Financial Services and Markets Bill [HL]

Baroness Noakes Excerpts

Report stage
Wednesday 9th September 2026 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I have Amendments 36, 39 and 42 in this group. I thank my noble friend Lady Neville-Rolfe for adding her name to them. They seek to achieve, through slightly different drafting, what the noble Baroness, Lady Bowles of Berkhamsted, sought with her Amendments 35 and 41. In my view, proportionality is the most important of the regulatory principles, and we try to elevate it above the other regulatory principles.

I regret the downgrading of regulatory principles in general under Clause 17, but I am glad that the Government have recognised that they went too far on proportionality and have amendments in this group effectively preserving the status quo for proportionality. We have not achieved an upgrading of proportionality in the regulatory hierarchy, but we have at least protected it from being downgraded.

As the noble Baroness, Lady Bowles of Berkhamsted, said a moment ago, the Financial Services Regulation Committee will now have to bear some of the burden. We will need to make sure that the regulators do not ignore the other important regulatory principles. The noble Baroness mentioned transparency, and I agree with her on that. I also single out the principle that consumers need to take responsibility for their own decisions. The committee will certainly call out the regulator if necessary.

[Baroness Bennett of Manor Castle (GP)]

In the interests of time, I shall focus on my Amendment 38, which appears in this group. It would retain the need to have regard to regulatory principles, which has already been broadly discussed. I will focus on the way in which it specifies the need to have regard to financial crime related to organised environmental crime. However, I must take a second to welcome the comments and commitments from the Government Front Bench to bring some climate components back into the Bill at Third Reading. It is always good to celebrate when campaigning works, and I think we can all hope to reach a time when we do not have to campaign on such environmental basics.

I spoke extensively in Committee about the issues around financial crime related to organised environmental crimes. I shall not repeat what I said then, but I and other careful observers were not satisfied with the Minister’s response. The response from the then Minister was extremely general:

“financial crime and money laundering, whether related to environmental crimes or not, is illegal and something that financial regulators, and this Government, already take extremely seriously. The FCA has a broad remit to tackle financial crime”.—[Official Report, 29/6/26; col. Grand Committee 371.]

That was a very general response that did not address the specific concern about environmental crime and the way in which many other jurisdictions are taking action in this area.

I acknowledge the support I have received from WWF in preparing this response, and I refer to a WWF Themis survey of 644 financial services professionals from 17 countries. It found that almost half the financial institutions sampled operated in high-risk sectors or areas involving environmental-financial crimes, yet more than one-quarter said they did not undertake specific related due diligence. Additionally, 60% of financial institutions surveyed had no land conversion risk policy in place. A 2025 survey of financial investigations units by the Egmont Group identified a lack of alignment of environmental laws with anti-money laundering and anti-terrorist financing standards, and a limitation on their ability to share data or conduct specific activities related to environmental crimes as regulatory constraints. Without explicit recognition of this through the regulatory principles of the FCA and the PRA, relevant actors are not required or equipped to respond with the necessary action. Indeed, in the above-mentioned survey, respondents said that self-regulation is not

“a sufficient driver of change when it comes to land conversion”,

and called it “optimistic” to think that financial institutions would commit to affirmative action with just voluntary frameworks in place.

I note that around the world, FATF recognises environmental crimes as predicate offences for money laundering. The European Union has strengthened its criminal law framework through the environmental crime directive, requiring member states to publish a national strategy on combating environmental crime offences by 2027. As an example from the global south, Zambia’s Economic and Financial Crimes Court, a division of the High Court, recently forfeited to the state a vast array of assets associated with a major illegal lobbying operation. Diplomatic momentum for the fourth protocol of the UN Convention Against Transnational Organized Crime to address crimes against the environment is also advancing, with support from the UK. That is what we are saying internationally, but what are we doing domestically? As a global financial centre, the UK has a specific responsibility to ensure that it is taking effective action against environmental crimes globally and any involvement of our financial sector in those crimes, and can play an important role in achieving a stronger global approach.

Financial Services and Markets Bill [HL]

Baroness Noakes Excerpts

Report stage
Monday 7th September 2026 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, it is late, so I shall be relatively brief and not revisit the issues that we looked at in Committee. When I tabled these amendments, I still hoped that there would be some agreement reached on restoring the information hooks that Parliament has relied on until now for oversight, and to suggest a minimum set of reporting requirements in the current void of the strategy report. But it has been made clear by the Minister now, and in discussions between the Minister and the noble Baroness, Lady Noakes, as chair of the Select Committee, that the Government will not accept any statutory requirements. If that is the case, the committee will have to draw that information in itself, and the letters from the regulators offer the promise that they will co-operate in that. I suggest that we should take that opportunity to be able to do more things in real time, rather than long after decisions are made.

Obviously, it is for the committee to decide what written and oral information it wants and when, but one way to address the gap would be a triennial cycle of structured meetings with regulators. Each session could explicitly track developments in consultations and rule-making, including the work of the statutory panels, with an additional cycle of other matters. A suitable timing could be late February, when you could do an operational alignment review of draft business plans, budgets and cost-benefit analysis variances before they are locked in for the financial year. In mid-June, a session could be focused on the secondary competitiveness and growth objective, tracking live authorisation times, licensing, service-level agreements and regulatory overlap arising from current consultations and rule-making activity. In October, one could do a post-Recess review of rule-making, “Dear CEO” letters and summer-period backlogs ahead of the autumn Budget. Those are just examples of how you can get matters to fit in with the other fiscal events.

Adopting that kind of timetable would give Parliament timely visibility. We could avoid boilerplate reporting and ensure accountability, even though we lose the statutory hooks. But I think that neither the regulators nor the Government really appreciated the message that crossing out all these previous statutory things indicated, and it seemed as if Parliament had been totally ignored as a stakeholder and as a party that should have been consulted.

I hope that we can recover and come through this, probably with more reporting in the end that is pulled in at our request. I do not see that this as something that we have to negotiate; this is something where Parliament can ask, and we expect that the regulators will comply. Now that sounds aggressive, but I actually think that it will be able to be negotiated relatively reasonably, at least if it is anything like the experience that I have had elsewhere.

[Baroness Noakes (Con)]

My Lords, this is the first time I have spoken on Report, so I need to declare my interests as shown in the register, namely, that I hold shares in listed financial services companies, which may well be affected by the content of this Bill.

I start by thanking the Government for tabling Amendment 31, which is in fact identical to an amendment that I tabled in Committee. The Minister, the noble Lord, Lord Stockwood, who is in his place, said then that he could not accept my amendment because the Government were

“looking into this point to determine if this is fully clear within the drafting of the clause”.—[Official Report, 24/6/26; col. GC 333.]

That was nonsense, and I feel sorry for Ministers who are told by their officials to say these sorts of things. It was clear that the drafting of the Bill was wrong, and that my amendment put it right. I am very glad that the Government have now caught up with me.

The rest of the amendments in this group deal with the knotty issue of accountability of the regulators. The noble Baroness, Lady Bowles of Berkhamsted, has tabled several amendments to try and improve what is in the Bill and reverse some of the changes in the Bill that will undoubtedly weaken the accountability arrangements. Of course, I support those amendments. But accountability means much more than plans and reports, which is what the noble Baroness’s amendments tend to focus on. Some of us put forward various ideas in Committee about how we could improve accountability—the point being that we are looking to get a step change in the accountability arrangements.

This all comes back to the FSMA model, which my noble friend Lady Neville-Rolfe spoke about in the first group. I support the FSMA model in principle, but it is under increasing strain, as has been mentioned already today. It was first invented long before Brexit, when swathes of financial regulation were drawn up in the EU and scrutinised in detail via the EU Parliament. When FSMA 2023 paved the way for this additional delegation to the regulators of all of those EU competences, it was partially offset— only partially—by strengthening the role of Parliament. When the regulators use their powers to create rules and guidance, they now have to send that into the parliamentary committees, including the Financial Services Regulation Committee, which, as has already been said, I currently chair.

I am clear that holding the regulators to account for how they are using their powers—that is, real-time accountability rather than the ex-post accountability that annual reports deal with—is an uphill battle for very many reasons, not least an imbalance between the scale of resources devoted to parliamentary committees compared with the vast resources that are deployed within our financial system regulators. As we know, this Bill creates yet more areas of delegated powers to the regulators—consumer credit, which we debated earlier today, but also the payment systems which the Minister spoke to a few moments ago. This, again, is why we need to strengthen the accountability arrangements rather than weaken them, as the Bill currently does.

The Government have partially recognised that the Bill went too far and have tabled amendments on proportionality, which we will debate on our next Report day. The balance, however, has still shifted away too far from Parliament being able to operate effective accountability mechanisms. That is why I tabled Amendment 68, and I thank my noble friend Lord Bridges of Headley, the noble Baroness, Lady Bowles of Berkhamsted, and the noble Lord, Lord Vaux of Harrowden, for adding their names to it.

Autumn Budget 2025

Baroness Noakes Excerpts

Thursday 4th December 2025 Lords Chamber

[Baroness Noakes (Con)]

My Lords, it is good to see so many on the Government Benches here to support their failing Chancellor and her miserable Budget. They are in a very small minority. In polling after the Budget, only 10% thought Labour were the best party to run the economy. That is lower than the score achieved after the Truss-Kwarteng mini-Budget.

The run-up to the Budget was chaotic. Whatever the Chancellor intended with the constant press briefing and that excruciating early morning Downing Street speech, the fact is that pretty well everyone was misled about what was going to be in the Budget. This chaos was then followed by a Budget designed to please fractious Labour Back-Benchers rather than sort the economy out. The gilt markets were unimpressed and maintained our position as the advanced economy with the second-highest borrowing costs. Since the Chancellor has been appointed, the gap above the average advanced economy borrowing cost has been growing.

The Budget confirmed that this is a tax-and-spend Government. The tax burden will be a record 38.3% of GDP by the end of the forecast period, while public expenditure will be more than 44%—way above pre-pandemic levels. The Minister claimed again today that growth is the number one priority, but the OBR has pointed out that there is nothing for growth in this Budget. The Minister bragged about growth in the first half of this year, but he knows that a large chunk of that is down to one-off factors. The outlook for growth is at best lacklustre.

Businesses are in despair. We have a tax system that is ranked 32nd out of 38 countries in the tax competitiveness index, 1960s-style employment laws are about to be imposed on business, and taxes and inflation are sucking demand out of the economy. It is no surprise that the OBR sees business investment falling away. Working people too are in despair. Their taxes are rising—by stealth, largely—to fund an increasing number living on state handouts. The rich and the young are leaving the country every day, which simply compounds the problem.

The Budget dodges some tricky issues that may well derail the Budget arithmetic. I have some questions for the Minister. Like the noble and gallant Lord, Lord Craig of Radley, I want to know when the 3.5% committed to defence will be achieved. It certainly is not showing up in the current Budget numbers. Like my noble friend Lady Barran, I ask the Minister to say how much will be spent on SEND after 2027-28, which budget will pay for it and what will happen to the accumulated local authority deficits that have been growing while they have been funding the rising SEND bill over recent years. In addition, how many billions of efficiency savings after 2028-29 are still to be identified? How will the £1.8 billion bill for digital ID cards be paid for? Whose budget will that come from? One thing is clear: we need a change of leadership in the Treasury if the UK is going to have any chance of economic success.

Economic and Taxation Policies: Jobs, Growth and Prosperity

Baroness Noakes Excerpts

Thursday 13th November 2025 Lords Chamber

[Baroness Noakes (Con)]

It is always a pleasure to follow the noble Baroness, Lady O’Grady of Upper Holloway, but she will not be surprised to find that I agreed with very little of what she said—indeed, I was horrified by some of it.

Four minutes is not long enough to cover the very many ways in which the Government are damaging our economy, so I will concentrate on just one area: how their tax policies impact business investment in the UK. This morning’s dismal GDP figures, which are the result of this Government’s policies, underscore the growth problem. If the UK is going to escape from that, we need businesses—both existing ones and new investors from abroad—to invest.

Tax really matters when it comes to investment decision-making. This year’s tax competitiveness index ranked the UK 32nd out of 38 countries, with a corporate element only marginally better, at number 28. These are terrible figures. The key drivers of this are the headline rate of corporation tax, the complexity of the tax system and low levels of tax allowances.

First, I turn to the headline rate. We used to have a rate of 19%, and then it was raised to 25%. The current Government have said that they will keep it at 25%, which is a mistake. When CFOs run the numbers on investment decisions, a key determinant of the outcome is corporation tax, because it is such a big drag on net investment returns. Low corporate tax rates both encourage investment and increase tax yields. Ireland, with its 12.5% corporate tax rate, is the living proof of this.

Secondly, on complexity, we notoriously have the longest tax code in the world, at over 22,000 pages. Size is not synonymous with complexity, but it is a pretty good proxy. Businesses want to be able to understand the tax rules that affect them and to be able to interact efficiently with the tax authorities. We fail on both counts.

Thirdly, although we have a competitive system of tax allowances for plant and machinery, we are not competitive for structures and buildings, which are important for some kinds of business investment. Research by the Tax Foundation suggests a significant GDP boost if tax expensing were widened.

In last year’s budget, the Chancellor made the terrible decision to raise employers’ national insurance on top of the minimum wage hike. This has already led to higher prices and lower employment, and it is now a big negative factor in investment decisions that create jobs. Similarly, business rates are now weighing heavily on business investment that needs a large physical footprint. On top of all this, as my noble friend Lord Elliott explained, the non-dom tax regime actively deters entrepreneurs from making the UK their investment base. Wealthy businesspeople are already relocating; soon they will not come at all.

The Government did not create all these problems, but they certainly made them a lot worse. A decent rate of growth is a pipe dream if the Government continue with policies that actively deter business investment.

National Debt: It’s Time for Tough Decisions (Economic Affairs Committee Report)

Baroness Noakes Excerpts

Friday 25th April 2025 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I was a member of your Lordships’ Economic Affairs Committee under the excellent chairmanship of my noble friend Lord Bridges of Headley when this report kicked off, but the annual musical chairs of Select Committees saw my chair move to another committee before the report got seriously under way.

Since the global financial crisis, all Governments have normalised high levels of debt and focused on short timeframes. The report correctly calls out the lack of focus on medium to long-term debt sustainability, and we urgently need this to be a government priority. If we look back to the 1970s, when the debt-to-GDP ratio came back below 50% after about 60 years, there was no sophistry around whether R was greater or less than G, or whether tipping points could have been predicted; it was just accepted that keeping the debt ratio down to a sensible level was an important thing to do. There was not much science to Gordon Brown’s first iteration of his fiscal rules in 1997, which set the debt ratio at what he described as a “stable and prudent” level of 40% of GDP. It did not matter that the 40%—or indeed the EU’s 60%—could not be proven with intellectual rigour. These were rules of thumb which conveyed a sense of sound financial management.

These debt targets provided a sustainability underpin, as they allowed economies to absorb inevitable shocks. However, sustainability now seems to mean absorbing those shocks by being able to borrow more: as long as we keep borrowing, we will be okay. That is the approach to balance sheet management that brought Thames Water to its knees. Operating just the right side of a tipping point is a gamble, and it is one small shock away from financial disaster.

The prudent rules were thrown out of the window after 2008, and all iterations after that point, including that of the current Government, assume, in effect, that high levels of government debt are normal. These rules have allowed successive Governments to carry on spending as if the only issue were a few basis points on the trajectory of debt in a few years’ time. We currently have the crazy spectacle of debt levels hovering around 100% and the Chancellor making microadjustments to her fiscal strategy every time the OBR produces another forecast that eats into her tiny headroom. Changing the debt measure to one based on net financial liabilities is just another layer of smoke and mirrors. There is no plan to get debt levels seriously trending back towards pre-global financial crisis levels, and, equally, no plan to cope with debt hurtling towards 300% of GDP as demographics and other long-term pressures take their toll.

The Government are betting the farm on getting growth back into the economy, but it is going to take levels of growth way beyond those we have seen in recent years if debt is to trend down convincingly towards much lower levels. No one outside the Treasury bubble thinks that the growth mission has any traction whatever, and most government policies are pulling hard in the other direction. I agree with the Economic Affairs Committee that it is time for tough decisions, but the report should have been more explicit about what “tough” really means. The complacent government response to this report shows that the Government are completely blind to the problem.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Noakes Excerpts

Consideration of Commons amendments and / or reasons
Monday 24th March 2025 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I support all the amendments in lieu in this group, particularly Amendment 21B by my noble friend Lady Neville-Rolfe, asking for an ex post review of the impact on various sectors of this jobs tax. It is official government policy, confirmed by the leader in the other place, that Parliament will be given the information it needs to scrutinise legislation properly, but, shamefully, the Treasury refused point blank to give the information that we requested in order to scrutinise this Bill properly. My noble friend’s amendment is modest and reasonable, and if the Government do not accept it then that will show a complete lack of respect for Parliament and the process of parliamentary scrutiny.

I want to underline a point made by my noble friend Lady Neville-Rolfe about hospices. At the earlier stages of the Bill, the Minister kept repeating that the Government were putting £100 million into hospices and £26 million into children’s hospices. It is clear that neither of these amounts represents additional money available to absorb the cost pressures produced by the national insurance changes. My noble friend explained that, and I hope the Government will not try to pretend that the funding situation for hospices is anything other than completely dire at the moment.

[Lord Ashcombe (Con)]

My Lords, I would like to personalise this a little, because the hospice movement is unbelievably important in this country, and I am grateful to other noble Lords for raising the point again. I suppose that my family has been very fortunate, in unfortunate circumstances, to have the benefit of two hospices, both at end of life. Both hospices face significant shortfalls in their annual running costs and live off the back of occasional big legacies. They already have to raise substantial amounts of money, and the national insurance increase puts yet more pressure on the system. We have had the increase in minimum wages, which means that they have suffered those costs in addition; doctors and nurses do not come cheap, as we know. This just drives costs up further—for the hospice closest to home, the figure is nearly £0.5 million.

So what does the national insurance increase mean? In this particular case, it means either the loss of three nurses, who conduct some nearly 4,000 visits a year in the community, preventing the need for hospital care, or losing one bed, which would be dedicated to the most complex needs for patients at the end of their life.

If hospices are forced to reduce their care to the community, what happens next? They play such a critical role in supporting the NHS, which is not subject to the increase, both in terms of community care and in easing pressure on acute beds in hospitals, as well as facilitating discharges from hospital. If the Government continue to impose financial strain on the hospice sector, more hospices will be forced to scale back services or even close. That is something we cannot live with in this country, and it would place yet greater strain on the NHS—a particularly difficult sector, as we know, and one that we are trying not to pressure any further. When salary increases for medical staff and the rises in national insurance are factored in, this particular hospice will have to raise yet another £200,000 on top of the £0.5 million that I mentioned earlier, and that hospice is but one of 200 fantastic operations in this country.

I make again the point that various noble Lords have made: the recent announcement of the £100 million funding from His Majesty’s Government for the hospice movement and the £26 million for the children’s hospices is for capital projects, which, while very welcome, does not help this particular situation—a situation that the Prime Minister singularly seemed to ignore at PMQs last week. I beg the Government to reconsider their position.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Noakes Excerpts

Committee stage
Thursday 6th February 2025 Grand Committee

Moved by

[Baroness Noakes]

54: Clause 3, page 1, line 20, at end insert—
“(2A) After section 1(2), insert— “(2A) If the person is a public authority, the amount of the employment allowance in subsection (1)(2)(a) is £20,000.(2B) A public authority means any person whose activities involve, wholly or mainly, the performance of functions (whether or not in the United Kingdom) which are of a public nature.””Member’s explanatory statement
This amendment would give a higher employment allowance to persons carrying out functions of a public nature.

[Baroness Noakes (Con)]

My Lords, I will also speak to Amendments 55 and 56. I thank my noble friend Lady Neville-Rolfe for adding her name to these amendments.

They deal with two aspects of the employment allowance: public authorities and the employment of people with personal or household care. We heard earlier in Committee that, under the National Insurance Contributions Act 2014, the employment allowance is not available to public authorities and that the term “public authority” includes bodies in the private sector whose activities are at least 50% the performance of functions of a public nature. GPs and NHS dentists have been cited as among those caught by this definition. Amendment 55 would remove this exception for public authorities so that they would be able to claim the employment allowance and Amendment 54 would create a £20,000 level of employment allowance for public authorities.

The effect of this Bill is that all public authorities will pay the higher rate of national insurance calculated on the lower secondary threshold, but none of them will get an employment allowance. Amendment 55 would give them an employment allowance of £10,500, while Amendment 54 would increase that to £20,000. We know that the Chancellor intends to spend around £5 billion each year on reimbursing public authorities, which are classified to the public sector. Since my amendment would reduce the national insurance costs borne by those public sector authorities, it would simply reduce the amount of money that the Chancellor would have to reimburse in her money-go-round and offer a practical benefit for public authorities in the private sector. This would not be a full exemption, which the noble Lord, Lord Scriven, has argued for in relation to GPs and dentists, but it would soften the blow of the national insurance increases. If there ever was a justification for excluding GPs and dentists from the employment allowance, that went out of the window when the Chancellor introduced her jobs tax.

--- Later in debate ---

[Lord Livermore (Lab)]

In conclusion, the Government have provided £4.7 billion of funding to support public sector employers with increased employer national insurance. Expanding eligibility for, or increasing the value of, the allowance would come with additional costs and would reduce the revenue generated by this Bill; this would then require either higher borrowing, lower spending or alternative revenue-raising measures. In the light of these points, I respectfully ask noble Lords to withdraw or not press their amendments.

[Baroness Noakes (Con)]

I am not going to thank the Minister for that reply because he has given us no more information and no justification for why employers who employ people for domestic or household care should not get the employment allowance. He has given no explanation as to why private sector public authorities do not get an employment allowance, other than it was put in the 2014 Act. Both these categories are significantly affected by the other contents of this Bill, so I had hoped that the Minister would respond with some rationale for why the Government think it is right that these categories of employer should not qualify for the employment allowance.

This is rather typical of the way in which the Minister has conducted the whole of this Committee. Since this is the last time we will speak in it, I would like to record that it has been more than disappointing. We normally expect Ministers to give us, or offer to provide, information. We do not normally expect Ministers simply to repeat, parrot-like, three or four set lines that are shuffled for whatever the particular amendment is, but that is what we have received. We are in Committee, so I will of course beg leave to withdraw my amendment, but I would like to record that this is no way to run a Committee.

Amendment 54 withdrawn.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Noakes Excerpts

Committee stage
Tuesday 21st January 2025 Grand Committee

[Lord Eatwell (Lab)]

I agree, but adding more exemptions is adding to the pile. What we desperately need is a reform of our tax system that removes exemptions and forces Governments to make policy by deciding which goods and services they are going to subsidise.

[Baroness Noakes (Con)]

My Lords, I agree with the noble Lord, Lord Eatwell, on simplification of the tax system; indeed, I have made many speeches on that subject in the past. I also agree that as a matter of principle it is not good to layer exemptions on to any taxes, but we have to see here that the Government have chosen to use a very blunt instrument to raise taxes, so we are faced with a problem. Do we just accept this blunt instrument bludgeoning whole sectors of our community or do we try to make it a bit better? I think that, on grounds of public policy, it is reasonable to make exceptions in order to ameliorate the effect of a dangerously wide imposition of these additional taxes on employment.

[Lord Blackwell (Con)]

My Lords, as the noble Baroness said, the easiest way to avoid exemptions would be not to raise this tax at all; then we would not have to deal with the sectors that will be hit hard by it. I very much support the amendment in the name of the noble Lord, Lord Scriven, and I hope that it will come to a vote on Report, so that we can all support it. As other noble Lords have said, I particularly want to extend that to other charities, which I think are covered by Amendment 5 in this group.

--- Later in debate ---

[Baroness Noakes (Con)]

Is the Minister going to address the amendment?

[Lord Livermore (Lab)]

Yes, I am. I said that I wanted to set out some context at the outset. I know that the noble Baroness may not like that context, but it is why we are here today, after all.

That meant taking some very difficult decisions on welfare, spending and tax, including those in the Bill. I recognise that this involves asking some businesses to contribute more and that the impacts of the Bill will be felt beyond businesses. These are difficult decisions—not ones we wanted to take—and I understand and respect the very legitimate concerns that have been raised, both during today’s debate and outside this House. Crucially, however, and I may find myself making this point repeatedly during these debates, noble Lords who oppose the measures in the Bill must be clear. Do they propose instead more borrowing, lower spending or alternative tax-raising measures? That is the key question at the heart of these debates.

--- Later in debate ---

[Baroness Noakes (Con)]

My Lords, the whole Committee has, I know, great respect for the immense knowledge and expertise in economics of both the noble Lord, Lord Eatwell, and his colleague, the noble Lord, Lord Layard. Laying out a theoretical argument about what happens to employment and demand in the economy is entirely valid, but it ignores what actually happens at the level of the individual enterprise, employer or employee.

In her amendment, the noble Baroness, Lady Smith, talks about the impact on a specific group of employees. There is nothing in what the noble Lord had to say about the overall macroeconomic impact, which will affect the attractiveness of continuing to employ veterans if the cost of employing them is going to go up. In debating the previous group, we talked about whether community pharmacies could stay in business, given the additional costs that would arise for those businesses. We have to remember that this is not a highly theoretical exercise: the imposition of these massive national insurance changes is going to have a huge impact at the micro level. That is what we are trying to explore in many of the amendments we will look at in Committee, today and next week. They are not answered by theoretical answers at a macro level.

[Lord Altrincham (Con)]

My Lords, I rise to speak to this group of amendments surrounding the exemption of veterans’ salaries from this NI jobs tax; the lead amendment was moved by the noble Baroness, Lady Smith of Newnham. This is a helpful group of amendments to remind us—just as my noble friend Lady Noakes has reminded us—that the social costs of this taxation initiative will fall on individuals. Although we talk about economics in an aggregate manner and debate it in the aggregate, there are social costs, and they are very real.

In the aggregate, the Treasury may do quite well from this rise because of wage inflation. Wage inflation is a tremendous friend to the Treasury and will more than make up for the gap that the noble Lord mentioned at the start, which is that we need to find other sources of revenue. Wage inflation is going to support the Government quite nicely through this, but that cuts both ways: obviously, it has an aggregate and fiscal benefit, but it hits hard because the cost of employment goes up a lot. There is a double effect and we are probably seeing that right now.

Putting aside the theory about whether we lose jobs in one place and offset them somewhere else, we know that we were down 50,000 jobs in December; the OBR number is an aggregate loss of 50,000 through this initiative. That is a tremendous estimate, of course—who is to say that it has any better insight than anybody else?—but it is already down by 50,000 in December. It is probably a combination of wage inflation and expected tax rises, but that is 50,000 people who are out of a job. As we look through these amendments, we might pause and reflect. Who are these vulnerable employees? Who is actually going to bear the social cost of this change?

These amendments perfectly encapsulate the problem, which is that these changes will fall on people who are, and have already been identified as, vulnerable in one form or another. Observations about tax complexity may have been well made by the noble Lord, Lord Eatwell and, by the way, it is not just tax avoidance that is a burden to the economy. Tax compliance is a burden to the economy, as all forms of taxation in this country have become very complex and are a tremendous drag on the economy as things stand. However, that is how we manage our affairs.

While we look at this issue, we might pause and think about where the costs fall on individuals—in this case, on veterans. The previous Conservative Government ensured that veterans were a priority. They guaranteed that the funding was sufficient to support veterans in securing highly paid and skilled employment in key sectors across our economy, utilising the skills that they developed in the military.

In April 2024, veteran employment was at an all-time high of 89% owing to various initiatives, including the 12-month national insurance relief for employers hiring a veteran into their first role out of military service. This tax incentive was highly beneficial for veterans and business. Following its introduction in 2022, this relief was extended in 2023 and again in the following year, 2024. Following the Government’s decision to impact business through this tax decision, will the Minister at least confirm that they intend to continue this business relief to ensure that our veterans are able to find employment after their service and that businesses are able to benefit from their unique skills and experience?

Our military deserve the utmost respect for the service they provide to our country and, as such, the veterans deserve that same level of respect. This tax will be harmful to these people, and if the Government are unwilling to exempt them, at the very least they must explain how they have arrived at the conclusion that it will not be exceptionally detrimental to the employment rate of veterans.

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, in answer to the point made by the noble Baroness, Lady Neville-Rolfe, as I have said, the Government and the OBR have already set out the impacts of the policy change. The information provided is in line with the approach for other tax changes and the Government do not intend to publish additional assessments.

[Baroness Noakes (Con)]

My Lords, before the noble Baroness, Lady Kramer, speaks again to her amendment, the Minister said that what the Government have provided is in line with what they did for other tax changes. I remind him that this is not a tax. The reason we are scrutinising this Bill is that it is not a tax; it is national insurance. I do not think that the Minister can run a line saying that, just because this Bill comes from the Treasury, the Treasury is allowed to produce whatever minimalist, large-font document, with no information in, that it wants. There is an obligation on government to produce impact assessments for major policy changes—and, my goodness me, this is a major policy change and I do not think we will be giving up this particular pursuit in Committee.

[Lord Livermore (Lab)]

HMRC has provided a tax information note, as it does for all similar policy changes. The Government have no intention of publishing additional assessments.

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[The Deputy Chairman of Committees (Viscount Stansgate) (Lab)]

We now move on to the next group. I call Amendment 6 in the name of the noble Baroness, Lady Neville-Rolfe.

[Baroness Noakes (Con)]

My Lords, before we start on that amendment, it is 7.28 pm and the Committee is due to finish at 7.45 pm. It always used to be the custom that if we would cover only a very short part of a group, we would normally draw stumps at that stage. That is the way it has always been done in the past. Obviously, we do not absolutely have to finish every group, but we do not normally start a quite significant group with a large number of amendments when there are so few minutes left, so I would like clarification on what will happen in this Committee.

[The Deputy Chairman of Committees (Viscount Stansgate) (Lab)]

In answer to the noble Baroness, I am in the hands of the usual channels.

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[Baroness in Waiting/Government Whip (Baroness Blake of Leeds) (Lab)]

I understand that Amendment 17 has been withdrawn in the Chamber.

[Baroness Noakes (Con)]

I am grateful to the noble Baroness for those comments. In the spirit of good will in the Committee, this would be an appropriate time for us to draw stumps.

[The Deputy Chairman of Committees (Viscount Stansgate) (Lab)]

In the spirit of good will, the Committee is adjourned.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Noakes Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Baroness Noakes (Con)]

My Lords, this Bill delivers one of the most destructive policies invented by this Labour Government. I will not deal with the fact that it breaks a manifesto promise, though it does, or talk about its impact on much of the social fabric of our land, from charities to childcare, though the damage that it will do is immense. Instead, I will focus on its impact on businesses and the onward impact on their customers and employees.

First, let us get a couple of things out of the way. The Minister gave us his usual diatribe about the so-called black hole which the Government allege that they inherited. He must be getting embarrassed about going on about this all the time. He knows that the Office for Budget Responsibility has not backed the Government’s story on the black hole. He knows that a fair chunk of the £22 billion can be ascribed to the massive pay increases given to some public sector workers in return for zero productivity. He must also know that an even bigger black hole is already emerging as the economy goes into reverse as a result of the Budget and as some spending promises excluded from it have to be funded. No more nonsense, please, about black holes.

While we are at it, I hope we will have no more nonsense about the Truss mini-Budget. It did not crash the economy. GDP certainly did not crash—in fact, its trajectory hardly budged. However, since Labour came to power, growth has ground to a halt. There was a dislocation in bond markets and interest rates peaked but, as the Bank of England’s analysis has shown, the Bank itself was to blame for at least two-thirds of that, due mainly to its negligent oversight of LDI pension strategies. As my noble friends Lady Neville-Rolfe and Lord Forsyth have pointed out, interest rates are now higher than they were after the Truss Budget, whether you look at the short-term gilt rate, the long-term gilt rate or the premium over the bund rate. All this feeds into today’s mortgage rates, and the Government need to own the fact that it is their Budget that is having an impact on today’s mortgage costs. It is very clear which Budget has been worse for people with mortgages.

The Chancellor has dressed up her dreadful policy choice on national insurance by saying:

“We are asking businesses to contribute more”,—[Official Report, Commons, 30/10/24; col. 818.]


as if businesses themselves will be paying more tax to fund the public expenditure largesse in the Budget. This has been exposed as at best naive and at worst downright misleading by a host of commentators, starting with the Office for Budget Responsibility and going on through many others. Not a single analysis shows that businesses will be “contributing more”, except in the narrow technical sense that they will be writing cheques to HMRC for the increased national insurance bills. All the analysis points to the impact ending up on jobs, prices and wages.

The OBR reckoned that, even in the first year—2025-26 —60% would be passed on to employees and consumers and that this would rise to 76% by the second year. The National Institute of Economic and Social Research has pointed to higher unemployment and weaker wage growth. This is not theory. The Bank of England’s decision-maker panel in December found that, while most businesses expect lower profit margins, over 50% expect to raise prices and reduce numbers and 40% expect to lower wages.

The policy is highly regressive, which ought to worry the Benches opposite. The Institute for Fiscal Studies has highlighted the disproportionate impact on employing people at the bottom end of the wage scale. The NI changes mean that the cost of employing somebody on the minimum wage will rise by 3.2%, compared with 2.5% for those on median wages and 1.8% for those earning twice the median wage. The Centre for Policy Studies has taken this further by calculating the tax burden on labour, known as the tax wedge: overall, the tax wedge for someone on minimum wage will rise to 21.3%, which is even higher than the figure we inherited in 2010 from Gordon Brown.

When businesses come to manage these increased costs, the option of lower wage rates does not exist for those on minimum wage, and so we can expect employers to reduce their numbers instead. Higher up the wage scale, employers will be looking to reduce wages as well as numbers. National data are already showing weak job vacancies, and recruitment companies, which are often the canary in the mine, are issuing profit warnings, as employers are already turning away from recruitment.

What does all of this add up to? The pain of job losses for employees will knock on to higher unemployment benefits; lower profits and wages will result in lower taxes for the Exchequer; and all of us will face rising prices which will feed into inflation, thereby keeping interest rates higher than they would otherwise have been. It is hard to think of a more disastrous economic policy, especially in the context of a Budget which could not have been more anti-growth if it had tried.

Business confidence has been in retreat since before the Budget. Businesses are now facing an unholy trinity of national insurance rises, significant increases in the minimum wage—especially for younger employees—and the Government’s employment law reforms. This is not an environment in which businesses will want to invest. Indeed, many sectors will face retrenchment. This morning, the British Chambers of Commerce said that many of its members expect to cut back on investment. The British Retail Consortium has warned of shop closures. Hospitality businesses will be on insolvency watch. This is no way to grow the economy. The Government’s growth mission is starting to look like mission impossible.

The Government must be wondering whether the gain is worth the pain. The OBR calculated the static yield from national insurance increases as £26 billion by the end of the Budget forecast period, but it then forecast that the net yield would fall to only £16 billion, due to the direct and indirect behavioural impacts. In addition, the Government have said that they will fund the public sector for the additional costs which will fall on to public sector employers, amounting to around £5 billion. It is inevitable that the public sector will have to pay more for public services provided by private sector suppliers when they pass on the extra costs in prices. So we have all this pain for businesses, employees and consumers, plus the opportunity cost of lost economic growth, for a net figure which is probably south of £10 billion. That is just two-thirds of 1% of the Government’s total expenditure at the end of the Budget period. Is it worth it?

Bank Resolution (Recapitalisation) Bill [HL]

Baroness Noakes Excerpts

Report stage
Monday 4th November 2024 Lords Chamber

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, in moving government Amendment 1, I shall speak also to government Amendment 4. The Government have tabled these amendments after considering the concerns raised in Grand Committee by the noble Baronesses, Lady Noakes, Lady Bowles, and Lady Vere, and the noble Lord, Lord Vaux. I am extremely grateful to all of them for all of the points they have raised.

Reflecting in particular on the points made by the noble Baroness, Lady Noakes, the Government have decided to clarify in the Bill whose expenses can be covered by a recapitalisation payment from the Financial Services Compensation Scheme. I am grateful to the noble Baroness for her engagement on this matter since Grand Committee.

The Bill as introduced permitted a recapitalisation payment to cover the expenses that the Bank of England or another person has incurred, or might incur, in connection with the recapitalisation of the firm in resolution. These amendments replace that broad formulation with “relevant person”, then specify that “relevant person” means the Treasury, a bridge bank or an asset management vehicle. They further specify that “bridge bank” and “asset management vehicle” have the meanings given by Sections 12 and 12ZA of the Banking Act 2009 respectively.

In Grand Committee, the noble Baroness, Lady Noakes, indicated that she had no objection to the Treasury, the Bank of England and its entities having certain expenses covered by the new mechanism, but that this should be specified in the Bill. These amendments tabled by the Government seek to do just that; I hope that she and other noble Lords will be able to support them.

In Grand Committee, the noble Baroness, Lady Noakes, also asked questions about the specific expenses that would be in scope under the terms of the Bill. On this point, I should be clear that the Government maintain the position set out in Grand Committee: it is important that the Bill is not overly prescriptive, allowing the Bank to respond flexibly when costs arise. I refer to the explanations given in Grand Committee, in the Government’s response to the consultation and in the draft updates to the code of practice of the types of expenses that will be expected to be covered. The Government maintain that it is prudent to ensure that there is broad provision to cover these potential additional costs. Ultimately, it should be borne in mind that the alternative may be for such costs to be met by the taxpayer.

By way of reassurance, I reiterate that, in determining whether to include certain ancillary expenses in its request for funding, the Bank of England is subject to the usual obligations under public law to act in a way that is reasonable and proportionate. In addition, the legislation does not allow the Bank of England or any other person to claim expenses that arise exclusively for preparing for a Bank insolvency. The draft updates to the code of practice also set out that the Government would expect any final report on the use of the mechanism to explain why certain expenses were considered reasonable and necessary.

I hope that the Government’s approach as set out in these amendments addresses the points raised by noble Lords in Grand Committee, and that noble Lords will feel able to accept them. I beg to move.

[Baroness Noakes (Con)]

My Lords, I spoke in Committee. I draw attention to my interests as included on the register; in particular, I hold shares in a number of banks that could be affected by the contents of this Bill.

I thank the Minister for the comprehensive letters that he wrote to Members who took part in Committee—and, indeed, for the subsequent meeting that he organised. I also thank the Treasury for publishing the draft extra chapter for the code of practice, which has been very helpful to those of us trying to work through the Bill.

I certainly support the two amendments to which the Minister has just spoken, which go some way to limiting the wide power in new Section 214E(2), but I have some further questions for the Minister, building on the comments he has just made. These amendments constrain to whom payments can be made under that new subsection but they do not do anything to constrain the types of expenses that can be incurred. In Committee, I tried to explore what happens if litigation or regulatory actions arise in relation to issues that had occurred prior to the resolution action being taken but which do not emerge until a little later. We did not get very far, so I will spend just a couple of minutes on them here.

I am talking about material litigation or regulatory action. There could be shareholder litigation, which happened after RBS was bailed out by the Treasury. There could also be other kinds of issues that result in both regulatory action and civil litigation, as happened in relation to Libor, for example. Today’s hot issue is vehicle financing commissions, following the Court of Appeal’s decision recently, and no one knows how much it will cost.

Before this Bill, the working assumption was that smaller banks would be placed into the insolvency procedure and that, in that event, the kind of liabilities I am talking about would likely be extinguished as part of the insolvency because there would simply be insufficient money there to pay for them. However, once the recapitalisation power is used, it opens up the possibility that the Bank of England could use the power to raise capital in order to pay for litigation or regulatory costs that had arisen and were crystallising after the recapitalisation event.

The issue of litigation was raised by my noble friend Lord Moylan at Second Reading, and the Minister wrote to him on 21 August. The letter confirmed that litigation costs could well be covered through the use of the recapitalisation power. The Minister expressed this in terms of it being

“a judgement to be taken at the time, noting that the alternative could be to use public funds instead”.

From the perspective of the financial sector, which will be picking up the costs using the power—then doubtless passing them on to their customers—the alternative is using not public funds but the insolvency procedure. If we let the insolvency procedure take its course, at least nine times out of 10, those costs will not be met at all. So, that is the heart of the problem from the financial sector’s point of view.

I have not tabled an amendment on Report because it is very difficult to table one that would cover all eventualities. The redraft of the code of practice does not appear to deal with this issue either, whether in relation to expenses per se—in the terms of the new subsection we are discussing—or in relation to which liabilities the Bank should allow to go into the bridge bank. Today, I am seeking that the Government recognise that this is an issue and that it should be dealt with somehow as part of the code of practice.

I accept, as I have throughout, that there may be public interest reasons for avoiding the bank insolvency procedure, and for settling historical liabilities through the recapitalisation power, but the public interest test is a rather slippery concept and gives no real comfort to those who are expected to pick up the tab. I hope that the Minister will accept that this new power must not become a blank cheque to avoid bank insolvency and to pick up all kinds of costs that would otherwise fall by the wayside. I look forward to hearing what reassurances he can give.

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[Lord Vaux of Harrowden (CB)]

My Lords, I add my support to Amendment 2 tabled by the noble Baroness, Lady Vere. From the outset of this process, the Bill was intended to cover only small banks. That was made clear in almost the first paragraph of the original consultation. It was then extended and now covers all banks, regardless of size. I thank the Minister for making sure that the draft code of practice was published by the Treasury before Report; it has been incredibly helpful in this process, and we are all very grateful for that. The draft code of practice is clear that the resolution mechanism is designed primarily to support the resolution of small banks and that the Bank of England will not assume use of the new mechanism when setting a preferred resolution strategy of bail-in and the corresponding MREL requirements of a large bank.

So why does the Bill cover large banks? The argument from the Government seems to be along the lines of, “Well, it might be useful to have this flexibility”. That does not seem a very strong argument. As we have heard, larger banks are required to hold additional capital resources, known as MREL, effectively to ensure that they are able to bail themselves out—a process known as bail-in. If the Government are not confident that the MREL regime is sufficient for those larger banks, they should be looking to strengthen that regime rather than extending a measure that is designed specifically for smaller banks whose failure would not create systemic risk, to act as a further insurance policy for the big banks.

I am afraid that unless the Minister can come up with a stronger argument than he has so far, I will be minded to support the noble Baroness, Lady Vere, should she decide to test the opinion of the House.

[Baroness Noakes (Con)]

My Lords, I add my support to my noble friend’s amendment.

If the power were used on a bank that had already achieved the MREL set for it, that use of the mechanism would raise questions about whether MREL and the minimum capital requirements had been set correctly—and whether there had been a regulatory failure. In either event, the Bank is conflicted, whether through the setting of MREL in its capacity as a resolution authority or through setting capital levels through its PRA arm. I am clear that the Bank should not have the power to cover up regulatory failure, which this unconstrained provision allows. There is no way for the Treasury to stop the Bank using the power other than by using the power of direction that exists but has never been used in the existence of the Bank since nationalisation. Unconstrained powers are unhealthy. That is why I support my noble friend’s amendment.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I concur with what other noble Lords have said about this amendment: that is why I have added my name. It cannot be left as a possibility for any size of bank; if it needs to apply to a larger bank, perhaps the MREL level should have been set higher. We have this rather unusual situation in the UK where we set MREL at a much lower level; it is set at about a quarter of the level of other countries. If there is a nervousness about needing to use it for a bank that is a little bit larger, perhaps some other fundamentals about where MREL is being set are wrong.

The premise of this Bill is based on it being an alternative to insolvency, where that would have been the normal end result. Maybe the compensation scheme would have had to pay out on deposit guarantees and so there is the happy thought that the money could be perhaps put to different use this way round. But the assumption should still be insolvency and we need a public interest test before we go looking at the Financial Services Compensation Scheme. It is already an extraordinary event—so how extraordinary are extraordinary events? I do not think one can layer extra extraordinariness on top of it: there has to be a line somewhere.

We do not know how many dips into the Financial Services Compensation Scheme there are going to be. In insolvency, there is one dip for the deposits that are guaranteed. It does not say that there cannot be multiple dips. There is already the notion that there is this enormous pot of money. Maybe it looks like a bank tax—and everybody hates banks and it is a pot to raid—but it is a very good way to cause more issues within the wider banking sector. Frankly, it is unfair if there are not some bounds somewhere. So I think this is the right one and, if the Minister is not going to incorporate the amendment, which I think would be a jolly good idea, we on these Benches will be supporting the noble Baroness, Lady Vere.

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[Lord Vaux of Harrowden (CB)]

My Lords, this group covers reporting and accountability to Parliament on the use of the resolution mechanism, which was probably the greatest area of discussion in Committee. The Bill gives significant rights to the Bank of England to impose costs on the banking industry. It can only be right, therefore, that the Bank should have to explain the reasons for its decisions and the outcome to both the Treasury and Parliament.

A number of concerns have been expressed throughout the process, and again today, about how the Bank might use the mechanism. At Second Reading, the noble Lord, Lord Macpherson of Earl’s Court, said:

“I can foresee circumstances where the Bank will choose to recapitalise a small bank rather than put it into a bank insolvency process, less because it is in the national interest and more as a way of minimising the reputational damage of regulatory failure”.—[Official Report, 30/7/24; col. 914.]


The noble Baroness, Lady Noakes, said something similar earlier today. The noble Lord and others have pointed out that there is nothing in the Bill that would incentivise the Bank to control the expenses of the process; again, we discussed this to an extent earlier. Those expenses will be picked up by the FSCS, by the wider financial services industry and, ultimately, by the customers of that industry.

As we have just seen, the Government have tabled amendments to clarify that last point, which we have already discussed—but the point remains. Fears, which I share, have been raised that this resolution mechanism could become the default, rather than insolvency. I believe—others share this view, I think—that, in principle, a failing institution should be allowed to fail unless it is in the public interest for it to be bailed out. The draft code attempts to deal with this but the concern remains.

For all these reasons, it is essential that the Bank should have to explain its decisions and that Parliament should have the ability to scrutinise those decisions. For that reason, I have tabled Amendment 5, which would require the Bank to make a report to the Chancellor that must then be laid before Parliament every time a recapitalisation payment is made. The amendment sets out some minimum requirements for what the report should cover, including why the Bank chose to make a recapitalisation payment rather than allowing the institution to go into insolvency; the costs that will be incurred; and how those costs compare to the costs the FSCS would incur in an insolvency situation. It would also require a final report explaining what actually happened—and, if different, why—at the end of the resolution process.

Since I tabled Amendment 5, I am pleased to say that the Government have issued the draft code of practice—for which we are all grateful, as I said—and tabled Amendment 8. I am extremely grateful to the Minister for his constructive approach on this. Given that the two together deal with most of the areas covered by my Amendment 5, I will not push that.

However—there is always a “but” in these things—there is one important omission in the Minister’s Amendment 8. Although it requires the Bank to report within three months of any recapitalisation payment, it does not require a final report on what actually happened at the end of the resolution process. Although the resolution will happen quickly in many cases—the example of Silicon Valley Bank, where it happened over the weekend, is a good one—that may not always be the case. Under these rules, a bank can be put into a bridge bank for up to two years, which can be extended further. We can have multiple recapitalisation periods during that period, so the process can last a number of years. If the Bank reports within three months of each payment, we may never see a report on what actually happened at the end—for example, if the failing institution is put into insolvency two years later.

It is essential that the Chancellor and Parliament have an opportunity to review how the resolution worked out and, most importantly, to ensure that any relevant lessons are learned. So I have tabled Amendment 9, as an amendment to the Minister’s amendment, to cover that point. I think that this may have been the Minister’s intention all along, but I cannot agree with him that his amendment, as drafted, actually achieves this. On the report it requires, his amendment says:

“The Bank must report to the Chancellor of the Exchequer about … the exercise of the power to require a recapitalisation payment to be made, and … the stabilisation power and the stabilisation option to which the payment relates”.


Nowhere does it talk about what happened at the end, which could be a number of years later.

I am alive to the concern that we should not have too many potentially repetitive reports, so my amendment would have effect only if the reports published by the Bank, in accordance with the Minister’s amendment, do not cover the final resolution results. I hope that this is not controversial and that the Minister will be able to accept Amendment 9 to his amendment. However, as I say, it is essential that the final outcome of any resolution is made transparent and open to scrutiny.

If the Minister is unwilling to accept my proposal, or accepts the principle but does not like some of the detail—he has mentioned to me that he is not terribly keen on the three-month timeframe—perhaps he could commit to coming back at Third Reading with his own version of the amendment that satisfies the guaranteed requirement to report on the final outcome. He can tweak it as he likes on timing and things—I cannot get too excited about that—but, if he is not prepared either to accept it or to do that, I will be minded, I am afraid, to test the opinion of the House on Amendment 9 when the time comes.

The other amendments in this group relate to notifying the relevant committees of both this House and the other place of the use of the recapitalisation power. The amendments tabled by the Minister, as well as the amendments to his amendments tabled by the noble Baroness, Lady Noakes, arose from amendments that the noble Baroness put down in Committee. I am pleased that the Government have accepted those amendments. However, all the amendments do is say that the committees must be notified. Those committees need something to look at; it makes it all the more important that we have the reports we are talking about, both on the use of the recapitalisation power and on what finally happens, at the end of the day. I beg to move.

[Baroness Noakes (Con)]

My Lords, I have Amendments 11 to 13 in this group; they are amendments to the Government’s Amendment 10, to which the noble Lord, Lord Vaux, has referred. Before I address those amendments, I shall refer briefly to the reporting amendments in this group. I certainly praise the Government for bringing forward their Amendment 8, as well as for beefing up the code of practice on reporting. However, I agree with the noble Lord, Lord Vaux, that the issue of the final report made by the Bank of England is outstanding; I therefore support his Amendment 9.

On Amendments 10 to 13, I start by thanking the Minister for listening to the case, made in Committee, that parliamentary committees should be notified of the use of the bank recapitalisation power. I had tabled an amendment that named the Treasury Select Committee in the other place and the Financial Services Regulation Committee in your Lordships’ House; this was supported in Committee by fellow Members of the latter committee, as noble Lords might imagine. I retabled my amendment for Report—the noble Baroness, Lady Bowles, and the noble Lord, Lord Vaux, added their names—but the Government then tabled Amendment 10, which was similar in principle to my amendment but drafted using the language of the Financial Services and Markets Act 2023. That Act did not refer to the Financial Services Regulation Committee for the simple reason that it did not exist at the time—indeed, it was that Act that led to creation of that committee. So, following the helpful meeting that we had with the Minister, I was told that the Government were happy to refer directly to the Financial Services Regulation Committee. They suggested that this be achieved by my tabling amendments to the Government’s amendments. So I hope that, when the Minister gets up to speak to his amendment, he will confirm that he accepts my Amendments 11 to 13.

Noble Lords who have joined the House in the past eight years might be mystified by the reference to the Chairman of Committees in my Amendment 13. Although the House has not used the title since 2016, the post to which we now refer as the Senior Deputy Lord Speaker technically remains the Chairman of Committees. One learns something every day in Parliament.

Let me conclude by saying that I hope the principle of requiring notification to the Treasury Select Committee in the other place and your Lordships’ Financial Services Regulation Committee is now regarded as a precedent for any future creation of significant or unusual powers granted to the Bank of England or any of the other regulators in future. The strength of parliamentary accountability for those bodies, with their massive powers, must always be maintained—and, indeed, enhanced.

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[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will speak principally to Amendment 7 in this group, which has also been signed by the noble Baronesses, Lady Vere and Lady Noakes. Amendment 6 was my first attempt, when I was worried that defined first and secondary objectives were not already specified in connection with resolution. In fact, there are a whole load of objectives that have to be balanced in Section 4 of the Banking Act 2009. However, I then hit upon the formulation of claim 7, to make it agree with how it had been rendered in FiSMA 2000. I am suggesting that this is a secondary objective to all the existing ones, and the formulation is the one with which we are already familiar.

We on these Benches are not always certain of the merits of the competitiveness and growth objective, which is what I am inserting into the Bill here, in respect of the resolution authority. Our concern is that in other places, it might return to too much of the animal spirit that led to the financial crisis, but here, it has a different and particular role. The Bank has to balance all the Section 4 objectives to get the best results, and, in its resolution capacity, it is not really in a situation to be prey to animal spirits.

When it comes to the Financial Services Compensation Scheme as a source of funds, as we have already said, there are no bounds, or at least no written ones. How many dips into it can be made if the first one is not enough? How big can those dips be, compared to what might have been needed to compensate depositors if the Bank had gone bust instead? What happens if there are multiple resolution events in a narrow period of time? For how many years can the extra levy be put on to the banking sector in order to pay back the scheme? As the noble Baroness, Lady Noakes, has said before, how can we be certain that, years later, it is not called upon again in connection with some kind of legal action?

All these things are left open for the Bank of England resolution authority to decide and to do its best on. It will, of course, receive advice from the PRA, which has to consider what is an affordable levy for the industry, but it is receiving advice from a body which has in one sense just failed, and to which it is always close. It is advice that it does not actually have to take, either.

The only lever—other than the one suggested in the amendment of the noble Baroness, Lady Noakes, a requirement to minimise cost—is to impose the objective of competitiveness, which in this instance means affordability, and for that to be imposed on the resolution authority itself. It is secondary to everything else, so it cannot kick the other objectives into touch in any way; it is just making sure that there is a small reality check about what this does to other banks, especially in the circumstance that this is not the only bank or that this is not the only dip into the fund.

So, this is an instance where the secondary competitiveness and growth objective is relevant, and I hope the Minister can see his way to accepting it. If not, I shall probably seek to test the opinion of the House. I beg to move.

[Baroness Noakes (Con)]

My Lords, I have Amendment 16 in this group and added my name to Amendment 7, to which the noble Baroness, Lady Bowles of Berkhamsted, just spoke. As she indicated, the two amendments are related in that the imposition of unnecessary costs, which is the target of my Amendment 16, will do nothing to help the financial sector grow, be competitive or, indeed, support the real economy.

I fully supported the growth and competitiveness objectives introduced for the PRA and the FCA in the Financial Services and Markets Act 2023, and I am very glad that the Chancellor of the Exchequer has given her support to those. But I hope that the Government will want to go further and make all regulators, and indeed all other public sector bodies, pay attention to growth and competitiveness. Extending this to other organisations is important, particularly in the financial services universe, as they were not included within the competitiveness and growth objective in the 2023 Act.

One of those omitted at that time—perhaps we should have spotted it during the passage of the Financial Services and Markets Act—was the Bank of England in its capacity as a resolution authority. The noble Baroness, Lady Bowles, has had to confine her amendment to the use of the bank recapitalisation power because of the Long Title of the Bill. But the competitiveness and growth objective ought to apply to the Bank as the resolution authority in toto, not simply when it exercises the new bank recapitalisation power but also when, for example, it is setting MREL levels.

My Amendment 16 adds a special resolution objective to the seven already listed in Section 4 of the Banking Act 2009, and it requires the Bank to consider the minimisation of costs borne by the financial sector when the recapitalisation power is used. It is not an absolute requirement, as it would be just one of eight objectives, and it is for the Bank to determine, under the 2009 Act, how to balance those various objectives.

When it is using the power, the Bank is playing with other people’s money. Ultimately, it is the money of those of us who are customers of the banks, because at the end of the day the money that flows through the banks will end up being borne by customers, and it is only right that the Bank should have regard to the minimisation of costs that are ultimately borne by the banks’ customers.

In Committee I tabled an amendment that focused on the costs being borne through the FSCS not exceeding the counterfactual of the bank insolvency procedure to which the Bank should be paying regard in any event. My amendment today is a less complex test and is simply designed to act as a reminder to the Bank that it should treat other people’s money as carefully as it treats its own. If it does that, it should also help to keep the sector competitive and to help it grow. I hope that the Minister will agree that this amendment is right in principle and that it responds to a number of concerns expressed by several respondents during the consultation on the power over the last year or so.

[Lord Vaux of Harrowden (CB)]

My Lords, I support both the amendments in the names of the two noble Baronesses who have just spoken. I probably have a slight preference for Amendment 16 on the expenses—it is more direct—but we need something in the Bill that reminds the Bank of England that it is spending other people’s money, and that it needs to do that carefully and with care. These amendments are aimed primarily at that end, so I support them both.

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Moved by

[Baroness Noakes]

11: In inserted subsection (2) leave out paragraph (b) and insert—
“(b) the Financial Services Regulation Committee of the House of Lords”

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I am not going to press my amendment but I hope the Minister recognises that there is a genuine issue here, will keep it under review and will consider amending the code of practice in that respect. I beg to move.

[Baroness Noakes (Con)]

My Lords, I added my name to the amendment but I am glad that the noble Lord, Lord Vaux, will not be pressing it because, as he explained, there are difficulties with it.

I pay tribute to the noble Lord for chasing this issue down because it is a very real issue that could arise in certain defined circumstances, as he explained. I am not convinced that the solution of simply transferring assets into the bridge bank actually works. The complexities of a bank mean that you have liabilities—that is how you fund yourself from market sources—and in practice it may well be difficult. I hope the Government will take this away and find a way of minimising the likelihood that that ever happens, whether in the code of practice or otherwise, in discussion with the Bank of England.

[Baroness Kramer (LD)]

My Lords, the point that the noble Lord, Lord Vaux, has been making is significant and crucial in shaping the way in which the Bank of England approaches the resolution of banks when they fail.

Unlike the noble Baroness, Lady Noakes, I think there is a potential path of looking at the sale of the assets rather than the sale of the equity. That is the normal practice that one would follow in order not to transfer liabilities over to the new recovering entity. I fully understand all the complexities, and I hope the Minister will take this up with the Bank of England in his discussions. It requires a lot more work but it could get us out of some very nasty traps in future, and it will be more likely to do so if there has been thought beforehand rather than it being a reaction in a situation of emergency.