Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023

Baroness Vere of Norbiton Excerpts

Wednesday 13th December 2023 Grand Committee

Moved by

[Baroness Vere of Norbiton]

That the Grand Committee do consider the Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, these two instruments make updates to financial services regulation to ensure that it remains effective following the passage of the Financial Services and Markets Act 2023, which I will refer to as FSMA 2023.

The Financial Services and Markets Act 2023 (Benchmarks and Capital Requirements) (Amendment) Regulations 2023 make two targeted changes to financial services retained EU law or REUL. FSMA 2023 repeals REUL in financial services, allowing the Government to deliver a smarter regulatory framework for the UK with regulation designed specifically for UK markets and consumers.

The repeal of each individual piece of REUL will be commenced once the Government and the regulators have made appropriate arrangements to replace it with UK rules or determined that no replacement is needed. Until financial services REUL has been fully replaced, FSMA 2023 ensures that it can be kept up to date through a power to modify REUL before its repeal takes effect.

The first change made by the instrument reintroduces a discount factor into the UK Capital Requirements Regulations. The discount factor reduces the amount of capital that small and medium-sized financial services firms are required to hold for certain derivatives activity.

The Secondary Legislation Scrutiny Committee raised this SI as an instrument of interest, noting the timeline of the original removal of the discount factor from UK legislation and the Government’s policy on mirroring changes in EU law. The Government removed the discount factor in April 2021 through the Financial Services Act 2021. The EU also removed the discount factor from its version of the Capital Requirements Regulations at that stage before reintroducing it later that year. The Government do not have a policy of mirroring EU law and, through the smarter regulatory framework, will tailor regulation to the UK. After industry raised concerns with the Government about the removal of the discount factor, we acted swiftly to reinstate it through this instrument. This will provide certainty to firms and align regulation to best practice globally.

The instrument also amends Article 51(5) of the benchmarks regulation to extend the transitional period for the third-country benchmarks regime to the end of 2030. Thanks to the transitional period currently in effect, UK users of benchmarks have access to non-UK benchmarks. The third-country regime, once it takes effect, would require administrators of those benchmarks to pass through one of the three access routes—equivalence, recognition or endorsement—for UK users to rely on them. There is a variety of issues with the third-country regime as originally drafted in the EU. For example, some third-country benchmarks are provided on a non-commercial basis, and administrators may therefore lack the economic incentives to come through these access routes. If the transitional period were to end with the third-country regime in its current form, many administrators may be unable or unwilling to use this regime for continued UK market access. Losing access to these third-country benchmarks could undermine the UK’s position as the centre for global foreign exchange and derivatives markets and have further repercussions given the widespread use of third-country benchmarks by UK firms.

This instrument therefore extends the transitional period from the end of 2025 to the end of 2030. This extension will provide time to review the UK’s third-country benchmarks regime and implement any changes in time for industry to take the necessary steps to comply with the regime before it comes into force.

The Secondary Legislation Scrutiny Committee asked about any risks posed by this extension. Although extending the transitional period entails some risk by allowing the continued use of lower-quality third-country benchmarks in the UK, those risks are outweighed by the risks that would arise from allowing the transitional period to end with the third-country regime in its current form. Risks arising from the use of third-country benchmarks during the transitional period can be mitigated through regulation in the home jurisdiction of those benchmarks and through international co-operation for jurisdictions where specific benchmarks regimes are not in place.

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, overall, we agree with these regulations. When the first of these two grouped SIs was debated in the House of Commons, my honourable friend Tulip Siddiq, the shadow Economic Secretary, posed two questions to the Minister. Unfortunately, he did not address either of them in his response, so I will ask them again today. Of course, the noble Baroness is welcome to write with an answer, if that is preferable.

The two questions are on changes to capital requirements. First, given that the Prudential Regulation Authority is proposing to remove the SME supporting factor when it confirms its final rule, are the Government not reintroducing a measure that the PRA plans subsequently to abolish? Secondly, if the PRA goes ahead with its plan, what reassurance can the Government provide that the UK’s SME lending market will not be left at a significant competitive disadvantage against its European counterparts due to the increased cost of capital?

The noble Lord, Lord Sharkey, asked about the reintroduction of a discount factor, which was mentioned by the Minister in her opening remarks. I note that the discount factor was previously “unintentionally” removed from the relevant regulation in both the UK and the EU. I also note that the discount factor was removed from UK law in January 2022, and that this was identified as an issue only 18 months later, in July 2023. However, apparently, the factor was reinstated by the EU into its own laws four months prior to it being unintentionally removed from UK law back in September 2021. As the noble Lord, Lord Sharkey, observed, it is odd that a mistake was introduced in the UK after it had already been corrected in the EU. The Minister is clearly correct to note that the UK does not mirror changes to EU law post Brexit, but does she think that keeping up to date with developments in the EU, where parallel measures remain part of UK legislation, could help to ensure that avoidable errors such as this do not occur?

[Baroness Vere of Norbiton (Con)]

Once again, I am grateful to both noble Lords for their contributions to this short debate. I will write further on what the noble Lord, Lord Sharkey, said about the formula—it is not that complicated; I am an engineer by training, and it is not beyond the wit of man to understand this. But we might provide a little more explanation in due course.

I am not sure I can say much more about the timing of the removal and reintroduction of the discount factor. It is not a particularly widely used element within the system, and therefore the industry took a while to notice that the change had happened. Obviously, there are lessons to be learned in these circumstances, and we moved to reintroduce it as quickly as we could. Of course, the regulators are well aware of what happened. I am grateful to noble Lords that we are able to get it back on to the statute book today.

That brings me on to the various discussions we have with the EU, as close trading partners. The noble Lord, Lord Sharkey, asked what changes will be next. There will be potential changes to the third-country benchmarks regime, but that is in the context of much wider changes within the smarter regulatory framework, so the repeal of each piece of retained EU law will be commenced once appropriate arrangements are in place with the UK rules—or, as I said in my opening remarks, when the Treasury has determined that no replacement is needed. Alongside that, we are delivering our smarter regulatory framework in order to replace retained EU law as necessary.

It will be a carefully planned and phased approach. We believe that we have given ourselves sufficient breathing room by making the transitional period last until 2030. It may be that we need all that time, or it may not, but we want to make sure that it fits into the wider reform of the programme to ensure that we prioritise those things that we feel are needed first in order to benefit our very successful financial services sector. Of course, we continue to have enduring and sensible dialogue and co-operation with other jurisdictions, including the EU. For example, on 19 October, the Treasury hosted the first joint EU-UK financial regulatory forum, which welcomed participants from not only the European Commission but UK and EU regulators to discuss common issues. It is clear that the UK and the EU regulatory frameworks will change over time and ultimately remain the autonomous concern of the respective parties, but it is also important that we discuss changes for the benefit of sharing our understanding.

The noble Lord, Lord Sharkey, asked about the risks from the benchmark extensions. It should be noted that systemically used benchmarks pose the greatest risk. These benchmarks are subject to UK benchmark regulation because they are administered in the UK. They might be subject to another jurisdiction’s benchmark regime or be created by a third country’s central bank. That also means that there are some benchmarks that do not fall into those categories—these are possibly the lesser-used ones. But it is the case that UK benchmark regulation places additional requirements on the users of benchmarks that continue to apply where they use third-country and domestic benchmarks. These requirements include, for example, robust fallback provisions in the contract should the benchmark become unavailable for whatever reason, or fail—so there are protections there. As I noted in my opening remarks, we recognise the risks and also the benefits that those benchmarks have in underpinning a very significant part of our financial services sector.

The noble Lord, Lord Livermore, asked about the questions raised by his colleague in the other place. I will write with more information. I have lines here on the Prudential Regulatory Authority, Basel III et cetera, but his question deserves a fuller answer about how we see this transitioning into that regime.

Motion agreed.

National Insurance Contributions (Reduction in Rates) Bill

Baroness Vere of Norbiton Excerpts

3rd reading
Tuesday 12th December 2023 Lords Chamber

Moved by

[Baroness Vere of Norbiton]

That the Bill do now pass.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, I am grateful to all noble Lords who have participated in the passage of the Bill. It delivers on the Government’s long-term plan to grow the economy and reform the tax system. It achieves this by cutting taxes for 29 million workers through three measures: a reduction in the main rate of employee class 1 national insurance contributions, or NICs, from 6 January 2024; a reduction in the main rate of self-employed class 4 NICs, from 6 April 2024; and the removal of the requirement to pay self-employed class 2 NICs, also from April 2024. Those who choose to pay class 2 voluntarily will still be able to do so. This simplifies the system for self-employed taxpayers, so that it is more closely aligned with the treatment of employees. The Government intend to fully abolish class 2 NICs, and further details about this reform will be set out next year.

Although this is a relatively small Bill, it has a big impact. It is an integral part of the Government’s long- term plan to grow the economy and reform the tax system but, most importantly, it is fair and it is right, because it stands by working people.

I would especially like to take the opportunity to thank all the Treasury officials for their enormous hard work in bringing the Bill to your Lordships’ House so quickly, such that it will deliver the benefit to workers from January 2024. I beg to move.

[Baroness Kramer (LD)]

My Lords, it is customary at this point to thank all those who have helped us with the Bill. The arduous task of taking it through has perhaps been one of the lighter moments of our parliamentary lives, but there was still a lot of hard work by the Bill team to prepare it. I would thank my staff, except that none of them worked on it. This is just to say a formal thank you to everyone who contributed to this process. We appreciate it.

National Insurance Contributions (Reduction in Rates) Bill

Baroness Vere of Norbiton Excerpts

2nd reading
Tuesday 12th December 2023 Lords Chamber

Moved by

[Baroness Vere of Norbiton]

That the Bill be now read a second time.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, the past few years have been a somewhat unhappy lesson in living through history, be that the impact of a once-in-a-generation pandemic or the shock waves of the largest conflict in Europe since World War II. Covid and Putin’s illegal invasion of Ukraine have forced this Government to take tough decisions to protect the public purse. Thankfully, the choices we have made are paying off: inflation is falling, this year’s growth is more resilient than expected and debt is forecast to reduce. This makes it possible to pay back working people while ensuring that public money remains sound.

Thanks to this Government’s long-term plan, this Bill will slash taxes for 29 million working people. It has three measures: the reduction of the national insurance contributions—or NICs—class 1 primary main rate; the reduction of the NICs class 4 main rate; and the removal of the requirement to pay class 2 NICs. The measures all fundamentally deliver on a core priority for this Government: allowing working people to hold on to their hard-earned cash. I shall explain each of the measures in more detail.

First, the Government’s changes to the employee class 1 NICs main rate will reduce it by two percentage points to 10% on earnings between £12,570 and £50,270, from 6 January 2024. This is a change that puts working people first. For example, the average worker on £35,400 will see and feel an annual improvement of £450 to their payslip at the start of the new year. An average full-time nurse will see an annual gain of over £520. Families with two earners on the average income will be £900 better off, because this Government believe that hard work should be rewarded.

Our remaining two measures focus on NICs for the self-employed. The Chancellor highlighted the importance of the self-employed in his Autumn Statement speech, commenting that:

“These are the people who literally kept our country running during the pandemic: the plumbers who fixed our boilers in lockdowns, the delivery drivers who brought us our shopping and the farmers who kept food on our plates”.—[Official Report, Commons, 22/11/23; col. 333.]


This fantastic workforce also deserves to be recognised. Of course, to be self-employed you need to be organised, efficient and responsible, and the Government should not get in the way of that. The self-employed want to stand on their own two feet, and the Chancellor stands ready to support this with two tailored interventions. The first is a cut in the class 4 rate by one percentage point, from 9% to 8%. The second removes the requirement for the self-employed with annual profits above the income tax personal allowance to pay class 2 NICs. Those who wish to pay voluntarily will still be able to do so. Both measures will be in force from 6 April 2024.

These changes simplify the system for self-employed taxpayers, bringing it closer to the system for employees. These measures mean that a typical self-employed plumber will gain £410 a year. The Government intend to fully abolish class 2 NICs, reducing needless complexity and freeing up valuable time. Further detail about this reform will be set out next year. As a result of changes in the Bill, a self-employed person who is currently required to pay class 2 NICs every week will save at least £192 per year. Taken together with the cut to class 4 NICs, this will benefit around 2 million people. Importantly, those with profits under the small profits threshold of £6,725, and others who pay class 2 voluntarily to get access to contributory benefits, including the state pension, will continue to be able to do so. No low-income, self-employed people who pay voluntary NICs will be asked to pay more.

The Government are committed to tax cuts that reward and incentivise work, and which grow the economy in a sustainable way. The tax cuts in this Bill will be worth over £9 billion a year—the largest ever cut to employee and self-employed national insurance. These measures will give 29 million working people an average yearly saving of over £450. That is fair and that is right. Nor will these measures benefit only those already in work. According to the Office for Budget Responsibility, these reductions in tax will lead to an additional 28,000 people entering work, because ensuring that work pays will encourage more people to seek employment. Be in no doubt that we are doing the right thing by standing with the hard-working people of this country and ensuring that their contributions are recognised and fairly rewarded.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

My Lords, I am enormously grateful to all noble Lords who have taken part in this relatively short debate. As your Lordships might expect, I did not agree with all the points, statistics and bits of data that were shared, and I will obviously have my own, but I will try to stick within my wheelhouse and stay within the realms of national insurance today.

However, I want to comment on the general thrust from the noble Lords, Lord Sikka and Lord Livermore, and the noble Baroness, Lady Kramer. It was just extraordinary. I feel really pleased that everybody has now come round to the Conservatives’ way of thinking that taxes are too high, and we need to think about reducing them and we must do so responsibly. I am grateful for that vindication of the Conservatives’ policy when it comes to personal taxes. We agree that they are too high, but of course many of the tax rises that are forecast to come into place—I absolutely accept that taxes will go up, although this national insurance cut reduces them—are already announced and baked into the figures.

I did not hear many noble Lords recognising the reasons why we needed to put taxes up—

[Baroness Kramer (LD)]

I was very tactful not to point out that the Minister, as with all Conservatives— I think they have probably signed an oath somewhere—did not mention Brexit and the economic damage it has done, which is a fundamental part of all this. In giving the history of the things that have gone wrong, it is best not to lecture the House when the Government are deliberately leaving out one of the key culprits.

[Baroness Vere of Norbiton (Con)]

My Lords, I definitely was not lecturing the House—far be it from me to do so. However, it would obviously not be a debate without a Liberal Democrat mentioning Brexit.

I am going to move on from that general observation that I am pleased that there is this political groundswell now back behind the Conservatives for lower taxes, which is excellent—

[Lord Sikka (Lab)]

My Lords, I apologise for intervening, but just to back up the Liberal Democrats, it is not just Brexit. As the Minister will know, since 2010, between £450 billion and £1,500 billion of taxes have not been collected due to avoidance, evasion, fraud and error. If only a fraction of that had been collected, the Minister can imagine how the whole country would have been transformed. If the Minister is looking to expand the debate, here is a point to talk about.

[Baroness Vere of Norbiton (Con)]

The Minister is definitely not looking to expand the debate but is trying to make progress. I hear what the noble Lord says, and if he has read the Autumn Statement, which I am sure he has, he will have seen the announcements made in it about tax avoidance.

Moving on to comments made by noble Lords, I think it is probably not worth rehearsing and rehashing the elements around fiscal drag. Again, I want to put some numbers on record, because there is an opportunity to do so. Thanks to the cut in employee national insurance contributions announced at the Autumn Statement and to above-average increases to starting thresholds since 2010, an average worker in 2024-25 will pay more than £1,000 less in personal taxes than they would otherwise have done. That statement has attracted some interest, and I reassure noble Lords that the calculations underlying this statistic are based on public information, including a published estimate of average earnings. They are robust and could be replicated by an external analyst. This goes back to what I was trying to say about data. Lots of people will do calculations on different bases, but at the end of the day, from the Government’s perspective, we want taxes to come down—this is a start—but of course we will do it only in a responsible manner. However, personal taxes for somebody on an average salary of £35,400 have come down since 2010.

The noble Lord, Lord Sikka, asked about distribution analysis, and the national insurance cuts will of course benefit everybody who pays national insurance. That includes 2.4 million people in Scotland, 1.2 million in Wales, 800,000 in Northern Ireland, et cetera. The latest published HMRC data for 2021 shows that the largest proportion of income tax payers reside in the south-east, followed by London. It will be the case when one has a tax cut that those who pay the largest amount, and the numbers of people who pay tax if they are located in certain areas, are therefore going to see the largest reductions.

However, we have also looked at the impact on women—again, an issue raised by the noble Lord, Lord Sikka. NIC charges apply regardless of personal circumstances or protected characteristics. The equalities impact will reflect the composition of the NIC-paying population. Of course, that feeds into whether we would like women to be paid more. Of course we would. That is why rewarding work will see 28,000 people come into jobs—and I very much hope that they will be well- paid jobs and will be taken up by women.

The noble Lord, Lord Sikka, talked about better-off households. Distribution analysis published at the Autumn Statement shows that a typical household at any income level will see a net benefit in 2023-24 and 2024-25, following government decisions made from the Autumn Statement 2022 onwards. Low-income households will see the largest benefit as a percentage of income. Furthermore, looking across all tax, welfare and spending decisions since the 2019 spending round, the impact of government action continues to be progressive, with the poorest households receiving the largest benefit as a percentage of income in 2024-25. I know that the noble Lord feels that we do not focus on those on the lowest incomes, but he is not correct in that regard.

[Baroness Kramer (LD)]

You cannot eat a percentage of income. Going out and buying a loaf of bread costs you just the same whether you are a high earner or a low earner. So, using the percentage of income comparator to understand the cost of living pressures that people are living under and who is getting the most benefit is not the appropriate measure. If you use the cash number, you realise how much purchasing power arrives for people at the bottom end and how much more purchasing power arrives for people at the top end. That is the appropriate benchmark.

[Baroness Vere of Norbiton (Con)]

I absolutely accept that the noble Baroness is right to say that you can look at it in a different fashion but, in terms of whether what the Government are doing is progressive, it is fair to say that people on lower incomes are benefiting, as a proportion, to a greater degree. Of course, the Government have intervened when it comes to cost of living. That has been cash and that is not about percentage of income. It is all around our energy price guarantee, increases to the national living wage and looking at the uprating of benefits, which will rise by much more than inflation is forecast to be next year. So there are lots of different factors to take into account and sometimes one can be quite blunt when dealing with a tax cut that is, frankly, going to benefit 29 million people.

The noble Lord, Lord Sikka, asked why national insurance contributions do not apply on unearned income. National insurance contributions are part of the UK social security system, which is based on a long-standing contributory principle centred on paid employment and self-employment. ‘Twas ever thus. Of course, a future Government may make substantial changes to that which would again increase the tax burden—but this Government are content that we will maintain the contributory principle.

[Lord Sikka (Lab)]

I thank the Minister for giving way. I hear what she says, but people who have what the Minister calls unearned income—some people may call it “rentier income”, which is perhaps a clearer expression—can still use the National Health Service. If there was an accident, an ambulance would arrive, even though they had not paid any national insurance. If the need arises, they can still get social care. So why are they not required to pay? They simply are free riders. If they paid, the Government could have made an even bigger cut in national insurance.

[Baroness Vere of Norbiton (Con)]

This potentially leads on to the next question from the noble Baroness, Lady Primarolo, about the percentage of mixed receipts that goes to the NHS. It is about 20%; 80% comes from elsewhere. Those people who pay taxes on their unearned income will, of course, pay into the general fund.

[Lord Sikka (Lab)]

As the Minister knows, the taxes levied on dividends and capital gains are lower than the taxes on wages. If she wants her point to stand, can she explain why capital gains and dividends are taxed at a lower rate than wages? What is the justification for that?

[Baroness Vere of Norbiton (Con)]

I suspect that we are now moving into an area of debate where is not appropriate to go today, because there is business still to come in the House; I know that my noble friend is desperately waiting to get up.

I go back to the point made by the noble Baroness, Lady Primarolo. Obviously, the balance of the national insurance fund is monitored closely. The most recent report from the Government Actuary’s Department—GAD—forecast that the fund will be able to self-finance for at least the next five years. But, of course, the Treasury has the ability to top up the NIF from the consolidated fund when needed. Indeed, this has been done in the past—it was routinely done in the 1990s—so it is not right to say that the cut in NICs puts any pressure at all on any payment to the NHS or otherwise; that is set independently from the national insurance fund.

[Baroness Primarolo (Lab)]

I do not wish to detain the House but, frankly, that is not the question I was asking. I was asking the Minister about something that she has confirmed: 20% of the 100% that the NHS gets comes from the national insurance fund and it is equated to a cash value. If there is less in the national insurance fund, less cash goes to the NHS. The simple question I asked was not about whether the NHS will still get the 100%; it was about whether the 80% will become 81% or 82%. It is quite a techy point and I do not want to delay the House, but it makes quite a difference to the cash that the NHS receives. I was just asking the Minister to confirm and clarify that; I am not seeking to score any points off her.

[Baroness Vere of Norbiton (Con)]

I am grateful to be able to clarify that it is not set on a percentage basis at all. The amount of money that goes to the NHS is set in actual terms; for example, it is £160 billion in 2023-24 and will be £162.5 billion in 2024-25. It has nothing to do with the percentage of anything.

I will write to the noble Baroness, Lady Kramer, on the Taylor review and everything that she raised. That would probably be the most appropriate thing to do.

For the time being, I am grateful to all noble Lords who have taken part in the debate and I beg to move.

Bill read a second time and committed to a Committee of the Whole House.

Banking Hubs

Baroness Vere of Norbiton Excerpts

Monday 11th December 2023 Lords Chamber

[Baroness Tyler of Enfield]

To ask His Majesty’s Government how many banking hubs have been established in response to bank branch closures since January 2022, and whether they are taking steps to facilitate the establishment of a national network of banking hubs.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, since January 2022, the financial services sector has opened 23 banking hubs, with another 27 hubs expected by Easter next year. Following government legislation, last week the Financial Conduct Authority published proposals for a new regulatory regime to protect access to cash. This includes proposals that seek to ensure a timely delivery of services that meet the needs of communities.

[Baroness Tyler of Enfield (LD)]

I thank the Minister for her Answer and welcome the steps being taken to safeguard free access to cash. Does the Minister agree that many people, particularly older people and those with disabilities, need access to physical banking services which go much further than access to cash? It is about having a real person to talk to. Given that banks and building societies have closed over 6,000 branches since 2015, does the Minister also agree that the rollout of banking hubs has been painfully slow, leaving many communities to become banking deserts? The current plans are totally inadequate for creating a much-needed national network of banking hubs, which some have estimated would require between 800 and 1,000 such hubs.

[Baroness Vere of Norbiton (Con)]

There were many questions there and perhaps I will focus on the last one, which is where the FCA consultation comes to the fore. The proposals set out by the FCA are very detailed and potentially go much further than the voluntary initiatives of banking hubs that have so far been undertaken by the sector. Obviously, that consultation remains open until 8 February, and we will be looking for not only banks to respond but representatives of the vulnerable groups the noble Baroness describes, so that we can get a full view of what the proposals should be.

[Baroness Foster of Aghadrumsee (Non-Afl)]

My Lords, I commend the establishment of banking hubs across the United Kingdom as an alternative to the closure of mainstream banks. Can the Minister set out the criteria for such banking hubs being initiated? Just one has been established in Northern Ireland. Recently, the Ulster Bank decided to close a range of banks across Northern Ireland, leaving many rural areas without physical banking facilities. What are the criteria for the establishment of banking hubs, because there is a need for one in Lisnaskea, south-east Fermanagh?

[Baroness Vere of Norbiton (Con)]

I recognise what the noble Baroness is saying. The criteria currently used to assess whether a community needs a banking hub are set out in consultation with the financial services sector; that is part of the current voluntary arrangement. I point the noble Baroness to the FCA consultation, because the criteria to be set out going forward are far more detailed and focus on the needs of not only local communities but SMEs. The consultation will also look at seasonal fluctuations in the need for cash access and the ability of SMEs to get coins and notes. The FCA is going further than the current voluntary arrangements.

[Lord Anderson of Swansea (Lab)]

As with rural bus services, the loss of banking facilities bears most heavily on the elderly. Does the Minister agree with the principle that the last facility in a community should not be lost until a hub is established?

[Baroness Vere of Norbiton (Con)]

I agree with that in principle, and that is what the FCA set out in its consultation. If the assessment is that a community needs services, it will be beholden upon the designated firms—the banks—to put an alternative service in place before the last bank is closed, or alternative services will need to be put in place within three months if the existing service had somehow disappeared many months or years beforehand and an assessment was made that the community was lacking access to cash.

[Baroness Butler-Sloss (CB)]

Perhaps I may add to what other noble Lords said about the urgency of this. In the part of Devon where I live, it is a desert. In Fleet Street, there used to be two Barclays branches between the law courts and the Old Bailey and now—can you believe it?—there is none; and yet, another set of courts is about to be built. Can the noble Baroness inject some urgency into this?

[Baroness Vere of Norbiton (Con)]

That is why the Government decided that it was time to legislate. We felt that the voluntary initiative was not coming along fast enough, and we legislated in the Financial Services and Markets Act in the summer. The FCA, the key independent regulator, has brought forward its consultation in short order.

[Baroness Sater (Con)]

My Lords, we know that banking hubs should provide the face-to-face communication which is so valuable and important for those who need extra help and support with their finances and may not be equipped with adequate financial understanding and skills. As we know, not all young people are leaving school having had an adequate financial education. Can the Minister assure us that there will be a person at each of these hubs to provide much needed and valuable face-to-face communication?

[Baroness Vere of Norbiton (Con)]

In many circumstances banking hubs have a private room where community bankers can meet customers to discuss their financial requirements. Cash Access UK, the partnership that sets up banking hubs, publishes a list showing where community bankers are available. I should also point my noble friend to other interventions that some banks are using, such as mobile banking services, pods and pop-ups. There are a lot of ways to have face-to-face contact with consumers.

[Lord Livermore (Lab)]

My Lords, the latest figures from the British Retail Consortium show that shopping with cash has risen for the first time in a decade, as household budgets are increasingly stretched. At the same time, almost half of bank branches have closed, while the rollout of banking hubs has been much delayed. Will the Minister agree to match the Labour Party’s commitment to work with banks and, where necessary, bring in additional powers for the FCA to guarantee face-to-face banking services, beginning by prioritising areas that currently have no high street banks?

[Baroness Vere of Norbiton (Con)]

I think what the noble Lord has just set out is exactly what the Government are doing. The FCA consultation goes into an awful lot of detail on the criteria that will need to be met for banking services to continue. We accept that, while the use of cash has declined over time, it has possibly reached a plateau. But I reassure noble Lords that, for example, 97% of the urban population is within 1 mile of a free-to-use cash access point.

[Baroness Kramer (LD)]

My Lords, surely the Minister has hit the nail on the head: the weakness of the current banking hub system is its voluntary character. That could be corrected with a relatively simple statutory instrument so that, when a local community applies to Link and is shown to meet the criteria, a banking hub is guaranteed and it does not suffer what happens today—delay or refusal by the banks.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

I disagree with the noble Baroness. I would not want to put the current arrangements on a statutory footing at all, because they could be better. That is exactly what we are doing: we are looking at the existing voluntary arrangements and saying that we need a regulatory footing, not for where we are now but for where we should be in future. That is why the FCA consultation is so important. But this also builds on FCA guidance, which is already out there and which banks already follow.

[Lord Bird (CB)]

Is there a case for working much more closely with the Post Office, which is doing an enormous amount of work in backing up the lack of banking in certain areas? We are working with the Post Office, and its commitment to filling the gap left by banks is incredible.

[Baroness Vere of Norbiton (Con)]

The noble Lord is absolutely right. The Post Office banking framework has been in place since 2017, and we recognise the really important role post offices can play for people and for small and medium-sized enterprises. The current arrangements are in place until December 2025, when they will of course be looked at again, but we recognise that the more than 11,000 post offices offer a very helpful route to get cash and other services.

[The Lord Bishop of Durham]

My Lords, I thank the Minister for that last answer. However, in the north-east, only one banking hub has been opened this year and there is a diminishing number of post offices, so it is quite hard to see how the post office network is actually helping in the north-east.

[Baroness Vere of Norbiton (Con)]

I point the right reverend Prelate to figures released by the FCA last week. We know that geographic coverage of the cash access network remains comprehensive, despite some branch closures over a period of time. Of course, we are keeping this under review, which is why we await the response to the FCA consultation. We expect any proposals to be in place by summer next year.

Payment and Electronic Money Institution Insolvency (Amendment) Regulations 2023

Baroness Vere of Norbiton Excerpts

Wednesday 6th December 2023 Grand Committee

Moved by

[Baroness Vere of Norbiton]

That the Grand Committee do consider the Payment and Electronic Money Institution Insolvency (Amendment) Regulations 2023.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, these draft regulations will expand the application of the existing insolvency arrangements for electronic money and payment institutions so that they apply to firms in Northern Ireland and Scottish limited liability partnerships as they already do in England and Wales, as well as for companies in Scotland.

The payment and e-money sectors have expanded rapidly over the last decade, with payment and e-money institutions now holding more than £17 billion of funds belonging to UK consumers. As the sectors have grown, the Government became concerned that the application of standard insolvency procedures to the failure of these firms was leading to negative outcomes for customers. In particular, administration cases involving these types of firms were taking years to resolve, with customers left without access to their money for prolonged periods and receiving reduced money as a result of high distribution costs.

To manage these risks, the Government legislated in 2021 for a special administration regime to provide for the prompt return of client assets should such a firm fail. This regime was delivered through the Payment and Electronic Money Institution Insolvency Regulations 2021 and the accompanying rules. These regulations established the special administration regime in England and Wales, and for companies in Scotland. This regime created special administration objectives that an administrator will have to follow when conducting an administration of a payment or electronic money institution.

The key provisions of this regime include: first, bespoke objectives for an administrator to ensure the return of customer funds as soon as reasonably practicable, to engage with the relevant authorities and to either rescue or wind up the institution in the best interests of creditors; secondly, continuity of supply provisions that will allow an administrator to keep the firm’s key functions operational for customers; thirdly, provisions to ease the transfer of business processes such that a new firm can take on the incumbent’s business and provide continuity for customers; and, finally, bar date provisions to allow the administrator to set a deadline for consumers to claim and thus enable an earlier distribution of customer funds.

The Government originally consulted on the special administration regime from December 2020 to January 2021. This included not only public consultation but pre and post-consultation meetings with industry groups, including the Banking Liaison Panel, as well as extensive work with the FCA. During the consultation process, most respondents expressed support for the proposals and many provided detailed and useful comments which enabled the refinement of policy. For example, the Government introduced additional steps within the special administration regime rules to require administrators to provide a reasonable notice period before a bar date comes into effect. This will allow time for administrators to communicate bar dates to customers and for customers to make claims.

In responding to the original consultation, the Government confirmed their intention eventually to extend the regime to Northern Ireland and to limited liability partnerships in Scotland, but that this would be to a different timetable, reflecting further work that was needed given differences in insolvency law. The Government therefore subsequently consulted extensively with the Scottish and Northern Irish devolved Administrations to produce the regulations being debated here today.

As noted, this statutory instrument is required to ensure that the regime can effectively apply to Scottish limited liability partnerships and to firms in Northern Ireland, ensuring that the regime applies effectively across the whole of the United Kingdom. For example, these regulations ensure that the relevant provisions of the Insolvency (Northern Ireland) Order 1989 apply to the payment and electronic money special administration regime, as they would to any other insolvency proceedings for Northern Irish firms. This mirrors equivalent provisions which ensure that the relevant provisions in the Insolvency Act 1986 apply in England and Wales. This includes provisions around the duties of officers and the powers of the liquidator.

These regulations do not apply the insolvency procedure to Scottish partnerships, as they are sequestrated under the Bankruptcy (Scotland) Act, which is a devolved matter for the Scottish Government. In addition, Scottish partnerships, apart from limited liability partnerships formed in Scotland, do not currently enter administration and would not be within the scope of the regime.

In conclusion, by expanding the application of these regulations to the relevant firms in Northern Ireland and to Scottish limited liability partnerships, these regulations will ensure that we have robust arrangements to manage the potential insolvency of payments and electronic money firms throughout the UK. I beg to move.

[Baroness Kramer (LD)]

My Lords, this instrument seems to make good sense and we certainly have no intention of opposing it. I have just three questions. First, I understand that it was always anticipated that this regulation would stretch over Northern Ireland and Scotland as well as England and Wales, so it seems very strange that the consultations for Scotland and Northern Ireland were not done in parallel with the consultations for England so that, when the legislation came in, the relevant instruments could all flow immediately, rather than creating a two-year hiatus. Is there any particular reason why that procedure was not followed? It would seem to be the more obvious route.

Secondly, the Explanatory Memorandum makes it clear that there was extensive discussion with the relevant bodies in Northern Ireland and Scotland, and the Minister basically said the same. Was there expected to be any formal approval by the devolved Governments, or was that not relevant in this instance? Can the Minister clarify the position of the devolved authorities in this? From the way she described it, it sounds as though there has been no tension or opposition, but it would be helpful to know whether I have misread that.

My last question is a more fundamental one to do with the hard bar. It is obviously critical to have an efficient and effective insolvency process, and I fully accept that the Government are working to frame that. When I was involved with the transition out of Libor, or dealing with dormant assents, it rapidly became evident that it is very hard to identify anything close to 100% of the relevant claimants. Organisations change their names, they are acquired or sold, there are inheritances—all kinds of actions cloud and obscure relevant ownership and, therefore, relevant claims.

In the two instances that I cited, Libor and dormant assets, a provision was made to ensure that people who appear past the point where the process has fundamentally changed do not lose out because they were ignorant. Some will say that most people were overwhelmingly in support of this in the consultation, but the kind of people who do not know that they have a claim are also probably the kind of people who do not reply to a consultation. The experience with dormant assets and Libor has shown that there is a substantial body of people and, usually, small companies who have a genuine legal claim of some sort. I am interested to know whether any thought was given to making provision for that particular group, which could be excluded by the establishment of a hard bar. I have no idea what the legal responsibilities of the administrators are if a claim is made after a hard bar has been established—whether the claimant loses no matter the basis of their claim. I would like to understand that a bit better.

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, we also support these regulations. I would like to ask the Minister a couple of questions. First, on how the FCA’s significantly expanded remit will be delivered in practice, can she set out what the Government are doing to ensure the FCA’s greater powers are accompanied by greater accountability? Can she also tell us what steps the Government are taking to ensure that the additional FCA requirements on payment firms and EMIs are proportionate, and explain how the Government will ensure that these requirements do not hamper innovation in the UK’s payment sector?

Secondly, as is often the case with financial services regulation, there seems to have been a significant gap between the consultation, which took place in December 2020 and January 2021—three years ago—and the statutory instrument being brought forward. Can the Minister tell us the reason for this delay?

Finally, I note there is a requirement for this new regime to be evaluated after two years, with a decision then made on whether the regulations should continue to have effect. Can the Minister set out the criteria by which the regime will be evaluated? I thank her in advance for her answers to these questions.

[Baroness Vere of Norbiton (Con)]

My Lords, I can hear much flapping of papers behind me, so I have no doubt that I will not be able to answer all the questions in full, but I will do my best. I am grateful to the noble Lord, Lord Livermore, for giving me advance sight of some of his questions, which was very helpful. The noble Baroness, Lady Kramer, mentioned that she might ask me a few questions. None of them were difficult—well, one of them was a little difficult, but we will give it a go.

I thank all noble Lords for their consideration of this draft instrument. It is all about taking an established regime and ensuring that it operates everywhere that it should across the United Kingdom by applying to all organisations in Northern Ireland and to limited liability partnerships in Scotland.

Both noble Lords mentioned the timing and why the Government were unable to bring forward all the regulations at the same time. We took the opportunity to bring through the England and Wales regime before the regulations being debated today because it was slightly easier to do so and we wanted to get the regime in place as soon as possible, having done the consultation. There are some quite significant differences in insolvency law. We therefore took a little extra time carefully to consider the legislation before applying this to Scotland and Northern Ireland. In doing so, we worked extensively with the devolved Administrations in both those areas. There was no sort of tension or opposition, and the rules underpinning this regime will have to be set out by those Administrations in due course anyway.

Herein is the slightly tricker question from the noble Baroness, Lady Kramer, which is her “hard bar” question. I will certainly write. One observation I have about these sorts of payment systems is that consumers tend to be much more actively engaged in them. I would have thought it would be slightly easier to get in contact with them because it is a much more immediate system. However, I will definitely write and set out exactly what we are doing to achieve the balance that she rightly set out. It is not our intention to cut anybody off; it is our intention to get money to consumers as soon as possible because, as we know, time costs money and, unfortunately, delays mean that consumers sometimes get back less than they would otherwise.

Turning to the points raised by the noble Lord, Lord Livermore, about the FCA’s greater powers, accompanied by greater accountability, these regulations directly affect only firms that have entered the insolvency process. They have no effect on firms in normal circumstances. It is also worth stressing that the special administration regime is ultimately a process led by an insolvency practitioner and administrator, not by the FCA. However, the FCA does have a role to play in the regime, including a power to direct an insolvency practitioner, but this power can be used only subject to a number of objectives being met.

More broadly, the Government are committed to the operational independence of the financial services regulator, but increased responsibility for the regulators must be balanced with clear accountability, appropriate democratic input and transparent oversight. I am sure the noble Lord is aware that during the passage of the Financial Services and Markets Act 2023, we included a package of measures to increase the accountability of the regulators, including the FCA, to Parliament when exercising their regulatory powers.

On the proportionality of the FCA requirements, the Financial Services and Markets Act 2000 requires the regulators to take into account eight regulatory principles when discharging their functions, including making rules. The second of these is the principle that restrictions should be proportionate to the benefits that are expected from the imposition of that restriction.

The noble Lord made a good point about whether the requirement would hamper innovation. Clearly, this is an area where innovation has been significant in recent times. The payments are essential to the UK economy but are also a major source of the UK’s competitive growth, at the heart of our financial services sector. In July, the Government commissioned an independent review into the future of payments and specifically asked how to catalyse innovation in UK payment systems.

The regulations being discussed today are all about protecting consumers. Our view is that they will strengthen confidence in the sector by improving customer and market outcomes. In addition to the independent review, the Financial Services and Markets Act 2023 includes a new secondary objective for the FCA to facilitate growth and competitiveness. The Government are taking this through across all sectors to achieve that balance between growth and competitiveness and effective and robust regulation.

I think I may have covered the gap between the consultation and this SI. It is all about the differences in law and just taking the opportunity to bring it in as soon as we could, at least for England and Wales. We brought that in during 2021, which is not bad after a consultation which ended in January 2021, so that is a minor pat on the back. I accept that we would have loved to have brought it in at the same time, but a significant amount of additional work needed to happen.

On the review of the regulations and the criteria to evaluate them, under the Banking Act the Treasury is required to conduct a review of this regime. This is due for completion in 2025 and will be an independent review covering whether the regime is meeting insolvency regulation objectives and whether the regulations should continue to have effect. As ever, once completed a copy of the review will be laid before Parliament. We will set out further details of the review in due course.

Motion agreed.

Autumn Statement 2023

Baroness Vere of Norbiton Excerpts

Wednesday 29th November 2023 Lords Chamber

Moved by

[Baroness Vere of Norbiton]

That this House takes note of the Chancellor’s Autumn Statement 2023.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, it is a pleasure to open this debate on the measures brought forth by the Chancellor in last week’s Autumn Statement. It was a Statement designed to drive growth across the country, creating jobs and giving more people more money through work. It included some big, headline-grabbing announcements—not least of which was a tax cut for 29 million working people—and over 100 other measures carefully crafted to build on the post-Covid economic recovery. Taken in combination, the measures that the Chancellor proposed could boost business investment in the UK by around £20 billion a year in a decade’s time.

I will start my remarks with some important context. The British economy has outperformed all expectations this year and has exceeded many of the forecasts. Yet in some ways we should not be surprised. When the Prime Minister took office, he set out five pledges to the British people, three of which were economic: to halve inflation, reduce debt and grow the economy—and he is a man of his word.

I turn first to inflation. At a high of 11.1% last year, it is now at 4.6%—a promise delivered. As the OBR noted, the measures in this year’s Autumn Statement are not inflationary, and inflation is forecast to continue to fall. I echo the Chancellor’s thanks to the independent Bank of England Monetary Policy Committee for its work in bringing down inflation. The Government will continue to support it to do whatever it takes until the job is done.

Secondly, I turn to debt. Before last year’s Autumn Statement, our debt was predicted to rise to almost 100% of GDP by the end of the forecast period. This is unacceptable. As the late Lord Lawson said, and as the Chancellor quoted in his speech,

“borrowing is just a deferred tax on future generations”.—[Official Report, Commons, 22/11/23; col. 328]

That is something we cannot justify.

Now, thanks to the decisions taken by the Chancellor, the OBR says that borrowing is lower this year and next, and, on average across the forecast, lower by £0.7 billion every year compared to the spring Budget forecasts. It falls from 4.5% of GDP in 2023-24 to 1.1% five years later. We meet our fiscal rule that public sector borrowing must be below 3% of GDP, not just by the final year but in almost every single year of the forecast. From a predicted rate of nearly 100%, headline debt is instead predicted to be 94%. The OBR forecasts that underlying debt will be 91.6% of GDP next year, rising to 93.2% in 2026-27, before declining in the final two years of the forecast to 92.8% in 2028-29. That is lower in every year compared to forecasts from last spring. So we meet our fiscal rule to have underlying debt falling as a percentage of GDP in the final year of the forecast, with double the headroom compared to the OBR’s March forecast. The UK continues to have the second-lowest government debt in the G7; that is lower than the United States, Canada, France, Italy or Japan—another promise delivered.

Finally, I turn to economic growth. There are one or two in your Lordships’ House who remember the economic recession that accompanied the Second World War. When this Government came to power in 2010, the UK was facing the worst recession since that era of terrible conflict. From 2010 until the pandemic, this Government presided over faster growth than many of our major competitors, including Spain, Italy, France, Germany and Japan. When the pandemic hit, followed in quick succession by an energy crisis, our economy, like so many around the world, faced a shock. As a result, last autumn, just a year ago, the OBR forecast a recession, in which the economy was expected to shrink by 1.4% in 2023. Instead, it grew. Revised numbers from the ONS now say the economy is 1.8% larger than pre-pandemic.

Looking ahead, the OBR expects the economy to be larger in every year of the forecast, compared to March. It is expected to grow by 0.6% this year and 0.7% next year. After that, growth rises to 1.4% in 2025, 2% in 2026, 2% in 2027 and 1.7% in 2028. This Government are delivering on growth. We have an economy that is bigger and stronger than people thought and, as I have already said, with double the headroom that the OBR predicted. This is where our leeway comes from, and a large part of the reason why we can introduce generous tax reforms, including cutting taxes for 29 million working people.

As I have said, this Autumn Statement is focused on economic growth, and the Government have set out a raft of measures to support long-term sustainable increases in economic output. For large businesses, full expensing has been a game changer. The likes of the CBI, Make UK, BT Openreach and Siemens, and indeed 200 other businesses and trade bodies, called for this measure to be made permanent. They all agreed that it would be the single most transformational thing we could do for business investment and growth. Full expensing means that, for every £1 million invested, a company will get £250,000 off their tax bill the very same year. That is cashflow that can be used to buy a vital new machine, expand premises, test a new product, or hire a new team to begin work on a new project.

For investment, growth and employment, that is game-changing. It means that we will soon have both the lowest headline corporation tax rate in the G7 and the most generous plant and machinery capital allowance anywhere. Once again, the OBR says that this measure will achieve our aims, and will make a huge contribution to our economy, increasing annual investment by £3 billion a year, totalling £14 billion in the forecast period.

Alongside this, the Government will provide £4.5 billion over five years to our strategic manufacturing sectors—those where we already have, or can have, a competitive advantage, and which have tremendous potential for growth in the years ahead. This will encourage the manufacturers of zero-emission vehicles, green energy solutions and aerospace and life science technologies to set up or expand in, and stay in, the UK—again, creating more jobs and more income.

As we move down the business scale, from the very largest to small and medium enterprises, we continue to provide support. The Government are extending the 75% business rate discount for retail, hospitality and leisure businesses for another year, and will freeze the small business multiplier, saving an average independent pub more than £12,800 next year.

Then we come to the smallest businesses of all—those consisting of self-employed people. The Chancellor illustrated the importance of these people in his speech last week, and it was an elegant description that I would like to repeat:

“These are the people who literally kept our country running during the pandemic: the plumbers who fixed our boilers in lockdowns, the delivery drivers who brought us our shopping and the farmers who kept food on our plates”.—[Official Report, Commons, 22/11/23; col. 333.]


Without these people, I simply cannot imagine how we could have got through the pandemic. They already give so much of their time and effort to their work that it has always seemed an unnecessary burden to ask them to fill in all sorts of tax forms, and then pay all sorts of different taxes, before they can enjoy the fruits of their labour.

So the Chancellor made two interventions: first, the abolition of class 2 national insurance, saving 2 million self-employed people an annual average of £192; then, the reduction of class 4 national insurance, down from 9 % to 8%, saving those 2 million people more again. From April next year, 2 million self-employed people will save an average of £350 a year.

Finally, the Chancellor offered one more major tax cut—a 2 percentage point reduction on national insurance for employees. That saves someone on an average salary over £450 a year, and that saving will start from January, once the legislation is passed.

I now turn to labour and welfare. The Government want to make work more available, more appealing, and more rewarding. That is why we are delivering on our commitment to end low hourly pay for full-time workers on the national living wage. Last week, the Chancellor announced the largest ever cash increase in the national living wage, increasing it by 9.8% to £11.44 an hour for workers aged 21 and over. This is worth up to £1,800 for a full-time worker. This follows a series of increases dating all the way back to 2010, when this Government first came to power. In 13 years, we have increased the national living wage by 30% in real terms.

As the Chancellor said in his speech last week, the best way to tackle poverty is through work. For tens of thousands of parents, the Chancellor’s spring announcement of 30 hours of free childcare for working parents of one and two year-olds will help them return to work without having to worry about their career prospects, or about being able to afford childcare while they are at work.

The focus of the Autumn Statement is on those with long-term health conditions and disability, and the long-term unemployed. Every year, 100,000 people are signed on to benefits, with no requirement to look for work, because of sickness or disability. Some of these people are unable to work and it is perfectly right that we support them with the uprated benefits that the Chancellor announced last week.

But for a large number of sick or disabled people, the issue is that they are not given a clear route back to work when they are ready for it. That means they are not even given a chance to reach their full potential. We should not be comfortable with that. Everyone should have the opportunity to make the most of themselves and to experience the benefits of work. So, over the next five years, the Government will commit £1.3 billion to help nearly 700,000 people with health conditions to find jobs. Over 180,000 more people will be helped through the universal support programme and nearly 500,000 more people will be offered treatment for mental health conditions, and employment support.

At the same time, there are many people in this country who have been unemployed for a long time—over a year—not because of any conditions that they have but rather because of the conditions that they find themselves in. Perhaps a surprising redundancy has left someone in their 50s, who has worked in the same role for 30 years, adrift in a modern job market for which they are not entirely equipped. Perhaps the kind of work someone in their 20s really wants to do requires qualifications which they just do not have the means to attain.

There are numerous reasons for long-term unemployment, but there is one basic truth: work lifts us up, so the Government will provide a further £1.3 billion of funding to offer extra help to the 300,000 people who have been unemployed for over a year. But if, after 18 months of intensive support, jobseekers have not found a job, the Government will require them to take part in a mandatory work placement, through a new work programme or other intensive activity, to increase their skills and improve their employability. In addition, if they choose not to engage with the work search process for six months, their case will be closed and their benefits stopped.

Other Benches may try to argue that this lacks compassion. I say that is wrong; that the inverse is true and that this is a fundamentally compassionate approach, because it prevents those who choose not to work siphoning off the finite resources that those who sincerely want to work, or those who genuinely cannot, desperately need. It protects our most vulnerable, and the people who most want and need our support, from those who would seek to exploit them by hiding among them—and the OBR says that this will work. Taken together with the labour supply measures the Chancellor announced in the spring, the OBR says that this Autumn Statement will increase the number of people in work by around 200,000 at the end of the forecast period, permanently increasing the size of the economy.

This is a wide-ranging Autumn Statement which includes bold measures to get our country growing: the largest business tax cut in modern British history over a five-year period; the largest ever cash increase to the national living wage, paired with the largest ever cut to employee and self-employed national insurance; the biggest set of welfare reforms in a decade; one of the largest ever increases to the state pension; and a focus on investment that could see business investment in the UK increase by £20 billion per year in a decade’s time.

I have outlined only some of the numerous measures announced by the Chancellor last week. There is much more to cover but, for now, I welcome this debate and look forward to hearing the views of your Lordships’ House.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

My Lords, I am enormously grateful to all noble Lords for their very valuable and interesting contributions to today’s debate and for their kind words in welcoming me to my new role. I have to be honest that there were some very undignified ministerial tears leaving Transport after four and a half years, but of course I am absolutely delighted to be at the Treasury—it seems like such an easy job.

I am very grateful to all noble Lords who, wholly or partially, welcomed the Autumn Statement for what it is: a well-thought-through plan to grow our economy, thereby improving prosperity and well-being across the country.

[Noble Lords]

Oh!

[Baroness Vere of Norbiton (Con)]

Is that genuinely funny or is it just performative?

It will not surprise noble Lords to learn that I did not agree with all the points raised, but there have been others that have truly piqued my interest and I will take them away for further consideration.

I will first set out the context, which was noted by my noble friend Lady Goldie in her very spirited speech for an “old bird”. It is very important to think about the context of where we are and where we have come from. There were some notable exceptions, because many noble Lords just glossed the past few years and said, “Oh, it’s all the Government’s fault”. I note that my noble friend Lady Lea gave an excellent speech, with a very authoritative analysis of where we are.

We have faced a global pandemic and global economic headwinds generated by Putin’s illegal war in Ukraine. As a result of those things, we have made decisions. Other countries did not make exactly the same decisions as us; therefore, they had a different experience. The decisions we took included the Covid support of over £350 billion, and the cost of living support to dampen the impact of rising bills has exceeded £100 billion. I invite noble Lords to recall these interventions, because I do not, in my years on the Front Bench in this House, recall any time when the Opposition Benches, in particular, argued against them. In fact, in nearly all cases, I seem to recall many saying that it was just not enough and that more needed to be done during Covid and the recent cost of living challenge.

Therefore, when noble Lords turn around and complain about various elements of the state of our economy, I say that we have not lived in usual times. That is why this Autumn Statement is a blueprint to get our debt down, to get business investment up, to get inflation controlled, output boosted and taxes cut; and this is an Autumn Statement plan for growth. I reassure my noble friend Lord Dobbs that economic growth is and will be at the heart of this Government’s plans, and that the Government will do more on tax cuts when the circumstances allow. I understand that my noble friend Lady Noakes will probably never be happy with what the Government propose and their speed for the interventions that she would like, but I hope that she appreciates that we are making steps in the right direction.

On a minority sport, I also welcome the support of the noble Lord, Lord O’Neill, for the devolution deals: they do not get enough love and, combined with good local scrutiny, can make huge differences to parts of the country. One has only to look at the West Midlands and the great mayor we have there.

Turning to a few of the issues raised and trying to deal with them, I turn to my noble friend Lord Dobbs and his comment about experts and forecasters. When I was quite young, I was an investment banker for many years. I am well aware that forecasts are rarely 100% right. They are forecasts; we know that. However, it is important that we have a framework for decision-making, so I agree with him that forecasts are not gospel. It might have been my noble friend Lady Lea who said that they can be both an art and a science, and of course they get slightly less certain the further out you get. However, we need a framework to make our decisions, and that is why it is really important that we forecast where we think the economy is going to be and that we have the OBR to check our thinking. It is an educated view—a snapshot in time—but one that I believe is useful.

My noble friend Lady Lawlor made some very good points about inflation and its contributing factors. She talked about the role of the Bank of England and mentioned the report on that. I have to confess that I have not yet read that report, but I intend to very soon. I have already brought it to the attention of my officials, and I look forward to debating the report in due course.

My noble friend Lord Northbrook asked why we did not stop QE sooner. Of course, decisions on the size of the APF, which means something that escapes me now—oh, I believe that it is the asset purchase fund—and the pace of purchases and sales are those of the independent Monetary Policy Committee, and the Government do not comment on MPC actions.

My noble friend Lord Howell talked about the impact of high interest rates on government debt payments, and my noble friend Lord Sherbourne of Didsbury also mentioned debt, the size of interest payments and the consequences of those high levels. That is why this Government are absolutely committed to getting debt down, so that the actual cash cost of the debt comes down too. I cannot speculate on bank rates, of course, but we feel that by 2028-29 underlying debt will be 92.8% of GDP.

The noble Lord, Lord Livermore, whom I have not yet congratulated on his new role as shadow Exchequer Secretary—so that is all good news—talked a lot about the tax burden, and I hope I was able to demonstrate in my opening remarks why the tax burden is necessarily high, because we must pay off the debt that we had to accumulate, given the economic circumstances that we were in. He said that he did not think this was a tax-cutting budget, but the OBR has confirmed that decisions made by the Chancellor in this Autumn Statement reduce the tax by 0.7% of GDP—which is a tax cut. I am confused, but I am sure we will sort all that out.

[Lord Eatwell (Lab)]

The Minister just made a mistake. What the OBR argued is that the cut in national insurance means that taxes have risen less rapidly than they would have done otherwise, but that they have risen none the less.

[Baroness Vere of Norbiton (Con)]

The noble Lord is exactly right. But the counterfactual is what happened before the Autumn Statement. People are, in general, paying less than they would have done previously. Yes? Okay. We got there in the end.

[Lord Eatwell (Lab)]

People are paying more. In other words, the Minister is arguing a case for cuts in taxation. This is not a cut in taxation; it is a reduction in the rate at which taxes are increasing, but they are increasing none the less.

[Baroness Vere of Norbiton (Con)]

We are both correct.

The noble Lord, Lord Macpherson, asked whether it was the Government’s policy now to favour national insurance reductions over income tax reductions. I think I can say yes. It certainly was true for the Autumn Statement—so, for this moment in time, I think I am covered.

A couple of noble Lords mentioned inheritance tax: my noble friends Lord Northbrook and Lord Balfe. I can assure noble Lords that more than 93% of estates are forecast to have no liability in each year up to and including 2028-29. Those that do are very important in contributing to public finances and in helping to fund vital public services. However, as all noble Lords know, the Government keep all taxes under review, including inheritance tax. That also goes for the stamp duty suggestions mentioned by my noble friend Lord Willetts and the fuel duty suggestions from the noble Baroness, Lady Bennett.

I turn now to public spending. Many noble Lords called for increased public spending during this debate. I would read out the names, but it is actually nearly all noble Lords, apart from notable exceptions on the Benches behind me. Those who called for more public spending included the noble Baronesses, Lady Pinnock, Lady Featherstone, Lady Bennett and Lady Meacher; the noble Lords, Lord Howarth, Lord Macpherson and Lord Thomas; the noble Viscount, Lord Hanworth, and the right reverend Prelate the Bishop of Manchester. The list is extraordinary. However, on the list of noble Lords who came up with a plan for how to pay for those spending increases—a medal goes to the noble Baroness, Lady Bennett. She did come up with a medal.

[Noble Lords]

Oh!

[Baroness Vere of Norbiton (Con)]

A medal? I am going to come up with a medal. She is going to get it, because she came up with a plan. Of course, her plan was more taxes—but we knew that was going to happen, so that is okay. There was one other person who came up with a plan for how to pay for this increased public spending, and that was the noble Viscount, Lord Hanworth. He said to ditch the tax cuts. So there were two people. Everybody else just wanted to increase spending, and therein lies the problem.

Looking in more detail at some of the public spending that noble Lords were concerned about—and obviously I can reflect some of these concerns as well—the noble Baroness, Lady Pinnock, called for additional funding for councils so that essential services could continue. The Government stand behind councils up and down the country. The 2023-24 local government finance settlement provides councils with a 9% increase in core spending power in total, making available almost £5 billion in additional resources. It should be noted that local councils can also raise funds from local taxpayers for local services.

Personally, I live in Kingston-upon-Thames, which all noble Lords well know has a Liberal Democrat council—and my word, my council tax is eye-watering. I think it is one of the highest in the country. What makes me slightly laugh about this is that, despite having some of the highest council tax in the country, the Liberal Democrats have closed the swimming pool. The noble Baroness, Lady Pinnock, is very concerned about swimming pools. I suggest that she go to Kingston-upon-Thames and get them to open it again. There is not a lot of happiness around that.

Public spending also needs to be efficient and not greedy, as noted by my noble friend Lord Howell. It is really important that we set public spending on sustainable trajectories, delivering high-quality public services effectively and efficiently. This is why my honourable friend the Chief Secretary is leading an ambitious public sector productivity review. I hope that my noble friend Lord Sherbourne will share his thoughts with her, because we need to reimagine the way that government delivers public services. So often we fall into the trap where the amount of money put into something equates directly to its outputs. That would never happen in the private sector. It just does not happen. Outputs can be independent of the money that one puts in, and it is very important that, within the public sector, we get that and we try to do that.

I take on board the comments made by the noble Lord, Lord Lee of Trafford, about the 60,000 civil staff in defence. My former Secretary of State is now the Defence Secretary; I know him well, and I am fairly sure that he will already have looked at this in great detail, but I will nudge him in case he has not.

The noble Lord, Lord Macpherson, asked to what extent the Autumn Statement was informed by the OBR’s report on fiscal risks and sustainability. That report did inform the Autumn Statement, as I am sure the noble Lord thought I would say. The Government’s agreement to respond at a subsequent fiscal event establishes this feedback loop, which demonstrates the Government’s commitment to thoroughly assessing and actively mitigating fiscal risks.

The noble Lord, Lord Sikka, asked a question I was a little surprised by; I thought he may have known this, but perhaps it is not well known. He asked about the inclusion of QE in public debt. The UK’s fiscal rules target public sector net debt. This metric excludes the Bank of England and all its subsidiaries, including the asset purchase facility. This changed in 2021 as it was felt that excluding the Bank of England’s contributions to public sector net debt through the valuation effects associated with its quantitative easing programme and term funding schemes better reflected the impact of government decisions.

I will write to noble Lords on MoJ funding and the maintenance of schools. I want to talk about the cost of living because the amount of support that the Government have given, and will continue to give, is not fully recognised. There has been some good feedback about the local housing allowance rates going up, and not enough noble Lords welcomed where we are on the national living wage.

[Lord Sikka (Lab)]

Can the Minister tell the House how much of QE is included in the public debt now? Why is it the case that, when the left hand of government transacts with the right, the Treasury with the central bank, it somehow creates debt?

[Baroness Vere of Norbiton (Con)]

I will probably write to the noble Lord with clarity on that, because I would like to make a little progress.

A number of noble Lords tried to pull out one element of the Autumn Statement and made the point that it will benefit rich people more than poor. One cannot look at one measure in isolation. The Government have conducted extensive assessment of the policies announced both in this Autumn Statement and in previous years. It shows that, across all government decisions dating back to the 2019 spending round, the combined impact of tax, welfare and public services spending measures has benefited the lowest-income households the most.

I will touch briefly on welfare reforms. I am grateful to my noble friend Lord Jackson for his support for these reforms. We want to see people who can work be able to work; we are absolutely willing to provide support for them.

The right reverend Prelate the Bishop of Manchester mentioned mental health. I agree with him that we must confront this issue in our country. It remains a priority for the Government. Alongside other recent mental health interventions, the back to work plan includes nearly £800 million over five years to expand talking therapies for those with mild or moderate conditions, as well as individual placements and support to be delivered within community mental health schemes for those with more serious conditions.

I will write to noble Lords on a couple of other things. I come back to growth because it is undeniable that growth in many developed nations has been difficult. Since 2010, when this Government first came to power, the UK has grown faster than many of its competitors, including France, Germany, Italy, Spain and Japan. Would I like to see us grow even faster than we currently are? Absolutely—indeed, the growth trajectory is on an upward trend after the first two years. The noble Lord, Lord Livermore, did not quite get to those numbers but they are higher, peaking at 2% a year. This Autumn Statement is focused on creating sustainable growth without adding to inflation or overall borrowing. It is sensible supply-side interventions that boost business investment.

This is in stark contrast to the plans set out by the party opposite, such as they are. It is not clear to me which parts of the Autumn Statement the Labour Party actively oppose or would do substantially differently, and the noble Lord, Lord Livermore, has not enlightened me. So not only do we have a cut-and-paste shadow Chancellor; it seems we have a cut-and-paste shadow Exchequer Secretary too. It is worth reflecting on the much-vaunted flagship Labour spending policy of £28 billion. For clarity, that is £28 billion per year. In the absence of significant tax rises or substantial cuts to public spending—and only the former is in the traditional Labour playbook—this £28 billion per year will just add to our national debt, piling pressure on future generations and busting through fiscal rules. As I said, this Conservative Autumn Statement is about sensible supply-side reforms to support British businesses and boost productivity.

The noble Lord, Lord Howarth, asked whether full expensing represents value for money. The Government have prioritised the business tax cut as a targeted way to support businesses which invest. It does this by reducing the cost of capital for UK companies. This policy will drive 0.1% GDP growth in the next five years, increasing to slightly below 0.2% in the long run. Whereas the benefits of the policy will grow over time, the costs will reduce. Full expensing brings forward relief that would otherwise be claimed over decades, meaning that the costs are highest in the policy’s introduction.

The noble Lord, Lord Londesborough, talked about a productivity council. The Government take a range of advice on matters of growth and productivity from all sorts of organisations, including public sector organisations such as the National Infrastructure Commission and the Competition and Markets Authority, but also from academics, think tanks and businesses. While I respect his idea, at the moment we will probably not take it forward.

There was some interesting comment around the pension reforms. The noble Lord, Lord Davies, welcomed the proposals. He asked for the timing of implementation of changes to retired benefit schemes. This will become clearer when the consultation period has completed. I will write on the second question about pensions, because I am conscious that I will imminently run out of time.

My noble friend Lord Northbrook and the noble Lord, Lord Lee of Trafford, asked why the Government are not bringing back the VAT retail export scheme. The Government continue to accept representations from industry regarding the tourist tax and are considering all returns carefully. It is about providing very robust evidence on this. At the moment, we feel that it is a little lacking.

The noble Baroness, Lady Featherstone, talked about the creative industries. There is a large number of specific asks for a very specific sector, so I will certainly write.

It is also worth noting some of the more general discussions that noble Lords had today, and I hope will continue to have in the future. There were considerations around the size and shape of the state, the amount of contributions that should come from taxpayers, and, from the noble Lord, Lord O’Neill, public versus private sector investment. My noble friend Lord Willetts talked about the shape of the state. These are things to mull on, definitely. They will not change government policy today or in the near future but are really important issues that should be debated.

I second what my noble friend Lady Noakes said about regulation. We need to look at regulation as our economy develops. It is most helpful for the Government when noble Lords can go into specifics. I am always very happy to hear about specific regulations that we feel are not fit for purpose and which need to be improved.

Also, to my noble friend Lady Noakes, on the 100-plus measures, I say that the details can be found in the “Policy Decisions” chapter of the Autumn Statement document.

[Baroness Noakes (Con)]

My request was quite simple. I did say that there were 200 paragraphs in Chapter 5 and a number of policy costings, but none of them actually shows what amounts to the 110, which was one of the leading statements made by my right honourable friend the Chancellor in his Autumn Statement. I am simply asking: which are the 110? Does my noble friend undertake to let me have that information if she cannot provide it now?

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

I will go away and see what we can do. I said over 100 because it is now much more than 110. There are a lot of measures, and I will see what I can do to get together some sort of list.

[Lord Eatwell (Lab)]

Can I support the noble Baroness, Lady Noakes, in her request? It would be enormously helpful if the Minister would commit herself to provide an annotated list of the 110 measures and place it in the Library.

[Baroness Vere of Norbiton (Con)]

As I said to my noble friend Lady Noakes, I will do my best.

It is worth spending some time on my noble friend Lord Harrington’s review. I am enormously grateful for his work. This is an area in which he has great interest and, indeed, great expertise. His speech today added colour to his thinking set out in the report; I know that all noble Lords will be keen to see it, and I hope will be able to speak to him about his conclusions. The Government have accepted all the headline recommendations and, as a result, are establishing a new ministerial investment group and backing it with additional resources for the Office for Investment. I have worked with the Office for Investment; it is very good and works across government, pulling together all the bits of government one needs to make a successful strategic investment. I have some minority-sport questions on EIS and VCT on which I will have to write, important though they are.

I believe I should conclude. The measures in the Autumn Statement are important and bold, and rightly so. As a country we find ourselves in a moment when inflation is reducing, borrowing is reducing, and growth is improving. The measures announced by the Chancellor last week will support efforts to boost business investment in the UK, and they will help businesses of all sizes to spend more of their money on the things that bring them success: premises, people, ideas and products. Our measures will get thousands of people working and reward them with better pay. By delivering for the British people, we will see economic growth leading to increased prosperity and well-being for all.

Motion agreed.

Resolution of Central Counterparties (Modified Application of Corporate Law and Consequential Amendments) Regulations 2023

Baroness Vere of Norbiton Excerpts

Thursday 23rd November 2023 Lords Chamber

Moved by

[Baroness Vere of Norbiton]

That the draft Regulations laid before the House on 16 October be approved. Considered in Grand Committee on 20 November

Motions agreed.

Destitution: Low Median Wage

Baroness Vere of Norbiton Excerpts

Thursday 23rd November 2023 Lords Chamber

[Lord Hendy]

To ask His Majesty’s Government what steps they intend to take to address the UK’s low median wage and its contribution to the level of destitution presently under consideration by the UN Special Rapporteur on Extreme Poverty and Human Rights.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, boosting economic growth is the only sustainable way to increase wages. This Government have overseen significant falls in poverty since 2009-10, with 1.7 million fewer people in absolute poverty after housing costs. Supported by the national living wage, the proportion of low-paid jobs fell to 8.9% in 2023, from 21.3% in 2010.

[Lord Hendy (Lab)]

I thank the Minister for her Answer. While extortionate price increases have recently moderated, the real value of wages has been static since 2007—a nominal 6.2% increase in median wages last year translated into a 1.2% drop in their real value, according to the ONS. Half the working population earns less than £29,600. The Joseph Rowntree Foundation reports that 19.2 million people live below the minimum required to be warm, dry, clean and fed, with 3.8 million in destitution. The increase in the national minimum wage still leaves it, in real terms, no higher than it was 20 years ago. Wages need to rise. Only extensive collective bargaining can achieve that. Will the Minister make that happen?

[Baroness Vere of Norbiton (Con)]

I fundamentally disagree that collective bargaining will be the way to lift wages; I believe that economic growth will be the way to lift wages. What I would like to say—and I would criticise this Government and previous Governments for not making the most of this—is that, when we look at the national living wage, the increases we made yesterday mean that, next year, someone working full time on the national living wage will see their real after-tax take-home pay go up by 30% since 2010. I think that is a very significant achievement.

[Lord Fox (LD)]

My Lords, I welcome the noble Baroness to her new spokesperson role. The Chancellor was very pleased to pull the reduction in national insurance from his chancellorial hat at the end of his speech, and has been going around touting that very much. There is one statistic that I hope the noble Baroness can help me with. The Resolution Foundation notes that the top fifth of earners will receive five times the benefit from that cut than the bottom fifth of earners. Can she confirm that statistic?

[Baroness Vere of Norbiton (Con)]

What we did yesterday—and we were absolutely clear about this—was to reward workers. It is critical that we reduce work-related taxes, because by doing so we increase the number of hours worked, which will lift the number of full-time equivalents by 94,000. We think that the cut yesterday was absolutely the right thing to do.

[The Lord Bishop of St Albans]

My Lords, we on these Benches welcome a number of aspects of the announcements yesterday in the Autumn Statement, not least the rises in the living wage and in pensions. There is an issue, though, over structural pay gaps which hide even greater disparities: pay gaps to do with gender, disability, social mobility and regional disparities, which are vital as we think about our levelling-up strategy. Can the Minister give us some indication of how the Government hope to address those structural pay differentials and gaps?

[Baroness Vere of Norbiton (Con)]

What we are trying to do here is boost the entire economy by ensuring that everybody has good work. It is the case that, between the Spring Budget of 2023 and the package that we announced yesterday, there will be more than 200,000 more jobs, but what we are also trying to do is boost the economy in general such that those jobs are well paid. The right reverend Prelate mentioned those who might be sick or disabled. Again, we have to support those people back to work when they can, because we know that work is the best way out of poverty; it can have social and health benefits. At the moment, there are 2.4 million claimants of incapacity benefit, and that has gone up by 700,000 since May 2019. I cannot believe that the nation is getting significantly more sick, and we need to help those people back to work.

[Lord Bird (CB)]

Does the Minister agree that there are actually an enormous number of people in this country who are the working poor? I was with a whole group of them last week—with the King—who are out there trying to get food. They are trying to get food because, whatever the Government are doing, they seem to be a bit tinkering and not profound in their commitment to end a low-wage economy.

[Baroness Vere of Norbiton (Con)]

This Government are absolutely committed to ending a low-wage economy, and that is why we have just introduced the largest ever rise in the national living wage. Also, it is not just about the national living wage; I absolutely accept that there will be people who are living on benefits—that may be for a temporary period—and that is why we uprated benefits by 6.7%, which was the September CPI, versus a forecast inflation rate next year of 3.1%, so people will see more pounds in their pocket.

[Lord Lexden (Con)]

My Lords, should we not express the hope that yesterday’s measures will represent a real turning point in the economic life of our country, opening the way for sustained growth and greater prosperity for all our people?

[Baroness Vere of Norbiton (Con)]

I absolutely agree with my noble friend. It is an absolute turning point. It is about the long-term decisions that have to be made, and that is about investing not only in businesses but also in our people. From a business perspective, the full expensing has been widely welcomed across the economy. It will add an extra £3 billion of new investment. We already have the lowest corporation tax in the G7 and now, with full expensing, that will bring in the investments that my noble friend Lord Johnson really needs to see.

[Lord Livermore (Lab)]

My Lords, I join others in again welcoming the noble Baroness to her new role. Yesterday’s Autumn Statement saw growth down and inflation up every year for the next three years, debt rising every year for the next three years and the tax burden rising every year for the next five years, making this the biggest tax raising Parliament ever. Even after yesterday’s announcements, households are £1,900 worse off. Against this backdrop, what advice does the Minister have for the 11 million people with barely any savings as they now try to withstand the biggest ever fall in living standards since records began?

[Baroness Vere of Norbiton (Con)]

Yesterday did bring out some very important statistics, as indeed has the entire year. The noble Lord will know that, in terms of growth, it is true that the forecasts have been revised down. However, the actual assessment of the size of the economy has been revised up; indeed, it has been revised up by 2%, which is an enormous amount—that is the equivalent of the aerospace industry. On inflation, the OBR was absolutely clear that the discretionary fiscal policy measures introduced in the Autumn Statement do not have a material impact on the path of inflation. We have already halved inflation and by 2025 it will be at 2%. On tax, the noble Lord may have forgotten, but this Government intervened enormously during Covid, including £400 billion to support lives and livelihoods and, in our support for cost of living, £100 billion to support households through some very difficult economic shocks. Those things have to be paid for, but the things we introduced yesterday in terms of tax brought down the tax burden by 0.7%.

[Lord Newby (LD)]

My Lords, I think that in answer to an earlier question the noble Baroness said that the reduction in national insurance rates would mean that people work longer hours. What evidence does she have to support that assertion?

[Baroness Vere of Norbiton (Con)]

It is the case that of course those are assessments made by people far cleverer than me, within the OBR and the Treasury, but that is the analysis. Of course, people will be able to choose whether they work longer hours, but the simple point is that if somebody does work longer hours, they get more pounds in their pocket, so it is not beyond the wit of man to understand that they might want to do more hours.

[Lord Cormack (Con)]

My Lords, as we advance into winter, will everything possible be done to assist those charities who are doing everything they can to get people off the streets and into proper accommodation? Can my noble friend give the House an absolute assurance that those who provide tents will not be fined for doing so?

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

This Government have a laser-like focus on homelessness and, of course nobody wishes for anybody to be homeless. That is why we have a range of cost of living payments which are yet to be paid: 8 million households on means-tested benefits will get two £300 payments in autumn and in spring; pensioners will get their £300 in the winter; and of course 6 million people on disability benefits will receive an additional £150.

Resolution of Central Counterparties (Modified Application of Corporate Law and Consequential Amendments) Regulations 2023

Baroness Vere of Norbiton Excerpts

Monday 20th November 2023 Grand Committee

Moved by

[Baroness Vere of Norbiton]

That the Grand Committee do consider the Resolution of Central Counterparties (Modified Application of Corporate Law and Consequential Amendments) Regulations 2023.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, these draft regulations make necessary technical and consequential legislative changes and provide legal protection for contractual arrangements to ensure that the expanded resolution regime for central counterparties, or CCPs, operates as intended.

Resolution is the framework for managing the failure of certain financial institutions. Within this framework, the Bank of England is the UK’s resolution authority and leads on resolution processes once instigated. The UK’s current resolution regime for banks and building societies was introduced in 2009, and this was partially extended to CCPs in 2014. A new, bespoke and expanded regime for CCPs was created this year through Schedule 11 to the Financial Services and Markets Act 2023.

CCPs are firms that provide clearing services for large volumes of financial trading activity. They sit between buyers and sellers and guarantee the terms of the trade. They are systemically important pieces of market infrastructure—without them, the financial system cannot function effectively. The failure of a CCP and the resulting loss of its clearing services could lead to serious consequences for financial markets, financial stability and public funds. The UK’s expanded CCP resolution regime will enhance the Bank of England’s resolution powers and ensure that the UK is aligned with international standards on CCP resolution. To fully implement the expanded CCP resolution regime, the Government must lay a number of statutory instruments. Two of these are being debated by your Lordships’ House today.

The first set of regulations, the Resolution of Central Counterparties (Modified Application of Corporate Law and Consequential Amendments) Regulations, make the necessary changes to existing legislation to ensure that the expanded CCP resolution regime can function as intended. These modifications have two main parts. The regulations will ensure that resolution powers under Schedule 11 will continue to be treated in a similar way to the existing CCP resolution regime in the Banking Act 2009. This largely consists of mirroring changes made under the Banking Act to the Companies Acts 1989 and 2006.

--- Later in debate ---

Finally, given that the consultation took place back in 2021, why were the changes we are debating not included in the Financial Services and Markets Act itself, rather than coming now in the form of SIs after Royal Assent? I thank the Minister in advance for her answers to the questions I have raised.

[Baroness Vere of Norbiton (Con)]

I am grateful to the noble Baroness, Lady Kramer, and to the noble Lord, Lord Livermore, for their kind welcome to my new role. From Transport to Treasury—how exciting. This is indeed my first outing, and I get to do some very, let us be honest, technical SIs. Like the noble Baroness, I too looked for the exciting or the unusual in these SIs and, unfortunately, I have not necessarily succeeded either. They are important and necessary to bring the new expanded regime into operationalisation, but I do not think there is anything in them that would trouble noble Lords. Judging by the questions raised by the noble Baroness and the noble Lord, it is more about the process, making sure that people are aware and ensuring that the CCPs actually function, which the noble Baroness pointed out.

I turn first to the noble Lord’s questions, because he was kind enough to give me sight of them before the debate, which is always incredibly helpful, because I always try to do my very best. I know I will not answer all today’s questions so I will, of course, write. I will start with notifying the interested parties. It should be noted that the CCP resolution liaison panel was convened in June this year to discuss the secondary legislation under Schedule 11, including the substance of these instruments. This panel includes a variety of industry stakeholders, including the three UK CCPs, organisations that represent large numbers of clearing members, insolvency experts and regulators. We have a wide range of people there, which feeds into the noble Lord’s point that it is disappointing to receive 14 responses to a consultation. However, for a consultation such as this we got responses from trade bodies and we are satisfied that the industry is well aware of what is going on and that it will be implemented on 31 December. The panel was not only consulted on these SIs but also on the code of practice, which describes how the Bank will use its powers under Schedule 11. This will be published when the new regime comes into force.

I am content that the industry is well aware of what is happening. We will continue to liaise with the industry as the regime comes into force and as the code of practice is published. That code will, of course, be laid before Parliament and updated and reissued—and therefore re-laid—as appropriate should any amendments be made.

In addressing the consultation responses, it is fair to say that we looked at all the feedback we had from the initial consultation and covered all the issues that were raised in the response. There has been ongoing consultation since then to ensure that the detail is correct, and that the relevant trade bodies and CCPs were fully involved in ensuring that not only the provisions of the FSMA but the subsequent delegated legislation required were robust. So we have done quite a lot of consultation and I do not believe that we could have done much more. It is certainly not my feeling that we have missed anybody out or that there is a groundswell of opinion out there that people needed to be heard.

With the FSMA, we very much tried to set out which elements should be in primary legislation versus some more technical measures which should be in secondary legislation. This legislation does not change the policy set out in the FSMA; it makes necessary changes to company law, which sometimes needs to be changed separately. It creates protections for important contractual arrangements, as necessary.

Noble Lords will have noticed the cash call limit. There are some things that everybody knows may need to be lifted in 10 or 20 years’ time; these are entirely appropriate for secondary legislation.

The noble Baroness, Lady Kramer, asked me a number of questions about the operationalisation—not only the way that these clearing houses work but who bears the biggest cost when they get into financial trouble. At the moment, given the potential impact on the UK’s financial stability from a CCP’s inability to continue to provide these clearing services, what we have done, and it is prudent to have done so, is ensure that the Bank of England has all the powers it may need in a full range of possible market stress scenarios. As the noble Baroness rightly pointed out, these things are often global and happen very quickly. Some may fare worse than others. In the unlikely event that this happens, it would be a highly unpredictable scenario. That is why we have tended more to set out a framework for how it would happen rather than go through the detail of any possible scenario.

The UK already has effective rules for CCPs’ own recovery arrangements. These include the requirement that a CCP’s total prefunded financial resources cover the losses from the default of two clearing members—not just two clearing members but those with the largest exposure. That is a fair balance between the likelihood of something happening and the necessity of tying up capital to provide a sufficient cushion. However, the Bank of England has a range of other powers that it would be able to bring to bear over the course of resolution not only on the CCPs but on those members within them to ensure that we end up with market confidence and that the system continues.

The noble Baroness mentioned “no creditor worse off”. The Treasury is required to have regard to the “no creditor worse off” safeguard in the event that a resolution occurs. Therefore, no individual will be worse off after a resolution than they would have been if the CCP had gone into insolvency. So, yes, these are not tidying-up measures but just key technical points to bring the regime into being.

I will write to the noble Baroness on how there can be no implications for set-off and netting. I understand what they are, but I want to reassure myself that I used the right words, and I will reply in writing, if that is okay. I have a little more information on whether clearing members should be required to make a bigger contribution, but I will also set that out in writing. There are probably one or two other points but, for the time being, I commend this instrument to the Committee.

Motion agreed.

Financial Services and Markets Act 2023 (Resolution of Central Counterparties: Partial Property Transfers and Safeguarding of Protected Arrangements) Regulations 2023

Baroness Vere of Norbiton Excerpts

Monday 20th November 2023 Grand Committee

Moved by

[Baroness Vere of Norbiton]

That the Grand Committee do consider the Financial Services and Markets Act 2023 (Resolution of Central Counterparties: Partial Property Transfers and Safeguarding of Protected Arrangements) Regulations 2023.

Motion agreed.