Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025
Baroness Kramer Excerpts(1 week, 2 days ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to take part in this debate on these regulations in Grand Committee. In doing so, I declare my interests, as set out in the register: as non-executive director of Avalanche (BVI) Inc and the Avalanche Foundation, a layer 1 blockchain protocol; and as adviser to Simmons and Simmons LLP.
I thank the Minister for the way that he introduced these regulations. They are a good thing and people have had time to consider them. They set out the Government’s position and ambition when it comes to crypto assets. We should all welcome this; there is an extraordinary opportunity for the UK when it comes to crypto assets, broader digital assets, tokenisation and broader allied technologies. We could take a stat from any of the main consultancies; all we need to know is that this is material to the UK economy and measurable in the billions.
What does this statutory instrument do to help us towards that objective? First, we should probably take a moment to slay two myths that dog this area and the broader technology space. The first is that you can have either regulation or innovation, not both. I believe that the Government’s approach to crypto assets and broader digital assets proves that it is possible to regulate in a way that enables innovation, proper regulation and the necessary consumer protection. We saw similar approaches with the fintech regulatory sandbox in 2016, the market intervention from the CMA with open banking and, decades ago, the approach that the UK Government took to the mobile telephony sector. We know how to do what I describe as right-sized regulation.
The second myth is that we cannot possibly legislate in time for these new technologies and financial instruments. If we look at just two recent examples—the Electronic Trade Documents Act and the Property (Digital Assets etc) Act—we can see clear, focused, specific legislation passed in good time that is already having a positive impact on our economy and businesses and for individuals right across the UK.
It should also be noted that we are not behind the curve when we compare other jurisdictions. Certainly the GENIUS Act in the United States has perhaps had more column inches and broadcast minutes devoted to it but, when we consider the timeline for the implementation of that Act and look at what is currently happening with MiCA in the EU, the UK should not feel behind the curve in any sense.
I welcome these regulations, but with one significant caveat—one wrinkle that I believe needs to be addressed. It is simply that the regulations as currently drafted roll together stablecoins and other crypto assets. For example, unbacked bitcoin is treated in the same way as fiat-backed stablecoin. I cannot believe that this is the intention of the Government in drafting these regulations, because unbacked bitcoin and fiat-backed stablecoin operate in very different ways and have extraordinarily different purposes. Crucially, the difference can be set out just in understanding the difference between something that is backed and something that is completely unbacked. Bitcoin could largely be considered a speculative investment; stablecoin is more of a payment methodology—money, if you will. I ask the Minister whether that is the intention of the regulations, whether that follows from the stated policy around crypto assets and stablecoins and whether a change to the regulations is not required at this stage to perfect what I would argue is a significant problem.
I do not believe it can be right that fiat-backed stablecoins are treated as investments—they are not investments. If they are, there is a clear and present threat to the burgeoning stablecoin industry in the UK, which, if these regulations go through, may be stifled before it has had time to even get thoroughly under way. To be clear, stablecoins and other potential payment methods, such as central bank digital currencies, are the cash leg to these new digital markets and digital economy. If we stifle that at this stage, we will be killing off all those broader possibilities from such digital markets.
Take, for example, somebody who wished to use fiat-backed stablecoins to make a payment, engage in FX, or be involved in a money market fund. They would be using a fiat-backed stablecoin rather than fiat itself. Can it be right that the regulations as currently drafted would treat that person differently just by dint of them using fiat-backed stablecoin rather than cash? It would necessitate FCA licensing, so an increased regulatory burden for doing largely the same thing, and, in reality, that licence would not be sought—the industry would simply choose not to use that stablecoin methodology, and thus it would be killed off at that stage.
I believe a solution exists, and it is relatively straightforward at this stage: to exclude qualifying stablecoins from the definition of qualifying crypto assets. It would not be problematic. It would fit very well with Deputy Governor Sarah Breeden’s speech on a multi-money universe. Consumer protection would be unaffected, because of the issuing provisions already set out. The safeguarding duties would kick in and have a positive impact. I do not believe any changes would be needed to the staking provisions. Crucially, it would leave policy in the correct place to enable stablecoins to be integrated into the upcoming overhaul of payment regulations. I argue that payment regulations is the correct place for stablecoins, as they are, in essence, money. Another solution could be to look at how the current definitions are set out around dealing and arranging. It is more complex, but equally doable. Two options exist to setting right this wrinkle in the regulations.
It is not that this is a minor drafting point. There will be clear, present and immediate harm to our industry and economy if the regulations are passed in their current form. This is not just a matter of theory. We can see this already in the EU, where the double regulation of stablecoins—MTS in that jurisdiction—is currently causing harm, hampering the development of that industry across the EU, and is already subject to review. We can avoid that issue before it becomes a problem if we make this change to the regulations.
The policy note that accompanied the regulations when they were first set out said that this is a draft SI and should not be considered final. Does the Minister agree that that continues to be the situation and that we can make these changes to the regulations? There is a great deal at stake for the UK here. This is such an important piece of the UK’s global aspiration when it comes to crypto assets, digital assets, tokenisation, and the whole digital market and economy transformation that we all want to bring about for the benefit of the citizen and the consumer, companies and our country. The opportunity exists. We cannot allow it to founder for want of this simple change.
The Government’s growth agenda can be effectively enabled through stablecoins and broader digital assets. Similarly, does the Minister agree that there is a real opportunity for the effective and efficient offshoring of government debt through the effective deployment of stablecoins? It is a real opportunity for the UK economy. If you want a use case to prove this point, just look at how USDC is currently operating.
At stake is a growth matter and a global economic matter. This is a way to effectively change how government debt is treated in a material way for the economy. More broadly, in considering the whole issue around crypto and digital assets, having even greater clarity from the Government, beyond growth and innovation, and making a clear statement as to what we want as the UK—what position we want to play when it comes to cryptocurrencies, assets, digital assets and stablecoins, sharpening the arrowhead of the Government’s mission—would be incredibly helpful across this industry. We have an extraordinary opportunity that we can take only if we make the changes to these regulations.
Will the Minister agree to meet me and other industry colleagues, potentially with the Economic Secretary to the Treasury, to discuss how we can perfect these regulations to be the positive, clear and consistent regulatory landscape that will enable industry and consumers to have the best experience and the most economically improving approach to crypto assets, stablecoins and digital assets in the UK? I look forward to the Minister’s response.
Baroness Kramer (LD)
My Lords, I confess that, when tried to work my way through this statutory instrument, I felt incredibly inadequate. I cannot pretend super expertise on crypto assets and stable coins. Most of the information that comes my way is, frankly, from the industry lobbying for the maximum amount of scope, along with assurances that this is just a much more efficient plumbing of the payment system—nothing troubling here, just an opportunity to enhance the economy.
I realise that a regulatory framework is necessary, as crypto has become mainstream and is no longer fringe. While I do not oppose the SI, I retain quite a degree of uncertainty. I start by picking up the issue of stablecoin. I know Chris, or the noble Lord, Lord Holmes, really well—I apologise for almost forgetting his name; I have moments of holes in the brain that I suspect come with age—but I question the assertion that stablecoin is essentially just fiat currency in another form. I know some of the stablecoin companies such as Tether argue that basically one Tether equals $1 in the form of treasuries. I am also clear that much of this is opaque. Those who I understand see the accounts of some of these firms say that, if stablecoins were really only matched one to one with a fiat currency, their earnings would be no more than the return you would get—if it was, for example, a dollar stablecoin—on US treasuries. That does not square with the earnings that they either report or promote as part of their future. There is certainly something opaque about stablecoin. We are much safer if we continue to regard this as a subset of crypto and look at it carefully before we give it any specialist position.
I understand the need for these regulations, but I am terribly conscious that the Government’s thinking in shaping all this has been much impacted by its membership of the joint UK-US Transatlantic Task Force for Markets of the Future. That has been guided and driven by the Trump Administration’s desire to use financial instruments as a means of extraterritorial control. We see this most obviously with trade tariffs—that is where Trump’s main speeches are and those are the instruments that he talks about. I understand that anybody who was at Davos and spent five minutes with US Treasury Secretary Bessent would have quickly understood that crypto and stablecoin are indeed instruments that, in the same way, offer great potential to advance US economic interests globally and for forms of what I think Mark Carney would probably have called financial coercion.
Baroness Kramer (LD)
My issue on this is related but slightly different. If we are dependent on dollar stablecoin for international trade, which is the direction of travel, and the US Government decide that they do not like either a policy that we have or a piece of trade, they can, through the companies that sit behind that stablecoin, in effect shut us down and cut us out. That is a very different set of circumstances from those in which we live today, where they might want to do that, but they cannot. They may try to make banks act in the way that they want, but they would have a far more challenging job in doing that. I am just concerned that that thinking is not embedded in the way that we are structuring this and doing the regulation. That is my concern. I see the plumbing advantages of stablecoin, but I worry about where the power levers are set. I cannot see that this addresses any of that.
Lord Wilson of Sedgefield (Lab)
That is a very important question about monetary sovereignty. While most stablecoins today are US-denominated—I think about 99%—and issued overseas, this instrument lays the groundwork for a thriving ecosystem, including UK- issued pound-denominated stablecoins. The Government are considering the regulators’ proposals on stablecoin-backed assets that include UK government debt. The Treasury will assess the fiscal implications and benefits of stablecoins in this context, and I think the Treasury is well aware of the noble Baroness’s concerns. It is something that we take very seriously, and we will probably hear more about that as time goes on.
The Government are committed to ensuring that the UK remains an open and connected financial centre, as we need to be in a globalised economy, and to upholding its commitment to international regulatory standards. We are working with the transatlantic taskforce on all these issues to enhance US-UK collaboration. We are aware of the issues that the noble Lord raised on capital markets, and the taskforce will explore options for short to medium-term collaboration on digital assets, additional opportunities for wholesale digital markets innovation and ways to improve links between our capital markets to enhance the growth and competitiveness of both UK and US markets.
On the specific quote used by the noble Baroness, Lady Kramer—
“same risk, same regulatory outcome”—
we think that this instrument allows the FCA, as the regulator, to set appropriate and detailed rules addressing market risks. We therefore do not believe that we have the same regulations as always for the risks.
Noble Lords asked whether there is a problem with the anti-money laundering requirements and whether this instrument goes far enough to look after consumers. To be clear, the Government are not weakening the anti-money laundering requirements; for example, they will continue to apply to crypto asset firms exactly as they do today. This legislation goes further by introducing a robust financial service regulatory regime that will require all firms offering crypto asset services, either in the UK or for UK consumers, to be authorised and regulated by the FCA and to comply with comprehensive conduct and prudential rules.
It is fair to say, I think, that this SI goes a long way to help to protect consumers. The creation of a register of authorised crypto asset firms will make it easier for consumers to identify legitimate firms. The requirement for those firms to comply with the comprehensive conduct regime will reduce the risk of poorly run firms and bad practice resulting in consumer harm. By defining and prohibiting market abuse—as well as placing an obligation on firms to put systems in place to prevent, detect and disrupt such abuse—this instrument will improve the integrity of crypto asset markets and lead to better consumer protection.
Also, the regime will leave the UK well-placed. There was a question about what Europe is doing as well. We continue to co-operate internationally with our partners, including the EU; we also continue to watch the development of the digital euro with great interest.
Both noble Baronesses asked about parliamentary scrutiny, in essence. We believe that this instrument sets out a clear regulatory framework that will ensure that the Government’s aims and objectives for the sector are reflected in the regulations’ final rules. Giving the FCA flexibility on the detail of the regime will allow it to respond nimbly to developments in this fast-evolving sector; that said, Parliament will be able to hold the regulator and government to account on an ongoing basis using the regime, once it is live, through normal means such as requiring attendance at Select Committees. Also, should it become apparent that the regime is not working as intended, the Government will have the option to return to Parliament and amend the framework under which the FCA operates.
Someone asked what the impact on small businesses will be. The impact assessment published alongside the instrument sets out the impact that the Government expect the regime to have on all businesses, including small businesses. The FCA has existing duties to consider the most appropriate way of implementing this regime.
I hope to get through all noble Lords’ questions. As far as our people know, in terms of what is regulated, firms authorised for the new crypto asset activities will appear on the FCA register in the same way as firms authorised for traditional financial services activities.
As far as payments are concerned, I think stablecoin was mentioned. Government work is under way in order to take forward broader work to modernise assimilated law on payments, including to ensure that the UK’s payments regime is fit for tokenised payments such as stablecoin. That work is ongoing.
We all know about the opportunities for cryptocurrency. We cannot disinvent it. We have to make sure that it works for the British economy and the British people; and that people are protected. This SI lays down a framework so that consumers can be protected.
I turn to the two final questions. The Government are committed to making the UK a world-leading destination for digital assets. Our regulatory regime has been developed through extensive engagement with industry and international partners, ensuring it is both internationally competitive and aligned with global standards. This legislation will support UK growth by giving crypto asset firms the regulatory certainty needed to invest here and drive innovation in our financial services sector. So, in answer to the question of the noble Baroness, Lady Neville-Rolfe, we do not think that this is too restrictive.
Finally, on financial education, which we are all keen to see in our schools and broader society, the Government want people to have the confidence and skills they need to manage their money. The Money and Pensions Service, an arm’s-length body of government, provides free, impartial guidance to consumers at every stage of their financial lives. More widely, the Government are taking steps to improve financial education. In November, we set out our plans for all school children in England to receive financial education. This reflects the Government’s wider commitment to financial literacy and building a population better able to make informed decisions about financial products.
I hope I have hit all the questions. If I have not done so, we will go through Hansard and get back to noble Lords about what perhaps we have missed out.
Financial Services and Markets Act 2023 (Prudential Regulation of Credit Institutions) (Consequential Amendments) Regulations 2025
Baroness Kramer Excerpts(1 month, 4 weeks ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Jones (Lab)
My Lords, surely these instruments must be welcomed, and surely we all want a smarter regulatory framework. I thank the Minister for his helpful and concise outlining of the regulations and the order. There is a lot of business ahead and time is of the essence, so my brevity is guaranteed.
One can only welcome the policy context as stated at paragraph 5 of the helpful Explanatory Memorandum. Can my noble friend the Minister or his department say what the Prudential Regulation Authority is? In particular, can he perhaps give some detail on how big it is and who sits on it? Who chairs it and, on the presumption that the chair is full-time or part-time, is he or she salaried and how much are they paid? Are all the PRA membership paid or are they voluntary? How often does the PRA meet? The department may not give answers now but if not, might the Minister reply by letter?
Baroness Kramer (LD)
My Lords, I will take these two statutory instruments in the order in which they are on the Order Paper, which is the reverse of the Minister’s discussion. That is not a criticism; it is just to explain where I am starting from.
The first of these two SIs removes the current assimilated law on capital requirements for banks, building societies and investment firms and replaces it with rules to be set solely by the regulator—in this case, the PRA. In effect, it removes the control of capital requirements from any intervention by Parliament. As always, I want to register my concern that an issue of fundamental importance to the financial stability of the country is, in effect, being removed from any meaningful parliamentary oversight or action.
The regulators may be experts, but they got it terribly wrong in the 2000s by misunderstanding CDOs, which triggered the financial crash of 2007-08, and by not recognising the precarious state of liquidity or lack thereof in many of the big banks, which worsened the crisis. They also turned a blind eye to the manipulation of Libor benchmarks, which damaged the UK’s reputation for integrity in financial services in ways that are still with us today—never mind, frankly, the financial damage to so many clients across the globe. Recently, the PRA has been permitting an erosion of capital requirements, almost certainly to fit with the Government’s agenda for short-term growth, rather than being based on any evidence of risk reduction, which I have looked for and cannot find.
I sat on the Parliamentary Commission on Banking Standards that examined the 2007-08 crash for nearly two years. We predicted that amnesia about how risk actually works would set in. I note that the banks are using the new leeway provided by looser capital requirements to leverage private equity funds, even though they cannot assess the risks embedded in those funds, which are, by definition, not transparent. However, of course, we recognise that those funds pay the banks’ substantial fees. It is all so predictable.
The second SI makes provision for environmental, societal and governance ratings, as related to investments, to be set in the rulebook of the FCA. Once again, what is properly a policy decision will escape parliamentary oversight and intervention. Clear rules will be welcomed by investors, but this is a contentious area. Is nuclear included? Is carbon capture and storage included? Is defence green? I am not answering those questions; I am saying that those questions naturally arise. In the Commons debate on this SI, the Conservatives basically reflected a Trumpian view of oil and gas investments—the “burn, baby, burn” view. Is that the view the FCA will follow, or will the Minister say to me, as I think he must, “That’s not up to Parliament; it’s up to the FCA”? The investment market is an international one and, frankly, investors care much less about what the rules are and much more about whether they are globally consistent. How will the FCA rules sit with the new anti-green US approach? The EU has a new ESG framework, which comes into effect in 2026. How will the UK rules sit with that? How will the UK’s overseas recognition regime work—the Minister referred to it—and what will be its parameters and consequences?
Surely, Parliament should have more of a view than just being one of the many consultees, which seems to be the current position. I continue to be very concerned about the direction of travel away from legislation, with debate, oversight and parliamentary responsibility, to rulebooks in the sole control of the regulators.
Barnett Formula: Wales
Baroness Kramer Excerpts(2 months, 3 weeks ago)
Lords ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Lord Wilson of Sedgefield (Lab)
I thank my noble friend for that question. I like to think that all the avenues of approach he has mentioned will be looked at and discussed at the ministerial meeting at the beginning of next year. It is also important to point out that there is direct funding to Wales, which includes 160,000 workers in Wales who have benefited from a direct pay rise due to the increase in the minimum wage and the national living wage.
Baroness Kramer (LD)
My Lords, each of the four nations operates a different and independent NHS computer system, which means that doctors struggle to get information on cross-border patients in England and Wales. Will the Government now recognise the seriousness of this issue and adapt the Barnett formula, which stands in the way of providing the funding to remedy this situation?
Lord Wilson of Sedgefield (Lab)
The noble Baroness raises a very important issue, and I hope it is something that the ministerial meeting at the beginning of next year will look at. I like to think that all aspects of the Barnett formula, including the issues that the noble Baroness has raised, will be looked at in the round, because obviously we want to see efficiency in all our public departments.
Public/Private Partnerships: Shares
Baroness Kramer Excerpts(3 months ago)
Lords ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Lord Wilson of Sedgefield (Lab)
I agree with the noble Lord and accept his point of view. There have been a lot of benefits from public/private partnerships in the past—they have invested in many schools and hospitals, where pupils and patients have benefited—but we need to look at how we reform public/private partnerships and make them fit for the future. Obviously, the National Infrastructure and Service Transformation Authority, which was set up in 2020, has a great part to play in that.
Baroness Kramer (LD)
My Lords, first, we on these Benches join in the commiserations with the noble Lord, Lord Livermore. Does the Minister agree that for a successful PPP, in addition to the key point made by the noble Lord, Lord Forsyth, not only is an educated public sector negotiator is required but clearly defined projects that will not undergo variances, and financing, in essence, set out up front and not used as a back-end bargaining tool? Does he agree that these and the other lessons that we learned before mean that there are relatively few projects that will meet the criteria for a public/private partnership?
Lord Wilson of Sedgefield (Lab)
We will look at public/private partnerships in the future. We are looking at them in a limited way for neighbourhood health centres, for example, and public estate decontamination projects, but we need certainty over future funding, which is why we have committed over the next decade at least £725 billion of investment in infrastructure so that we can ensure growth.
Financial Services and Markets Act 2023 (Capital Buffers and Macro-prudential Measures) (Consequential Amendments) Regulations 2025
Baroness Kramer Excerpts(5 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Bennett of Manor Castle (GP)
My Lords, I thank the Minister for outlining what he identified as a very technical and detailed set of two instruments. I came into the Committee not sure whether I was going to speak or not. I listened very carefully to the Minister’s tone and, as I was doing that, I was looking at the Bank of England’s financial stability report from July 2025. It said that uncertainty around the global outlook has intensified. It says of financial markets that they have been highly volatile. Weakness in non-bank finance can amplify risk. It says of UK households and businesses that, overall, they continue to be resilient. I am not quite sure that that, particularly the last one on households, reflects the experience that many people who are listening to this Committee have—if they are very bored this afternoon. None the less, there we are.
Some of the things that the Minister said in the introduction concerned me slightly. One of them started with “widely supported by industry”. We are hopefully thinking about the national interest rather than just the interests of the financial sector and, perhaps, the wilder reaches of the financial sector. It was described as essential for companies operating these core businesses. We are talking about complex financial instrument derivatives here. From the words of the Minister, it is clear that the Government are heading in the same direction as the previous Government.
Of course, not just the apparent complexion of the Government but the global situation has changed tremendously, so I have one question for the Minister. Are the Government keeping under constant review the foundational conditions in which the financial sector is operating and ensuring that everything they do is not increasing the level of risks that the financial sector presents to the security of us all?
Baroness Kramer (LD)
My Lords, I recognise that these two statutory instruments deal with technical measures and in and of themselves have limited impact. They are essentially a tidy-up of the text to reflect broader changes made since Brexit to the financial regulatory system. The FSMA 2023 SI transfers to the PRA responsibility for setting the capital buffers that banks are required to hold in addition to minimum capital requirements. The PRA is a strong regulator, but it has taken a series of measures to move in the direction of lighter touch, motivated by its competitiveness and growth objective. I have spoken before about my concern that the PRA, for example, is increasingly willing to turn a blind eye to the illiquidity of assets. When powers are transferred to the PRA, as they are by this SI, a significant measure of transparency, accountability and parliamentary oversight disappears. Capital buffers are critical to the stability of the banking system, and I remain concerned when parliamentary oversight in this key area is significantly weakened, as it is by the measures that both surround and are then captured by this SI.
The second statutory instrument deals with the markets in financial instruments and again affects a transfer of power and responsibility, this time to both the FCA and the PRA. Once again, it is a move to a less transparent and less accountable system. The rules can now be changed, presumably in line with the smarter regulatory framework that the Government have put forward, and they both allow divergence from the EU and a lighter-touch approach. Divergence has its own risk, as it has implications for cross-border business, and Parliament will not have a voice any more than as a significant consultee. Frankly, experience suggests that the regulators look at Parliament’s views in these consultations and treat them as relatively irrelevant compared to the views of industry.
I note that the Minister described the regulators as expert, independent regulators. He would have used exactly that same phrasing before the 2007 crash, and we still live with the repercussions of that crash. Blind trust in the regulator is exceedingly inadvisable. I have tried in previous speeches to list some of the erosions of protections that were introduced after the crash. They include: the competitiveness and growth objective for regulators; the changing to matching adjustment; insolvency UK; significantly increasing the illiquidity of the insurance sector; the removal of the cap on bankers’ bonuses; the permanent permission for pension funds to transact derivatives without using central counterparties, thereby avoiding putting in place margin collateral, which puts them seriously at risk in any kind of financial volatility in unstable times; the watering down of the senior managers’ regime, which is key to accountability; the weakening of the financial ombudsman; the pressure on pension funds to invest in high-risk, illiquid assets; and the uncertainty that now exists around bank ring-fencing.
That is a partial list of the erosions that I have been able to pick up, and I am sure that, if the Government sat down and thought about it, they could come up with a far longer list and perhaps even suggest that this was a huge positive. But it is notable that Parliament will have no further say, now that these SIs have gone through, any more than just an ordinary consultee, in a further erosion of these various protections. Frankly, while Parliament will get reports that will allow it to look at the impact, that will be very much in retrospect, which I suggest is very late in the day.
I repeat a request that I have made before for the Government to publish a compendium of the changes that have been made that increase risk in the financial sector and a look at those risk implications. My view is that, without that degree of transparency, Parliament cannot do its proper job.
Baroness Neville-Rolfe (Con)
My Lords, I thank the Minister for his clear explanation of these statutory instruments and the noble Baroness, Lady Kramer, for her gloss on that.
Today we are considering the instrument on capital buffers as well as the Markets in Financial Instruments (Miscellaneous Amendments) Regulations. While each is described as largely technical, both help to shape the future of our financial regulatory framework. Obviously we on these Benches are happy to consider them together and to raise some questions about how they link to the Government’s wider ambitions for stability, innovation and growth.
We recognise that both instruments form part of the wider process of revoking retained EU law and restating and embedding that in the smarter regulatory framework under the Financial Services and Markets Act 2023. It is important that our regime is clear and coherent and reflects the institutional responsibilities of the regulators, whether the Prudential Regulation Authority, the Bank of England’s Financial Policy Committee or the Financial Conduct Authority.
For me, the most important current issue for the financial regulators is whether they are really adjusting their rules, their outlook and their culture to pursue growth and competitiveness, as they were recently required to do. Is the Minister in a position to assure us that the PRA and FCA have taken vigorous action to meet the Government’s requests and instructions on this vital point? I recall that the Chancellor wrote to them last autumn. What were the key demands, and what did they do in reply? What are the opportunities for growth, bearing in mind the current challenges outlined by the noble Baronesses, Lady Bennett and Lady Kramer? Although I do not agree with all that they said, I think it is important to debate that.
I have a few other questions. On capital buffers, while the instrument is described as technical, it involves substantive changes in transferring responsibility for buffers, such as the capital conservation buffer and the global systemically important institutions buffer, to the PRA. Can the Minister clarify how the Government will ensure sufficient parliamentary oversight of these crucial prudential tools, now that they will be set directly by the regulator? As the noble Baroness, Lady Kramer, said, it is now a less transparent system, so Parliament needs a strong voice in the post-EU world.
Of course, capital buffers are at the heart of keeping our financial system stable. We learned in painful ways during the financial crisis what happens when banks lack the resilience that they need in times of stress. The framework we have now is well established, but risks are evolving all the time. Can the Minister share the Government’s view on whether today’s capital requirements are still fit for purpose, particularly in the light of the growing challenges from shadow banking, digital assets and climate-related exposures?
We note that the second instrument retains certain key definitions from the MiFID organisational regulation, while paving the way, as the Minister said, for the revocation of firm-facing provisions. The intention is to allow the FCA and the PRA to take forward responsibility for detailed rules, tailoring them more closely to the needs of the UK market. The Minister has explained the rationale for that, but I ask him to expand on how these changes will not only safeguard market integrity and, I think he said, prevent the gaps that might arise—but encourage innovation and investment and growth, which I think we all agree that we need if the economy is to move forward positively.
What steps will the Treasury take to ensure that regulators’ rule-making in this area is aligned with the broader ambition of using financial services as a driver of economic prosperity, the point I addressed earlier?
Child Trust Fund Accounts
Baroness Kramer Excerpts(10 months, 2 weeks ago)
Lords ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Lord Wilson of Sedgefield (Lab)
We know that there are real difficulties with this, and cross-departmental activities are taking place to try to resolve the problem. I understand from the courts that the Government are committed to bearing down on the outstanding caseload left by the previous Government, and the challenges we face in doing so are significant. As a crucial first step, we are funding another 108,500 sitting days in the courts this financial year, which is the highest level we have had for a decade.
Baroness Kramer (LD)
My Lords, in cases where a parent or guardian were unable to set up an account for their child, the Government opened a savings account on the child’s behalf. Can the Minister give me an assurance that all these children, for whom HMRC must have both contact details and legal authority, have been reached and are not part of the group who are unaware of the funds they have available?
Lord Wilson of Sedgefield (Lab)
All young people who have trust funds are contacted at the age of 17, and those who do not respond will be continually contacted. Secondly, the funds available to them will be available for ever or until, potentially, things change; but at the moment, there is no reason why that should happen. Those funds will be there for as long as they need to be, before they are drawn down by the child. The one thing to remember is the funds not having been accessed does not mean that the person who can access them does not know they are there.
National Insurance Contributions (Secondary Class 1 Contributions) Bill
Baroness Kramer ExcerptsTuesday 25th February 2025
(11 months, 1 week ago)
Lords ChamberRead Full debate National Insurance Contributions (Secondary Class 1 Contributions) Act 2024-26 View all National Insurance Contributions (Secondary Class 1 Contributions) Act 2024-26 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 56-R-I(Rev)(a) Manuscript amendments for Report - (25 Feb 2025)
Baroness Kramer (LD)
My Lords, I shall be very brief as the leader of the winding speeches. I just join the noble Lord, Lord Leigh, in saying to the noble Lords, Lord Hogan-Howe and Lord Macpherson, that Parliament has given us the responsibility under the national insurance contributions legislation, to come forward with amendments and press them. I am not going to walk away from that responsibility simply because it looks rather difficult.
I say to the noble Lord, Lord Eatwell, who talks about simplification, that it is very easy to have a high-level issue such as that, but I am not going to put simplification ahead of what will basically be the cancellation of something like 2 million GP appointments because of the additional costs on GPs. I am not going to sit by and watch dental practices cut back their services, so that we have much more of this DIY dental care that people are carrying out. I am shocked by the rise in dental sepsis alone. I am not going to sit here while pharmacies basically cut their hours and services. I am not going to sit here while adult social care—we have heard about so many cases—basically has to work out how it sets aside the most vulnerable in our society, because that is the implication.
We have heard also from hospices. People are being told now that their jobs are at risk. This is not a hypothetical or some exaggerated claim; this is a process that is under way across the community healthcare and social care sectors to absolutely cut back in response to this increase in employers’ national insurance contributions. We are trying to stop a disaster. When they came forward with their proposals, the Government did not absorb the fact the National Health Service does not work in isolation. It is part of a much more holistic, complex landscape, and if you undermine the private elements of both social care and community healthcare, you undermine the NHS, and that surely is not what the Government want to be doing under these circumstances.
I could go on because there is so much to be said, but it has been brilliantly said by so many across this House. If the Government were to stand up and say that they accepted this amendment, I think there would be a hallelujah, quite frankly. Will they please understand the problems we are trying to deal with? This is not hypothetical or playing party-political games; this is dealing with a really difficult and serious problem that our society is facing. I do not know quite what I can do in a winding speech, but if I can move anything, I will.
Baroness Neville-Rolfe (Con)
My Lords, I echo much of what has been said by the noble Baronesses, Lady Barker and Lady Kramer, what my noble friend Lord Ahmad said about it being a pity that the Minister had not engaged more with all those affected, and the plea for fairness from the noble Lord, Lord Leigh. This Bill is the most important economic measure the Government have put forward since they took office and, as has become apparent from our debates, especially the detailed examination in Committee, it is a misguided measure with numerous defects. It will hit hardest those sectors that employ more labour, such as care homes and hospices, but there will also be flow-through to SMEs and bigger businesses as they seek to cut costs and staff. We have seen this in action with big names such as Sainsbury’s shedding staff and the Federation of Small Businesses and the Chartered Institute of Personnel and Development recording collapsing confidence and planned headcount cuts in the surveys.
During our debate today, the Opposition are proposing amendments to reduce some of the Bill’s most egregious effects. That is the answer to the noble Lord, Lord Eatwell. We have to find a way to limit the impact of this ill-thought-out jobs tax. The tax system is not simple and we are where we are because of the choices the Government have made. The changes are having real impacts on real people in their everyday lives: on charities, small businesses, nursery schools, special needs drivers, pubs, young people and—the specific subject of this amendment—care homes, pharmacies, dentists, GP surgeries and hospices. That is why we are supporting the amendment from the noble Baroness, Lady Barker, and will be voting in favour.
At every stage throughout the progress of this Bill, we have raised the plight of these sectors because of the decisions the Government made in the Budget. They are facing these changes in a very short timescale, as the noble Baroness, Lady Barker, has rightly said. At every stage, the Government have remained unmoved. The Minister has been stony-faced and utterly unreceptive to the genuine and deeply felt concerns of millions of businesses and charity trustees across the country.
We have heard from the noble Lord, Lord Hope, about the Cyrenians, from my noble friend Lady Stedman- Scott about the sheer scale of the impact on charities, and from my noble friend Lady Fraser about the loss of jobs and skills and the difficulties of deciding what to do. These organisations and others are facing a financial cliff edge in April and that is thanks to the Government, who have chosen to put them in this position while at the same time choosing to give a £9.5 billion pay rise to their friends in the public sector, to pledge £8.3 billion to the amorphous GB Energy project and to increase day-to-day spending by £23 billion this year.
These were all choices, and it is hospices, charities, healthcare providers, early years settings and small businesses that will pay the price. That is what my noble friend Lord Clarke of Nottingham was saying: he felt that it was the wrong choice.
In November last year, the Nuffield Trust predicted that the Government’s jobs tax would cost the independent sector’s social care employers in the region of £940 million in 2025-26, and that is on top of around £1.85 billion more that they need to meet the new minimum wage rates from April. These are all relevant to this amendment.
I am particularly concerned about the hospice sector, and that is why I have tabled my own amendment with the support of my noble friends Lord Leigh of Hurley and Lord Howard of Lympne. Both my noble friends spoke with great eloquence, as did the noble Baroness, Lady Kramer, so I will not repeat any of that, but I will say that Hospice UK has confirmed to us that the sector is headed for a £60 million deficit this year. The Health Secretary announced £100 million to make sure we are protecting our hospices, but last week the Prime Minister was forced to admit that that is capital funding and will not have a direct impact on the day-to-day costs. Further to that, I understand from boring into the detail that the £26 million that the Minister mentioned in Committee on day 3 represents almost no new money at all; so, we have a big problem.
Finally, it was reported that the National Pharmacy Association has taken the unprecedented step of voting for collective action in protest at a £250 million hike in business costs that pharmacists face under the Government. If the Minister will not listen to the Official Opposition, perhaps he will listen to the experts, the GPs, the hospices and the charities, which are all telling us that the Government must think again. We agree with the noble Baroness, Lady Barker: the Government must act urgently to protect our health and care providers, our GPs and our hospices before it is too late. Should the noble Baroness choose to test the opinion of the House, we will be with her in the Lobby.
Baroness Kramer
“(A1) The Social Security Contributions and Benefits Act 1992 is amended as follows.(A2) In section 9(1A) after paragraph (aa) insert— “(ab) if section 9AA applies to the earnings, the part-time worker secondary percentage;”.(A3) After section 9A insert—“9AA Part-time worker secondary percentage(1) Where a secondary Class 1 contribution is payable as mentioned in section 6(1)(b), this section applies to the earnings paid in the tax week, in respect of the employment in question, where the earner is a part-time worker.(2) For the purposes of section 9(1A)(ab), the part-time worker secondary percentage is 7.5%.(3) For the purposes of this section, a “part-time worker” has the meaning given in Regulation 2 of the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000.”(A4) The Social Security Contributions and Benefits (Northern Ireland) Act 1992 is amended as follows.(A5) In section 9(1A) after paragraph (aa) insert—“(ab) if section 9AA applies to the earnings, the part- time worker secondary percentage;”(A6) After section 9A insert—“9AA Part-time worker secondary percentage(1) Where a secondary Class 1 contribution is payable as mentioned in section 6(1)(b), this section applies to the earnings paid in the tax week, in respect of the employment in question, where the earner is a part-time worker.(2) For the purposes of section 9(1A)(ab) above, the part-time worker secondary percentage is 7.5%.(3) For the purposes of this section, a “part-time worker” has the meaning given in Regulation 2 of the Part-time Workers (Prevention of Less Favourable Treatment) (Northern Ireland) Regulations 2000.””Member's explanatory statement
This amendment sets a new National Insurance Contributions rate for part-time workers.
Baroness Kramer (LD)
My Lords, I start by thanking everybody who voted for the previous amendment. Such a powerful message is engaged with that statement.
I am here to move Amendment 2, which is different in character from Amendment 1. The amendments in this group are primarily mine. There are a couple there from the noble Lord, Lord Londesborough, which I also support and know that he will present very effectively. The amendments in my name and that of my noble friend Lord Bruce of Bennachie, in essence, deal with part-time workers.
While looking at the impact of the changes to employer NICs, we became conscious of the changed position of part-time workers as members of our workforce. There are now more than 8.4 million people engaged in part-time work, who are exceptionally hard hit by the changes proposed by the Government in the NICs Bill. People who typically worked 14 hours a week incurred employer NICs in the past; that now drops to individuals who work typically only eight hours a week. Suddenly, there is a huge group of part-time workers who have become far less attractive to the employers that have provided their opportunities in the past.
The impact is especially great on the hospitality industry—an industry that we know is already on its knees. Some 37% of employees in hospitality are part time, and I think there is a view in the Treasury—I think that the noble Lord, Lord Macpherson, expressed it unwittingly in Committee—that part-time work is a sort of rich person’s luxury; it is people working for pin money. That, frankly, is a completely outdated attitude.
Today, part time is concentrated in the lowest pay bands. It is an entry point to work for many people in disadvantaged communities or with difficult histories. It is an economic lifeline for carers who can work part time but not full time, for students, for many with disabilities and for those who are economically inactive. We have a Government who say they want to take 2 million people off benefits and get them into work: part-time work is the entry point and the obvious first step.
We also want employers to see part-time work as exceedingly attractive, so that they start to add additional support, such as training and career opportunity, to part-time work because of this far more fundamental role that it can play. Instead, we have seen with this Bill that many employers are now openly saying that they intend to outsource abroad rather than employ part-time workers or that they will require part-time workers to become self-employed, with all the complexities of IR35.
As we looked at our concerns for hospitality and the high streets—many in those sectors are the backbones of communities—and because we looked at the nature of the part-time workforce, we made the call to go further in this amendment than in our others and seek not just to exempt part-time workers from the increase in employers’ NICs but to reduce the rate of employers’ NICs to 7.5%. As the noble Baroness, Lady Barker, said in the debate on the previous set of amendments, we had it in our manifesto and have since identified other tax opportunities that are available for fundraising. None of them is easy but, frankly, we would close loopholes in capital gains tax, we have talked about taxes on share buybacks and we would reinstate the surcharge on the major banks.
In the previous set of discussions we had a whole series of proposals from the noble Lord, Lord Clarke, who of all people is very aware of the range of possible choices. They may not be ideal, but they are certainly much better than the choice of employers’ NICs, with the impact that is happening. In this case we made that decision, and that is the characteristic of this amendment. The other amendments in the group in my name are all consequential. The noble Lord, Lord Londesborough, also has amendments in this group, and I am fully supportive of them. I beg to move.
Lord Londesborough (CB)
My Lords, I rise to speak to my manuscript Amendment 15A and its consequential Amendments 17 and 24, both of which are supported by the noble Baronesses, Lady Neville-Rolfe and Lady Kramer. I am very grateful for their support. I will also speak to consequential Amendments 30A, 31A and 32A in my name. For clarity’s sake, I will not be pressing Amendments 30, 31 or 32.
In short, these exemption amendments seek to protect all small businesses and organisations that employ fewer than 25 staff, including charities, from Clause 2’s steep and sudden drop in the NICs threshold from £9,100 to £5,000 per annum—or, on a monthly basis, from £758 to £417 and, for those who are paid weekly, from £175 to £96 per week. By maintaining these existing thresholds, these amendments would particularly protect part-time workers and smaller organisations including charities, hospitality and retail, which in some cases face increases in their NICs bill per employee as high as 50% to 70%. For this reason, I support the noble Baroness, Lady Kramer, with her Amendment 2.
I should quickly declare my interests as set out in the register, specifically as an adviser and investor to a range of small businesses in the UK, including a community-owned public house.
I will come on to the impact of these amendments shortly, particularly in relation to the challenging and interesting comments from the noble Lord, Lord Eatwell. I certainly do not agree that my amendments are designed to reduce government revenue, and I will come on to that in a moment. Surely, this is our role. This is the most important economic policy that this Government have yet to produce. We are where we are, and surely we should be scrutinising, particularly if we feel that poor decisions or poor structuring of these national insurance increases are doing damage to the economy.
On that theme, I will quickly share this: the latest survey from the Federation of Small Businesses reported that the proportion of its members facing contraction in the last quarter, Q4, jumped to 24%, its highest-ever level outside the pandemic. That is up from 14% in Q3. The FSB has also reported that confidence among its membership has fallen to its lowest point in 10 years. Meanwhile, the Chartered Institute of Personnel and Development has reported that over a third of the 2,000 firms that it interviewed plan to reduce their headcount in 2025 through redundancies or recruiting fewer workers. Rather than taking a sectoral approach, for which many others have spoken passionately already, my exemption amendment applies to all small businesses and organisations, including charities with fewer than 25 staff, which, as the Bill stands, face sudden and steep drops—in fact, 45% drops—in their per-employee threshold at which employers become liable to pay NICs.
Just to illustrate this, employee NICs on a salary of £30,000 are set to increase by 30%, from £2,884 to £3,750, for those employing more than three staff. For part-time workers earning, say, £15,000, the employer NICs can increase by more than 50% per job. These are not trivial increases. While I salute the Government for increasing the employment allowance in Clause 3, it is from £5,000 to £10,500, and this typically washes out increases only for micro-businesses, those employing fewer than three staff. All told, the larger the business in terms of employees and the higher the salaries paid, the lower the increase in percentage terms to its NICs.
Of course, I understand why the Government are raising tax revenues—I have no issue with that—but, by placing this burden so disproportionately on small employers, the Bill threatens to do significant damage to jobs, pay and economic growth. Anecdotal evidence suggests that this is already happening.
My amendments would help to protect the jobs of some 6 million workers employed by about 1 million businesses and organisations across the UK. Many of these are nascent companies that operate on low margins and are at critical stages of their development—yet they grow at the fastest rate, create jobs at the fastest rate and, through their size and agility, can be great innovators. They are a vital component of GDP and our growth, with annual turnover of some £900 billion. But this group also includes a huge swathe of family and local businesses spread across the country, struggling to keep their heads above water in what have been five very difficult trading years. A fall of just 2% to 3% in employment levels or hours worked in this small business sector could cost the Treasury more in lost tax revenues and increased benefit payments than it would gain from this measure.
Incentivising employment by restoring the NICs threshold would be accretive to GDP growth, the Government’s number one priority. It would help boost income tax revenues and employees’ NICs, and it would bolster VAT revenues and corporation tax. Above all, it would lift business sentiment and stimulate investment.
I listened with interest to the noble Lord, Lord Eatwell, describing all these amendments as wrecking amendments. Because we do not have a proper detailed impact assessment, that is an unfair charge and I challenge it on behalf of these amendments. I look forward to hearing from the Minister but, with respect, I expect to press these amendments when the time comes.
Lord Livermore (Lab)
My Lords, I am very grateful to all noble Lords who have spoken in this debate. I will address first the amendment tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Bruce of Bennachie, which seeks to set a reduced rate of employer national insurance for part-time workers at 7.5%. As I have said before, the difficult decisions contained in this Bill were necessary both to repair the public finances and rebuild our public services. This amendment would reduce the revenue raised from this Bill, and therefore would reduce the Government’s ability to achieve these objectives. Reducing the rate of employer national insurance for part-time workers only would also create additional complexity in the tax system and, as my noble friend Lord Eatwell said, create distortions in the labour market. The Government have taken action to support those on lower pay by increasing the national living wage. Employers will also continue to benefit from employer national insurance reliefs, including for hiring under-21s and under-25 apprentices, where eligible.
I turn to the amendments tabled by the noble Lord, Lord Londesborough, and the noble Baronesses, Lady Kramer and Lady Neville-Rolfe, which together seek to maintain the current rates and thresholds for businesses employing fewer than 25 staff. These amendments would also have cost implications, again necessitating higher borrowing, lower spending or alternative revenue-raising measures. I stress that the Government are taking action as part of this Bill to protect the smallest businesses by increasing the employment allowance from £5,000 to £10,500. This means that, next year, 865,000 employers will pay no national insurance. More than half of employers will see no change or will gain overall from this package, and employers will be able to employ up to four full-time workers on the national living wage and pay no employer national insurance.
The Government have also taken steps to strengthen small businesses’ ability to invest and grow. This includes freezing the small business multiplier, permanently reducing business tax rates for retail, hospitality and leisure properties from 2026-27 and publishing the Corporate Tax Roadmap to provide stability and certainty within the tax system for businesses across the economy.
The new clause tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Bruce of Bennachie, would require the Government to produce an impact assessment on the effect of the Bill on SMEs, hospitality, tourism and seasonal workers. The Government of course consider the impacts of all policies, including the changes to employer national insurance. As we discussed at length in Committee, an assessment of the policy has already been published by HMRC in a tax information and impact note.
The OBR’s Economic and Fiscal Outlook also sets out the expected macroeconomic impact of the changes to employer national insurance contributions on employment growth and inflation. The Government and the OBR have therefore already set out the impacts of this policy change. The information provided is in line with the approach taken for other similar changes, and the Government do not intend to publish additional assessments.
Finally, I turn to the amendment tabled by the noble Baroness, Lady Neville-Rolfe, that seeks to increase the employment allowance for farms. This amendment would again reduce the revenue raised from the Bill, necessitating either higher borrowing, lower public spending or new revenue-raising measures. The Government of course recognise and greatly appreciate the vitally important role of the farming sector. Despite the Government’s challenging fiscal inheritance, the farming and countryside programme budget has been protected at £5 billion across the next two years. This includes the largest ever proportion of the budget directed at sustainable food production and nature recovery in our country’s history. This will accelerate the transition to a more resilient and sustainable farming sector, supporting investment in farm businesses and boosting Britain’s food security.
Ultimately, this Bill is necessary to fix the public finances and to fund the public services. Many of the amendments in this group would reduce the Government’s ability to do these things, so I respectfully ask noble Lords not to press their amendments.
Baroness Kramer (LD)
My Lords, I will be extremely quick. This has been a short but very useful debate. On the impact assessment, I think I acknowledged that the noble Baroness, Lady Neville-Rolfe, has tabled Amendment 38, which covers the scope more effectively than the amendment we have tabled. That is one which I hope we will have an opportunity to support later on today.
I say to the noble Lord, Lord Eatwell, that there is already a cliff edge—the Minister has set it at three employees. The amendment tabled by the noble Lord, Lord Londesborough, moves this to a far more sensible 25 employees. That is a significant improvement that I hope the House will accept, and that we will certainly be supporting.
Returning to our Amendment 2 that deals with part-time workers, this is an issue which we are going to continue to pursue; we have begun to realise how significant the change is in the structure of the workforce. If the noble Lord, Lord Eatwell, were to look at that, I think he would be very surprised and begin to think rather differently over the kind of measures we are looking at here. Providing this additional support for part-time work is very much pro-growth. It ought to appeal to the Prime Minister; he has positioned himself as the pub champion. Of all the sectors that need the support of part-time workers, and that are going to be impacted by the way this increase in employer’s NICs has been drafted, it is going to be the pubs sector—it is already seeing six pubs close per week. I hope we can look to the Prime Minister for a champion who can try and provide us with some support around this issue.
Because of the importance of the sectors and the changing nature of the workforce, I wish to test the opinion of the House.
National Insurance Contributions (Secondary Class 1 Contributions) Bill
Baroness Kramer ExcerptsTuesday 25th February 2025
(11 months, 1 week ago)
Lords ChamberRead Full debate National Insurance Contributions (Secondary Class 1 Contributions) Act 2024-26 View all National Insurance Contributions (Secondary Class 1 Contributions) Act 2024-26 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 56-R-I(Rev)(a) Manuscript amendments for Report - (25 Feb 2025)
Lord Londesborough (CB)
My Lords, I will briefly speak in support of Amendment 38, in the names of the noble Baronesses, Lady Noakes and Lady Neville-Rolfe, to which I have put my name.
Given the enormity of the Bill, with its intention to raise £25 billion in NICs, and given the current broad-brush, macro impact note that came with it, it is surely incumbent on the Government to carry out sector-by-sector reviews and within six months. In particular, the impact on employment levels and hours worked in each of these sectors needs to be looked at, and there will be huge variations—anecdotally, we are getting evidence that variations are already there.
These reviews would also help the Government in shaping their industrial and sector strategies. I do not agree with the noble Lord, Lord Eatwell, that these studies are, in his words, “econometrically impossible”; yes, they are challenging, but not impossible. With the right will, suitable frameworks can be established for each of these sectors, and it is vital that this analysis is carried out.
Baroness Kramer (LD)
My Lords, I will be brief. I have some sympathy for the Minister, because, in providing the impact note—which, as the noble Lord, Lord Londesborough, said, had very thin content and was very high-level in general—he is merely following in Treasury tradition, which the previous Government, when in power, also pursued.
The time has come for us to make a stand and to say that we need detailed impact assessments of policy. As the noble Lord, Lord Londesborough, said, in a Bill as complex as this, and which affects many sectors, the impact note has to be far more granular than the kinds of documents we have received in the past. This is also valuable to the Government themselves, because I greatly fear that, within the Treasury, there is very limited understanding of what the consequences are for a wide range of sectors. This is a start in the right direction, making sure that both Parliament and the relevant government departments are informed and can act properly. We will support this.
National Insurance Contributions (Secondary Class 1 Contributions) Bill
Baroness Kramer ExcerptsTuesday 4th February 2025
(1 year ago)
Grand CommitteeRead Full debate National Insurance Contributions (Secondary Class 1 Contributions) Act 2024-26 View all National Insurance Contributions (Secondary Class 1 Contributions) Act 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 56-III Third marshalled list for Grand Committee - (31 Jan 2025)
Baroness Fraser of Craigmaddie (Con)
My Lords, I apologise to the Committee that this is my first intervention on the Bill. I am not a FTSE 100 director, nor am I the chief executive of a great company like Next. I am the chief executive of a small charity in Scotland and the reason why I have not been able to participate on this Bill is that we are going through a consultation process to reduce our employee numbers at this very moment as a direct result of the cliff edge and shock to us of the increases in national insurance.
I rise merely to say that everything that my noble friends Lady Noakes, Lord Wolfson and Lord Leigh have just said is my daily life at the moment. While businesses can potentially put up their prices, charities cannot. What also concerns me is that because this cliff edge, which is what these amendments are trying to smooth out, is happening at the same time as the rise in national minimum wage, we are facing a double whammy in trying to make our books balance.
What finally concerns me is that this will lead not only to a reduction in the number of those in employment but to a reduction of skills in these organisations. These things cannot easily be built up again, should the situation change. Give us time to implement and do the things that we need to do. I urge the Minister to listen to my colleagues and do all that he can to soften this terrible blow.
Baroness Kramer (LD)
My Lords, we on these Benches are not in the same place as those on the Conservative Benches in taking the position outlined by the noble Lord, Lord Swire, to seek a delay before these measures are introduced. We are opposed to their introduction. We supported a regret Motion at Second Reading and those on the Committee who were present in the first two days will know that we moved a series of amendments essentially to halt the increase in employers’ NICs, and the related changes, in its tracks. In the case of part-timers, we went beyond that and sought to have employers’ NICs halved from their current level because of the importance of dealing with disadvantaged people, the hospitality industry and other reasons. In the first two days of Committee, I and my colleagues talked extensively and made our substantive and detailed arguments. I know that the Committee will not want to hear me repeat all those, so I merely say that we stand our ground.
Baroness Kramer (LD)
My Lords, we consider these areas so important that employers’ national insurance contributions should not be changed from the current formula. Our position remains unchanged. We discussed it extensively in both substance and detail on the first two days in Committee, and I would not try the Committee’s patience by repeating all the arguments that were made from these Benches.
Baroness Lawlor (Con)
My Lords, I support these important amendments. Today, all three and four year-olds in England are entitled to free education before they start school full time at the age of five. In the year 2023-24, there were almost 23 children for every teacher—the highest ratio thus far. If we continue with this measure without amendment, we will see an even higher ratio, with the number of adults declining because of the costs, as we heard previously in Committee and again today. We have 3,100 nursery schools and 11,700 day nurseries, and they play an integral part in the induction of little people into the world of education. They are vital to the well-being of the child and, indeed, to parents being able to pay their way with confidence that their children are receiving an early years education. I urge the Minister to provide an exemption, or to ensure in one way or another that early years education and care providers, whether in a nursery school, a day nursery or another system—voluntary and independent, as well as public sector—are prevented from losing teachers due to the additional costs.
I echo what my noble friend Lady Neville-Rolfe said. I would be very happy with an increased employment allowance. We need an impact assessment, given the large number of people employed in this sector and the impact this measure will have on children’s education later in life. We are now paying the price of the Covid lockdown, with the children who passed through schooling at that age. Let us stop making things difficult for early years provision and try to improve it, not disimprove it by such a measure.
Baroness Neville-Rolfe (Con)
That is the average salary bill, so the noble Lord is right that an increase in the employment allowance would not absorb all the extra costs.
Baroness Neville-Rolfe (Con)
Obviously, for smaller bodies, the employment allowance is, as the Minister has said on several occasions, helpful because it alleviates the cost of the changes. Therefore, looking at the employment allowance is another way of coming at the issue, which is one of the reasons why we have put it forward for discussion.
Despite the fact that many hospices provide functions that would otherwise need to be provided by the NHS or social care, the Government have failed to recognise their importance and are instead taxing the hospices that the country relies on. Although hospices do not charge for their services, they receive only one-third of their funding from the Government and rely on charitable donations for the remainder of their income. This will place unnecessary and costly additional pressures on their finances at a time when demand for hospice care is growing. The Government seem to be unaware of the great help hospices provide and the fact that they reduce pressure on the NHS by providing services in a more efficient and effective way. There is a saving there to offset any cost.
While I am aware that the Minister claims that the already published impact note is enough, I have not heard another noble Lord agree with that. Although I am sure he will respond in a similar manner, the current note is simply not sufficient and does not include any impact assessment on the very businesses it is being imposed on. That is very concerning for hospices which do so much work to support the NHS and could well be bankrupted by this Government’s decision to introduce the jobs charge. The charity for children’s hospices, Together for Short Lives, has estimated that this tax rate will cost an additional £133,966 for every children’s hospice. That is an extraordinarily high number for a sector that is not profit-orientated, and I am concerned about that impact. Although I welcome the £100 million in funding that the Government have announced for hospice improvements, that money will not help with the staffing costs that these hospices will now face.
As my noble friend Lady Monckton said, hospices are life affirming and give wide support beyond the patients in the hospices to the families in their grief. They are a vital part of the palliative care system, as I hope the Minister will agree. I think that the Government will be blamed if hospices go into a downward spiral as a result of these extra costs in April. They should look again at some way of helping them, whether it is an exemption, a delay, a change to the employment allowance or some form of compensation. It is an important matter that we should address in this Committee.
Baroness Lawlor (Con)
My Lords, I support my noble friend and his amendment, which is important. If the Minister will forgive me, we hear the same reply all the time. I do not think that HMRC’s figures, the Budget assessment or the OBR figures that we were given in November or December provide adequate information to sectors facing huge job losses. They need to plan ahead, and these assessments may spur the Government if it is written down in black and white that these jobs will go.
The economist Liam Halligan pointed out in his weekly column in the Sunday Telegraph at the weekend that, according to S&P’s bellwether PMI index of business leaders, firms are cutting jobs at the fastest rate since the financial crisis. He writes that there was a 47,000 drop in payroll employees in December, the biggest monthly fall since lockdown. Those figures were tallied after Sainsbury’s announced 3,000 job losses. At the same time, he wrote that personal insolvencies in England and Wales were up by 14% in 2024, with a huge spike after the Budget. UK company liquidations surged. In 2024, 3,230 companies were shut down under the courts.
Last week, I mentioned the impact on the retail sector. I will not go through it, but it is estimated that as a result of the Budget entirely, which includes the NIC costs, £7 billion will go out of the retail sector. Those figures are staggering. I cannot accept the Government’s blithe assessment. I know that the Minister is sticking to the Treasury line with the statement that the impact assessments published so far are in line with what has been published in the past. We are dealing with a different sort of measure in this NIC Bill. I have been in the House of Lords only since November 2022, but it is the first time in my experience here that we have faced a measure where it is clear to all concerned that there will be job losses on a significant scale. Surely, that should spur the Government to want to provide some kind of impact breakdown for the different sectors, whether they are the charitable, voluntary or caring sectors or in the only area where we will see growth, the private sector. If the Chancellor is so convinced and she and the Government are keen and will produce growth, they should recognise that this will come from the private sector. It does not come from growing the public sector. I hope the Minister will support or think again, as my noble friend proposes, on retail.
Baroness Kramer (LD)
My Lords, again, we discussed this area extensively over the first two days in Committee. I particularly recommend to the Committee the amendment tabled by the noble Lord, Lord Londesborough. The Government have put in place protection for microbusinesses. I think the calculation by the noble Lord was right, basically, that it is up to about seven employees. His proposals would put in significant protection for small businesses, those just up from micro and those potentially at the beginning of scale-up, which we need so much in this area. The noble Lord is now in his place, and I am delighted to make those comments in his presence.
Baroness Fleet (Con)
My Lords, I support my noble friend Lady Monckton of Dallington Forest’s Amendment 31. My noble friend is a tireless and brave campaigner in the charity sector, and she has spoken so movingly today about this Bill.
I declare my interests as listed in the register. I am a council member of Arts Council England and the chair and co-founder of the London Music Fund, a charity that provides music scholarships for talented children from low-income, disadvantaged backgrounds.
I have not previously spoken on this Bill but, as a passionate supporter of the arts and creative industries, I speak today for one very good reason: the national insurance increase will be devastating for the arts, which are, of course, great contributors to the hospitality and tourism sectors. Even Sir Nicholas Hytner, probably the greatest director of his generation, has said that this Government are doing more harm than good. Artistic enterprises will fold. Theatres, arts venues, museums, orchestras, music charities, conservatoires and dance and opera companies are all reeling as they work out exactly what the impact will be. The National Theatre, for example, reckons that it faces an annual bill of £1.1 million in addition to the minimum wage rise.
A report in The Stage newsletter recently calculated the overall impact on theatres. The cost averages out at about £100,000 per theatre, with the double whammy of NI and minimum wage. The Theatre Trust estimates that there are more than 1,100 theatres across the UK. Thus, a conservative estimate is a cut of £100 million to UK theatre, spread across the subsidised and commercial sectors. As Alistair Smith writes in The Stage, if the Government had instead announced a cut of £100 million to theatre funding at the Budget,
“the entire sector would be up in arms”.
Indeed, every budget is being revised and the reality is hitting home: smaller casts, fewer risks to be taken, redundancies and lower employment levels.
The Society of London Theatre estimates that 40% of theatres and performing arts venues are at risk of closure over the next five years. The larger arts venues will be clobbered by national insurance bills: £750,000 for the Southbank Centre; more than £1.5 million for the Royal Opera House; and £280,000 for the Opera North company. Two-thirds of museums are concerned about funding shortfalls. Think of the tourists who go to our great museums every year. So much for growth, levelling up and supporting the arts. Music services central to the delivery of music education to primary and secondary schools will, according to Music Mark, be hit by a bill of around £7.5 million.
This Government once trumpeted their support for the arts—how that was welcomed—but now we know that those soothing words were empty and meaningless. All arts charities slog away at raising funds from generous donors, and now some of that hard-won cash will just go into the Treasury’s coffers. This is money that was raised in the expectation of supporting creativity, access for low-income audiences and children, and so much more. This Government are no friend of the arts. It is a shameful betrayal.
Baroness Kramer (LD)
My Lords, again, in the first two days we had an extensive discussion of the hospitality, leisure and tourism sectors. Once again, we stress the importance of tackling part-time work as a mechanism to keep these sectors from suffering the full impact of the Government’s changes, so I will not repeat that for about the fourth time today. We continue to be of the view that simply talking about impact assessments and employment allowances do not get us where we need to be. I am afraid that this is an issue of exemption, and the noble Lord knows that on part-time work, I feel very much that we should be reducing employers’ national insurance contributions.
Lord Jackson of Peterborough (Con)
We have established that an epistle will be oncoming from the Minister to the noble Lord, Lord Scriven. I am glad he has clarified that. I just think—
Baroness Kramer (LD)
Perhaps I may interrupt. I really think it was appropriate that we did not remake the speeches that we made extensively on days one and two. I am sorry if people were unable to attend or contribute on those days, but it is not sensible for us to continuously repeat the same statements that we have made over and over again. We have tried to observe that, out of respect for the Committee, and an assumption that those who are interested in what we had to say would have looked at Hansard.
Lord Jackson of Peterborough (Con)
I think the noble Baroness, Lady Kramer, is rather tetchy about that. I am seeking clarification of the Liberal Democrat policy, and the noble Lord, Lord Scriven, has given me a very clear explanation, for which I am inordinately grateful. Perhaps I can now move on to speak to my Amendment 34.
I heard the Minister and, notwithstanding what colleagues on the Liberal Democrat Benches have said, I still think that he did not adequately address the issue of the data and the response since the Budget on this particular policy with this particular healthcare sector. My noble friend Lady Neville-Rolfe made a very cogent and valid point that it is not good enough to just keep saying, “We have no intention of publishing an impact assessment; that is the end of the debate”. That is not discharging the proper fiduciary duty of Ministers to make sure that they are pursuing the correct financial policies and know the impact they will have on individuals in the NHS and wider healthcare sector. That needs to be looked at again; perhaps it will be.
While I am on my feet, for the avoidance of doubt, I did attend on previous days in Committee. I was there, and I moved an amendment on day one, I think, should noble Lords want to read Hansard. With that caveat made, I feel duty bound to beg leave to withdraw my amendment, subject to further discussion on Report.
Stock Market: First-time Investors
Baroness Kramer Excerpts(1 year ago)
Lords ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Baroness Kramer (LD)
My Lords, this has been one of the most enjoyable debates I think I have ever been part of. Let me congratulate my noble friend Lord Lee on grasping a key issue and finding creative solutions. As the noble Lord, Lord Davies, said, his newspaper columns and his children’s books on investing are some of the best around. He is both an expert and a communicator, and I love his faith in the young.
I am particularly taken with his proposal to engage young people in investing, or understanding investing, by persuading the Government and companies to donate shares to secondary schools. Youngsters can then, in a very real way, learn the practicalities, opportunities, pitfalls and risks of investing, by managing the portfolios in a place where support and advice are available. This is surely a far better way to build financial literacy than abstract theory, and it can build that confidence which extends into many other areas of finance: understanding the risk-reward spectrum.
Your Lordships will be aware that 18 to 34 year-olds are far less intimidated by financing than older people and have a greater risk appetite, but their knowledge is dangerously limited. Some 46% of young people report holding cryptocurrency—I am shocked by that number—typically with no understanding of the asset they have just put their money into. Young people are now a major target for financial scams, primarily via the internet.
There are good courses in schools. My youngest granddaughter took business A-level and we were really impressed by the sophistication of the finance segments, so it is possible to get it into a curriculum. But most youngsters do not take the relevant courses, and I hope the Government will take that on board when they look at the new curriculum proposals that we expect in the next few months. I suspect we all agree that financial savvy is no longer needed only by a small handful of wealthy people but, frankly, by everybody. At the very least, every youngster will eventually be engaged in pensions.
I also support the noble Lord, Lord Lee, in his proposal for grandparents to be able to set up junior ISAs. But I am unpersuaded by the proposal to limit ISAs to UK stocks. When people need to build a financial bedrock—if they can—they should, to my mind, be able to balance risk effectively and without bias. The lack of current interest in UK stocks is a different and complex issue which we do need to tackle. My noble friend Lady Bowles talked about the travesty of what is happening with disclosure rules that distort the picture on closed-end limited-investment companies. This is an area where we really need the Government to move, and move fast. If the economy is to grow and strengthen, we need to increase our understanding and communication. The appeal of UK stocks will come, not with a kind of special intervention for the UK but with broader education and proper economic recovery and growth.
We have talked for a long time of the need for financial literacy, proper advice, ways to expose scams, and helping people understand risk and their own appetite for risk, and their need to seize opportunity. If we can demystify investment and get people to invest with knowledge, and to start acquiring that knowledge in a very real way when they are young, we will have effectively contributed to the future.