Buckinghamshire Council, Surrey County Council and Warwickshire County Council (Housing and Regeneration Functions) Regulations 2025
(2 days, 22 hours ago)
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Baroness Taylor of Stevenage
That the Grand Committee do consider the Buckinghamshire Council, Surrey County Council and Warwickshire County Council (Housing and Regeneration Functions) Regulations 2025.
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Baroness Taylor of Stevenage) (Lab)
My Lords, these regulations were laid before the House on 9 June and provide for the implementation of the devolution deals confirmed on 6 March 2024 between the previous Government and the three councils concerned. This Government have shown their commitment to devolution, moving power from the centre and into the hands of local communities. In May 2025, all three councils consented to the making of this instrument.
If Parliament approves them, the regulations will be made under the enabling provision in the Cities and Local Government Devolution Act 2016. The provisions of the regulations will come into force on the day after the day the regulations are made. The regulations confer housing and regeneration functions on the respective councils, as set out in their devolution agreements. As required, alongside the regulations, we have laid a Section 17(6) report providing details about the public authority functions being devolved to the councils.
Additional funding will be available to the three areas through the adult skills fund, to be devolved to the councils from the 2026-27 academic year, alongside education and skills functions. The Department for Education will work with the councils to support their preparations and aid their meeting the necessary readiness criteria. The Government will legislate in due course, when the Secretary of State for Education is assured that the councils are operationally ready and is satisfied that the required statutory tests have been met in each area.
In December 2024, the three councils submitted supporting information on their potential use of the proposed functions. For this, they had engaged with local stakeholders, which showed local support for the conferral of the new functions upon each of these councils. In laying this instrument before Parliament, the Secretary of State is satisfied that the statutory tests in the 2016 Act are met; namely, that the making of the regulations is likely to improve the economic, social and environmental well-being of some or all of the people who live or work in the relevant local authorities’ areas.
To conclude, these regulations will move forward this Government’s agenda of English devolution, empowering local leaders to make decisions that will benefit their communities. I extend my thanks to the local leaders and their councils for their hard work and the vital role that they play in making this critical mission a reality in their areas. I hope that noble Lords will join me in supporting the draft regulations, which I commend to the Committee. I beg to move.
Lord Jamieson (Con)
My Lords, I refer to my interest as a councillor in central Bedfordshire. I support this statutory instrument, which confers housing and regeneration functions upon Buckinghamshire Council, Surrey County Council and Warwickshire County Council, to be exercised concurrently with Homes England. This instrument follows the level 2 devolution framework arrangements made in March 2024 between the previous Conservative Government and the three local authorities, as the Minister has rightly outlined.
The regulations grant a suite of powers relating to housing and regeneration. Specifically, they enable councils to take on responsibility for the provision of housing, regeneration of land and infrastructure, and the acquisition and disposal of land. These are important functions previously held by Homes England. As a councillor and ex-council leader, I know how doing this locally is so much better than doing it nationally. It allows things to be done in a way that delivers better outcomes for residents, frequently at lower cost.
We on these Benches support these measures and welcome the Government’s continued commitment to advancing devolution in these areas. The statutory instrument, as the Minister has already laid out, honours the agreement made in good faith by local leaders under the previous Government and reflects what we hope will remain a shared cross-party commitment to empowering local communities to shape their own future.
In the cases of Surrey and Warwickshire, the inclusion of a safeguard requiring district council consent for the use of compulsory purchase orders under the Housing and Regeneration Act 2008 is a particularly welcome provision. It recognises the reality of two-tier local government in those areas and helps preserve the principle of local democratic accountability. We welcome the Minister’s confirmation that these powers cannot be exercised without that consent.
We are also mindful that these arrangements come at a time of wider transition in the local government landscape. As the Government prepare to introduce the English Devolution and Community Empowerment Bill, we would welcome clarity in due course on how existing level 2 agreements, such as those we are discussing today, will align with any new combined authority or mayoral structures that may follow in these areas.
In conclusion, we believe that this statutory instrument is a positive and practical step. It strengthens local leadership and provides councils with important tools to deliver housing, regenerate communities and respond to local priorities. It is right that we uphold the commitments made through the devolution framework agreements; we are pleased to support the implementation of this measure today.
Baroness Taylor of Stevenage (Lab)
I am grateful for the support of the noble Lord, Lord Jamieson, for this instrument. He is a fellow council leader; we often discussed these matters when we were both council leaders. I totally support what he said about decisions being better taken at the local level than by central government when they affect local areas, and I appreciate both his comments and his support for the instrument.
I will comment on the noble Lord’s points about the integration of these proposals with what is happening with the English Devolution and Community Empowerment Bill, which, as we know, had its Second Reading in the other place yesterday. The noble Lord will be aware that the Government’s strong preference is for partnerships that bring more than one local authority together over a larger geography, to unlock further devolution. These steps are seen very much as foundation steps towards achieving that.
On the areas under discussion today, Buckinghamshire Council will need to form a mayoral strategic authority over more than one council footprint. These regulations will ensure that Surrey will see early benefits from devolution in the short term as all options to unlock deeper devolution are assessed. As the noble Lord, Lord Jamieson, will be aware, the Government recently consulted on two proposals that came forward for unitary local government in Surrey; a decision will be made on which of those proposals to implement.
These regulations will ensure that Warwickshire also sees early benefits from devolution in the short term as all options to unlock deeper devolution are assessed. The Government recently invited proposals for unitary local government in Warwickshire; we look forward to hearing from local government colleagues there when we get closer to those being submitted.
In conclusion, the instrument delivers on the commitment made in devolution agreements with Buckinghamshire, Surrey and Warwickshire councils to confer housing and regeneration functions on each local authority. I am grateful for the support for it.
Local Audit (Amendment of Definition of Smaller Authority) Regulations 2025
(2 days, 22 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Baroness Taylor of Stevenage
That the Grand Committee do consider the Local Audit (Amendment of Definition of Smaller Authority) Regulations 2025.
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Baroness Taylor of Stevenage) (Lab)
My Lords, these regulations were laid before the House on 16 June 2025.
Effective local audit is vital for local accountability and transparency. The Government are committed to reforming the local audit system, including by addressing long-standing concerns around proportionality and capacity. Smaller authorities include parish and town councils, internal drainage boards, port authorities and parish meetings. They provide valued local services, from running community halls and allotments to managing small ports and drainage systems, but they do not require the same extensive audit arrangements as larger public bodies.
Much of our reform programme is focused on fixing the principal authority regime, which we know faces serious challenges; I have spoken about this many times, both in my shadow role and in the ministerial role that I hold now. It is important that the audit system for smaller authorities remains sustainable and works well. These regulations, along with other measures, will help ensure that the system as a whole remains proportionate and responsive to feedback.
We are certainly not removing scrutiny or accountability for smaller authorities. That will continue to be provided through the annual governance and accountability return. We have also committed to reviewing the AGAR so that it continues to be effective by enhancing transparency while keeping administrative burdens proportionate.
Increasing the threshold for small authorities is designed to prevent smaller bodies being drawn into the principal audit regime in future. This would be wholly disproportionate, given their size and responsibilities. Raising the threshold to £15 million is not about reducing oversight; it is about ensuring that the regulatory framework remains fair, proportionate and suitable for purpose. This change will allow smaller authorities to focus their time and resources on delivering essential services rather than navigating financial reporting, assurance and audit requirements that are out of step with their scale and responsibilities.
The threshold for smaller authorities has not changed since it was introduced in 2014. More than a decade on, it no longer reflects today’s financial environment. What was once a sensible level is now outdated, creating unnecessary pressures for smaller authorities whose financial activity has grown over time. These smaller authorities do not have the same breadth of services, assets or liabilities as even the smallest district council, yet, under the current arrangements, they risk being subject to a full financial audit at a level that brings significant cost and resource implications and draws on scarce audit capacity that should be focused on principal authorities.
Our local audit reform strategy recognises the need for a more proportionate approach to audit arrangements that reflects an organisation’s functions and complexity rather than simply its size. Subject to parliamentary approval of the audit measures set out in the English Devolution and Community Empowerment Bill, the local audit office will work closely with the department to take that forward.
This instrument raises the audit threshold for smaller authorities to £15 million, applying from the 2025-26 financial year. This is a proportionate reform that reduces unnecessary audit requirements, helps to free up capacity in the principal audit market and ensures that auditors can concentrate on those areas where assurance is most needed. The regulations, if approved by Parliament, will be made under the enabling provision in the Local Audit and Accountability Act 2014 and will take effect the day after they are made.
I am sure that our discussion today will show that we share a common goal to ensure that audit arrangements remain proportionate to allow local authorities and other local bodies to focus on delivering for their communities. I look forward to answering any questions that noble Lords might have and to participating in our discussion on this instrument today. I therefore commend the draft regulations to the Committee. I hope that noble Lords will join me in supporting them.
Lord Sikka (Lab)
My Lords, the local authority audit system was wrecked by the previous Government. Electoral Commission data shows that in the period leading to the 2010 general election big accounting firms handed millions of pounds in cash and non-cash donations to the Conservative Party and got their wish, which was the abolition of the Audit Commission. The commission used to make considerable use of the district auditor service, as has been mentioned, and was reluctant to award auditor appointments to big accounting firms as they were not really considered to be fit for the purpose. The commission was a watchdog and a guide dog as it focused on efficiency and effectiveness and guaranteed auditor independence. Since then, we have had several local authority scandals, but big accounting firms have continued to collect millions of pounds in audit fees. I look forward to the English Devolution and Community Empowerment Bill when it comes, but meanwhile I have a number of concerns about local authority audit matters.
The Government’s 9 April 2025 paper Local Audit Reform: A Strategy for Overhauling the Local Audit System in England stated:
“Audited accounts are a vital and independent source of evidence of the sector’s financial health and value for money for residents, local bodies and elected members”.
It adds that audit provides,
“the only independent check on whether local bodies’ financial statements are true and fair. This is vital not only for good decision-making but for transparency and to enable local communities to hold their councils and other local bodies to account”.
However the statutory instrument in front of us actually dilutes the audit requirements for smaller authorities. Can the Minister explain how the Government’s claims of an “independent check” and “transparency” will be delivered in the absence of independent scrutiny, which the Minister just praised?
Lord Fuller (Con)
My Lords, I declare an interest as I have, in the past few days, stepped down as the vice-chairman of the local government resources panel, which has oversight of audit and accountancy within the Local Government Association. In that guise, I have been very well acquainted with the difficulties in local government audit.
If there is a villain of the piece—I use that word advisedly—the noble Lord, Lord Porter, when he was chairman of the Local Government Association struck a wonderful deal that established the PSAA, referred to by the noble Lord, Lord Sikka. He drove down those costs and council tax payers benefited from low-cost audit for many years. With the benefit of hindsight, however, perhaps he did too good a job, because it came to pass that it was very difficult for audit practitioners to recruit the right staff at the right level, and they got behind.
We ended up in regrettable circumstances—through no fault of the noble Lord, Lord Porter, I stress—aggravated by Covid, in which a number of local authorities had failed to sign off their accounts. I cannot remember the precise details but some were four or five years old—so old, in fact, that the authorities concerned no longer existed because they had been reorganised away. I am very pleased that the previous Government, belatedly perhaps, took a grip. A line was drawn in the sand and some transitional arrangements made, and now things are much better.
However, I am very concerned that we now see the increase in the threshold. I appreciate that we need to increase the threshold value, but going from £6.5 million to £15 million is a huge increase—of 230% in one bite. That will mean that some of the smaller authorities, which hitherto have been contained within the audit regulations—I will give some examples presently—no longer will be.
I am seeking reassurance because we are establishing the definition of a smaller authority. I cannot be blind to the notion—the Minister referred to it in the earlier debate—that we have a local government devolution and reorganisation Bill in the other place; it passed Second Reading yesterday. In that circumstance, we will see a large number of smaller principal authorities, which are subject to the full audit regime, fall into the third tier of local government—that is, they will not be subject to the 5% or £5 council tax increase cap, if I may use that word.
I want to highlight the example of Salisbury City Council. It used to be a district council and a principal authority but, since the reorganisations in Wiltshire, that is no longer the case. In the past four years, it has jacked up its council tax by 44%. I note that its total precept for this year is only £6.065 million, marginally below the threshold limit to which it is subject. Its gross income is £8.64 million. Currently, it is part of the arrangement to have a full audit. Having jacked up council tax by 44% over the past four years, I think it should be. If it is increased to £15 million, however, what assurance can the local people—the long-suffering residents of Salisbury—have that the council has their best interests at heart? By contrast, the Wiltshire unitary authority, which has assumed responsibility for most of the expensive services, put its council tax up by only 4.5% last year.
I am concerned that this definition will, in due course—not today, because I am conscious that we are concerned solely with audit—be used, as we go through local government reorganisation, to give a free pass to some of the smaller city councils and larger town councils, which will inevitably will fall out of the LGR process and let them let rip. Of course, it is not just the district councils, it is the internal drainage boards. I am concerned about the case of Great Yarmouth Borough Council, which had an increase in the internal drainage board levy of 91% last year, which the council was mandated to pass on to local taxpayers. Over the past few years, it has gone up by 117%. That means that because the district council in Great Yarmouth is a principal authority, it could put its council tax up by only £5, but 91% of that was as a result of the unavoidable increase from the internal drainage board that lies within it. That meant that only 9%, just £26,000 of the increase in council tax in that historic borough—I declare an interest because my business is in that borough, but I do not pay council tax there—could be devoted to the provision and improvement of local services. We shall see a whole class of authority that would currently be within the £6.5 million but will no longer be caught if the threshold rises to £15 million.
I want to highlight the example of the Broads Authority, which is well known for its governance failings. It is well known to be a dysfunctional organisation and, in the interests of transparency, I have in the past made complaints to that body through the mishandling of certain planning matters. Its gross budget is £9.7 million. If ever an organisation needed the close scrutiny of a full audit, it is the Broads Authority and now it will be given a free pass. It will be let off from public scrutiny. This is the unintended consequence of this legislation.
Finally, I want to get the definition of “smaller authority” on the record in the context of local government reorganisation, and ask the Minister what the Government’s intentions are. If it is contemplated that this definition of “smaller authority”—the £15 million threshold—will be used post local government reorganisation, when some of these smaller cities, such as Salisbury, or larger towns such as Scarborough or Shrewsbury, which are certainly covered by the audit now but would not be in future, is it proposed that this definition will cap them at £5 or 5%? There will have to be some reckoning. We cannot have a situation whereby only the large unitary authorities that will be formed after LGR have their council tax capped at £5 or 5%. What is the Government’s view about capping, limiting and putting the local taxpayer first from some of these much larger authorities, which will take on other responsibilities—possibly for local culture, parks and dog bins—when their current responsibilities for social care, planning, housing and homelessness are removed? We cannot have a situation where a 230% increase in threshold allows a new class of large, small authority to let rip at the expense of local taxpayers.
Lord Shipley (LD)
My Lords, I am grateful to the Minister for explaining the statutory instrument. I share many of the perspectives of the noble Lords, Lord Sikka and Lord Fuller. I hope the Minister, in replying, will be able to meet some of the concerns expressed. The context, as we have heard, is the abolition of the Audit Commission 10 years ago. It was supposed to save £100 million a year but it did not do that. It was supposed to make local audit more efficient and it did not do that. It has not saved money. Costs have risen substantially since 2015. The private sector was supposed to take over from the Audit Commission but it has not worked like that, because there have been nowhere near enough trained auditors. There have been, as we have heard, huge delays in the audits of English local authorities. That is the background to this draft statutory instrument.
Lord Fuller (Con)
As the noble Lord, Lord Shipley, was speaking, I was looking at the RPI tables from the Office for National Statistics. Had the £6.5 million been increased by inflation, it would have been £10.3 million. So we are seeing a proposed threshold that is fully 50% greater than the increase in inflation over the same period. I just wonder whether that might help the noble Lord’s argument.
Lord Shipley (LD)
I thank the noble Lord for that intervention. It may be that RPI is the right way of doing it. I do not know why he took RPI there and not CPI. However, the issue is: why, in fact, are the Government not going to peg the £15 million to inflation? At what point will that figure then be adjusted because inflation continues to rise? We have to have a debate about that fact, but I thank the noble Lord, Lord Fuller, for explaining the RPI figures since 2014. Clearly, it may be that £15 million is the correct figure, but I would like to know what assessment the department has made of the implications of that figure on the number of local authorities that will be taken out of the full audit requirement?
Lord Jamieson (Con)
My Lords, again, I raise my interest as a councillor in central Bedfordshire, which, just being slightly boastful, is a council that for the 10 years I was leader had its accounts audited and signed off every year within the deadline and was one of the few councils to do so.
I am grateful to the Minister for introducing this statutory instrument. The instrument raises the threshold, as has been discussed, to £15 million in annual income or expenditure. Public bodies below this will no longer need to have the full audit and can follow the streamlined annual governance and accountability return—AGAR—process.
This reform is in response to the long-standing and well documented challenges that England’s local audit system faces. It is worth noting that this is not a new policy initiative. The foundations were laid under the previous Conservative Government, who published the consultation in December 2024, setting out proposals to overhaul the local audit framework. The consultation highlighted widespread concerns around audit capacity proportionality and long-term sustainability. A formal response was subsequently published on 9 April 2025. I ask the Minister to update the Committee on progress towards implementing the remaining elements of this broader strategy.
We believe that the instrument before us is a pragmatic and proportionate reform. It recognises that many smaller authorities do not carry the same level of financial risk as larger bodies and should not be burdened with audit requirements that are both costly and unnecessary where they are unnecessary.
The Government have suggested that this change will ease the financial and administrative burden on smaller authorities, reduce the pressure on the over- stretched audit market and allow scarce audit resources to be better focused on higher-risk councils where scrutiny is most urgently needed. We note that 55% of the consultation respondents supported raising the threshold, indicating that the proposal carries a degree of support from within the sector itself.
In closing, I would be grateful if the Minister could address a few further points. First, what safeguards are in place to ensure that smaller authorities, no longer subject to the full audit, continue to operate with high standards of financial transparency and sound governance, which I think addresses the point that the noble Lord, Lord Sikka, was raising? While £15 million is a sensible threshold, will other factors be taken into account, such as the debt levels of councils? A council that is heavily in debt, even if it is just below the £15 million threshold, is clearly at much higher risk than one that is just above it and has no debt.
Secondly, will the department be issuing updated guidance to support these authorities as they continue using the AGAR framework? As my noble friend Lord Fuller mentioned, are there other consequences that are not in this paper, and that are coming as a change to this definition, that we are not considering today and should be considered?
Finally, can the Minister provide an update on the progress of the wider local audit reform programme, as set out in December 2024? In particular, will she address the issues of proportionality, risk-based accounting and focusing that limited resource on higher-risk areas and not on low-risk, bureaucratic processes?
I have one other question; I apologise. Can the Minister update the Committee on how the Government are addressing the shortage of local government audit practitioners?
These are my last few sentences. We support this instrument in principle. It is a sensible step forward towards a more proportionate, risk-based local audit regime. However, I raise those various issues. We need to ensure that there is robust oversight, transparency and regular review, to ensure that public accountability is not diminished in the process.
Baroness Taylor of Stevenage (Lab)
My Lords, I thank all noble Lords who have contributed to this interesting debate. As noble Lords will know, I spent a lot of time on the same board that the noble Lord, Lord Fuller, sat on: the LGA Resources Board.
We have talked a lot about the history of the abolition of the Audit Commission. I do not think that any of us want to go back down that route. Although the steps that were taken were taken with good intent and might have driven down costs, the complexity of local government audit was, I think, underestimated. We ended up in a situation where we had a significant backlog of audits and where some of the smaller local authorities were subject to what the noble Lord, Lord Jamieson, referred to as unnecessary bureaucracy and financial reporting. That did not help anybody, which is why the Government are firmly committed to bringing forward reform of the local audit system more generally. Much of that is contained in the English Devolution and Community Empowerment Bill. I hope—indeed, I am sure—that we will have some more interesting discussions on the wider issues around audit during the passage of that Bill.
I will pick up some of the points that have been made here today. Nobody wants to see audit improve more than I do. The importance of reassuring local people that their councils are operating in a financially sound manner cannot be underestimated; that is vital, so we want to see it working well.
On my noble friend Lord Sikka’s comments, there is significant provision for this smaller authority audit regime to continue to provide transparency to the public, through the annual governance and accountability return, and for authorities under the £15 million threshold. We believe that this is both proportionate and sufficient. The regime still includes requirements for transparency, public inspection rights and the ability of local electors to raise concerns with external auditors. Local electors will retain the right to inspect accounts and raise their concerns; this will ensure that public oversight and accountability are still there even when those full audits are no longer required.
I think that my noble friend’s points about the oversight bodies will be more usefully discussed when we discuss the wider audit picture. I understand the points that he makes and I am sure that we will have those discussions in due course; I am grateful for his contribution.
The noble Lord, Lord Fuller, spoke about the audit failings with which anyone in local government is very familiar. I will start with his comments about proportionality; I will come on to the issues around authorities in a moment.
The way that this will work is that, if district or higher-tier councils fall below the new threshold, they will become a smaller authority for that year. In the following two years, even if it goes over the threshold in those two years, the department will work with any affected authorities to agree what the appropriate approach should be. By avoiding unnecessary financial reporting and audit costs, those smaller councils will be able to focus their money on where it matters most: supporting local communities and delivering essential services.
The noble Lord raised the important point about council tax capping in those small authorities. It is not intended that these regulations will be in any way related to the council tax capping regime. They are simply about determining financial reporting assurance and the audit regime requirements for local authorities. That is the intent.
The noble Lord raised the Broads Authority. I refer to my previous comments about public scrutiny. Obviously, the governance of the Broads Authority is for the electorate to determine, eventually.
The noble Lord asked whether the definition would cap smaller towns at a 5% council tax cap. I hope that what I have said makes it clear that this regime is not linked to the council tax capping regime, so there should not be an impact on that.
Lord Fuller (Con)
I am grateful to the Minister for that important clarification, which will give local taxpayers a great degree of reassurance that this is wholly separate from the LGR process.
Baroness Taylor of Stevenage (Lab)
I am grateful to the noble Lord for raising the issue and giving me the opportunity to clarify that.
The noble Lord, Lord Shipley, referred to the history of the abolition of the Audit Commission. He asked me about the 2014 threshold and there being no impact assessment. I cannot answer his specific question about how many authorities are taken out of this regime, but I will reply in writing to that question.
The way that this has been developed is that we have been very responsive to stakeholder feedback following the consultation that was initiated. The view of stakeholders is that £15 million will be the appropriate threshold ahead of the Secretary of State undertaking a wider review of audit regimes to make sure that they are all fit for purpose as we enter the new local audit office regime. I hope that answers the substantive question that he asked me.
Aligning audit thresholds with inflation in the future is an important issue. We need to make sure that we do not get ourselves into the same bind that we have before of audit regimes that get out of sync with what is happening in local authorities. Subject to parliamentary approval, the local audit office will work with the department to advance a more proportionate approach and remove the sorts of cliff edges that come from purely financial threshold-based approaches. Our intent is to work with the sector and the local audit office to change that approach.
The noble Lord, Lord Jamieson, asked about progress on implementation. This is a first step. Also picking up the points made by the noble Lord, Lord Fuller, about Salisbury City Council and Lindsey Marsh Drainage Board, our engagement with the sector demonstrates that uplifting the upper threshold should be prioritised ahead of the local audit office’s establishment, particularly given the issues with the authorities that noble Lords have mentioned, because they already exceed the upper threshold and they found it impossible to get auditors to do their audit. That is the reason why this has been done ahead of that, but progress on the local audit office is going through. We know that there was a Second Reading in the other place yesterday. I hope my response to the noble Lord, Lord Sikka, on local transparency helps to answer some of the questions from the noble Lord, Lord Jamieson.
Lord Sikka (Lab)
Can the Minister confirm that there is no cost-benefit analysis or impact statement in relation to this statutory instrument? I am particularly interested in what the cost of not doing the audits might be, whether financial or non-financial in terms of risks, impropriety, and so on. Can she confirm whether there is no analysis or whether the Government plan to do some? Either way, clarification would be helpful.
Baroness Taylor of Stevenage (Lab)
It is not usual to have an impact statement for an instrument such as this. There will be an impact statement for the Bill, of course, when it comes forward with the local audit office proposals. However, I can tell my noble friend that the assurance reviews to which smaller authorities are subject cost between £210 and £3,780.
On principal audits, anyone who has been part of a local authority knows that when the audit bill comes in every year, it is a significant cost to the local authority. It can range from £70,000 to more than £1 million. My local authority is a relatively small authority in Hertfordshire but, when I stepped down from it, the bill was already well over £130,000. That is an enormous cost on the taxpayer. If it is not proportionate and necessary, we should be taking that burden away from council tax payers and letting local authorities spend that money on the services that they need. I hope that partial response to my noble friend’s question helps.
The noble Lord, Lord Jamieson, asked whether debt levels will be taken into account. I feel fairly sure that the AGAR guidelines will include a way of determining whether the debt levels of an authority require additional attention to be drawn to that authority. I will come back to the noble Lord on that in writing because it is important. As we know, even relatively small authorities have seen significant debt levels in recent times, so that is an important issue, and I thank him for raising it.
The noble Lord asked about the publication of the AGAR guidelines. Again, I am pretty sure we will have guidelines on that, but I will respond more fully in writing, if that is okay.
I hope that I have picked up all noble Lords’ questions.
Lord Jamieson (Con)
There was one more, which was about addressing the shortage of local authority auditors.
Baroness Taylor of Stevenage (Lab)
The uncertainty around this in the past couple of years has not helped. Once the English Devolution and Community Empowerment Bill goes through, and it is very clear to everybody what the approach to local audit will be, we will work closely with the sector to ensure that we are developing the capacity in the workforce and the skills that we need to make sure that audit is carried out properly. I cannot emphasise enough my understanding of how important that is to reassure local people that their authorities are operating in a financially sound way, so I give the noble Lord my reassurance that I will be keeping a careful eye on that. I hope that the certainty that the Bill delivers on the local audit office proposals helps us to move that on.
In conclusion, these changes will support small authorities by ensuring appropriate governance and accountability without unnecessary burdens. They will help protect value for money and contribute to a more sustainable local audit system. The instrument delivers a clear benefit to smaller authorities by aligning audit requirements with the scale and risk of local authorities, ensuring that the local audit system is proportionate and efficient. I commend the regulations to the Committee.
Warm Home Discount (Amendment) Regulations 2025
(2 days, 22 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Baroness Hayman of Ullock
That the Grand Committee do consider the Warm Home Discount (Amendment) Regulations 2025.
Relevant document: 30th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, these regulations were laid before the House on 19 June 2025. Before I proceed, I draw the Committee’s attention to a correction slip that was issued on 4 July in relation to the draft instrument. It corrected a typographical error on page three of the draft regulations that are the subject of this debate. The change was from Her Majesty’s Treasury to His Majesty’s Treasury. Clearly, this does not affect the substance or intent of the legislation.
In February 2025 we consulted on expanding the warm home discount scheme, which provides low-income and vulnerable households with a £150 rebate off their energy bills. Today, we are considering the regulations that will allow us to implement those changes and bring this much-needed relief to around 2.7 million additional households. Since we took office, this Government have been committed to alleviating fuel poverty. Our review of the 2021 fuel poverty strategy made clear that progress has stalled and that we need a new plan to speed up progress on tackling fuel poverty. There are two principal ways of doing this. The first is by improving household energy performance and the second by expanding direct bill support to make energy more affordable.
Starting with the first, at the spending review in June, the Chancellor confirmed £13.2 billion for our warm home plan that will transform the housing stock and improve energy efficiency across the country, ensuring that less money is wasted on leaking, ageing homes that are expensive to heat. However, while we press on with that vital work, we recognise that many households remain at risk of fuel poverty and cannot wait until later in this Parliament to feel the benefits. That is why we are also expanding the warm home discount, providing vital support to those who need it most. This support will be available immediately, coming into effect this winter and, importantly, consumers do not need to take any action to receive it.
Since 2011, the warm home discount has helped around 3 million low-income and vulnerable households every year by reducing their energy bills when it is most needed. Under the current scheme, around 1 million low-income pensioners in receipt of pension credit guarantee credit receive the £150 warm home discount as an automatic rebate on their energy bills, and more than 2 million low-income and vulnerable households also receive rebates.
The statutory instrument before us seeks to amend the Warm Home Discount (England and Wales) Regulations 2022 to allow changes to the eligibility criteria for this coming winter so that more households can receive rebates. It will also extend the time period in which rebate notices can be issued to suppliers, so that as many as possible can be issued before the current regulations expire on 31 March 2026. The SI also amends the Warm Home Discount (Scotland) Regulations 2022 to increase suppliers’ non-core spending obligation by an amount considered to be commensurate to the expected increase in England and Wales.
This SI is a result of our consultation in February, in which we proposed to remove the high cost to heat threshold that we believed was unfairly excluding some vulnerable households from the scheme. This threshold often meant that families in almost identical circumstances were treated differently, with some receiving the rebate while others missed out. The current system also excludes many households in smaller properties because their home is not classified as high cost to heat, meaning that our support has not been reaching some of those who need it the most.
Removing the high cost to heat threshold will make all energy bill payers who receive a qualifying means-tested benefit eligible for the warm home discount. By bringing around 2.7 million additional households into the scheme, it pushes the total number of households that will receive the discount in winter 2025-26 up to around 6 million, which is one in five households in the UK.
We have a statutory duty to tackle fuel poverty. It is our duty as a Government to break down the barriers that prevent some of the most vulnerable families in the country receiving the support they need. The proposed regulations will help us to achieve this. I beg to move.
Baroness Coffey (Con)
My Lords, I thank the Minister for presenting the draft regulations before us. I am conscious that this is not her department. Nevertheless, with her Cumbrian background—not just background but experience—she will be conscious of the number of families in fuel poverty, in particular those off the gas grid.
One of the challenges around the warm home discount is that it is focused solely on electricity bill payers, so there are some issues there around aspects of fuel poverty and how it gets distributed. I am conscious that it has generally been a success; I am going to sound a note of caution though. This looks like a potentially generous package. Of course it is: it is the second, if not the third, package brought in by this Government that is very generous to households that receive universal credit. We have seen the extension of free school meals. With the Royal Assent coming through today, we will see a big uplift for everybody who is on universal credit. I think that the Government underestimated how much all this is going to cost, partly in the impact assessment for the Act that has just gone through but also in these regulations. Even now, there are more people on universal credit than it seems has been considered by the impact assessment for these draft regulations.
There is also a different way of thinking about this. These measures are increasing incentives for people not to increase their earnings and to stay on universal credit as long as they can. That is part of what the Government need to think about in these regulations.
There is another oddity here. Changing the criteria will mean the number of households receiving the discount rising from an estimated 3.4 million—around 3.1 million in England and around 300,000 in Scotland —to an estimated 6.1 million, although I think that it will be a lot more and it will, therefore, cost a lot more. People’s average energy bills will go up by about two-thirds, but everybody pays that levy. Consequently, those estimated 3.4 million people will be worse off as a consequence of the rebate now applying to a lot more people. Before, the cost of the levy was estimated at £22. The net effect is £150 minus £22, which is £128. With the average levy now going up to £37 a year, the logical consequence is of that benefit ending up dropping to £113 per household. I appreciate that the finer points may not work out quite like that in some of the calculations, but the Government cannot do this in a very detailed way. So we are in this odd situation where those households with the highest estimated energy costs will get less rebate to help them; I do not understand how that is going to help fuel poverty.
I appreciate, by the way, that the Minister does not have policy responsibility here. I am not sure what sort of response I might get from DESNZ, but it would be quite useful to get some thinking on that.
The reason why I think the costs here have been underestimated is that, in May this year, the UC statistics showed that 6.6 million households were on universal credit, 6.1 million of which are getting payments. That is not simply the transfer from existing legacy benefits to universal credit; there is an element of that, but that number will continue to increase because people are still claiming universal credit. On top of that, there are around 1.4 million people receiving pension credit and around 1.1 million pensioners receiving housing benefit. This is why the figures start to get bigger and bigger. There will undoubtedly be an overlap between the 1.4 million on pension credit and the 1.1 million on housing benefit; nevertheless, this will show, I think, that the costs here have been underestimated. I fear that the levy will, in effect, be higher for other bill payers. It is not the same as the winter fuel payment, because that came from taxpayers—this is coming from every bill payer.
I should also point out to noble Lords, based on a response to an Answer, that there are 200,000 households on universal credit with an income of more than £35,000. They will continue to receive this benefit now. The brilliant DWP—I love it so much—is fantastic at getting the matching. So I would be grateful to understand why DESNZ estimates that 28% of the 8.1 million people it thinks are eligible for this will not receive the warm home discount due to data-matching. Surely more should be done to kick the energy companies. I am concerned that park home residents are excluded. They are a particular group who have a nice life but tend to be on pretty low incomes, but I understand some of the complexities.
I found it astonishing in a different way, although it was perhaps a bit welcome, that there was a 150% uplift of people receiving this in London compared to the rest of the country. That is pretty high, given that more than double the number of households in the south-east will receive this. Clearly, this has not necessarily been done on what might be considered traditional regional adjustments. It is important also, regarding aspects in annexe 5 of the assessments, that the NHS estimates that the preventable costs would be about £540 million. Now the cost on these bills is going up to £1 billion, but I am convinced it will be more like £1.1 or £1.2 billion.
Of course I am not going to try and vote down this instrument, because that is not what we do in the Lords. I wish I had spotted the consultation earlier so that I could have contributed then but, when we come to the post-implementation review of the regulations in a few years’ time, the figures will be telling and Ministers should be looking out for this a lot more quickly. Genuinely, the impact will be that benefits from this levy will decrease, as opposed to increase.
Baroness McIntosh of Pickering (Con)
My Lords, I thank the Minister for stepping into the breach and presenting the regulations in the form of the statutory instrument before us. I share and echo the concerns of my noble friend, without going into any great length, who was an excellent Secretary of State at the Department of Work and Pensions at a most difficult time during Covid—a big applause to her and her department at the time, and the work that it continues to do.
I welcome much of the content of the regulations. I forgot to declare my interest as president of National Energy Action and co-chair of the All-Party Parliamentary Group for Water, which will be significant when I come on to smart meters. However, the Whip on duty will remind me that I have said this in the past, so I am going to say it again because I want to record it at every opportunity. I do not know if it is something that the department might look at but, if the noble Baroness is not able to answer today, can she write and place a copy of the letter in the Library? Those households that are most in need of energy, such as in the north of England, Scotland and many vulnerable areas would have qualified for, say, £300, so fewer households would have benefited, but it would have had a much bigger impact on fuel poverty in that regard. Is that something that the Government are minded to look at?
Again, it is not part of these regulations but it is something that National Energy Action would like to place on the record but that I do not necessarily agree with. It would like to see a social tariff. My understanding is that there was a social tariff for energy prior to the warm home discount. I was trying to explain to NEA that you either have one or the other. Social tariffs operate quite effectively in the water sector, but I do not see how we can have both. I presume that that is something that the department under successive Governments has looked at. I should like to find out and have placed on the record for National Energy Action’s benefit what the current Government’s thinking is. Are we going to stick with the warm home discount, which would be my preference, or are we going to have both a warm home discount and the social tariffs?
My more radical thinking, when the Minister was referring to the contents of the regulation and the result of the consultation, was about transforming the housing stock. The Government have granted £13.2 million, not an insignificant sum of money, in that regard. I have a mounting concern that there is housing stock—I see this locally, and I am sure it is in other parts of the country as well—that would benefit from just a bit of an upgrade in having double-glazed windows and maybe a bit of stuff in the wall cavity areas and the roofs to make those houses more habitable. Obviously that would reduce the cost of heating, so it is not going out the window or through the walls, so to speak.
The plan I propose is that we reverse VAT. Take VAT off renovations and put it on newbuild. That way, I argue that it would be neutral. Obviously, it would pass on to the purchasers of new houses, but it would greatly increase the housing stock. Again, that is not in the regulations, but is it something that the Government might consider?
In preparing for today, I am grateful to the Secondary Legislation Scrutiny Committee for its 30th report, where it did a short analysis on this. Its conclusion, as my noble friend Lady Coffey referred to, was:
“We note that the percentage increase in the levy on billpayers and the impact of the expansion of the Scheme on the number of recipients and overall spending are expected to be significant”.
It is no secret that the major parties are deeply concerned about the cost of living crisis, which is ongoing. We have had the higher cost, for those who are not on a fixed tariff, of energy prices going forward for this winter. As my noble friend pointed out, that is going to mean a higher increase for those households that do not benefit to pay for the significant amount of money, which we know to be approximately £1 billion, up from £600 million in the past.
The Government could look at other measures as well. I have long been interested in the possibility of having a smart meter. Anna Walker did a report on water efficiency at the same time as there were the reports by Martin Cave on competition and Michael Pitt on flooding in about 2007 or 2008. Of those three reports, the Walker report on water efficiency never really got any legs. However, she gave very useful advice like, “Don’t run your water when you’re brushing your teeth, but in particular don’t run the hot water because you’re literally putting hot water that you have heated down the system, which is ridiculous”.
Is there a possibility that energy and water would both be governed by the same smart meter? Are the Government aware that currently—my authority for this is the Radio 4 programme “You and Yours”, which I happened to listen to on, I think, Friday—there is evidence that smart meters do not work in rural areas? I know the Minister lives in a deeply rural area. I have been reluctant to fit a smart meter for that reason; there is no point in having one fitted if it is not going to work. Apparently they will give you all these other gadgets to help it work, but still it will not.
If smart meters are not working and people are not able to monitor true energy use then that is one point, but if we were able to develop smart meters that covered both water consumption and energy consumption then that would be a big plus for households. So I give a cautious welcome to these regulations, and I am grateful for the opportunity to make the few comments that I have.
Earl Russell (LD)
My Lords, this instrument brings forward much needed and real expansion of a vital scheme that we believe will have significant positive impacts. We welcome the proposed expansion of the warm home discount, which aims to bring financial relief to millions more households across Great Britain that are grappling with the brutal realities of fuel poverty and escalating energy bills.
What we have here is, in essence, a doubling of those who will be eligible for the £150 rebate on energy bills. This will bring vital relief to many families who are struggling, but the scale of the challenge is immense. In England alone, some 2.7 million households are trapped in fuel poverty. The average fuel poverty gap has soared to an alarming £407—a near 60% increase since 2020 in real terms. Disturbingly, the number of households forced to spend over 10% of their income on energy bills, after housing costs, has more than doubled since 2020 to 9 million households in 2024. Furthermore, energy debt and arrears hit a record £3.85 billion in December 2024.
The Earl of Effingham (Con)
My Lords, I am grateful for the opportunity to speak to this statutory instrument, which proposes a further expansion of the warm home discount scheme.
I start by confirming that His Majesty’s loyal Opposition fully support the principle of shielding vulnerable households from fuel poverty. The extension of support to an additional 2.7 million households, including working-age families with children, is of course a positive and welcome step, particularly as we approach another potentially challenging winter. There is no doubt that many people will benefit from this measure.
However, while the Government’s intentions are commendable, their method of implementation raises important questions. Our understanding is that this expansion is not being funded through general taxation or through efforts to improve efficiency within the energy system. Instead, it relies on increasing green levies on energy bills—the very costs that will be borne by working households. According to the Government’s impact assessment and as we have heard from noble Lords, this will result in an average increase of £15 per household per year, bringing the total cost of the warm home discount to £37. That represents a 60% rise to the average dual fuel bill payer, and it should be highlighted that this was not prominently featured in the announcement. This approach surely risks creating a circular dynamic. Higher energy costs driven by policy decisions are then partially mitigated by support schemes funded, conversely, by those same rising costs. While the short-term relief is real, the medium- to long- term implications deserve scrutiny.
We must also consider the broader context. The Government have pledged to reduce energy bills by £300 per year, a commitment that seems increasingly difficult to reconcile with policies that contribute to rising costs. This statutory instrument, while helpful to some, may inadvertently deepen our reliance on cross-subsidies to mask the underlying changes in our energy strategy. The ambition to reach clean power by 2030 is totally laudable, but challenging. If the path taken results in higher bills for ordinary working families, we must ask whether the strategy is serving its intended purpose. Would it not be optimal to agree that clarity and simplicity often yield the best outcomes? If our goal is to reduce fuel poverty, which it absolutely should be, then should we not focus on making energy supply more abundant and affordable, not more expensive and constrained?
A more balanced approach to funding the energy transition is needed, one that prioritises domestic supply, domestic storage and nuclear alongside renewables. It is time for greater transparency about the costs and trade-offs involved, because the current path places a disproportionate burden on those hard-working people least able to bear it. For these reasons, while we support the principle behind this measure, we urge the Government to reconsider the funding mechanism and the broader strategy that it reflects.
Baroness Hayman of Ullock (Lab)
My Lords, I thank all noble Lords who have taken part in this important debate on an important issue for their contributions and for the broad support that the Committee has expressed for this statutory instrument. I shall cover the questions as best I can. First, the noble Baroness, Lady Coffey, talked about the fact that the scheme relates to electricity bills. She referenced the issues around rural heating—she mentioned Cumbria, where I live. It is a real issue for rural areas. We need to move away from fossil fuels. There are some challenges in rural areas on how we do that. I know that the department is working hard on this to understand those challenges because the transition needs to be countrywide, not just in one area and not another.
The noble Baroness also asked about universal credit. It is probably best if I ask my colleagues in the DWP to respond to that because I do not have the information and officials in DESNZ would not, so we will pass that on to the DWP if that is okay with her. She also asked about lower benefits to households. I stress that the impact assessment is based on our best estimates, but its purpose is to help those who are on low-income and means-tested benefits because that is the best way for us to get directly to the people who need the most support.
Baroness Coffey (Con)
I thank the Minister for her response. There were a few questions, which I believe her officials will have noted. I appreciate that UC and DWP are different, but the Secondary Legislation Scrutiny Committee said that DESNZ assumes that 28% of people will not get this discount despite the other matter. I am sure that the Government will get the other Minister—the one from DESNZ—to reply, but I am grateful to this Minister for her responses so far.
Baroness Hayman of Ullock (Lab)
I am sure that we can comb through Hansard and make sure that proper, detailed information is provided to the noble Baroness on the issues that she raised.
This scheme has been running for 14 years now. Over that time, more than £4 billion-worth of direct assistance has been provided to low-income and vulnerable households. These regulations will build on that legacy by allowing support to reach more people this winter, including vulnerable households that were previously shut out of the scheme.
The Earl of Effingham (Con)
I have a point of clarification. The Minister responded to me most kindly about how the Government are going to invest in SMRs. I know that, if the noble Lord, Lord Howell of Guildford—a former Secretary of State for Energy—were here, he would stand up and say, “I’m speaking to all the SMR providers. They’re saying to me that they are ready to go. They’re doing it with other countries, but they need more progress from the UK”. Can the Minister come back to us at some point with a bit more detail on when are we going to see some progress with the SMRs? What is holding us back? Can we action this urgently?
Baroness Hayman of Ullock (Lab)
I am sure that the noble Earl and his colleagues are aware that we have made a very strong commitment to nuclear energy and are pushing forward on that in a way that previous Governments have not done. It is really important that we are investing in nuclear energy with that commitment. The department is working up exactly what that will look like; I am sure that, when the time is right, the noble Earl and his colleagues will hear more about SMRs.
Financial Services and Markets Act 2023 (Capital Buffers and Macro-prudential Measures) (Consequential Amendments) Regulations 2025
(2 days, 22 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Lord Wilson of Sedgefield
That the Grand Committee do consider the Financial Services and Markets Act 2023 (Capital Buffers and Macro-prudential Measures) (Consequential Amendments) Regulations 2025.
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
In moving these regulations, I shall speak also to the Markets in Financial Instruments (Miscellaneous Amendments) Regulations 2025.
These two technical instruments make practical changes that allow the Government to complete reforms to banking and wholesale markets regulation. Collectively, they ensure that our legislation for financial services remains effective and brings these areas of regulation in line with the model of regulation set by the Financial Services and Markets Act 2000—the FSMA model. The instruments do not introduce new burdens or policy for firms, and the changes have been widely supported by industry.
The Financial Services and Markets Act 2023 repealed assimilated law relating to financial services, subject to commencement by the Treasury. This approach allows our expert and independent regulators to replace detailed rules currently set in legislation with flexible, UK-tailored standards.
I will first address the Financial Services and Markets Act 2023 (Capital Buffers and Macro-prudential Measures) (Consequential Amendments) Regulations 2025. Noble Lords will be aware that banks are required to hold capital buffers, in addition to minimum capital requirements, to ensure that they have sufficient capacity to absorb losses while continuing to lend to the economy, even in times of stress. This short, technical instrument updates references to the capital buffer regulations in other legislation now that the underlying regulations have been restated through the powers in the Financial Services and Markets Act 2023.
The process to bring the capital buffer regulations in line with the FSMA model does three things. First, it revokes the 2014 capital buffers regulations—a piece of assimilated law that, under our FSMA model of regulation, is better situated in regulator rules. The Government are therefore replacing some of the revoked provisions with rules designed and maintained by the Prudential Regulation Authority and have restated a limited number of regulations that need to remain in legislation, with some operational improvements.
Secondly, it gives the Prudential Regulation Authority additional flexibility in setting two capital buffers that are derived from rules set internationally by the Basel committee: the capital conservation buffer and the global systemically important institutions, or GSII, buffer. Those buffers will now be set through PRA rule making rather than through legislation, upholding international standards while increasing the flexibility of regulation.
Thirdly, it preserves in legislation the policy frameworks of the two capital buffers that are set by the Bank of England’s Financial Policy Committee—the counter- cyclical capital buffer and the other systemically important institutions buffer—which will ensure that the FPC has a clear statutory basis on which to deploy these tools. It also makes operational modifications to improve the effectiveness of the framework by, for example, allowing the FPC to set the countercyclical capital buffer off-cycle, rather than being restricted to its quarterly setting, in case of a financial system emergency.
Baroness Bennett of Manor Castle (GP)
My Lords, I thank the Minister for outlining what he identified as a very technical and detailed set of two instruments. I came into the Committee not sure whether I was going to speak or not. I listened very carefully to the Minister’s tone and, as I was doing that, I was looking at the Bank of England’s financial stability report from July 2025. It said that uncertainty around the global outlook has intensified. It says of financial markets that they have been highly volatile. Weakness in non-bank finance can amplify risk. It says of UK households and businesses that, overall, they continue to be resilient. I am not quite sure that that, particularly the last one on households, reflects the experience that many people who are listening to this Committee have—if they are very bored this afternoon. None the less, there we are.
Some of the things that the Minister said in the introduction concerned me slightly. One of them started with “widely supported by industry”. We are hopefully thinking about the national interest rather than just the interests of the financial sector and, perhaps, the wilder reaches of the financial sector. It was described as essential for companies operating these core businesses. We are talking about complex financial instrument derivatives here. From the words of the Minister, it is clear that the Government are heading in the same direction as the previous Government.
Of course, not just the apparent complexion of the Government but the global situation has changed tremendously, so I have one question for the Minister. Are the Government keeping under constant review the foundational conditions in which the financial sector is operating and ensuring that everything they do is not increasing the level of risks that the financial sector presents to the security of us all?
Baroness Kramer (LD)
My Lords, I recognise that these two statutory instruments deal with technical measures and in and of themselves have limited impact. They are essentially a tidy-up of the text to reflect broader changes made since Brexit to the financial regulatory system. The FSMA 2023 SI transfers to the PRA responsibility for setting the capital buffers that banks are required to hold in addition to minimum capital requirements. The PRA is a strong regulator, but it has taken a series of measures to move in the direction of lighter touch, motivated by its competitiveness and growth objective. I have spoken before about my concern that the PRA, for example, is increasingly willing to turn a blind eye to the illiquidity of assets. When powers are transferred to the PRA, as they are by this SI, a significant measure of transparency, accountability and parliamentary oversight disappears. Capital buffers are critical to the stability of the banking system, and I remain concerned when parliamentary oversight in this key area is significantly weakened, as it is by the measures that both surround and are then captured by this SI.
The second statutory instrument deals with the markets in financial instruments and again affects a transfer of power and responsibility, this time to both the FCA and the PRA. Once again, it is a move to a less transparent and less accountable system. The rules can now be changed, presumably in line with the smarter regulatory framework that the Government have put forward, and they both allow divergence from the EU and a lighter-touch approach. Divergence has its own risk, as it has implications for cross-border business, and Parliament will not have a voice any more than as a significant consultee. Frankly, experience suggests that the regulators look at Parliament’s views in these consultations and treat them as relatively irrelevant compared to the views of industry.
I note that the Minister described the regulators as expert, independent regulators. He would have used exactly that same phrasing before the 2007 crash, and we still live with the repercussions of that crash. Blind trust in the regulator is exceedingly inadvisable. I have tried in previous speeches to list some of the erosions of protections that were introduced after the crash. They include: the competitiveness and growth objective for regulators; the changing to matching adjustment; insolvency UK; significantly increasing the illiquidity of the insurance sector; the removal of the cap on bankers’ bonuses; the permanent permission for pension funds to transact derivatives without using central counterparties, thereby avoiding putting in place margin collateral, which puts them seriously at risk in any kind of financial volatility in unstable times; the watering down of the senior managers’ regime, which is key to accountability; the weakening of the financial ombudsman; the pressure on pension funds to invest in high-risk, illiquid assets; and the uncertainty that now exists around bank ring-fencing.
That is a partial list of the erosions that I have been able to pick up, and I am sure that, if the Government sat down and thought about it, they could come up with a far longer list and perhaps even suggest that this was a huge positive. But it is notable that Parliament will have no further say, now that these SIs have gone through, any more than just an ordinary consultee, in a further erosion of these various protections. Frankly, while Parliament will get reports that will allow it to look at the impact, that will be very much in retrospect, which I suggest is very late in the day.
I repeat a request that I have made before for the Government to publish a compendium of the changes that have been made that increase risk in the financial sector and a look at those risk implications. My view is that, without that degree of transparency, Parliament cannot do its proper job.
Baroness Neville-Rolfe (Con)
My Lords, I thank the Minister for his clear explanation of these statutory instruments and the noble Baroness, Lady Kramer, for her gloss on that.
Today we are considering the instrument on capital buffers as well as the Markets in Financial Instruments (Miscellaneous Amendments) Regulations. While each is described as largely technical, both help to shape the future of our financial regulatory framework. Obviously we on these Benches are happy to consider them together and to raise some questions about how they link to the Government’s wider ambitions for stability, innovation and growth.
We recognise that both instruments form part of the wider process of revoking retained EU law and restating and embedding that in the smarter regulatory framework under the Financial Services and Markets Act 2023. It is important that our regime is clear and coherent and reflects the institutional responsibilities of the regulators, whether the Prudential Regulation Authority, the Bank of England’s Financial Policy Committee or the Financial Conduct Authority.
For me, the most important current issue for the financial regulators is whether they are really adjusting their rules, their outlook and their culture to pursue growth and competitiveness, as they were recently required to do. Is the Minister in a position to assure us that the PRA and FCA have taken vigorous action to meet the Government’s requests and instructions on this vital point? I recall that the Chancellor wrote to them last autumn. What were the key demands, and what did they do in reply? What are the opportunities for growth, bearing in mind the current challenges outlined by the noble Baronesses, Lady Bennett and Lady Kramer? Although I do not agree with all that they said, I think it is important to debate that.
I have a few other questions. On capital buffers, while the instrument is described as technical, it involves substantive changes in transferring responsibility for buffers, such as the capital conservation buffer and the global systemically important institutions buffer, to the PRA. Can the Minister clarify how the Government will ensure sufficient parliamentary oversight of these crucial prudential tools, now that they will be set directly by the regulator? As the noble Baroness, Lady Kramer, said, it is now a less transparent system, so Parliament needs a strong voice in the post-EU world.
Of course, capital buffers are at the heart of keeping our financial system stable. We learned in painful ways during the financial crisis what happens when banks lack the resilience that they need in times of stress. The framework we have now is well established, but risks are evolving all the time. Can the Minister share the Government’s view on whether today’s capital requirements are still fit for purpose, particularly in the light of the growing challenges from shadow banking, digital assets and climate-related exposures?
We note that the second instrument retains certain key definitions from the MiFID organisational regulation, while paving the way, as the Minister said, for the revocation of firm-facing provisions. The intention is to allow the FCA and the PRA to take forward responsibility for detailed rules, tailoring them more closely to the needs of the UK market. The Minister has explained the rationale for that, but I ask him to expand on how these changes will not only safeguard market integrity and, I think he said, prevent the gaps that might arise—but encourage innovation and investment and growth, which I think we all agree that we need if the economy is to move forward positively.
What steps will the Treasury take to ensure that regulators’ rule-making in this area is aligned with the broader ambition of using financial services as a driver of economic prosperity, the point I addressed earlier?
Lord Wilson of Sedgefield (Lab)
I thank the noble Baronesses for their questions and remarks on what are really technical issues. There is no real policy change, but the issues are none the less important. As the noble Baronesses said, one of the key issues is that we want to ensure that the economy grows. As far as our financial regulation infrastructure is concerned, it is always welcome to have heard from the IMF that the architecture that we have now is some of the best of its kind in the world. The IMF also endorsed the Government’s fiscal plans as striking
“a good balance between supporting growth and safeguarding fiscal sustainability”.
In answer to the noble Baroness, Lady Bennett, the Government are committed to upholding financial stability, which is a prerequisite of our position as a leading global financial centre. This is about rebalancing our approach to risk and pushing back on some of the mission creep that we have seen over the past decade. There is scope to do this while continuing to protect financial stability, and obviously we will always keep this under review, which was one of the noble Baroness’s questions.
The noble Baroness, Lady Kramer, asked about parliamentary scrutiny and how Parliament will continue to scrutinise what the FCA and the PRA are going to do. They are independent non-governmental organisations and their independence is vital to their role. However, they are fully accountable to the Government and Parliament for how they exercise their functions, and this accountability is critical to ensure that they are advancing the objectives given to them by Parliament and performing at the optimum.
There were other questions about whether we are giving regulators too much power. We do not believe we are. We have a flexible system. Some of it is still going to be in legislation; some of it is going to be in regulation. The flexibility is there to ensure that the one thing that we create is growth in the economy. To the noble Baroness, Lady Neville-Rolfe, I say it helps to deliver growth because growth is our ultimate ambition. To achieve this, the Government have announced the most extensive package of financial service reforms in over a decade. Reform will unlock growth by increasing the global competitiveness of the sector, reducing unnecessary regulatory burden, spurring the sector’s confidence and boosting innovation and opportunities, which is one of the issues that the noble Baroness raised. Obviously, it is about flexibility, and we need to ensure that we remain flexible in our approach to these regulations and continue to keep them under review.
We believe that these technical statutory instruments do that. It will be for the FCA and the PRA to decide how to streamline and improve their rulebooks. The FCA has already published a discussion paper seeking views on organisational and conduct rules that could be removed or simplified. It has also announced work to review who can be treated as a professional investor, another key plank of the current framework.
I hope this answers many of the questions that were asked. If there are any that I have left out, I am sure that we can write to noble Lords.
Baroness Neville-Rolfe (Con)
That was extremely helpful, especially the direction of travel in terms of reform. I would be very interested to know what the growth questions to the PRA and the FCA were. The letters were written last autumn. The Minister has repeated the vision, as it were, and has talked about flexibility, which can be very useful. If the Minister could reflect a bit further on that and on transparency—emphasised by the noble Baroness, Lady Kramer—that would be great. Are the regulators being transparent in the way that they move forward? That is another way that we are able to feed in and criticise if we are not happy.
My other point perhaps goes wider than this debate, but I asked how the Government were getting on with the process of making these post-EU regulations. I do not know whether the Minister can answer that now, but if not, it would be helpful to hear separately on that.
Lord Wilson of Sedgefield (Lab)
I do not know exactly where we are with working our way through the EU regulations et cetera and decoupling where we think it is necessary to decouple. I am sure that we can write in some respects. I am sure that we will be doing it diligently in the best interests of the UK and our international standing. On the other issues, I should have mentioned the Leeds reforms which were mentioned on 15 July. The changes will help UK banks to compete internationally and provide the vital investment required to drive growth in the economy. We are implementing the Basel III.1 arrangements on international banking by delaying investment banking requirements until 2028 and implementing other requirements in 2027 and communicating that the Treasury will avoid ring-fencing and that the PRA will undertake a review and report by early 2026. There is a lot going on in this area. The Leeds reforms are critical to that. What drives all this is the fact that we are pursuing growth. That is the one thing that we want to achieve.
Baroness Neville-Rolfe (Con)
I support the objective of growth. I used to be a Treasury Minister and I know that the Treasury will move forward, but it would be good to get this process done.
Markets in Financial Instruments (Miscellaneous Amendments) Regulations 2025
Lord Wilson of Sedgefield
That the Grand Committee do consider the Markets in Financial Instruments (Miscellaneous Amendments) Regulations 2025.