Grand Committee
(1 day, 21 hours ago)
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Arrangement of Business
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The Deputy Chairman of Committees (Lord Kirkhope of Harrogate) (Con)
My Lords, if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Building Safety Levy (Amendment) (England) Regulations 2026
(1 day, 21 hours ago)
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Baroness Blake of Leeds
That the Grand Committee do consider the Building Safety Levy (Amendment) (England) Regulations 2026.
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Baroness Blake of Leeds) (Lab)
My Lords, the remediation of residential buildings with unsafe cladding in England is a priority for this Government. Nine years on from the Grenfell tragedy, there is no justification for any building to remain unsafe. Helping residents to feel safe in their homes and move on from this issue is crucial work.
The Government are committing £5.2 billion of taxpayers’ money to the cost of remediation and the building safety levy is an essential part of the remediation funding package, which will protect leaseholders from costs and ensure that taxpayers are not further burdened. We estimate that the levy needs to raise £3.4 billion, likely over a 10-year period. The revenue target may be adjusted in accordance with the number of buildings requiring remediation and the costs of works.
The levy regulations were made in November 2025 and will come into force on 1 October 2026. The draft amending regulations before the Committee today clarify how the levy will work and are intended to come into force on 1 October. The levy will be charged on certain building control applications for new residential floor space in England. It is important to note that developers have known about the levy since February 2021 and its rates since March 2025, providing a significant lead-in period to plan for and incorporate these costs into their projects. It will start being charged on new applications from 1 October 2026.
The 2025 regulations allow for development on previously developed land, often referred to as brownfield land, to benefit from a 50% discount levy rate. This recognises the higher costs of building on this type of land and therefore protects the viability of development on these brownfield sites. My officials received feedback that the definition of previously developed land was not clear. In particular, stakeholders noted that it was not clear whether car parks and other areas of hard standing that would appear previously developed would actually qualify for the discount. Our intention has always been to support development of sites having these kinds of features, so these regulations amend the definition to make it clear where areas of hard standing can qualify. This will better reflect the original policy intention and, hopefully, make it easier for local authorities and developers to understand which sites qualify for the discount, reducing costly and time-consuming disputes. These regulations and the updated guidance provide more information about how this change works.
We also have a small number of minor technical amendments and corrections included in the instrument, including setting clearer time periods for spot checks, clarifying levy information requirements, amending how levy update notices are constituted and clarifying processes for revised levy determinations, refunds, reviews and appeals. We will keep the rates and processes under review and we will report at least every three years. I beg to move.
Baroness Pinnock (LD)
My Lords, first, I wish to welcome the noble Baroness, Lady Blake of Leeds, to her new role. I look forward to working with her; I am sure that we will agree on some occasions, maybe more than most. Let me say right from the beginning that we Liberal Democrats accept the technical changes in this SI, because in effect that is what they are. The amendments are sensible, practical and entirely necessary to prevent any chaos following the levy’s coming into force in October.
The positive changes to which the noble Baroness, Lady Blake, has referred are important to remove the loophole of previously developed land. Developers are very good at finding loopholes, so that is important. The spot check and having a strict notification period are also important, as well as separating purpose-built student accommodation from being classed alongside residential. That is positive and we support it.
The Government have set a target of raising £3.4 billion, which is good. However, they are planning to raise this over 10 years. In the first year, the levy raises zero. In the second year, it raises—these are estimates I found from, I think, the Office for Budget Responsibility—just £55 million. By the fifth year, so in 2030-31, it will raise £395 million a year, so over the first five years it will raise just £1 billion of the £3.4 billion that it is estimated to raise. I guess there will be reasons for that, but it is unlikely to raise significant sums in the first couple of years.
Once you have in mind that that is how the funding is going to be and that it will be five years before anything significant comes into the coffers to support remediation, you say to yourself that the Grenfell Tower tragedy was nearly 10 years ago and the Government are still having to find ways of raising sufficient funds to pay for remediation on top of the £5.1 billion, I think, that they have put aside. About 50 major developers have signed up to a scheme to fund it. The Minister has just said that there is no justification for buildings to remain unsafe, but 46% of buildings have not even had work started on them.
Although the levy is important, and I accept the positive changes that are being made, the lack of urgency in all this is worrying, especially if you live as a leaseholder in one of those blighted apartments. I say “blighted” because, if you are a leaseholder waiting for flammable cladding to be removed or safety defects to be remedied, you are stuck in that flat because you cannot sell or remortgage. You are stuck. That is 10 long years, more so when this levy is coming to light.
I have some questions for the Minister. Considering that only £1 billion will be raised in the first five years, who will then fund any of the schemes that would be funded under this levy? How will they be funded? Presumably, nobody is going to say, “You can’t get on and do it because we haven’t got the money coming into the coffers just yet”. Is there any way that the Government could find to accelerate the scheme so that more funding comes in in the first five years? That would give leaseholders some hope. My next question is also about leaseholders. Despite the Government’s best efforts, which I support, some of them are still finding that freeholders and management companies are putting some of the costs on to service charges. How can the Government get the message out to leaseholders that that is not right and that they can go to First-tier Tribunals to challenge it?
I have said all along in this terrible situation that the one group of people who are completely innocent is the leaseholders. They do not even own the bricks and mortar; they lease the space in between the bricks and mortar. They should not be paying anything. Anything that the Government can do to protect them further would be welcome. Having said that, I support what is in the statutory instrument.
Lord Jamieson (Con)
My Lords, I also welcome the noble Baroness, Lady Blake, to her role on the Front Bench. It is great to see her. I remember the number of times that we stood on opposite sides in the LGA. We move on, and we are still in the same relative position.
I thank the Minister for bringing forward these regulations to make corrective amendments to the levy regulations introduced last year. We recognise the need to make buildings safe—it is important—and the role that the levy plays in that, and the need for clarity. I agree with the noble Baroness, Lady Pinnock, who rightly raised the time it is taking to make these buildings safe and that, in effect, people are trapped within them. Recently, on the Social Housing Bill, we raised the issue of shared ownership, which is in a particularly egregious position.
We welcome some of the changes: the earlier deadline for the authorities responsible for collecting and administering the levy to notify the person who is liable of an information check. But can the Minister confirm that authorities will have the capacity to meet these earlier deadlines? The Government have also made the decision not to take forward an extended exemption threshold for major residential development in the levy regulations. Can the Minister please expand on the rationale behind this decision?
I want to touch on something else, because we have a housing crisis and a shortage of housing, and we are not building enough. The regulations include amending the definition of a previously developed site, whereby 75% of the land has to be previously developed. The SI now clarifies the treatment of fixed-surface type infrastructure and unlawful operations and excludes wholly underground buildings from the definition, as well as underground parts of buildings, from the 75% calculation. As I understand it from the impact assessment, this will result in an increase in charges to developers, as less brownfield land comes within the scope of the 50% discount to the standard rate. I do not know how to interpret that, so I would appreciate it if the Minister could clarify it and the level of the increase.
We have said on many occasions, and I believe that there is support across the House, that we should prioritise brownfield development. Ostensibly, this discount prioritises brownfield development. However, given that the levy relates to the value of property, its impact is greater on brownfield sites in urban areas of high value, such as London. While the revised impact assessment suggests that this will be taken off the land value, in practice, much of the additional cost will be factored into the sales price and borne by the purchaser. This is particularly so on brownfield land, where the existing use is obviously not subject to these costs. Indeed, many alternative uses, such as retail, care homes and data centres, would not be subject to this cost.
Baroness Blake of Leeds (Lab)
I thank noble Lords for their very kind and welcoming comments. It is interesting to reflect on how long we have been working together. The noble Baroness, Lady Pinnock, and I go back, I think, to the last century.
Baroness Blake of Leeds (Lab)
It is a great privilege to be in this position, and I very much look forward to working with both the noble Baroness and the noble Lord. I stress “with” rather than “against”, because I think we come from a strong, shared commitment to all things local government—in particular, serving the people in our communities that we have variously represented. There are some tough times ahead, but I will do my best to address the concerns raised today. Dialogue will be ongoing, of course, particularly given the different legislation that is proposed; that will give us a real opportunity to go into much greater detail than we can probably do today.
Let me respond to the concerns from the noble Baroness, Lady Pinnock, about the money, which is, of course, a crucial issue. To reiterate, the Government are committed to remediating buildings as quickly as possible. I have to say that the launch of the levy, which will come in in October, will not affect the pace of remediation. The Treasury has agreed that the necessary expenditure can be made in advance of receipts from the building safety levy rather than slowing remediation to match the profile of the levy receipts. Of course, the Government will report on levy receipts and remediation expenditure in the annual trust statement. I hope that gives the reassurance that the noble Baroness has been looking for.
The remediation of unsafe cladding Bill will deliver on the manifesto commitments to address the pace of the remediation work. Most importantly, it will ensure that those responsible for the building safety crisis pay towards fixing the problem they have caused. We all know that there is further work to do on this. I am grateful for the collaboration that we have had so far from some developers, but I also recognise that there are other avenues to pursue, as encouraged by those developers. We have to make sure that we take on the most reluctant landlords; in particular, we must make sure that they take action and that, if they do not, they face severe sanctions.
I want to reassure the noble Lord, Lord Jamieson. This is interesting because I first started working on this when I was in Opposition, going back to 2022, and some of the comments that were brought up today have been a feature throughout. I reassure the noble Lord that we have worked closely with stakeholders and industry to minimise the impact on housing supply. The building industry as a whole is balancing the need to raise the revenue required to make homes safe, and those responsible show a clear recognition that this is an important dynamic on which we need to keep moving to achieve our manifesto commitments. As the noble Lord said, they are ambitious, but there is the will to do it, and the Secretary of State is committed to working on all fronts to move this forward.
The NPPF definition is specifically designed to inform planning policy, whereas the levy regulations set out criteria for developments and local authorities to apply on a site-by-site basis to ascertain qualification for a tax discount. We need to make sure that we do not merge these facts together. The 75% is designed to approximate the NPPF definition for tax purposes. All these matters have been looked at and that will continue to be the case as we move forward. We have a strong ambition around affordable housing running alongside our ambition around remediation. I hope both noble Lords will welcome the importance that we are giving this issue to help take us forward.
To recap, the building safety levy is essential to fund the remediation of historic building safety issues, particularly without further burdening residents and leaseholders. The amending regulations laid before the Committee are designed to support this work and make the levy work more efficiently and in accordance with our initial intention to support the redevelopment of existing sites. They are intended to correct drafting and to improve the clarity and consistency of process for developers and local authorities, rather than to alter the underlying policy design of the levy.
To further reassure the noble Lord, consultation with local authorities has been intense. We have made sure that the extra duties funding is in place, helping them to come forward. I am very pleased with the response so far from local authorities, as it is critical that we have that relationship with them so that they can fulfil their responsibilities in this space. As well as the government contribution to funding, we all accept that the development industry must contribute to our work to make buildings safe for those who live in them.
To repeat, the Government are committed to building 1.5 million homes this Parliament to meet the country’s long-term housing needs and unlock growth. This must work in parallel with our commitment to remedying the building safety features of the past. I repeat that we expect developers to make a full contribution to the overall costs of making buildings safe, reflecting the wider benefit they derive from a well-functioning market and the substantial funding and support the Government have already provided and continue to provide for the housing market. With those comments, I commend the instrument to the Committee.
Digital Government (Disclosure of Information) Regulations 2026
(1 day, 21 hours ago)
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Baroness Lloyd of Effra
That the Grand Committee do consider the Digital Government (Disclosure of Information) Regulations 2026
Relevant document: 10th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department for Business, Innovation, Science and Trade and Department for Digital, Culture, Media and Sport (Baroness Lloyd of Effra) (Lab)
My Lords, these regulations make three important amendments to the information sharing powers in Part 5, Chapter 1 of the Digital Economy Act 2017. The core aim of these regulations is to help the Government to support households facing financial hardship, improving access to support for those eligible and ensuring that public services can respond more effectively to people’s needs. Too often, people do not receive the right support because the information needed to identify them is held by different public authorities. Enabling relevant information to be shared safely and legally will help support to reach the right people more quickly and effectively.
On the measure related to the delivery of energy debt relief schemes, Part 5, Chapter 1 of the Digital Economy Act already provides a well-established framework for information sharing to support public service delivery. Under Section 36, specified public bodies can share information with energy suppliers with the intention that the suppliers use the information in connection with a prescribed fuel poverty measure to support households experiencing fuel poverty.
None of the fuel poverty measures currently allows this power to be used to support households with energy debt. These regulations will amend Section 36 to create a new fuel poverty measure that will enable information to be shared between certain public authorities—including the Department for Work and Pensions and the Department for Energy Security and Net Zero—and energy suppliers to enable households eligible for support under an energy debt relief scheme to be identified and to deliver support to them. An example of a scheme that could be facilitated by this change is a proposed debt relief scheme that Ofgem consulted on in winter 2025. While the detailed operational design of the scheme is currently being developed by DESNZ and Ofgem, its ambition is clear: to help eliminate between £500 million and £1 billion of energy debt, remove administrative burdens and deliver meaningful relief to households struggling with energy arrears and financial hardship.
The second measure will amend the Digital Government (Disclosure of Information) Regulations 2018 to enable DSIT to rely on the Act’s fuel poverty objective to share information with certain other public authorities for the purpose of assisting people living in fuel poverty. This will support initiatives such as the National Data Library’s kickstarter project, which seeks to bring together cross-government data, including earnings, benefits and energy usage, which will enable government to identify households in fuel poverty and to target energy bill support more effectively. I should note that the draft regulations were laid when responsibility for the relevant government data function sat within DSIT. Following the Written Statement by my noble friend Lady Smith of Basildon on 21 July, this function is being transferred to the Department for Digital, Culture, Media and Sport. The regulations will be made as currently drafted and any necessary amendments to reflect the transfer of functions will be made separately. This does not affect the policy intent or operation of the measure.
The third technical measure will also amend the 2018 regulations to expressly add DESNZ to the fuel poverty objective. The relevant function was transferred to DESNZ when it was created in 2023 but the regulations were not consequentially amended at that time. This measure will not have any immediate operational impact, but we are taking the opportunity to make the change in the interests of legal certainty.
More broadly, these measures reflect the Government’s commitment to make better use of data to improve public service delivery. The information sharing is with a clear public purpose: helping households struggling with energy debt, while supporting action to tackle fuel poverty and outcomes for citizens.
The Government have undertaken appropriate engagement on each of the three measures. For the energy debt relief scheme measure, a public consultation was conducted. Respondents were overwhelmingly supportive of the proposal, recognising the important role that information sharing can play in identifying eligible households and delivering targeted support to those struggling with energy debt. To add DSIT and DESNZ to the list of public authorities connected with the fuel poverty objective measure, the Government consulted the specific consultees, as required by Section 44 of the Digital Economy Act—namely, the Information Commissioner’s Office, the devolved Governments and HMRC. Consultees were supportive of the proposal and content for it to proceed.
Furthermore, I also wish to reassure noble Lords that robust safeguards will continue to apply to all information sharing undertaken under these powers. Part 5, Chapter 1, of the Digital Economy Act contains a strong framework for governing the sharing of data. The powers in Chapter 1 permit information to be shared only by a limited number of bodies, mostly public authorities, and only for the purposes specified in the Act. There are also statutory restrictions on the re-use and onward disclosure of information received under the powers in Chapter 1.
As well as this, any public body exercising the data-sharing powers must adhere to existing data protection legislation, namely the UK GDPR and the Data Protection Act 2018. It must also have regard to the statutory code of practice under the Digital Economy Act, which emphasises requirements regarding data privacy, security, governance and transparency. The code of practice sets out processes that bodies exercising the powers are expected to follow, including recording information-sharing agreements made under these powers in a publicly available register, providing transparency about how the powers are used. These safeguards help ensure the responsible use of data by allowing information to be shared only where appropriate and subject to robust protections, helping to maintain public trust.
In terms of scrutiny, the regulations were considered by both the Joint Committee on Statutory Instruments and the Secondary Legislation Scrutiny Committee, neither of which drew them to the special attention of the House, with the latter including an information paragraph only in its report.
These regulations will enable better use of information to help households facing energy-related hardship. They will allow for information to be shared to identify eligible households, improve the delivery of targeted assistance and support collaboration between public authorities. In doing so, they will help ensure that support reaches those who need it most, while upholding the highest standards of privacy, with information handled lawfully, responsibly and securely.
Earl Russell (LD)
My Lords, more than 3 million customers are now in energy debt or arrears, owing a total of around £6 billion, with an average debt of approximately £1,800 per household. No household should be trapped indefinitely by energy debt accumulated during an exponential national crisis. Non-targeted support, as we have seen in the past, has been prohibitively expensive and not terribly efficient. I have called for better information sharing to enable the better use of targeted support by government. The purpose of these regulations is therefore one that we support. They amend the Digital Economy Act 2017 to enable data sharing for Ofgem’s purposes of a proposed debt-relief scheme.
The Government estimate that this scheme could clear between £500 million and £1 billion of outstanding energy debt. This is a significant intervention, with the potential to help many households directly. It should reduce the burden of uncoverable debt that is ultimately socialised across all customers’ bills. We welcome the role of Ofgem. The principle of the common framework is sound. We further recognise that part of this instrument corrects an earlier administrative error. The addition of DESNZ is a necessary one. Adding DSIT may also be reasonable if it allows the Government to co-ordinate support more effectively.
These regulations authorise an important extension of data sharing. However, they must be fair, proportionate and accountable, and I note the assurances that the Minister has given. The first phase will target people receiving means-tested benefits, subject to other eligibility and engagement criteria. That may be administratively convenient, but it is not a true test of vulnerability. There are obviously, as the Minister knows, people just above the benefit threshold who still struggle to pay their energy bill, and there are those who are entitled to support but do not claim. There are older people, disabled people, carers and people and people with fluctuating incomes, and there are households which are not digitally confident or which have not been able, for numerous reasons, to claim in the past. We must ensure that the people who most need help are not excluded because they are the least able to complete administrative processes.
I ask the Minister: what is meant by engagement criteria within the SI? Does it mean customers must actively respond to gain this relief? If that is the case, it is still a serious obstacle to people being able to claim these benefits. The scheme should provide accessible routes through telephone and post, advice agencies, trusted intermediaries or, better still, an automated identification process, which I think is where this is ultimately going. Perhaps the Minister could say just a word on that. Where households are plainly eligible, the presumption should be that relief is delivered automatically wherever possible.
The Minister talked about limited and specifically defined information, but could she just say what that means in practice? I think she has been clear on that, but could she confirm that it does not mean it will be shared with any further agencies and will not be sent to debt collectors, or for credit scoring or marketing? The information should be collected solely for the purposes here and overseen by the Information Commissioner. These safeguards are really important, particularly in light of the Government’s wider ambition to link household data to further aims for targeted support.
The Explanatory Memorandum says that the Government will conduct an expanded annual assessment, but these regulations do not contain a statutory review clause. Given the sensitivity of the information involved and the scale of the proposed debt relief, is that felt to be sufficient? Regular information on the number of eligible households, the value of the debt cancelled, complaints, corrections, exclusions and any data breaches should be publicly available. We should know whether people who change supplier are protected and continue to receive the benefits that they are entitled to through that process.
It would also be useful if the Government published the operational rules. These regulations create a legal gateway, but many of the questions that matter most to households will be answered in the Ofgem requirements and the administrative guidance. I also feel that these documents should be available to both Parliament and the public.
These regulations address a genuine problem, and I welcome them. I have personally called for greater data sharing so that we can target this support, but that alone is not the sole solution to the problem. I will ask just one question about timing. Obviously, the cap rises by 4% on 1 October, and we are coming into winter. Is it expected that once this SI is passed, this process will move swiftly? Can the Minister give me some indication whether that will happen at all this winter for energy bill payers?
To conclude, targeted debt relief is necessary, but alone it is not sufficient. We still need further and broader work across government to bring down energy bills, to take levies off those bills and to fundamentally reform the energy markets, but we welcome these regulations as a step in the right direction. They do need some careful and firm controls of the data. I think the Information Commissioner has been clear, and we generally welcome these regulations.
The Earl of Effingham (Con)
My Lords, these regulations relate to the Digital Economy Act 2017, which enables data sharing between public authorities and energy suppliers. The regulations will permit the sharing of information to support the delivery of a debt relief scheme by allowing specified persons to disclose information to energy suppliers for the reduction or cancellation of customers’ debt. The Government have committed to delivering targeted support for households most affected by rising energy costs.
The state must help those in need—that is absolutely right—but the reality is that this commitment will do nothing to address the root cause of rising energy costs, which continue to appreciate in part by trying to meet impossible net-zero targets. The most recent contracts for difference allocation rounds held by the Government saw maximum strike prices for offshore wind of £113 per megawatt hour. That is higher than those agreed in previous allocation rounds, higher than the average cost of electricity in the years before and the highest prices in a decade. His Majesty’s loyal Opposition have undertaken the work to tackle the root causes of high energy costs, proposing a cheap power plan to maximise extraction of our own oil and gas resources in the North Sea and to scrap the carbon tax on electricity generation from gas and the renewables obligation subsidy scheme, as well as removing VAT on domestic energy bills. These are constructive proposals endorsed by experts to help tackle the root causes of the cost of living crisis.
These regulations add the Department for Energy, Security and Net Zero and the Department for Science, Innovation and Technology to the list of specified persons that may share information. It may help your Lordships’ House if the Minister will clarify why these regulations make provision to share information with DSIT when the Government have, as far as we understand, abolished and dismantled that department. If these regulations help those in need, that is a good thing, but they are short-term and, as the noble Earl, Lord Russell, quite rightly said, alone they are not sufficient. The only sustainable long-term solution is the one proposed by His Majesty’s loyal Opposition that I briefly outlined.
Baroness Lloyd of Effra (Lab)
My Lords, I thank the noble Earls, Lord Russell and Lord Effingham, for their support for the importance of tackling poverty and I thank the noble Earl, Lord Russell, for recognising the centrality and importance of data sharing and the way in which that can improve efficiency and the way we can design administratively well-targeted schemes. The level of scrutiny that has been brought is very welcome.
The point of these regulations is to improve outcomes, enable government to identify the right households, target assistance more effectively and ensure that support reaches those who need it most. The debt that I mentioned has been building up over many years. It is very much an attribute of what people and households are experiencing, and that is the motivation for this.
Licensing Act 2003 (Mandatory Licensing Conditions) (Amendment) Order 2026
(1 day, 21 hours ago)
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Lord Hanson of Flint
That the Grand Committee do consider the Licensing Act 2003 (Mandatory Licensing Conditions) (Amendment) Order 2026
Relevant document: 9th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Home Office (Lord Hanson of Flint) (Lab)
My Lords, the Licensing Act 2003 (Mandatory Licensing Conditions) (Amendment) Order 2026 was laid before the House on 30 June. This instrument makes a focused amendment to the mandatory licensing conditions for alcohol sale and supply in England and Wales. It will allow licensed premises and club premises with a certificate to accept digital proof of age through a digital verification service that has been independently assessed against the UK’s DVS trust framework and is listed on the statutory DVS register, provided the order’s safeguards and any relevant local licensing conditions are met. In doing so, it removes a legal barrier created by conditions drafted when secure digital verification was not available while leaving the wider licensing regime unchanged.
Currently, anyone asked to prove their age when buying alcohol must produce a physical document bearing a photograph and date of birth with either a holographic mark or an ultraviolet feature, such as a passport or driving licence. I assure the Committee that physical documents remain valid: the order does not require individuals to use digital proof of age or businesses to accept it; it simply provides an additional voluntary route where equivalent safeguards are in place.
The Committee will recognise that people increasingly expect to provide and prove information securely and digitally. As many do not routinely carry valuable documents such as passports or driving licences, providing a trusted digital alternative may also reduce the inconvenience and cost caused when those documents are lost and damaged, particularly on evenings out. They can, of course, easily be lost.
Digital proof of age also supplies and supports data minimisation. A driving licence may reveal an address, when the only relevant question is whether the person meets the age threshold. A digital check can answer that question without disclosing unnecessary personal information.
I hope that noble Lords recognise that modernisation must not compromise licensing objectives. Licensing is there to prevent crime and disorder and public nuisance, promote public safety and protect children and young people from harm. Robust and reliable age verification therefore remains central to this reform.
The digital proof of age may be accepted only through a digital verification service that has been independently assessed against the UK DVS trust framework and is listed on the statutory DVS register. The framework covers security, privacy, inclusion, fraud management and governance, and the register itself provides a clear basis on which consumers and businesses can identify services that meet recognised standards rather than having to judge the reliability of different products for themselves.
I again assure the Committee that a screenshot or image on a phone will not be enough; a registered digital verification service must confirm that the individual meets the threshold in the premises’ age verification policy and that the identity information relates to the individual presenting it. That validation must take place through secure technological means. These requirements reduce the risk of copied, altered or borrowed evidence and give businesses confidence that the digital proof of age is genuine.
It may also benefit the Committee to know that the Government consulted between January and March 2024. Indeed, this Government were not even in office then. Respondents included licensing authorities, policing, trading standards, the alcohol and hospitality sectors, technology providers, delivery partners and the public. We had a very strong 72% response in support of digital proof of age for alcohol sales with strong support for requiring providers to meet government-approved standards. The final approach reflects that support, while responding to the need for dependable safeguards in the regulated environment.
The statutory instrument balances innovation and choice with safety. Licensing and certificate holders remain responsible for preventing under-age sales, the supply of alcohol following the age-verification process and meeting their wider obligations under the Licensing Act. Offences relating to under-age sale and supply are unchanged, and the consequences for businesses that fail to comply also remain the same. Digital verification services are, in essence, an additional tool for responsible age checking, not a substitute for staff training, judgment or oversight.
I also assure the Committee that the order is not a national digital identity scheme or identity card. It does not make digital identity compulsory or give the Government visibility of alcohol purchases. It only permits registered digital verification services to be used for digital age checks as an additional option to physical proof-of-age documents.
In summary, the type of reform that I have outlined, which began under a previous Government, is designed to reflect modern technology and provide consumers and businesses with greater choice while preserving physical identification and the safeguards supporting responsible alcohol sales. I think that they are sensible and important aims, and I commend the order to the Committee.
Baroness McIntosh of Pickering (Con)
My Lords, I thank the Minister for presenting this SI and for continuing the work that the previous Government started. I declare my interests in that I was chair of the Select Committee that reviewed the Licensing Act 2003 and I currently chair the National Proof of Age Standards Scheme board. I also thank the Minister for meeting me yesterday; it was extremely helpful and I am grateful to have had that opportunity.
I welcome the regulations before us this afternoon, both personally and as chair of the Proof of Age Standards Scheme board. It is particularly appropriate, for the reasons that the Minister has set out, that physical cards will exist alongside the digital dPass. As a community interest company, PASS places the interests of young people at the heart of everything we do. We are mindful of the fact that, during Covid, there were not many options or opportunities open to young people to access cinemas, bars, restaurants or indeed any aspects of the night-time economy in general. We therefore welcome the regulations and wish to see them implemented but, as was the case with the Licensing Act 2003, the key to proper implementation will be how Section 182 guidance is drafted. In that regard, I will write giving fuller detail, but I would like to raise a number of issues this afternoon.
A particular concern is the potential weakening of PASS’s established recognition in the Section 182 guidance. I seek an assurance from the Minister and the department that cards bearing the PASS hologram will continue to be named as the preferred physical proof of age method. The Minister set out the reasons why the physical PASS card and others of that nature have been so successful. Many people use them: older people often do not drive or have passports and younger people are not necessarily old enough to have passed their driving test, so there will continue to be a market in that regard. I further ask the Minister that no change affecting recognition of the PASS hologram will be made before OfDIA has provided its supporting analysis and PASS and others have had a proper opportunity to respond.
I am delighted to say that PASS has reviewed its standards and will amend them from October this year to ensure that any PASS card capable of being used as evidence to create a digital proof of age is issued to the medium level of confidence required by the new secondary legislation before us, although I would emphasise that existing compliant cards should continue to be accepted when presented directly as physical proof of age. The revised guidance should also give appropriate recognition to dPass-enabled services once certification and registration are complete. The additional operational matters identified through subsequent review should be addressed in the statutory guidance or, if necessary, confirmed by the Government before Parliament.
There are other technical issues on which I have said I would write to the Minister, but I shall raise two now. I think I am right that Parliament was not consulted on the statutory guidance under Section 182, so I think it is appropriate that we make the point now before that guidance is drafted and adopted. There are two brief points of clarification on which I will write and give further detail. The first is to confirm that no manual visual inspection is required, so that the regulations are to be understood as requiring secure technological validation, not a member of staff simply looking at a phone screen. I can go into more detail when I write to the Minister.
The second is to clarify what the DVSP, to which the Minister referred, must deliver to the responsible person. The draft regulations require the relevant DVSP to
“deliver identification to the responsible person that reaches at least a medium level of confidence”.
It would be very helpful if that classification could be further clarified. We would welcome confirmation in the upcoming updated mandatory licensing conditions guidance and the Secretary of State’s Section 182 guidance that the meaning of the words “deliver identification” includes the delivery of a verified age result or age attribute. There are a number of other specifications that are very technical. I would like to write to the Minister on that.
Lord Davies of Gower (Con)
My Lords, I must begin by saying that the order seems to be a bit of a relic of history. The Government have outlined how they believe it aims to modernise alcohol sales by allowing digital identification for the purposes of age verification at the point of sale. On several occasions, I have had an argument with the Minister about what we on this side view as the folly of digital ID cards. We disagree on the merits of their policy but, given that he has so vociferously defended the introduction of digital ID and given that the new Prime Minister has scrapped the policy, where does the Minister stand now?
More importantly for this debate, what precisely is this order now standing on? The entire proposal behind it depends on functioning digital identification, yet the new Government have abandoned their own digital ID proposals, which, incidentally, I am delighted about. Parliament is being asked to approve secondary legislation built on an assumption of infrastructure that the Government themselves have just walked away from. This all begs the question: how will this now work? How will retailers use digital verification if there is no digital identification system being produced by the Government? It would be particularly useful if the Minister could answer that.
I press the Minister on two further points. First, if a supermarket chain moves towards a QR code verification as its default, what protection exists for those, often older, customers who are unable or unwilling to use a smartphone? The impact assessment speaks confidently of time savings at self-checkouts but says little about those left behind by that convenience.
Secondly, the Government have told the Secondary Legislation Scrutiny Committee that they expect uptake to reach 100% within seven years. Will physical identification still be accepted at that point or is this order, in fact, the first step towards its effective retirement? I should welcome clarity from the Minister on how it is meant to function, from a Government who have, by their own choice, abandoned the very digital identity framework on which this order depends.
Lord Hanson of Flint (Lab)
My Lords, one has to love the noble Lord. The opposition spokesman starts talking about the potential challenges in this policy, but I remind him that the consultation took place between January and March 2024, when the Government of which he was a supporter was in office. So, by all means, have a little kick-about on this point but, ultimately, the Government are trying to make a provision that makes it easier for consumers, easier for businesses, and does not do what he has alleged that we are trying to do—stop the use of physical means of identity.
I was clear in my opening comments about the existing use of physical identification. If someone wants to go out on a Saturday night with their passport in their pocket, they can do so. If it meets the criteria that we have set under the scheme that is already in operation, they can do so. Nobody is going to stop them doing that.
We would hope, self-evidently, that people might think that carrying a passport on a Saturday night might not be a good idea, as it could be lost, because it is a physical document that has great value in terms of political capital and in terms of cost of replacement. So a digital scheme could be used. Again, the noble Lord challenges me and says, “Well, isn’t it terrible that the Government have abandoned their digital ID scheme?” The changes operational here are completely separate to the proposals for a national digital ID scheme. Again, I emphasise to the noble Lord that there is no compunction on this. There is an ability to have both, if businesses and consumers wish to do so. That is based on a consultation, I remind the Committee, that was commenced not under this Government but under the previous one.
Yes, the Government have changed our view on national digital ID. That is what happens in government occasionally: Governments look at policy, determine them and decide whether to continue or not. The noble Lord will know that the job of Ministers in this House is sometimes to defend government policy as determined by a range of Governments at the time. If Ministers reflect on representations made by, among others, Opposition Members, that is reasonable. I just say to him that there is a way forward and I think it is that which is in this order today.
I welcome and thank the noble Baroness, Lady McIntosh of Pickering, for her support and acknowledgement of the contribution of the Proof of Age Standards Scheme over a number of years. She raised a number of valid points and I will try to answer them. I absolutely recognise the need for clear guidance available to businesses and consumers to support the use of digital proof of age for the supply and sale of alcohol. Updating the statutory guidance issued under Section 182 of the Licensing Act is an important part of that, as it guides licensing authorities on the discharges of their functions.
I can say to the noble Baroness that no immediate change will be made to Section 182 guidance in relation to physical ID and that we will not change anything more before further engagement with PASS. I cannot guarantee that there will not be changes in due course, but it is important that she knows that there will be engagement with PASS. We will certainly examine the points that she has made today and those we discussed outside the Committee yesterday. We have already taken into account and made some changes following suggestions from PASS, and I should be happy for the noble Baroness to write to me, as she suggested, with further suggestions that we will consider in due course.
With regard to businesses, I say to the noble Baroness and the noble Lord, Lord Davies of Gower, that businesses will incur costs only if they freely choose to adopt digital proof of age. There is no requirement to do so. Training is important but, again, that is a voluntary measure for businesses to examine in relation to the potential introduction of this legislation. The legislation supports the objectives of strengthening age-verification safeguards and preventing underage alcohol sales. It allows premises secure digital methods to verify age.
In answer to the noble Lord, Lord Davies of Gower, it might be something that people take up, and it might reach 100% within a certain period of time. If it does so, as I have given the Committee the assurance today, it will do so because individuals going out who want to give their proof of age find it a more useful, succinct way of doing so on a digital basis via the verification scheme than carrying a driving licence, birth certificate or passport. I think it is a positive thing. It is reported that 57% of 18 to 25 year-olds have experienced forgetting their ID on a night out. The noble Lord, Lord Davies, will know that people very rarely forget their phones on a night out, and the digital ID that will be there will be available, more secure and, I think, valuable. It will not be mandatory. The Government are taking an enabling approach ensuring that we have an additional option rather than replacing existing forms of proof of age. Ultimately, as the noble Baroness, Lady McIntosh, said, it will be for retailers to maintain their responsibility to ensure that proof of age is present. It is their responsibility to do so, but they remain free to decide which age-verification methods they accept, and consumers remain free to use physical material should they so wish. I will respond to the noble Baroness’s letter in due course.
I hope I have helped the noble Lord. I understand that he is opposed to digital ID. That is a legitimate point of view. We know where we are on that. That is not progressing. This is not linked to that. With that assurance, I hope I can—
Baroness McIntosh of Pickering (Con)
I am grateful to the Minister for responding on the point about of Section 182 guidance not, at this stage, being amended for physical sales—that is greatly appreciated from the PASS point of view—but he did not address the issue that retailers in the wine and spirit trade have raised, and I am sure that convenience stores would have similar issues. When will the Section 182 guidance be amended for digital proof of age at the point of sale? We want to make it go smoothly and make sure that there are no altercations and no threats to staff at the point of sale.
Lord Hanson of Flint (Lab)
I appreciate that. I cannot give the date when this will be implemented. The points the noble Baroness made around training and the need to prepare are valid. We do not have a commencement date yet. My understanding is that this order will go to the House of Commons on Monday next week. Ministers, including the direct Minister responsible, who is in the department, and not me in this case, will take a decision on that. The factors that she has mentioned are important, and I will ensure that no immediate change will be made to Section 182 guidance without further engagement with PASS. We have the ability to implement this order in an ordered way, and I will reflect on what the noble Baroness said, and if I am able to give further information post the letter, I will do so.
Building Societies Act 1986 (Assimilation to Company Law and Changes to Funding Limit) Order 2026
(1 day, 21 hours ago)
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Lord Pitt-Watson
That the Grand Committee do consider the Building Societies Act 1986 (Assimilation to Company Law and Changes to Funding Limit) Order 2026.
The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)
My Lords, building societies are a vital part of the United Kingdom’s financial services sector, and the Government are committed to ensuring that their legislative framework remains fit for purpose. This order is the latest step in the Government’s programme of updates to the Building Societies Act 1986 to ensure that it continues to align with company law, where appropriate, and that the Act’s funding framework operates to support financial stability and strong prudential standards among building societies.
The order before the Committee makes two targeted changes, and I will take each in turn. First, the order modernises requirements on building societies when executing legal documents. At present, building societies are required to execute certain legal documents, such as deeds, by affixing a common seal. Companies, by contrast, have greater flexibility under the Companies Act 2006: they may execute documents either by using a common seal or by the signature of authorised signatories.
This order aligns the position for building societies with the company law framework. It provides that a building society will be able to choose whether to execute documents by affixing a common seal or by having the document signed by authorised signatories. Those authorised signatories will include directors and the secretary of the society, and the order also provides for execution by a director in the presence of witnesses. This is a practical and proportionate modernisation: it will reduce unnecessary administrative burdens and it reflects the Government’s broader commitment to keep building society law aligned with company law, where that is appropriate.
The second element of the order concerns building societies’ wholesale funding limit. Under the 1986 Act, building societies must raise at least 50% of their funding from members’ deposits. That requirement is central to preserving their distinctive mutual model, which means that building societies are owned by their members. I want to be clear that this order does not change that fundamental principle.
Instead, the order makes targeted changes to the ways that wholesale funding is calculated. It specifies certain sources of funding that are to be disregarded for the purposes of that calculation. These include funding from specified Bank of England liquidity facilities, debt instruments issued to meet the Bank of England’s minimum requirements for own funds and eligible liabilities, and certain sale and repurchase agreements using high-quality liquid assets that are being held to meet prudential requirements.
The purpose of this change is straightforward. It is inappropriate to treat funding that supports prudent liquidity management or compliance with prudential regulation in the same way as ordinary wholesale funding. Doing so can distort the calculation and, in some cases, in effect, double-count funding.
That outcome is not consistent with the objectives of UK prudential regulation; nor should the funding limit create unintended disincentives for building societies to use Bank of England liquidity facilities. The order ensures, therefore, that the funding limit operates in a more appropriate way by exempting those sources of funding from the calculation. It supports the objectives of prudential regulation, protects financial stability and gives societies greater funding flexibility, while preserving the statutory requirement that at least half of their funding must come from members.
In conclusion, this order makes focused, practical and positive changes. It modernises the legal framework for building societies, supports prudent liquidity management and helps ensure that building societies can continue to compete effectively while maintaining their mutual business model. For those reasons, I commend this order to the Committee and beg to move.
Baroness Kramer (LD)
My Lords, the Minister is exactly right, of course. Building societies and mutually owned banks are absolutely crucial to our economy. They hold some 29% of all outstanding residential mortgages, and that figure is growing. They are especially significant for first-time buyers as conventional banks are less active in this market. So, as we try to solve the housing crisis and restore economic growth, both the capacity of the sector to grow and its lending matter—but so, too, does the stability of the sector.
As the Minister said, the Building Societies Act 1986 requires that a building society must raise at least 50% of its funds from individual member deposits, with the consequence that funding from wholesale markets cannot exceed 50%. However, this order changes the way in which the 50% is calculated to specify that certain funding sources will be excluded from the wholesale calculation. The examples given include specific Bank of England liquidity facilities, loss-absorbing instruments —we would typically cite MREL—and specific repo agreements. This is clearly of importance to the larger societies. It sets them on a more level playing field in competing against banks, as well as increasing their lending capacity. However, even though I support this change, I have two questions.
First, have the Government assessed the impact of increased wholesale funding in times of interest rate volatility? I point out to the Minister that there will be an increase in wholesale funding, if one is not going to be highly technical, because MREL, for example, is raised in the wholesale markets, as are the repos. A number of the instruments that are covered and will be excluded from the calculation are, in fact, wholesale market transactions.
Funding short—the characteristic of the wholesale funds—and lending long, at a fixed rate, was the curse of HBOS when it failed. Once, in a conversation with me that discussed such a situation, Warren Buffett’s number two, Charlie Munger, talked of funding short and lending long as living proof of the walking dead. It is a riskier strategy because of the duration mismatch. I am not suggesting that these changes are going to lead to those extreme outcomes, but it is clear that the squeeze on margins that comes from greater wholesale funding can end up inhibiting lending—and does so exactly at the time when the economy typically needs new liquidity and lending the most.
My second question is slightly different. Is there any risk of diluting the mutual identity by, in a sense, changing this weighting of wholesale versus membership funding? Building societies are much more community-driven than conventional banks. If that link were weakened by the need to respond to the pressures from wholesale lenders, we would all be losers, frankly. I would appreciate the Government’s comments on that.
The other issue in this statutory instrument, offering choice on how to execute documents, strikes me as simple common sense. Frankly, I had no idea that common seals are still in use. Indeed, I may be the only person in this building who has actually closed contracts by using a seal. That was under armed guard, because it had to be removed from the vaults and every movement was observed, because the seal was of such extraordinary value. I really thought that those days were over, and I am pleased that building societies are now going to be relieved of the burden.
Baroness Neville-Rolfe (Con)
My Lords, I am very grateful to the Minister for setting out the purpose and effect of the order. We on these Benches welcome it. It is a broadly deregulatory measure, and it should reduce unnecessary constraints on building societies and make their day-to-day operations easier.
Building societies play an important role in our financial system and in local communities, as the Minister said in his very clear introduction. Indeed, as the noble Baroness, Lady Kramer, said, they are also very important for first-time buyers. I certainly got my first mortgage from a building society: the Bedford Building Society. Building societies’ mutual model helps to promote diversity and competition, and they remain significant providers of mortgages and saving products. It is right that the law should preserve the distinctive character of building societies without requiring them to operate under legal and regulatory arrangements, which have failed to keep pace with developments elsewhere.
The first part of the order is a practical modernisation. It brings the rules governing common seals—not the seals I saw on the Norfolk coast during my recent holiday—and the execution of documents by building societies more closely into line with company law. In future, a building society may have a common seal, but it will no longer be required to have one. Documents will also be capable of execution using authorised signatories. The order also, interestingly, makes corresponding provision for deeds, powers of attorney, the position under Scots law and the use of official seals abroad.
The changes to the funding limits are, however, the more economically significant part of the order. The requirement that at least 50% of a building society’s funding liabilities should be derived from members’ shares is an important safeguard of mutuality. It distinguishes building societies from wholesale-funded banks and helps to ensure that they remain rooted in their members.
At the same time, the framework must recognise that modern prudential regulation imposes requirements which were not envisaged when the original funding limit was designed. It would make little sense for a building society to be pushed closer to that limit simply because it had used a Bank of England liquidity facility or issued debt in order to meet MREL requirements, or to comply with PRA liquidity rules. By excluding those liabilities from the wholesale funding limit calculation, this order should make it easier for societies to meet modern regulatory requirements, issue MREL-eligible debt and make appropriate use of liquidity facilities.
I would, however, be grateful if, in addition to answering the very good questions from the noble Baroness, Lady Kramer, the Minister could address some of mine. First, to what extent does the Treasury expect the changes to improve the competitiveness of building societies relative to banks? The Explanatory Note says that no significant impact is foreseen, and no full impact assessment has therefore been produced. That is disappointing, since the Treasury’s financial services impact assessments are usually very good and very helpful to us in this House. It would therefore be good to understand what practical or economic benefit the Treasury nevertheless expects the order to deliver and to know of any hidden costs to businesses.
Secondly, will the benefits be distributed evenly across the sector? The exclusion for secondary non-preference debt would appear particularly relevant to the larger societies, which are subject to MREL requirements. Does the Treasury expect smaller societies to benefit?
Thirdly, has the Treasury estimated whether the additional flexibility created by the order could support greater mortgage lending or investment by building societies? How will it monitor whether the reforms release capacity, which is then used to support customers and the wider economy?
Fourthly, Article 4 requires the Treasury to review the order within five years and at intervals of no more than five years thereafter. What metrics will be used? In particular, will it examine the effect on competitiveness?
Finally, does the Treasury regard this order as the final stage in implementing the reforms enabled by the 2024 Act, or are further measures being considered to modernise building society legislation?
Subject to these questions, we regard the order as a positive and proportionate measure. It removes outdated administrative rules, supports compliance with PRA and Bank of England requirements, and gives building societies greater flexibility without undermining the important principle of mutuality.
Lord Pitt-Watson (Lab)
I thank noble Lords for their consideration of this order. I have listened carefully to the interventions made and will try to respond to them, if I can.
One was on the interest in common seals. Until I read this SI, I also had not realised that building societies were so constrained. There was then a series of questions about borrowing short and lending long, which is of course central to building society and bank operations; that is why you can have a run on a building society or a bank and why we have the Bank of England to deal with that and give confidence so that a run does not take place. Clearly, in the changes that are being made, which are relatively small changes associated with highly liquid instruments, deposits and dealings with the Bank of England, there is not a huge difference in the duration risk that we see today and the duration risk that we will see in future. The aim is to make building societies more equivalent and similar to banks so that they can be more competitive.
As regards what the effects of this will be, the noble Baroness, Lady Neville-Rolfe, asked a good question about greater mortgage lending. I did in fact go back and ask whether a calculation had been made on that. The answer I got, which I thought was quite a good one, was that the reduction in constraint does not immediately mean that a building society will change what it does because there are many other considerations in how it expands its balance sheet. Therefore, there is not a number on that one. I feel quite comfortable that there is not a number, but we create a level playing field. As for a review in five years’ time, I do not know what would be included in such a review; I think that it might be impacted by events from now and going forward.
In terms of the impact of interest rate volatility, as raised by the noble Baroness, Lady Kramer, the changes have been designed to help with periods of market instability, including interest rate volatility. I did inquire about the additional mortgage lending. I did not get an answer, but I think that I did not get an answer for quite a good reason.
As I set out my opening speech, this order should make targeted and practical changes to the Building Societies Act, modernising requirements and specifying certain sources of funding to be exempt from the wholesale funding limit calculation. It should ensure that the legislative framework for building societies remains proportionate and aligned with wider company law and prudential regulation, while preserving their fundamental mutual model. I hope that I have answered the questions raised.
Baroness Neville-Rolfe (Con)
That is very helpful and I am grateful to the Minister for answering the questions about likely changes in mortgages and investment. There are a couple of strands I would like to emphasise. One is that I am very concerned that we should help smaller building societies as well as bigger ones, which I hope he agrees with, and that competitiveness is an important factor. The one thing he perhaps could answer, either now or in a letter, is whether this is the end of the road or whether there are more changes coming in SIs on building societies.
Lord Pitt-Watson (Lab)
On both those questions, may I write to the noble Baroness? My understanding is that this is the end of the road for this set of legislation, but I cannot predict whether further legislation may come forward. On small and big building societies, might I simply write to the noble Baroness?
Overseas Prudential Requirements Regime (Credit Institutions and Investment Firms) Regulations 2026
(1 day, 21 hours ago)
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Lord Pitt-Watson
That the Grand Committee do consider the Overseas Prudential Requirements Regime (Credit Institutions and Investment Firms) Regulations 2026.
The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)
My Lords, the Committee will consider together two statutory instruments made under the Financial Services and Markets Act 2023, known as FSMA 2023. Although these instruments address different areas of financial regulation, they share a common purpose, which is to ensure that the UK’s regulatory framework remains stable, proportionate and internationally competitive. Together, they provide greater certainty for firms, preserve appropriate regulatory safeguards and support the continued effective functioning of UK financial markets.
The first instrument supports the Government’s wider programme of replacing retained EU legislation by creating a new overseas prudential requirements regime. The second concerns over-the-counter, or OTC, derivatives and establishes a permanent regulatory framework for certain intragroup transactions. I will address each instrument in turn, beginning with the overseas prudential requirements regulation.
The first instrument is the Overseas Prudential Requirements Regime (Credit Institutions and Investment Firms) Regulations 2026. Following EU exit, the UK retained a body of EU-derived financial services legislation, known as assimilated law. This includes the capital requirement regulation, or UK CRR, which sets detailed prudential requirements for credit institutions, such as banks and building societies, and for larger investment firms.
In 2025, the Government consulted on their approach to repealing a number of equivalence provisions currently contained in that assimilated law. This instrument delivers that approach. In particular, it restates the existing UK CRR equivalence regimes within a single overseas prudential requirements regime, helping to make the prudential framework easier to navigate while maintaining continuity for firms. Existing equivalence decisions will be preserved as overseas regime decisions under the new framework, providing continuity and certainty for firms.
This forms part of the Government’s wider programme under the Financial Services and Markets Act 2023 to repeal assimilated financial services law while preserving the necessary policy outcomes. This supports the implementation of the FSMA model of regulation, under which detailed firm-facing requirements are set in regulators’ rulebooks rather than in legislation.
As part of this wider reform agenda, the Government are replacing the existing equivalence regimes inherited from the EU with overseas recognition regimes that are tailored to the UK’s needs and reflect the Government’s outcomes-focused approach to the unilateral regulatory recognition of overseas jurisdictions.
This instrument is intended: first, to consolidate currently fragmented equivalence provisions into a single, coherent regime, while maintaining continuity for existing CRR equivalence decisions; secondly, to adjust the treatment of exposures to overseas exchanges so that capital treatment better reflects the underlying risk; thirdly, to replace the definition of “third-country investment firm” with “overseas investment firm” while maintaining the overall scope and effect of the existing treatment; and, finally, to enable the Government, subject to a further statutory instrument and parliamentary approval, to recognise eligible covered bonds from overseas jurisdictions in the future.
I turn to the second instrument, which makes a targeted and important reform to the UK’s framework for regulating OTC—over-the-counter—derivatives, those traded directly between buyer and seller, by addressing intragroup transactions. It replaces the temporary intragroup exemption regime, known as TIGER, with a permanent framework. In doing so, it provides firms with long-term certainty while preserving appropriate safeguards and regulatory oversight.
As I think all my audience knows, derivatives are contracts whose value is linked to an underlying asset, benchmark or index. They are widely used by businesses to manage risks. Intragroup transactions, where companies within the same corporate group are counterparties to a derivative contract, allow groups to manage their risks efficiently. The benefits of intragroup transactions are well recognised, so exemptions from certain clearing and margin requirements for certain transactions are a feature of regulatory regimes in the UK and in other jurisdictions.
TIGER was introduced following EU exit to provide a temporary regime for exempting certain transactions between a UK counterparty and an entity within the same group located in a jurisdiction that has not been declared equivalent under UK legislation. It was only ever intended to be a temporary measure and, having been extended once already, it is due to expire at the end of 2026. The Government consider that a further, time-limited extension would not provide the long-term framework that firms need. This instrument therefore establishes a permanent framework for qualifying intragroup transactions with overseas group entities to benefit from a regulatory exemption. The instrument also provides continuity for firms relying on TIGER exemptions.
These reforms do not remove safeguards. Firms must continue to meet the conditions for intragroup treatment, and for relevant cross-border exemptions, the Financial Conduct Authority will continue to have visibility through a notification process, while retaining oversight of the regime.
In summary, these are proportionate reforms that replace EU exit arrangements with a stable UK framework, reduce unnecessary friction, support firms’ global risk management and maintain robust regulatory oversight. I beg to move.
Baroness Kramer (LD)
My Lords, I will address each of these instruments separately. First, on the overseas prudential requirements regime, in the Government’s perspective, this statutory instrument is simply the application of the FSMA model to decisions on equivalence. The Government know that I am quite concerned that the FSMA model removes from parliamentary oversight decisions that were once considered to require democratic engagement and puts them into a model that is notably weak on accountability to Parliament. This is obviously a much bigger issue than this SI.
Initially, existing equivalence decisions will remain in place. Can the Minister explain whether future changes and additions will come before Parliament in any way? Will it be a deciding situation or will it be merely reported? I stress that, to me, transparency and accountability are two different things, yet sometimes, in conversations with the regulators, you would think that they were the same.
Baroness Neville-Rolfe (Con)
My Lords, I am grateful to the Minister for setting out the purpose and effect of these two instruments. Although both are technically dense, they share a common and quite straightforward purpose: they replace parts of the inherited or temporary post-EU framework with permanent UK arrangements. It gives us an opportunity to make the regime more proportionate and better suited to the UK market while preserving the prudential safeguards on which financial stability depends. We support both instruments in principle, but I have a few important, mainly technical, questions. I hope that the Minister will be able to answer them today; if not, perhaps he could write to the Committee by way of follow-up.
I turn first to the overseas prudential requirements regime regulations. The instrument carries across a substantial number of existing recognitions from the outset, for countries with sophisticated regulatory regimes, such as the US and Singapore, to some with newer and riskier ones. That is welcome because it should prevent a cliff edge for firms when the EU-derived framework is revoked. The separate treatment afforded to Gibraltar also reflects the particularly close relationship between our two financial systems.
It is important to be clear that designation does not make an exposure risk free, automatically give it a zero-risk weight or amount to a blanket finding that every aspect of an overseas regime is equivalent to our own. The Treasury can designate a jurisdiction for particular institutions or exposures and may attach conditions. The detailed prudential treatment will continue to depend on the PRA rulebook and the characteristics of the exposure concerned.
This, of course, places considerable responsibility on the Treasury when deciding which jurisdictions should be recognised and for what purpose. What evidence and methodology will the Treasury use when assessing an overseas regime? What formal role will the regulators play in this determination, and will the Treasury publish its assessment when making a new designation, so that Parliament and the market can understand the basis for the decision?
There is also the question of what happens after a designation has been made. Prudential standards, supervisory capacity and political circumstances can change. How will the Treasury monitor designated jurisdictions on an ongoing basis, and how frequently will their status be reviewed? If standards deteriorate, can a designation be suspended or withdrawn urgently during a period of financial stress, and how quickly could that decision take effect?
Future designation decisions will ordinarily be made under the negative procedure. Given that those decisions can affect the capital treatment of significant overseas exposures, will the Minister explain why that level of parliamentary scrutiny is considered sufficient? Will the Government at least commit to placing a clear assessment of the prudential case and the expected effect of each designation before Parliament?
Finally, on this instrument, Regulation 5 establishes a mechanism for recognising overseas eligible covered bonds, but the initial Schedule does not appear to designate any jurisdiction for that purpose. Can the Minister explain when the Treasury expects the power to be used?
I turn to the Over the Counter Derivatives (Intragroup Transactions) Regulations. These provide a permanent replacement for temporary post-Brexit arrangements, governing exemptions from the clearing and margin requirements in UK EMIR. This is targeted deregulation rather than the dismantling of the wider derivatives regime. It does not exempt ordinary transactions with unrelated third parties, and the FCA retains an important supervisory role. The hope is that the reforms will reduce duplication, release collateral and make it easier for international groups to manage risk centrally.
In considering this instrument, it would be helpful to know how things stand on derivative policy more generally. In particular, are the French still seeking to transfer valuable trade through protective EU regulation or have they seen sense, given the interests of their own companies and banks?
The Treasury says that no significant impact is expected. That is rather disappointing for a deregulatory measure, and it has consequently not produced a full impact assessment. What estimate has it made of the clearing, collateral and administrative costs that firms will avoid and the scale of any hidden costs? How, in practical terms, will the new notification system reduce the time and compliance work involved, compared with the present arrangements? Has Dr Felix Martin of the Cost Benefit Analysis Panel been given a chance to take a view? These are both serious measures, which is why they are subject to affirmative resolution, and I would like some reassurance on the deregulatory impact.
The Government present these reforms as supporting the competitiveness of the UK financial services sector, which is obviously an objective that we support. How does our new framework compare with the treatment of intragroup derivatives in the European Union, the United States or other major financial centres? Will the United Kingdom become a more attractive location for the treasury and risk management operations of international groups? If so, what indicators will the Treasury use to assess whether that benefit is realised?
The FCA’s role will be central. Is the Minister satisfied that it will have the information, expertise and capacity needed to assess potentially complex international group structures within the 30-day period? Where an exemption concerns two overseas entities, how will supervisory responsibility be co-ordinated with the relevant overseas authorities?
Conditions can also change, as the noble Baroness, Lady Kramer, explained. A jurisdiction may introduce capital controls, a local regulator may impose ring-fencing requirements or funds that once moved freely may become trapped during a crisis. What continuing obligation will firms have to notify the FCA of such changes? What power will the FCA have to suspend or withdraw an exemption? The central task in both cases is to ensure that greater flexibility and competitiveness are accompanied by robust supervision, continuing vigilance and appropriate parliamentary transparency. However, I am clear that these are important instruments and, subject to some sensible answers on these questions, we support them.
Lord Pitt-Watson (Lab)
My Lords, I thank the noble Baronesses for their comments, some of which go a little beyond what we are trying to address here with these statutory instruments. I understand the concern of the noble Baroness, Lady Kramer, about the FSMA regime, how it works, parliamentary oversight and the rest of it, but not relitigating it when we are talking about statutory instruments would be a better use of everybody’s time.
On concerns about decisions passed by regulators, no new responsibility is being passed to Parliament. These will stay decisions for Ministers and Parliament, not regulators. I specifically mentioned that the recognition of covered bonds would need to be approved by Parliament. Essentially, we are moving from one regulatory regime to a UK regulatory regime. I understand the questions about whether the UK regulatory regime is right, but we should probably not relitigate that now.
The noble Baroness, Lady Neville-Rolfe, asked what criteria would apply to future designations. The Treasury will assess whether recognition of an overseas jurisdiction is compatible with the relevant policy outcomes, which includes protecting the stability of the UK financial system, protecting the safety and soundness of UK banks and investment firms, promoting effective competition in financial services and markets and/or supporting the international competitiveness and medium to long-term growth of the UK economy.
The noble Baroness, Lady Neville-Rolfe, asked about covered bonds issued by other jurisdictions and whether they could receive preferential treatment without further parliamentary scrutiny. The answer to that is no. A specific designation of an overseas jurisdiction in relation to covered bonds would require a subsequent statutory instrument and parliamentary approval. This instrument does not designate any jurisdiction or confer preferential treatment on any particular covered bond markets. There are no current plans to use the power, but it is important that we have it available. I should write to her on the question on the bets. That is well beyond my pay grade.
How does the UK approach compare with that of the EU? The EU removed the previous dependent on third-country equivalence decisions for intergroup treatment through EMIR 3. The EU now uses restrictions linked to specified high-risk or non-co-operative jurisdictions with scope for additional jurisdictions to be identified. The UK instrument likewise delinks intragroup eligibility from Article 13 equivalence but has detailed safeguards and processes designed for the UK framework.
Finally, on why a full impact assessment has not been made, the instrument is not expected to impose significant ongoing direct costs. It largely preserves existing treatment and does not include new designations. A de minimis impact assessment has been prepared. It identifies negligible familiarisation costs and no expected annual direct costs to business. Any material future costs or benefits associated with detailed prudential treatment would arise principally from PRA rules and be assessed by the PRA through cost-benefit analysis.
Today, the Committee has considered two statutory instruments. Although covering different aspects of financial regulation, both support the Government’s objective of maintaining a regulatory framework that is proportionate, effective and supportive of growth, while safeguarding financial stability. The overseas prudential requirements regime supports the Government’s wider programme of reforming assimilated EU financial services law. It brings together currently fragmented provisions within a clearer and more coherent statutory framework, while supporting the transition of assimilated law to the FSMA model of regulation. The second instrument, the Over the Counter Derivatives (Intragroup Transactions) Regulations, replaces a temporary regime that expires at the end of this year with a permanent framework for qualifying intragroup transactions. It gives firms certainty, supports efficient risk management across international groups and avoids unnecessary disruption when TIGER expires.
At the same time, it does not remove the underlying condition that firms must meet to benefit from these exemptions. The Financial Conduct Authority will retain oversight across border exemptions and the ability to object when those conditions are not met. The Government therefore believe that the reforms strike the right balance between reducing unnecessary burdens and maintaining appropriate safeguards. Taken together, these instruments provide certainty, support the competitiveness of the UK’s financial services sector and ensure that our regulatory framework continues to operate effectively.
Baroness Neville-Rolfe (Con)
I have just one question. The Minister gave a very helpful reply. He seems to be saying that the second instrument is essentially carrying things over—that both instruments are carrying over from previous EU law, rushed through after Brexit—and putting them on a permanent basis. My questions were about assessment and the FCA, which he answered well. What happens when we have a new designation? Will there be a process of assessment and an impact assessment for that? I can understand where we are just moving things across, but it would be helpful to know what the Treasury’s plan is.
Lord Pitt-Watson (Lab)
It would come to Parliament for approval, with an assessment.
Over the Counter Derivatives (Intragroup Transactions) Regulations 2026
(1 day, 21 hours ago)
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Lord Pitt-Watson
That the Grand Committee do consider the Over the Counter Derivatives (Intragroup Transactions) Regulations 2026.