Budget Statement

Baroness Noakes Excerpts

Wednesday 3rd November 2021 Grand Committee

[Baroness Noakes (Con)]

My Lords, I agree with my noble friend Lord Lamont and the noble Lord, Lord Fox, that this debate should have been held in the Chamber. Indeed, 10 years ago, when the noble Lord, Lord Davies of Oldham, and I were on our respective Front Benches, it never happened and never would have, not least because we would never have accepted a time-limited debate on something as important as the Budget.

I have a problem with this Budget: it does not feel at all Conservative. Low taxes, pro-enterprise measures and small government have all gone AWOL. I therefore struggle to be upbeat about it. The Budget is of course shaped by the choices that the Government made in responding to the Covid pandemic. The Government never published a proper cost-benefit analysis of their response to the pandemic, so there was no public debate about the right balance of measures that could have been taken.

One bright bit of news emerged last week in the shape of a leaked Cabinet Office document on the current Covid plan B, which fortunately has not been implemented. It shows that the Treasury is on the case in analysing the economic benefit, and it calculates that the cost would be up to £18 billion with very weak health benefits. It is a pity that the more careful analysis for which the Treasury is renowned was not more prominent in the last year and a half.

The economic impact of the Government’s Covid choices are now very visible. The lockdown tanked the economy and required extraordinary levels of support for individuals and businesses. That has left us with debt estimates of nearly 90% of GDP, albeit lower than previously forecast but still at levels that none of us expected to see in our lifetimes, especially under a Conservative Government. The OBR has estimated the long-term effects of scarring from Covid as a permanent loss of 2% of GDP.

The non-Covid outcomes also have to be paid for, with serious backlogs in health and education. The Government are pouring astonishing amounts into the NHS. The Department of Health and Social Care’s budget starts at around £140 billion and rises to nearly £190 billion. There is not a single word in the Red Book about efficiency or value for money in the NHS; the commentary is almost all about spending, which is how the NHS likes to frame the conversation. That cannot be the right approach to public expenditure, and I hope the Minister will assure me that the Treasury will not wait until the next spending review to tackle the black hole of NHS spending.

To pay for all this, we need serious growth in the economy. I am particularly concerned about the prospects of growth beyond the current bounce-back from Covid. As we have heard, the OBR forecasts that growth in the years beyond 2022 will fall below 2%, ending at 1.4% in 2026. Doubtless part of that is a result of the estimates of scarring, to which I have already referred, and one ray of hope is that there is still massive uncertainty about those estimates so it may not have such a dramatic effect. However, if the forecasts are right then we are creating an environment in which businesses will not prosper, the tax yield will decline and enterprise and investment will find no incentives in the UK, which will in turn lead to lower employment. We could be entering a downward spiral.

However, I simply do not believe the forecasts; if I believed them, I would be preparing to leave the country. The only thing that keeps me sane is a belief that the picture painted by the OBR is simply wrong—and not just in the scarring effects, whether from Covid or from Brexit. We know the OBR is resistant to dynamic forecasting, and that may account for some of it; the contribution of trade to GDP is “negligible”, and that feels wrong; and the OBR’s growth forecasts are at the bottom end of those by independent forecasters. So, I shall not be packing my bags just yet.

There were two good bits in the Budget speech. The first was the reduction in duty on champagne. As noble Lords may know, champagne is the dieter’s drink of choice for its low calorific content, so this is clearly consistent with the Government’s obesity strategy.

The second good bit has already been referred to by my noble friend Lord Lamont and read out in full by the noble Lord, Lord Eatwell, so I do not have to take up the Committee’s time by repeating it, but I remind noble Lords that it concludes that there are limits to government involvement in the economy. It was good to hear the Chancellor saying that. It was the most Conservative thing he said in his 34-page speech. I hope he means it, and that we can return to Budgets which reduce taxes, curtail the size of the state, reduce burdens on business and support the enterprise sector to grow and prosper.

Critical Benchmarks (References and Administrators’ Liability) Bill [HL]

Baroness Noakes Excerpts

3rd reading
Tuesday 2nd November 2021 Lords Chamber

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, I would like to make a few short remarks. The Bill builds on the Financial Services Act 2021, which gave the FCA powers to oversee the orderly wind-down of a critical benchmark, such as Libor. In particular, it allows the FCA to ensure the continued publication of a benchmark, using a synthetic methodology. The Bill plays a vital role in supporting a smooth and orderly wind-down of the Libor benchmark, by providing legal certainty for contracts that rely on Libor beyond the end of this year, and a narrow immunity for the administrator of Libor, where it is publishing synthetic Libor as required by the FCA.

It has been a privilege to have engaged in these discussions. I thank noble Lords for their rigorous examination of this highly technical Bill, both in formal debate and in the various technical briefing sessions that I have held. I am confident that the Bill has been thoroughly examined by the House. All those involved have brought significant experience and insight to this process.

I am particularly grateful to my noble friends Lady Noakes and Lord Blackwell for raising this important issue during the passage of the Financial Services Act earlier this year. Once again I put on record my thanks for their work on this matter.

In our discussions, we have covered the issue of the FCA’s methodology for the synthetic rate. We have considered the importance of legal certainty, which the Bill delivers, and we have highlighted the work that the FCA is doing on the wider Libor transition. This includes its work to ensure that synthetic methodology is fair and aligned with the global consensus.

We have talked about the work that the FCA has been doing alongside the Bank of England and the industry-led risk-free rate working group. This will support and encourage a voluntary transition away from Libor prior to the end of this year wherever possible—an effort which has been successful in significantly reducing the number of contracts that will need to rely on the synthetic rate both here in the UK and globally. Throughout, your Lordships have had a particular interest in protecting consumers and maintaining the integrity of UK financial markets.

As we have discussed, the UK has one of the most open, innovative and dynamic financial services sectors in the world. As the home of Libor, we have a unique and crucial role to play in minimising global financial stability risks and disruption to financial systems from the wind-down of Libor. The Bill forms part of a significant programme of work by the Government and the regulators to support the global market-led transition away from Libor. It supports the integrity of financial markets and consumer protection. In doing so, it underlines our reputation as a custodian of a global financial centre.

I conclude these brief remarks by thanking the Economic Secretary to the Treasury, his officials, and the clerks in the Public Bill Office, who have worked so diligently to support the passage of this Bill. I also thank FCA officials for the technical briefings that they have provided. I beg to move.

[Baroness Noakes (Con)]

My Lords, as I was so kindly namechecked by my noble friend, I will just say that I thank the Government very much for responding to the real concerns expressed by the financial services industry in respect of tough legacy Libor contracts. The Bill does not deliver everything that the industry wanted but it delivers a great deal, and I am very grateful to the Government.

Bill passed and sent to the Commons.

Critical Benchmarks (References and Administrators’ Liability) Bill [HL]

Baroness Noakes Excerpts

2nd reading
Wednesday 13th October 2021 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I declare my interests as recorded in the register and, in particular, my holdings in financial services companies, which could be affected by the Bill.

I welcome the Bill and thank the Government for responding to the very real issues that are raised by tough legacy contracts. I also thank the Minister and my honourable friend the Economic Secretary for arranging two very helpful briefing meetings for Peers. Before getting into my speech, I must say how much I am looking forward to the maiden speech of my noble friend Lord Altrincham, and I welcome him to the select group of noble Lords who speak on financial services matters.

When we considered the Financial Services Act 2021 earlier this year, I argued that we needed provisions beyond those contained in that Act to deal with tough legacy contracts. I tabled some amendments in Committee and on Report, none of which found favour with the Government. It was plain to me that legislation was needed to avoid disruption in financial markets, and I warned about the clock ticking down towards 31 December this year, when Libor ceases. I therefore rejoice that the Government have now seen the light, and I hope that this Bill can be speedily dealt with both here and in the other place.

In the previous Bill, I argued for two measures to deal with the tough legacy problem: a contract continuity provision and a safe harbour provision, as referred to by the noble Lord, Lord Sharkey. This is what the financial services industry said that it needed and what the responses to the Treasury’s consultation showed. The Bill provides for contract continuity but not safe harbour. If nothing else, that is regrettable for being out of line with the approach already taken under New York law, where a safe harbour has been provided.

As I understand it, the Government believe that they have drafted the continuity provisions in such a way that a safe harbour is not needed. The theory is that the continuity provided by the Bill should be watertight against any actions that arise from transition to synthetic Libor. There are concerns about this. Experience shows that legal challenges can and do emerge to legal drafting, even if that drafting is initially believed to be bombproof—whether in contract or statute law. No self-respecting lawyer would claim otherwise.

There is clearly a risk of litigation by parties who think that they have suffered from the transition to synthetic Libor or who could gain from being released from a contract. The risk of successful litigation may not be high, but there is a risk. This could be disruptive and costly. I hope that my noble friend agrees that it is important to avoid this.

The scale of the risk may well be difficult to quantify and will, of course, depend on the number and type of contracts that actually transition to synthetic Libor at the end of this year. There will, however, be clear winners and losers. As the noble Lord, Lord Sharkey, said, the new, synthetic rate will probably be higher than Libor—possibly by about 10 basis points. I spent some of our recent Recess acquiring new knowledge about the overnight interest swap rate and the ISDA five-year historic median credit adjustment spread. If nothing else, this shows that your Lordships’ House is a wonderful place for lifelong learning. Ten basis points may not be much on a retail mortgage but, on a large nominal in a commercial transaction, it could be a pretty big deal.

Last week, the Financial Conduct Authority provided us with a very helpful note on synthetic Libor. I fully accept that the FCA has consulted extensively and that there is general market acceptance that the methodology is the best that could be achieved for Libor-like rates. Nevertheless, there has not been a debate about the quantum of the difference between Libor and synthetic Libor and its impact on litigation risk. A question about quantum was tabled last week at a webinar arranged for the financial services industry together with the Treasury and the FCA, but that question was not selected for answer. This will be in the public domain at some stage and I believe it could increase the likelihood of litigation.

An important risk mitigant will be the clarity of the government messaging in relation to the impact of this Bill. I hope that my noble friend the Minister can be crystal clear on three points. First, the Government need to intend for the drafting of Clause 1 to have the same substantive effect as the New York legislation. In other words, the Government’s clear intention should be that the continuity drafting must be watertight in relation to litigation targeting the transition to the use of synthetic Libor.

Secondly, the Government need to be very clear that the ISDA credit adjustment spread—the main source of the difference between Libor and synthetic Libor—is set by the FCA, that it may well result in higher rates, and that it is out of the control of the parties to the contract.

Thirdly, with the strong encouragement of the Treasury, the FCA and the PRA, the industry has been actively transitioning contracts by agreement, generally using SONIA—with or without a credit adjustment spread or base rate. The FCA briefing note to which I referred said that they regarded these formulations as fair. Do the Government agree that these rates are fair, given that they may not be the same as the synthetic rates to be used for tough legacy contracts? It is just as important to avoid litigation on contracts transitioned by agreement as it is on those designated tough legacy contracts, especially as the draft scope from the FCA will potentially put a very large number of outstanding contracts into synthetic Libor for 2022 at least.

I will touch briefly on the fallback provisions in new Article 23FB. It is certainly welcome that contractually agreed fallbacks can continue, particularly where they have been negotiated in the clear knowledge that Libor would be ceasing. However, many contracts and other documents have fallback language which would be problematic if they were saved by Article 23FB. The risk-free rate working group, which has done splendid work on Libor during the last couple of years, highlighted formulations which used “cost of funds” as being problematic. The term sounds more straightforward than it is. There is no agreed method of computation for standard market practice. It is thus a rich source of potential disagreement between parties and, hence, of lengthy and costly litigation, which I am sure the Government will want to avoid. Can my noble friend say whether any contracts with cost of funds fallbacks are likely to stand, or is it expected that they will all be transitioned to synthetic Libor? The latter is clearly preferable, given the difficulty of applying that particular fallback.

Lastly, I want to raise the 10-year time limit on the use of synthetic Libor under the 2021 Act. The New York legislation does not have a time limit. I understand that it is widely believed that there will be a rump of contracts which will go beyond this period. Do the Government accept that some contracts will need a solution beyond 2031? If so, when do they expect to deal with these? I hope that we can avoid the brinkmanship that has characterised the timing of this Bill and some of the FCA decisions in the run-up to the deadline at the end of this year.

In conclusion, despite the concerns I have outlined, I am a big supporter of this Bill. I hope that it will become law as soon as possible and give the market the certainty it needs.

House of Lords Appointments Commission

Baroness Noakes Excerpts

Monday 6th September 2021 Lords Chamber

[Baroness Noakes (Con)]

My Lords, whether or not the Appointments Commission is made statutory or not is a sideshow. The real issue is whether the Prime Minister has the final say on appointments to your Lordships’ House, and whether he can therefore determine its size. I am clear that he should retain that power. Opinions from the commission on individual appointments or the size or composition of the House should never be binding on the Prime Minister or otherwise inhibit his actions.

Ironically, the commission itself has provided the best evidence for not changing the existing constitutional arrangements. Let us look at the commission’s record. For the last 20 or so years of its life, it has recommended the appointment of 74 new Cross-Bench Peers—how successful has that been? From the early days, it was clear that there was a desperate search for diversity, but the most important diversity—that of perspective and thought—seems to have been ignored. Not to put too fine a point on it, the Cross Benches have become more representative of metropolitan liberal groupthink. They cannot be relied upon to reflect the views of the British public. Our debates and votes on Brexit in 2019 are all the proof that is needed of that.

As my noble friend Lord Strathclyde has observed, this House has become a House of opposition to the Government. It is a no-brainer that the Prime Minister must tilt the balance back, even if that means increasing the size of the House. He should not have to wait for the opinions of a commission to do so.

Northern Ireland Protocol

Baroness Noakes Excerpts

Wednesday 21st July 2021 Lords Chamber

[Lord Frost (Con)]

My Lords, we have set out in the Command Paper the very high-level elements of the approach we wish to pursue. Of course, we want to discuss the detail with the European Union, including in many areas. What we are proposing is an extremely light-touch measure to allow trade to flow freely within the UK customs union and single market. We think that is a reasonable response to the situation that currently prevails.

[Baroness Noakes (Con)]

My Lords, I very much welcome my noble friend’s Statement and I hope the whole House will join me in praising his huge efforts to try to make our relationship with the EU work effectively. Does he agree that the guiding star should be what works for the citizens of Northern Ireland, and that if the EU could shift to a people-centric rather than a rules-centric approach, we could start to make some real progress?

[Lord Frost (Con)]

I very much agree with the thrust of my noble friend’s comments. The impact of the protocol on everyday lives in Northern Ireland is a significant part of the difficulty. Again, if one looks at the comments from the chair of Marks & Spencer, we see the risks to everyday life; for example, the risk of not being able to deliver supplies for Christmas under the current arrangements. I do not think that is what either the European Union or we actually want in this situation, and if we can focus on the practicalities and the reality of the situation and try to find a way through, we will all be the better for it.

Ministerial Code

Baroness Noakes Excerpts

Tuesday 27th April 2021 Lords Chamber

[Lord True (Con)]

My Lords, I believe the Prime Minister does and will conduct himself, as he has, in accordance with the principles of public life.

[Baroness Noakes (Con)]

My Lords, does my noble friend the Minister agree that while Westminster and the mainstream media are getting excited about things such as the decoration of the Prime Minister’s flat and who said what to whom in texts, away from the Westminster bubble, people are much more interested in getting their vaccinations, getting back together with their families and friends and getting the recovery of the economy under way?

[Lord True (Con)]

I do agree with my noble friend. The Prime Minister, in denying one of the more absurd allegations, made the same point. If I am allowed a personal comment: I have the privilege of having my second vaccination tomorrow thanks to a modern miracle of science. We should all be profoundly grateful for that and the way it has been carried through in this country.

Financial Services Bill

Baroness Noakes Excerpts

Report stage
Wednesday 14th April 2021 Lords Chamber

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to follow the Minister. In doing so, I declare my financial services interests as set out in the register. I would like to be the first to offer my support for Amendment 14 and what it seeks to achieve. I congratulate my noble friend on the decision to use the affirmative procedure to bring these powers into force.

I will now speak to Amendment 35 in my name. The thinking behind it is quite straightforward: financial exclusion has dogged our nation for decades, ruining individual lives and putting down potential. Solutions exist and thousands of people are working so hard in this area, but we need to do more and we need more innovation: hence the two elements in Amendment 35. It seeks to give the Bank of England—our central bank—a more significant role when it comes to financial exclusion. The Bank has an enviable brand, respected right across the UK and revered around the world. This brand could be well put towards solving the problem of financial exclusion.

The first part of Amendment 35 seeks to give the Financial Policy Committee of the Bank of England an objective to monitor financial exclusion. As noble Lords know, the FPC is responsible for financial stability in the UK. I believe there are 407 billion new reasons to take this opportunity to reconsider financial stability and include financial exclusion within the remit of the FPC.

The second limb of the amendment seeks to suggest the opportunity for the Bank to offer basic bank accounts to those who find themselves financially excluded. The take-up of bank accounts for those financially excluded is not just a measure of what is currently available from retail providers. The history of those individuals also plays a key part, so, again, the brand and the central place of the Bank could play a critical role here. If we considered some of those accounts potentially being digital accounts—perhaps central bank digital currency accounts or digital pound accounts—the Bank might play a critical role in addressing digital as well as financial exclusion.

The Old Lady of Threadneedle Street could be not just lender of last resort but potentially, through Amendment 35, provider of first support for those individuals en route to financial inclusion. Provider of first support is certainly worth a thought. Does the Minister agree?

[Baroness Noakes (Con)]

My Lords, I shall speak only in respect of Amendment 35. My noble friend’s amendment is very well intentioned, covering financial exclusion and basic bank accounts. Despite basic bank accounts having been in existence for nearly 20 years now, there remain problems with take-up. The know-your-customer rules, about which my noble friend Lord Holmes of Richmond raised concerns in Committee on this Bill, also make life difficult for individuals trying to access them. It is no secret that the banks regard basic bank accounts as a costly burden that they have to bear, which is probably at the heart of some of the issues.

--- Later in debate ---

[Lord Blackwell (Con) [V]]

My Lords, I should like to speak to Amendment 37A in my name and remind the House of my former interest as chairman of a regulated bank until the beginning of the year.

As the noble Baroness, Lady Bowles, set out, within the group there is a range of amendments that seek to serve the same purpose and there is a lot of common ground, as indeed there is in the letter of the Economic Secretary that was circulated today. All the amendments reflect a broad consensus, as expressed in previous stages of the Bill, that with the new rule-making powers post Brexit, there is a need to establish more formal parliamentary scrutiny. There has been consensus in the debate that scrutiny requires a committee charged with that role and appropriate technical support. I and others have made the case that that should involve a joint committee of both Houses, although that is not for this legislative stage.

There is also agreement in all these amendments that where regulators precede their regulation with a public consultation, the information should be provided to Parliament at the same time to allow time for it to comment and its views to be taken into account before the rules are finalised. There is also common ground that regulators should take note of Parliament’s views and respond in some form.

I therefore have some sympathy with the amendment, and Amendments 19 and 20, moved and spoken to by the noble Baroness, Lady Bowles, but I prefer mine because those amendments, particularly Amendment 20, are overly prescriptive on the nature of the information and the interaction between the regulator and a parliamentary committee. It should be up to the committee charged with this responsibility to set out exactly the information it wants and how it should interact, as a parliamentary, rather than legislative, matter.

My amendment also adds the requirement for Her Majesty’s Treasury to set the regulations through secondary legislation, to take note of the parliamentary scrutiny and to bring forward statutory instruments to change the secondary legislation that provides the legal framework for rule-making, which may be a necessary response to the comments made. That is also fully consistent with the Economic Secretary’s letter.

The big divide is between my amendment and Amendments 45 and 48, which introduce a requirement for parliamentary approval of rules before their introduction, other than in exceptional circumstances. Such a requirement would fundamentally change the relationship and role of regulators, originally established as independent, apolitical experts acting under parliamentary laws. Of course, regulators should be subject to scrutiny in their role but for Parliament to approve rules before they are enacted removes the independence of the regulators, effectively thereby making Parliament the operational rule-maker and those rules more subject to political views and intervention. We do not impose that ex-ante approval of rules on any other regulator in any other sector, so far as I know. I cannot imagine that our expert regulators in the financial services sector would be comfortable operating under those straits, whereby anything they did had to be pre-approved by Parliament.

The case for parliamentary oversight is unanswerable, but the proper regime is for Parliament to charge the regulators with independently operating the legal framework that it sets up, and then for Parliament to scrutinise how they operate those responsibilities and to change the legal framework if it wants to change the outcome, rather than Parliament seeking to supervise and approve the detailed rule-making on a day-to-day basis. Rather than wait for future legislation, I hope my noble friend the Minister will find it possible to support my amendment. Failing that, I hope the House will clearly reject Amendments 45 and 48 and the huge —and, in my view, undesirable—shift in the relationship between regulators and Parliament that they would represent. I look forward to my noble friend’s response.

[Baroness Noakes (Con)]

My Lords, I have added my name to Amendments 45 and 48 in the name of the noble Lord, Lord Eatwell. I also support the intent behind the amendments in the name of the noble Baroness, Lady Bowles of Berkhamsted, and I know that she too supports his amendments. As has been said, these amendments concern one of the key issues that emerged during scrutiny of the Bill: the parliamentary accountability of regulators and the scrutiny of their actions. As already noted, there was widespread agreement around the House at Second Reading and in Committee that Parliament should have a role in scrutinising the rules that the FCA and PRA may make under the new rule-making powers created by the Bill.

Of much greater importance will be what happens when the Government expand the rule-making powers of the FCA and the PRA, as they have outlined in their consultation document on the review of the financial regulation framework. What we do in the context of the Bill is clearly important in signalling what we expect in the context of a larger shift in rule-making powers, if that is what the Government decide to do following consultation. This is particularly important because the Government’s analysis of parliamentary scrutiny in their consultation document was not encouraging; it was largely a defence of the existing committee activities in each House, with no regard to the new circumstances created by the extensive new rule-making powers. The Government—somewhat surprisingly, given their excellent Brexit credentials—seem not to have taken on board that the scrutiny context has changed significantly with the repatriation of financial services regulatory powers from the EU. That context should drive how we see the way forward.

Since our debate in Committee, my noble friend Lord Howe has made available to us the texts of letters from the PRA and the FCA which broadly say that they will do whatever Parliament decides, which is only right and proper. I do not think the letters add much to the analysis of the issues we debated in Committee, but they nevertheless demonstrate a constructive willingness to co-operate with parliamentary scrutiny. When my noble friend responded to our debate in Committee, I was not filled with confidence that the Government really understand the dimensions of the issues around scrutiny and accountability in the context of these additional rule-making powers. I have seen the rather late-in-the-day letter from the Economic Secretary which landed in our email boxes this afternoon. I shall be kind and say that the direction of travel is positive, but we have not yet reached a satisfactory landing point for this debate. I expect we will continue to pursue this issue well beyond the passage of the Bill.

As my noble friend Lord Blackwell knows, I do not support his Amendment 37A because it is a rear-view mirror amendment. I strongly believe that Parliament should have the opportunity to get involved with the rules made by the FCA and the PRA in time to influence their final shape. It is not satisfactory to think that ex-post scrutiny is an effective mechanism for parliamentary involvement. I do not believe the independence of the PRA and the FCA is threatened by this intervention in how rules are made, given the context of the very significant new regulatory rule-making powers expected to be devolved to them. That is why I support the amendments in this group in the names of the noble Lord, Lord Eatwell, and the noble Baroness, Lady Bowles of Berkhamsted, which provide a much better basis for Parliament’s future involvement in additional rule-making powers.

[Lord Davies of Brixton (Lab) [V]]

My Lords, these amendments are all on the same broad theme. As the previous speaker mentioned, there is a broad consensus that something needs to be done to provide a formal role for parliamentary scrutiny in the work of financial regulators. I do not want to detain the House, but I will take the opportunity to emphasise points that I have made at earlier stages. The basic question, to me, is: who regulates the regulators? The question is why we should trust the regulators; the answer is openness and engagement. Clearly, we have a particular interest here but can, I believe, contribute massively to the work of the regulator.

For us to raise these issues is not to question the expertise or good will of the people who serve on the regulators’ boards or work in their offices. It is simply wrong to assume that, once appointed, they can be left to get on with the job. As is apparent in the debate, there is clear consensus about the need for scrutiny. That is not contested. Obviously, there are clear reasons why they would benefit—the expertise of this House is a factor—but my particular concern is to establish systems that minimise the risk of regulatory capture. This is the experience, widely found, whereby regulators tend to become dominated by the interests they regulate and not by public interest.

I emphasise that this is not about corruption; it is more, in my mind, a social and cultural problem. I do not think the concept, in theory, is contested. The answer is to strengthen and develop the widest possible involvement of all sorts of bodies in the work of the regulators. Clearly, Parliament has a particular role and these amendments explore possible approaches to it. I hope the Minister can say a bit more than what was in the letter. Does the Minister consider regulatory capture to be something that occurs, and where the systems that are established address it and minimise the risk?

--- Later in debate ---

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I speak in support of the amendments just proposed by the noble Lord, Lord Sharkey, which I have signed. One’s heart goes out to him—it must be very difficult to make a speech of this complexity and passion with all these breaks. Despite the technical difficulties, however, he has made the case for action very well, and as co-chair of the all-party parliamentary group on these issues he is very well briefed on the situation faced by these fellow citizens of ours, and the extra costs that they face. It is indeed a very difficult situation, and one hears a lot of despair when one talks to these people.

I am sure that when he responds the Minister will, as the noble Lord, Lord Sharkey, hinted, dwell at length on the numbers of this group in various categories. There is of course a debate on how the prisoners can be split up—I think that the only thing that we agree on is that the total is probably about 250,000. As with the noble Lord, Lord Sharkey, however, my argument is not about the numbers. Simply put, it is clear that a significant number of people, through no fault of their own, cannot exercise the choices about their mortgage that the rest of us can. While some would argue that this is the direct fault of the Government, I think that someone needs to take responsibility for providing a fair outcome for those who are in a position to take advantage of it.

As the noble Lord, Lord Sharkey, says, this group of amendments offers two options: one that focuses on what the FCA might do within the parameters set by the Bill and another—37B, a late amendment that we drafted for Report—that suggests that the Treasury might wish to take powers to act in the way that is most suitable for it. Both have merits, in their ways. As the noble Lord, Lord Sharkey, said, they have detailed implications that need to be followed through carefully. My preference would be for Amendment 37B, for the very good reasons set out by the noble Lord, Lord Sharkey. If, as he said he might, the noble Lord decides to test the opinion of the House, we will support him.

[Baroness Noakes (Con)]

My Lords, the amendments in this group are misconceived, for a number of reasons that I shall explain. I have much sympathy with the plight of mortgage prisoners, who find themselves in a difficult position as a result of taking on debt when market conditions and regulation allowed mortgage lending in ways that are not generally possible now. We have to remember that many of the borrowers we are talking about would not qualify for a mortgage in today’s environment, either because of the type of mortgage that they have or their own financial circumstances. This is not to blame them, but it is a relevant fact.

Mortgage prisoners are not the only groups who are facing financial problems. Covid-19 has brought financial stress for many individuals and families, and indeed the problems of mortgage prisoners may have increased during the pandemic. Any solutions for mortgage prisoners need to be put in the context of all who are facing debt problems, and we must be careful that solutions for one category of financial distress are fair and proportionate.

Covid-19 has also caused delays in the implementation of the FCA’s initial solution, which relaxed the regulatory affordability rules. We do not, therefore, know how effective those will be in solving the problems of mortgage prisoners, and we should be wary of leaping to further solutions until existing remedies have had time to take effect.

Although a number of statistics have been cited by the supporters of the amendments, hard data on the mortgage prisoner population are not readily available. This was underlined in last year’s report by the London School of Economics, and the FCA has never claimed to have a perfect picture. Although the report by the group UK Mortgage Prisoners purports to offer a definitive analysis, its membership is only a fraction of the number potentially within the mortgage prisoner net, so its report should be treated with appropriate caution. It is hard to make policy in this environment.

The amendments include a cap on standard variable rates—SVRs—for all mortgage prisoners with inactive or unregulated lenders, plus two approaches for making new fixed-rate deals available to those who are basically good payers. The proposal to cap SVRs responds to a fairly vociferous demand from lobby groups. Amendment 21 would cap SVR rates at 2 percentage points above base rate. The result would be a rate broadly aligned with the competitive rates available in the active mortgage market, but those rates are available only to low loan-to-value ratios, and to borrowers with the most robust financial profiles. The market rates for riskier high LTVs are probably twice that level, even if the personal financial profile of the borrower is resilient. In addition, there is not an unlimited supply of fixed-rate deals. Many lenders simply do not offer fixed-rate deals on high LTV loans, especially when combined with weaker personal financial profiles.

The amendment says that mortgage prisoners with inactive or unregulated lenders should have rates that are available only to other mortgage borrowers who have completely different loan and borrower characteristics, and it would apply to them even if they did have opportunities to switch mortgages, which the FCA estimates is roughly half the total population. It is unsurprising that the LSE did not recommend this, and noted that it could create market harm. The FCA’s own analysis, comparing the rates paid by mortgage prisoners who are stuck on SVRs and cannot switch, indicates that the real problem is only about 40 basis points, if the correct comparator is used. I do not accept the assertion of the noble Lord, Lord Sharkey, that that is an incorrect calculation. Those 40 basis points are no proper foundation for market intervention.

As the noble Lord, Lord Sharkey, explained, the proposals for the availability of fixed-rate mortgages for good payers in Amendments 21 and 37B take slightly different approaches. Amendment 21 says that FCA rules should

“make new fixed interest rate deals available to mortgage prisoners”,

while under Amendment 37B the Treasury must provide for them to be offered fixed-rate mortgages. Neither amendment says how this can be achieved.

In the case of Amendment 21, it would be a startling new direction for regulation if the FCA could tell regulated lenders that they were obliged to offer particular deals to people who by definition are not their own customers. As for Amendment 37B, clearly the Treasury will not itself be providing loans, as it is not in the business of retail lending. The Treasury also has no power to tell banks or building societies to make any particular loans. If either of the amendments resulted in regulated mortgage providers being told that they had to lend to certain groups of non-customers, the impact on the financial services industry would be chilling.

It might be possible for the Treasury to procure that regulated lenders offered fixed-rate deals if the Treasury itself guaranteed all or part of the debt, as it does for some first-time buyers. But that is not what Amendment 37B says, and it would not be a plain reading of the proposed new clause to cover such an intervention.

As if telling lenders what products they should offer and to whom were not bad enough, both amendments go on to try to cap the price of these fixed-rate deals. Amendment 21 would do this at a rate to be fixed by the FCA, using LTV ratios and average rates available to customers of active lenders. This ignores the basic fact of life that mortgage prisoners who have not remortgaged are not like other borrowers, and do not satisfy the lending criteria of most mortgage lenders—whether that is because the LTVs are too high or because the other financial characteristics of those borrowers place them outside the risk appetite of active lenders. For some borrower circumstances there is no market rate at all, and it is not right to assume otherwise.

--- Later in debate ---

[Baroness Noakes (Con)]

My Lords, at this late stage of the evening I shall not try to emulate the previous speaker’s length of contribution—indeed, I shall deliver a slightly shorter version of what I had originally intended to say. I speak in favour of Amendment 24, in the name of my noble friend Lady Neville-Rolfe.

Amendment 24 focuses on ex post analysis of the impact of changes introduced by the regulators or the Government. It therefore gives us a different lens on the impact that interventions have had in practice. My noble friend normally focuses on impact statements, which are ex ante evaluations and often suffer from highly questionable assumptions and confirmation bias. When we deal with ex post analysis, however, we can rely on outcomes and facts. That kind of analysis is really important when helping to shape policy going forward or correcting any mistakes in policy already introduced, so I support this amendment. I personally would not have gone for an annual report, because the ability to see the cumulative impact of changes is quite important but difficult to track in an annual report. However, a report is an extremely good idea.

The noble Lord, Lord Sharkey, has tried to add a consumer focus to the report that my noble friend Lady Neville-Rolfe has proposed. I think it is better focused on small business, innovation and competitiveness; to add consumer matters would dilute the focus of that report. I am not against a report on consumer protection but it would not help to stick it in the middle of something focusing on issues such as competitiveness.

The noble Baroness, Lady Bennett of Manor Castle, will not expect me to support her Amendment 37. The analysis we got from her and the noble Lord, Lord Sikka, seemed to be of a world I do not really recognise. I believe the financial services sector is a great success story for this country and makes a big contribution to our economy. A number of the things that noble Lords cited seemed to be clinging to an outdated bricks-and-mortar vision of what banking is really about; frankly, that is not the world we live in today. Just as we have seen that bricks-and-mortar retail is not the way forward, it will not be for banking either. We must not keep tying ourselves to the way things were in the past.

[Baroness Kramer (LD)]

My Lords, given the hour I shall also be very brief, but I have to say I rather like the amendments in this group. I like Amendment 24, as amended by Amendment 25—I do not care if it is a separate chapter. But it is quite dangerous to get tangled into issues around competitiveness without making sure there is a lens on consumer protection at the same time. Many small businesses fall into the consumer category in reality, certainly the micro end of small businesses.

What I like about this amendment is: what you measure, you manage. We are so constantly focused on change, new regulation and new rules, without ever going back and looking at the consequences of what we have done and trying to identify what worked, what did not and where the gaps are. It seems that this proposal goes absolutely in the right direction.

There is something interesting in Amendment 37 because one of the big questions that has never been answered is: how does our financial services industry impact on the real economy, in contrast to something much more circular within the financial services economy? I do not think that one is good and the other bad but they are very significant questions, particularly in a country where we have such a dominant investment banking culture, which does not necessarily provide a wide range of relevant services to a great deal of our economic base—particularly our small business base. There is a very interesting question wrapped up in all of that. The approach of saying “We need to look at this in a serious and consistent way, perhaps regularly” strikes me as important when feeding the strategy which then informs the way in which the regulator, the Treasury and the Government behave.

Global Minimum Corporate Tax Rate

Baroness Noakes Excerpts

Wednesday 14th April 2021 Lords Chamber

[Lord Agnew of Oulton (Con)]

I am not sure whether the noble Lord is referring to the move by the American Government to put forward their own propositions on international tax reform, but it is important to clarify that the US Government are following the G7 work that has been done on pillars 1 and 2. It is rather good news that they are engaging in a much more front-footed way than happened under the previous Administration.

[Baroness Noakes (Con)]

My Lords, I hope that my noble friend will agree that the suggestion from the US that the minimum tax rate might be as high as 21% has no chance of global agreement. However, do the Government think that there is any level at which a global deal might be done?

[Lord Agnew of Oulton (Con)]

I can only speculate on what that might be, but the important thing is to try to get as much harmonisation on rules for large multinational companies. That is why we were always keen on pillar 1, which ensures that the profits of large digital businesses are taxed in the countries where they make their sales. It is important because, as one of the largest economies in the world, we believe that these international companies should not be able to just come here and take all the advantages of the infrastructure that British taxpayers are contributing to the creation of.

Post Brexit: Economic and Political Opportunities

Baroness Noakes Excerpts

Thursday 25th March 2021 Lords Chamber

[Lord Frost (Con)]

My Lords, I have, of course, read the full and thoughtful report produced by the noble Earl’s committee, which was published on Monday, on this question and many others. We think that it is right to establish the Government’s arrangements fully when the treaty is fully in force and ratified on both sides, which we hope will be very soon.

[Baroness Noakes (Con)]

My Lords, does the Minister agree that the noble Lord, Lord Rooker, should concentrate on outcomes, not process, and that he need look no further than the terrific work being done by my right honourable friend the Secretary of State for International Trade, with 66 trade deals already done and more still to come as evidence of how the Government are delivering opportunities for the UK now that we are out of the EU?

Financial Services Bill

Baroness Noakes Excerpts

Committee stage & Lords Hansard
Wednesday 3rd March 2021 Grand Committee

The OECD is not a radical campaigning group but very much a mainstream organisation. Its report recommends tougher laws to hold these enablers criminally liable, as we are aiming for here. Surely the Government must act. If they will not listen to the experts here in Grand Committee, maybe they will listen to this group and consider how the rest of the world sees this. The report also says that countries should create national strategies to deal with the problem of professional enablers. Perhaps in responding, the Minister can indicate whether the Government plan to follow this recommendation, if not now, perhaps through correspondence in the future.

[Baroness Noakes (Con)]

My Lords, this is a large group of amendments and I shall not comment on all of them. I had not intended to speak about Amendment 51A, to which the noble Lord, Lord Sikka, spoke a while ago, but the way in which he framed his comments has prompted me to do so. The noble Lord persistently used the term “trade associations” to describe the professional bodies that are involved in supervisory activities in relation to money laundering. I declare an interest as a member, and former president, of the largest of the professional bodies to which he referred, namely the Institute of Chartered Accountants in England and Wales.

The ICAEW does act as a regulatory body for its members in relation to money laundering, as it does in relation to other activities, but its members carry out as professionals. This activity is overseen by an independent regulatory board, which is chaired by a QC and has lay members on it. I fear that the noble Lord, Lord Sikka, has not presented the whole story on this—perhaps he did not know it; those who listened to his contribution ought to be aware that it is not the whole picture by any means.

My noble and learned friend Lord Garnier made a strong case for his new offence of failing to prevent an economic crime. He will know that there is considerable concern about the practical impacts of such an offence on the commercial world and that there was only a small majority in favour of a new offence when the Government consulted on it. I have no idea what is in the Economic Secretary’s letter, to which he referred, but I believe that the Government made a wise decision last year in referring the matter to the Law Commission for further study. We should await its findings. I understand that it is due to report by the end of this year; that is not a huge delay for something that could have significant consequences for a large part of the commercial world.

I support the idea behind Amendment 51 in the name of my noble friend Lord Holmes of Richmond, namely a review of the “know your customer” regulations. All noble Lords taking part in this Committee are PEPs—politically exposed persons—and I am sure that we have all bumped up against the ludicrous way in which some banks and other financial institutions act under the guise of their customer due diligence obligations. Looking again at this whole territory is definitely worth while.

Further, the UK’s money laundering rules were made in the EU. Now that we have left it, we have the opportunity to see whether the money laundering directives and regulations now embedded in our law are fit for purpose. The UK must remain committed to high standards in the fight against financial crime, but looking at the efficiency and effectiveness of the rules is entirely consistent with maintaining high standards.

The KYC rules are just one part of the money laundering rule set, and I would urge any review to go beyond KYC and look at the whole range of rules. For example, the SARs regime for suspicious activity reports is very burdensome for all involved, both the firms that make the reports and the regulators that receive them. In addition, there are restrictions on banks’ ability to communicate with each other about customers or potential customers, which increases costs and certainly reduces effectiveness. So, I urge my noble friend Lord Holmes to be even more ambitious in the review that he seeks.

Lastly, Amendment 96 in the name of the noble Baroness, Lady Kramer, seeks the establishment of a financial services whistleblower office. I wonder whether she has taken account of the changes made by the regulators to whistleblowing arrangements in regulated firms. Since early 2016, firms have had to have a nominated non-executive director as a whistleblowers champion—not responsible for whistleblowing but, effectively, for its oversight. Most firms align that specific required responsibility with the responsibilities of the audit committee chairman. In addition, the whistleblowing rules themselves were overhauled at the same time. I have not yet heard the noble Baroness speak to her amendment but I wonder whether the evidence base that she relied on as a background to her amendments pre-dates those new arrangements, and whether it would be wise to review how well the new arrangements are working in practice before creating yet another quango.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I have put my name to Amendment 84, in the name of the noble Baroness, Lady Bowles, so I am afraid I am going to disappoint my noble friend Lady Noakes. We are normally on the same side but I am afraid that, on this issue, we are not. Perhaps I can turn away her wrath somewhat by saying that I much supported her views on Amendment 51A, which is a worthy amendment but does not go nearly far enough. We need to look at the whole regime; looking at one part of it is not sufficient, a point I was trying to make on an amendment we debated on the first day in Committee.

Like my noble and learned friend Lord Garnier, I am grateful to the noble Baroness, Lady Penn, and to the Economic Secretary to the Treasury for their briefing and correspondence. I apologise that the briefing was cut short for me because I had a power cut. My computer therefore went down, but I am grateful for the letter that was received earlier today.

The issue of failure to prevent has been pretty widely forked over in the speeches on this group, so I want to make two pretty quick points. The first flows from my membership of the Committee in your Lordships’ House which undertook the post-legislative scrutiny of the Bribery Act. We reported in March 2019 and our report found that the Act was:

“an excellent piece of legislation which creates offences which are clear and all-embracing.”

We went on to say that

“the new offence of corporate failure to prevent bribery is regarded as particularly effective, enabling those in a position to influence a company’s manner of conducting business to ensure that it is ethical, and to take steps to remedy matters where it is not.”

In our report, we noted, as did the noble Lord, Lord Rooker, that it was as long ago as May 2016 that the then Prime Minister, David Cameron, called for a consultation on a new offence of failure to prevent economic crime. We also noted that when Ministers gave evidence to the bribery committee on 4 December 2018, now over two years ago,

“Mr Argar said: ‘We intend to publish our response to it [the consultation] next year,’ and Ben Wallace MP added: ‘The Solicitor-General and I are pretty keen that we explore further the failure to prevent in broader economic crime … We raised it at the last inter-ministerial government meeting’”.

He added that John Penrose, the Government’s anticorruption champion,

“and I are keen to see this.”

The responses to the government consultation, although unpublished, and those suggested by Mr Glen to be inconclusive, are not as inconclusive as all that. The staff of our committee were able to find a lot of the submissions, which were available on the websites of the respondents, and none that we could find opposed the extension of the failure to prevent offence. Indeed, many supported it.

That takes me to my second point: the road to hell is paved with good intentions. The Government said in May 2019 that the call for evidence had closed in March 2017 and a response “will be issued shortly”. So, what are we waiting for? The Government have been standing on the edge of the pool for over two years. Each time they seem ready to jump in, inertia overcomes them and another round of consultation begins—now with the Law Commission, for which I have the highest regard. When my noble friend comes to reply, it would be helpful if she could let the Committee know what angles the Law Commission is supposed to focus on in this latest review and, in particular, what angles it will examine that have not been extensively looked over during the past four years.

--- Later in debate ---

[Lord Davies of Brixton (Lab) [V]]

I want to say a few words at this late hour strongly in favour of Amendment 55 and mention the possibility of a wider-ranging debt jubilee. There is clearly a case for this amendment, and the same case can be made for a wider-ranging approach to relieving the burden that debt places on us all, not just on the individuals. Clearly it ruins lives and leads to much misery, but it also affects the rest of us: it acts as a drag on the economy and the recovery that we now so desperately need. Anything that we as a society can do to relieve the absolute burden of debt, the better.

The proposal in the amendment for a fair debt write-down is a welcome development to the debt relief scheme. The moral case for passing on some of the discount that currently goes to debt collection agencies is clear, and there is an advantage to the Treasury. The same case fundamentally applies to us as a whole. We need a more comprehensive package of debt cancellations, targeted at the household sector. We want a way of writing off debts, just as so many debts were written off in the financial sector 12 or 13 years ago. We were told then that some banks were too big to fail, because of the harm it would cause the economy. I argue that the challenges facing individuals, because of their debt, mean as much or even greater harm for us all.

The main argument today is that such a scheme, as well as relieving much individual misery, would provide a direct, targeted macroeconomic boost to the economy, exactly where it is needed, helping some of the most hard-up in our society. It will boost economic growth, and help those who have fallen into the misery of debt—and all of us.

[Baroness Noakes (Con)]

My Lords, I will offer a slightly different perspective on this. I understand the problems of overindebtedness among poor people, but I do not believe that Amendment 55 makes sense. If I understand the proposed scheme correctly and if a debt under a debt respite scheme is sold for less than its face value, the original borrower has to pay back only that lower amount plus 20%. Let us say that I buy a debt with a face value of £100, for which I pay £80. I can recoup £96, which is £80 plus 20% of £80. That might seem reasonable on a loan-by-loan basis but, in practice, loans are sold in groups or books.

To the extent that there is a market for debt respite scheme debts, the amount that a purchaser pays will take account of two main things—first, the likelihood that the debt will be repaid; and, secondly, the difference between the income receivable on the debt, if any, and the purchaser’s cost of funds.