme for any funds it provides that were not needed. The third clause primarily ensures that existing provisions relating to the Financial Services Compensation Scheme apply to the new mechanism in the same way. The most substantive change specifies that the Financial Services Compensation Scheme cannot levy credit unions to recoup funds provided under this mechanism. The most substantive change in the fourth clause gives the Bank of England the power to require a failing firm to issue new shares. This will make it easier for the Bank of England to use the funds provided by the Financial Services Compensation Scheme to recapitalise the firm by using the funds to buy the new shares. The fourth clause also makes several consequential changes to reflect the introduction of the new mechanism. The fifth and final clause sets out procedural matters, including that the Treasury may make regulations to commence the provisions in the Bill.

The key proposals in this Bill have been subject to consultation with industry, and the Government appreciate the feedback they have received and have reflected on it carefully. The Government note the concerns about the appropriateness of credit unions being liable to pay levies under the mechanism. The Government have taken this feedback on board, and the Bill therefore carves credit unions out of the scope of levies where the new mechanism is used. The Government also acknowledge the questions raised by industry about whether additional safeguards should be included to ensure the Bank of England calls on the Financial Services Compensation Scheme only where this is less costly than putting a bank into insolvency instead. The Government have reflected on this feedback carefully and consider that the safeguards in the existing resolution regime remain appropriate.

However, the Government do intend to update the special resolution regime code of practice in due course, in order to set out how we will ensure clarity on how the Bank of England will consider relative costs to industry in different scenarios. As part of this, the Government intend to set out in the code of practice their expectations around what the Bank of England would need to report on publicly following the exercise of its new powers. Finally, the Government stress that the banking sector as a whole stands to benefit from use of the mechanism set out in the Bill, in particular in its ability to reduce the potential risk of contagion arising from small bank failures where resolution is in the public interest.

I recognise that noble Lords have in the past raised concerns about the exemptions applied when SVB UK was transferred to HSBC and, although these are not within scope of the Bill, may wish to raise such concerns today. It is important to note that the resolution of SVB UK presented an exceptional set of circumstances which required an exceptional response, recognised by noble Lords across the House at the time. The House also supported the conditions that were applied to the exemption, in particular to limit the type of business that SVB UK—now HSBC Innovation Banking—is able to carry out. I am assured that the regulator is in a position to ensure these conditions are met.

I would also like to reassure noble Lords that there is no expectation that ring-fencing provisions would be disapplied in the event of resolution in future; as with many aspects of resolution, they would need to be considered on a case-by-case basis, based on the balance of risks and the public interest at the time. The Government would, though, caution against steps that would create significant new procedural barriers to the use of the transfer tools, given unpredictable situations and the need to act quickly and decisively.

Stability is at the heart of the Government’s agenda for economic growth, because when we do not have economic and financial stability, it is working people who pay the price. The resolution regime is a critical source of stability when banks fail, by ensuring that public funds and taxpayer money are protected. This Bill delivers a proportionate and targeted enhancement to the resolution regime to ensure it best continues to provide that important stability. I look forward to hearing your Lordships’ views on it during this debate. I beg to move.

--- Later in debate ---

[Lord Livermore (Lab)]

I thank all noble Lords for their contributions to this debate. As noted in my opening speech, this is intended to be a targeted and proportionate enhancement to the resolution regime. It will provide the Bank of England with additional flexibility to manage bank failures in a way that strengthens protections for financial stability and taxpayers. Therefore, it supports the Government’s ambitions to promote economic stability and growth.

Without the Bill, a gap would remain in the resolution framework, meaning there would be a potentially significant risk to public funds in the event of a small bank requiring intervention. In certain circumstances, there could also be a greater risk of contagion from the failure of one small bank spreading to others. The bank insolvency procedure and other forms of modified insolvency remain an important part of the toolkit for dealing with the failure of small banks.

A key principle underlying the Prudential Regulation Authority’s approach to banking supervision is that it does not operate a zero-failure regime. Rather, it works with the Bank of England, as the UK’s resolution authority, to ensure that any firms that fail do so in an orderly manner. Any resolution action, including action involving the new mechanism, would continue to be subject to all four resolution conditions being met. The Bank of England must also have regard to a number of resolution objectives to ensure that the action taken is in the public interest. Not every small bank failure would meet those conditions to justify taking resolution action. However, in the event that a small bank failure does meet these conditions, it is right that the Bank of England has the appropriate flexibility to manage the failure effectively.

To address the key point made by the noble Lord, Lord Moylan, since the global financial crisis there have been international efforts to address the risks that crystallised during the crisis and to reform and strengthen financial supervision and regulation, making the financial system stronger and more stable. Financial stability is a priority for this Government, at the heart of our vision to support economic stability and growth. The Bill supports that priority by ensuring that there continues to be a robust regime for managing the failures of banks in a way that limits risks to financial stability and taxpayers.

The noble Lord also asked about the funding for the FSCS. The Financial Services Compensation Scheme is funded by levies on the financial services industry, as he knows. For deposit-taking firms, if a bank or a building society were to enter insolvency, the FSCS would have to pay out compensation and then raise its levy on the banking sector to recover the funds. To cover the gap between paying out compensation and recovering the funds through the levy, the Financial Services Compensation Scheme would use its overdraft as well as its commercial credit facility. Combined, these can provide up to £1.5 billion.

The noble Lord asked about the speed of providing the money. The Financial Services Compensation Scheme will provide the money as soon as it is able. Given that resolutions generally happen very quickly, in a matter of days, the Financial Services Compensation Scheme may be required to provide the money very quickly.

The noble Lord asked about the vehicle for the funds. Under the Bill, the Financial Services Compensation Scheme would provide the funds at the Bank of England’s request and recoup them from the banking sector. The Financial Services Compensation Scheme is well placed to perform both functions, as it already has the infra- structure and expertise to source funds at short notice, handle large sums of money appropriately and levy the banking sector.

The noble Lord also asked about the bank levy. The Government believe that their proposal to fund costs through the Financial Services Compensation Scheme is a targeted and proportionate approach, ensuring that the banking sector pays only when it needs to. Meanwhile, the bank levy continues to ensure that banks make a fair and sustainable tax contribution that reflects their importance to the financial system and wider economy. However, the Government believe that the mechanism provided for under the Bill should be funded by the wider banking sector. The bank levy would therefore not be an appropriate funding mechanism and is not paid by small banks, for which the new mechanism is primarily intended.

The noble Lord asked too about the regime being insufficiently robust and not yet tested. The resolution regime is designed to ensure that the Bank of England has the full suite of powers needed. The Bank of England and the Treasury regularly contingency plan to test the regime.

Coming to the points raised by the noble Baroness, Lady Bowles, I am very grateful to her for her support for the Bill. She asked about WealthTek and MREL in substance and raised concerns about the recent failure of WealthTek and the implications of that failure for consumers. It will not be possible for me to comment in detail on the case of an individual firm failure. However, I will respond to her on her general concern that costs due to an administrator can be deducted from compensation that is due to consumers when their firm fails. In the case of depositors of banks, I reassure the noble Baroness that PRA rules are clear that no insolvency or administration costs can be deducted from payouts due to covered depositors when their bank enters insolvency.

The investment bank special administration regime is a bespoke insolvency regime for investment firms that hold client assets. It is designed to offer better outcomes for customers by ensuring that the special administrators prioritise the return of client assets.

The noble Baroness also asked about requesting money more than once in a single resolution. The Bank of England is not limited in the number of times it can request money from the Financial Services Compensation Scheme. This provides appropriate flexibility in case further unanticipated costs arise following the initial intervention, for example in relation to subsequent litigation or compensation. This in turn reduces the risk to public funds.

On the question of small banks holding MREL, the Bank of England is ultimately responsible for MREL policy. The Government note that setting MREL for small banks would be very expensive for this cohort of firms.

The noble Baroness also asked about raising new taxes on the banking sector. The Bill avoids imposing any new upfront costs on the banking sector. Crucially, all costs are contingent and would crystallise only in the event of a firm failure. The counterfactual to using resolution powers alongside industry funds would be insolvency, in which scenario the banking sector would in any case be liable to pay levies to fund depositor compensation.

I am very grateful to my noble friend Lord Macpherson for his very kind words. The noble Lord asked about the banking insolvency procedure, as did the noble Lord, Lord Sikka. A key principle underlying the Prudential Regulation Authority’s approach to banking supervision is that it does not operate a zero-failure regime. Rather, it works with the Bank of England as the UK’s resolution authority to ensure that any firms that fail do so in an orderly manner. It is important to note that any resolution action, including action involving the new mechanism, will continue to be subject to all four resolution conditions, including the public interest test being met, just as it is now. Not every small bank failure would meet those conditions to justify taking resolution action.

My noble friend Lord Macpherson also asked about the Treasury’s ongoing role in authorising the new mechanism. As now, the Treasury will be consulted on any use of resolution powers. However, its consent is required only if the use of those powers would have implications for public funds.

My noble friend also asked about the Bank of England not being incentivised to keep costs down. It is right that Bank of England expenses can be recovered by levies. The alternative, of course, would be to use public funds.

My noble friend Lord Eatwell and the noble Lord, Lord Vaux of Harrowden, also asked about the scope of the Bill not being limited to small banks. The expectation is that the mechanism would generally be used to support the resolution of small banks. However, the Government consider it appropriate for the mechanism, in principle, to be applicable to any banking institution within scope of the resolution regime. This would give the Bank of England, in consultation with the relevant authorities, the flexibility to respond as circumstances required.

My noble friend also suggested that the regime does not protect against systemic risk and is dependent on a buyer to work. It is worth noting that the resolution regime includes an expansive set of powers designed to equip the Bank of England with the tools to manage systemic risks and to limit contagion across the financial system. As well as the powers to transfer a failing firm to a buyer, this toolkit also includes the bail-in power. As part of this power, the largest and most systemic banks are required to hold additional equity and debt to absorb losses and self-insure against their own failure.

In the event that these banks fail, the Bank of England can use these additional resources to recapitalise the firm, including by converting the additional debt into equity and turning those creditors into shareholders. This would allow the failed bank to continue as a going concern without necessarily relying on a buyer, thereby stabilising it sufficiently to give it time to restructure and address the issues that led to its failure.

Equally, the Bill will ensure the Bank of England’s toolkit to manage systemic risk is robust by ensuring that the Bank of England is able to mitigate risks of contagion that may arise from the failure of a smaller bank, including in situations where a buyer is not forthcoming.

My noble friend also queried the point of comparison in the cost-benefit analysis published by the Government on 19 July. One principle of the resolution regime, as it has operated to date, is a presumption that shareholders and creditors will be required to meet the costs of bank failure. This is why the largest and most systemic banks are now required to hold additional equity in debt: to absorb losses and self-insure against their own failure. For banks that are not required to hold additional equity and debt, the Bank of England’s preferred strategy for managing their failure is insolvency. The Bill would make an alternative source of funds available, such that resolution powers may be considered for small banks that would otherwise be expected to be placed into insolvency. I will look further into the points that he raises, but the Government therefore maintain that insolvency is the correct counterfactual and the right point of comparison with the new mechanism, and they stand behind the analysis that they have published.

The noble Lord, Lord Vaux of Harrowden, asked about costs of the industry being taken into account. There are a number of important safeguards in the regime. The Bank of England must consult with the PRA when considering resolution action. The PRA, in turn, sets a cap on what is considered affordable for the sector to be levied per year. The PRA will continue to have this role under the new mechanism. In addition, the Government intend to update the special resolution regime code of practice to provide greater clarity about how the Bank of England will take account of the costs to the Financial Services Compensation Scheme when considering whether to use the new mechanism in its assessment of the resolution, conditions and objectives.

The noble Lord, Lord Vaux of Harrowden, asked about the deal for buyers coming on the back of industry. The Bank of England will be responsible for determining whether resolution is in the public interest, including transfer to another firm. The new mechanism introduced by the Bill ensures that where there is no willing buyer, absent recapitalisation the taxpayer is not responsible for meeting the costs of recapitalisation. As now, the expectation is that usually any sale will be achieved by an auction process.

The noble Lord also asked about subsidiaries. It is possible that the parent company may be able to recapitalise its subsidiary outside of resolution, but there may be circumstances in which this is not possible, as was the case with SVB UK. It is important that the Bank of England has the necessary tools to deal with a failing firm, regardless of its home jurisdiction.

The noble Lord, Lord Vaux of Harrowden, also asked about levy affordability. In line with its safety and soundness objective, the PRA carefully considers the affordability of the Financial Services Compensation Scheme levy for firms. The Government are therefore confident that any levies imposed as a result of this mechanism will be set at a level that is affordable for firms.

On the noble Lord’s point about letting shareholders and creditors of the failed bank off the hook vis-à-vis other, larger banks that have to meet these rules in resolution, Sections 6A and 6B of the Banking Act 2009 require the Bank of England to ensure that shareholders and creditors bear losses when a banking institution fails. This is an important principle that will continue to apply when the new mechanism is used. This involves cancelling, diluting or transferring common shares so that shareholders are the first to bear losses.

The noble Lord, Lord Vaux, also asked about the flowback to the Financial Services Compensation Scheme. Any money requested by the Bank of England but not expended would be returned to the FSCS. Any money that the Bank of England recovers through the sale of the firm in resolution, or through its winding up, would also be returned to the FSCS up to the amount of the original payment.

Finally, the noble Lord asked whether taxpayers should pay. It is not right to presume that government should pay for resolution. The Bill rightly follows the approach taken in insolvency: the costs fall to industry. I hope I have covered all his points. If not, I shall write to him.

The noble Lord, Lord Sikka, asked about letting firms fail to impose market discipline. The failure of Silicon Valley Bank UK showed there may be some cases where it is in the public interest for the Bank of England to intervene in a small bank failure if doing so mitigates the risk of systemic impacts. However, insolvency remains an important part of the toolkit. It is important to know that any use of the transfer tools in their resolution regime would entail the writedown of regulatory capital. This would impose losses on shareholders and creditors of the firm and is an important means of maintaining market discipline.

The noble Lord, Lord Sikka, also asked about interaction with the corporation tax cap. This Government have been clear about their mission to boost growth; it is vital that the tax system support this. The Chancellor’s commitment on tax was set out in the manifesto. We keep all tax under review, and the Chancellor makes tax policy announcements only at fiscal events in the context of the public finances.

I am grateful to the noble Baroness, Lady Kramer, for her support for the Bill. She raised a number of questions about the ring-fencing exemptions. She specifically raised points about the circumstances surrounding the failure of SVB UK and the decision to provide HSBC with an exemption to the ring-fencing rules. As I alluded to in my opening remarks, this exemption was deemed crucial to ensuring that the sale of SVB UK could proceed. The success of the transaction was necessary to protect SVB UK depositors and the taxpayers, but it did not set a precedent. As I stated earlier, the resolution of SVB UK presented an exceptional set of circumstances that required an exceptional response, recognised by noble Lords across this House at the time.

I recognise the noble Baroness’s important point about ensuring that any resolution action is subject to appropriate scrutiny. That is why the Government have committed in their consultation response to updating their code of practice regarding reports. The Bank of England is already required to submit to the Chancellor to lay before Parliament in the event that this new mechanism is used. We will develop those amendments to the code of practice in due course and consult with the Treasury’s banking liaison panel, which advises on the resolution regime on the precise scope of its content. The noble Baroness invited me to write to her, so if I have not covered all her questions here, I absolutely will in a letter.

The noble Baroness also asked whether the Government are committed to the bail-in procedure. Bail-in is a crucial part of the toolkit for resolving the largest, most systemic banks. There is international consensus behind this.

The noble Baronesses, Lady Kramer and Lady Penn, asked about the impact on medium-sized MREL banks and what consideration the Government have given to the impact on medium-sized banks, which are required to meet their own requirements to hold equity and for debt to be bailed in, known otherwise as MREL, as well as to contribute to the costs of this new mechanism.

The Government recognise the important contribution made by challenger banks and note concerns raised during consultation about the broader policy surrounding MREL. MREL policy is set by the Bank of England, as set out in the Government’s consultation response. The Bank of England will reflect on the feedback raised during consultation and consider whether changes are warranted to its approach to setting MREL policy.

Notwithstanding that, I emphasise the Government’s belief that the funding approach set out in the Bill is targeted and proportionate, ensuring that the banking sector pays only when it needs to, avoiding a new set of upfront costs. The Government have concluded that the entire banking sector, including medium-sized banks, stands to benefit from the new mechanism through the protection of financial stability and the reduced risk of contagion. It will also contribute to ensuring that the UK retains a robust and world-leading resolution regime.

The noble Baroness, Lady Kramer, asked about the new mechanism applying only to small banks without MREL. I think I covered that in my previous answer.

I am grateful to the noble Baroness, Lady Penn, for her support for the Bill. As she says, its origins were cross-party, and I am grateful for her continued support. She raised the issue of using resolution procedure versus insolvency, which the noble Baroness, Lady Kramer, also asked about. Both noble Baronesses asked about the extent to which resolution will be used instead of insolvency, and for an example of where insolvency will be preferred over the new mechanism. I should reiterate that the bank insolvency procedure will remain a vital part of the toolkit and a preferred strategy in the event of many firm failures, and I stress that the Bill is not designed to replace the bank insolvency procedure; it is designed instead to expand the Bank of England’s options when faced with a small bank failure.

Whether to put a failing firm into a resolution is ultimately a decision for the Bank of England in its capacity as resolution authority. It will decide this based on an assessment of the resolution conditions, and in particular on the basis of whether it is in the public interest at the time. It will make this judgment in advancement of the statutory resolution objectives, including to protect financial stability and public funds. Therefore, if the Bank of England judges that the resolution conditions and public interest test for resolution would not be met for a specific bank, it would seek to place that bank into insolvency. That might be for a range of reasons but could include, as an example, a judgment by the Bank of England that the bank’s failure would not have systemic implications for the financial system or create significant disruption for customers.

The noble Baroness, Lady Penn, also asked about the accountability and for an update to the code of practice, and she asked to see the proposed updates to the special resolution regime code of practice alongside this legislation. I am happy to share a draft of the proposed updates with your Lordships at the earliest opportunity, and I can write to the noble Baroness once they are available. I note that the final wording of any proposed updates would be subject to review by a cross-section of representatives from the authorities and industry on the statutory Banking Liaison Panel, which advises the Treasury on the resolution regime, and of course on the final content of the Bill.

The Government’s consultation response noted that the Government anticipate that any reports required under the Banking Act to ensure ex-post scrutiny of the Bank of England’s actions when using the new mechanism would be made public and laid before Parliament as required. I am happy to state that the strong expectation is that such reports required under the Banking Act would be made public and laid before Parliament, and in many cases this is already required by statute.

The noble Baroness asked me to elaborate on where the Banking Act requires such reports to be laid before Parliament and where it does not. Section 80 of the Banking Act requires the Bank of England to report to the Chancellor of the Exchequer on the activities of a bridge bank as soon as reasonably practicable after each year of its existence, and for any such reports to be laid before Parliament. That reflects the fact that use of the bridge bank tool can have a wide range of implications that will likely be of interest and of concern to Parliament, notably the risks that using the tool could carry to public funds.

Section 80A imposes the same requirement to report to Parliament when the Bank of England exercises the bail-in tool. Section 79A of the Banking Act imposes a similar requirement on the Bank of England in relation to the use of the private sector purchaser tool, although there is no requirement for a report under this section to be laid before Parliament.

As I said in my earlier remarks, I can reassure your Lordships that in any event where the new mechanism was used the Treasury would intend to ensure that any such reports were made available to Parliament and the public unless there were clear public interest grounds for not doing so, such as issues of commercial confidentiality.

Since the global financial crisis, resolution policy has been developed as a key means of managing the risks that arise when banks fail. Although that regime has worked well in practice, it is important to learn the lessons from last year’s period of banking sector volatility. This targeted set of enhancements is a key part of the policy response and provides the Bank of England with a more flexible toolkit to respond to the failure of small banks. The Bill recognises that there should be protections for public funds and taxpayers’ money when a banking institution fails. It is a narrow and uncontroversial Bill and has been drafted with the aim of achieving its primary objectives while minimising financial and regulatory burdens on the sector.

The Government have listened to feedback from industry and designed their policy accordingly, ensuring that there is a carve-out for credit unions from the requirement to contribute towards levies for these purposes. The Bill is an important component in ensuring the economic and financial stability that will deliver economic growth.

Bank failures are highly unpredictable and can come about at short notice without warning, so it is right that the Government introduce this Bill now to enhance the resolution toolkit and protect public funds. I hope that your Lordships will recognise the merits of this Bill and are able to support it.

[Lord Moylan (Con)]

Before the noble Lord sits down, unless I missed it, I did not hear him give an answer to my question about whether the Bank of England will be able to recoup legal costs from the funds charged to the Financial Services Compensation Scheme or merely the reimbursement of the recapitalisation costs that would of course go into the bank. If he is not able to answer today, he may wish to write.

[Lord Livermore (Lab)]

I did endeavour to answer quite a lot of the noble Lord’s questions. On that one, I will write to him.

Bill read a second time and committed to a Grand Committee.

Public Spending: Inheritance

Lord Livermore Excerpts

Tuesday 30th July 2024 Lords Chamber

[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.

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

My Lords, I am grateful to the noble Baronesses, Lady Penn and Lady Kramer, for their comments and questions. I thank the noble Baroness, Lady Penn, for her kind words and I welcome her to her place.

The noble Baroness, Lady Penn, asked a number of questions about the decisions we have taken to deal with the public spending inheritance, and she spoke in positive terms about the economic inheritance this Government face. The fact is that the previous Government left the worst inheritance since the Second World War: public services at breaking point, sewage in our rivers, our schools literally crumbling, taxes at a 70-year high, national debt through the roof, and an economy barely out of recession. The British people know that to be true; that is why they voted for change, and it now falls to this Government to clean up the mess left behind. The scale of that mess inherited from the previous Government is serious. The Treasury’s detailed audit of the spending situation published yesterday uncovered a projected overspend of £22 billion this year.

The noble Baroness, Lady Penn, repeated the claim that all that information was known; let us be very clear that that is not true. In her Statement, the Chancellor set out very specific instances of budgets that were overspent and unfunded promises that were made that, crucially, the OBR was not aware of when producing its March forecast.

The director of the Institute for Fiscal Studies said of the previous Government’s spending commitments that they “genuinely appear” to have been unfunded. The noble Baroness, Lady Penn, is very experienced in these matters and fully knows the rules that govern access talks prior to an election. In a letter to the Treasury Select Committee, the chair of the Office for Budget Responsibility confirmed that the OBR was made aware of these spending pressures only last week. He also says that this overspend

“would constitute one of the largest … overspends … outside of the pandemic years”.

He has initiated a review into the information provided to the OBR ahead of the spring Budget.

However, one group of people did know the true scale of what has been uncovered: the previous Government, and they covered it up. The noble Baroness, Lady Penn, mentioned the reserve; the previous Government had exhausted that reserve and spent more than three times over, only three months into the financial year, and yet continued to make unfunded commitment after unfunded commitment, which they knew they could not afford, knowing that the money was not there—and they told no one.

The noble Baroness, Lady Penn, also criticised some of the decisions that we are now taking to clean up the mess that they left behind, including on pay, where the previous Government failed to give any guidance on affordability, to hold a spending review, or to deal with or account for the consequences. Her comments simply remind us that, when they were in Government, they repeatedly ducked the difficult decisions. This is why we have been left with an overspend of £22 billion this year. The scale of that overspend is not sustainable. Not to act is not an option. If left unaddressed, it would have meant a 25% increase in the Government’s financing needs this year, so the Chancellor rightly set out immediate action to reduce pressure on public finances by £5.5 billion this year and by over £8 billion next year.

The noble Baroness, Lady Penn, also asked about the main estimates. Page 7 of the spending audit document that the Treasury published yesterday sets out the position clearly. It reads as follows:

“The government laid Main Estimates for 2024-25 before Parliament on 18 July, the earliest available opportunity after the General Election and considerably later than the usual timetable. These Estimates were prepared before the General Election, and the government was forced to lay them unchanged in order to allow them to be voted on before the summer recess. This was necessary to avoid departments experiencing cash shortages over the summer. The pressures set out in this document represent a more realistic assessment of DEL spending. As usual, departmental spending limits will be finalised at Supplementary Estimates”.


The noble Baroness, Lady Penn, raised the difficult decision that those not in receipt of pension credit will no longer receive the winter fuel payment from this year onwards. That was not an easy decision, but the difficult reality we must face is that the previous Government repeatedly, knowingly and deliberately made commitment after commitment, without ever knowing where the money would come from. The level of the resulting overspend is not sustainable. Left unchecked, it would be a risk to economic stability, so it falls to this Government to take the difficult decisions to make the necessary in-year savings. That means incredibly tough choices; these are not decisions that we want to take or expected to take but necessary and urgent decisions that we must take.

These difficult decisions are the beginning of a process, not the end. There will be a Budget on 30 October. That will involve taking difficult decisions to meet our fiscal rules across spending, welfare and tax. Because challenging trade-offs will remain, the Chancellor also announced a multiyear spending review, which will set out departmental budgets for the next three years. To answer the noble Baroness, Lady Kramer, that spending review will prioritise our manifesto commitments on public services, as well as investment for growth.

The inheritance from the previous Government is unforgivable. After the chaos of partygate, when they knew that trust in politics was at an all-time low, they gave false hope to Britain. When people are already being hurt by their cost of living crisis, they promised solutions that they knew could never be paid for. Then in the election—this is perhaps the most shocking part—they campaigned to do it all over again: more unfunded tax cuts and more spending pledges, all the time knowing that they had no ability to pay for them, no regard for the taxpayer and no respect for working people. This can never happen again. We will take the tough decisions to restore economic stability and to fix the foundations of our economy.

[Lord Fox (LD)]

My Lords, I want to follow up on my noble friend’s comments on the NHS and social care. All of us who were observing the hospital programme could see that it was foundering, costing money and not progressing, so yesterday’s announcement on its future was not surprising. However, the need for new NHS facilities and to upgrade and shore up the NHS estate remains. Communities may well have been sold a pup by the Conservatives, but their needs remain. What are the Government’s plans to pick up and deal with the legacy of a crumbling NHS estate?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his support for the announcements on the hospital building programme yesterday. As he knows, those plans were completely unfunded, behind schedule and overbudget. It is right that we have a full review of them. As I said to the noble Baroness, Lady Kramer, the coming spending review will prioritise the manifesto commitments that we made on public services, including the NHS. We will take forward our commitment to reform adult social care, as he mentioned, and will work towards building a consensus for the reforms needed to build a national care service.

[Lord Wood of Anfield (Lab)]

My Lords, I thank my noble friend the Minister for his Statement. Noble Lords will remember that, in 2010, when Conservative Chancellor George Osborne set up the Office for Budget Responsibility, he said:

“That means there will be nowhere to hide the debts, no way to fiddle the figures, and no way of avoiding the difficult choices that have been put off for too long”.


I think noble Lords will agree that the most shocking thing about yesterday’s Statement was that it was not the Labour Government but the Office for Budget Responsibility—set up by the Conservatives—that made clear that, a week ago, £21.9 billion of unfunded pressures were revealed to it for the first time. I was glad to hear that the Minister, the Chancellor and their colleagues at the Treasury will revisit the OBR charter, but what will the nature of that revisiting be? Will it make sure that, as George Osborne intended, the OBR will not be kept in the dark by any future Government?

[Lord Livermore (Lab)]

I am grateful to my noble friend for his question. Yesterday’s letter from the chair of the Office for Budget Responsibility shows his views on these important overspends being kept from the OBR. My noble friend asks about the reforms that have been announced. As part of the longer-term plan to fix the foundations of the economy, we are going to introduce significant additional reforms to strengthen the fiscal framework and ensure that this can never happen again. Those initial reforms were welcomed yesterday by Richard Hughes, the chair of the OBR. He also said that he will initiate his own review to determine whether those reforms are sufficient, and he may make additional recommendations.

There are two elements to what was announced yesterday. First, we will introduce a fiscal lock, which has already been introduced in the other place as the Budget Responsibility Bill. This fiscal lock will ensure that there is always proper scrutiny of the Government’s fiscal plans. Secondly, we will increase transparency by, in future, requiring the Treasury to share with the OBR its assessment of immediate public spending pressures and enshrine that in the charter for budget responsibility, in essence so that this never happens again—no Government can ever again cover up the true state of public finances.

[Baroness Altmann (Con)]

My Lords, I warmly welcome the noble Lord to the Front Bench and congratulate him on his appointment. We have heard about shock today; I truly confess that I was shocked yesterday to see pensioners being picked on and yet again bearing the brunt of cost savings. This Government promised to protect the triple lock, but what they announced at a stroke yesterday, with virtually no notice, was worse than taking away the triple lock.

The winter fuel payment is worth 3% of the basic state pension for over - 80s. I urge the Government to think again about the enormity of the decision that was made. Three hundred pounds does not sound like a lot to us, but to pensioners who will also have rising energy bills, to 800,000 pensioners who are not claiming pension credit and to those just above the threshold, this is compounding the cliff edge. We have already seen that £300 was taken away in the emergency cost of living payment was last year, and I agreed with that, but I urge the Government to reconsider and think about joining the winter fuel payment with the state pension so that it becomes taxable, saving some money that way. At the very least, they should delay any such decision until they are able to carefully assess the impact on some of the very poorest pensioners.

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her kind words. She is extremely expert in these matters, and I have the greatest respect for her, but I think that her analysis is not correct in terms of the value of the triple lock versus the winter fuel payment. In the other place yesterday, the Chancellor confirmed that pensioners will continue to benefit from the triple lock throughout this Parliament.

On the winter fuel payment, this of course is not an easy decision and I can understand why there is disappointment about it, but it is the right decision in the circumstances. The level of overspend is not sustainable. Left unaddressed, it would have meant a 25% increase in the Government’s financing needs this year, so it falls on this Government to take the difficult decisions to make the necessary in-year savings.

We will, of course, work to maximise the take-up of pension credit in two ways: bringing together the administration of housing benefit and pension credit, and working with older people’s charities and local authorities to raise awareness of pension credit and to help identify households not claiming it.

[Lord Boateng (Lab)]

My Lords, I congratulate the Financial Secretary on his appointment and say how glad many of us are about his return to the Treasury. We recall—as I look around, there are a number of folk who do—his excellent service last time he was in that place.

Will he also please draw to the attention of the House —and Members opposite in particular—that when he was last at the Treasury, the United Kingdom was second only to the United States in increases in productivity and indeed had the highest growth in GDP of any member of the G7? Will he reject the carping criticisms and crocodile tears that have come from Members opposite, here and in the other place? Will he reaffirm his Government’s commitment to building on human capital and innovation to support long-term growth?

[Lord Livermore (Lab)]

I am extremely grateful to my noble friend for his kind words. He is quite right: not only are the previous Government guilty of what we are discussing today, of running up an enormous overspend and of hiding that from Parliament, the public and the Opposition at the time, but they left us with possibly the worst economic inheritance since the Second World War. That contrasts sharply with the performance of the economy under the last Labour Government. Of course, growth is absolutely our priority. That growth will take time, but we are absolutely committed to doing what it takes to return this economy to a sustainable level of growth.

[Baroness Wheatcroft (CB)]

My Lords, I welcome the Minister to his position on the Front Bench. As we listen to this tale of consistent overspend and budget failures being swept under the carpet, it is very hard to imagine that civil servants in several departments were not increasingly unhappy about what was going on, including a lack of a spending review since 2021—extraordinary really. Can the Minister assure those civil servants that they will not be guilty if they come forward and talk of any pressures that have been applied to them? The previous Government had form on that, and I think that there should be an amnesty for any civil servant who was put in a deeply uncomfortable position by, in effect, telling untruths to the country.

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. Of course, at the end of the day, civil servants advise and Ministers decide. We have full confidence in the Treasury and all civil servants in the way that they do their jobs. She is absolutely right that part of the problem was the continual delay to hold a spending review; the last spending review was in 2021. That sits behind so many of these problems: that budgets were never adjusted to account for any of the decisions that were taken subsequent to that spending review.

The Chancellor announced yesterday that she has commissioned the OBR to deliver a full economic and fiscal forecast, which will be presented alongside a Budget on 30 October. She also announced that the Government have launched a multi-year spending review to conclude in spring 2025, setting budgets for at least three years of the five-year forecast period. As part of this, final budgets for this year and next year will be set alongside the Budget on 30 October. The Government are also committed to holding a spending review every two years, which will set departmental expenditure limits for three years, to avoid uncertainty for departments and bring stability back to our public finances.

[The Earl of Effingham (Con)]

My Lords, cost of living crises are created by inflation. There was a generational shock to global supply chains during and after the pandemic, followed by the war in Ukraine, which together caused a serious spike in global energy, food and goods prices. Those factors caused inflation and the ensuing cost of living crisis, not the Government at the time. Therefore, what is the Minister’s assessment of the clause in the Statement which says that people were already being hurt by the previous Government’s cost of living crisis?

[Lord Livermore (Lab)]

I am grateful to the noble Earl for his question. He is absolutely right that the origins of many of the shocks that the British economy experienced were global; however, the UK suffered worse and for longer than many comparative countries. Inflation stayed higher for longer in this country than I think in any other comparative country. The reason for that is the decisions taken by the previous Government, and there were three in particular: austerity, which choked off investment; a badly handled Brexit deal; and the Liz Truss Budget, which crashed the economy and sent mortgage rates spiralling.

[Lord Hain (Lab)]

My Lords, I too congratulate my noble friend the Minister on his appointment, and his performance this afternoon has shown what authority he has in that post. Does he agree that capable Minister though the noble Baroness was, and respected in this House, she cannot possibly believe the guff that she has just read out, sent to her from down the Corridor, no doubt? The truth is, as the letter from the chair of the OBR confirms, they were not told the full information. There was a monumental mess left by the previous Government, who were not straight with the electorate during the election campaign, promising massive tax cuts and huge increases in defence spending which they could not possibly finance.

However, can the Minister confirm that the payments given to doctors and others in the public sector are merited? They are vital public sector workers who have been treated miserably by the previous Government, and justice is at last being done.

--- Later in debate ---

[Lord Livermore (Lab)]

I am very grateful to my noble friend for his kind words. Of course, as always, he is absolutely correct: the previous Government had exhausted the reserve. They had spent it more than three times over only three months into the financial year, yet they continued to make unfunded commitment after unfunded commitment that they knew—cynically—they could not afford, knowing the money was not there. They told no one about this. It is deeply shocking. What is more shocking, as my noble friend said, is that they continued to do this throughout the recent general election campaign. They continued to make unfunded tax and spending commitments with money that they knew, looking back at what they had in the Treasury, was not there to meet any of them. It is deeply shocking not only that they did it but that they learnt nothing from it. From the words of the noble Baroness today, it is still not clear that they have learnt anything from what they did while they were in government.

I join my noble friend in saying that the decision to meet the recommendations of the pay review bodies is absolutely the right one. Again, we have heard nothing but criticism from the other side for that. What is not right is that the previous Government—extraordinarily —published no guidance on what could or not be afforded, nor is it right that they then failed to prepare in any way for those recommendations in departmental budgets, and nor is it right that they had not held a spending review since 2021, which is the root cause for many of these problems.

[Lord Sikka (Lab)]

My Lords, around 2 million pensioners are caught in the income tax net because of frozen tax thresholds. Now, we are taking away another £300 from the same people through a measure that was not in our manifesto. I have already received many messages from pensioners expressing great concern about this. The Government could have introduced a taper to lessen the pain to help many pensioners. Will the Minister give a commitment to have another look at that? Also, this document, produced by the Treasury, has lots of financial numbers but there is no mention of any human cost whatever. Last year, 5,000 pensioners died of cold because they were unable to afford heating. Has he made any estimates of how many more will die because £300 will be taken away from them?

[Lord Livermore (Lab)]

As my noble friend perhaps did not acknowledge, this is not an easy decision and I understand why there is disappointment about it, but it is the right decision in the circumstances. The level of overspend we inherited is simply not sustainable. Left unaddressed, it would have meant a 25% increase in the Government’s financing needs this year, so it falls on this Government to take the difficult decisions to make the necessary in-year savings.

[Earl Attlee (Con)]

My Lords, the noble Lord, Lord Boateng, correctly drew attention to our productivity problems. How much scope does the Minister think there is for improving our productivity? There are, obviously, the welcome planning reforms but how far does he think he can improve our productivity in percentage terms, and to what timescale?

--- Later in debate ---

[Lord Livermore (Lab)]

I am grateful to the noble Earl for that question. He is absolutely right: productivity must be increased because growth is a central mission of this Government, and we will not increase growth sustainably unless we increase productivity. Growth will not, of course, happen overnight. He asked for a timescale. It is difficult to judge, but we have already made significant progress—probably more progress on growth measures—in the first three weeks of being in government than were made over the past 14 years. They include planning reforms to get Britain building; a national wealth fund to catalyse private investment; a pensions investment review to unlock capital; skills England to boost skills across our country; and work across government on a new industrial strategy.

[Lord Sentamu (CB)]

My Lords, I declare an interest. My title is Lord Sentamu, of Lindisfarne, which is in Northumberland. In Berwick, where I live, a hospital is being built. Will the building continue, or is there a question mark because of the finances? Secondly, I want to return to the question of the noble Baroness, Lady Kramer, and the Minister’s colleague, regarding the health service. The Secretary of State for the Department of Health and Social Care said that social care is not fit for purpose. How long are we to wait for the implementation of Dilnot? If social care really is not fit for purpose, I did not hear in the Chancellor’s statement what is going to be done about that challenge to a lot of our citizens. Over the past six months, I have attended a lot of hospitals. The challenge for those who are sick is so big that somebody has got to do something about it.

[Lord Livermore (Lab)]

I am grateful to the noble and right reverend Lord for his question. As was set out yesterday, we will conduct a complete review of the new hospital building programme, with a thorough, realistic and costed timetable for delivery. I cannot give him any specific information on the project he mentioned. As I said to other noble Lords, we are absolutely committed to reforming adult social care to create a sustainable system that delivers for the people who draw on that care, their families and the social care workforce. We will work to build consensus for the reforms needed to build a national care service.

[Lord Eatwell (Lab)]

My Lords, with respect to the details revealed in the Chancellor’s statement yesterday, on some of which the noble Baroness, Lady Penn, casts some doubt, has the Minister noticed the statement published by the IFS yesterday evening? It stated:

“some of the specifics are indeed shocking, and raise some difficult questions for the last government. If the scale of these overspends and spending pressures was apparent in the spring—and in lots of cases, there’s no reason to suppose otherwise—then it is hard to understand why they weren’t made clear or dealt with in the Spring Budget. Jeremy Hunt’s £10 billion cut to national insurance looks ever less defensible”.

Does the Minister agree that the Spring Budget was another example of the economic mismanagement and fiscal irresponsibility that is a persistent characteristic of this Conservative Party?

[Lord Livermore (Lab)]

I am grateful to my noble friend for drawing the House’s attention to yesterday’s remarks from the IFS. It is clear that it is as shocked at the rest of us at the scale of this overspend. I 100% agree with my noble friend that the Spring Budget was just the latest and, fortunately, last episode in 14 years of failure from the party opposite.

Supply and Appropriation (Main Estimates) Bill

Lord Livermore Excerpts

2nd reading & Committee negatived & 3rd reading
Monday 29th July 2024 Lords Chamber

Moved by

[Lord Livermore]

That the Bill be now read a second time.

Bill read a second time. Committee negatived. Standing Order 44 having been dispensed with, the Bill was read a third time and passed.

European Investment Bank

Lord Livermore Excerpts

Wednesday 24th July 2024 Lords Chamber

[Lord Balfe]

To ask His Majesty’s Government what plans they have to seek a closer relationship with the European Investment Bank to encourage investment in the United Kingdom.

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

My Lords, the Government have set out plans to significantly increase investment in the UK economy, including through a new national wealth fund and far-reaching reforms to the planning system. The Government have not set out any specific plans in relation to the European Investment Bank.

[Lord Balfe (Con)]

I thank the Minister for his reply. When we left the European Union, we left the agencies in a particularly violent way. We did not really deal with them at all, but there is nothing in the EIB statutes that precludes it lending to non-EU countries such as the United Kingdom. Will the Government consider opening negotiations with the EIB to get a closer relationship, one that is based not on cherry picking but on the mutual concerns on both sides to get a better spread of investment in the United Kingdom and Europe?

[Lord Livermore (Lab)]

I agree with the substantive points that the noble Lord is making. We need to reset our relationship with the European Union. The Government are committed to doing this in order to strengthen ties, reinforce our commitment to security and tackle barriers to trade. We also need, as he says, to increase investment in our economy, so we have set out significant steps to unlock billions of pounds in private sector investment in the industries of the future through a national wealth fund, planning reform, a pensions review and a modern industrial strategy.

The noble Lord asked specifically about a third-party relationship with the European Investment Bank. Although it is possible to agree such an arrangement, it is unlikely that such an arrangement would provide anything like as much investment into the UK as membership of the EIB did.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, there are substantial links through the financial sector, legacy projects and joint development funding with the EIB at present, and I think there are opportunities that the Government could investigate further in the areas of defence and energy security, which have increased in significance since Brexit and where there is obviously mutual advantage. Will the Government look to explore those areas and make significantly greater political engagement by means of higher-level Civil Service relationships with the EIB and possibly the secondment of staff between the UKIB and the EIB, which could be mutually beneficial? These could all be measures where we could move forward and obtain greater funding or greater joint projects.

[Lord Livermore (Lab)]

The noble Baroness is correct that there are continuing projects in the UK that were financed by the EIB prior to leaving the EU and which it continues to support. I agree with her that there is merit in improving our relationship with the European Union. We have not yet set any plans on working with the European Investment Bank, but I will absolutely consider the point she makes.

[Lord Watts (Lab)]

When we left the European Union we were told that there were loads of trade deals to be done around the world. The previous Government sent people to every quarter of the world to try to do trade deals and failed. Will the Minister redirect his staff into doing something positive rather than waste our time?

[Lord Livermore (Lab)]

I do not think it is a question of either/or. Clearly we need to do more to reset our trade relationships right around the world. We want strong multilateral partnerships with new countries and to reset our relationship with the strongest and closest partners that we have in the European Union. We should work hard to develop stronger trade relationships right across the board.

[Baroness Wheatcroft (CB)]

If the Government are to set a good example about investing in the UK, should they not perhaps start at home and invest a little more of the MPs’ pension fund?

[Lord Livermore (Lab)]

I think that is a question for Parliament rather than the Government.

[Baroness Blackwood of North Oxford (Con)]

I declare my interest as chair of Oxford University Innovation. At the heart of this question is the need to have more scale-up capital invested in UK innovations. Australian pensions invest more than 10 times the amount of capital than we do in private markets. The previous Chancellor was trying to unlock UK pension capitals into our UK innovations. Are the Government going to continue that work and unlock pension capitals into these innovations? How do they intend to make sure that that happens at pace?

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question, and I agree with the premise behind it. We as a country need to get better at start- up and scale-up capital, and we need to increase the levels of investment in our economy. Our goal is absolutely to unlock billions of pounds of private sector investment into the infrastructure that our economy desperately needs. The noble Baroness will be aware that the Chancellor and the new Pensions Minister have launched a review to boost investment, increase pension pots and tackle waste in the pensions system. In order to boost investment in Britain, we want to see more pension schemes investing in fast-growing British firms. As she will know, just a 1% increase in the £800 billion of assets that DC schemes are set to manage by the end of this decade could raise £8 billion of investment into the UK economy. The sectors that she identifies are definitely ones that we should prioritise.

[Baroness Kramer (LD)]

I would not argue for a moment that we should not be turning to UK pension funds as a source of long-term patient capital in the British economy, but will the Minister take on board that for people with small pension pots, for whom risk is very dire, investing their funds in illiquid long-term assets could be a significant blow when they reach retirement and find that their pots have shrunk dramatically?

[Lord Livermore (Lab)]

I agree with the noble Baroness. That absolutely has to be one of the criteria or conditions that we establish as part of the pensions review. I am sure that, as more details are announced, that will be taken into account.

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, I congratulate my noble friend on his patience and understanding in not pointing out to Members opposite who are sitting quietly—not asking questions, even from the Front Bench—that they are the people who got us into this problem in the first place.

[Lord Livermore (Lab)]

Apologies. I was unsure whether that was a question. I am most grateful to my noble friend for his warm words. He knows that I agree with him that we must reset our relationship with our closest and strongest partners in the EU.

[Lord Fox (LD)]

During his very good summing up at the end of Monday’s excellent debate, the Minister did not get a chance to answer some of the questions that I had asked about the national wealth fund, so I will ask one of them now and perhaps he can go through Hansard and look at the others. How will the national wealth fund decide what it is going to invest in? Will it be a strategic investment or purely commercial? Who will be setting the criteria for those investments?

[Lord Livermore (Lab)]

The national wealth fund will work on the same basis as the UK Infrastructure Bank in terms of allocating investment. I think that is the answer to the noble Lord’s question.

[Lord Davies of Brixton (Lab)]

In a similar vein to the question from the noble Lord, Lord Fox, I had a question in the debate on Monday about the first phase of the pensions review, looking at the investment of pension scheme monies in productive economy. I am sure my noble friend will agree that in such discussions the voice of the trade unions that represent scheme members and pensioners through their organisation should be an important part of the debate.

[Lord Livermore (Lab)]

I thank my noble friend for his question. I did not address his question in the debate, because I hoped he knew that I would agree with him, which I do. As part of the pensions review, we will consult all interested bodies.

[Lord Evans of Rainow (Con)]

Will the Minister confirm that, during this pension review, the thousands of savers in pensions over decades will enjoy the 25% tax- free element when they eventually retire?

[Lord Livermore (Lab)]

Yes, I am happy to confirm that.