Bank of England (Economic Affairs Committee Report)

Lord Northbrook Excerpts

Thursday 2nd May 2024 Lords Chamber

[Lord Northbrook (Con)]

My Lords, I warmly welcome the report of my noble friend Lord Bridges’s Economic Affairs Committee. I will first look at the recommendations, and the Bank’s and the Government’s reactions to them. I will then consider the review by Dr Bernanke into the Bank’s forecast process, and finally give some thoughts of my own on recent years’ inflation and interest rate rises.

As the report states, the then Chancellor, Gordon Brown, set up this new operational independence after the 1997 general election. This had worked well up until 2021, and inflation and interest rates had been kept low.

The committee focused first on the interaction of monetary and fiscal policy. I agree with its recommendation that there should be

“clear lines of responsibility and effective communication between the Bank and HM Treasury”,

especially that HM Treasury should promote

“a fiscal stance which supports the inflation target it has set the Bank”,

particularly when interest rates are close to zero and the Bank has limited space to loosen monetary policy further. I especially support the committee’s view that quantitative easing had

“blurred the lines between monetary and fiscal policy”.

The report states that although QE was undertaken as a monetary policy decision, it had consequences for the management of public debt, so I endorse the report’s suggestion that the Bank and the Debt Management Office

“should draw up and publish a memorandum of understanding which clarifies how the interaction between monetary policy and debt management should operate”.

With regard to the Bank’s remit, I agree with the committee’s conclusion that it had been at risk of being asked to do too much. It should not, as the report says, need to expand it to government policy on climate change. I am completely supportive of the report’s view that giving the Bank’s Monetary Policy Committee and Financial Policy Committee multiple secondary objectives to consider risks drawing the Bank

“into the Government’s wider policy agenda”

and

“jeopardises the Bank’s ability to prioritise price and financial stability”,

which are the primary objectives of the MPC and FPC respectively.

I will move on to the topic of diversity of thought. It is interesting that the committee highlights evidence from witnesses who suggested that a lack of “intellectual diversity” at the Bank contributed to the misdiagnosis of inflation being transitory as it rose from 2021. I approve of the recommendation that

“it is imperative that its membership comprises people of different backgrounds and economic perspectives. The Bank must be pro-active in encouraging a diversity of views and a culture of challenge. This should be reflected in its hiring practices and its appointment procedures”.

I highlight the committee questioning that HM Treasury leads the process for appointing members of the MPC and that many of the appointees have a Treasury background, which

“does not strengthen the perception of independence”.

I approve of the recommendation that HM Treasury and the Bank’s Court of Directors commission an independent review of the appointments process to consider how public appointments are made, what best practice was for other central banks, and to propose measures which ensure that the appointments process is transparent.

Moving on to the subject of forecasting, the report also highlights the role of inadequate modelling techniques in misdiagnosing the rise in inflation. It suggested that this error, made by other central banks as well as the Bank of England, may have reflected a general reliance on dynamic stochastic general equilibrium models. Witnesses argued that, because these models assume that “inflation expectations” play a significant role in determining inflation and that central banks are assumed to be able to effectively influence those expectations through their actions, they tend to predict that inflation will return to its target role over the forecast period. However, although these underlying assumptions may hold in times of economic stability, witnesses suggested that they were unlikely to be valid during periods of significant economic change, leading central banks to underestimate the strength and persistence of inflationary episodes.

Turning to the subject of accountability, I do not agree with the report’s recommendation that the Bank’s actions should be regularly scrutinised by Parliament. The danger of this is that short-termism could re-emerge in its actions. However, I am content with the proposal that

“Parliament conducts an overarching review, supported by expert staff, of the Bank’s remit, operations and performance”

every five years.

The Bank of England’s response of February to the report is very disappointing. The governor, Andrew Bailey, seems to brush aside most criticism or advice, except emphasising that the Bank does focus on its primary objectives.

The Government’s response contained two interesting reactions. The Chancellor said that monetary policy and debt management

“remain distinct areas with separate mandates, responsibilities, and decision-making processes”.

He said that the framework for debt management

“has not changed as a result of developments in monetary policy”

over recent years, such as the introduction of QE. However, he noted that the Government and the Bank were “mindful” of the potential for quantitative tightening to interfere with the debt issuance programme conducted by the Debt Management Office. He noted that the Bank was liaising with the DMO to minimise this risk, in line with a commitment made to the governor in a public letter to the then Chancellor in 2020. Secondly, the Government seem to have taken on board the report’s recommendation that the Bank should not need to focus on subjects such as climate change.

I now move on to the review by Dr Bernanke of the Bank’s forecast process. The review found that the accuracy of the Bank’s economic forecast had

“deteriorated significantly in the past few years”

and noted that

“forecasting performance has worsened to a comparable degree in other central banks and among other UK forecasters”

over the same period.

The review made criticisms in three areas. First, it found that some of the Bank’s key forecasting software was

“out of date and lacks important functionality”.

Secondly, Bernanke suggested that the Bank relied on human judgment to

“paper over problems with the models”,

given the Bank’s bias towards

“making incremental changes in successive forecasts”.

He argued that such an approach was slowing

“recognition of important structural changes in the economy”.

Thirdly, he said that the Bank relied too much on its central economic forecast in communicating its outlook and policy decisions to the public. Fourthly, and most importantly, he recommended that the use of

“fan charts to convey the range of uncertainty”

in the central forecast should be dropped. We await the response of the governor to the review.

Finally, these are my thoughts on what is not in the report and is overlooked by the review. I am afraid that the MPC and the governor were asleep at the wheel. At the Society of Professional Economists dinner in September 2021, when inflation was at nearly double its target, the governor said in his speech that the rise was transitory. I note the special circumstances of Covid and the Ukraine war, but why did the MPC not consult the regional offices to see what was going on on the ground? I was doing a building project at the time and suddenly realised that the cost of bricks, plaster, glass and render was rising in an extraordinary way and they were difficult to get hold of. While I am not an economist, I feel that QE was kept on for too long. As many noble Lords have said, the governor should have paid more attention to the money supply increase that presaged the major inflationary climb in the late 1980s and raised interest rates earlier, which would have limited the rise in inflation.

Spring Budget 2024

Lord Northbrook Excerpts

Monday 18th March 2024 Lords Chamber

[Lord Northbrook (Con)]

My Lords, I start by highlighting some positive decisions in the 2024 Budget. The 2% cut in national insurance is good. I also welcome the cut in capital gains tax and the increase in the limits for full and partial child benefit. The fuel duty freeze continuation is sensible. The introduction of the £5,000 annual ISA in UK shares is innovative. The new tax on vaping products has health benefits, as well as being a pragmatic measure. The increase in the VAT threshold for small businesses is also a good move. On the broader economy, the fall in inflation back towards its 2% target can be considered useful progress. That is the good news.

However, like my noble friend Lady Noakes, overall I found the Budget a big disappointment. With the party 20% behind in the opinion polls, it needed much more to change the public mood towards the Government. Opinion polls since the Budget have shown no change in this position. On the broader economic front, growth forecasts are disappointing. It is interesting to note that the OBR is much more optimistic than the Bank of England and slightly more than the independent forecasters surveyed in February. It is worrying that the OBR reports that 2022-23 remains the fiscal year with the largest year-on-year drop in living standards since ONS records began in the 1950s.

Looking in more detail at government income, I find it depressing that the tax take from business rates is forecast to increase by 33% in the next five years— a huge extra burden on already struggling businesses. When items such as welfare expenditure are forecast to rise by 38% and funded sector public pension schemes by 25%, it can be seen that the revenue is needed. However, business rates need reform to make sure that the larger out-of-town warehouses pay a fairer share and that smaller ones are not clobbered.

Further, on the government receipts side, the figures disprove the statement that, overall, taxes are being reduced for the individual. Of course this is the case with the national insurance reductions, but the freezing of tax allowances for the next five years much more than cancels that out. OBR figures show that the extra tax due in this period, due to fiscal drag, amounts to £187 billion, which is offset by the NI reductions only to the extent of £105 billion, hence taxpayers are on the hook for an extra £81 billion. Central government debt interest merely stabilises at a still worrying annual £110 billion in 2028-29, as against £111 billion in the last tax year.

On the government expenditure side, I note that, according to the OBR, the net cost to the taxpayer of unwinding quantitative easing, assuming interest rates remain the same as now, is forecast to be £104 billion. If gilt yields go up by 1%, the OBR says that this will increase to £157 billion; if they go down by 1%, it will be only £47 billion. This is a worrying extra black hole for the taxpayer. This is a huge incentive for any Government to keep inflation under control, so that interest rates may be reduced.

I turn to individual tax measures. I cannot see the sense in getting rid of the non-domiciled status. In my view, this was a political move to outsmart the proposed policy declared by Labour, without fully thinking through the economic consequences. The forecast of the extra tax gain is highly optimistic, as these non-doms can easily move to countries such as Italy and Portugal which offer them attractive regimes. The UK also loses the benefits of these non-doms running businesses and employing people, as well as VAT on their spending on goods and services. Does not the Minister believe that, overall, the UK is likely to lose tax revenue because of this move?

Secondly, I believe that the Government missed a huge opportunity through timidity by not changing inheritance tax. As the respected political commentator Andrew Pierce pointed out recently, when George Osborne announced in 2007 that the limit before IHT was due was to rise to £1 million, the Labour lead in the opinion polls collapsed and it stopped Gordon Brown calling a general election. Despite advice from Conservative Peers and others, the Chancellor brushed the idea aside—as I understand it, he felt it was too elitist a measure. I think he underestimated the overall popularity it might have gained, as evidenced by Osborne’s 2007 decision. Can the Minister comment?

The next disappointment was the failure to reinstate tax-free shopping for foreign visitors. In November 2020, the OBR forecast that the abolition would generate a £1.8 billion saving to the Treasury, with the caveat that the figures are highly uncertain. Why could not the Chancellors have continued the scheme to clarify this uncertainty? A key challenge for the OBR analysis, highlighted by economic forecasters such as Oxford Economics, is that the research did not examine the impact of TFS schemes on retail expenditure and its broad multiplier effects—for instance, increased economic activity in other sectors beyond retail, such as tourism and more job retention and creation.

The modelling by Oxford Economics of the decision’s impact suggests that the reintroduction of duty-free shopping would have a significant positive effect on GDP, tax yield and job creation. It is not just economic forecasting organisations that support this reinstatement. In August 2023, the Mail on Sunday stated that 350 retailers had backed its campaign—it is now up to 500— along with 40 Conservative MPs. Why should it not be introduced, even on an experimental basis? If I am asked how these tax changes should be financed, how about looking at the welfare budget, which is forecast to increase by nearly 40% over the next five years?

While the Labour Party would likely produce no better tax measures, this Budget was a chance to put blue water between the political parties. Sadly, after careful review, I feel that the Chancellor has missed a huge opportunity to demonstrate that we are a low-tax party. We seem to have forgotten this, as now, despite the NI cuts, we are the most highly taxed since the Second World War.

Autumn Statement 2023

Lord Northbrook Excerpts

Wednesday 29th November 2023 Lords Chamber

[Lord Northbrook (Con)]

My Lords, when I listened to the Autumn Statement, it seemed to contain only good news. On the economic front, public sector net borrowing is reducing; on the tax front, national insurance rates are being cut; with regards to pay, the national living wage is going up by nearly 10%; on benefits, working-age benefit is increasing by nearly 7%; pensions are receiving an 8.5% increase; and businesses are getting permanent full expensing for the cost of qualifying plant and machinery. In other areas, I welcomed help with business rates for smaller companies, reforms of the planning system, additional investment zones, assistance for landlords with housing benefit, and permission for property conversion.

All these measures are most welcome, but when you stand back and look at the overall economy, wage, benefit and tax situations, a much less rosy picture emerges. I am in the camp of my noble friends Lord Frost and Lady Noakes on this. Looking at economic growth, other noble Lords have highlighted the weak growth figures for 2024 and 2025, so I will not repeat that. However, I make a plea to the Minister to make equivalence for the asset investment management business a priority, since this industry has been thrown to the wolves since Brexit.

I move on to the borrowing situation. Our total government debt was £2.6 trillion in October and interest on the debt is forecast at a horrendous £116 billion this year. Not helping on the debt front was the fact that there was too little monitoring of some handouts, especially in the area of Covid bounce-back loans.

On the minimum wage front, the large increase could put considerable pressure on businesses struggling with their overall costs. According to the Sunday Times, business leaders are sounding the alarm that the 10% increase in the minimum wage will substantially drive up their costs and undermine efforts to reduce inflation. The jump was beyond the top of the range recommendation of the Low Pay Commission. Although business leaders recognised the moral case for the rise, they are fretting over the economic impact. Steve Morgan, the founder of the housebuilder Redrow, said that the Government

“don’t realise the knock-on effect of wage rises”

on inflation and

“on those higher up the pay scale”.

Adrian Hanrahan, who runs the Midlands-based chemical company Robinson Brothers, warned that the ripple effect would extend to skilled workers as they saw their less-skilled colleagues gaining ground on their pay. He said:

“They want a differential”.


On benefits, we have a record 2.5 million people who are economically inactive. Although I respect the problems of genuine long-term sickness and disability, this figure is still far too high.

On pensions, I feel that the triple lock system should be changed and increases tapered so that more support can be given elsewhere.

For businesses, the Chancellor failed to point out that, overall, the benefits of the full expensing of qualifying capital expenditure are more than cancelled out by the increase in the corporation tax rate from 19% to 25%. This is proven by looking at table 3.3 in the OBR’s economic and fiscal outlook and comparing it with table 4.3. The benefits of full expensing to companies forecast in the five years from 2023-24 is £19.6 billion, while the extra corporation tax burden in the same period is forecast as £42.8 billion. It does not take complicated arithmetic to work out that these corporate tax changes have an overall net cost to companies of an additional £24.2 billion.

For individuals, the tax and living standards situation is no better. I am sure the Chancellor was not happy that the OBR highlighted both these issues in its economic and fiscal outlook. According to it, the tax burden rises to 37.7% of GDP by 2027-28; that is the highest since the Second World War. The freezing of the personal allowance at £12,570—the point at which people start to pay income tax—means that, as the noble Lord, Lord Sikka, has already said, that 4 million more people will be expected to pay income tax between 2022-23 and 2028-29, according to the OBR. It also estimates that 3 million people will move into the higher rate band and 400,000 people will move into the 45% band. Living standards have recorded their largest reduction since the ONS’s records began in the 1950s.

The Government can turn round and say that all these tax rises were necessary to recoup the costs of state support during Covid and support for Ukraine. They could also point out that the inflation rate is outside their responsibility as it is meant to be controlled by the Bank of England. The sharp increase has deeply affected living standards; I am glad to see it falling. So I have some sympathy with the Government’s reasoning.

Also with regard to inflation, I repeat my previous assertion that the Governor of the Bank of England was asleep at the wheel, carrying on with quantitative easing for far too long and failing to recognise that earlier action was needed with regard to interest rates. In my view, there were obvious signs of price increases, such as in building materials, which should have raised inflationary alarm bells.

I was disappointed that the Chancellor failed to do anything on inheritance tax. I remind noble Lords that, when the then shadow Chancellor announced he would raise the threshold to £1 million in 2007, it was such a popular move that it stopped Gordon Brown holding a general election as the Conservatives surged in the opinion polls. If the Government are nervous about any change and wish to hold back until the Spring Budget, I cannot see any reason for this delay; there will be exactly the same criticism as now. The now well-respected GB News political commentator Piers Pottinger agrees with me that, while the Government are so far behind in the opinion polls, a bold measure such as this is required to win back Conservative voters.

I am also unhappy that the Government did not do anything about the “tourist VAT tax”. The extra benefits of scrapping it include the fact that it brings in additional tourists, who then spend extra money, particularly in shops, restaurants and hotels. In my view, that more than makes up for the revenue lost on VAT.

So, overall, although I am happy that the Autumn Statement did not spook the markets, I am sorry that it did little to reduce the overall tax burden—not that Labour are likely to do this; it could even increase it. The Conservatives are meant to be the party of lower taxation—something we need to remember.

Financial Services and Markets Bill

Lord Northbrook Excerpts

Committee stage
Monday 6th February 2023 Grand Committee

I suggest that these amendments are good but unless there is infrastructure in place they will go nowhere, just as all the previous attempts to control fraud have not really gone anywhere. Fraud will expand because online creates new possibilities of it; that is what the fraudsters are exploiting. I hope that the Minister can confirm that the Sandstorm report will be released fully forthwith and explain why the Government covered up the HSBC fraud, what kind of training the FCA’s staff now receive and why the allegations of banks forging customers’ signatures are yet to be addressed by the Government.

[Lord Northbrook (Con)]

My Lords, I declare an interest as a consultant to an FCA-regulated investment management firm. Like the noble Lord, Lord Hunt of Kings Heath, and others I find it disappointing that the Bill fails to address the growing problem of financial fraud.

There was an interesting article in the Times on Saturday. It said that

“according to the National Fraud Intelligence Bureau, in the last 13 months there has been a reported loss of £4.3 billion from fraud and cybercrime. That is an eyewatering amount of money going into the pockets of criminals … Criminals are getting away scot-free but what is even more worrying is that they know that it is unlikely that any law enforcement are looking for them. This is not because the police are not interested, but simple maths. According to the Social Market Foundation, in 2021 in England and Wales just 1,753 officers and staff were dedicated to economic crimes such as fraud. That equates to just 0.8 per cent of the total workforce and yet”—

as other noble Lords have said—

“fraud accounts for 40 per cent of all reported crime. In many cases … the victims were simply given a crime reference number by the police and told there was nothing more they could do. It remained up to them to try to get their money back from their bank.

If one is determined to find the culprits, an alphabet soup of crime agencies such as the NCA, NECC and NCSC, all with different remits and jurisdictions, awaits. Most people give up and the scammers get to keep their cash.


Unless we increase the number of officers and staff that investigate fraud to reflect the amount of fraud reported we will continue to lose billions to criminals.”


Clause 62 addresses the issue only partly. It enhances protections for victims of authorised push payment fraud, which, according to the shadow Treasury Minister in the other place, quoting UK Finance figures, reached an all-time high of £1.3 billion in 2021. In the other place, the Government promised a review without giving a timescale, but more immediate action is needed.

The Bill ignores the fact that digitally savvy criminals are increasingly exploiting a range of financial institutions, such as payment systems operators, electronic money institutions and crypto asset firms, to scam the public. As my noble friend Lord Naseby mentioned, UK Finance pointed out that, in 2021, 44% of fraud was authorised push payments, about 40% was payment card fraud and 15% was remote banking.

As several noble Lords have already stated, last November, our House of Lords Fraud Act 2006 and Digital Fraud Committee released a report stating that the Government should introduce a new corporate criminal offence to ensure that big tech platforms and telecom companies tackle financial crimes. Under the Online Safety Bill, which is currently going through its stages, online platforms will face a duty of care to protect their users from fraud, but that Bill does not cover telecoms and other related sectors. It is a very good step but more needs to be done, including requiring tech companies to publish data on the nature and volume of scams on their platforms.

Of the amendments in this group, I am very much in favour of the all-encompassing Amendment 209 from the noble Lord, Lord Tunnicliffe, particularly as it includes, under the proposed new subsections (3)(d) and (e),

“telecommunications stakeholders, and … technology-based communication platforms”.

I have been disappointed by the Government’s reaction so far. Although Mr Griffith said in the other place that the Government

“are dedicated to protecting the public from that devastating and sadly growing crime”,

he also said that the Government want

“to be right rather than quick”.—[Official Report, Commons, 7/12/22; cols. 446-47.]

Well, one can be right and quick. As with several other points on this Bill, such as credit card monitoring, the Government do not seem to be moving very fast at all. If we believe the Sunday press, something may be happening, but I await the Minister’s response with interest.

[Baroness Kramer (LD)]

My Lords, the Minister will have picked up the mood of the Committee and I hope she takes it into consideration when she looks at and decides on her remarks. The concern that has been expressed from all sides of the Committee on fraud and the absence of action on it is loud and strong.

I support all the amendments in this group, including those from my noble friend Lady Bowles, and the noble Lords, Lord Hunt, Lord Davies and Lord Tunnicliffe. I particularly recommend my noble friend Lady Bowles’s Amendment 214, which goes after the enablers and facilitators with a “failure to prevent” clause. This group is continuously overlooked and is absolutely pivotal. Action in this area could be really effective and leverage some significant change.

My Amendment 217, in a small way, tries to counter one of the reasons why financial fraud flourishes: the lack of resources for investigation and enforcement against the perpetrators. The noble Lord, Lord Sikka, has addressed some of this.

I, too, am a great fan of Anthony Stansfeld and his personal courage in deciding, as the then police and crime commissioner of Thames Valley Police, to pursue the HBOS Reading fraud case when others had turned it away. That fraud amounted to £800 million and six people—I thought that it was five but the noble Lord, Lord Sikka, said six—went to prison. However, the fine that was levied on Lloyds, as HBOS’s parent, was £45 million. As the noble Lord said, not a single penny of that went back to Thames Valley Police even though the pursuit of the case cost that force £7 million. The consequence of that was heard loud and clear by police forces across the country. They expected that, because of its success, Thames Valley would end up getting reimbursed, and saw clearly when it did not. Since then, no police force has taken on a major case of financial fraud; that dates back to 1977. Frankly, it is a failure of duty. I hope that the Government will finally understand the consequences of that kind of funding decision.

--- Later in debate ---

[Baroness Penn (Con)]

I will absolutely take away the noble Lord’s suggestion. I cannot speak for others but I would be happy to engage further on this before Report, drawing on the other strands of government work; I agree with the noble Lord that it might be useful to have other Ministers there too. I recognise that the other Bills are not as far along as this one is, so we will not be able to pre-empt some of that work, but I think we can co-ordinate it for noble Lords if that would be helpful.

Finally, I was dealing with Amendment 217 and noting that, by law, income from fines imposed by the courts needs to be paid into the consolidated fund. That income is not ring-fenced but is used towards general government expenditure on public services. The Government agree that it is important for bodies responsible for investigating and prosecuting fraud to be appropriately resourced to discharge their responsibility. The NCA’s budget is made up of a number of different funding streams. That budget has increased every year since 2019-20 and, as part of the 2021 spending review, it was allocated a settlement of more than £810 million. This represents an uplift of approximately 14%, or £100 million, compared with the previous spending review. The noble Baroness, Lady Kramer, asked me a few more specific questions beneath those headline figures; perhaps I can write to her and the Committee with that information.

The FCA and the PRA are operationally independent regulators funded by a levy on the firms they regulate. I would like to reassure the noble Baroness that the regulators already have the power to ensure that they are resourced appropriately, without the need to divert funds away from general government expenditure. As I said to the noble Lord, Lord Hunt, I recognise the important principle behind this amendment—that consideration should be given to how the proceeds of fines can support the costs of enforcement activity.

[Lord Northbrook (Con)]

Can the Minister address the point about Thames Valley Police not being reimbursed for the £7 million it spent, which has discouraged other police forces from carrying out those sorts of investigations? Will there be any sort of move to reimburse police forces investigating crimes of this sort?

[Baroness Penn (Con)]

I have heard the point and I acknowledge the principle that this amendment seeks to explore in terms of those incentives, but I point to the NCA’s budget and the regulators’ budgets. We seek to ensure that enforcement agencies have the proper money available to them to take enforcement activity. I also point out that, while the funds currently go into general expenditure, that funding is spent on other public services, so it does not go unspent elsewhere.

Financial Services and Markets Bill

Lord Northbrook Excerpts

Committee stage
Monday 30th January 2023 Grand Committee

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise to express support for Amendment 212 and to make a couple of points about it. I noticed that a couple of days ago the New York Times reported that buy now, pay later is an industry facing “an existential crisis”. I also note that various market analysists are reporting that this is a huge area of growth for the UK economy and the UK financial sector. Putting those two things together is a cause for concern not just for individual consumers, as the noble Lord, Lord Tunnicliffe, set out so clearly, but for the structural impact on the UK economy.

A survey was done for a household debt report by a company called NerdWallet. I cannot attest to the value of the survey, but it confirms what I have observed: 20% of women and 11% of men have used buy now, pay later in what amount to loans. So there is a gender aspect to the use of buy now, pay later. We look at many other areas of our system where women are financially disadvantaged but there is real cause of concern here.

My final point concerns something that really puzzles me—I understand that we may not be able to get an answer on it now. It was reported recently that a company called Zilch, which has 3 million buy now, pay later customers, is planning to report to all the major credit agencies the amount of debt that is being held by its customers. I think customers’ understanding is that it does not show up on their credit records—this is usually a soft search—so they are able to keep borrowing money through this mechanism and it does not show up. I do not quite understand how, if something was taken out on that basis, it can suddenly become declarable to credit rating agencies. This is an area where it is clear that regulation is necessary.

[Lord Northbrook (Con)]

My Lords, I listened with interest to my noble friend Lady Noakes moving her amendment. Clearly, consumer credit is at a record level, due, I am sure, to a long period of low interest rates. I just find, probably deliberately, that the amendment is a little vague. Like the noble Lord, Lord Tunnicliffe, I like the idea of focusing on specific issues such as buy now, pay later. Perhaps more power should be given to the FCA to look at institutions that are offering huge rates of interest on loans.

[Baroness Kramer (LD)]

My Lords, I take a slightly different view on the two amendments in this group.

I say to the noble Baroness, Lady Noakes, on her amendment that I am entirely sympathetic to the idea that we need an up-to-date Consumer Credit Act sooner rather than later. However, I am concerned about the absence of parliamentary engagement in the process. To understand how controversial this is, we just have to look back at some of our discussions on amendments earlier today in which Ministers prayed in aid the Consumer Credit Act for taking no action to protect, for example, small businesses from abuse by a great variety of lenders. It is quite a controversial Act, in many ways, and it is one where, when the Government enter into a review, there tends to be quite a bit of industry capture, as we see in virtually all consultations. Essentially, Parliament tends to be the body that brings forward the consumer voice, so the absence of parliamentary engagement in the process as envisaged in the noble Baroness’s amendment troubles me hugely.

I say to the noble Lord, Lord Tunnicliffe, that we are very supportive of his amendment on buy now, pay later. I am disturbed by the growth of the industry, particularly at a time of such huge economic pressure. I think something like 17 million people in the UK have used buy now, pay later, with two in five young people using it regularly. It is particularly around young people that there is the greatest concern because they lack life experience to recognise the consequences of their purchasing habits and find it particularly tempting to exceed the budget that they should observe because buy now, pay later makes it sound so utterly painless. In discussing this issue, many people have looked at what happens to people when repayment eventually becomes due: individuals find themselves is very deep trouble indeed. That is one of the reasons why I am supportive of this amendment.

I have to say that I get angry with many of the companies that offer this because credit is never free. Someone is picking up the time value of money; in other words, the cost of the financing, the cost that is embedded in the reality that payment comes later. That presumably encompasses all the people who pay on time. I am curious to know whether we have any kind of assessment of how much more people who pay on time are paying as they pick up the cost of the credit that is extended to others. I think there might be some backlash to buy now, pay later, if people were conscious of what is added to their bills as a consequence. I admit that I am one of those stuffy people—I am sure we are laughed at—who pay on time rather than trying to use some mechanism to provide credit, so I admit to a personal interest but, in the end, young people may find themselves trapped.

Financial Services and Markets Bill

Lord Northbrook Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Lord Northbrook (Con)]

My Lords, first, I declare an interest as a consultant to an FCA-regulated investment management firm. Overall, I strongly welcome this Bill, as do important UK financial institutions, including the Investment Association, UK Finance, TheCityUK and Linklaters’ Financial Regulation Group, to name but four.

Politically, the Bill seems to be generally supported by all major parties. I particularly welcome the provision to establish a regime to regulate stablecoins. I also like the idea of bringing in measures to allow regulators to reduce regulations in order to enable technological innovation in a sandbox. I also approve of the measure allowing regulators to make rules for entities deemed to pose systemic risks to the UK’s financial markets. As the Prime Minister said in his Back-Bench speech at Second Reading:

“Why does all this matter? It matters for three specific reasons. The first is jobs. The industry provides more than 1 million jobs, and not just in London and the south-east; two-thirds of those jobs are in places such as Southampton, Chester, Bournemouth, Glasgow, Belfast, Edinburgh and Leeds. It is incredibly important. Secondly, it is one of the most important industries for our economy in terms of contribution to our GDP and tax revenues, and it is something that we as a country are genuinely world-class at.”—[Official Report, Commons, 7/9/22; col. 292.]


I recognise that the City is now in a very different place from where it was in 2016. The consensus view is that the ship has now sailed on regulatory equivalence with Europe. However, the fact is that, since 2018, the volume of financial exports to the EU has fallen by 19% in cash terms. Some £1.3 trillion of UK assets have reportedly moved to the EU and there has been little progress on securing trade deals for our financial services around the world—although Switzerland was mentioned earlier.

Still, in 2021, exports of financial services to the EU were worth £20.1 billion—33% of all UK financial services exports. So is it wise just to repeal all the 200-plus pieces of retained EU law en bloc rather than identifying which are helpful and necessary? Also, the sector is disappointed that the Government have so far failed to finalise a memorandum of understanding on regulatory co-operation or negotiate with the EU for the mutual recognition of professional qualifications for our service sectors. In her winding-up speech, will the Minister tell us what impact she believes this Bill will have in securing these important agreements with the EU and boosting financial services exports more generally?

I move on to what has not been included in the Bill. I agree with my noble friend Lord Balfe: I feel that the Bill lacks ambition in its lack of support for the mutual and co-operative sector. Although Clause 63 contains some welcome and long-overdue provisions, such as enabling credit unions to offer a wider range of products, the Bill does little to address the outdated regulatory regime faced by credit unions, building societies and co-operative banks. We have seen numerous building societies threatened with demutualisation in recent years, while the number of mutual credit unions has plummeted by more than 20% since 2016. Unlike the USA—and many other European countries, as I understand it—the UK is uniquely lacking in co-operatively or mutually owned regional banks. That lack of diversity in the financial services sector has had bad consequences for financial inclusion and resilience, with many desperate families forced into the arms of unethical lenders.

Next, like the noble Lord, Lord Hunt of Kings Heath, and other noble Lords, I find it disappointing that the Bill fails fully to address the growing problem of financial fraud. Clause 62 only partially addresses the issue. It enhances protections for victims of authorised push payment fraud, which, according to the Labour Treasury Minister in the other place, quoting UK Finance figures, reached an all-time high of £1.3 billion in 2020. The Government in the other place promised a review without giving a timescale, but more immediate action is needed. The Bill ignores the fact that digital-savvy criminals are increasingly exploiting a range of financial institutions such as payment system operators, electronic money institutions and crypto asset firms to scam the public. According to UK Finance, in 2020, 45% of the £1.3 billion was payment card fraud, while 38% was authorised push payment and 16% was remote banking.

Last November, our House of Lords Fraud Act 2006 and Digital Fraud Committee released a report stating that the Government should introduce a new corporate criminal offence to ensure that big tech platforms and telecom companies tackle financial crime. While online platforms will face a duty of care to protect their users from fraud under the Online Safety Bill currently going through its stages in the other place, it does not cover telecoms and other related sectors:

“‘It’s a very good step but I do think that more needs to be done,’ said Sian McIntyre, a managing director at Barclays UK, including requiring tech companies to publish data on the nature and volume of scams on their platforms.”


I support other noble Lords’ views on the limitation of Treasury Select Committee scrutiny, general clarity on crypto regulation, regulators’ requirements to focus on international competitors, problems of buy now, pay later, and the opportunity to still have a cash option. In summary, I welcome the Bill and look forward to scrutinising it further in Committee.