Financial Markets: Stability

Lord Tunnicliffe Excerpts

Thursday 3rd November 2022 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I congratulate the noble Lord, Lord Sharkey, on securing this important debate. I congratulate all noble Lords who have participated; I enjoyed their critique of various factions. I found particularly helpful the discussion on LDI. Studying it over the last few days, it finally failed a test that I have always found useful: if it looks too good to be true, it probably is, and is in many ways a charade.

I have already welcomed the noble Baroness, Lady Penn, back to her place on the Front Bench. She had no role in the recent economic turmoil, yet she shares responsibility for clearing up the mess. I wish her well—it will be a tough task—and hope her first priority will be to stress to the Chancellor the importance of fairness as he prepares his Autumn Statement. It must place the burden on those with the broadest shoulders, recognising the very serious financial struggles being faced by so many across the country.

It says a lot about the mini-Budget that it was announced less than six weeks ago yet managed to: crash the economy; lose Mr Kwarteng his job; be torn to pieces in record time, in such a public manner; and evict Liz Truss from Downing Street. As we heard during this debate, the damage done by the mini-Budget will not be undone for some time. This was an economic crisis made in Downing Street. Through instability to pension funds and significant hikes in mortgage rates and rents, ordinary people are paying the price for the Conservative Party’s reckless gamble.

On pensions, I admit to leaving the Chamber on Tuesday afternoon with more questions than answers. Responding to questions on the use of liability-driven investment strategies, the Government seemed to have four fallback positions: non-banking activity is subject to different regulation; pension funds had been stress-tested in 2018; the Financial Policy Committee does not believe funds can ensure against all extreme events; and this is an issue of international concern, meaning there is no domestic fix. Let us take each in turn.

First, we will shortly consider a hefty Financial Services and Markets Bill. What provisions, if any, are there in that Bill which may help address concerns around the risks posed by LDIs and indeed any other instruments in the future that create those dilemmas? Is the Treasury actively considering adding any provisions in response to recent events? If so, when will those new measures be introduced?

Secondly, can the Minister confirm whether any additional stress test has been carried out since the exercise in 2018? Do these occur at regular intervals, or was it a one-off exercise?

Thirdly, while it is true that funds may not be able to guard against all possible market events, that does not absolve them of the responsibility to guard against the risks they are taking on behalf of pensions beneficiaries. The FPC will, in due course, come to its own view on where the bar should be set, but does the Treasury have its own position?

Finally, on mortgages, it is true that there is an international element. That is why I used my question on Tuesday to cite the news that other countries’ regulators are expanding their surveillance of activities with links to UK pension funds. The Minister told the House that the Government are advocating for international agreements in this area. Could she outline the forum in which these talks are taking place? Do the discussions pre-date the mini-Budget, or have such talks commenced only since the events in September? Does the Minister believe that the UK has suffered material harm to its international reputation for financial stability?

While the detail and regulation of LDIs is very important, the biggest impact in the UK’s recent financial instability for many people has been the sudden increase in their housing costs. For many, the legacy of Liz Truss’s short spell in Downing Street will be higher mortgage bills or rent costs, not just for the few weeks she was in office but for years to come. The Resolution Foundation warned two weeks ago that more than 5 million households could see their annual mortgage payments rise by £5,100 by the end of 2024. Labour analysis of mortgage market data suggests that the costs may be even higher: those who borrow £200,000 will now spend almost £6,700 more a year than they would have last September.

Of course, these costs may rise further still. The Bank of England will continue to hike interest rates in the coming months as it seeks to bring inflation down. Given that economic picture, there can be little surprise that mortgage approvals for purchases were down 10% over the past month. Many first-time buyers have had their dreams dashed, with banks withdrawing mortgages for those with low deposits and drastically increasing the rates on the products that are left.

Renters are also feeling the pain, with many anecdotal reports of landlords increasing charges to offset higher costs. As the Library briefing outlines, various property firms have produced evidence that rents are spiralling. For many, this was the case even before the mini-Budget—a reflection of the Government’s poor record on housebuilding, regulation, and so on.

People’s lived experience of the last six weeks means that they simply do not believe the Conservative Party’s assertion that the recent economic crisis was driven by international events. Yes, interest rates are rising across the world, but the mortgage and rent hikes seen in the UK are simply not being replicated elsewhere. Other countries’ pension funds did not require a bailout from the national bank. These events were the result of a catastrophic failure of judgment from the former Prime Minister and Chancellor. The new Prime Minister may have acknowledged that mistakes were made, but we are yet to see any evidence that the Government know how to put this right.

The Conservative Party is out of ideas. Only Labour can deliver the stability and growth Britain needs, through strong fiscal rules, an office for value for money, our green prosperity plan, a modern industrial strategy, and our plan to scrap and replace business rates.