Green Finance

Baroness Kramer Excerpts

Monday 5th March 2018 Lords Chamber

[Lord Bates]

We are thinking about it because there is quite a lot to think about. The issue is, first of all, whether the Government should be launching these bonds while the market itself is growing quite dramatically. Five years ago, there were virtually no green bonds, or a very limited amount, but now their issuance is $160 billion globally, with some $200 billion predicted for this year. That is happening. Secondly, the Debt Management Office would have to look at whether there is a sustainable demand for hypothecated bonds, in this case. It is not something that we have tended to issue, nor have previous Governments—we tend to operate through gilts. Therefore, it is right that we listen to the expert advice that we receive and then act upon it.

[Baroness Kramer (LD)]

My Lords, I encourage the Government to take on board the warnings that Paris and others are surging ahead in this market because of their willingness to establish that base through green sovereign bonds. I suggest to the Minister that ordinary people would like the opportunity to invest in green and sustainable investments. Will the Minister turn to the NS&I and ask it to make available for ordinary people a scheme that would let them invest in some sort of green investment or savings scheme?

[Lord Bates]

The last point in particular is very interesting and it is certainly worth the NS&I looking at it. Again, that comes within the remit of the Green Finance Taskforce. It was asked to look at intuitional barriers to green finance but also at retail. All that is very much in its remit, and we would encourage it to look at those issues.

Sanctions and Anti-Money Laundering Bill [HL]

Baroness Kramer Excerpts

Committee: 3rd sitting (Hansard): House of Lords
Wednesday 6th December 2017 Lords Chamber

As with sanctions, legislation of this type can create collateral damage to innocent people and requires the utmost care. Due to its all-or-nothing nature, regulation is not adapted to do that. Nor does the Bill, or Clause 41, provide the stable policy environment post Brexit that was promised. What the Government have provided, with sweet words about no policy change, is a wolf in sheep’s clothing, even if the Government did not intend to be a wolf.

[Baroness Kramer (LD)]

My Lords, I support the thought process behind the amendment of the noble and learned Lord, Lord Davidson, and the noble Lord, Lord Collins, and I also support my noble friend Lady Bowles. I do not think that I can better the explanation that she has given but perhaps I can reinforce a few of the key points.

Clause 41 has a huge impact on the balance of power between this Parliament and the Executive. Historically, the laws that have governed not the crime of anti-money laundering but the anti-money laundering regulations that provide the network with which to prevent money laundering have gone through an intensive democratic process within the European Union. They have gone through consultation, scrutiny, debate and votes within the European Parliament, and through discussion and presumably votes within the Council. The consequence has been a directive from which flows implementation within the UK through regulation, but only in the context of the very extensive democratic scrutinising and challenging process that has taken place beforehand.

In this transposition, that entire democratic process is destroyed in Clause 41—it disappears entirely. The process that has taken place in the European Parliament and the European Council and its various committees, as well as in the consultation and everything that surrounds it, disappears to be replaced purely by statutory instruments. That is a fundamental shift in the balance of power between a democratic body and an Executive body. I thought that the whole purpose of Brexit was to take the powers that lay with the European Parliament and the Council and to transfer them to this place, not to transfer them wholly to the Executive so that they could use that very narrow strategy of regulation. As my noble friend pointed out, this goes deep and wide. There are no frameworks and no constraints within the Bill that limit the range of powers that it essentially conveys and confers upon the Executive.

The Delegated Powers and Regulatory Reform Committee obviously responded with great vehemence to all this. It concluded:

“We take the view that the FCO”—


the committee saw it as a Foreign Office Bill but I think we may get a response from the Treasury—

“has not provided sufficient justification for the delegation of powers by clause 41, particularly having regard to their wide scope and the significance of the powers conferred. Accordingly we consider the delegation of powers by clause 41 to be inappropriate”.

When we have talked—the Minister has been kind enough to agree to meetings with him and his officials—the argument that has been placed before us is that this enables us to act with speed because speed is essential in the anti-money laundering arena. I think we can all agree that speed and the processes of the European Parliament and Council are not tangled together. If the European Parliament and Council feel it is appropriate to take the time and focus to develop the policy framework then surely there is no urgency for the United Kingdom to throw it away simply to be able to move directly to regulation.

As my noble friend said, it is quite possible within the amendments she has drafted to carve out the small arena in which speed might be relevant. It is limited. It is rare. It might happen and it can be carved out without requiring the rest of the framework to be dismissed and abandoned for a purely regulatory process.

When we had those meetings, my understanding was that one of the reasons for drafting Clause 41 in this way was to allow the consequences of the fifth money laundering directive—which is currently in process in the European Parliament and Commission; I think it is in trialogue at the moment—to be implemented in the UK. That process has taken a sufficiently long time that it seems perfectly possible for it to go through a process within this Parliament with its democratic background. We will probably have those regulations in place before Brexit—perhaps with the possibility of a spillover. I believe that, for those specific regulations, that is something that could very quickly be accommodated. What is fascinating, though, is that if that were the Government’s purpose, there would have been a very tight sunset clause for this—perhaps one of days or a few weeks—but there is no sunset clause. This process of acting through regulation and not through democratic process would be in perpetuity.

I want to pick up the comments from the noble and learned Lord, Lord Davidson. When I speak with these Ministers and with the Opposition today, I understand that they have a personal commitment, and I believe the Government have a commitment, to strong but proportionate anti-money laundering processes. It is because of that personal commitment to proportionality and good regulation that they have felt it completely unnecessary to enshrine those two factors in the Bill. I like very much the phrase that the noble and learned Lord, Lord Davidson, used. When I say we are talking to sheep, I mean it only in the benign sense of sheep—I think sheep are lovely; I do not mean it in a passive way. However, the framework of a Bill designed around those who have benign intentions will provide equal power for those who do not have benign intentions. I think every one of us in this House has often had conversations with people—particularly in the City of London, where I spend a certain amount of my time—who believe that it is absolutely necessary to go back to light-touch regulation and that we are overly fussed about issues such as money laundering and really do not understand the dynamics of modern business; and that it might be necessary for our future, post Brexit, to move to something that is much looser to ensure that London remains attractive. I attribute none of that to the Ministers who are sitting here. But they must recognise that they have permitted the inaction of just such an approach through regulation alone by the language they have put in the Bill. I have no idea if Clause 41 and the related clauses have been drafted in this way simply because there was very little time and, frankly, very little effort put into them, or whether there was a fundamental attempt to achieve a transfer of power. If it was the latter, it is crucial that Ministers tell us why this particular structure has been chosen.

[The Minister of State, Foreign and Commonwealth Office (Lord Ahmad of Wimbledon) (Con)]

My Lords, I thank noble Lords for introducing their respective amendments. I recognise, as I did at Second Reading, that there has been a good deal of interest in the anti-money laundering provisions of the Bill. In that regard, noble Lords may have noticed—and I am delighted—that I have been joined by my noble friend Lord Bates beside me on the Government Front Bench. I shall defer to him for some of the groups that we will discuss today.

Importantly, I hope this emphasises three things to the Committee: first; the Government’s cross-Whitehall and collaborative approach to the Bill; secondly, the Government’s recognition, as I said, that this is an important Bill and our desire is to get it right; and thirdly, as I hope noble Lords acknowledge—I know I speak for myself and my noble friend—that the Government deeply value what this House brings to discussions and scrutiny and equally respect its role in this regard. That is also true of today’s Committee. We have therefore ensured that appropriate Ministers are present to listen to the points raised by noble Lords.

The description of a wolf in sheep’s clothing took me back to reading the story of the Big Bad Wolf to my three and five year-old children. I assure noble Lords that there are no surprises in the Bill. The intent is very clear. I shall also provide greater detail in laying out the context behind the Government’s response to the amendments before us because that is important to your Lordships’ Committee.

Amendments 68ZA, 68ZB and 68ZC propose that regulations made under Clause 41 may be made only for the purposes of improving the detection, investigation or prevention of money laundering or terrorist financing, or for improving the implementation of international standards published by the Financial Action Task Force. I agree with the intention behind these amendments. This Government and our predecessor have, since 2015, led the way in combating money laundering and terrorist financing. Earlier this year, we brought the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 into force, ensuring that our anti-money laundering and counterterrorist financing regime met the global standards set by the Financial Action Task Force. We are the only G20 country with a public register of company beneficial ownership and, through the Criminal Finances Act 2017, we are taking further action to permit banks to share information relevant to identifying financial crime.

The United Kingdom plays an active role in shaping the international standards set by the Financial Action Task Force, and has done so since it was first established in 1989. In view of the UK’s clear intentions and long record in leading the way in this area, and taking particular account of the commitment shown by this Government and our predecessor, I do not think these amendments are required to take us any further forward. I am sure that the noble and learned Lord, Lord Davidson, and the noble Lord, Lord Collins, would agree that, realistically, no Government would bring forward regulations under Clause 41 to weaken our abilities to detect, investigate or prevent money laundering or terrorist financing, or worsen our compliance with international standards. Therefore, I hope the noble and learned Lord may be minded to withdraw his amendment.

Turning to Clause 41 in more detail and Amendment 68A, I understand that Amendments 68A, 69A and 69E—tabled by the noble Baroness—seek to protect the current anti-money laundering regime. That is set out in the 2017 money laundering regulations—I set out the full title earlier and will not burden the Committee with it again—which implement the EU’s fourth money laundering directive. Although I sympathise with that intention, I hope I can reassure the Committee that the level of protection afforded by these amendments is excessive and may have unwelcome effects.

Current regulations on money laundering and terrorist financing follow the internationally agreed standards set by the FATF and impose granular obligations on regulated firms. The UK has chosen to follow the FATF standards as anti-money laundering regimes are more effective where they are aligned internationally. That is a general principle accepted by noble Lords. As a general point, the precise nature of the obligations contained in regulations, such as detail of how firms should approach conducting due diligence on their customers and the factors they should take into account in assessing risk, is better suited to secondary legislation than primary.

That follows the approach typically taken in the UK and elsewhere to establishing detailed obligations on regulated firms. For example, the UK transposition of the fourth EU money laundering directive was given effect through primary legislation, for matters of a general nature—including existing provisions of the Proceeds of Crime Act 2002, the Terrorism Act 2000 and the Anti-Terrorism, Crime and Security Act 2001—with more detailed requirements on firms relating to, for example, their approach to due diligence and identifying beneficial owners being made in the 2017 money laundering regulations. A similar approach to transposition was taken by other EU member states.

To provide more detail on the UK legislation relating to the prevention of money laundering, the Proceeds of Crime Act 2002 establishes the general obligations on the regulated sector to report details of transactions that give rise to suspicion of money laundering or terrorist financing. Part 7 of that legislation additionally establishes the substantive money laundering offences relating to the concealment, acquisition, use and possession of criminal property. The 2017 money laundering regulations establish further and more detailed obligations, such as how firms should conduct due diligence on customers, establish and maintain group-wide policies and procedures, and assess risk connected with different customers. Unlike the provisions contained in POCA, those obligations are better suited to secondary legislation, given the detailed requirements that they impose on firms and the need to keep the detail of such obligations updated, to address emerging risks.

An example of the need to address emerging risks can be found through the rapidly evolving policy framework at EU and international level. As noble Lords will be aware, the EU’s fourth money laundering directive was largely transposed into UK law in June via secondary legislation, through the money laundering regulations, as I have said. Yet noble Lords will also be aware that amendments to the fourth money laundering directive were being negotiated even before EU member states had transposed the original directive, demonstrating that anti-money laundering and counterterrorist financing standards can evolve at a rapid pace. The noble Baroness, Lady Kramer, made the point about the justification that the Government are giving and continue to give in this regard: to quickly and effectively address emerging risks and ensure that the UK is a hostile environment for illicit finance, it is right that we use secondary legislation to implement future policy changes. That will ensure that the UK stays aligned with the evolving international standards in this area.

[Baroness Kramer]

I hope that the Minister can clarify something. He said that it is important to have access to regulation to reflect changing policy standards. Where are those standards? Are they in a piece of legislation? Are they up for debate in this House? Are they really what one Minister decides is policy? Perhaps he can explain that, because that is the missing piece—there is no structure for policy to go through a democratic process.

[Lord Ahmad of Wimbledon]

As I have already indicated—and I will perhaps challenge the noble Baroness—when we take the legislation in a wider sense, whatever the legislation, there is primary and secondary legislation. As I have said before on secondary legislation, the procedure being put forward by the Government would allow that policy to be stated and debated in both Houses of Parliament.

I shall finish the point. In terms of existing money laundering, I have already alluded to the fact that with the previous directive the money laundering regulations laid out the detail to which the noble Baroness refers.

[Baroness Kramer]

I must press the Minister on this. He used the word “allow”. I am sure the Government can do what they wish in that sense and can bring forward primary legislation, which this is. Will the Minister confirm that it does not have to go through primary legislation? The—in effect—primary legislation that sits behind the 2017 regulations that he described took place within the extensive process of democratic debate, scrutiny and votes in the European Parliament. I am trying to understand where that piece goes in this legislation.

[Lord Ahmad of Wimbledon]

My Lords, once we leave the European Union—and I notice the change in tack from the noble Baroness who said “when” and not “if” any more—

[Baroness Kramer]

It was an error on my part. The more we go into this discussion, the more “if” sounds realistic.

[Lord Ahmad of Wimbledon]

The noble Baroness knows how much I care for the accuracy of Hansard. She has clarified that.

In this case, the Government’s view is that there will be scrutiny of all future legislation once we have left the European Union. The Government will decide what element of policy that is subsequently translated into legislation will appear as primary legislation or as secondary legislation. However, for the purposes of this Bill, which I will come on to in a moment, there are certain elements that we are laying out in primary legislation and in secondary legislation. In both cases, after we leave the EU it will not be scrutiny in the European Parliament but scrutiny in this Parliament, and the Government will ensure it. I ask the noble Baroness to reflect on this point. When I come to the more substantive comment, if she will allow me, there are mechanisms within secondary legislation to allow for the effective debate to which I alluded at Second Reading.

To get back to the point that I was making—perhaps we differ on this and I acknowledge what the noble Baroness says—we believe that in order to address emerging risks quickly and effectively it is important to ensure that the UK is a hostile environment for illicit finance. This is consistent with the broader regulatory regime relating to financial services, for example, which also requires swifter tools that can be more readily updated to address emerging risks than primary legislation. A similar approach to implementing the standards set by the FATF is applied outside the UK in countries such as the United States. There, the Currency and Foreign Transactions Reporting Act 1970 imposes requirements relating to the reporting of suspicious transactions and so is broadly analogous to the Proceeds of Crime Act 2002. The detailed requirements of the international standards relating to areas such as due diligence and record keeping are then established through regulations promulgated by the Financial Crimes Enforcement Network, housed within the Department of the Treasury.

The Government are committed to parliamentary scrutiny of legislation made through delegated powers as we leave the European Union. This is the point I wish to make to the noble Baroness. I have made it before, but I hope it will reassure some, if not all, noble Lords that regulations made under Clause 41 will be subject to the draft affirmative procedure, unless they update the list of high-risk third countries, in which case they will be subject to the made-affirmative procedure. I made this point previously. I emphasise that updates to the list of high-risk countries will still require parliamentary approval, but they need to be put in place swiftly, as I am sure many noble Lords accept, so that banks and businesses can start to apply the enhanced due diligence measures which are appropriate for these high-risk areas.

The use of secondary legislation to amend anti-money laundering and counterterrorist financing regulations is consistent with our legislative approach in the past. The noble Baroness, Lady Bowles, raised the use of secondary legislation with certain Acts, but in general that is not new. I believe I have already made this point, but it was used, for example, to put the money laundering regulations 2017 in place following the fourth money laundering directive. It also provides consistency with our approach to regulations related to financial services and ensures that our anti-money laundering and counterterrorist financing regime remains consistent with internationally agreed standards. It also avoids the unusual position whereby secondary legislation made by a Minister cannot be changed without primary legislation made by Parliament. I hope that I have convinced the House that Amendment 68A is unnecessary and would place an excessive burden on legislation that needs to be flexible and capable of rapid change.

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[Lord Freeman (Con)]

My Lords, I very much support the comments of my noble friend Lord Hodgson. As the Minister knows, at Second Reading I very much supported the sentiments which have been expressed so clearly by my noble friend. Indeed, I believe that the proposed new clause in this amendment is very much in line with government policy. If there is a meeting, I hope that I might be included in it along with other colleagues.

[Baroness Kramer]

My Lords, everything that can be said has been said brilliantly. I hope that we will get an update from the Government which convinces us that this issue is back on track.

[Lord Collins of Highbury (Lab)]

My Lords, I note that the Minister was about to stand up but I cannot allow him to jump in so soon.

I congratulate the noble Lord, Lord Hodgson, on moving this amendment. I was disappointed that the noble Lord, Lord Faulks, was not present but he has done a grand job and a very persuasive one. Like my noble friend, I congratulate the former Prime Minister, David Cameron, on initiating consideration of this issue. We are talking not just about government policy but about a government commitment. The noble Lord, Lord Hodgson, is absolutely right—there is no better place than this Bill for this commitment to be delivered. That is why we wholeheartedly support this amendment.

I am glad that the noble Lord, Lord Bates, will respond to the amendment because he knows only too well the cost arising from this money flooding into London. We talk about the impact on London property prices and about corruption but we know that the poorest countries lose an estimated trillion pounds a year through tax evasion and corruption. The poorest in our world suffer as a result. That is why we must see the Government deliver on this solid commitment. My noble friend gave clear examples of what is happening and we have received briefs from Transparency International, but you have only to look down the river from the Terrace here to see St George Tower, a fantastic round tower. Two-thirds of it is in foreign ownership and a quarter is held through offshore companies based in tax havens. We only have to look there to see what is going on. This was a commitment of the former Prime Minister and it is an appropriate Bill. The commitment was that it would be introduced by April 2018.

We have heard how long it is since the consultation was concluded. The sad fact that the consultation has not been published is a bit of an indication about the timetable for any proposed legislation. We have an opportunity here and I hope the noble Lord, Lord Bates, will take it up. In previous Committee sittings we heard from the noble Lord, Lord Ahmad, about how he has been in listening mode and will take the opportunity to take this away. This is a perfect example of how we can deliver on a clear commitment made by the former Prime Minister.

Regarding commitments, at the Anti-Corruption Summit there was also a commitment to update the anti-corruption strategy by the end of 2016. That strategy is now long overdue. I hope the Minister will take the opportunity to say how the Government are committing to this general, overall strategy, because all these things are linked. I look forward with interest to hearing from the Minister how this commitment will be met.

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[Lord Bates]

My Lords, I thank the noble Baroness, Lady Bowles, for introducing this amendment; she brings her own expertise in this area from her role in the European Parliament. That was evident in the way she went through a very complex issue, and I will come to the response on that.

These amendments propose creating a new corporate criminal offence for the failure to prevent money laundering, and launching a public consultation within six months of this Bill receiving Royal Assent regarding possible further reform of the law relating to corporate liability for money laundering, terrorist financing and offences which pose a threat to the integrity of the international financial system.

I understand and sympathise with the need to ensure that policies are in place which effectively prevent money laundering. However, I hope that the Committee will agree that it is of paramount importance to consider the evidence and current context before creating a new corporate offence, as the noble and learned Lord, Lord Davidson, invited us to do before introducing this element. He referred to the Ministry of Justice call for evidence earlier this year on potential reforms of the law relating to corporate liability for economic crime. Indeed, one of the options considered within that call for evidence was the potential for creating a corporate criminal offence of failure to prevent economic crime. I am sure the Committee can see the overlap with the new offence proposed by Amendment 69B and the provisions of Amendment 69C. The Ministry of Justice is considering the responses to its call for evidence, and will publish a response in the new year.

I should say that the responses to these consultations are like buses: you wait for a few months and then three of them come along together. The other one is of course on our anti-corruption strategy, which the noble Lord, Lord Collins, referred to. I mention it in this context to say that my noble friend Lord Ahmad and I have just been discussing it, and we will seek to provide a substantive update on progress towards the strategy by Report in the new year. Of course, because some of the consultations are outstanding, some of the elements of that strategy may need to wait until they are clarified.

[Baroness Kramer]

Just for clarification, is the Minister saying that before Report he will be publishing the MoJ’s response to its consultation? He said it would be in the new year.

[Lord Bates]

I did say the new year, but I was talking about two different things. That is my fault. The MoJ consultation response will be published in the new year—that is what we have said. Earlier the noble Lord, Lord Collins, asked what had happened to the anti-corruption strategy, which is an overarching approach by the Government. I was saying that after discussing that with my noble friend Lord Ahmad, who leads on these matters—

[Baroness Kramer]

Can I clarify that the MoJ response to the consultation will not be available before the Bill has completed its process through this House?

[Lord Bates]

The new year is the new year. I do not want to prejudge when that response might be. I have said enough, basically; obviously we are trying to respond to noble Lords’ questions on these matters as fully as we can, but that is as far as I am able to go at this point. What I was saying about the anti-corruption strategy was that we will seek to provide a substantive update by Report.

I hope the Committee can agree that it would be precipitous to introduce a further “failure to prevent” offence before we properly review this evidence. Similarly, this call for evidence substantively overlaps with Amendment 69F, proposing a new consultation relating to corporate liability for offences of the type referred to in Clause 41. It is right that we wait for the Ministry of Justice to respond to this call for evidence before undertaking a further public consultation that covers the same ground.

Further, the Government introduced corporate criminal offences of failure to prevent bribery, which the noble Baroness, Lady Bowles, referred to, through the Bribery Act 2010, and failure to prevent the facilitation of UK and foreign tax evasion in September through the Criminal Finances Act 2017. Consideration of the introduction of future “failure to prevent” offences should be informed by how those policies operate in practice. While the Bribery Act 2010 has been in force for a number of years, the relevant provisions of the Criminal Finances Act 2017 were commenced only in September of this year, meaning that as yet there is little evidence on how the offences established through that legislation are operating in practice.

I further note that many instances of corporate failures related to anti-money laundering are already captured by existing anti-money laundering legislation. The 2017 money laundering regulations, for example, already impose requirements to prevent money laundering on companies in the regulated sector, such as banks, lawyers and accountancy firms. Breaches of any of those duties by the company are subject to civil or criminal penalties, including fines. For example, firms are required to put and keep in place specific policies, controls and procedures to manage and mitigate effectively the risks of money laundering to their business, including by their clients or customers.

Those regulations, the previous regulations and related rules are well enforced. For example, the Financial Conduct Authority fined Deutsche Bank £163 million in January this year for failing to maintain an adequate anti-money laundering framework, after its investigations revealed that a UK division of the bank had failed to take reasonable care to establish and maintain an effective anti-money laundering control framework. Further, in 2015 the Financial Conduct Authority fined Barclays Bank £72 million for similar failures in guarding against financial crime, noting that Barclays,

“did not exercise due skill, care and diligence”,

and,

“failed to assess, manage and monitor those risks appropriately”.

These financial penalties substantively demonstrate that effective and proportionate penalties are already applied to UK-regulated firms that fail to put in place proper systems and controls to prevent money laundering.

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[Lord Patten (Con)]

My Lords, rising for the second time during Committee, I remind the Committee, as on the previous occasion, that I have interests in the financial services world. Having declared that, I must also declare that I love the new concept that the noble Baroness, Lady Bowles, has introduced of not a probing amendment but a “probing probing amendment”, which is exactly what Hansard will, now that I have repeated it, have to record tomorrow for posterity. This will go down over the centuries and may be multiplied in many more ways.

I am fascinated by the point that she made about the read across from EU directives, but I rise to make a “probing speech”—I am more modest—about whether we need to take account in our discussion in Committee today of the announcement that the EU made only yesterday, 5 December, when the Economics Commissioner for the first time blacklisted 17 countries for money laundering. This is the first time that the EU has ever done this. It included Barbados and Grenada. It also grey listed—that is, put on watch—a whole load more, including British territories such as the Isle of Man, Jersey, Guernsey, Bermuda and the Cayman Islands, for possible money laundering. Do we need to consider this? It is a listing, not a directive, but it is linked to what the EU specifically called “aggressive tax avoidance”, which is what we are very concerned about and do not want to see.

This is the first time that the European Union has gone into this issue. Commissioner Moscovici has urged all members to continue to agree on “dissuasive national sanctions”—believe me, Hansard, those are the words he used: “dissuasive national sanctions”. I thought that we had long ago done just this, in this country and in other international fora, when we produced endless lists of countries that should or should not be under the cosh of being blacklisted or grey listed. Do we need any more of this? Were we involved with the EU in discussing whether there should be blacklisting or “grey” listing of the countries? Did we try to dissuade it from going around the same old course again and making it very much more complicated in this first, highly immature step into such listings?

My probing question is: do we approve of what the EU has done? My second probing question is: does it relate to the Bill in any way, and should we be concerned with it, because I strongly support the Bill?

[Baroness Kramer]

My Lords, the noble Lord, Lord Patten, may be very interested in the next group of amendments, given the theme that he has just raised. He may have raised it because he cannot remain for that group, but if he has the opportunity, he will get a thorough response to the questions that he has just raised—possibly not from the Government, but certainly from other Benches.

I rise to explain the origin of this particular amendment. This came as a consequence again from the meetings that the Minister very kindly was able to offer to discuss the content of the Bill. The Minister will be aware of how strongly I feel about the importance of keeping the democratic process embedded in creating anti-money laundering legislation by essentially taking those powers that are undertaken by the European Parliament and the Council and transferring them to this Parliament, rather than to government Ministers and executive control. That is the underlying issue that essentially faces this Bill, and we discussed some of that earlier.

When we were in that discussion and proposed something very simple—the text of Amendment 68A, which took the existing 2017 regulations, put them on to the face of the Bill and then said they could be amended only by primary legislation in order to make sure that that democratic process continued—two primary issues were raised with us. First, it was said that sometimes action would need to be fast-tracked. We took care of that, as your Lordships who were here will remember, under Amendment 69A, which provided a fast-track mechanism for those moments of emergency. However, I notice from the Delegated Powers and Regulatory Reform Committee report that, when it probed to try to find examples of those emergencies, the FCO could not come up with a single one, which the committee was not very impressed by. But let us accept that there are times when there are emergencies—and there certainly is a role that FATF plays—so we made a carve-out for that.

The second issue that was raised with us was that it would be impossible to change in the Bill the language of regulations tied to the European Union and convert it over to a UK equivalent—that was almost too impossible for anybody who was sitting there drafting the Bill even to contemplate. The noble Baroness, Lady Bowles, who is a fearsome drafter, very rapidly took pen to paper and drafted an amendment which pretty much does that. She accepts that the amendment may not be absolutely perfect, but she does not have the resources or legal staff that the department has available to do the checks and complete conversions. I believe that this particular transposition took about an hour, and I think that anybody on the government Benches would agree that, in terms of making that shift, the amendment probably does 98% to 99% of what is necessary and is in need of only a little refinement.

The amendment makes it clear to the Government, since such a challenge was thrown down, that there is a very simple way—it is a relatively short new clause—to cover what, apparently, was one of the primary obstacles or difficulties for moving through the primary legislation route. This would leave the policy framework and principles in place as part of a democratic process, rather than requiring that all of those be abandoned and we just go to a regulation process on these very fundamental issues.

As my noble friend has said, these provisions can place great burdens on business and—we will come on to this later—can lead to the creation of criminal offences, with imprisonment for up to two years; can define the defences available against prosecution; can put in place new supervisors and change the powers of those supervisors; and can redefine every other piece of legislation that uses the phrase “terrorist financing”, using sweeping wide powers.

I understand the Government would have loved to have been able to do that in primary legislation but could not see a way through and was therefore forced to try and do this through a regulatory mechanism. This amendment is just one of those examples that makes it clear that it can be done, and I hope the Government will take it seriously.

[Lord Bates]

My Lords, I thank the noble Baroness, Lady Bowles, for doing this. I have to say that I am growing in awe of the noble Baroness and her drafting skills. Should there be any vacancy among the clerks in the Public Bill Office, they will be quite impressed by the notion that the noble Baroness can draw up this technical amendment in one hour—it is very impressive indeed.

My noble friend Lord Patten perhaps did the noble Baroness a disservice by saying that it was a “probing probing amendment”; I think it was a “very probing probing amendment”, which the record should capture. Having read through her handiwork in the drafting, I think she did not do herself justice. The amendment certainly provides a welcome opportunity—which is, I know, its purpose—for us to put on the record some further remarks about how we see this particular issue being addressed.

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[Lord Bates]

That is a good point.

[Baroness Kramer]

Can I just be helpful? I am sure that there will be a better note from the Box, but is the correct phrase “on notice” for the group that falls within the terminology of the grey list? Is that the correct terminology?

[Lord Bates]

That may indeed be a very helpful intervention from the noble Baroness, Lady Kramer. However, for the record, because this is a serious point, the note that I read out may not fully reflect the announcement to which my noble friend has referred. To make sure, I shall seek some additional clarification. The next group is very germane to the issue that he raises in relation to overseas territories. Therefore, perhaps without presuming on my noble friend too much, we may have some further information that will better answer that particular point.

In fact, a note has arrived, and I can say that the list published yesterday relates to tax. The EU maintains a separate list of countries which represent a high risk of money laundering and terrorist financing, to which UK firms must have regard. That may be part of the answer; more will come in the next group, if my noble friend can bear with us.

On the EU withdrawal Bill, which the noble Baronesses, Lady Bowles and Lady Kramer, asked about, Clause 7 is very clear—it is a power to remedy deficiencies in law that arise as a result of the UK leaving the EU, no more and no less. That is a level of certainty which I hope will offer some reassurance to the noble Baroness. We do not intend to make changes to the 2017 regulations other than to make those fixes. The 2017 regulations refer to guidelines issued by the European supervisory authorities. Amendment 69D enables those references to be removed only if they are replaced by references to those issued by the UK supervisory authorities. Those would cause additional work and a risk of duplication with other guidance. So, in response to that, and after what I am sure has been a very helpful debate, if not fully illuminating at this stage, I invite the noble Baroness to withdraw her amendment.

--- Later in debate ---

I beg to move.

[Baroness Kramer]

My Lords, it is a privilege to support this amendment. I, too, participated in the passage of the Criminal Finances Act, and I can say with complete confidence that, had it not been for wash-up, the amendment proposed by the noble Baroness, Lady Stern, would undoubtedly have passed this House, and I think it was evident to everybody, including the Government, that it would not have been opposed in the other place either. It would now have been in place in law, which would have been a very good result both for this country and for those who suffer from this combination of kleptocracy, terrorism and industrial-scale criminal behaviour.

I think we agreed in the House then that those activities, which are so distasteful to everybody here, can survive only because there are portals that enable that black money to be converted to white. We have a responsibility to close down each and every one of those portals; it cannot be done in one fell swoop, but we need to do as much as we can as rapidly as we can. Indeed, when we look at much of the instability and much of the suffering across the globe, if we cannot make it financially disadvantageous for those who carry out so much of this rotten and corrupt behaviour, we will have very little ability to make fundamental change.

This amendment has long and far-reaching consequences because it takes such a significant step in continuing the British leadership role in closing down those portals. This is one reason why I am speaking here today. Another reason is to raise the EU question—yet again. The noble Lord, Lord Patten, inadvertently brought the issue forward in the previous group, I think possibly because he had to leave—he is not in his place at this moment—and he thought it important to raise it. The UK in its role has, in a sense, almost worked in two ways. It has worked to put pressure on the overseas territories and Crown dependencies to move to central registers, which I applaud. That process is under way and, for some countries such as Bermuda, has been in place for many generations. Getting to central registers is a very important step in the process of trying to counter tax haven abuse and money laundering. I recognise all that and, in fact, it would be interesting if the Minister could update us on the point that that progress has reached.

The benefits of that process rely on those central registers then being accessible to enforcement agencies in this country and other locations. If they identify a potential criminal, they can then try to chase down whether they have assets hidden in various locations—in this case, particularly in the overseas territories and Crown dependencies. That is an important step, but I am conscious—as is everybody in this Chamber, I suspect—that our law enforcement authorities have very limited resources. An issue, a name, a crime has to come to their attention; there has to be something that indicates to them where assets related to that may be located and they then have to pursue that process. They may get responses very quickly but, if I were a kleptocrat or a criminal, I would reckon the odds were so much in my favour that no enforcement agency would ever find my name and be able to identify the information that was necessary to enable it to pursue me. The odds are overwhelmingly in favour of those who continue to abuse this and to hide their assets.

That is why a public register is so crucial. We as a country have recognised that ourselves. We have made our own register of companies public and transparent. That is a huge and important achievement. We did not do it lightly; we did it because fundamentally, we felt that it was absolutely necessary, and that simply saying that enforcement officials could seek information from the register was insufficient.

Initially, Prime Minister David Cameron intended that the overseas territories and Crown dependencies would follow very much in that direction. But since then there has been new resistance in many, though not in every one, of those locations. Their argument is that they dare not move any faster than the pace of overall international change in increasing transparency. We all recognise very long grass when we see it. Our contribution must be to use the powers that we possess, and the relationships that we have with our overseas territories—it is much more difficult with the Crown dependencies—to achieve that transparency and those public registers.

An additional, much smaller but not irrelevant, issue faces us now if we go through the process of Brexit. As my noble friend said earlier, the EU has become much more aggressive in trying to tackle issues around tax havens and money laundering. An article in the Observer on Sunday—I am sure the Minister read it—contained a fair amount of evidence that the British Government have used their influence to try to protect the overseas territories and Crown dependencies from appearing on the blacklist being developed, and even not to have them on the “on notice” list. In the end, on the “on notice” list are Guernsey, Jersey, the Isle of Man, Bermuda and the Cayman Islands: that is not the complete set of overseas territories and Crown dependencies, but many of them are on the list.

There is a general perception that some of those places might have made it on to the blacklist had there not been protection from the British Government. I do not mean that in a corrupt way, but there is a sort of—how shall we say?—professional courtesy that one member of the European Union offers to another in understanding its particular issues and concerns, and in holding back its hand. If we leave the European Union that will no longer be there. If those countries turn up on the blacklist, the consequences for them will be severe, and the consequences for us—as, in a sense, the overarching authority—will also be severe. If we leave we will be in the position of trying to negotiate a continued relationship in financial services that lets us sell those services across the European Union and keeps us, in a sense, as the primary centre for financial services for the EU and the continent of Europe. That will not be facilitated if we are seen as standing in the way of action that could bring about the transparency that is necessary.

I fully understand that we have often been ahead of the curve, and that is brilliant—but I am talking realpolitik here. With the EU catching up on the positions that we have taken, and looking at the crucial decisions that could be made if we were to Brexit, it becomes additionally important that we tackle this issue now. This is our only opportunity to do that in a timely way. So I hope very much that the Minister will look at this issue and all its complexities.

The noble Lord, Lord Hain, made a passionate speech earlier, and we were all shocked by the exposé that he brought so significantly to our attention. That simply underpins the fact that the amount of money involved, and the extent and dimensions of abuse in the world of finance—whether by kleptocrats, terrorist organisations or criminals—are enormous, and reach into every aspect of life. This is an issue that we have to take seriously: this is our chance to take another step forward in tackling it, and I hope that the Government will seize it.

Budget Statement

Baroness Kramer Excerpts

Monday 4th December 2017 Lords Chamber

[Baroness Kramer (LD)]

My Lords, there is one area where I completely agree with the noble Lord, Lord Rooker, which is that the big news from the Budget was the absolutely appalling growth rate. It is the worst in my lifetime—and I am old—and is expected to remain between 1.3% and 1.6% throughout the entire forecast period. It was the noble Lord, Lord Bilimoria, who pointed out that in just 18 months we have managed to go from the top of the growth leagues, at around the time of the referendum, down to the relegation zone, which is where we absolutely sit now.

The noble Lords, Lord O’Neill of Gatley and Lord Haskel, also came in on this, talking about how extraordinary it is at a time when our economic and main trading partners are firing on all cylinders. JP Morgan last week said that the economy of the euro area is “on fire”. It reports all key measures backing a euro area growth forecast of 3.1% of GDP this year. The CBI today made similar comments: a stagnant UK, a thriving eurozone and a global economy expected to achieve something in the range of 3.6% to 3.7% this year and next. It is an extraordinary situation. The drop in our growth rate together with the plummet of sterling has dropped us from the fifth-largest to the sixth-largest economy, and if India had not had a hiccup, we would have been seventh.

However, even that forecast is predicated on a successful Brexit with a frictionless trade in goods with the EU, no new constraints on the export of services including financial services from the UK to the EU, and new trade deals galore. It was the noble Lord, Lord Darling, who pointed out how unreal this all was, saying that the last thing our economy needs right now is Brexit. He was joined by the noble Lord, Lord Livermore, and my noble friends Lady Randerson and Lord Taverne. The one outlier in this was the noble Lord, Lord Dobbs—I could not possibly comment but the noble Baroness, Lady Donaghy, had him absolutely bang to rights. It was an excellent story of fiction.

I am a believer in industrial strategies, but the new industrial strategy was described by the Daily Mail as a “weak upgrade” with “feeble investment” in the economy. I think it is the first time that I have ever agreed with the Daily Mail, but we are facing critical problems in the industrial strategy, to which I will return in a moment.

As for the impact of the divisions within our society, the Resolution Foundation reports that the UK is facing the longest squeeze on living standards in 60 years, with the poorest 20% of families hit hardest. The noble Baroness, Lady Donaghy, talked about that, and the noble Lord, Lord Skidelsky, talked about the low-wage environment. At the weekend, as many noble Lords have mentioned, the entire Social Mobility Commission resigned in response to the Government being all talk and no action when it comes to tackling the deep and growing economic divisions in the country. Does the noble Lord, Lord Balfe, who asked where all the problems are, realise that there are £12 billion more in welfare cuts in the pipeline? There was a very minor amelioration of that number in the last Budget, but there are significant additional cuts, which are falling very much on families, especially on those with more than two children, and on the poor who are actually in work.

In many ways, the timing of this debate is perfect. In looking at that shocking forecast, though, we all agree that it is underpinned by a collapse in the growth of productivity in the UK. Actually it has been tepid for decades; it was running at a trend rate of 2% even before we hit the financial crisis. Still, productivity growth this year is only 0.3%, and in the end the OBR had no choice but to recognise that we would not at any time in the near future return to that 2% trend rate. Indeed, although it is forecasting not the 0.3% where we are now but something like 1.2%, many would say that recovering even to that level of productivity is indeed optimistic.

We all recognise what the elements are of improving productivity. However, my noble friend Lord Razzall talked about training and the Horlicks that has been made of the apprenticeship levy. It has not been a broadly discussed issue in this debate but I want to point out that, while I am totally in favour of T-levels, I am going to be dead before the youngsters training with them are playing a major part in this economy. We have to look at lifelong learning and upskilling people on a regular basis, and none of that was tackled in the context of this Budget.

Then there is the question of investment by business. The noble Lord, Lord Skidelsky, talked about investment, but private investment as well as public has basically fallen off a cliff. The noble Lord, Lord Livermore, pointed out that there was 0.2% growth in private investment in the last quarter, and we cannot survive on that kind of basis. In this context, I have a question for the Government. In the Budget, significant funds were announced to be funnelled through the British Business Bank to support small innovative businesses, but they seem to be pretty much the equivalent numbers to the amount that we are losing through our inability to tap EIF funds. Indeed, when I looked at the research, it seemed to be nothing more than an offset for money that we are losing from European research funds. Is there any additional money, or are we simply stepping in to patch up the losses that are coming because of our Brexit decision? That would be useful for everyone to know.

Overwhelmingly in this debate, one Member after another has talked about housing; I was going to try to name people until I realised it would be easier to name those who had not mentioned it. It was kicked off brilliantly by the noble Baroness, Lady Blackstone, but many others participated. There was a single message in all this—here I do not mean to be insulting; I am simply copying a slogan from the Clinton Administration—“It’s supply, stupid”. I wonder whether the Minister could put that on a piece of paper and tape it up inside the relevant departments. The demand side is not where the problem lies. Member after Member from a wide range of ideologies, from different parties and with a wide range of experience all talked about those fundamental problems. The noble Lord, Lord Beecham, and my noble friend Lord Shipley focused specifically on housing revenue accounts, but the discussion was far broader. Will the Government begin to notice when they hear so many voices in such chorus with so much evidence?

I return to the industrial strategy. There is a huge focus on innovation and new sectors, and that is absolutely necessary. However, there are two points here. First, the noble Lords, Lord Wakeham, Lord Carrington and Lord Haskel, pointed out that it was a very narrow perspective on innovation and that there are much broader issues around the fourth industrial revolution—artificial intelligence and the gig economy, and the impact that all of that will have. The Budget did not begin to tackle those kinds of complexities. Secondly—no one has mentioned this particularly, and that surprises me somewhat—I noticed that there was pretty much nothing for the small, steady businesses that are absolutely the backbone of our economy. That is where productivity is at its lowest and where, if the Government do not focus, make changes and invest in bringing in the capability to introduce innovation at that level, we will never get the change that we need in productivity and the growth rate that we need for our economy.

Brexit: Costs

Baroness Kramer Excerpts

Wednesday 29th November 2017 Lords Chamber

[Lord Bates]

I welcome the support that the noble Lord offered to parts of the Statement, but the Government have a specific responsibility, which Parliament has endorsed, not to release information that would undermine our negotiating position. We are in the midst of one of the most complex and important negotiations that this country has ever undertaken in peacetime. It cannot be right that we should have to give a running commentary that will be observed and undermine our negotiating position. We do not want that to happen. At the same time, we are very mindful that we have a duty to keep Parliament informed as far as possible. The position is that we are negotiating the best possible outcome that we can achieve. We have a particular target in relation to the Council meeting taking place in mid-December. We are making every effort and working in a good spirit towards a successful completion of that negotiation.

[Baroness Kramer (LD)]

My Lords, the £50 billion to £55 billion being discussed is the net sum of our unpaid bills and commitments, so will the Minister answer the Question and tell us the costs of Brexit: the cost of a complex new customs system and of replacing 39 regulators; the cost to business of losing “just in time” in trade; the cost to the public of the collapse in sterling; the cost of Christmas dinner, which is up by 20% this year; and the cost of financial services not being able to sell across Europe? Then perhaps we could understand the shape of the Government’s negotiation.

[Lord Bates]

I accept that there are costs, but there are also benefits that will come from Brexit. As for the costs, there is our net contribution of £10 billion a year. We have set aside £3 billion, which the Chancellor announced in the Budget, to prepare government departments and the devolved Administrations for all eventualities and outcomes. This is the right and proper way to implement a decision of the British people.

Finance Bill

Baroness Kramer Excerpts

3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Wednesday 15th November 2017 Lords Chamber

[Baroness Kramer (LD)]

My Lords, it has been a short debate—I am beginning to think that debates are in inverse size to a Bill, as is perhaps true in this case—but a fascinating one, and I am glad to be the first of the wind-up speakers. When the Minister opened this discussion of the Bill, he concentrated first on praising the Government for their action on tax avoidance. If he feels that action has been adequate, he will have heard within the context of this debate some additional ideas from the noble Lords, Lord Campbell-Savours and Lord Leigh of Hurley, and others, and I recommend that perhaps he follow some of the coverage of the Paradise papers. The tax avoidance community is constantly ingenious and always finds yet another loophole. It is about time that the Government looked again at the possibility of a general anti-avoidance rule rather than living as we do at the moment with a general anti-abuse rule, which limits our capacity to shut down many such operations in the early stages of their development. We are constantly playing a catch-up game with the specialists, and it seems that most people in this House would like to see that process change dramatically. I am not saying that there has not been improvement—there has been some closing of loopholes—but there is an incredibly long way to go before we get a grip on this, mostly because too much money is involved, which is a constant incentive to others always to look for yet another way to get around the latest measure that HMRC has managed to put forward.

On non-doms, I think that there is some frustration around the Bill in that all of us feel that each person should pay their fair share of taxes. The noble Lord, Lord Bates, was quite eloquent in saying that, and there has been a tightening up of non-dom regulation, but through a potential loophole with offshore taxes it almost feels as though there has been tightening with one hand and loosening with the other. This is an issue which for the purposes of public trust alone should really be taken off the table. It is important that the Government get a real grip of issues such as non-dom status. Taxpayers really feel the pressure of being honest in paying their taxes and feel that others can always find some mechanism. Although they may be using non-dom status and not tax avoidance in the conventional sense, it feels exactly the same if you are a member of the public and there are opportunities to continue to exploit that kind of positioning and designation.

The noble Lord, Lord Turnbull, took on the core issue in this Bill. I join others in praising the work of the Economic Affairs sub-committee, because I have sat on it in the past and know how closely it follows the legislation and the detailed evidence it takes. The noble Lord, Lord Wakeham, praised the Minister—I think that we all join in that praise—but his sting in the tail was that this was a pretty critical report, and it certainly is. However, it is a very important one. Both the noble Lord, Lord Turnbull, and the noble Lord, Lord Leigh, acknowledged that the Government had shifted in part in response to the issues that had been raised in the report and the protests that the business community has raised much more widely about the whole process of making tax digital, but frankly we are looking at small companies. There is no meaningful rationale for making this process mandatory on smaller entities. It should be a voluntary process. These companies live reasonably hand to mouth and take a great deal of risk. I was looking at a report from the Federation of Small Businesses that identifies the fact that small businesses already carry costs of more than £3,500 a year to meet tax and regulation requirements; adding more to that process every year, putting the additional stresses on companies of quarterly and digital reporting, really undermines a group of companies that we absolutely require as the backbone of our economy. Their growth is critical and taking any measure that hinders that growth is, frankly, retrograde.

I had not realised until I looked at this that a significant minority still complete their returns manually. Asking them to make this step into digital reporting is surely a challenge: many lack the IT skills and the digital technology, but it is also an issue of time. Anyone who has worked in a small business—I have had one of my own—knows that the day is not an eight or nine-hour working day but a 12 or 15 or 16-hour working day. Frankly, we should look at ways to lift pressure off these companies, not add pressure to them. I really do not understand why HMRC does not recognise the realities of life as a small company and turn this into a voluntary scheme rather than a mandatory scheme. Additional time—an additional year—is welcome, but it really does not meet the need in this instance.

One of the most striking comments in the report, at least from an administrative perspective, is that the benefit to HMRC “remains opaque”. If we do not have administrative benefits, then putting an additional administrative burden on small businesses seems even more extraordinary, frankly, in this area. I make one last comment: I hope that HMRC will take on board the challenge that small businesses are finding in meeting what it obviously thinks should be one of the easier tasks, which is going digital for tax purposes and reporting quarterly. We are looking, with Brexit, at a reality where border clearance for exports to the EU as part of a supply chain will require an extraordinary level of paperwork. If the only relief for that burden—the only way of reducing that cost and that friction—is to go digital, which is the suggestion we hear from the Government, it is going to be a near impossible challenge for small businesses, with huge consequences for them and the way they work.

I very much hope that HMRC will take on board and learn from this experience that this is not an easy process, has significant costs for small businesses and undermines their capacity to grow and thrive. A lesson needs to be learned. I join others in saying that one of the most interesting parts of the debate has been some of the suggestions that have come forward for different ways of looking at tax. We do not have those debates very often in this House and there are surely some exciting opportunities to rethink the way we levy taxation. We keep building on what is essentially a Victorian system and a Victorian set of assumptions yet we are going into the 21st century, into a digital world with a fourth Industrial Revolution coming. It seems to me that that requires really fundamental rethinking; it is both an opportunity and a challenge and I am sure that, within this House, there is an expertise that could very much contribute to it.

Paradise Papers

Baroness Kramer Excerpts

Monday 6th November 2017 Lords Chamber

[Lord Bates]

The noble Lord asked what we had done about tax over the past seven years. The Statement mentioned that we have collected £160 billion in compliance revenue since 2010, that the tax paid by the richest 1% is now 28% of the total, which is more than it was under the previous Labour Government, and that we have introduced initiatives such as a diverted profits tax to tackle just the sorts of corporate manoeuvring of tax, revenues and incomes that he talked about. We have introduced the Criminal Finances Act to make it a criminal offence for employees of organisations, be they professional services firms or others, to give advice on avoiding tax. We are at the forefront of the OECD tax initiatives. This Government included in the Finance Bill, which will come before this House on 15 November, a measure to make it no longer possible to have non-dom status in perpetuity—we are ending that position. Therefore, we have done a great deal but we are not complacent. We recognise that there is an issue to be addressed and fairness will be at the heart of all our actions.

[Baroness Kramer (LD)]

My Lords, do the Government not recognise that the ordinary taxpayer hearing again this news today is utterly outraged that if you are rich or a business, you can avoid tax? There are schemes on an industrial scale, which are protected by a lack of transparency. During the passage of the then Criminal Finances Bill, when there was pressure from all over this House for the registers of beneficial ownership in the overseas territories to be made public, why did the Government resist when that would have stripped away secrecy? Why, also, have they brought a Sanctions and Anti-Money Laundering Bill to this House that gives Ministers the power, with virtually no intervention by Parliament at all, to eliminate every anti-money laundering regulation and replace them by highly watered-down versions? Is this the new Britain we are to expect post Brexit?

[Lord Bates]

Of course it is right that the overseas territories and Crown dependencies take the correct approach on this. That is why the common reporting standard I mentioned—which has just come into effect and on which we led the way through the G7 and various initiatives through that—is coming into effect. That means that the Crown dependencies and overseas territories must inform HMRC about any person from the UK who is registered for tax in the UK but has an account in a different jurisdiction—one of a hundred, including all the overseas territories and Crown dependencies. That is just the type of action we need to ensure that people pay the taxes they are due to pay.

South Africa: Money Laundering

Baroness Kramer Excerpts

Thursday 19th October 2017 Lords Chamber

[Lord Bates]

Well it is certainly right—and I pay tribute to my noble friend for raising this issue—that South Africa is a country with incredible resources, not only naturally but in its people. It is the largest economy in the African continent and is the largest investor in the UK and largest trading partner in Africa for the UK. Whenever countries go through political difficulties, as they are in South Africa at the present time, we recognise that there is a long-term important relationship for the UK to maintain.

[Baroness Kramer (LD)]

My Lords, this is another instance where the US regulators have been ahead of the curve of the UK regulators, even though it appears that London is part of the core allegations. It has happened before in money laundering—it was so evident in the LIBOR scandal. Will the Minister once again look at the resources available and the enforcement strength of our regulators? Will he also look again at the whistleblowing laws which, although improved, are still so weak and career ruinous that the regulator does not have access to information that it should be getting at a much earlier stage?

[Lord Bates]

I do not accept that we are behind the curve on this. In many ways, the UK is leading the world: at the G20, in the Financial Action Task Force, and with the regulations that we have put in place and the reform of the Financial Conduct Authority. That is why this year the Financial Conduct Authority handed out one of the toughest fines ever levied—£163 million—to Deutsche Bank for failing to comply with up-to-date money laundering regulations. We are very tough on this, but we realise that you have to be vigilant all the time. Therefore, when issues are drawn to our attention, we respond to them quickly and appropriately.

Financial Services: Regulation

Baroness Kramer Excerpts

Wednesday 6th September 2017 Lords Chamber

[Lord Bates]

It is certainly a time for better regulation; I very much agree with that. There has been a suggestion that the way in which the FCA has conducted these matters has not focused on the areas of greatest risk. One area it has looked at is the small businesses, in particular, that have been affected by the regulation, whereas perhaps, historically, they are at lower risk. That was why the Enterprise Act 2015 required the FCA to look at the proportionality and the cost of regulation, particularly on those small businesses, which I think was the right step forward.

[Baroness Kramer (LD)]

My Lords, does the Minister agree that in fact the FCA is becoming an effective protector and guardian of individual consumers in regard to the financial services industry? Does he also agree that it is time now to consider expanding its remit to small businesses, especially microbusinesses? We do not need a repeat of the abuses that have happened with RBS and HBOS, and an expanded, proactive role for the FCA in this arena would be very much welcomed by small businesses, the backbone of the country.

[Lord Bates]

Those major banks, of course, are covered by the Prudential Regulation Authority, through the Bank, but the FCA has a prudential role as well as its regulatory role. As I mentioned, it is important that we recognise that where regulations apply it is done in a proportionate and appropriate way for consumers and also for the businesses that are being dealt with.

Public Sector Pay Cap

Baroness Kramer Excerpts

Thursday 13th July 2017 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I begin by picking up the issues raised by the noble Baroness, Lady Blackstone. She pointed out that, when the pay freeze later relaxed and the 1% pay cap was brought in, it was at a time of fiscal crisis; the economy was in dire straits and the expectation of the Government was of rising unemployment and, potentially, deflation. It was in that context that these measures were brought in. Although of course, during the coalition years, there were cuts in public services, these measures limited the number of people in the public services who lost their jobs and protected against a fair amount of unemployment. But, as the noble Baroness, Lady Blackstone, pointed out, we now live in an entirely different period. We are facing chronic labour shortages in key parts of the public sector and, because pay is now back to the same levels as the private sector, the public sector has to compete aggressively for the kind of talent that it requires to deliver the quality of services that our consumers expect. Yet our public sector workers are facing erosion from real inflation, which is now beginning to bite and is pushing up towards the 3% mark. So the set of circumstances is entirely different. As the Minister will know, there was no intention that any kind of pay restraint would continue beyond one Parliament. This surely has to be the time to completely rethink what has become a completely inappropriate policy.

I pick up on the issue raised by the noble Lord, Lord Cashman. The public sector is praised, quite rightly, in times of crisis for the heroic work that it delivers but it is certainly true—and I think it sticks in the gullet for quite a few of us—that when the Government have had a choice on where to spend money, it has not been on public sector workers. However, we have had significant cuts in corporation tax—I can never see a justification for a cut below 20%—and cuts in capital gains tax, inheritance tax and the marriage allowance. In other words, the praise is heaped upon the public sector worker but the money is shared between completely different groups. It seems to me that there is a time for the Government to align their praise with the way they manage the public finances, and that time is now.

Anyone who works with businesses knows that the ability of any sector to absorb change is somewhat time-limited. Our public services have been through a period of extraordinary change. That creates stress and problems in making further changes. To pick up the point made by the noble Lord, Lord Haskel, we need much greater productivity within our public services but it cannot be done through relentless cutting and relentless pressure. There has to be a period of time for change to be absorbed and for new ideas to come forward. The Government need to look seriously at that issue, which very much ties into their attitude on public pay. The issue of public opinion towards our public sector workers, raised by the noble Lord, Lord Sawyer, also ties into that. I suspect that that is now at one of its highest levels in many decades, as that work has finally been recognised. This creates an opportunity for the Government to work co-operatively with the public—who are in effect consumers of public services—and public sector workers to redesign a system which will work much more effectively for all of us in the future, instead of treating this as a very traditional worker/manager conflict, which is surely outdated.

Relaxing or taking off the 1% pay cap can be done without putting fiscal competence at risk. My party’s 2017 manifesto—I went through it with a tooth-comb—allowed the 1% public sector pay cap to come off, but we still balanced day-to-day spending in 2019-20 by rowing back some of the extraordinary tax cuts that had been made which had offered very little benefit. Therefore, there are ways to retain fiscal competence and to achieve what I think is well deserved—namely, the end of what should have been a short-term pay restraint.

Barnett Formula

Baroness Kramer Excerpts

Thursday 13th July 2017 Lords Chamber

[Lord Bates]

I recognise that—and of course for 40 years there has been an ongoing debate about the Barnett formula. Our response to that, as my noble friend will recognise, is to believe that we should devolve to the devolved Administrations more responsibilities and financial accountability in taxation and how money is spent in the Budget. That is the best way in which to eventually work towards a needs-based rather than population-based formula.

[Baroness Kramer (LD)]

Do the Government understand that this is an issue of trust? While the Barnett formula is not a legal requirement, it is clear to everyone in this House that the additional £1 billion for Northern Ireland is a sort of pork barrel, as they would say in America—a politically induced donation—which ought to fall within that formula if one was keeping to the conventions of Parliament.

[Lord Bates]

It is wrong for the noble Baroness to refer to it in that way. First, the details of the deal have been made very clear and published on the website on 26 June. There have been Written Ministerial Statements about it. As for terming this a donation, I stand by a donation that gives £100 million extra for health and education, £400 million for infrastructure, £50 million for mental health, £100 million for severely deprived areas and £150 million for broadband in one of the most needy parts of the United Kingdom.