Silicon Valley Bank

Baroness Bennett of Manor Castle Excerpts

Tuesday 14th March 2023 Lords Chamber

[Baroness Bennett of Manor Castle (GP)]

My Lords, I have been reading paragraph 11 of this Statement against paragraph 17. Paragraph 11 rather surprisingly says that

“the system worked as we would hope.”

Paragraph 17 notes that officials at the Treasury and regulators

“worked tirelessly through the weekend to grip the situation … and to prevent real jeopardy to hundreds of the UK’s most innovative companies.”—[Official Report, Commons, 13/3/23; cols. 560-61.]

As the noble Lord, Lord Fox, observed, it was lucky that it was a weekend. We surely do not want to have our financial sector and the stability of our economy dependent on that kind of luck.

Paragraph 11 states:

“the system worked as we would have hoped.”

If this is really how the system is supposed to work, I suggest that we need a new or at least significantly reformed system—a more secure, stable, less fragile system than what followed the collapse of the Silicon Valley Bank at the weekend. The noble Lord, Lord Fox, talked about the speed at which events happen these days. There is a Bloomberg article headlined, “The Digital Age Ushers In A Speedier, More Viral Breed of Bank Run”, and I think that was clearly demonstrated here.

The Minister mentioned the Financial Services and Markets Bill, which refers to maintaining the UK’s position as an open and global financial hub. Have not the events of the weekend demonstrated the extreme dangers of pushing that as far as we possibly can, and the dangers of Clause 24, on the competitiveness of UK markets, which the Finance Innovation Lab, among many others, has noted is a push towards deregulation—to reduce regulation and increase risk—when it is clear we cannot afford the amount of risk we have now, as demonstrated by this case and the events involving our pensions last October? As we speak, the situation with Credit Suisse in Europe is still very unclear, as is that of a number of US banks.

Will the Government take a real look at the Financial Services and Markets Bill and their positioning of the UK’s financial sector, and look for a safe, secure sector that meets the needs of the real economy, rather than chasing growth?

[Baroness Penn (Con)]

On the noble Baroness’s final point, I do not think that those two aims need to contradict each other. In fact, the Financial Services and Markets Bill aims to deliver on both. I emphasise to the House the importance of a healthy financial services sector to growing our economy in all parts of our country. I point out to the noble Baroness that no one has said that the events over the weekend have brought into question the UK’s prudential regulatory regime and the protections we have put in place.

However, the point made by the noble Lord, Lord Fox, about the changing context and being able to remain dynamic in our assessment of the risks and, therefore, in looking at how our system works, is absolutely right. The world changes very quickly and there is absolutely no room for complacency here. But do I think that the reforms we are proposing in the Bill are right? Do I think they will both promote growth in the UK and protect the safety and soundness of our system? I do, and we will continue to strike that balance as we take our reforms forward.

UK Infrastructure Bank Bill [HL]

Baroness Bennett of Manor Castle Excerpts

Consideration of Commons amendments
Tuesday 14th March 2023 Lords Chamber

[Lord Bourne of Aberystwyth (Con)]

I support the noble Baroness, Lady Hayman, in her proposed amendment and congratulate her on her tenacity in pursuing this issue. She has achieved something notable, and I thank her very much indeed. Account being taken of nature-based solutions improves the Bill and, on that basis, I also congratulate the Minister. My noble friend has proved herself to be a listening Minister, and the Government have taken a very common-sense approach, which improves the Bill. It was previously a good Bill, and it is now a better Bill after changes made in this House and the approach of the Minister and the Government.

I do not propose to detain the House, except to say that I agree with much of what the noble Lord, Lord Teverson, said in Committee and at Second Reading. I regret that we have not gone a bit further, but at least we have an improvement in this legislation. On that basis, I once again congratulate the Government.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I join in the congratulations to the noble Baroness, Lady Hayman, who is both a force for nature and a force of nature in your Lordships’ House. I thank everyone else who has joined in getting this progress on nature-based solutions, although we should not look at those solutions as an alternative to cutting our carbon emissions. Both those things have to be done.

I was not going to speak but, given something the Minister said in her introduction, I feel forced to ask her a question. In justifying the exclusion of “circular economy” in the Commons amendment, she said that it was “not a precise term”. Does the Treasury understand the term “circular economy” and its essential nature in delivering the sustainable society we need? If the Minister wants a source for this, I point to a government paper entitled, Circular Economy Package policy statement, from 30 July 2020, which was put out jointly with Wales, Scotland and Northern Ireland and which defined “circular economy” as

“keeping resources in use as long as possible, extracting maximum value from them, minimizing waste and promoting resource efficiency”.

Will the Minister confirm that the Treasury recognises that the circular economy is an acknowledged term and is urgently needed?

[Lord Vaux of Harrowden (CB)]

My Lords, I wanted to thank the Government and to associate myself with the words of the noble Baroness, Lady Hayman. I thank them for their constructive engagement, which has allowed us to reach a satisfactory conclusion.

However, I thank the Government for listening in relation to a couple of other places. First, during the progress of the Bill through this House we had a lot of discussions about the position of the devolved Administrations and how they should be involved. While they have not gone as far as I should have liked, I welcome the amendments that have now been included and the constructive engagement that has obviously taken place with the devolved Administrations. That is a nice change from some of the things that we have seen with other legislation in the past.

Secondly, Amendment 8 is identical to an amendment that I tabled on Report, which shortens the reporting cycle to five years. My amendment was not accepted by the Government at that time. When I tabled it, it led to what I think was a unique achievement of being co-signed by both the noble Baroness, Lady Noakes, and the noble Baroness, Lady Bennett of Manor Castle. That has not been achieved before or since. I said at the time that such a unique and powerful alliance should make the Government take that amendment seriously, so I am delighted and grateful that they have done so.

Financial Services and Markets Bill

Baroness Bennett of Manor Castle Excerpts

Committee stage
Monday 13th March 2023 Grand Committee

[Viscount Trenchard (Con)]

My Lords, I am delighted to support Amendment 197, moved by the noble Lord, Lord Sharkey, and to which I have added my name. I served on the former Services Sub-Committee of the former European Union Committee with the noble Lord and have been impressed by his accurate understanding of, and thoughtful approach to, this and other financial issues.

The noble Lord explained the reasons for his amendment with his customary clear logic. I will not take up the Committee’s time by repeating them. I particularly endorse the introduction of a cap of 2% over the standard variable rate for mortgage prisoners. UK Finance has identified 195,000 borrowers from inactive lenders, of whom 47,000 have been identified as mortgage prisoners.

I welcome the FCA’s recent review of this problem and its review of the effectiveness of its regulatory interventions to remove barriers to switching. Recently, only a small number of borrowers have been able to switch from an inactive lender to a new deal with an active lender. I share the FCA’s hope that more mortgage prisoners will be able to switch their mortgage and I hope that the Minister will support this amendment.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise briefly to offer Green support for this amendment and to agree entirely with everything that has been said thus far. I feel a sense of déjà vu all over again. I was just looking back at the comments I made in 2021, when, it is worth noting for the record, this issue of mortgage prisoners went to ping-pong: the House of Lords passed an amendment, and it went back and forth between the two Houses. Back then, we were talking about people suffering under high rates of 4% or 5%, and some were suffering with the vulture funds of 9%. As we have heard set out clearly, the situation has not improved but has got much worse, and we also have a cost of living crisis.

The noble Lord, Lord Sharkey, noted that Martin Lewis is now involved in this, with his crucial supporting research. What a state our country is in when everyone can feel a great sense of relief and hope because someone who is, after all, only a private individual has stepped in where Parliament has failed. Surely this is the stage where Parliament—or the Government—can step up and rescue people trapped in often terrible situations through no fault of their own.

[Baroness Noakes (Con)]

My Lords, like the noble Baroness, Lady Bennett of Manor Castle, I recall our debates on this subject in 2021. Indeed, I think the amendment that the noble Lord, Lord Sharkey, has tabled is word for word the amendment he tabled on Report during the passage of what became the Financial Services Act 2021. It will not surprise the noble Lord that familiarity with it has not made me any warmer to the amendment.

As the noble Lord, Lord Sharkey, reminded us, mortgage prisoners derive from lending practices before the financial crisis. These mortgage borrowers were much more likely to have got a mortgage without proof of income or with an impaired credit history. They still have relatively high loan-to-value ratios, and they often have unsecured debt as well. Many of them have interest-only mortgages, with no repayment plan. Put simply, they typically have higher-risk characteristics than borrowers with active lenders.

The noble Lord, Lord Sharkey, has correctly excluded 50,000 or so of the population of mortgage prisoners from his amendment, because they are in arrears or within the last 12 months of their mortgage term, but I think he intends the remaining 143,000 to benefit from the largesse provided by this amendment. This is notwithstanding that the FCA estimates that 66,000 of them could, in fact, switch to active lenders because the active lenders in the market have changed their risk appetite, with the encouragement of the FCA, and they would now be able to remortgage. I do not believe that it is right to legislate to give preferential financial terms to those who choose not to take advantage of the opportunities available to them in the market.

The FCA’s last review found that around 30,000 of the remaining 47,000 would be unlikely to benefit from switching, because if they did find a deal it would cost them more than the interest rates that they are currently paying. High-risk borrowers do not get the best rates in the market, however much they might wish to. Amendment 197 would give these borrowers a rate that did not reflect the market for them, and I do not believe that it is fair to give them a special advantage by legislating for them.

The FCA has proposed some practical steps to assist the remaining population, but it does not propose anything like that which is contained in Amendment 197. That is not surprising because the LSE in its earlier, independent study—I have yet to see the study that the noble Lord, Lord Sharkey, referred to—concluded that market interventions were not justified and could cause markets harms.

We all have sympathy for those stuck with debt that they struggle to afford, but the problem is not confined to mortgage prisoners, and it is just not fair to single out this group of problem borrowers for special treatment. It is also an extraordinary departure from regulatory norms. The FCA does not tell lenders to whom they must lend money; that is not how regulation works. Under this amendment, the FCA would be telling lenders what their risk appetite should be, which raises big issues of moral hazard and fails to deal with the prudential consequences in terms of capital, on which the PRA is the arbiter.

Furthermore, the FCA is required to set interest rate caps, but only by reference to LTVs. This ignores the other key driver of interest rates—namely, the credit risk of the borrower. Whatever rate the FCA comes up with, it will be the wrong answer for some borrowers, and it would be plainly unfair if the FCA set the rate assuming high credit quality, because that is very likely to be at odds with the facts. In addition, requiring the standard variable rates to be no more than two percentage points above base rate ignores any evidence about the correct uplift for the particular type of loan and borrower characteristics, which can produce outcomes that do not reflect objective market realities. I hope that the noble Lord, Lord Sharkey, does not pursue this amendment, as he did in the 2021 Bill; it really does not make sense.

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[Lord Naseby (Con)]

My Lords, I will speak broadly in support of these amendments, starting with Amendment 202. The incidence of fraud is growing almost daily. It is a huge worry and, unfortunately, it rests on His Majesty’s Government to try to find an answer to it. I accept that it is not an easy problem, but we cannot shy away from it. Over lunch today I was having some discussions with Transparency Task Force, a certified social enterprise. Certainly, some of the evidence it has is quite extraordinary and deeply worrying. I do not know whether there are other types of scams not covered in the Bill. I have not given any notice to my noble friend on that, but we would certainly like an answer.

On Amendment 203 on qualifying cases, I have spoken to only about half a dozen people who have had scams, but none of them knew anything about who was behind it. It is not very likely, is it? Having watched “The Gold” on television on Sunday, I can see how creative some people can be. It does not seem realistic, which is why Amendment 203 is important.

I have had a chat with members of the All-Party Group on Personal Banking and Fairer Financial Services. The only way to get a grip of these problems is to know what is happening on the ground. The noble Lord, Lord Vaux, asked for a six-monthly report, which is quite right. A quarterly report would probably be better, though it might be too tedious. At this point in time, His Majesty’s Government do not have a handle on the rate of growth, which is deeply worrying. I do not know whether these amendments are exactly right, but the problem is there, and it is the responsibility of His Majesty’s Government to get a grip on them.

[Baroness Bennett of Manor Castle (GP)]

My Lords, like the noble Lord, Lord Naseby, I broadly support this group of amendments. I particularly want to address Amendment 205 in the names of the noble Lord, Lord Vaux, and the noble Baroness, Lady Bowles.

As the noble Lord, Lord Vaux, said, it is worth highlighting uncertainty and trauma. We have a society in which every time people pick up their phones or emails to look at a message, many of them think, “I’m worried. Is this right or wrong? Is this official-looking email something I should click or not?” That is where we are. These amendments seek to address some of this, although even with them we would not get far enough. In the other place, the Treasury Select Committee last month expressed concerns about the Payment Systems Regulator dealing with push payment scams regarding the banks handing out the money and controlling the Pay.UK body that would be doing that. There is a concern that this needs to be seen as fair and rapid; to take away some of that fear is the key issue.

Amendment 205 is particularly interesting because we are talking here about a league table for how fairly banks treat victims of fraud. I could not help thinking of the comparison with schools. We have intensely scrutinised and detailed league tables for schools; surely we can manage similar league tables for banks. We had a lot of debate on earlier days in Committee on whether we wish to encourage competitiveness. But however much we might debate competitiveness, surely we all agree that competition between banks to see who is fairest towards victims of crime would be good.

This may not go far enough, but there are amendments here that the Government should certainly consider, particularly Amendment 205 concerning the league table.

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[Baroness Sheehan (LD)]

My Lords, I support my noble friend Lord Sharkey’s amendment. I should declare that, as a Muslim woman, I have a number of relatives who will be, and are being, affected by this. Not every Muslim feels unable to take out student loans as they are currently structured but there is a significant minority. It is usually women affected because they always come at the bottom of the list of who will be financed without a loan through private means. I urge the Minister, particularly given all the conversations we had last week about International Women’s Day, to consider this.

I will not detain the Committee long; my noble friend Lord Sharkey gave us chapter and verse on the Government’s position and prevarication on this issue, which, we are told, they have been able and willing to support for over a decade now. The Higher Education and Research Act 2017 allows the Government to introduce a student finance product consistent with Muslim beliefs regarding interest-bearing loans. However, as my noble friend said, the Government have yet to launch such a product. In February last year, as part of the conclusion of their review of post-18 education and funding, the Government said that they were still considering whether and how to deliver sharia-compliant alternative student finance and whether they would do so as part of the lifelong loan entitlement.

We have a situation where, not only are 18 and 19 year- old Muslims—predominantly girls—unable to access higher education but it now looks as though, with the LLE, they will not be able to access post-18 further education either. That will curtail their life chances, their ability to contribute to the life of this country and the financial contribution that they make to their families.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Sheehan, who has highlighted the gender aspects of this debate, and the noble Lord, Lord Sharkey, who has been a consistent champion on this issue in your Lordships’ House. I wish to make a couple of comments additional to what has already been said, while offering support for this amendment to push the Government to take action.

It was Green Party conference at the weekend, and I found myself discussing again and again how the public, who once thought that when the Government announced something that meant it would happen, are increasingly aware of the legislative process, and even the role of your Lordships’ House, because it is taking so long between government announcements and something actually happening. That is true of the announcement of a bottle deposit scheme for England, but there has been an even longer stretch between the promise of sharia-compliant finance, particularly for student loans, and the delivery.

The last figures that I saw showed that 9% of higher education students in the UK were Muslim. Extending loans for lifelong learning into further education makes it very likely that the percentage of students affected by the lack of sharia-compliant loans will increase. It is not as though the Government have not been reminded of this again and again. I note, again, that it was in July 2021, during the passage of what became the Skills and Post-16 Education Act, that we debated this. We were promised, “Yes, it’s going to happen; it’ll come”, but, yet again, we have just had a report from the Government which shows that there has been no progress. That is simply not good enough.

We often debate in your Lordships’ House how to get trust in government and the system. One way is to deliver on your promises in a reasonable and timely manner, particularly the things that really should not be that difficult, of which sharia-compliant loans is a case in point.

[Lord Carrington of Fulham (Con)]

My Lords, I support the noble Lord, Lord Sharkey, in this. There is no question that there are a large number of Muslims, both students and others, who have the very strong belief that their religion forbids them from engaging in normal financial practices as recognised in the West. It is about time we did something about it; it has taken far too long to get to where we are now, and we need to find a solution, particularly for student finance, where it is urgently indeed.

I can entirely understand why there is a problem. I understand why His Majesty’s Treasury is finding it difficult to find a solution. I spent a considerable part of my banking career devising means of meeting the religious requirements of Muslim communities to access financial services, often in conjunction with the Islamic Development Bank. It is an extraordinarily complex business. There are many different ways of doing it, but one of the problems is that there is no universal agreement as to what is an acceptable form of finance under the sharia. That is partly because of the difficulties between the various types of Islam—Sunni or Shia—and the various interpretations within the various branches of Islam itself, which also impact the nature of the financial products that are capable of being used. Indeed, Islamic scholars, particularly in the Sunni version of Islam, cannot agree among themselves what is acceptable and what is not. All this leads to considerable problems in devising a universally acceptable product.

Of course, the additional problem that the Treasury will have is that there is considerable scepticism among the conventional financial markets, particularly the western ones, about the credibility of Islamic finance altogether. To put it bluntly, there is scepticism about whether it is not just a con. In some cases, it is: the market is full of rogues, charlatans and crooks who will try to put up products that do not, in fact, meet the sharia requirements. So there is no great agreement on what should be done.

Financial Services and Markets Bill

Baroness Bennett of Manor Castle Excerpts

Committee stage
Tuesday 7th March 2023 Grand Committee

[Lord Davies of Brixton (Lab)]

Both. I am not really being given that choice but, as I said, it was just a narrow point.

My question on Amendment 237 is: would you take investment advice or guidance from the Secretary of State? Is the Secretary of State even authorised to provide investment guidance or advice? I am troubled by the involvement of the Secretary of State, and I hope that we could perhaps consider a different wording if we wish to raise this on Report. If the Government want something to happen—net zero—as a matter of public policy, they have to accept the risk themselves and not pass it on to private individuals. I am talking about pension schemes, and the underlying point is that the money in a person’s pension scheme is their money, provided to them to be used in accordance with their wishes to provide them with a retirement income. Part of that retirement income depends on solving climate change—that is clear. I do not doubt the importance of taking these issues into account; I simply question the relevance and role of the Secretary of State in that process.

Over many years’ involvement with pension funds, I have seen that, when people see the massive amount of money involved, as highlighted by the noble Baroness, Lady Altmann, they see that the economic power is there, but it is there on behalf of the members’ interests and not, in principle, as a means of implementing government policies—however worthy. They might be in alignment, but the leading factor should be the members’ interests.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the noble Lord, Lord Davies of Brixton. Since the noble Lord, Lord Lilley, appeared to be directing a question at me about whether I oppose fossil fuels, I will take a moment to answer that. Do I think that pulling up carbon which has been stored in the ground over hundreds of millions of years, which was a crucial part of delivering the Holocene that gave us 10,000 years of incredibly stable climate in historic terms, and then pumping it into the atmosphere needs to be stopped with great speed? Yes, I oppose pumping out that stored carbon.

More than that, the fact is that extracting, transporting, burning and getting rid of the waste products from that fossil fuel causes huge damage to the health of people on this planet. One in five premature deaths that occur on this planet is as a result of burning fossil fuels—that is based on a study in environmental health in 2021. So do I want to do something urgently to make this a healthier planet for people? Yes, I do. However, that is not what any of these amendments are about. These amendments are to the Financial Services and Markets Bill, and all of them are about trying to stop the crashing of the financial markets, which are also crucial to our security and health in different kinds of ways. That is what all these amendments address.

It is really interesting that we have here a set of amendments which we might, collectively, for the purposes of Committee look at how we can hone and shape—I take the point made by the noble Lord, Lord Davies. But what we have in Amendment 168 are directions to the PRA to review capital adequacy requirements. That is about the security of firms. In Amendment 201, we have directions to the FCA to direct personal pension providers. Picking up on that point, I note the figures from the Pensions Regulator’s most recent survey of defined contribution schemes, which found that more than 80% did not allocate any time or resources to managing climate risk.

Then in Amendment 233, we have sustainable disclosure requirements, so that companies would report to investors what risks they are taking with their money by not dealing with all the sustainability risks which relate to the fact that we are exceeding planetary boundaries—not just on climate but on biodiversity, the loss of ecosystems and novel entities, and on phosphate geochemical flows. All these things are taking risks with people’s money, which is what we are talking about. Amendment 233 might indeed guide us in the direction of each major company having to have a chief environmental officer, who should be of equal status and importance to a chief financial officer because it is about ensuring the sustainability of the company, as well as the sustainability of this earth. Going on to Amendment 235, we are directing the Treasury to provide government guidance on how we achieve all of this.

That is an overview but I want to pick up one specific point. I would have signed Amendment 119, in the name of the noble Lord, Lord Randall of Uxbridge, and others in a full cross-party group, had there been space. When people think about forest risk commodities, they often start by thinking, naturally enough, about timber but, if we look at some statistics, palm, beef and soya production collectively amount to 36% of global deforestation. When Orbitas, an investment body, surveyed 24 capital providers in 2020, all of which had high levels of tropical commodity exposure, not one had screened their loan books and/or investments for agricultural transition risks. I want to major on that point while we debate this today, because if we look at Indonesia, 76% of unplanted forest concessions and 15% of existing palm oil assets could be at risk—that is, financial risk—should Indonesia adopt what is seen as its essential plans to meet its Paris climate commitments.

I said that we need to look at all aspects of planetary boundaries being exceeded. We also must include water risk. Fresh water supplies rely heavy on fossil water aquifers—in the American high plains, in Mexico, in eastern Europe, in Egypt, in Arabia, Iran and China. All agricultural production of food—the big sectors globally and financially—is utterly dependent on fresh water supplies, which are not being replenished. That is a huge financial risk as well as a risk to when any of us can eat in the future, at a basic level.

Finally, I focus on Amendment 168, tabled by the noble Baronesses, Lady Worthington, Lady Drake and Lady Sheehan. I would like to work with them ahead of Report because, as others have highlighted, this focuses particularly, though not exclusively, as the noble Baroness, Lady Worthington, said, on fossil fuel exploration, exploitation and production. We must broaden this out to look at the agricultural sector, because it is an area of enormous financial risk. I draw on the work of the investment group FAIRR, which looks at the extremely high financial risks. The majority of the largest protein producer companies are at high risk for greenhouse gas emissions, deforestation, water and waste. Over 60% of them saw soya feed from areas at high risk of deforestation and have still not set deforestation targets. Fewer than one in five meat, egg and dairy firms is adequately managing the pollution of waterways from manure. Just ask the people of Herefordshire about that if you want to know more.

FAIRR finds that the volume of waste produced by the 70 billion animals processed each year is equivalent to the volume of waste produced by twice the entire human population on this planet. Only 18% of global meat and dairy producers track even partial methane emissions, even though annual methane emissions from global capital and livestock make up 44% of anthropogenic methane emissions.

We are talking about the future of our life on this planet. We are talking about a liveable planet. That is inescapable. However, today we are talking about ensuring that we do not see the next financial crash. Let us remember the last financial crash, when the cash machines were within hours of stopping working. We must do something to stop the next financial crash from being at the point where the size of the carbon bubble, the level of stranded assets across a range of sectors—fossil fuels, animal agriculture and other areas—is such that it suddenly hits the markets. The markets are not counting this now. They must count this in if we are to have a sustainable financial sector.

[Lord Naseby (Con)]

My Lords, I will not repeat what my noble friend Lord Lilley said earlier, other than to say, speaking for myself and, I suspect, for my colleagues, that we do believe in net zero. That is a target. It is not an immediate diktat, but it is a target that I guess almost everybody in Parliament has accepted.

My noble friend is right that key in the judgment of those of us who have worked in the commercial sector, as I did before I came to Parliament nearly 50 years ago, is that we live in a free society. The answer to this problem is to phase out demand. It is easier to phase out demand than to phase out supply. If they both have the same effect in the end, you might as well take the easier and cheaper route, which does not involve subsidy to remove activity. We live in a free society and unless it is absolutely vital, it should be based not on government diktat, but on competition.

I will also comment on Amendment 199 on forestry. I had better declare an interest; it is hardly a forest, but there are 40 acres of woodland adjacent to my property. It is a wonderful hobby for me to have become someone who now understands woodland, at least; I could not claim that it is a forest.

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[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise briefly to offer the Green group’s support for the general sense of direction here on both the provision of cash and the review of resilience. It is not an accident or a convenience that those two things have been brought together, as the noble Baroness, Lady Twycross, just made clear.

We come back to a fundamental question: what is the financial sector for? If it is there to serve the real economy and real lives, it must meet people’s needs in both good and bad times. That applies at the individual level and the national one. The system must be able to stand up to not just financial shocks but the kinds of shocks that we know about in this age of the climate emergency, the nature crises and the threat of pandemics.

As the noble Baroness, Lady Twycross, was speaking, I was reflecting on being in Lancaster in 2016 about a week after Storm Desmond. I saw a city in shock. I saw what happened when they lost electricity for a day and a half or so. Digitisation and the disappearance of cash have come a long way since 2016 but people were absolutely desperate. They were not able to meet their basic needs, which surely must be part of the financial sector’s responsibility.

I broadly agree with the general tenor of everything that has been said but I want to make one strong point of disagreement with what most people have said. There is an idea that this is a transitional phase and that, once we have gone past the generation where people have not had digital in the prime of their life, the phase will end and everybody will then be able to use digital. I was going to tell exactly the same story as the noble Lord, Lord Hunt of Kings Heath, did. I will not repeat it but I will draw a further lesson from it. It is a story about a 91 year-old lady. She may have been able to cope with the telephone system and the buttons at 70 or even 80. I know someone in this situation; he is an older gentleman who finds it harder and harder each year to navigate the complications of digital.

None of us in this Room knows what our capabilities will be in 10, 20 or 30 years’ time. Just because you can do something now, you cannot guarantee that you will be able to do it in 20 years’ time. In terms of national resilience and meeting everybody’s needs, we genuinely have to make sure that, long into the future—potentially for ever if we look at that kind of scale—there will always be somewhere where you can walk up to a person and say, “This is my problem. I need you to help me sort it out”. That person needs to have the resources, knowledge, skills and power to sort out that situation for you because, ultimately, only having a person who looks you in the eye, sees the problem and deals with it will really meet everybody’s needs.

I have one final thought. There is sometimes a feeling that we have to have maximum efficiency and meet the needs of the majority, and tough luck for the rest. If we have a system that meets the needs of the most vulnerable people in our society—this is often said about public transport systems but it applies far more broadly—we have a system that is good for everybody in our society.

[Lord Blackwell (Con)]

My Lords, since I have not spoken in Committee so far, I should remind noble Lords of my interest as a former chairman of a bank and a current shareholder. However, I am not going to defend the service levels of banks, which I recognise need improvement.

On these amendments, I point out that, while I understand the rationale behind the desire to maintain access to cash, everything has a cost. We need to consider the cost of what is proposed as well as the benefit. My noble friend Lady Noakes is right that the shift towards digital and away from cash has snowballed over the past few years. It is not just customers who prefer not having to carry cash around. Many small businesses, clubs, associations and societies find it much easier now to have a low-cost terminal with which they can process membership dues, fees or even small transactions. It makes the accounting so much easier and avoids having to deal with collecting and disbursing large amounts of cash.

The move towards digital is happening across the whole economy. People talk about keeping branches open but there are many branches where only a handful of people come in during the week. When you think about the cost of maintaining the building infrastructure, as well as the staffing, security and systems, the cost per transaction becomes astronomical. Those costs have to be borne by somebody; they are borne by the other bank customers in higher fees, charges and interest rates. Nothing comes without a cost so we have to consider what the appropriate cost-benefit answer is.

As many noble Lords have said, clearly there are people who find it difficult to use digital technology and need access to cash, but there are other ways of—

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[Baroness Lawlor (Con)]

My Lords, if I may come in briefly, I am very sympathetic to the aims of noble Lords who wish to see cash access and banking services available to those who need them and do not use or rely on digital. However, I agree with the aims of the Bill: international competitiveness and growth. I do not think that this Bill’s powers regarding the financial markets and services sector should be used in a blanket way to impose an obligation on service providers to provide a service whose use, by all accounts and evidence, is on the decline.

Not only do I support the two amendments from my noble friend Lady Noakes, but I think we should pay attention to the overall aims for the regulators in this Bill, which are international competitiveness and growth. I urge the Minister to focus on the real problem of access to cash and banking services for many people, and, where there is a problem or gap, to focus the efforts and use the powers of government on trying to deal with the declining number of users in our society—albeit a real group—rather than use the law to impose obligations in a blanket way on the sector, contrary to the aims of competitiveness and growth. As noble Lords have explained, such a move could undermine the competitiveness of the banking sector.

[Baroness Bennett of Manor Castle (GP)]

The noble Baroness appeared to be suggesting that the provision of services, including the cost, should be done by the Government and that the private sector should collect the profits. Could she clarify whether she was saying that?

[Baroness Lawlor (Con)]

I thank the noble Baroness for her intervention. No, I was saying that, when we use the law, we should be very careful not to impose the costs on providers if the aim of the law is to encourage competition. There are reasonable aims which are agreed to by the whole of society. It is a reasonable aim for society to require and want cash access. My heart agreed with the noble Baroness, Lady Tyler, as she powerfully moved her amendment, but we should draw a line between a blanket restriction on providers of these services and finding how government can help and encourage other providers of services to do it. I was just talking to other noble Lords in the Lobby about this. I know of voluntary groups, market groups and social providers which are out there helping such groups and finding ingenious solutions to meet the gap, where there is one.

Financial Services and Markets Bill

Baroness Bennett of Manor Castle Excerpts

Committee stage
Monday 30th January 2023 Grand Committee

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in the second day of Committee on this Bill. In doing so, I declare my financial services interests as set out in the register. In speaking to my Amendment 219, I give more than a nod to the amendment in the name of the noble Lord, Lord Sharkey, which he set out so eloquently; had I had a pen, I almost certainly would have signed it and put my name against it.

In simple terms, this is very straightforward: SMEs are the backbone of the British economy. They are the largest private employers and the big companies of tomorrow yet, in this area, we are leaving them high and dry and at the will of many of the schemes that were set out so well by the noble Lord, Lord Sharkey, and the noble Baroness, Lady Bowles. I know that the noble Baroness, Lady Kramer, has all those unfortunate instances tattooed and ready to come out at any moment—rightly so because they all demonstrate that, when things go wrong, they go badly wrong. All too often, it is individuals and, in this instance, SMEs that are on the wrong end of it without a right of action against the FCA. My amendment would provide that right of action for breaches of the FCA handbook; I believe that it is similar to the amendment set out by the noble Lord, Lord Sharkey.

The Government talk, rightly, about the need to grow the UK economy. That growth will come largely from SMEs. Does my noble friend the Minister agree that they deserve our support? By simply accepting either of these amendments or, indeed, tabling a government amendment on Report, they would enable commercial loans over £25,000 to be brought within the perimeter and give SMEs not only the protection but the support that they should have from the regulator—and through that, from the Government—to enable that growth, which we all need for the UK economy and society. I ask my noble friend whether she will look to engage and potentially bring a government amendment to this effect on Report.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to take part in this debate on the second day of Committee. I have to say that it has been an extraordinarily powerful debate thus far and an absolute indictment of the UK financial sector. I begin by apologising for not taking part in the first day of Committee, despite having signed a number of amendments. I am afraid I was taking part in the debate on the so-called Genetic Technology (Precision Breeding) Bill, and it is impossible to spread oneself across too many places.

The case for these amendments, in particular Amendment 40 in the name of the noble Lord, Lord Sharkey, to which I am pleased to attach my name, has already been powerfully made, by the noble Lord himself and by the noble Baroness, Lady Bowles of Berkhamsted, in the debate on the previous group of amendments. I will make a couple of additional points. In particular, I draw on a survey by the Federation of Small Businesses, published in December, which found that 30% of small and medium-sized enterprises thought that they had signed financial contracts that contained unfair clauses and provisions.

The survey also found that successful applications for loans and other financing for SMEs had fallen precipitously. Less than half were successful in the third quarter of 2022; before Covid, two-thirds had been successful. One of the things we are always hearing from the Government is, “Rely on the market! People can shop around and choose”. We have already heard the reality of the inequality of arms—as the lawyers would put it—between a small business and a giant financial-sector company. But there is also no opportunity: small and medium-sized enterprises have to take money from wherever they can get it, if they are lucky enough to get it at all.

What we have here is a practical reality, as the noble Lord, Lord Holmes of Richmond, just set out. The financial sector is not meeting the needs of the real economy, and that issue underlies all our debates on the Bill. Is the financial sector there as a high-stakes casino in which a few people can make a lot of money and the rest of us have to pick up the pieces when it all goes wrong, or is it there to meet the needs of the real economy and give us a genuinely sustainable—in all senses of the word—society?

Although we have perhaps not needed him, it is a pity that the noble Lord, Lord Sikka, is not currently in his place, as he could also have contributed very powerfully to this debate. What we have is a litany of disaster. The FCA has a terrible track record. Your Lordships’ Committee is trying to do something to fix that, and, boy, does it need fixing.

[Baroness Altmann (Con)]

My Lords, I too support both amendments in this group. I congratulate my noble friend Lord Holmes on his Amendment 219, and the noble Lord, Lord Sharkey, on Amendment 40 and the way in which he explained it. I urge my noble friend the Minister to take seriously the comments that have been made and the reference to the Treasury Select Committee, which recommended just this kind of change.

I would like to understand from my noble friend: if the Government do not agree with the Treasury Select Committee, why? How do they believe that SMEs are protected against the kinds of scandals and bad behaviour that have clearly been rife within the sector over a number of years? Does my noble friend seriously believe that small and medium-sized enterprises are equipped enough to stand up against the information and resources available to the financial services industry to avoid the kind of problems that we have seen in the past?

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[Baroness Penn (Con)]

That is one element to be considered. I was pointing in particular to the combined role of the FOS and the Business Banking Resolution Service in providing a route of redress for over 99% of businesses. In part, it comes back to my question in relation to Amendment 40 from the noble Lord, Lord Sharkey, on the Government’s commitment to regulating business lending only where there is a clear case for doing so, given some of the increased costs that bringing SME lending into regulation would bring. I return to the point that we currently have a consultation out on the Consumer Credit Act in which there is a question on business lending; the Government are considering this through that consultation.

With that, I hope that the noble Lord, Lord Sharkey, will withdraw Amendment 40 at this stage—

[Baroness Bennett of Manor Castle (GP)]

I think the whole thrust of the noble Baroness’s argument is that the non-statutory protection effectively offered to SMEs through the ombudsman and independent dispute resolution procedures is essentially the same as having statutory protection. She suggested that statutory protection would cost more, but if the protection is equal through these other mechanisms, surely the costs of the banks providing the documentation and the system to enforce those mechanisms would be very similar to the statutory costs.

[Baroness Penn (Con)]

The noble Baroness touches on one possible difference in documentation needing to be provided where something is regulated versus where it is voluntary. That comes back to the question of SME lending having increased costs for banks and alternative finance providers. This can be passed on to businesses in the form of higher fees and interest rates, and it can affect the availability of credit for small businesses. The noble Baroness, Lady Kramer, mentioned start-up banks and challenger banks. When we have discussions elsewhere on other issues related to financial services regulation, we also discuss how we create a more competitive environment in the banking sector, as smaller banks can struggle to deal with regulations. This is a general point about balance.

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[Baroness Hayman (CB)]

My Lords, as this is my first contribution in Committee, I remind the Committee of my interests as set out in the register, particularly Peers for the Planet. I also have a son who is employed by Make My Money Matter, an organisation that campaigns in this area.

We have had two powerful speeches in support of this amendment, and I do not need to detain the Committee long in registering my support for it. It comes back to that very basic issue that both noble Baronesses dealt with: transparency. It is only with information that individuals can make meaningful choices about the investment of what is their money. It is tremendously important that we do not fall behind on this and assume that decisions that will be made are nothing to do with the little people who actually put the money into the companies which make the decisions. As I understand it, other jurisdictions have found ways through technology and standard reporting procedures to allow this to happen as a matter of course. I would be interested to hear from the Minister why we cannot do that in this country too.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I will briefly express support for this amendment, which has already been so powerfully argued for. I would have signed it had I caught up with the legislative deluge.

I want to make two additional points. First, the Pensions Regulator’s most recent survey of defined contribution schemes found that more than 80% did not allocate any time or resources to managing climate risk. It would be interesting if we were to see the way in which fund managers were voting, not only to have that recorded, but I would assume that they would have to have some kind of thought behind it to explain what was recorded. The transparency might force some more thinking to happen, which would clearly be a good idea.

I also want to ask a question of the proposers of this amendment because I was slightly puzzled by the information on request element of the amendment. The noble Baroness, Lady Sheehan, noted that US regulators forced this to be published openly as a matter of course. It seems that that would be the logical thing, that this should be available not only to clients but to anyone who might like to make an assessment of how companies and asset fund managers are behaving and why they are behaving in that way. Perhaps in my classic Green position, I wonder whether we should not go further, and, rather than saying “to clients on request”, say that this should be freely published and available to all.

[Baroness Kramer (LD)]

My Lords, with three outstanding speeches, I have very little to add other than to say that I very much support this. However, I have a question for the Minister. I was just looking up the definition of a fiduciary duty, which is when someone

“has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.”

We know that many people feel that there is an implied and inherent fiduciary duty between the person who puts their money into a pension fund and those who act to invest it—I see that the noble Baroness, Lady Noakes, is shaking her head. I know that in various pieces of legislation there has been an attempt to clarify that. However, surely at the very least there is a responsibility to transparency. This seems to me a very mild but important principle to establish. I suspect the Minister would be very concerned if she were to put her money into an entity and did not know, within reasonable boundaries, how it was being invested and used and what impact it had. Surely, these amendments are minor and mild but important.

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[Baroness Altmann (Con)]

My Lords, I support both amendments in this group. I think my noble friend Lady Noakes’ Amendment 43, which she so eloquently explained, is very much needed within our financial services system. I agree that it is possible that we should consider introducing into the wording greater parliamentary scrutiny rather than the discretion that may otherwise be given wholly to the Treasury, but I think the explanation by the noble Lord, Lord Tunnicliffe, of the situation with buy now, pay later is a good example of the kind of amendment that my noble friend wants to put in which would have facilitated some faster action had it been put in. I am not sure, but with the Bill we are going back time and again to the asymmetry of information and power between those transacting with financial services in general and the financial services industry that is putting products out to those customers. I think these amendments would be very useful additions, and I look forward to hearing from my noble friend.

[Baroness Bennett of Manor Castle (GP)]

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

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

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

[Lord Northbrook (Con)]

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

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[Baroness Sheehan (LD)]

I thank your Lordships. In my noble friend’s absence, I will speak briefly in support of the amendments to which she has added her name.

I turn first to Amendment 69, which should not have been necessary if the Government truly understood how intertwined the twin threats of climate change and nature loss are. They are two sides of the same coin. Climate change is destroying nature and the destruction of the natural world is accelerating climate change; it is us humans who have set this downward spiral in motion, and it is us who can put a stop to it. My Amendment 69 would add nature to the new regulatory principle on net-zero emissions; I tabled it purely for the sake of completeness and to make the point that the Government have, at best, been careless in leaving out nature from the single line that they have devoted to this issue in the entire Bill. I quote from the Explanatory Notes:

“This clause embeds the UK’s net zero target into the regulatory principles for the PRA and the FCA.”


It patently does not do that. My tabling this amendment in no way takes away my support for the series of amendments in this group tabled by the noble Baroness, Lady Hayman, which is a far more satisfactory way of embedding the net-zero target and nature loss into the Bill. She has already introduced her amendments in such comprehensive style that I have little left to say on them.

In any case, let me turn to those amendments in the names of the noble Baroness, Lady Hayman, my noble friend Lady Northover and the noble Lords, Lord Vaux of Harrowden and Lord Randall of Uxbridge. I strongly support their Amendment 44, as well as the consequential Amendments 53, 56, 62 and 68. That is because Amendment 44 would introduce a climate and nature secondary objective for the FCA, alongside the competitiveness and growth objective. That has to be the correct place for this objective. It must be clear that it is an overarching objective for the two most important regulators in the financial space.

Government is as government does. Failure to put in place firm rules on the drivers of the economy, the institutions of the financial services and markets sector, would be irresponsible on the part of the Government. The reason why this is important is because there will inevitably be difficult decisions ahead, where the fork in the road points one way to a short-term gain but with negative effects on the environment while the other fork points to a safer, greener investment that will mature later but will be beneficial to future generations. Decisions must be made to favour the greener, more sustainable path. There must be no incentive to take the quick buck to the detriment of the carbon budget or nature.

Amendment 65 in the name of the noble Lord, Lord Tunnicliffe, is not in this group and will appear later. However, it is interesting because it probes such a dilemma, albeit from the point of view of potential conflict between primary and secondary objectives. I look forward to the debate on that amendment.

Where in the Bill are the safeguards for future generations, the respect for nature and the recognition and acceptance of the findings of the seminal Dasgupta review? Nowhere. It unleashes the power of money to do its worst and seek short-term profit. I say to the Minister, for whom I have a great deal of respect, that a reference to the medium and long term does not cut it without clear direction to the financial sector that green growth and international competitiveness in long-term, net-zero and nature-compatible investment is where sound investment decisions must be directed.

In the US, the IRA—the Inflation Reduction Act—is showing the power of government to unleash private investment into this century’s big growth opportunities. All that UK investors need is a regulatory nod from the Government, then they will take money to where it can deliver good green growth. Growth is the holy grail and future growth will be green; of that, there is no doubt. We will let UK Ltd down big time if we do not put in place policy and regulatory levers to deliver the confidence that business needs to move forward.

In the blink of an eye, the US has transformed international investor confidence in renewable energies. The EU will follow suit. Where are we in giving the clear direction that business is calling for? Chris Skidmore’s review and the report from the Industry and Regulators Committee by the noble Lord, Lord Hollick, made it clear that there is a large quantity of money waiting for a clear signal from the Government to invest in the UK. In the words of the Minister at Second Reading,

“this Bill is a landmark piece of legislation—the most ambitious reform of our financial services regulatory framework in over 20 years.”—[Official Report, 10/1/23; col. 1331.]

Our Government cannot let this historic opportunity pass by without adding those words to a third secondary objective: climate change and nature.

I have added my name to Amendment 208 in the name of the noble Lord, Lord Tunnicliffe, for the simple reason that the Government have stated their ambition for the UK to become the world’s first net-zero financial sector yet we are still waiting for an updated green finance strategy. For the regulators to be able to do their job on net-zero and nature targets, we must have sustainable disclosure requirements and a green taxonomy.

Finally, I support the amendment in the name of my noble friend Lady Northover, which seeks to place a requirement on the PRA and the FCA to report on the ways in which they have promoted and incentivised green finance and green investment. It would be very useful if that information were placed in Parliament.

To conclude, we do not have the luxury of waiting another 20 years for the next financial services Bill. This is the Bill that will decide whether the transformative change that we need in our big investment decisions gets the nod from the Government. The answer has to be yes.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise to speak to Amendment 69A in my name and briefly express my support for all the other amendments in this group. They have been very ably and clearly introduced.

I had something of a flashback to the Pension Schemes Bill, which was the first time I spoke in this Room. I believe that that was the first time that climate had ever appeared in any finance Bill. The noble Baroness, Lady Sherlock, did a great job of supporting me through that: I had no idea when to speak so she gave me a nudge with her elbow. That was three years ago. We have now got to the point where we are trying to get nature to join climate, which is so obviously necessary.

As you might expect from a Green, my Amendment 69A goes further. I do not know whether the Minister can respond to this but the fact is that the economy and financial system are complete subsets of the environment. There is no financial system on a dead planet, to amend a phrase. All the amendments on climate and nature are clearly essential but we know that they do not fully cover the way in which we are breaking the limits of this planet.

Financial Services and Markets Bill

Baroness Bennett of Manor Castle Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Baroness Bennett of Manor Castle (GP)]

My Lords, having been in your Lordships’ House for a little over three years, I am now on my second financial services Bill, and I have to welcome the level of engagement we are seeing today. I was quite new when the last one happened, and it was in the depths of Covid, but the breadth and quality of debate was not an advertisement for the House. There seemed to be a view that financial services regulation could largely be left to the bankers, hedge fund managers and insurance brokers, yet already today we have heard from the noble Lord, Lord Forsyth of Drumlean, how anyone concerned with house prices should be looking to regulate the financial sector to prevent it being an accelerator of prices rather than a funder of secure, affordable homes. The most reverend Primate the Archbishop of Canterbury said that anyone who wants the banks actually to serve the real economy of small businesses, to which lending has effectively stopped, should be concerned with financial regulation; and of course, anyone who wants a liveable planet with a healthy natural world should be concerned with financial regulation, as the noble Baronesses, Lady Sheehan and Lady Hayman, among others, have highlighted.

We have a financialised economy, including everything from care homes to health provision, public transport to housing, tax dodging to serving oligarchs and plutocrats. Every Member of your Lordships’ House, whatever they regard as their speciality, whether it is alleviation of poverty or delivery of better health education, should be concerned with this Bill, and every member of the public should be concerned with this Bill. So I am going to agree for a second time with the noble Lord, Lord Forsyth, that the official Opposition would be letting the Government and the financial sector off the hook if our Committee stage was consigned to the murky obscurity of the Moses Room. That is, of course, perhaps unsurprising behaviour, given the Times report that the leaders of our official Opposition are heading off to Davos to send a message to the super-rich that Labour is the party of business.

Noble Lords might expect me to focus on nature and climate, but others, most notably the noble Baroness, Lady Sheehan, have already covered at length the “dismissive view” that this Bill takes of the very foundation of our economy, that on which every penny of our banks and every pound in a worker’s pocket depends: functioning ecosystems. But I shall take a more systemic and structural view: what is the financial sector for and what is the economy for? The economy should be in the service of a healthy, prosperous and sustainable society. The financial sector should be a tool for that type of economy, and this Bill should redirect our financial sector towards that. Instead, we have a primary objective of competitiveness. More finance is the aim—snatching it from other nations and growing what we have when we already have too much finance.

The noble Baroness, Lady Penn, in her introduction, proudly boasted that 2.3 million people are employed in the financial sector. We really need to change our thinking here. Human resource is a scarce resource and should be used well. A holder of a maths PhD creating the next complex financial instrument to break the global economy is not an example of it being used well. That person could be improving our health, securing our food supply or increasing the sum of human knowledge. Letting the financiers rip, seeking to lead a global race to the bottom on regulation, when lack of regulation is a huge threat to the security of us all, is heading 180 degrees in the wrong direction.

I could illustrate that point in many ways, but I am going to pick one example—the proposals on position limits in Schedule 2, on page 124 of the Bill. For those in the know, I mention the London Metal Exchange nickel debacle. Some might have read the recent European Economic and Social Committee cry from the heart about much greater regulation of food and commodity trading. As it and many others are identifying, that is a major factor in inflation, hitting every household in the UK and around the world today. A few are profiting while the rest of us pay.

Many commentators—among them I highlight Ann Pettifor, in the Financial Times and elsewhere—are suggesting that commodity derivatives could be the next big systemic risk, because they are so under-regulated. Global commodity markets involve an annual volume of at least $700 billion in buying and selling, with trillions in derivatives piled on to that.

Finally, if we grow the financial sector, we also grow corruption. The City of London is the global centre of corruption. If you do not want to believe me on that, I quote from a debate secured by my noble friend Lady Jones of Moulsecoomb. The noble Lord, Lord Evans of Weardale, chair of the Committee on Standards in Public Life, said that

“we have clearly, as a matter of policy, turned a blind eye to the perpetrators of corruption overseas using London for business”.—[Official Report, 13/10/2022; col. 156GC.]

If we grow the financial sector, we grow global corruption —that is the reality.

Financial Markets: Stability

Baroness Bennett of Manor Castle Excerpts

Thursday 3rd November 2022 Lords Chamber

[Baroness Bennett of Manor Castle (GP)]

My Lords, I thank the noble Lord, Lord Sharkey. It is very tempting to use the opportunity he provided to reflect on the immediate impact of the reckless unleashing in September of failed 1980s policies built on a fundamental misunderstanding about the nature of markets—which are not some abstract, immutable, timeless force but a human creation shaped by human-made rules and, as ours are now constructed, subject to wild irrationality and mindless seeking of short-term profit without any concern for long-term costs, structured so that a few benefit and the rest of us pay.

But I am not going to do that. Instead, I am going to focus on stability, which the noble Lord asks us to contemplate with reference to the obvious recent impacts of instability on pensions, mortgages and the rental market—to put it another way, on the provisions of the essential needs of life, or the needs for survival.

Stability demands resilience and resistance to shocks. It is not just our financial markets that need resilience but our entire society in this age of shocks: pandemics; geopolitical earthquakes; the climate emergency and nature crisis; and demographic shifts such as our ageing population. In the past we tried to deal with such issues with stress tests. To quote the Deputy Governor of the Bank of England, Jon Cunliffe, in a recent letter to the UK Treasury Select Committee,

“the scale and speed of repricing leading up to Wednesday 28 September far exceeded historical moves, and therefore exceeded price moves that are likely to have been part of risk management practices or regulatory stress tests.”

A stress test can only ever be as effective as the stress that it can imagine, and we are now in an age of shocks like we have never seen before.

The right reverend Prelate the Bishop of St. Albans asked whether we should not have better stress tests but, practically, this is not enough. No one truly understands the current system and, as the noble Lord, Lord Sikka, so powerfully outlined, we have an innately risky and unstable system that is absolutely stock-full of fraud and corruption, as well as a lack of transparency.

It might be said that maybe this is the price we have to pay to live in a modern society. As the noble Lord, Lord Sharkey, said, I think it is worth looking back to the excellent House of Lords Library briefing here, which—I think rather pointedly—started by quoting the Bank of England’s definition of financial stability. It says that it is

“the consistent supply of the vital services that the real economy”

needs. Those are the human needs that the noble Lord’s questions refer to: the need for a roof over your head and for an income when you are old so that you can feed yourself. We can look again to the Bank of England’s website to ask: what are financial markets for? The Bank of England says that

“financial markets … exist to bring people together so money flows to where it is needed most.”

Let us think about where money has been flowing. If we go back to 2007-08, where did money flow? It flowed massively into the banks, to rescue them. At that moment, that had to happen or the cash machines would have stopped working and no one would have had any money to buy their food, et cetera. But what happened after that? The money stopped flowing to our essential public services; it stopped flowing to the basic benefits that keep people alive.

I invite noble Lords to imagine an alien landing on Earth today, in the UK. Where does money need to flow? Obviously, it needs to flow into households that are struggling to heat their homes and feed their children; into schools contemplating a four-day week because they have not got enough income; and into hospitals with queues out the door. But where is it flowing? It is flowing to tax havens and rich men’s yachts; it is swilling around and around in the City of London.

To give some figures, according to the Bank of England, lending from banks to the non-financial sectors accounts for only 20% of their balance sheets. The rest is interbank claims: money swilling around and around in the financial sector. Now, that figure excludes trading derivatives, which are often several times larger than banks’ balance sheets. The fact is that on banks’ balance sheets, their loans make up a tiny proportion of their total banking interests. Two-thirds of the non-financial lending goes into mortgages, pumping up prices, and the rest into business assets, again pumping up prices.

The Treasury directed the Financial Conduct Authority in the last financial crisis to make financial markets work well. If they work well, they have to serve the real economy, which they patently and clearly are not doing now. They are risking the secure future of us all.

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[Baroness Penn (Con)]

I cannot confirm that, but I am sure that when that Bill comes to this House, we will spend sufficient time scrutinising its provisions and ensuring that they deliver the outcome that we all want—a stronger financial services sector—which is important not just for the City of London but for people’s everyday lives in the country.

[Baroness Bennett of Manor Castle (GP)]

The Minister referred to the amount of employment from the financial sector, which, by my figures, is about 7% of total paid employment, meaning that 93% of people are not working in the financial sector. If the Government are focusing their efforts on increasing the financial sector while failing to meet the needs of the sectors of the economy that provide 93% of jobs, are we not all losing out?

[Baroness Penn (Con)]

I do not believe that that characterisation is right. Ensuring that we have a strong financial services sector also benefits many other parts of our economy in terms of access to capital, and many other things. It does not need to be at the expense of the rest of our economy. It strengthens the rest of our economy.