Lords Grand Committee
Wednesday 2nd September 2026
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16:15
16:15
Speaker 2
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Speaker 2
My Lords, I beg to move that the committee consider the draft Building Safety Levy Amendment Regulations 2026. 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. Government is 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 the levy needs to raise 3.4 billion, likely over a ten 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 the 1st of October 2026. The draft amending regulations before the committee today will clarify how the levy will work and are intended to come into force on the 1st of October.
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 be. It will start being charged on new applications from the 1st of 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 it was not clear that 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 of these kinds of features, and 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 will hopefully make it easier for local authorities and developers to understand which sites qualify for the discount and reduce costly and time consuming disputes. These regulations, and the updated guidance provided, provide more information about how this change works for 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, 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.
We estimate the levy needs to raise 3.4 billion, likely over a ten 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 the 1st of October 2026. The draft amending regulations before the committee today will clarify how the levy will work and are intended to come into force on the 1st of October.
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 be. It will start being charged on new applications from the 1st of 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 it was not clear that 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 of these kinds of features, and 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 will hopefully make it easier for local authorities and developers to understand which sites qualify for the discount and reduce costly and time consuming disputes. These regulations, and the updated guidance provided, provide more information about how this change works for 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, 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.
16:19
16:19
Speaker 3
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Speaker 3
First of all, my Lord, I wish to welcome the noble Baroness Blake of Leeds. Her new role and look forward to working with her, I'm sure you will agree on some occasions, maybe more than. Maybe more than most. And let me say right from the beginning that us Liberal Democrats accept the technical changes in this S.I., because that's in effect, what they are. Amendments are sensible, practical and entirely necessary to prevent any sort of chaos, really .
Following the levy coming into force in October, and the particular positive changes to which the noble Baroness Blake has referenced, which are important, is to remove that loophole that existed of previously developed land, that developers are very good at finding loopholes. And so that was that's important. The the spot check and having that a strict notification period is also important, as well as the separating purpose built student accommodation from being classed alongside residential, although that's that's positive and we support it.
However, the government has set a target of raising £3.4 billion, which is good. However, they are planning to raise this over a period time frame of ten years, ten years and in the first year the levy raises zero and the second raises, and I think this is estimates have found, I think, from the Office of Budget Responsibility. And the second year raises 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 out of the £3.4 billion it is estimated to raise now. So once you understand that, and I guess there will be reasons for it, you know, so it is unlikely to raise significant sums in the first couple of years, I accept. However, once you you've got that in mind that that's how the funding is going to be five years on, really before anything significant comes into the coffers to support remediation.
Then you say to yourself, the Grenfell Tower tragedy is nearly ten years ago and still, still the government has been having to find ways of raising sufficient funds to pay for the remediation on top of the. I think it's 5.1 billion that the government's put aside the developers that are about 50 major developers who signed up to to a scheme to to fund it. And out of that. Bearing in mind that the Minister has just said there is no justification for buildings to remain unsafe.
46% of buildings have not even been had. Work started on them. So although this is important, the levy is important. Although I accept the, you know, the positive changes that are being made, the lack of urgency in all this is really very worrying, especially if you live as a leaseholder in one of those blighted apartments. And I say blighted because if you're a leaseholder waiting for cladding to be removed and flammable cladding to be removed or safety defects to be remedied, you are stuck in that flat because you can't sell, you can't remortgage, you are stuck.
And that's ten years, ten long years. So and more so this levy is coming to light. So a couple of questions for the minister. Considering the first five years raises next only a billion. Who then is going to fund any of the schemes that would be funded under this this this particular scheme, 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? Because that would, I think, be of give leaseholders some hope. And third question is again about the leaseholders. So. Some of them, 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 they. That is not right, and they can go to first tier tribunals to challenge it? No. I've said all along, in this terrible situation that the one group of people who are absolutely, completely innocent are the leaseholders. Absolutely. They don't even own the bricks and mortar. They lease the space in between the bricks and mortar.
They should not be paying anything and anything that the government can do to protect them further would be welcome. But having said that, I support what's in the statutory instrument today.
Following the levy coming into force in October, and the particular positive changes to which the noble Baroness Blake has referenced, which are important, is to remove that loophole that existed of previously developed land, that developers are very good at finding loopholes. And so that was that's important. The the spot check and having that a strict notification period is also important, as well as the separating purpose built student accommodation from being classed alongside residential, although that's that's positive and we support it.
However, the government has set a target of raising £3.4 billion, which is good. However, they are planning to raise this over a period time frame of ten years, ten years and in the first year the levy raises zero and the second raises, and I think this is estimates have found, I think, from the Office of Budget Responsibility. And the second year raises 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 out of the £3.4 billion it is estimated to raise now. So once you understand that, and I guess there will be reasons for it, you know, so it is unlikely to raise significant sums in the first couple of years, I accept. However, once you you've got that in mind that that's how the funding is going to be five years on, really before anything significant comes into the coffers to support remediation.
Then you say to yourself, the Grenfell Tower tragedy is nearly ten years ago and still, still the government has been having to find ways of raising sufficient funds to pay for the remediation on top of the. I think it's 5.1 billion that the government's put aside the developers that are about 50 major developers who signed up to to a scheme to to fund it. And out of that. Bearing in mind that the Minister has just said there is no justification for buildings to remain unsafe.
46% of buildings have not even been had. Work started on them. So although this is important, the levy is important. Although I accept the, you know, the positive changes that are being made, the lack of urgency in all this is really very worrying, especially if you live as a leaseholder in one of those blighted apartments. And I say blighted because if you're a leaseholder waiting for cladding to be removed and flammable cladding to be removed or safety defects to be remedied, you are stuck in that flat because you can't sell, you can't remortgage, you are stuck.
And that's ten years, ten long years. So and more so this levy is coming to light. So a couple of questions for the minister. Considering the first five years raises next only a billion. Who then is going to fund any of the schemes that would be funded under this this this particular scheme, 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? Because that would, I think, be of give leaseholders some hope. And third question is again about the leaseholders. So. Some of them, 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 they. That is not right, and they can go to first tier tribunals to challenge it? No. I've said all along, in this terrible situation that the one group of people who are absolutely, completely innocent are the leaseholders. Absolutely. They don't even own the bricks and mortar. They lease the space in between the bricks and mortar.
They should not be paying anything and anything that the government can do to protect them further would be welcome. But having said that, I support what's in the statutory instrument today.
16:26
Speaker 4
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Speaker 4
My Lords, can I also welcome the noble Baroness Blake to her role on the front bench? Great to see you. I remember the number of times we stood on opposite sides in the LGA. So we move on and we're still in the same relative position. I thank the noble Baroness, 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's important and the role that the levy plays in that and the need for clarity. I also agree with the noble Baroness Pinnock, who rightly raises the issue of the time it's taking to get these buildings to be safe and that, in effect, people are trapped within them, and particularly on the recently on the social housing bill, we raised the issue of shared ownership, which I think is a particular gracious position. We do welcome some of the changes in here.
The earlier deadline for the authorities responsible for collecting and administrating the levy, and to notify the person who is liable of information. Check, check. Can the noble Baroness, the Minister, confirm that authorities will have the capacity to meet these earlier deadlines? The government has also taken the decision not to take a forward extended exemption threshold for major residential development in the levy regulations. The noble Baroness. The Minister, please expand on the rationale behind this decision, but I do want to touch on something else, because we have a housing crisis and we had a shortage of housing and we're not building enough now.
These regulations include amending the definition of a previously developed site, whereby 75% of the land has to be previously developed. This 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. Now, 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 for the 50% discount to the standard rate Interpretate that.
So please appreciate if the Minister would clarify that and clarify the level of the increase. Now, as we have said on many, many occasions, and I believe across the House, there is support that we should prioritise brownfield development first. Now, ostensibly, this discount does prioritise brownfield. However, given that the levy relates to the value of property, its impact greater on brownfield sites in urban areas of high value, such as London. Now, 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 in 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 , and indeed many alternative uses such as retail care homes and data centres would not be subject to this cost. Now, I appreciate that the noble Baroness, the minister, said developers have been aware of this for a number of years, and I don't believe that this levy on its own will stop development. However, we have seen a constant layering of additional costs on development, whether it's the building levy, landfill tax, high rise building safety, additional 106 biodiversity net gain amongst others, and in London, a variety of specific mineral requirements.
Now we absolutely agree that we need safe buildings and they need to be funded, my Lords. But if the cost of building is greater than the sales price, homes will not be built. And I fear that in many parts of the country, as a result of this layering, we're approaching this point. The government is on track to build fewer homes than the last conservative government, despite its election promises 1.5 million homes.
We do not expect sorry, we do not want additional taxes and regulations on developments to the extent they slow down development on brownfield land by making sites unviable. I appreciate this is a balancing act, but it is a concern that we have, and I would appreciate the Minister's responses on that balance. Thank you.
It's important and the role that the levy plays in that and the need for clarity. I also agree with the noble Baroness Pinnock, who rightly raises the issue of the time it's taking to get these buildings to be safe and that, in effect, people are trapped within them, and particularly on the recently on the social housing bill, we raised the issue of shared ownership, which I think is a particular gracious position. We do welcome some of the changes in here.
The earlier deadline for the authorities responsible for collecting and administrating the levy, and to notify the person who is liable of information. Check, check. Can the noble Baroness, the Minister, confirm that authorities will have the capacity to meet these earlier deadlines? The government has also taken the decision not to take a forward extended exemption threshold for major residential development in the levy regulations. The noble Baroness. The Minister, please expand on the rationale behind this decision, but I do want to touch on something else, because we have a housing crisis and we had a shortage of housing and we're not building enough now.
These regulations include amending the definition of a previously developed site, whereby 75% of the land has to be previously developed. This 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. Now, 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 for the 50% discount to the standard rate Interpretate that.
So please appreciate if the Minister would clarify that and clarify the level of the increase. Now, as we have said on many, many occasions, and I believe across the House, there is support that we should prioritise brownfield development first. Now, ostensibly, this discount does prioritise brownfield. However, given that the levy relates to the value of property, its impact greater on brownfield sites in urban areas of high value, such as London. Now, 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 in 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 , and indeed many alternative uses such as retail care homes and data centres would not be subject to this cost. Now, I appreciate that the noble Baroness, the minister, said developers have been aware of this for a number of years, and I don't believe that this levy on its own will stop development. However, we have seen a constant layering of additional costs on development, whether it's the building levy, landfill tax, high rise building safety, additional 106 biodiversity net gain amongst others, and in London, a variety of specific mineral requirements.
Now we absolutely agree that we need safe buildings and they need to be funded, my Lords. But if the cost of building is greater than the sales price, homes will not be built. And I fear that in many parts of the country, as a result of this layering, we're approaching this point. The government is on track to build fewer homes than the last conservative government, despite its election promises 1.5 million homes.
We do not expect sorry, we do not want additional taxes and regulations on developments to the extent they slow down development on brownfield land by making sites unviable. I appreciate this is a balancing act, but it is a concern that we have, and I would appreciate the Minister's responses on that balance. Thank you.
16:31
16:31
16:31
Speaker 2
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Speaker 2
But it is a great privilege to be in this position, and I'm looking forward very much to to working with you with with both noble Lords and I, I, I, I stress the, with the rather than the against because I think we come from a very strong shared commitment to all things local government and particularly serving the people in our communities that we have variously represented some tough times ahead. But I, I, I do my best to address the, the concerns raised today.
And of course, dialogue will be ongoing and particular with the different legislation that is, is is proposed. I think that will give us a real opportunity to go into much greater detail than we can probably do today, but just particularly responding to Baroness Pinnock's concerns about the money. And of course, that is a crucial, important issue. And I just want to reiterate that the government is committed to remediating buildings as quickly as possible.
And and I have to say that the launch of the levy coming in in October, as it is, should does not affect the pace of remediation. And 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 the profile of the levy receipts. The government will, of course, report on levy receipts and remediation expenditure in the annual trust statement.
I hope that gives the reassurance that mobility has been looking for. Also, the Remediation of Unsafe Cladding Bill will deliver on the manifesto commitments to address the pace of the remediation work, and I think, most importantly, ensure that those responsible for the building safety crisis pay towards fixing the problem that they've caused. And we, I, we all know there is further work to do on this. I am grateful for the collaboration we've had so far from some of the developers, but also recognizing that there are other avenues to pursue, encouraged by those developers.
And we have to make sure that we take on the most reluctant landlords and particularly make sure that they take action. And if they do not, that they face severe sanctions.
And of course, dialogue will be ongoing and particular with the different legislation that is, is is proposed. I think that will give us a real opportunity to go into much greater detail than we can probably do today, but just particularly responding to Baroness Pinnock's concerns about the money. And of course, that is a crucial, important issue. And I just want to reiterate that the government is committed to remediating buildings as quickly as possible.
And and I have to say that the launch of the levy coming in in October, as it is, should does not affect the pace of remediation. And 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 the profile of the levy receipts. The government will, of course, report on levy receipts and remediation expenditure in the annual trust statement.
I hope that gives the reassurance that mobility has been looking for. Also, the Remediation of Unsafe Cladding Bill will deliver on the manifesto commitments to address the pace of the remediation work, and I think, most importantly, ensure that those responsible for the building safety crisis pay towards fixing the problem that they've caused. And we, I, we all know there is further work to do on this. I am grateful for the collaboration we've had so far from some of the developers, but also recognizing that there are other avenues to pursue, encouraged by those developers.
And we have to make sure that we take on the most reluctant landlords and particularly make sure that they take action. And if they do not, that they face severe sanctions.
16:34
16:34
Speaker 2
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Speaker 2
on to the noble Lord Johnson, I just want to reassure him. And actually, this is really interesting because I first started working on this when I was in opposition and obviously going back to 2022 came in and some of the comments were bringing up today. I obviously have been a current feature throughout, and I just want to reassure him that we have worked really closely with stakeholders and industry to minimise the minimum impact on housing supply and the building industry as a whole, while balancing the need to raise the revenue required to make home safe.
I think amongst those responsible, there is a clear recognition that this this is a very important dynamic that we need to keep, keep moving on and to achieve our manifesto commitments. As the noble Lord says, ambitious. But there is the will to do it. And I think the Secretary of State is absolutely committed to working on all fronts to move this forward. So just specifically, because the NPF definition is designed to inform planning policy, whereas the levy regulations set out criteria for development and local authorities to apply on a site by site basis to ascertain qualification for a tax discount.
So I think we need to make sure that we don't try and merge these these facts together. 75% is designed to approximate the NPF definition for tax purposes. So all of these matters have been looked at and will continue to be. It will continue to be the case as we move forward. We have a very strong ambition running alongside our ambition, around remediation, around housebuilding, around affordable housing, especially.
I think I hope both noble Lords can welcome the importance that we we're putting to this issue to help take us forward. So just to recap, the building safety levy is essential to fund the remediation of historic building safety issues, and particularly without further burdening residents and leaseholders. Draft 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 redevelopment of existing sites.
They are intended to correct drafting and improve clarity and consistency of process for developers and local authorities, rather than alter the underlying policy design of the levy. And just to further reassure the noble Lord, consultation with local authorities has been intense. We . We've made sure that the extra duties funding is in place, helping them come forward, and I'm very pleased with the response so far from local authorities. It's absolutely critical that we have that relationship with them so that they can fulfil their responsibilities in this space.
And of course, we, as well as the the the government contribution to the funding, I think we all accept that the development industry must contribute to our work to make buildings safe for those who live in them. And, and, and just to repeat, the government is it's building 1.5 million homes. This Parliament to meet the country's long term housing needs and unlock their growth. This is must work in parallel with our commitment to remedying the building safety features of the past.
And again, just to repeat, we we expect developers to 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 government has already and continues to provide for the housing market with those comments.
I think amongst those responsible, there is a clear recognition that this this is a very important dynamic that we need to keep, keep moving on and to achieve our manifesto commitments. As the noble Lord says, ambitious. But there is the will to do it. And I think the Secretary of State is absolutely committed to working on all fronts to move this forward. So just specifically, because the NPF definition is designed to inform planning policy, whereas the levy regulations set out criteria for development and local authorities to apply on a site by site basis to ascertain qualification for a tax discount.
So I think we need to make sure that we don't try and merge these these facts together. 75% is designed to approximate the NPF definition for tax purposes. So all of these matters have been looked at and will continue to be. It will continue to be the case as we move forward. We have a very strong ambition running alongside our ambition, around remediation, around housebuilding, around affordable housing, especially.
I think I hope both noble Lords can welcome the importance that we we're putting to this issue to help take us forward. So just to recap, the building safety levy is essential to fund the remediation of historic building safety issues, and particularly without further burdening residents and leaseholders. Draft 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 redevelopment of existing sites.
They are intended to correct drafting and improve clarity and consistency of process for developers and local authorities, rather than alter the underlying policy design of the levy. And just to further reassure the noble Lord, consultation with local authorities has been intense. We . We've made sure that the extra duties funding is in place, helping them come forward, and I'm very pleased with the response so far from local authorities. It's absolutely critical that we have that relationship with them so that they can fulfil their responsibilities in this space.
And of course, we, as well as the the the government contribution to the funding, I think we all accept that the development industry must contribute to our work to make buildings safe for those who live in them. And, and, and just to repeat, the government is it's building 1.5 million homes. This Parliament to meet the country's long term housing needs and unlock their growth. This is must work in parallel with our commitment to remedying the building safety features of the past.
And again, just to repeat, we we expect developers to 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 government has already and continues to provide for the housing market with those comments.
16:39
16:39
16:39
16:39
16:39
16:39
16:41
16:41
Speaker 7
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Speaker 7
My Lords, I beg to move that the committee consider the draft Digital Government Disclosure of Information Regulations 2026. These regulations make three important amendments to the information sharing powers in part five, chapter one of the Digital Economy Act 2017. The core aim of these regulations is to help government support households facing financial hardship, improving access to support for those who are 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 reach the right people more quickly and effectively. Turning to the measure relating to the delivery of energy debt relief schemes, part five, chapter one 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 the prescribed fuel poverty measure to support households experiencing fuel poverty.
None of the fuel poverty measures currently allow this power to be used to support households with energy debt. These regulations will amend section 36 to create a new, 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 help 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, which Ofgem consulted on in winter 2025. While the detailed operational design of the scheme is currently being developed by Desnos and Ofgem, its ambition is clear to help eliminate between £500 million and £1 billion of energy debt, remove administrative burdens and. deliver relief to households struggling with energy arrears. The second measure will amend the Digital Government Disclosure of Information Regulations 2018 to enable Dcit 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 Libraries 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 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 Dcit. Following the statement of Baroness Smith of Basildon on the 21st of July 2026, this function is being transferred to the Department for digital, culture, Media and Support.
The regulations would 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 28 2018 regulations to expressly add designates to the fuel poverty objective. The relevant function was transferred to designees when it was created in 2023, but the regulations weren't consequently 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 in order to improve public service delivery. The information sharing is with a clear public purpose, helping households struggling with energy debt, helping to support action to tackle fuel poverty and outcomes for citizens. My Lords, the government has undertaken appropriate engagement on each of the three measures for the Energy Debt Relief Scheme measure.
A public consultation was consulted 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 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 my noble Lords that robust safeguards will continue to apply to all information sharing undertaken under these powers. Part five, chapter one of the Digital Economy Act, contains a strong framework for the governing for governing the sharing of data. The powers in chapter one only permit information to be shared 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 powers in chapter one.
As well as this, any public body exercising the data sharing powers must adhere to existing data protection legislation, namely UK, GDPR and the Data Protection Act 2018. They must also have regard to the statutory Code of Practice under the Digital Economy Act, which emphasises the 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, my Lords, 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. My Lords, these regulations will enable better use of information to help households facing energy related hardship.
They 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 handed lawfully, responsibly and securely. I beg to move quite yet.
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 reach the right people more quickly and effectively. Turning to the measure relating to the delivery of energy debt relief schemes, part five, chapter one 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 the prescribed fuel poverty measure to support households experiencing fuel poverty.
None of the fuel poverty measures currently allow this power to be used to support households with energy debt. These regulations will amend section 36 to create a new, 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 help 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, which Ofgem consulted on in winter 2025. While the detailed operational design of the scheme is currently being developed by Desnos and Ofgem, its ambition is clear to help eliminate between £500 million and £1 billion of energy debt, remove administrative burdens and. deliver relief to households struggling with energy arrears. The second measure will amend the Digital Government Disclosure of Information Regulations 2018 to enable Dcit 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 Libraries 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 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 Dcit. Following the statement of Baroness Smith of Basildon on the 21st of July 2026, this function is being transferred to the Department for digital, culture, Media and Support.
The regulations would 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 28 2018 regulations to expressly add designates to the fuel poverty objective. The relevant function was transferred to designees when it was created in 2023, but the regulations weren't consequently 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 in order to improve public service delivery. The information sharing is with a clear public purpose, helping households struggling with energy debt, helping to support action to tackle fuel poverty and outcomes for citizens. My Lords, the government has undertaken appropriate engagement on each of the three measures for the Energy Debt Relief Scheme measure.
A public consultation was consulted 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 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 my noble Lords that robust safeguards will continue to apply to all information sharing undertaken under these powers. Part five, chapter one of the Digital Economy Act, contains a strong framework for the governing for governing the sharing of data. The powers in chapter one only permit information to be shared 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 powers in chapter one.
As well as this, any public body exercising the data sharing powers must adhere to existing data protection legislation, namely UK, GDPR and the Data Protection Act 2018. They must also have regard to the statutory Code of Practice under the Digital Economy Act, which emphasises the 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, my Lords, 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. My Lords, these regulations will enable better use of information to help households facing energy related hardship.
They 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 handed lawfully, responsibly and securely. I beg to move quite yet.
16:48
16:48
Speaker 5
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Speaker 5
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. So Non-targeted support, as we've seen in the past, has been prohibitively expensive and not terribly efficient. I have myself called for better information sharing to enable the actual better use of targeted support by government.
So the purpose of these regulations is therefore one that we do support. They amend the Digital Economy Act 2017 to enable data sharing or ofgem's purposes of proposed debt relief scheme. The government estimates that this scheme could clear between 500 million and 1 billion of outstanding energy debt, and this is a significant intervention with the potential to help many households directly. It should reduce the burden of unrecoverable debt that is ultimately socialised across all customers bills.
We welcome the role of Ofgem. The principle of the common framework is a sound one. We further recognise that part of this instrument corrects an earlier administrative error. The addition of desgagnés is a necessary one. Adding dcit may also be reasonable if it allows the government to coordinate support more effectively. These regulations authorize an important extension of data sharing. These regulations, though, must be fair, proportionate and accountable, and I note the assurances that the noble Baroness 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 my Lords, it is not really a true test of vulnerability. There are obviously, as the Minister knows, people that are just above the benefit threshold who still struggle to pay their energy bill. There are those who are entitled to support but don't claim there are older people, disabled people, carer people with fluctuating incomes, and there are households who are not digitally confident, who are not able or for what, for numerous reasons to to claim in the past.
So we must ensure that people who most need help are not excluded because they are least able to complete administrative processes. So can I ask the Minister what is meant by engagement criteria within the C? Does it mean that customers must actively respond in order to gain this relief? Because if that is the case, then that that is still a serious obstacle to people being able to claim these these benefits. The scheme should provide accessible routes through telephone post advice agencies, trusted intermediaries or better still, through an automated identification process, which I think is where this is ultimately going.
But I just have to say a word on that . Where households are plainly eligible, the presumption should be that release relief is delivered automatically wherever possible. Can I also ask the minister the it talks about limited and specifically defined information, just to say what that means in practice, I think. I think she's been clear in that. But just to confirm, that doesn't mean there'll be shared with any further agencies. It won't be sent to debt collectors, credit scoring , marketing.
The information collected is solely for the purposes here and will be overseen by the Information Commissioner, because these safeguards are really important here, particularly in light of the government's wider ambition to link household data to further aims for targeted support, the explanatory memorandum says 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, can I just ask if that is 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 the benefits that they're entitled to through that process. I also think it would be useful if the government could publish 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 it should. These documents should be available both to Parliament and to the public.
These regulations address a genuine problem and I do welcome them, and I do welcome and I have personally called for greater data sharing so that we can target this support. But that alone is is not the sole solution to the problem. Can I ask just a question about timing? Obviously, the, the we're seeing the, the, the, the, the, the, the cap rises by 4% on the 1st of October. We're coming into winter.
Is it expected that these these ones SSI is passed that these this this process will move swiftly. If the minister could give me some indication whether that that will happen. This tool, a tool for this this winter for energy bill payers. So just to conclude, my Lords, targeted debt relief is necessary but alone it is not sufficient. We still do need further and broader work across government to bring down energy bills, to take levies off energy bills, to fundamentally reform the energy markets.
But we do welcome these regulations as a step in the right direction. They do need some careful and and firm controls of the data. I think the Information Commissioner has been clear, and we generally welcome these regulations. Thank you.
So the purpose of these regulations is therefore one that we do support. They amend the Digital Economy Act 2017 to enable data sharing or ofgem's purposes of proposed debt relief scheme. The government estimates that this scheme could clear between 500 million and 1 billion of outstanding energy debt, and this is a significant intervention with the potential to help many households directly. It should reduce the burden of unrecoverable debt that is ultimately socialised across all customers bills.
We welcome the role of Ofgem. The principle of the common framework is a sound one. We further recognise that part of this instrument corrects an earlier administrative error. The addition of desgagnés is a necessary one. Adding dcit may also be reasonable if it allows the government to coordinate support more effectively. These regulations authorize an important extension of data sharing. These regulations, though, must be fair, proportionate and accountable, and I note the assurances that the noble Baroness 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 my Lords, it is not really a true test of vulnerability. There are obviously, as the Minister knows, people that are just above the benefit threshold who still struggle to pay their energy bill. There are those who are entitled to support but don't claim there are older people, disabled people, carer people with fluctuating incomes, and there are households who are not digitally confident, who are not able or for what, for numerous reasons to to claim in the past.
So we must ensure that people who most need help are not excluded because they are least able to complete administrative processes. So can I ask the Minister what is meant by engagement criteria within the C? Does it mean that customers must actively respond in order to gain this relief? Because if that is the case, then that that is still a serious obstacle to people being able to claim these these benefits. The scheme should provide accessible routes through telephone post advice agencies, trusted intermediaries or better still, through an automated identification process, which I think is where this is ultimately going.
But I just have to say a word on that . Where households are plainly eligible, the presumption should be that release relief is delivered automatically wherever possible. Can I also ask the minister the it talks about limited and specifically defined information, just to say what that means in practice, I think. I think she's been clear in that. But just to confirm, that doesn't mean there'll be shared with any further agencies. It won't be sent to debt collectors, credit scoring , marketing.
The information collected is solely for the purposes here and will be overseen by the Information Commissioner, because these safeguards are really important here, particularly in light of the government's wider ambition to link household data to further aims for targeted support, the explanatory memorandum says 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, can I just ask if that is 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 the benefits that they're entitled to through that process. I also think it would be useful if the government could publish 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 it should. These documents should be available both to Parliament and to the public.
These regulations address a genuine problem and I do welcome them, and I do welcome and I have personally called for greater data sharing so that we can target this support. But that alone is is not the sole solution to the problem. Can I ask just a question about timing? Obviously, the, the we're seeing the, the, the, the, the, the, the cap rises by 4% on the 1st of October. We're coming into winter.
Is it expected that these these ones SSI is passed that these this this process will move swiftly. If the minister could give me some indication whether that that will happen. This tool, a tool for this this winter for energy bill payers. So just to conclude, my Lords, targeted debt relief is necessary but alone it is not sufficient. We still do need further and broader work across government to bring down energy bills, to take levies off energy bills, to fundamentally reform the energy markets.
But we do welcome these regulations as a step in the right direction. They do need some careful and and firm controls of the data. I think the Information Commissioner has been clear, and we generally welcome these regulations. Thank you.
16:55
Speaker 8
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Speaker 8
My Lords. These regulations relate to the Digital Economy Act 2017 that enables data sharing between public authorities and energy suppliers. The regulations will permit the sharing of information in order to support the delivery of Debt relief scheme, allowing specified persons to disclose information to energy suppliers for the reduction or cancellation of customers debt. The government has committed to delivering targeted support for those households most affected by rising energy costs.
The state must help those in need and that is absolutely right. But the reality is that this commitment will be 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 different 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. Scrap the carbon tax on electricity generation from gas, scrap 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.
The state must help those in need and that is absolutely right. But the reality is that this commitment will be 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 different 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. Scrap the carbon tax on electricity generation from gas, scrap 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.
16:57
16:57
Speaker 8
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Speaker 8
My Lords, these regulations also 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 well help your lordships House. If the noble Baroness, the Minister will clarify why these regulations make provision to share information with DSIT when the government has, as far as we understand, abolished and dismantled the Department.
My Lords, if these regulations do help those in need, that is a very good thing. But they are short term, and as the noble Lord Russell quite rightly said, alone, it is not sufficient. The only sustainable long term solution is the one proposed by His Majesty's loyal opposition that I have briefly outlined.
My Lords, if these regulations do help those in need, that is a very good thing. But they are short term, and as the noble Lord Russell quite rightly said, alone, it is not sufficient. The only sustainable long term solution is the one proposed by His Majesty's loyal opposition that I have briefly outlined.
16:58
16:58
16:58
Speaker 7
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Speaker 7
My Lords. I thank the noble Earls, Lord Russell and Lord Effingham for their support for the importance of tackling poverty, and to the noble Earl, Lord Russell, for recognising the centrality and importance of data sharing and the way in which that can improve the efficiency and the way we can design administratively targeted well-targeted schemes . And the level of scrutiny that that has been brought is very welcome. The point of these regulations is to improve outcomes, to enable government to identify the right households and to target that assistance more effectively, and to ensure that the support which reaches those that need it most.
The debt that has been mentioned that I mentioned has been building up over many years. And it is it is very much an attribute of, of, of, of, of what people are experiencing and is by many households. And that is the motivation for this. Let me come on to, to some questions about the design of the scheme that particularly the Lord Russell about. So the design of this debt relief scheme has not yet been finalised, and the specific information sharing arrangements, including, for example, opt out processes are yet to to be determined.
So similar schemes such as the Warm Homes discount have included provisions to allow eligible recipients to opt out of data sharing. The DEA does not require specified public authorities to obtain consent from individuals before sharing information with energy suppliers under the fuel poverty power in section 36, but all information sharing must comply with the UK, GDPR and the Data Protection Act 2018, including the requirement to identify a lawful basis for processing personal data and where information is shared on the basis it is shared.
On the basis it is necessary for the performance of a task carried out in the public interest. So that is really the the sort of the governance of of the sort of privacy, privacy requirements. And these are very carefully constrained to allow to ensure that information can only be shared for these specified purposes by specified persons. And there are criminal sanctions for unlawful disclosure of personal information received under those powers.
And there's also been a code of practice developed to provide guidance for practitioners. So and requirements that there should be kind of good governance of this as well. So I think that the and I'm sure, although I was not myself present during the passing of the, of, of the act under which this operates, that those sort of strictures were carefully discussed on the question of fuel poverty more generally. That is obviously the motivation behind this.
But the government, as the noble Earl knows, is taking action across the board to increase. Energy provision, to invest in energy, plus supporting households through a number of measures to support them. Support them, manage their bills in an appropriate and targeted way. This is one element that will allow us to do so further. So with that, I beg to move.
The debt that has been mentioned that I mentioned has been building up over many years. And it is it is very much an attribute of, of, of, of, of what people are experiencing and is by many households. And that is the motivation for this. Let me come on to, to some questions about the design of the scheme that particularly the Lord Russell about. So the design of this debt relief scheme has not yet been finalised, and the specific information sharing arrangements, including, for example, opt out processes are yet to to be determined.
So similar schemes such as the Warm Homes discount have included provisions to allow eligible recipients to opt out of data sharing. The DEA does not require specified public authorities to obtain consent from individuals before sharing information with energy suppliers under the fuel poverty power in section 36, but all information sharing must comply with the UK, GDPR and the Data Protection Act 2018, including the requirement to identify a lawful basis for processing personal data and where information is shared on the basis it is shared.
On the basis it is necessary for the performance of a task carried out in the public interest. So that is really the the sort of the governance of of the sort of privacy, privacy requirements. And these are very carefully constrained to allow to ensure that information can only be shared for these specified purposes by specified persons. And there are criminal sanctions for unlawful disclosure of personal information received under those powers.
And there's also been a code of practice developed to provide guidance for practitioners. So and requirements that there should be kind of good governance of this as well. So I think that the and I'm sure, although I was not myself present during the passing of the, of, of the act under which this operates, that those sort of strictures were carefully discussed on the question of fuel poverty more generally. That is obviously the motivation behind this.
But the government, as the noble Earl knows, is taking action across the board to increase. Energy provision, to invest in energy, plus supporting households through a number of measures to support them. Support them, manage their bills in an appropriate and targeted way. This is one element that will allow us to do so further. So with that, I beg to move.
17:02
Speaker 1
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Speaker 1
The question is that the Grand Committee has considered this instrument, as many are of that opinion, say, content, content, content, contrary, not content. The contents have it be a very slight pause while the Civil service bench is refreshed. Licensing act 2003 Mandatory Licensing Conditions Amendment Order 2026. Lord Hanson of Flint.
17:04
Speaker 9
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Speaker 9
My Lords, I beg to move that the committee considers the Draft Licensing Act 2003 Mandatory Licensing Conditions Amendment Order 2026, which was laid before the House on the 30th of June. And , my Lords, 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, which has been independently assessed against the DVS Trust Framework and is listed on the statutory DVS Register, provided.
The Order's safeguards in 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, whilst leaving the wider licensing regime unchanged. My Lords, currently anyone asked to prove their age when buying alcohol must produce a physical document bearing a photograph, date of birth or either a holographic mark or ultraviolet feature such as passport or driving licence. Physical documents I must assure the committee remain valid.
The order neither requires individuals to use digital proof of age nor businesses to accept it. It simply provides an additional voluntary route where equivalent safeguards are in place. I would think the committee will recognise that people increasingly expect to provide and prove information securely and digitally, and while 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, which, of course they can easily be at.
Lost. Digital proof of age also supplies and supports data minimisation. A driving licence may relieve 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 my Lords will recognise that modernisation must not compromise the 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, which 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 recognized standards, rather than having to judge the reliability of different products for themselves.
I must again assure the committee that a screenshot or image on the 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.
Now, again, for the committee's benefit, the government consulted between January and March 24th. Indeed, not even when this government was in office. Respondents included licensing authorities, policing training standards, the alcohol and hospitality sectors, technology providers, delivery partners and the public. And we had a very strong 72% response supporting digital proof of age for alcohol sales, with strong support for requiring providers to meet government approved standards. The final approach reflects that support, whilst responding to the need for dependable safeguards in the regulated environment.
So, my Lords, the statutory instrument balances innovation and choice with safety. Licensing and certificate holders remain responsible for preventing underage sales and supply of alcohol following the age verification process and for meeting their wider obligations under the Licensing Act. The offences relating to underage sale and supply are unchanged and are the consequence for businesses who fail to comply. Also remain the same. Digital verification services are essentially an additional tool for responsible age checking, not a substitute for proper staff training, judgment or oversight.
The order, I should also assure the committee, is not a national digital identity scheme or identity card. It does not make digital identity compulsory or give 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. So, my Lords, in summary, the targeted reform I've outlined began under a previous government is designed to reflect modern technology, provide consumers and businesses with greater choice, but also preserving physical identification and the safeguards supporting responsible alcohol sales.
I think the sensible and important aims and I commend the order to the Committee today.
The Order's safeguards in 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, whilst leaving the wider licensing regime unchanged. My Lords, currently anyone asked to prove their age when buying alcohol must produce a physical document bearing a photograph, date of birth or either a holographic mark or ultraviolet feature such as passport or driving licence. Physical documents I must assure the committee remain valid.
The order neither requires individuals to use digital proof of age nor businesses to accept it. It simply provides an additional voluntary route where equivalent safeguards are in place. I would think the committee will recognise that people increasingly expect to provide and prove information securely and digitally, and while 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, which, of course they can easily be at.
Lost. Digital proof of age also supplies and supports data minimisation. A driving licence may relieve 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 my Lords will recognise that modernisation must not compromise the 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, which 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 recognized standards, rather than having to judge the reliability of different products for themselves.
I must again assure the committee that a screenshot or image on the 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.
Now, again, for the committee's benefit, the government consulted between January and March 24th. Indeed, not even when this government was in office. Respondents included licensing authorities, policing training standards, the alcohol and hospitality sectors, technology providers, delivery partners and the public. And we had a very strong 72% response supporting digital proof of age for alcohol sales, with strong support for requiring providers to meet government approved standards. The final approach reflects that support, whilst responding to the need for dependable safeguards in the regulated environment.
So, my Lords, the statutory instrument balances innovation and choice with safety. Licensing and certificate holders remain responsible for preventing underage sales and supply of alcohol following the age verification process and for meeting their wider obligations under the Licensing Act. The offences relating to underage sale and supply are unchanged and are the consequence for businesses who fail to comply. Also remain the same. Digital verification services are essentially an additional tool for responsible age checking, not a substitute for proper staff training, judgment or oversight.
The order, I should also assure the committee, is not a national digital identity scheme or identity card. It does not make digital identity compulsory or give 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. So, my Lords, in summary, the targeted reform I've outlined began under a previous government is designed to reflect modern technology, provide consumers and businesses with greater choice, but also preserving physical identification and the safeguards supporting responsible alcohol sales.
I think the sensible and important aims and I commend the order to the Committee today.
17:09
17:09
17:10
Speaker 2
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Speaker 2
I'd like to declare my interests. I was chair of the Select Committee reviewing the Licensing Act 2003, and went on to chair the proof of age, which I currently chair. The Proof of Age Standards Scheme board. So both as. May. I also thank the Minister for meeting with me yesterday, which was extremely helpful and I'm very grateful to have had that opportunity. So I'd like to say at the outset that I welcome the S, I and the regulations before us this afternoon, both personally and as chair of the Proof of Age Standards Board.
It is particularly appropriate for the reasons that the noble Lord. The Minister, has set out, that physical cards will exist alongside the digital de pass as a community interest company. Pass places the interests of young people at the heart of everything we do, and we're mindful of the fact that during Covid there were not many options or opportunities open to young people to access cinemas, bars, restaurants. Indeed, aspects of the night time economy in general.
So we wish to see and we welcome the regulations. We wish to see them implemented. But as was the case with the Licensing Act 2003 itself, the key to proper implementation will be how section 182 guidance is drafted in that regard. I'd like to write giving a fuller detail, but I would like to raise a number of issues this afternoon. A particular concern is the potential weakening of passes , established recognition in the section 182 guidance, and I'd like to take this opportunity to seek an assurance from the Minister and the Department that cards bear in the pass hologram will continue to be named as the preferred physical proof of age method.
I think the noble Lord set out the reasons why the physical pass card and others of that nature have been so successful because many people, older people, often don't drive, they don't have passports, and younger people are not necessarily old enough to have passed their driving test. So they will continue to be a market in that regard. Can I further ask the minister that no change affecting that recognition of Pass hologram will be made before Dear has provided its supporting analysis, and that Pass and others have had a proper opportunity to respond? I'm 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, though I would emphasise that existing compliant cards continue to be accepted when presented directly as physical proof of age.
The revised guidance should also give appropriate recognition to de pass 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 government before Parliament. There are other technical issues which I've said I would write to, but to the Minister I'd just like to raise two now. I think I'm right that Parliament is not consulted on the statutory guidance under section 102, so I think it's appropriate that we actually make the point now before that guidance is drafted and adopted.
So two brief points of clarification that I will write and give more detail further detail on. The first is to confirm that no manual visual inspection is required so that the draft regulations be understood as requiring secure technological validation, not a member of staff simply looking at a phone screen. And I can go into more detail when I write to the minister. And the second is to clarify what the DSP, to whom, to what the minister referred, must deliver to the responsible person.
The draft regulations require the relevant DSP to deliver identification to the responsible person to at least a medium level of confidence, and I think it would be very, very helpful if that clarification could be further clarified. So we would welcome confirmation in the upcoming updated mandatory conditions guidance. And the Secretary of State's Section 182 guidance that the meaning of the words deliver identification includes delivery of a verified age, result or age attribute, and there are another number of other specifications that are very technical.
I would like to write to the minister on that. Finally, the Minister did refer to a key aspect of the new regulations and De pass going forward, that it remains the retailer's responsibility to ensure that no underage sales take place, and I'm very grateful to the to the Wines and Spirits Trade Association, who are a member of Pass, but have written to me separately who raise a specific instance in this regard. And I think one other instance I would raise is the Minister himself related to training.
It is absolutely imperative that the retailers were allowed enough time to train the staff. The minister will be aware his own department has the figures, the number of violent incidences that take place at the point of sale when the sale is prevented, because age is unable to be verified or the identity proved. So this is just to ask that the legal clarity offered by offered by the legislation is, of course, welcome. But there are significant implementation consideration for retailers, and they will, of course be a cost to contracting providers or building in-house depot systems at scale.
Retailers will be required to ensure that they comply with the wider licensing obligations when operating digital proof of age, for example, ensuring sales are not made to intoxicated persons, which is already a crime and that proxy sales are not taking place. This means that human interaction could still be required in a significant number of transactions. In addition to general consumer familiarisation with digital proof of age process at the point of sale. As I referred, the current environment of heightened retail crime and staff safety concerns , limiting staff customer friction at the point of sale will be a key concern for retailers.
Many of these practical considerations, again will be clarified in the updated Licensing Act , section 182 guidance, and it will be helpful to know what what that might be in advance and also what the date of publication of the legislation coming into force will be. So just to make a final plea to the minister that government communications will have regard to and support retailers in this transition.
It is particularly appropriate for the reasons that the noble Lord. The Minister, has set out, that physical cards will exist alongside the digital de pass as a community interest company. Pass places the interests of young people at the heart of everything we do, and we're mindful of the fact that during Covid there were not many options or opportunities open to young people to access cinemas, bars, restaurants. Indeed, aspects of the night time economy in general.
So we wish to see and we welcome the regulations. We wish to see them implemented. But as was the case with the Licensing Act 2003 itself, the key to proper implementation will be how section 182 guidance is drafted in that regard. I'd like to write giving a fuller detail, but I would like to raise a number of issues this afternoon. A particular concern is the potential weakening of passes , established recognition in the section 182 guidance, and I'd like to take this opportunity to seek an assurance from the Minister and the Department that cards bear in the pass hologram will continue to be named as the preferred physical proof of age method.
I think the noble Lord set out the reasons why the physical pass card and others of that nature have been so successful because many people, older people, often don't drive, they don't have passports, and younger people are not necessarily old enough to have passed their driving test. So they will continue to be a market in that regard. Can I further ask the minister that no change affecting that recognition of Pass hologram will be made before Dear has provided its supporting analysis, and that Pass and others have had a proper opportunity to respond? I'm 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, though I would emphasise that existing compliant cards continue to be accepted when presented directly as physical proof of age.
The revised guidance should also give appropriate recognition to de pass 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 government before Parliament. There are other technical issues which I've said I would write to, but to the Minister I'd just like to raise two now. I think I'm right that Parliament is not consulted on the statutory guidance under section 102, so I think it's appropriate that we actually make the point now before that guidance is drafted and adopted.
So two brief points of clarification that I will write and give more detail further detail on. The first is to confirm that no manual visual inspection is required so that the draft regulations be understood as requiring secure technological validation, not a member of staff simply looking at a phone screen. And I can go into more detail when I write to the minister. And the second is to clarify what the DSP, to whom, to what the minister referred, must deliver to the responsible person.
The draft regulations require the relevant DSP to deliver identification to the responsible person to at least a medium level of confidence, and I think it would be very, very helpful if that clarification could be further clarified. So we would welcome confirmation in the upcoming updated mandatory conditions guidance. And the Secretary of State's Section 182 guidance that the meaning of the words deliver identification includes delivery of a verified age, result or age attribute, and there are another number of other specifications that are very technical.
I would like to write to the minister on that. Finally, the Minister did refer to a key aspect of the new regulations and De pass going forward, that it remains the retailer's responsibility to ensure that no underage sales take place, and I'm very grateful to the to the Wines and Spirits Trade Association, who are a member of Pass, but have written to me separately who raise a specific instance in this regard. And I think one other instance I would raise is the Minister himself related to training.
It is absolutely imperative that the retailers were allowed enough time to train the staff. The minister will be aware his own department has the figures, the number of violent incidences that take place at the point of sale when the sale is prevented, because age is unable to be verified or the identity proved. So this is just to ask that the legal clarity offered by offered by the legislation is, of course, welcome. But there are significant implementation consideration for retailers, and they will, of course be a cost to contracting providers or building in-house depot systems at scale.
Retailers will be required to ensure that they comply with the wider licensing obligations when operating digital proof of age, for example, ensuring sales are not made to intoxicated persons, which is already a crime and that proxy sales are not taking place. This means that human interaction could still be required in a significant number of transactions. In addition to general consumer familiarisation with digital proof of age process at the point of sale. As I referred, the current environment of heightened retail crime and staff safety concerns , limiting staff customer friction at the point of sale will be a key concern for retailers.
Many of these practical considerations, again will be clarified in the updated Licensing Act , section 182 guidance, and it will be helpful to know what what that might be in advance and also what the date of publication of the legislation coming into force will be. So just to make a final plea to the minister that government communications will have regard to and support retailers in this transition.
17:17
Speaker 1
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Speaker 1
My Lords, I must begin by saying that this order seems to be a bit of a relic of history. The. The government have outlined how they believe it aims to modernise alcohol sales by allowing digital identity for the purposes of age, very often at the point of sale for alcohol sales. Now I've had the argument with the noble Lord, the Minister, on several occasions about what we. On the. On this side view, as a.
As the folly of digital ID cards. We disagree on the merits of their policy. But given he has so vociferously defended the introduction of digital ID, where does the Minister stand now, given that the new Prime Minister has scrapped the policy? More importantly for this debate, what precisely is this order now standing on the entire proposal behind it depends on a functioning digital identity. Yet the new government has abandoned its own digital ID proposals, which, incidentally, I'm delighted about.
Parliament is being asked to approve secondary legislation built on an assumption of infrastructure that the government itself has just walked away from. And 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? And it would be particularly useful if the noble or the minister could perhaps answer that. I would also press the noble Lord, 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? And the impact assessment speaks confidently of time savings at Self-checkouts, but says little about those left behind by that convenience. And secondly, the government has told the Secondary Legislation scrutiny committee it expects uptake to reach 100% within seven years. So will physical identification still be accepted at that point, or is this order, in fact the first step towards its effective retirement? So I'd welcome clarity from the minister on how it is meant to function in a government that has, by its own choice, abandoned the very digital identity framework that this order depends.
On.
As the folly of digital ID cards. We disagree on the merits of their policy. But given he has so vociferously defended the introduction of digital ID, where does the Minister stand now, given that the new Prime Minister has scrapped the policy? More importantly for this debate, what precisely is this order now standing on the entire proposal behind it depends on a functioning digital identity. Yet the new government has abandoned its own digital ID proposals, which, incidentally, I'm delighted about.
Parliament is being asked to approve secondary legislation built on an assumption of infrastructure that the government itself has just walked away from. And 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? And it would be particularly useful if the noble or the minister could perhaps answer that. I would also press the noble Lord, 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? And the impact assessment speaks confidently of time savings at Self-checkouts, but says little about those left behind by that convenience. And secondly, the government has told the Secondary Legislation scrutiny committee it expects uptake to reach 100% within seven years. So will physical identification still be accepted at that point, or is this order, in fact the first step towards its effective retirement? So I'd welcome clarity from the minister on how it is meant to function in a government that has, by its own choice, abandoned the very digital identity framework that this order depends.
On.
17:20
Speaker 10
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Speaker 10
My Lord, you've got to love him, haven't you? He, the opposition spokesman, starts on talking about the potential challenges in this policy, and I remind him that the consultation took place and started 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, I would say to the noble Lord that the government is trying to make a provision that makes it easier for consumers, easier for businesses, and doesn't do what he thinks.
I think he's alleged that we're trying to do, which is to stop the use of physical means of identity. I was very clear in the opening comments that I've made that existing physical identity. 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've set under the scheme that is in operation already, they can do so. Nobody is going to stop them doing that.
Now. We would hope self-evidently, that people might think that carrying a passport on a Saturday night might not be a good idea if it's lost, because it's a physical document that has great value in terms of political capital, but also in terms of cost for replacement. So a digital scheme is one that can be used. Now again, the noble Lord challenges me and says, well, isn't it terrible that the government's abandoned its digital ID scheme? Well, the change is operational .
Here are completely separate to the proposals for a national digital ID scheme. There is again, I just emphasize to the noble Lord there is no compunction on this. There is a ability to have both if businesses and consumers wishes to do so, and that is based on a consultation. I remind the committee that was commenced not under this government, but under the under the previous government. So, yeah, you know, the government has changed a view on the situation of national digital ID.
That is what happens in government. Occasionally governments look at policy, determine them and decide whether to continue or not continue. And he will know that the job of ministers sometimes in this House is to defend government policy as determined by a range of governments at the time. And if ministers reflect on representations made by, amongst others, opposition members, that is a reasonable thing to do. So I'd just say to him. There is a there is a way forward.
And I think the way forward is as in this order today, I welcome and thank the noble Baroness McIntosh of Pickering for her support and for her acknowledgement of the contribution. Standards. Over a number of years. She's raised a number of valid points and I will try and answer those points accordingly. First of all, I recognise absolutely the need for clear guidance available to businesses and consumers to support the use of digital proof of age for the supply of alcohol and for the sale of alcohol.
Updating the statutory guidance issued under section 102 of the Licensing Act is an important part of that, as it guides licensing authorities on the discharge of their functions. I can say to her now that no immediate change will be made to section 102 guidance in relation to physical ID, and that we won't change anything further before further engagement with Pass. I can't guarantee there won't be changes in due course, but I think it's important that she knows that there will be engagement with Pass and the point that she's made today and the discussions we've had outside of the committee yesterday are ones that certainly we will examine.
We will look at we've already taken into account and made some changes following suggestions from Pass, and I'd be happy for the noble lady to write to me, as you suggested, with further suggestions that we will consider in due course the position. With regard to the businesses. Again, I just say to her and to the noble Lord Davies of Gower, the cost of this. Businesses will only incur costs if they freely choose to adopt digital proof of age.
There is no requirement to do so, and I believe that the issue of training is certainly important. But again, that is a voluntary movement for businesses to examine in relation to the potential introduction of this legislation. The legislation, in my view, supports the objectives of strengthening age verification safeguards and preventing underage alcohol sales. It allows premises to secure digital methods to verify age and yes, it might.
In answer to the noble Lord Davis, who. Gower is something that people take up and it might be something that reaches 100% within a certain period of time. If it does so, as I've given the committee the assurance today, it does so because an individual going out who wants to give their proof of age finds it a more useful, succinct way of doing so on a digital basis via the verification scheme than they do carrying a driving licence, a birth certificate or a a passport.
So I think at the moment it's a positive thing. And it is reported that 57% of 18 to 25 year olds have even experienced forgetting their ID on a night out. Now, the noble Lord Davis will know that people very rarely forget their phones on a night out, and the digital ID that will be there is available is more secure and is something which I think will be valuable. It will not be mandatory.
The government's taking an enabling approach. It's ensuring that we have an additional option rather than replacing existing forms of proof of age. And ultimately it will be for retailers to. As the noble Lord, lady Baroness McIntosh has said, to maintain their responsibility to ensure the proof of age is present. It is their responsibility to do so, but they also remain free to decide which age verification methods they accept, and consumers remain free to use physical material should they so wish.
So I will respond to the noble lady and her letter in due course. I hope I've helped the noble Lord, and I understand that he is opposed to digital ID. That's a legitimate point of view. We know where we are on that. That's not progressing. This is not linked to that. And in those lines, with that assurance, I hope I can.
I think he's alleged that we're trying to do, which is to stop the use of physical means of identity. I was very clear in the opening comments that I've made that existing physical identity. 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've set under the scheme that is in operation already, they can do so. Nobody is going to stop them doing that.
Now. We would hope self-evidently, that people might think that carrying a passport on a Saturday night might not be a good idea if it's lost, because it's a physical document that has great value in terms of political capital, but also in terms of cost for replacement. So a digital scheme is one that can be used. Now again, the noble Lord challenges me and says, well, isn't it terrible that the government's abandoned its digital ID scheme? Well, the change is operational .
Here are completely separate to the proposals for a national digital ID scheme. There is again, I just emphasize to the noble Lord there is no compunction on this. There is a ability to have both if businesses and consumers wishes to do so, and that is based on a consultation. I remind the committee that was commenced not under this government, but under the under the previous government. So, yeah, you know, the government has changed a view on the situation of national digital ID.
That is what happens in government. Occasionally governments look at policy, determine them and decide whether to continue or not continue. And he will know that the job of ministers sometimes in this House is to defend government policy as determined by a range of governments at the time. And if ministers reflect on representations made by, amongst others, opposition members, that is a reasonable thing to do. So I'd just say to him. There is a there is a way forward.
And I think the way forward is as in this order today, I welcome and thank the noble Baroness McIntosh of Pickering for her support and for her acknowledgement of the contribution. Standards. Over a number of years. She's raised a number of valid points and I will try and answer those points accordingly. First of all, I recognise absolutely the need for clear guidance available to businesses and consumers to support the use of digital proof of age for the supply of alcohol and for the sale of alcohol.
Updating the statutory guidance issued under section 102 of the Licensing Act is an important part of that, as it guides licensing authorities on the discharge of their functions. I can say to her now that no immediate change will be made to section 102 guidance in relation to physical ID, and that we won't change anything further before further engagement with Pass. I can't guarantee there won't be changes in due course, but I think it's important that she knows that there will be engagement with Pass and the point that she's made today and the discussions we've had outside of the committee yesterday are ones that certainly we will examine.
We will look at we've already taken into account and made some changes following suggestions from Pass, and I'd be happy for the noble lady to write to me, as you suggested, with further suggestions that we will consider in due course the position. With regard to the businesses. Again, I just say to her and to the noble Lord Davies of Gower, the cost of this. Businesses will only incur costs if they freely choose to adopt digital proof of age.
There is no requirement to do so, and I believe that the issue of training is certainly important. But again, that is a voluntary movement for businesses to examine in relation to the potential introduction of this legislation. The legislation, in my view, supports the objectives of strengthening age verification safeguards and preventing underage alcohol sales. It allows premises to secure digital methods to verify age and yes, it might.
In answer to the noble Lord Davis, who. Gower is something that people take up and it might be something that reaches 100% within a certain period of time. If it does so, as I've given the committee the assurance today, it does so because an individual going out who wants to give their proof of age finds it a more useful, succinct way of doing so on a digital basis via the verification scheme than they do carrying a driving licence, a birth certificate or a a passport.
So I think at the moment it's a positive thing. And it is reported that 57% of 18 to 25 year olds have even experienced forgetting their ID on a night out. Now, the noble Lord Davis will know that people very rarely forget their phones on a night out, and the digital ID that will be there is available is more secure and is something which I think will be valuable. It will not be mandatory.
The government's taking an enabling approach. It's ensuring that we have an additional option rather than replacing existing forms of proof of age. And ultimately it will be for retailers to. As the noble Lord, lady Baroness McIntosh has said, to maintain their responsibility to ensure the proof of age is present. It is their responsibility to do so, but they also remain free to decide which age verification methods they accept, and consumers remain free to use physical material should they so wish.
So I will respond to the noble lady and her letter in due course. I hope I've helped the noble Lord, and I understand that he is opposed to digital ID. That's a legitimate point of view. We know where we are on that. That's not progressing. This is not linked to that. And in those lines, with that assurance, I hope I can.
17:27
Speaker 2
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Speaker 2
With the noble Lord permit before he sits down. I'm most grateful. I'm very grateful to the Minister for responding on the points of section 1.2 guidance, not being at this stage amended for physical sales. That's greatly appreciated from the past point of view. He didn't address the issue that the retailers have raised in the form of wine and spirits trade, but I think this is this is an overall, I'm sure the convenience stores would have similar issues.
When is the section 102 guidance going to be amended for digital proof of age at the point of sale? Because we want to make it go smoothly and make sure that there's no altercations and no threats to the staff at the point of sale.
When is the section 102 guidance going to be amended for digital proof of age at the point of sale? Because we want to make it go smoothly and make sure that there's no altercations and no threats to the staff at the point of sale.
17:28
Speaker 10
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Speaker 10
I appreciate that, and what I can't do is yet for the noble Baroness, is give a date when this is going to be implemented. But at the point she's made around training, the need to prepare are absolutely valid. We haven't got a commencement date yet. Again, my understanding is that this order will go to the House of Commons on Monday of next week. Ministers, including the direct minister responsible, which is in the department, which is not directly me, as it happens in this case, will take a decision on that, but the fact that she's mentioned are important ones, and what I will do is ensure, as I've said, that no immediate change will be made to section 102 guidance without further engagement with Pass, and we have the ability to implement this order in an ordered way.
And I will reflect on what she said. And if I'm able to give further information, post a letter, I will do so.
And I will reflect on what she said. And if I'm able to give further information, post a letter, I will do so.
17:28
17:29
Speaker 11
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Speaker 11
The question is that the Grand Committee has considered this instrument, as many of their opinion will say, content and not content. The contents have it. Now be a short pause whilst the government benches change. Loan Societies Act 1986. Assimilation to company law and Changes to Funding Limit Order 2026 Lord Pitt-watson.
17:31
Speaker 5
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Speaker 5
My Lords, I beg to move that the Committee approves the Building Societies Act 1986 assimilation to company law, changes to Funding Limit Order 2026. Building societies are a vital part of the United Kingdom's financial services sector, and the government is 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 Building Societies Act, 1986, to ensure that it continues to align with company law and, where appropriate, as well as to ensure that the Act's funding framework operates to support financial stability and strong prudential standards amongst building societies.
The order before the committee makes two targeted changes, and I will take each of these in turn. First, the order modernizes 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, a greater flexibility. Under the Companies Act 2006, they may execute documents either by using a common seal or by 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 the execution by a director in the presence of witnesses. This is a practical and proportionate modernisation.
It will reduce unnecessary administrative burdens and 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 the 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. And 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 which are being held to meet prudential requirements.
The purpose of this change is straightforward it's inappropriate to treat funding that supports prudential 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, effectively 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, therefore, ensures 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 a 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 continue to compete effectively while maintaining their mutual business model. For those reasons, I recommend this order to the committee.
I beg to move.
The order before the committee makes two targeted changes, and I will take each of these in turn. First, the order modernizes 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, a greater flexibility. Under the Companies Act 2006, they may execute documents either by using a common seal or by 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 the execution by a director in the presence of witnesses. This is a practical and proportionate modernisation.
It will reduce unnecessary administrative burdens and 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 the 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. And 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 which are being held to meet prudential requirements.
The purpose of this change is straightforward it's inappropriate to treat funding that supports prudential 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, effectively 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, therefore, ensures 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 a 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 continue to compete effectively while maintaining their mutual business model. For those reasons, I recommend this order to the committee.
I beg to move.
17:35
17:35
17:35
Speaker 12
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Speaker 12
That's. My Lords. There's a. Other minister, of course is exactly right. Building societies are mutually owned. Banks are absolutely crucial to our economy. They hold some 29% of all outstanding residential mortgages and growing. They're especially significant for first time buyers as conventional banks are less active in this market. And so as we try to solve the housing crisis and restore economic growth, both the capacity of this sector to grow its lending matters, but also the stability of the sector.
My Lord, that's the minister said the Building Societies Act of 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%. And this order, however, changes the way that the 50% is calculated to specify that certain funding sources will be excluded from the wholesale calculation, and the examples are specific. Bank of England liquidity facilities. Loss absorbing instruments like.
Well, typically we'd use the word mrel and specific repo agreements. This is clearly of importance to the larger societies and sets them on a more level playing field in competing against banks, as well as increasing their lending capacity. That's. Now I do have, however, two questions. Even though I support this change, has the government assessed the impact of increased wholesale funding in times of interest rate volatility? And I would point out to the minister, is an increase in wholesale funding.
If one's not going to be highly technical, because MRL, for example, is raised in the wholesale market and so are the repos. So a number of the instruments that are covered that and will be excluded from the calculation are in fact wholesale market transactions funding short and lending long funding short being the characteristic of the wholesale funds and lending long at a fixed rate was the curse of HBOs when it failed and. Warren Buffett's number two, Charlie Munger, in a conversation with me once that a discussing a situation like this talked of funding short and lending long as living proof of The Walking dead.
I mean, it is a riskier strategy that because of the duration mismatch, that's a. I'm not suggesting that these changes are going to lead to those extreme outcomes, but it's clear that the squeeze on margins that comes from greater wholesale funding can end up inhibiting lending. And does it just exactly at the time when the economy typically needs new liquidity and lending the most. So my second question is a slightly different one.
Is there any risk of dilution of the mutual identity by an a sense, changing this weighting of wholesale versus that membership funding? Building societies are much more community driven than conventional banks. And if that link is weakened by the need to respond to the pressures from wholesale lenders, we would, frankly all be losers. So I would appreciate the government's comments. 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. And indeed, I may be the only person in this building who has actually closed contracts by using a seal that's under armed guard, because it was had to be removed from the vaults, and every movement was observed because the seal was of such extraordinary value. I really did think that those days were over that. And I'm pleased now that building societies are going to be relieved of the burden.
My Lord, that's the minister said the Building Societies Act of 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%. And this order, however, changes the way that the 50% is calculated to specify that certain funding sources will be excluded from the wholesale calculation, and the examples are specific. Bank of England liquidity facilities. Loss absorbing instruments like.
Well, typically we'd use the word mrel and specific repo agreements. This is clearly of importance to the larger societies and sets them on a more level playing field in competing against banks, as well as increasing their lending capacity. That's. Now I do have, however, two questions. Even though I support this change, has the government assessed the impact of increased wholesale funding in times of interest rate volatility? And I would point out to the minister, is an increase in wholesale funding.
If one's not going to be highly technical, because MRL, for example, is raised in the wholesale market and so are the repos. So a number of the instruments that are covered that and will be excluded from the calculation are in fact wholesale market transactions funding short and lending long funding short being the characteristic of the wholesale funds and lending long at a fixed rate was the curse of HBOs when it failed and. Warren Buffett's number two, Charlie Munger, in a conversation with me once that a discussing a situation like this talked of funding short and lending long as living proof of The Walking dead.
I mean, it is a riskier strategy that because of the duration mismatch, that's a. I'm not suggesting that these changes are going to lead to those extreme outcomes, but it's clear that the squeeze on margins that comes from greater wholesale funding can end up inhibiting lending. And does it just exactly at the time when the economy typically needs new liquidity and lending the most. So my second question is a slightly different one.
Is there any risk of dilution of the mutual identity by an a sense, changing this weighting of wholesale versus that membership funding? Building societies are much more community driven than conventional banks. And if that link is weakened by the need to respond to the pressures from wholesale lenders, we would, frankly all be losers. So I would appreciate the government's comments. 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. And indeed, I may be the only person in this building who has actually closed contracts by using a seal that's under armed guard, because it was had to be removed from the vaults, and every movement was observed because the seal was of such extraordinary value. I really did think that those days were over that. And I'm pleased now that building societies are going to be relieved of the burden.
17:40
Speaker 2
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Speaker 2
Thank you, speaker. My Lords, I'm very grateful to the noble Lord, the Minister, for setting out the purpose and effect of the order. We on these benches welcome it. It has a broadly it's 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 has said in his very clear introduction, and indeed, as Lady Cromer has said, they are also very important for first time buyers. I certainly got my first mortgage from a building society, the Bedford Building Society. Their mutual model helps to promote diversity and competition, and they remain significant providers of mortgages and savings products. It's right 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 practical modernisation. It brings the rules governing common seals, not the seals I saw recently in the 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 eternity 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 are not envisaged, 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 issue debt in order to meet requirements, or in order 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 regulatory requirements is to MRL eligible debt and make appropriate use of liquidity facilities.
I would, however, be grateful if, in addition to answering Lady Cramer's very good questions, the Minister could address some of mine. First, to what extent does the Treasury make the changes to improve the competitiveness of building societies relative to blanks? 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 know of any hidden costs to businesses. Second, 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 MRL requirements. Does the Treasury expect smaller societies benefit? Third, 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? Fourth, article four 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, and 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 it gives building societies greater flexibility without undermining the important principle of mutuality.
As the minister has said in his very clear introduction, and indeed, as Lady Cromer has said, they are also very important for first time buyers. I certainly got my first mortgage from a building society, the Bedford Building Society. Their mutual model helps to promote diversity and competition, and they remain significant providers of mortgages and savings products. It's right 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 practical modernisation. It brings the rules governing common seals, not the seals I saw recently in the 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 eternity 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 are not envisaged, 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 issue debt in order to meet requirements, or in order 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 regulatory requirements is to MRL eligible debt and make appropriate use of liquidity facilities.
I would, however, be grateful if, in addition to answering Lady Cramer's very good questions, the Minister could address some of mine. First, to what extent does the Treasury make the changes to improve the competitiveness of building societies relative to blanks? 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 know of any hidden costs to businesses. Second, 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 MRL requirements. Does the Treasury expect smaller societies benefit? Third, 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? Fourth, article four 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, and 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 it gives building societies greater flexibility without undermining the important principle of mutuality.
17:45
Speaker 5
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Speaker 5
I'd like to thank my noble Lords for their consideration of this order, and I've listened carefully to the interventions made, and I would like to try, if I can, to a respond to them. One was just my interest in common seals. I also had not, until I read this, realised that building societies were so constrained a. There was then a series of questions that were around a, you know, borrowing short, lending long, which of course is central to building society and to banks operations.
That's why you can have a run on a building society, or you can have a run on the bank. And why we have the Bank of England there , to be able to deal with that and give confidence so that the the run doesn't a doesn't take a place it clearly in the changes that are being made, which are relatively small changes associated with a, a, a highly liquid instruments and deposits and dealings with the Bank of England.
There is not a huge difference in the duration risk that we would be seeing today, and the duration risk that we would A be seeing a in the future. The aim would be to make the building societies equivalent more equivalent and more similar to banks, so that they could be could be more competitive. And a . As regards what are going to be the effect of this, I did a the good question that was raised by a, a Baroness Neville Rolfe, a about greater mortgage lending.
I did, in fact, go back and ask whether a calculation had been made on that. And the answer I got, which actually I thought was quite a good answer, was, look, the reduction in constraint does not immediately mean that a building society is going to change what it does, because there are many other considerations in how it expands its balance sheet. So therefore there isn't a number on that one. And I actually feel quite comfortable that there isn't a number on that one.
But we do create a level playing field. As for a review in five years time, I don't know what it would be that would be included in that review, and I think that it might be impacted by events from now, a, a and going forward. And in terms a a no. S Kramer The impact of interest rate volatility. The changes have been designed to help with periods of market instability, including interest rate volatility.
A and as I said, a Baroness Neville-rolfe, I did inquire about the additional mortgage lending and I didn't get an answer, but I thought I didn't get an answer for for quite a good reason. A a. So these changes. So anyway, as I set out in my opening speech, this order should make targeted and practical changes to the Building Societies Act modernising requirements, specifying certain sources of funding to be exempt from the wholesale funding limit calculation.
And this 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 I've answered the questions you raised and I would beg to move, for. The
That's why you can have a run on a building society, or you can have a run on the bank. And why we have the Bank of England there , to be able to deal with that and give confidence so that the the run doesn't a doesn't take a place it clearly in the changes that are being made, which are relatively small changes associated with a, a, a highly liquid instruments and deposits and dealings with the Bank of England.
There is not a huge difference in the duration risk that we would be seeing today, and the duration risk that we would A be seeing a in the future. The aim would be to make the building societies equivalent more equivalent and more similar to banks, so that they could be could be more competitive. And a . As regards what are going to be the effect of this, I did a the good question that was raised by a, a Baroness Neville Rolfe, a about greater mortgage lending.
I did, in fact, go back and ask whether a calculation had been made on that. And the answer I got, which actually I thought was quite a good answer, was, look, the reduction in constraint does not immediately mean that a building society is going to change what it does, because there are many other considerations in how it expands its balance sheet. So therefore there isn't a number on that one. And I actually feel quite comfortable that there isn't a number on that one.
But we do create a level playing field. As for a review in five years time, I don't know what it would be that would be included in that review, and I think that it might be impacted by events from now, a, a and going forward. And in terms a a no. S Kramer The impact of interest rate volatility. The changes have been designed to help with periods of market instability, including interest rate volatility.
A and as I said, a Baroness Neville-rolfe, I did inquire about the additional mortgage lending and I didn't get an answer, but I thought I didn't get an answer for for quite a good reason. A a. So these changes. So anyway, as I set out in my opening speech, this order should make targeted and practical changes to the Building Societies Act modernising requirements, specifying certain sources of funding to be exempt from the wholesale funding limit calculation.
And this 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 I've answered the questions you raised and I would beg to move, for. The
17:49
Speaker 2
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Speaker 2
minister sits down. That's very helpful. Thank you. I'm grateful to him for asking the questions about likely changes in mortgage and investment. I think there are a couple of strands I'd like to emphasize. One is I'm very concerned that we should help smaller building societies, as well as bigger building societies, which I hope he agrees with, and that competitiveness is an important factor. But 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's more changes coming in.
S eyes on the buildings and building societies.
S eyes on the buildings and building societies.
17:50
Speaker 5
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Speaker 5
On both of those questions, might I write back to you? My understanding is that this is the end of the road for the for this set of legislation. But I think I can't predict whether there would be further legislation that that might come forward. But on the small and big building societies, might I write to you on that?
17:50
Speaker 11
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Speaker 11
Question, is that the Grand Committee has considered this instrument, as many of that opinion will say, content contrary, not content. The contents have it have a short pause to see a change in the team. C. S prudential requirements Regime Credit Institutions and Investment Firms Regulations 2026 to be debated with one other instrument, Lord Pitt-watson.
17:52
Speaker 5
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Speaker 5
My Lords, I beg to move that the committee consider two statutory instruments made under the Financial Services and Markets Act 2023, known as Fisma 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, 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, the 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'll address each instrument in turn, beginning with the Overseas Prudential Requirements Regulation. The first instrument, A, is indeed this regulation and 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 its 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 whilst 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 Fisma 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 is replacing the existing equivalent 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. So this instrument is intended to firstly consolidate currently fragmented equivalent provisions into a single coherent regime, whilst 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, replace the definition of third country investment firm with overseas investment firm whilst maintaining the overall scope and effect of the existing treatment. And finally, to enable the government subject to further statutory instrument and parliamentary approval to recognise eligible covered bonds from overseas jurisdictions in the future. I now turn to the second instrument, which makes a targeted and important reform to the UK's framework for regulating OTC over the counter derivatives, whose traded those traded directly between buyer and seller .
By addressing Intragroup transactions. It replaces the temporary intra group exemption regime known as Tiger, with a permanent framework. Doing so, it provides firms with long term certainty whilst preserving appropriate safeguards and regulatory oversight. As I think all my audience know, derivatives are contracts whose value is linked to an underlying asset benchmark or index, and they are widely used by businesses to manage risk intra group transactions, where a company within the same corporate group are counterparties to a derivative contract, allow groups to manage their risks efficiently.
The benefit of intra group transactions are well recognised, and 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 temporary a temporary regime for exempting certain transactions between a UK counterparty and an entity within the same group, but 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, is due to expire at the end of 2026.
The government considers that a further time limited extension would not provide the long term support firms need. This instrument therefore establishes a permanent framework for qualifying intra group 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 intra group treatment and for relevant cross-border exemptions.
The Financial Conduct Authority will continue to have visibility through a notification process whilst retaining oversight of their regime. In summary, my Lords, 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.
The first instrument, the 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'll address each instrument in turn, beginning with the Overseas Prudential Requirements Regulation. The first instrument, A, is indeed this regulation and 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 its 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 whilst 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 Fisma 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 is replacing the existing equivalent 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. So this instrument is intended to firstly consolidate currently fragmented equivalent provisions into a single coherent regime, whilst 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, replace the definition of third country investment firm with overseas investment firm whilst maintaining the overall scope and effect of the existing treatment. And finally, to enable the government subject to further statutory instrument and parliamentary approval to recognise eligible covered bonds from overseas jurisdictions in the future. I now turn to the second instrument, which makes a targeted and important reform to the UK's framework for regulating OTC over the counter derivatives, whose traded those traded directly between buyer and seller .
By addressing Intragroup transactions. It replaces the temporary intra group exemption regime known as Tiger, with a permanent framework. Doing so, it provides firms with long term certainty whilst preserving appropriate safeguards and regulatory oversight. As I think all my audience know, derivatives are contracts whose value is linked to an underlying asset benchmark or index, and they are widely used by businesses to manage risk intra group transactions, where a company within the same corporate group are counterparties to a derivative contract, allow groups to manage their risks efficiently.
The benefit of intra group transactions are well recognised, and 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 temporary a temporary regime for exempting certain transactions between a UK counterparty and an entity within the same group, but 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, is due to expire at the end of 2026.
The government considers that a further time limited extension would not provide the long term support firms need. This instrument therefore establishes a permanent framework for qualifying intra group 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 intra group treatment and for relevant cross-border exemptions.
The Financial Conduct Authority will continue to have visibility through a notification process whilst retaining oversight of their regime. In summary, my Lords, 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.
17:59
17:59
17:59
17:59
Speaker 12
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Speaker 12
My Lords. I will talk to each of these instruments separately. And first, the overseas prudential regime. In the government's perspective, I think this statutory instrument is simply the application of the Fsma model to decisions on equivalence, and the government knows 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 which is notably weak on accountability to Parliament.
Now, this is obviously a much bigger issue than this s I. So initially existing equivalence decisions remain in place. Will the Minister explain if future changes and additions will come before Parliament in any way? Will they be. Will it be a deciding. Situation or will it be merely reported? And I do stress that to me, transparency and accountability are two different things. And sometimes in conversations with the regulators, you would think they were the same, that equivalence decisions are not just technical, they have political consequences.
The EU, for example, has extended its equivalence for UK counterparties to the 30th of June 2028. But there are serious concerns that it may then begin to restrict that equivalence, as the EU has built its own capacity in this sector and is in a position to onshore major financial business and strengthen the oversight also of its own regulators. Can the Minister comment on the political aspects of equivalence? Because, to me, this is one of the issues that raised the question about whether or not the regulator alone should be making equivalence decisions, and in a sense, that leads to the next Fi, because that is about central counterparties to some degree.
And that's the OTC derivatives regulations . In the 2007 eight crash, liquidity seized up in the global banking system because nobody knew who was at risk to whom, since the majority of derivatives trades had been negotiated directly bank to bank rather than pass through a central counterparty, Basel rules were put in place to incentivize banks to clear trades through a regulated CCP that, rather than deal directly with each other. And that system has been very successful.
Although many of us do quake at the thought of the risk that is accumulated in the CCPs in which they manage through margin calls. Now, this C deals with inter-group transactions, which enables firms, in a sense, to shift the geographic location of risk. That's the C gives regulators powers to provide permanent exemptions from clearing obligations and margin requirements. This, again has a political aspect to it. I'm always very concerned about BEPs base erosion and profit shifting, and that's where a company, in a sense that reduces its corporate tax bill by finding mechanisms where it needs to make payouts to overseas locations of low tax jurisdiction.
So now these kinds of internal transactions using the flow of derivatives are actually an ideal instrument to use . If you want to shift profit from one area to another, you simply do an unbalanced transaction. That's a money flows in one clear direction where it becomes profit. But in a country where corporate taxes are either zero or very low. So I am concerned that applying the Fisma model takes away accountability around these kinds of decisions.
I'm not going to oppose this s I mean, fairly using them anyway. And the issue is much bigger than a single C, but I do believe there's a BEPs element in this that I don't think was addressed by the minister, and it's one that I think Treasury and the government need to be cognisant of.
Now, this is obviously a much bigger issue than this s I. So initially existing equivalence decisions remain in place. Will the Minister explain if future changes and additions will come before Parliament in any way? Will they be. Will it be a deciding. Situation or will it be merely reported? And I do stress that to me, transparency and accountability are two different things. And sometimes in conversations with the regulators, you would think they were the same, that equivalence decisions are not just technical, they have political consequences.
The EU, for example, has extended its equivalence for UK counterparties to the 30th of June 2028. But there are serious concerns that it may then begin to restrict that equivalence, as the EU has built its own capacity in this sector and is in a position to onshore major financial business and strengthen the oversight also of its own regulators. Can the Minister comment on the political aspects of equivalence? Because, to me, this is one of the issues that raised the question about whether or not the regulator alone should be making equivalence decisions, and in a sense, that leads to the next Fi, because that is about central counterparties to some degree.
And that's the OTC derivatives regulations . In the 2007 eight crash, liquidity seized up in the global banking system because nobody knew who was at risk to whom, since the majority of derivatives trades had been negotiated directly bank to bank rather than pass through a central counterparty, Basel rules were put in place to incentivize banks to clear trades through a regulated CCP that, rather than deal directly with each other. And that system has been very successful.
Although many of us do quake at the thought of the risk that is accumulated in the CCPs in which they manage through margin calls. Now, this C deals with inter-group transactions, which enables firms, in a sense, to shift the geographic location of risk. That's the C gives regulators powers to provide permanent exemptions from clearing obligations and margin requirements. This, again has a political aspect to it. I'm always very concerned about BEPs base erosion and profit shifting, and that's where a company, in a sense that reduces its corporate tax bill by finding mechanisms where it needs to make payouts to overseas locations of low tax jurisdiction.
So now these kinds of internal transactions using the flow of derivatives are actually an ideal instrument to use . If you want to shift profit from one area to another, you simply do an unbalanced transaction. That's a money flows in one clear direction where it becomes profit. But in a country where corporate taxes are either zero or very low. So I am concerned that applying the Fisma model takes away accountability around these kinds of decisions.
I'm not going to oppose this s I mean, fairly using them anyway. And the issue is much bigger than a single C, but I do believe there's a BEPs element in this that I don't think was addressed by the minister, and it's one that I think Treasury and the government need to be cognisant of.
18:03
Speaker 2
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Speaker 2
My Lords, I'm grateful to the Minister for setting out the purpose and effect of these two elements. Although both are technically dense, they share a common and, I think, quite straightforward purpose. They replace parts of the inherited or temporary post-eu framework with permanent UK arrangements, so it gives us an opportunity to make the regime more proportionate and better suited to the UK market, whilst preserving the prudential safeguards on which financial stability depends.
We support both instruments in principle, but I have a few important and mainly technical questions, and I hope the Minister will be able to answer these today. Or, if not, perhaps he could write to the committee by way of follow up. So 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 like the US and Singapore, with sophisticated regulatory regimes, 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 particular close relationship between our two financial systems. It's 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 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 with 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's 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 were 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? Well, the government at least comment 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 five 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 that power to be used? I turn secondly 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, I think, that for reforms will reduce duplication, will 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 particularly, 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 their own banks? The Treasury say that no significant impact is expected.
I mean, that's rather disappointing for a deregulatory measure, and it has consequently not produced a full impact assessment. What estimates 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? As Doctor Felix Martin of the Cost Benefit Analysis Panel being 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 we support. How does the new framework compare with the treatment of intragroup derivatives in the European Union or the United States or other major financial centers? 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 used to assess whether that benefit is realized? 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 coordinated with the relevant overseas authorities? Conditions can also change. As Lady Kramer explained, a jurisdiction may introduce capital controls, a local regulator may impose ring fencing requirements or funds which, once moved freely, may become trapped during a crisis.
What continuing obligation will firms have to notify the FCA of such changes, and what power will the FCA have to suspend or withdraw an exemption? My Lords, 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'm clear that these are important
We support both instruments in principle, but I have a few important and mainly technical questions, and I hope the Minister will be able to answer these today. Or, if not, perhaps he could write to the committee by way of follow up. So 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 like the US and Singapore, with sophisticated regulatory regimes, 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 particular close relationship between our two financial systems. It's 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 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 with 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's 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 were 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? Well, the government at least comment 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 five 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 that power to be used? I turn secondly 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, I think, that for reforms will reduce duplication, will 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 particularly, 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 their own banks? The Treasury say that no significant impact is expected.
I mean, that's rather disappointing for a deregulatory measure, and it has consequently not produced a full impact assessment. What estimates 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? As Doctor Felix Martin of the Cost Benefit Analysis Panel being 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 we support. How does the new framework compare with the treatment of intragroup derivatives in the European Union or the United States or other major financial centers? 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 used to assess whether that benefit is realized? 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 coordinated with the relevant overseas authorities? Conditions can also change. As Lady Kramer explained, a jurisdiction may introduce capital controls, a local regulator may impose ring fencing requirements or funds which, once moved freely, may become trapped during a crisis.
What continuing obligation will firms have to notify the FCA of such changes, and what power will the FCA have to suspend or withdraw an exemption? My Lords, 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'm clear that these are important
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Speaker 8
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Speaker 8
I'd like to thank the noble Baroness very much for their comments. Some of which I think maybe go a little bit beyond what we're trying to address here with statutory instruments. And I do understand Baroness Kramer's a concern about the Fisma regime and how it works in parliamentary oversight and the rest of it. But I, I think probably not relitigating it when we're talking about statutory instruments would be a better use of everybody's time.
And a concerns about decisions passed by regulators. I mean, I don't think there's any new responsibility that is being passed to Parliament. These will stay decisions for minister and for Parliament, not regulators. And indeed, I think I, I sort of specifically mentioned that a the recognition of covered bonds was something that would need to be approved a by Parliament. So I essentially, we're moving from one regulatory regime to a UK regulatory regime.
And I understand the questions about whether the UK regulatory regime is right, but I think probably not relitigating that now, Baroness Neville Rolfe asked what criteria would apply to future designations, and 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 the 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.
She asked about covered bonds issued by other jurisdictions. Could they receive a a preferential treatment without further parliamentary scrutiny? I think 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. A a there's no current plans to use the power, but it's important that we have the power available.
The question on the BEPs, I would write to her on that one. Well beyond my pay grade. How does the UK approach compare with the EU? Well look, the EU also removed the previous dependent on third country, third country equivalence decisions for inter-group treatment through a mere three. The EU now uses restrictions linked to specified high risk or non-cooperative jurisdictions with scope for additional jurisdictions to be identified and the UK instrument. Likewise, delinks intragroup eligibility from article 13 equivalence, but has detailed safeguards and processes designed for the UK framework.
And then finally, why A has a full impact assessment 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 would be assessed by the PRA through cost benefit analysis.
So today the House 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 whilst 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, whilst supporting the transition to assimilated law to the Fisma model of regulation.
The second instrument, the Over-the-Counter derivatives Intragroup Transaction Regulation, 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 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 of cross-border exemptions and the ability to object when those conditions are not met.
The government, therefore, believes 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 our regulatory framework continues to operate effectively. I beg to move.
And a concerns about decisions passed by regulators. I mean, I don't think there's any new responsibility that is being passed to Parliament. These will stay decisions for minister and for Parliament, not regulators. And indeed, I think I, I sort of specifically mentioned that a the recognition of covered bonds was something that would need to be approved a by Parliament. So I essentially, we're moving from one regulatory regime to a UK regulatory regime.
And I understand the questions about whether the UK regulatory regime is right, but I think probably not relitigating that now, Baroness Neville Rolfe asked what criteria would apply to future designations, and 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 the 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.
She asked about covered bonds issued by other jurisdictions. Could they receive a a preferential treatment without further parliamentary scrutiny? I think 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. A a there's no current plans to use the power, but it's important that we have the power available.
The question on the BEPs, I would write to her on that one. Well beyond my pay grade. How does the UK approach compare with the EU? Well look, the EU also removed the previous dependent on third country, third country equivalence decisions for inter-group treatment through a mere three. The EU now uses restrictions linked to specified high risk or non-cooperative jurisdictions with scope for additional jurisdictions to be identified and the UK instrument. Likewise, delinks intragroup eligibility from article 13 equivalence, but has detailed safeguards and processes designed for the UK framework.
And then finally, why A has a full impact assessment 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 would be assessed by the PRA through cost benefit analysis.
So today the House 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 whilst 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, whilst supporting the transition to assimilated law to the Fisma model of regulation.
The second instrument, the Over-the-Counter derivatives Intragroup Transaction Regulation, 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 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 of cross-border exemptions and the ability to object when those conditions are not met.
The government, therefore, believes 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 our regulatory framework continues to operate effectively. I beg to move.
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Speaker 5
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Speaker 5
I had just one question. The Minister gave a very helpful reply. I think he seems to be saying that the second instrument is essentially carrying things over from. Both of them are carrying over from previous EU law rushed through after Brexit and putting them on to a permanent basis. I suppose my question is about assessment and about the FCA, which he answered well, what happens when we have a new designation? Will there be a process of assessment and impact assessment for that? I can understand where we're just moving things across.
It would be helpful to know what the plan is for on the Treasury. Treasury's Treasury's plan is.
It would be helpful to know what the plan is for on the Treasury. Treasury's Treasury's plan is.
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