Customs Safety and Security Procedures (EU Exit) Regulations 2021

Lord Agnew of Oulton Excerpts

Tuesday 22nd June 2021 Grand Committee

Moved by

[Lord Agnew of Oulton]

That the Grand Committee do consider the Customs Safety and Security Procedures (EU Exit) Regulations 2021.

Relevant document: 4th Report from the Secondary Legislation Scrutiny Committee

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

My Lords, this statutory instrument is part of the Government’s package to extend the staging in of customs controls in Great Britain. The instrument concerns safety and security declarations and will come into force on 1 July 2021. Noble Lords will be aware that the Secondary Legislation Scrutiny Committee reported the regulations as an instrument of interest in its fourth report, published on 10 June 2021.

In June 2020 the Government announced that full customs controls would be introduced in stages in Great Britain after the end of the transition period to allow businesses affected by Covid-19 additional time to meet new customs requirements. In March, after discussion with industry stakeholders, the Government decided to extend the staging in of customs controls to allow businesses additional time to prepare to meet new customs requirements.

The measures in this instrument concern the safety and security declarations aspect of that extension and should be understood in the context of our existing safety and security regime. Safety and security declarations are a standard customs process and are used, along with intelligence from other sources, in the UK’s safety and security regime.

The UK approach to safety and security is guided by the World Customs Organization’s SAFE framework of standards, which is designed to manage the risks associated with the movement of goods between customs territories. Risks in the international supply chain are mitigated by following minimum standards for customs administrations set out in SAFE. This includes the collection and risk assessment of pre-arrival and pre-departure data.

The EU implemented safety and security requirements through the UCC, which has been retained in UK law since the transition period ended on 31 December 2020. While the UK was part of the EU’s safety and security zone, safety and security declarations were required only for goods entering or leaving the EU. Since the transition period ended on 31 December 2020, there has been a requirement for safety and security declarations for goods moved between Great Britain and the EU, as well as the rest of the world.

To give businesses additional time to prepare for new customs requirements, in November 2020 the Government introduced a six-month waiver on the requirement to submit safety and security declarations on goods imported from the EU and other territories from which such declarations were not required before the end of the transition period. This waiver is in place until 30 June 2021.

The Government also introduced a statutory instrument granting time-limited powers to issue a public notice waiving or altering the requirements for safety and security declarations on goods exported from Great Britain. These powers were put in place as a contingency option to mitigate any border disruption as a result of the introduction of the new requirements.

Since the beginning of 2021 there have been public notices in force waiving the requirement for safety and security export declarations for two categories of movements. The first category is empty pallets, containers and modes of transport, where they are being moved under a transport contract to places where such movements did not attract a safety and security requirement before the end of the transition period. The second category is all roll-on roll-off movements of goods where an exit summary declaration would otherwise have been required.

As part of the extension to the staging in of customs controls, the instrument we are discussing today will extend the current waiver on the requirement for safety and security declarations for goods imported from the EU and other territories where such declarations would not have been required before the end of the transition period. This means that safety and security entry summary declarations will not be required for these movements until 1 January 2022.

Having listened to businesses’ concerns about the impact of Covid-19 on their ability to meet new customs requirements, this extension to the waiver is being introduced to give them additional time to meet these new requirements. As was the case before the end of the transition period and has been the case during the period of the first waiver, Border Force will undertake intelligence-led risk assessments of goods movements into Great Britain. There is no change to the requirements for entry summary declarations for goods imported from the rest of the world as a result of this instrument. This waiver does not create a significant increase in the security risk to the UK.

In most cases, the data that is risk-assessed in relation to goods leaving Great Britain is contained in a customs export declaration. Where such a declaration is not submitted, a stand-alone safety and security exit summary declaration is required. In response to industry feedback, since the beginning of the year safety and security declaration requirements have been waived for the two categories of movements that I discussed earlier. This has been done by the issuing of public notices, using time-limited powers introduced in December 2020. These allow the commissioners of HMRC to waive or alter the requirement for pre-departure safety and security declarations. The public notice powers that were used to introduce this waiver can be used only with regard to requirements between 1 January 2021 and 30 June 2021. As such, the Government are introducing this instrument to extend this waiver until 30 September 2021. As with imports and exports during the current waiver, Border Force will undertake intelligence-led risk assessments of goods movements out of Great Britain. As such, there is no significant short-term security risk due to the introduction of this waiver.

The Northern Ireland protocol means that there are no safety and security requirements for goods moved between Northern Ireland and the EU, and that Northern Ireland remains aligned with EU customs rules. As such, this instrument does not affect safety and security requirements in Northern Ireland. Goods moved between Northern Ireland and the rest of the world will be subject to existing safety and security requirements. Northern Ireland businesses moving goods into Great Britain benefit from unfettered access and are not required to submit pre-arrival or pre-departure safety and security declarations. Businesses moving goods from Great Britain to Northern Ireland are not required to submit pre-departure safety and security declarations.

In conclusion, these temporary waivers from safety and security declaration requirements for goods moved between Great Britain and the EU strike an appropriate balance between supporting businesses affect by Covid-19 and maintaining safety and security. Therefore, I beg to move.

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[Lord Agnew of Oulton (Con)]

My Lords, I thank the Committee for this debate. I will seek to address the questions and observations raised, starting with those of the noble Lord, Lord Tunnicliffe.

I acknowledge that there have been some very dramatic movements in trade flows over the last few months, but I suggest that there have been exceptional circumstances, with some stockpiling, and it is hard to get a run rate at the moment. However, overall, we are encouraged by the process so far.

On the noble Lord’s query about the extension of waivers and assurances that we gave last year, we always wanted to have the flexibility to extend. I think the biggest event that has occurred since then which we were not aware of in December is the emergence of the much more virulent strain of Covid. This caused us to extend lockdown and restrict businesses’ ability to operate for longer than we would have hoped at the time.

In terms of the noble Lord’s concerns about the customs phone line, I am pleased to say that the customs and international trade helpline has been working well since the beginning of the year. The helpline has answered 97% of its calls since January, with an average speed of answer of 23 seconds. HMRC is offering this service over the weekend and on weekdays until 10 pm.

On customs agent capacity, the Government do not have a specific target or number of customs agents, because the sector is varied and made up of a number of different business models. For example, in the lead- up to the end of the transition period, we saw large investment in technology by a number of the larger intermediaries, which meant that their ability to handle declarations was well beyond that of simply adding more people. When thinking about readiness, it is helpful to think of the capacity to make declarations instead of the number of staff involved. We know that the intermediary sector has significantly increased this capacity to meet demand following the end of the transition period. The Government helped it to do this by making over £80 million in support available, including flexible grants that can be used for IT and training and recruitment. We are running an intermediary register on GOV.UK at the moment—for example, in the last two weeks, there have been 1,400 views of that page. There are 1,300 intermediaries listed on the register, of whom 93% say they have capacity, 92% say they are able to help small traders, 54% can support SPS checks and 309 can help with roll-on roll-off. We are improving the register all the time following feedback from traders and intermediaries.

The noble Lord asked whether we are likely to grant further extensions. The Government originally intended to introduce the full customs controls by 1 July but, given the impact of the pandemic, they are extending these facilitations to September and December. The Government do not plan to extend these waivers any further. Traders will need to comply with full safety and security declarations on exports from 1 October 2021 and on imports from 1 January 2022.

The noble Lord asked whether the customs issues have been kept under review during the current waiver period. With regard to any risks created by the waivers, Border Force has continued to undertake intelligence-led risk assessments and interventions on imports and exports since the beginning of the year, as it did before the end of the transition period. The noble Lord asked whether any of the risks have become a reality. During the period covered by the waivers, Border Force will continue to do as it has done up until now to protect the security of the UK, but I am happy to write to the noble Lord with figures expanding on the interceptions and work that it has been doing.

The noble Lord, Lord Bradshaw, asked about the cost of the safety and security process. Our EU exit is an opportunity for us to increase the amount of data we collect and thus the range and effectiveness of our interventions and the security of our borders. The collection of safety and security data on movements from the EU will allow Border Force to undertake additional targeting and checks on potentially dangerous goods movements from the UK. While we expect importers to face some increase in costs as a result of safety and security declaration requirements, these can vary depending on the businesses, how much they trade, and whether they use an intermediary. We do not know yet how importers will choose to manage declarations, which is often just one part of a wider customs process, and costs will also depend on factors such as the mode of transport and who the carrier is. Due to this uncertainty, an estimate of the administration burden costs for S&S declarations is not currently available.

Having listened to the feedback from businesses affected by Covid, we are providing them extra time to meet the requirements. This supports efficient customs arrangements and ensures that goods originating in the EU or UK are not subject to tariffs. Therefore, I commend these regulations to the Committee.

Motion agreed.

Finance Bill

Lord Agnew of Oulton Excerpts

2nd reading & Committee negatived & 3rd reading
Tuesday 8th June 2021 Lords Chamber

Moved by

[Lord Agnew of Oulton]

That the Bill be now read a second time.

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

My Lords, we are here to debate the annual Finance Bill, introduced in the other place following the Budget on 3 March. My right honourable friend the Chancellor of the Exchequer outlined a Budget with three key objectives: first, to protect jobs and livelihoods and provide additional support to get the British people and British businesses through the pandemic; secondly, to be clear about the need to fix the public finances once we are on the way to recovery and to start that work; thirdly, as we emerge from the pandemic, to lay the groundwork for a robust and resilient future economy. This Finance Bill enacts changes to taxation that support all those objectives.

The House will of course be aware of the severe public health and economic shock caused by the pandemic; at its peak, the economy shrank by 10%, the largest fall in more than 300 years. The Government have responded with an extraordinary package of support for the economy which, taking into account measures introduced in the 2020 Budget, is now estimated at £407 billion for this year and last year. This has been essential. Thanks to it and the rapid rollout of vaccinations, the Office for Budget Responsibility and other independent authorities now expect a swifter recovery than had previously been forecast. Indeed, the OBR expects the UK economy to recover to pre-crisis levels six months earlier than it did previously—in the second, rather than the fourth, quarter of 2022.

Our first objective is protecting jobs and livelihoods. There are positive signals that we are now on the right path, but it is crucial that we continue to support the economy over the coming months and deliver on the Budget’s first aim of protecting jobs and livelihoods. That is why the tax measures outlined in the Bill go further to support the economy. We are extending the 5% reduced VAT rate until 30 September to protect almost 150,000 hard-hit hospitality and tourism businesses which employ over 2.4 million people. To help those businesses manage the transition back to the standard rate, VAT will then increase to an interim rate of 12.5% from October until the end of March.

The Bill ensures that any business that took advantage of the original VAT deferral new payment scheme will be able to pay that deferred VAT in up to 11 equal payments from March 2021, rather than by one larger payment due by 31 March 2021. For those businesses that have been pushed into losses, the trading loss carry-back rule is being extended from the existing one year to three years for losses of up to £2 million. This will deliver a significant cash-flow benefit for eligible businesses.

The Bill also puts into legislation the temporary cut in stamp duty land tax, with a residential stamp duty nil rate band remaining at £500,000 in England and Northern Ireland until the end of June. This will be followed by a phased transition back to the normal rate. From 1 July 2021, it will fall to £250,000 until the end of September, before returning to £125,000 on 1 October. This extension helps buyers and supports jobs which rely on the property industry.

As well as protecting jobs and livelihoods, the Bill takes important steps to deliver on the second of the Budget’s key objectives: to strengthen public finances as we emerge from the pandemic. The coronavirus response, as we all know, created unprecedented challenges for the Exchequer. The first outturn estimates from the Office for National Statistics show borrowing for last year is estimated to have totalled £300 billion, or 14.3% of GDP. As we continue our response to this crisis, borrowing is forecast by the Office for Budget Responsibility to be £234 billion this year, which is 10.3% of GDP. This means we are forecast to borrow more this year than during the financial crisis, an amount so large it has only one rival in recent history—last year. The Government need to balance this enormous support provided to the economy in the short term with the need to start to fix the public finances in the longer term. The Bill takes forward a number of measures to do this responsibly.

First, the income tax personal allowance will rise with the consumer prices index, as planned, to £12,570 from this month. This level will then be maintained until April 2026. The higher rate threshold also rises to £50,270 from this month and will then be maintained at this level until April 2026. These changes are a fair and progressive way to meet the fiscal challenge presented by the pandemic. For example, it is worth noting that the 20% highest-income households will contribute 15 times that of the 20% lowest-income households.

Secondly, the inheritance tax thresholds, the pensions lifetime allowance and the annual exempt amount in capital gains tax will be maintained at their 2020-21 levels until April 2026. Maintaining the pensions lifetime allowance at current levels affects only those with the largest pensions—those worth more than £1 million.

Thirdly, the Bill legislates for the rate of corporation tax paid on company profits to increase to 25% from 2023. Businesses have been provided with over £100 billion of support to get through this pandemic, so it is only fair to ask them to contribute to the overall recovery. Of course, since corporation tax is charged only on company profits, businesses that may be struggling will, by definition, be unaffected. The increase will not take effect until two years’ time, well after the point when the OBR expects the economy to have recovered. This measure protects small businesses with profits of £50,000 or less by including a small profits rate, maintained at the current rate of 19%. The effect of this is that 70% of companies, or 1.4 million businesses, will not see an increase in their tax rate.

The third goal of the Budget was to lay the foundations of our future economy as we emerge from the pandemic. This requires that the Government encourage business investment now, to help spur growth and drive productivity in the coming years. That is why the Bill contains the innovative new super-deduction measure. In most cases, this measure will allow companies to reduce their taxable profits by 130% of the cost of investment they make, equivalent to a tax cut of up to 25p for every pound they invest. It is expected to lift the net present value of the UK’s plant and machinery allowances from 30th among the countries of the OECD to first. This will bring forward investment; the OBR has said that, at its peak in the financial year 2022-23, the super-deduction will incentivise an additional £20 billion of business investment.

The Bill also contains clauses that will enable the creation of free-port tax sites. In these sites, businesses will be able to benefit from a number of tax reliefs, including a stamp duty land tax relief, an enhanced structures and buildings allowance and an enhanced capital allowance for plant and machinery. This tax offer will be combined with simpler import procedures and duty benefits in customs sites to help businesses trade, along with planning changes to give a green light to much-needed development and spending to invest in infrastructure. This comprehensive package will allow free ports to play a significant role in boosting trade, attracting inward investment and driving productive activity.

I have talked about how this legislation delivers on the core objectives of the Chancellor’s Budget. However, as might be expected in the annual Finance Bill, it also takes forward a number of other measures to progress the Government’s long-term aims to ensure a flexible, resilient and fair tax system. As part of the United Kingdom’s commitment to be a global leader on tax transparency, the Bill allows for the implementation of OECD reporting rules for digital platforms. This will help taxpayers in the sharing and gig economies get their tax right and help HMRC detect and tackle non-compliance. It will enable the extension of Making Tax Digital requirements to smaller VAT businesses from April next year, building on the successful introduction of Making Tax Digital for VAT businesses.

It implements reforms to the penalty regime for VAT and income tax self-assessment to make it fairer and more consistent, and harmonises interest for VAT and income tax. It tackles promoters of tax avoidance through strengthening existing anti-avoidance regimes and tightening rules. Importantly, it introduces an exemption from income tax for financial support payments for potential victims of modern slavery and human trafficking made by the UK Government and devolved Administrations.

I turn to how the Bill helps us deliver the important commitments the Government have made on the environment and carbon reduction. The new plastic packaging tax will encourage the use of recycled plastic instead of new plastic in packaging. For plastic packaging that contains less than 30% recycled plastic content, the rate of the tax will be £200 per tonne. This will transform the economics of sustainable packaging. To help tackle climate change and improve the UK’s air quality, the Bill reforms the entitlement to use red diesel from April next year. This will help ensure that the tax system incentivises users of polluting fuels such as diesel to invest in cleaner vehicles and machinery, or just to use less fuel.

To conclude, the coronavirus pandemic has presented an immense challenge to this country and delivered a dramatic shock to our economy. The Government have met that shock with a determined and sustained response, but the work is not yet done. This Finance Bill continues to support the lives and livelihoods of families and businesses. As we emerge from the pandemic, it will set the ground for an investment-led recovery and for strong public finances in the coming years. The Bill delivers a number of measures for a fairer and more sustainable tax system in support of the work needed to tackle climate change. For these reasons, I commend it to the House.

[The Deputy Speaker (Baroness Finlay of Llandaff) (CB)]

My Lords, I remind all in the Chamber that we are expected to be masked when seated.

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[Lord Agnew of Oulton (Con)]

My Lords, this has been an excellent debate, and I thank noble Lords for their contributions. I will round up by addressing some of the issues raised by your Lordships, starting with comments on the Economic Affairs Committee and HMRC’s powers.

I take this opportunity to thank noble Lords for their contributions on the new report from the Economic Affairs Committee, which focused on HMRC powers to combat tax avoidance and promote compliance. The Government have carefully examined the issues raised by the committee and given it a comprehensive response. I am pleased to say that nine of the committee’s recommendations were accepted and six were partially accepted.

Since the publication of the committee’s report, HMRC has published its evaluation of the implementation of powers, obligations and safeguards introduced since 2012. Working closely with representatives of taxpayers and agents, the evaluation has highlighted a number of new opportunities for HMRC to improve public trust in the tax system. It is crucial that HMRC has the powers necessary to identify the minority of people and businesses who seek to avoid or evade tax, while ensuring an appropriate balance of safeguards for taxpayers.

My noble friends Lord Bridges and Lady Neville-Rolfe raised the loss of safeguards, but this new measure does have important safeguards. For example, the notice may be issued only where the information is “reasonably required” to check a known person’s tax position or in connection with the recovery of a tax debt. An authorised officer must approve all notices and must pass a test every three years to retain their status. The financial institution can appeal against any penalties charged for failure to comply with the notice, and HMRC is required to make an annual report to Parliament on the use of the financial institution notice.

My noble friend Lord Bridges asked about umbrella companies and mini umbrella companies. The Government agree on the importance of regulating umbrella companies properly and have already committed to regulating them by extending the remit of the Employment Agency Standards Inspectorate to include these. An employment Bill will be brought forward as parliamentary time allows. The mini umbrella company model is fraudulent and presents an organised crime threat to the UK Exchequer. HMRC works closely with trade bodies and other government departments to raise awareness of the mini umbrella company fraud.

My noble friends Lady Neville-Rolfe and Lord Bridges asked about Clause 125 on licensing authorities. The check has been designed to be minimal in scope and will only test compliance with the most basic obligation to be appropriately registered for tax. It does not create new tax obligations but simply ensures that these existing rules are complied with, promoting fairness for everyone in the sector. For most users it will take minutes to do and is needed only when licences are renewed—typically every three years.

My noble friend Lord Forsyth asked about corporation tax rates. At 25%, the rate is still highly competitive relative to our international peers, with the lowest headline rate in the G7. Alongside this tax increase, the Chancellor announced in the Budget a super-deduction, as we referred to earlier, from April of this year until April 2023. My noble friend is particularly concerned about the loan charge. I am sure that there is nothing I can say today that will completely allay his concerns, but I want to try because I appreciate his passion on this subject.

Promoters of tax avoidance schemes are already subject to significant penalties if they fail to meet their obligations. Since its formation in 2016, HMRC’s fraud investigation service has regularly secured convictions relating to arrangements that have been promoted and marketed as tax avoidance. Most of these people were involved in promoting tax avoidance schemes. However, we know that more can be done, and we are committed to ensuring that they face significant financial consequences for promoting these schemes.

My noble friend Lord Forsyth asked about the impact of IR35 on the self-employed. It is important to note that the reform does not apply to those who are self-employed according to the existing employment status tests. A worker’s employment status for tax purposes is not a matter of choice but is determined by the terms and conditions under which they work. This is determined by a number of factors which are set out in case law, such as whether they can send a substitute to do the work on their behalf, and the control that the client has over the work that that person does.

In terms of reforms to employment status, as laid out in our manifesto, the Government will bring forward measures to establish an employment framework which is fit for purpose and keeps pace with the needs of modern workplaces. These include measures that will encourage flexible working, protect vulnerable workers, take a smarter approach to enforcement of employment law, and build on the strengths of our flexible labour market to support jobs. The Government recognise concerns about employment status and are considering options to improve clarity in the system, making it easier for individuals and businesses to understand which rights and obligations apply to them.

The noble Lords, Lord Dodds and Lord Empey, are concerned about the red diesel issue for power generation in Northern Ireland. In response to concerns raised by red diesel users in this context during last year’s consultation about their ability to run down fuel stocks, the Government have decided to give HMRC officers the ability to disapply the liability to seizure where the user can provide evidence to satisfy officers that they have not built up their stocks or taken red diesel into the fuel system after the rules change. The Government recognise that for some users, such as those who need red diesel for back-up power generation in case of emergencies but may use it only for a few hours a year, their last purchase of red diesel may be some time before the tax change.

The noble Lord, Lord Dodds, asked about air passenger duty. We are currently consulting on the Government’s initial policy position, but the effective rate of air passenger duty on domestic flights should be reduced to support the union and regional connectivity. The consultation closes in a few days, on 15 June.

My noble friend Lord Leigh asked about capital gains tax reform. The Government are committed to a fair and simple CGT system which strikes the right balance between raising revenue and supporting the UK’s economic recovery and long-term growth. Last year, the Chancellor commissioned the Office of Tax Simplification to examine areas where the present rules on CGT can distort behaviour or do not meet their policy intent. The OTS provides independent advice. It is the role of the Government to make tax policy decisions. The Government keep all taxes under review and will respond to the OTS in due course.

My noble friend also asked about the digital services tax and pillar 1. The UK digital services tax is an interim solution to the widely held concerns with international corporate tax, and the Government’s strong preference is to secure a comprehensive global solution on digital tax and remove the DST once this is in place. We are pleased at the progress that has been made in recent days towards securing that solution but recognise that there is still work to do in reaching wider agreement among the OECD key 20 countries ahead of July. The Government’s efforts will be focused on that objective.

It is premature to set out revenue estimates—the final design details and parameters of the rules will need to be worked though—but a key condition for the UK is that pillar 1 appropriately addresses our concern and ensures that the amount of tax that multinational groups pay in the UK is commensurate with their economic activities here. My noble friend also asked whether we are no longer committed to a competitive tax regime. We are absolutely committed to one, and as I mentioned, our headline corporate tax rate of 25% is competitive among our international peers.

The noble Lord, Lord Bilimoria, made important points. I passionately agree with his point about leading the recovery from this crisis through job creation. Employment gives people dignity and a sense of purpose. We are pleased with the results so far. The OBR now expects unemployment to peak at 6.5% in the fourth quarter of this year, as the CJRS is scheduled to end, falling gradually to 4.4% by the end of 2025. The estimated unemployment rate is 1% lower than its November forecast. This is equivalent to 340,000 fewer people in unemployment, partly thanks to the extension of the furlough scheme. The noble Lord will, be aware of other initiatives, such as our dramatic increase in the number of jobcentres.

The noble Lord, Lord Sikka, asks about tax avoidance, particularly of the large accountancy firms. Rigorous anti-avoidance activity by HMRC has seen a significant proportion of those promoting schemes, including the large accountancy firms, being driven out of this market. It is now only a hard core of unscrupulous promoters, largely based offshore, who continue to promote tax avoidance schemes. The Government recognise that more could be done to raise standards more widely across the market for tax advice and ran a call for evidence on this last summer. The summary of responses and next steps was published in November. As part of this, the Government are consulting on introducing a potential requirement for tax advisers to hold professional indemnity insurance.

The noble Lord, Lord Sikka, and the noble Lord, Lord Tunnicliffe, asked about the IT and PA threshold, the freeze depressing people’s purchasing power. This policy will not come into effect until April 2022, when the economy will be on a stronger footing. We are asking people to make only a relatively modest contribution, to help fund good public services and to rebuild public finances. This is a universal and progressive policy, with those more able to pay contributing more. An average basic taxpayer will be only about £40 per year worse off in 2022-23. These are responsible decisions that will help to ensure the post-crisis task of putting the public finances back on a sustainable path.

My noble friend Lady Neville-Rolfe asked about Clauses 112 and 113 on the penalty systems that are being introduced. The current penalties and interest levied on taxpayers when they miss a submission deadline or pay their tax late are inconsistent across different taxes. The changes in this Bill bring consistency. The new approach to late submissions means that an automatic financial penalty will no longer be applied. Instead, the taxpayer will accrue points, much like driving licence points, with a financial penalty being applied only after repeated non-compliance. This means that taxpayers will incur penalties proportionate to the amount of tax they owe and how long payment is outstanding.

The noble Baroness, Lady Bennett, is concerned that we cannot aim for continuous growth because of its damage to the environment. I would respectfully disagree with her and refer her to a book called More from Less by Andrew McAfee. A couple of simple statistics on the US Geological Survey, which has been running for over 100 years, has tracked 72 resources from A, aluminium, to Z, zinc, and only six are not yet past their peak. Energy use in the UK in 2017 was 2% below what it was in 2008, even though GDP had increased by 15%. An aluminium can built in 1959 weighed 85 grams, whereas one built in 2011 only weighs 13 grams. It is extraordinary the innovation that is occurring in our society.

The noble Baroness, Lady Kramer, asked about a pre-emptive rise in VAT rates. The Government appreciate that the expiry of any temporary cut will need to be carefully timed so that it does not impede progress as the economy recovers. That is why we are announcing this six-month extension followed by six months of the 12.5% rate, which will help businesses to manage the return to a standard rate. As the Chancellor made clear in his Budget speech, it is important for the Government to be honest about the need to keep the public finances on a sustainable footing. The Government will of course keep the situation under review. The reduced rate is expensive and is expected to cost over £7 billion in tax forgone. Applying a permanently reduced rate would further increase the cost to taxpayers.

The noble Lord, Lord Tunnicliffe, asked about the G7 agreement on tax reform. We are delighted that the G7 has come together to back these proposals. It represents a major reform to the international tax framework. The UK has been at the forefront of OECD discussions to address tax challenges of digitisation. The Chancellor has made it a priority of the UK’s G7 presidency to support progress towards an agreement. Our consistent position has been that it matters where tax is paid, as well as the rate at which it is paid. So we are delighted that we have G7 backing for both pillars of the OECD proposals on reallocating taxing rights as well as the global minimum taxation.

On the concerns of the noble Lord, Lord Tunnicliffe, about multinationals, the Government have taken significant steps, both domestically and internationally, to ensure that companies pay the right amount. The corporate interest restriction rules prevent multinationals from avoiding tax using funding arrangements. This has raised £1 billion a year since its introduction in 2017. The diverted profit tax has led to £5 billion in additional revenue by countering aggressive tax planning techniques used by multinationals to divert profits away from the UK. The tax charge on offshore receipts, in respect of intangible property, is forecast to raise £1.1 billion from companies that put valuable intangible assets in low-tax jurisdictions. The UK has also been at the forefront of the OECD discussions on this, and the Chancellor has made it a priority of the G7 presidency to support progress towards an agreement.

The noble Lord, Lord Tunnicliffe, asked about freeports and economic transparency. We have a firm commitment to ensure that the transparency extends to the freeports programme. That is why we published a decision-making note that clearly sets out how sustainable economic growth and regeneration were prioritised in the assessment process. This built on a robust bid assessment, where the eight successful English freeports demonstrated a strong economic rationale for their proposed tax sites. The Government have already taken action to address the concerns that any additional reporting requirements are seeking to resolve. We will be publishing costings of the freeports programme at the next fiscal event, in line with conventional practice.

Let me wind up by saying that I hope I have succeeded in addressing noble Lords’ questions. I will of course review the record of this debate and follow up in the usual way, and write where I have not been able to provide detailed answers.

Bill read a second time. Committee negatived. Standing Order 44 having been dispensed with, the Bill was read a third time and passed.

Money Laundering and Terrorist Financing (Amendment) (High-Risk Countries) Regulations 2021

Lord Agnew of Oulton Excerpts

Tuesday 27th April 2021 Grand Committee

Moved by

[Lord Agnew of Oulton]

That the Grand Committee do consider the Money Laundering and Terrorist Financing (Amendment) (High-Risk Countries) Regulations 2021.

Relevant document: 51st Report from the Secondary Legislation Scrutiny Committee

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

My Lords, the Government are committed to combating money laundering and terrorist financing and recognise the threat that economic crime poses to our financial system. Illicit finance not only damages our reputation as a global financial centre but can impact on our national security by undermining the integrity and stability of our markets and institutions. Furthermore, illicit finance can impact opportunities for legitimate business in the UK and cause serious social and economic costs through its links to serious and organised crime.

That is why the Government are focused on making the UK a hostile environment for illicit finance. As part of this work, we have taken significant action to tackle money laundering and to strengthen the whole system response to economic crime. Underpinning these efforts are the money laundering regulations, the legislative framework which sets out a number of requirements that businesses falling within its scope must take to combat money laundering and terrorist financing. These requirements include the need for firms to implement measures to identify and verify the people and organisations with whom they have a business relationship or for whom they facilitate transactions.

Additionally, the regulations require financial institutions and other regulated sector businesses to carry out greater scrutiny or “enhanced due diligence” in respect of business relationships and transactions involving so-called “high-risk third countries”. These are countries that have been identified as having strategic deficiencies in their anti-money laundering and counter- terrorism financing regimes and that pose a significant threat to the UK’s financial system. The statutory instrument under discussion today amends the definition of a high-risk third country in the money laundering regulations.

Let me explain the background to this instrument, which I note was reported by the Secondary Legislation Scrutiny Committee as an “instrument of interest”. At present, the definition of a high-risk third country in the money laundering regulations is linked to retained EU law and references the list of countries identified by the European Commission as high risk. This list was previously updated via EU law, which now no longer has an effect in the UK. If our legislation is not amended, the list will become outdated and could leave the UK at risk from those with poor money laundering and terrorist financing controls. Furthermore, the UK will risk falling behind international standards set by the Financial Action Task Force, the global standard setter for anti-money laundering and counter- terrorist financing measures.

This instrument will therefore amend the money laundering regulations to remove references to the EU’s high-risk third countries list and instead insert a new list of countries identified in Schedule 3ZA. This will be the UK’s new autonomous high-risk third countries list. It will mirror exactly the list of countries identified by the Financial Action Task Force as having strategic deficiencies in their anti-money laundering and counterterrorist financing regimes, and it will keep the UK in line with international standards.

The change which I have just outlined will allow us to continue to protect businesses and the financial system from those who pose a significant threat, while ensuring that the UK remains at the forefront of global standards in combatting money laundering and terrorist financing.

I thank all noble Lords for their examination of this important legislation. In summary, this instrument will create a new autonomous list of high-risk third countries. Businesses that fall under the scope of the money laundering regulations and that deal with these countries must take extra scrutiny measures. In addition, this instrument will ensure that the money laundering regulations remain up to date and ready to respond to the threat posed by nations with poor money laundering and terrorist financing controls.

This instrument will enable the money laundering regulations to continue working as effectively as possible to protect the UK financial system. It will allow the UK to continue playing a full part in the fight against economic crime. I hope that noble Lords will join me in supporting this legislation. I beg to move.

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

My Lords, I begin by thanking all noble Lords who have taken part in the debate for their thorough consideration of the statutory instrument. It is an important subject and some excellent points have been made.

My noble friends Lady Wheatcroft and Lord Robathan asked about the challenge of ensuring that the UK’s new autonomous list mirrors those countries that have been identified by the Financial Action Task Force in its public documents as having deficiencies in their anti-money laundering and counterterrorism financing controls. By aligning its approach with that of the Financial Action Task Force, the UK is in line with international standards, and the identification of countries is underpinned by the FATF’s methodology and assessment processes. It remains open to the UK to review the list and amend it according to our own assessment of risks if necessary.

On the FATF’s assessment of Russia, the judiciary’s lack of independence and corruption were both highlighted in its report. For example, the FATF noted that levels of corruption are especially high in Russia. The money laundering regulations require enhanced due diligence in a range of situations that present a high risk of money laundering or terrorist financing, not just where a transaction or business relationship involves a country that is listed as high-risk.

When assessing if there is a high risk of money laundering or terrorist financing, a number of factors are taken into consideration, including geographical risk, when countries have been identified by credible sources as having high levels of corruption, such as terrorism. The high-risk third countries list should not be viewed in isolation. Enhanced due diligence, which comes through the money laundering provisions, is applied regardless of geographic risk in certain situations, such as when a customer or potential customer is a politically exposed person, family member or known close associate of a politically exposed person. Under the money laundering regulations, the regulated sector is also required to apply enhanced due diligence in any other case which by its nature could present a higher risk of money laundering and terrorist financing, including where there are geographic factors.

The noble Lord, Lord Chidgey, is also concerned and asks about transparency and beneficial ownership. The Government are committed to ensuring that our anti-money laundering regulations support the identification of criminal and terrorist financing activity, without placing disproportionate burdens on the regulated sector. In answer to the challenge from the noble Lord, I want to be clear on the Government’s intention to introduce a package of reforms to limit the risk of misuse of companies, including by verifying the identity of people managing or controlling companies, providing the registrar with new powers to query and remove information and investing in investigation and enforcement capabilities. This was set out in September last year in our response to a consultation on Companies House reform. We will legislate on that reform programme when parliamentary time allows.

On AML supervision, we remain committed to ensuring that our AML/CTF regime is robust and responsive. The Treasury already works closely with the Office for Professional Body Anti-Money Laundering Supervision, known as OPBAS, to ensure high standards of effectiveness and consistency among supervisors.

I turn to the noble Lord, Lord Tunnicliffe, and how the list will be updated. The Government intend, before updating the list, to use the affirmative procedure to ensure alignment between the UK’s high-risk third countries lists and the Financial Action Task Force lists, which are updated three times a year and, therefore, we have the flexibility to do the same.

On implementing the FATF’s recommendations in the UK following the report of July 2019, the Government and private sector have jointly published a landmark economic crime plan, which provides a collective articulation of the 52 actions that the UK is taking to tackle economic crime and, in particular, prioritises risk areas by filling in the gaps identified by the Financial Action Task Force’s mutual evaluation report. Key actions include the reform of the suspicious activity reporting regime and improving supervision of anti-money laundering compliance in the regulated sector.

On progress, the Government are bolstering the UK Financial Intelligence Unit with an addition of more than 70 new staff, enabling more feedback of reports and better analysis of suspicious activity reports. As outlined earlier, these regulations introduce a new, autonomous high-risk third countries list, which will ensure that the UK legislation remains up to date and continues to protect the financial system from money laundering and terrorist financing. This legislation represents the UK’s new approach to high-risk third countries; it will allow the UK to take its own view on which countries are high risk without referencing EU legislation and remain in line with international standards in the fight against money laundering and terrorist financing.

Motion agreed.

Kalifa Review of UK Fintech

Lord Agnew of Oulton Excerpts

Tuesday 27th April 2021 Lords Chamber

[Lord Holmes of Richmond (Con)]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper and declare my interests as set out in the register.

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

My Lords, the Government welcome the Kalifa Review of UK Fintech. The Chancellor recently set out the Government’s response at UK FinTech Week. This includes plans to take forward a regulatory scale box for growing firms; government support for an industry-led centre for finance, innovation and technology; improvements to tech visas to attract global talent; and plans to make the UK a more attractive location for public listings.

[Lord Holmes of Richmond (Con)]

My Lords, fintech has a critical role to play in our Covid recovery, in enabling financial inclusion and in levelling up, not least through the nations’ and regions’ fintech clusters. Does my noble friend the Minister agree? What is the Government’s plan to make these criticalities a reality?

[Lord Agnew of Oulton (Con)]

My Lords, the Government recognise the importance of fintech in our economy. Indeed, that needs to flow through to the curriculum; we have extended the number of pupils studying computer science at A-level, for example. In the Cabinet Office, in my role overseeing the Government Digital Service I pushed that out to Bristol and Manchester to engage much more closely with FE and HE in those cities. My noble friend is absolutely right; continual focus on this is needed.

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, the Chancellor of the Exchequer said at the UK FinTech Week conference that the Government would

“push the boundaries of digital finance”.

Does the Minister acknowledge the risk that, in cheerleading the latest technology, the Government will fail to count the costs of runaway financial innovation: both the obvious environmental costs—Bitcoin climate emissions are equivalent to those of the whole nation of Norway—and the dangers to the security of our real economy and lives? This was the world experience of 2007 and 2008, which they risk forgetting.

[Lord Agnew of Oulton (Con)]

The Government absolutely recognise the risk of a financially weak system. We learned important lessons 12 years ago and they are very much part of our institutional memory.

[Lord Sharpe of Epsom (Con)]

My Lords, I refer to my interests as set out in the register. Has the Treasury given any consideration to the specific recommendation to amend the EIS, SEIS and VCT rules to make it easier to attract investment into these start-ups and to retain the tax reliefs when the business models evolve into more regulated activities? This would cost the Treasury very little but unlock a potentially substantial amount of capital.

[Lord Agnew of Oulton (Con)]

My noble friend raises important points. These matters are always under discussion in the Treasury, although it is important to stress that there is a large amount of capital out there to support early-stage businesses. We see that in the valuations these businesses are achieving, even at an early stage. However, we will keep it under review.

[Lord St John of Bletso (CB)]

My Lords, while it is encouraging to see the Chancellor’s commitment to the scale-up visa scheme, what are the Government doing to ensure that our education system is updated to bring in financial, digital and business skills to encourage the next generation of entrepreneurs and innovators?

[Lord Agnew of Oulton (Con)]

My Lords, as I touched on in answer to an earlier question, we absolutely recognise how important is to get our young people enthused by this industry of the future. I referred to computer science, and we are certainly looking at increasing the number of maths teachers so that children can be more enthused at an early age. I hope to meet the Israeli ambassador shortly in order to understand more about Israel’s Magshimim programme, which gets 14 year-olds involved in a career in cybersecurity.

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

My Lords, this is an important report, laying down the way to go in this area, but what I find lacking is consideration of how it will affect the consumer of financial services. It is important not to fall into stereotypes, but there is a real problem with the digital exclusion of some consumers across all sections of our society. Will the Minister assure the House that, hand in hand with the development of financial technology, consideration will be given to ensuring the widest possible sharing of the benefits by consumers?

[Lord Agnew of Oulton (Con)]

The noble Lord is right: we do not want to see citizens excluded from the digital world into which we are heading, and that matter is under continual consideration. It is also worth stressing that, as a country, we are very much innovators and our consumers are keen for the sort of products that are coming out. For example, 2.5 million UK consumers and businesses now use open banking-enabled products; indeed, we were the first country to develop open banking standards, in 2018.

[Baroness Kramer (LD) [V]]

Scale-up for our fintech sector requires access to international markets. The Government overlooked this in Brexit negotiations and equivalence from the EU now looks unattainable. Fintech is problematic in trade negotiations with the US because the UK industry risks being swamped. How will this Government deliver access for fintech to major and key international markets?

[Lord Agnew of Oulton (Con)]

My Lords, the Department for International Trade has just announced two initiatives which I hope will help to address the noble Baroness’s concerns: a new fintech cohort within the DIT Export Academy initiative to provide bespoke one-to-one advice to eligible UK fintechs that are ready to scale into key markets, and a DIT-led fintech champions scheme to promote UK fintech overseas and support UK fintechs to grow internationally through mentoring and peer-to-peer learning.

[Lord Moylan (Con)]

My Lords, fintech has much to offer. I am pleased that, when I was on the board, Transport for London united its huge customer base with the banks to introduce and deliver contactless payment to this country—well ahead of the United States, it should be said. However, finance remains a risky business. Does my noble friend agree that we should not be led astray by the glitz of the new, that the underlying financial transactions are broadly what they always were, and that the financial risks, particular and systemic, remain essentially the same?

[Lord Agnew of Oulton (Con)]

My noble friend is right that finance is an inherently risky business; my great-plus-three grandfather and his two brothers founded Close Brothers, so risk is certainly in my genes. That is one reason why we are introducing the sandbox concept, whereby this technology can be tested in a safe environment without exposing the economy to any risk.

[Lord Tunnicliffe (Lab) [V]]

My Lords, in the Chancellor’s recent Written Statement on fintech, he speaks of a “scale-up visa stream” allowing qualification for a fast-track visa without the need for sponsorship or third-party endorsement. What criteria was used to select fintech for this fast track, and where else in the economy is it envisaged that scale-up visas will be introduced?

[Lord Agnew of Oulton (Con)]

My Lords, these concepts are still being designed and I will be very happy to update the noble Lord when more information is available. However, the key emphasis of scale-up is to attract global talent and boost the fintech workforce, so it will be focused on the skills these people can offer our country.

[Lord Bilimoria (CB) [V]]

The CBI, of which I am president, welcomes the recommendations set out in my friend Ron Kalifa’s fintech review to ensure the UK’s position as the best place in the world to start and grow fintech business. Do the Government agree that having a proportionate, innovation-friendly regulatory framework will help support economic growth, facilitate access to global markets and enhance competition? Do they also agree with the review’s recommendation that a centre for finance, innovation and technology be created?

[Lord Agnew of Oulton (Con)]

My Lords, we are certainly keen to support the creation of a centre for finance, innovation and technology. In UK FinTech Week the Chancellor announced his support for the industry, and we certainly recognise a private sector-led centre for finance, innovation and technology’s potential as an accelerator of fintech sector growth. This can be achieved through research, thought leadership and working with regional fintech hubs and national fintech bodies. The Government are committed to working with industry to make this a reality.

[Lord Flight (Con)]

My Lords, as we have just heard, the Government welcomed the recommendations of the Kalifa review, which has diagnosed the ingredients, including the EIS, that have led to the UK economy blossoming over the last decade, especially the SME sector. I have been chairman of the EIS Association during this time. The UK is recognised as the best place to start and scale up a business. What aspects of the findings of the Kalifa report do the Government view as the most important?

[Lord Agnew of Oulton (Con)]

I gave noble Lords a sense of the key findings in my opening answer, but there are several others that I can make my noble friend aware of: for example, a task force led by the Treasury and the Bank of England to co-ordinate exploration of a potential UK central bank digital currency, and a new Bank of England account type that will allow innovative financial market infrastructures to provide enhanced wholesale payments and settlements. There are also the DIT initiatives that I mentioned earlier.

[The Lord Speaker (Lord Fowler)]

My Lords, the time allowed for this Question has elapsed. We now come to the fourth Oral Question.

Recognised Auction Platforms (Amendment and Miscellaneous Provisions) Regulations 2021

Lord Agnew of Oulton Excerpts

Thursday 15th April 2021 Grand Committee

Moved by

[Lord Agnew of Oulton]

That the Grand Committee do consider the Recognised Auction Platforms (Amendment and Miscellaneous Provisions) Regulations 2021.

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

My Lords, I beg to move that the regulations, which were laid before the House on 8 March in draft, be approved. This statutory instrument, laid under the European Union (Withdrawal) Act 2018, makes consequential amendments to financial services law and related matters to provide for the safe and effective operation of the market in UK emission allowances as part of the establishment of a UK Emissions Trading Scheme.

At the end of the transition period, the UK ceased to be part of the EU ETS. As of the start of this year the UK has established its own ETS, which has been designed to ensure a consistent price for carbon. This SI was preceded by legislation laid last year under the Climate Change Act 2008 which legally established the UK ETS. In implementing the UK ETS, the Government have drawn on the best of the EU system, which the UK was instrumental in developing. At the same time, however, we are making improvements where needed to ensure greater flexibility, so that this scheme is properly designed for the UK. The new scheme allows for a smooth transition for businesses while reducing our contribution to carbon emissions from day one. Reducing emissions while supporting UK industry is central to the Government’s mission to deliver our world-leading net-zero target. The UK ETS is key to achieving that target.

Emissions trading schemes work on the cap and trade principle. This is where a cap is set on the total amount of certain greenhouse gases that can be emitted by installations and aircraft covered by the scheme. Within the cap, participants receive or buy emission allowances which they can trade with one another as needed. This cap is reduced over time, so that overall carbon emissions fall. Participants are required to monitor their emissions during a calendar year and surrender one emissions allowance for every tonne of carbon dioxide equivalent—CO₂e—that they have emitted at the end of each reporting year. Thus the ETS is underpinned by the creation of a market for emission allowances. The auctioning and trading of allowances leads to the discovery of a market price for greenhouse gas emissions and will in turn drive cost-effective emissions reductions across our intensive industries, power generation and aviation sectors.

This statutory instrument amends existing financial services legislation so that it works in the context of the creation of a UK ETS. In doing so, it ensures that the Financial Conduct Authority can oversee the auctioning and trading of emission allowances and ensure the soundness and integrity of the market. This instrument is being introduced now so that it is in force in time for the first auctioning of UK emission allowances in May. In particular, this SI establishes the activity of bidding in an emission allowance auction as a “regulated activity” and establishes UK emission allowances as “financial instruments”. This means that the FCA has oversight of bidding in allowance auctions and ensures that the allowances themselves are subject to the appropriate regulatory treatment with regard to issues such as market abuse. The instrument also amends financial promotion legislation so that the promotion of investments in UK emission allowances can be undertaken only by persons with the correct permissions.

To properly empower the FCA to oversee the regime, the SI updates rules around the disclosure of confidential information so that the FCA can correctly discharge its functions with regard to the disclosure of information relating to the UK ETS and emissions allowance holdings. It ensures that the FCA has the investigation and enforcement powers to fulfil its duties with regard to preventing financial misconduct in the context of the auctioning and trading of emission allowances.

Finally, this SI amends the UK market abuse regulation so that it covers the primary and secondary market trading of UK emission allowances, and the secondary market trading of EU emission allowances where these activities are within the territorial scope of UK MAR.

This instrument will ensure the integrity of the UK carbon emission allowance market to facilitate ETS carbon pricing policy in the UK. This is integral to the Government’s ambitions to encourage cost-effective emissions reductions and, ultimately, achieve our goal of net zero.

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

I thank both noble Lords for their valuable contributions and questions in this short debate, and for their broad support of carbon pricing and this statutory instrument.

The noble Lord, Lord Tunnicliffe, asked several questions, and I hope to be able to give useful answers. On the timing of the decision to create a UK ETS, it is right that at the moment of leaving the EU and in the transition period we took the time properly to prepare and consider a UK ETS and a carbon tax, given that the chosen mechanism will be crucial to meeting our climate ambitions over the coming decades. There was a full consultation on the structure of the UK ETS; the FCA has already completed a consultation on the rules that it will make, following the legislation being debated today.

On the £22 level of the auction reserve price, I agree with the noble Lord’s desire for a strong carbon price signal. The auction reserve price is not the trading price but a floor price. We need to allow sufficient room in this market for price discovery. The EU system does not have a floor, as we saw when prices were extremely low in the years after the financial crisis. We have cut the UK ETS cap by 5% to start with, and I shall consult on a tighter net-zero consistent cap trajectory this year. We would then expect a steadily reducing cap, visible to all participating businesses, to drive higher prices and so reduce emissions over time.

I note that other emissions trading schemes have experienced price volatility. In years one and two of a UK ETS, the cost containment mechanism will have lower price and time triggers, providing a mechanism by which the UK Government can decide whether to intervene sooner, should very high prices occur. We stand ready to use that mechanism if necessary. The risk of price volatility must be balanced with the risk of policy volatility, whereby excessive market intervention would erode policy certainty for businesses. We remain open to linking internationally, but have not made a decision on preferred linking partners. Clearly, ahead of agreeing any link, we will need to consider whether it is in our interests.

The Government said in the energy White Paper that we would explore expanding the UK ETS into the two-thirds of emissions currently uncovered by the scheme. We will set out any plans resulting from this, including on implementation, in advance of COP 26 —which, as the noble Lord will know, is quite soon.

Finally, the noble Lord asked about the role of the FCA. I can assure him that the FCA does not require any additional knowledge or resource to fulfil its new responsibilities. The FCA will continue to oversee the UK ETS in much the same way it oversaw the market for EU emission allowances in the UK when the UK was part of the EU scheme.

My noble friend Lord Bourne asked about the scope of the ETS. As set out in the energy White Paper, we will consider expanding it, as I mentioned. We have initially cut the cap by 5% compared to the equivalent for the UK within the EU ETS. We have committed to introducing a net-zero-consistent cap trajectory and will consult on this later in the year. On the operation of a UK ETS, I can say that the environmental regulators of the four nations of the UK work in close collaboration with the UK Government and devolved Administrations as part of one UK ETS authority. I am happy to write to set out an answer in more detail on that specific question.

My noble friend is right that we want to blaze a trail on decarbonisation. To drive forward progress towards net zero, last year the Prime Minister announced his 10-point plan, which is also part of our mission to level up across the country and will mobilise £12 billion of government investment to create support for up to 250,000 highly skilled green jobs in the UK and spur more than three times as much private sector investment by 2030. At the centre of his blueprint are the UK’s industrial heartlands, including the north-east, Yorkshire and the Humber, the West Midlands, Scotland and Wales, which will drive forward the green industrial revolution and build green jobs and industries for the future. This will build on our already impressive progress to date, which has seen the UK decarbonise its economy faster than anyone else in the G20 since 2000, including France and Germany.

This statutory instrument, laid under the European Union (Withdrawal) Act 2018, will make amendments to financial services law to provide for the safe and effective operation of the market in UK emission allowances as part of the UK ETS. The ETS will drive cost-effective emissions reductions across our intensive industries and power generation and aviation sectors. As such, this legislation will ensure that the UK has a domestic carbon pricing policy that is fit for the net-zero future that we have led the world in committing to. Launching the UK ETS has allowed us the autonomy to pursue our climate goals in the way that works best for the UK. In some areas, we have already taken the opportunity to make the system work better, such as the immediate reduction in the overall size of the pool.

This instrument will ensure the integrity of the market that will underpin our carbon pricing goals and is vital in ensuring that the ETS can function as planned. I commend these draft regulations to the Committee.

Motion agreed.

Global Minimum Corporate Tax Rate

Lord Agnew of Oulton Excerpts

Wednesday 14th April 2021 Lords Chamber

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

My Lords, the UK has an established record of being at the forefront of initiating global action on international tax. It is no different here: during our G7 presidency, we are leading the way to ensure the delivery of G20 commitments that we secured in January 2019 for a comprehensive global solution based on two pillars. Pillar 1 would deliver on ensuring that businesses are taxed where they make their profits, and pillar 2 would deliver a global minimum tax.

[Baroness Bennett of Manor Castle (GP) [V]]

I expect that the Minister will acknowledge that, with their plan to raise the UK corporate tax rate, the Government have, at least implicitly, acknowledged that the 30-year-long global race to the bottom on corporate tax rates has led to major multinational companies not paying their way, while reeling in profits, building inequality and starving public services of essential funds. I also expect that the Minister will know that the recommended and UK-planned 25% minimum rate, as recommended by the Independent Commission for the Reform of International Corporate Taxation, would raise more than £22 billion for the UK Exchequer. Given that, and given that Germany, France and the Netherlands rapidly supported the US intervention, why is the UK not at the forefront, as the Minister said, but trailing well behind? Why have we not stepped in and backed this plan?

[Lord Agnew of Oulton (Con)]

My Lords, we have always been a Government who want to reduce taxation wherever possible. However, the Government have been very active in dealing with the abuse of corporate taxation over the last few years—for example, with the corporate interest restriction rules, which prevent multinationals from avoiding tax using financing arrangements, raising £1 billion a year since 2017. Other examples are the diverted profits tax, which has led to an additional £5 billion by countering aggressive tax planning, and the tax charge on offshore receipts in respect of intangible property, which is forecast to raise £1 billion a year.

[Lord Empey (UUP) [V]]

Since we left the European Union, the Government say that we must retain control over our money and laws. Is there a danger that we could end up replacing one group of people who are able to tell us what we can and cannot do with our money and laws with another group, other than the European Union? In such circumstances, is there a risk that the United Kingdom actually restricts its freedom and ability to control its own economy?

[Lord Agnew of Oulton (Con)]

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

[Baroness Noakes (Con)]

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

[Lord Agnew of Oulton (Con)]

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

[Lord Bilimoria (CB) [V]]

My Lords, the CBI, of which I am president, welcomes the United States’ renewed commitment to engage with the OECD multilateral process, which, after a decade, has two pillars. One is a new regime for the largest companies; the other is on setting a minimum tax rate, which the US aims to see at 21%. Do the Government agree with this rate of 21%? Do they agree that we want to avoid a patchwork of unilateral action—for example, digital services taxes?

[Lord Agnew of Oulton (Con)]

My Lords, the Treasury is assessing the statements recently made by the US Government on that tax rate, so we are not in a position to opine on those yet. We agree on the patchwork point: we introduced the digital services tax as an interim to plug at least some of the gaps and problems that exist, but we will certainly review that if we can reach an international consensus.

[Lord Sikka (Lab) [V]]

My Lords, I draw attention to my entry in the Members’ register. A strong, global, minimum tax on multinationals would recover much-needed billions for this country and others. Does the Minister agree it is essential for such a tax to provide a fair balance of taxing rights to all countries, based on allocation factors reflecting the real activities in each country, with a high minimum such as the 21% proposed by the US Administration?

[Lord Agnew of Oulton (Con)]

As I answered to an earlier question, we are not yet in a position to announce whether we support that specific rate. Our policy has always been to put the emphasis on pillar one, which is the allocation of profits in the countries in which they are generated. To go back to my earlier point, if a company is going to use the infrastructure of a country in terms of its affluent, well-educated population, and take profits from it, it must contribute to it, too.

[Baroness Kramer (LD)]

My Lords, do the Government understand, having listened to the international response to the Biden Administration and Janet Yellen’s proposals, that pillars one and two hang together and that there is no serious prospect of getting a solution to the right of countries to tax multinationals appropriately for the activities in their country unless there is also a common agreement on a minimum global corporate tax? Do the British Government accept that underlying principle, even if they dispute the rate?

[Lord Agnew of Oulton (Con)]

The overriding position is that we welcome the American Government’s re-engagement in this process. As realists, we accept it will not happen without full American support. We agree with the noble Baroness that these things hang together, and it will be a cohesive result that will work.

[Lord Hannan of Kingsclere (Con)]

My Lords, international tax competition is an important constraint on big government. You can raise the rate only to a certain point before the revenue and jobs begin to flee to friendlier jurisdictions. For that reason, it has always chafed with people who want a very large state. Will the Minister accept that the logic of the Laffer curve is not an academic theory but an empirically observable reality—that every cut in corporation tax, down to our current rate in this country, led to an increase in revenue? Will he further accept that having a competitive rate of corporation tax is an important growth strategy for a developing country? The formula that worked for Singapore, Hong Kong and eastern European countries would be cut off if we created a global high-tax cartel.

[Lord Agnew of Oulton (Con)]

My Lords, we did not plan to increase corporation tax in the way we have had to do in the last few months. It is only as a result of the appalling crisis we have suffered through Covid and having to address the financial impact of that. I agree with my noble friend that lower corporation tax rates are broadly a good thing. Personally, I do not like to see tax on productive activity, employment or any of the things that make a country prosperous. Therefore, I support his comments that we should always aspire to lower tax rates, particularly on corporation tax. We will try to set it still at a competitive rate, so the US, Canada, Korea, Japan and Germany will all have higher rates than the one to which we are moving.

[Lord Collins of Highbury (Lab)]

My Lords, the UN high-level panel published its final report on the impact of financial integrity on sustainable development. The panel called for a UN tax convention and a UN body for international tax rules. The report also includes proposals for the automatic exchange of information, beneficial ownership transparency and country-by-country reporting. Do the Government support the high-level panel’s conclusions, and will we address this issue at the G7?

[Lord Agnew of Oulton (Con)]

My Lords, the Government do support increased transparency, and we have done a great deal over the last five years to improve on that, but I accept there is more to do.

[The Lord Speaker (Lord Fowler)]

My Lords, the time allowed for this Question has elapsed, and it brings Question Time to an end.

Budget Statement

Lord Agnew of Oulton Excerpts

Friday 12th March 2021 Lords Chamber

Moved by

[Lord Agnew of Oulton]

That this House takes note of the economy in light of the Budget statement.

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

My Lords, the Budget that the Chancellor set out last week has three key elements. First, it protects jobs and livelihoods and provides additional support to get the British people and businesses through the pandemic. Secondly, it is clear and honest about the need to fix the public finances. Thirdly, it starts the work of building our future economy, including by providing opportunities to level up across the country.

The Budget announced additional measures worth £65 billion to support the economy through the pandemic this year and next. Added to last November’s spending review, the number is £352 billion and, taking into account measures from the spring Budget last year, the figure rises to £407 billion. The OBR now expects the UK economy to recover to its pre-crisis level six months earlier than originally expected—in the second rather than the fourth quarter of 2022.

Importantly, the Budget extends the furlough scheme until the end of September. Support for the self-employed will also continue until September, with an additional 600,000 people now potentially eligible to claim. The universal credit uplift of £20 a week will be maintained for a further six months and working tax credit claimants will receive equivalent support over the same timeframe.

Among other things, the Budget also reaffirmed the Government’s commitment to increase the national living wage to £8.91 an hour from April. It also announced a new restart grant in April to help businesses to reopen and get going again, as well as a new recovery loan scheme to replace our earlier bounce-back loans and coronavirus business interruption loans.

The Chancellor was also open about the longer-term fiscal challenge that we now face. The Budget does not raise the rates of income tax, national insurance or VAT. Instead, it maintains personal tax thresholds on income tax, inheritance tax, the pensions lifetime allowance and the annual exempt amount in capital gains tax, with higher earners affected the most. It also announced an increase in corporation tax to 25% from 2023. Importantly, 25% is still the lowest corporation tax rate in the G7 and companies that make less than £50,000 profit annually will only be subject to a 19% tax rate. Given that the Government are providing businesses with over £100 billion of support to get through the current crisis, it is only right to ask them to contribute to our recovery.

The third component of the Budget is a series of initiatives and measures to support the investment-led recovery that the country needs. A new super deduction will, in some cases, allow companies to reduce their taxable profits by 130% of the cost of the investment that they make in plants and machinery, which is equivalent to a 25p tax cut for every pound that they invest. Worth £25 billion over the two years that it is in place, the super deduction represents the biggest business tax cut in modern British history.

The Budget also announced, among other things, the creation of the first ever UK infrastructure bank, headquartered in Leeds. Two new schemes—Help to Grow and Help to Grow: Digital—will help tens of thousands of small and medium-sized businesses to get world-class management training and help them to develop their digital skills. We are helping to ensure that we have access to the talent that we need through the reforms that we are making to our visa system.

Achieving an investment-led recovery means allowing investment to flow more freely, which is why we want to give the pensions industry more flexibility to unlock billions of pounds from pension funds into innovative new ventures. Alongside these measures, our commitment to levelling up across the United Kingdom is reflected in the £4.8 billion levelling-up fund; accelerated city and growth deals in places such as Ayrshire, Falkirk, north Wales and Swansea Bay; more than a £1 billion for 45 new towns deals; and a £150 million fund to help communities across the United Kingdom take ownership of pubs, theatres, shops or local sports clubs at risk of loss. This complements the inward investment that will be attracted through the announcement of eight new freeports in eight English regions.

The country has experienced the worst fall in GDP in three centuries—not the 1976 sterling crisis, not the Second World War, not the First World War, not the Napoleonic War; this has been harder financially than all those. In response, the Chancellor has presented a plan that will continue to protect jobs and livelihoods and to support British people and businesses through this moment of crisis. It will begin to fix the public finances and will start the work of building our future economy through investment-led recovery.

[The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)]

My Lords, I should have added that the maiden speakers all have an extra minute and the welcomers an extra 30 seconds. I call the noble Lord, Lord Eatwell.

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

My Lords, it is a privilege to close this debate on behalf of the Government. I thank noble Lords for their many insightful and considered contributions. In particular, I welcome the maiden speeches of the noble Lords, Lord Bellingham, Lord Benyon, Lord Cruddas and Lord Khan, and the noble Baroness, Lady Foster.

Given the number of speakers and the limited time I have available, I hope noble Lords will forgive me if I am not able to address all the points raised. Perhaps noble Lords would like to write to me if they do not feel that the issues have been addressed satisfactorily.

I start with the noble Lords, Lord Eatwell and Lord Risby, on overall spending, borrowing and debt. In 2020-21, this Government increased day-to-day departmental spending by £20 billion, with a 6% increase in nominal terms. In 2021-22, excluding Covid, there was a further increase of £22 billion, or 6% nominal. In addition to substantial near-term support, the Budget supports an investment-led economic recovery to level up across the UK while trying to be honest about the need also to repair the public finances in the medium term. Without corrective action, borrowing would rise to unsustainable levels, leaving underlying debt rising indefinitely. Although borrowing costs are affordable now, interest rates and inflation may not stay low for ever. Indeed, a 1% increase in inflation and interest rates would cost us more than £25 billion a year.

My noble friend Lord Hunt asked about jobs and full employment. The Budget sits alongside a comprehensive package to support people into jobs, as announced in the plan for jobs. The 2020 spending review built on previous commitments to provide £3.6 billion of additional funding in 2021-22 for the DWP to deliver employment support to those who need it most. This includes £1.4 billion of additional funding to sustain the doubling of the number of work coaches to 27,000, the £2 billion kick-start scheme to help young people at risk of long-term unemployment and the £2.9 billion restart programme to help those who have been unemployed for more than a year.

The right reverend Prelate the Bishop of Portsmouth and the noble Lord, Lord Watson, asked about early years and children. The Government recognise the acute impact of the pandemic on children’s lives—particularly the impact from lost learning. That is why, following the £1 billion education catch-up package announced last year, the Government are making available £700 million of further funding to help young people in England catch up on lost learning as a result of Covid.

The noble Baroness, Lady Goudie, asked about the effect of the pandemic on women’s careers. It is no doubt that many women have borne the brunt of this crisis, particularly mothers. Since March, we have provided unprecedented levels of support to businesses and individuals; cumulatively, 11 million jobs have been supported by the Coronavirus Job Retention Scheme. Provisional estimates show that the number of females furloughed increased to 2.3 million as at 31 January and the number of males to 2.2 million. Temporary measures have been put in place to restore entitlement to parents in receipt of government coronavirus support schemes who would normally be eligible for tax-free childcare and/or 30 hours of free childcare but, due to the consequences of Covid, are not able to receive it. Households with anyone aged under 14 can form a childcare bubble, which allows friends or family from one other household to provide informal childcare.

The noble Lord, Lord Eatwell, asked about stamp duty relief. Extending the stamp duty holiday will reduce the risk of a fall in house prices in the short term, which is building momentum and encouraging confidence in the housing market. The housing market drives the wider construction industry; by helping maintain momentum in the market, the extension of the stamp duty holiday will protect hundreds of thousands of jobs that rely on it.

The noble Lord, Lord Fox, asked about council tax. The Government are providing local authorities with additional funding for Covid-related pressures and giving local authorities the flexibility to raise council tax bills across their budgets. These increases are in line with similar flexibilities in previous years. To give local authorities additional flexibility in making these decisions, we will allow them to defer up to their full 3% adult social care precept in 2022-23.

My noble friend Lord Forsyth is worried about tax rises. We continue to provide substantial economic support to people in need and have committed an additional £65 billion in this Budget across 2020-21 and 2021-22. We are trying to be honest about the steps that will be taken following the record-breaking levels of borrowing and higher debt. Announcing a credible plan to repair the public finances over the medium term supports the Government to continue to have the space to borrow in the short term to support the economy. The OBR forecast is that, under the Government’s plans, the economy will rebound strongly next year.

The noble Lord, Lord Palmer, asked about the freezing of personal allowances. The decisions that we have made to increase the personal allowance over the last few years mean that fewer people than ever are paying income tax. Freezing the personal allowance and HRT is progressive and fair. The highest-earning households will contribute more of the revenue: the 20% highest-income households will contribute 15 times that of the 20% lowest-income households. Nobody’s take-home pay will be less than it is now. Anyone earning £12,570 or less in 2025-26 will still not pay income tax.

The noble Lord, Lord Bilimoria, asked about business rates. The Government have provided over £16 billion of support for businesses affected by Covid with their rates bill since March last year. This measure builds on the full business rates holiday for eligible properties in retail, hospitality, leisure and nurseries in 2021, worth over £10 billion. The Government have also decided to freeze the business rates multiplier in 2021-22, saving businesses in England an estimated £575 billion over the next five years.

The noble Lord, Lord Campbell-Savours, asked about inheritance tax. The Government are aware of recent reports, including from the Office of Tax Simplification, and will respond in due course. Inheritance tax makes an important contribution to the Exchequer of some £5 billion a year, so we need to consider carefully any wide changes to it.

My noble friend Lord Caithness asked about productivity. Building on industry best practice and our international peers, we will launch a new world-leading management skills training programme to upskill 30,000 SMEs across the UK over the next three years.

My noble friend Lady McIntosh asked about the failure to provide support to aviation. The Government recognise the challenging circumstances facing the aviation industry. We will publish a consultation on aviation tax reform in the spring. The aerospace sector and its aviation customers are being supported with almost £11 billion made available through loan guarantees, support for exporters and the Bank of England’s Covid Corporate Financing Facility, together with grants for research and development. This includes £8 billion of UK export guarantees. The Budget built on this, renewing support for airports and ground handlers through first six months of 2021-22 to help meet their fixed costs, such as business rates.

The right reverend prelate the Bishop of Portsmouth worries about social care. Throughout the pandemic we have continued to support social care providers to manage the impact of Covid. This includes over £4.6 billion in grant funding for local authorities to address Covid pressures across all their services, including adult social care; over £1.9 billion of enhanced discharge to accelerate discharge from hospital; over £1.1 billion for the infection control fund to support care providers in stopping the spread of the virus; free Covid-related PPE through the Department of Health’s PPE portal until the end of June; and £120 million for the workforce capacity fund to ease workforce pressures in adult social care. The Government remain committed to sustainable improvement of the social care system and will bring forward proposals this year.

My noble friend Lord Young of Cookham asked about council tax. We are providing £670 million of grant funding to help local authorities in 2021-2 to continue to support more than 4 million households least able to afford their council tax bills.

The noble Lords, Lord Gadhia, Lord St John of Bletso and Lord Bruce, raised apprenticeships, skills and training. The Government are making significant investment as part of our plan for growth. Apprentices of all ages will support our economic recovery and the payments to employers will be increased so that they receive £3,000 for each new apprentice hired between 1 April and 30 September of this year, regardless of the apprentice’s age. We are also investing £126 million to triple the number of traineeships next year. The Government have invested significantly in further education, including £1.5 billion of capital funding to bring the entire college estate up to a better condition.

My noble friend Lady Gardner asked about rebalancing the tax burden to help the high street. Retail is changing dramatically and the high street is too. We want to help business manage this transition. The Government published a call for evidence for the fundamental review of business rates in July 2020, which includes questions on this topic, and we will respond in due course.

The noble Lords, Lord Eatwell, Lord Hunt and Lord Fox, are concerned that the Government do not have a proper plan for growth. Build Back Better: Our Plan for Growth was published under the Covid recovery, post-Brexit transition and our longer-term economic growth strategy. The plan tackles long-term problems and helps to deliver growth that creates high-quality jobs across the UK. It strengthens the union as well as achieving the people’s priorities, levelling up the whole of the UK, supporting our transition to net zero and supporting our vision for a global Britain.

The noble Lord, Lord Hain, worries that we are cutting fiscal support too soon. We have always said that we want to protect lives and livelihoods and be guided by the best scientific advice available. This is why we have provided an unprecedented package, with a cumulative cost of some £350 billion, to protect people’s jobs and livelihoods and to support businesses and public services. The package set out by the Chancellor in this Budget allows people in businesses to plan and prepare in line with the expected easing of restrictions announced last month in the Prime Minister’s road map. Schemes such as the CJRS and SEISS and support for businesses are continuing beyond the end of the road map.

The noble Lord, Lord Bilimoria, worries about excluded groups. The Government have acknowledged that we have not been able to support everyone in the way that we might have wanted. The CJRS and SEISS are designed to target support to those who need it most and to protect taxpayers against error, fraud and abuse, while also trying to reach as many people as possible. Individuals will be able to qualify for the new SEISS grants based on their 2019-20 tax returns, with around 600,000 self-employed individuals being newly eligible. This brings the total eligibility for SEISS 4 and 5 to 3.7 million people. The furlough scheme has helped pay the wages of some 11 million jobs, with £53 billion having been claimed. Local authorities in England will receive a top-up worth a further £425 million to their allocation from the ARG, which has already provided local authorities with £1.6 billion.

The noble Baroness, Lady Bowles, my noble friend Lady Gardner and the noble Lords, Lord Monks, Lord Hain and Lord Dodds, asked about universal credit. The Government have always been clear that the £20 increase was a temporary measure. We are now shifting our focus to supporting people back into work and we have a comprehensive plan for jobs, which this Budget builds on.

The Government will spend over £55 billion in 2021 on benefits to support disabled people and those with health conditions. The Government have implemented a range of measures to make accessing disability benefits easier and to protect existing claimants during the current situation. This includes temporarily suspending face-to-face assessments.

My noble friend Lord Forsyth asked about the under-25s, who of course have particularly suffered in this pandemic. The measures in the Budget seek to address this, alongside promoting the Government’s belief in fairness and the aim to promote equality of opportunity.

My noble friend Lord Lamont and the noble Lords, Lord Macpherson and Lord Bilimoria, are worried about the rise in corporation tax. The Government are providing businesses with over £100 billion of support to get through the pandemic, so it seems fair that we ask them to contribute to the recovery. At 25%, the headline rate will remain one of the lowest—or the lowest—in the G7, and the full rate will be paid by around only 10% of companies. A small profits rate of 19% for businesses with profits of £50,000 or less means that around 70% of actively trading companies will be protected from the rate increase.

The noble Lord, Lord Eatwell, asked about the super-deduction. Many world economists are big advocates of full expensing as a tool to boost investment alongside a low corporation tax rate. With the super-deduction and one of the lowest rates of corporation tax, the UK’s business tax regime will be among the most competitive in the world. The super-deduction will help firms to become more productive, safeguarding and creating new jobs.

The noble Lord, Lord Palmer, is worried about incentives for avoidance or evasion. There are anti-avoidance provisions that apply to counteract arrangements that are contrived or abnormal or that lack a genuine commercial purpose. There are also existing capital allowance rules that apply, including the exclusion of connected party transactions from first-year allowances.

My noble friend Lord Caine worries about the differential between corporation tax in Northern Ireland and the Republic of Ireland. Despite the change, companies operating in Northern Ireland will continue to benefit from a headline rate that is competitive in the G7, and this will be payable by only a minority of corporate taxpayers in Northern Ireland.

My noble friends Lord Caithness and Lady McIntosh and the noble Lords, Lord Haskel and Lord Rooker, asked about freeports. Leaving the EU means that we have the opportunity to do these things differently. We have developed an ambitious new freeport model to ensure that towns and cities across the UK will benefit from new trade opportunities, attracting new investment and employment. In addition to a simplified customs process, our freeports will offer measures to incentivise private businesses, carefully considered planning reforms to facilitate much-needed construction and additional targeted funding for infrastructure improvements in these freeport areas to level up communities and increase employment opportunities.

On displacement, our focus is on encouraging new investment to create new businesses and new economic activity, which will create jobs in deprived communities. Specifically, bidders have had to explain how their choice of tax sites minimises the displacement of economic activity from wider local areas, especially other economically disadvantaged ones. This has been rigorously assessed as part of the assessment process, and we are confident that the risk of harmful displacement will be minimised.

The noble Lords, Lord Fox, Lord Oates and Lord Haskel, my noble friend Lord Lansley and the noble Baronesses, Lady Jones and Lady Hayman, asked about our commitment to climate change and net zero. The spending review committed to spend £12 billion on green measures to support the Prime Minister’s 10-point plan and boost the UK’s global leadership on green infrastructure and technologies, ahead of COP 26 next year.

This Budget builds on this by encouraging private investment, using the tax system and continuing with the direct government support announced at the spending review. This is supported by Budget measures that continue to lay the foundations for the transition to net zero—for example, the green gilts and plans for a linked green retail product to be offered by NS&I and the UK infrastructure bank.

A number of noble Lords asked about the NHS. The Government are completely committed to the long-term plan, which provides a cash increase of £33.9 billion a year by 2023-24, with a £6.3 billion uplift in the next financial year. Those plans have not changed. The spending review 2020 announced a further £3 billion for the NHS next year to support its recovery from the impact of Covid and confirmed our commitment to ensuring that the NHS has the certainty it needs to plan. We continue to be committed to ensuring that the NHS gets the support it needs for the pandemic, as evidenced by some £58.9 billion of resource spending that we have committed this year, with £18 billion for the NHS.

The allocation of any funding beyond 2021-22 will be a matter for the spending review later this year. We have already announced in the last spending review in 2020 a £1.5 billion injection to improve NHS waiting lists, for mental health and for the workforce. This funding will help to tackle backlogs in the 2021-22 year as part of the £55 billion to support public services.

On NHS pay specifically, no pay award has yet been announced for NHS staff for 2021-22. As is normal practice, the Department of Health and Social Care has published evidence setting out what figure is affordable within its budgets. The independent NHS Pay Review Body and Doctors and Dentists Remuneration Review Body will report on pay for 2021-22 later this year. The pay review bodies will consider the unique circumstances that NHS staff are working in and the need to recruit, train and motivate suitably able and qualified people, as well as the Government’s financial circumstances.

The noble Lord, Lord Rooker, asked about the levelling-up fund and is worried about pork-barrel politics. The methodology note for the levelling-up fund index was published yesterday. The £4.8 billion levelling-up fund will prioritise bids from places in England, Scotland and Wales with the most significant need.

Deputy Speaker, might I indulge in a couple more minutes?

[The Deputy Speaker (Lord Faulkner of Worcester) (Lab)]

You should ask your Whip that question.

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

Thank you. The noble Lord, Lord Wigley, asked about funding for Wales. All four nations will receive above average levels of investment from EU structural funds in 2021-22, continuing to support existing projects and programmes. Levels of investment from the EU structural funds will also be higher in England, Scotland, Wales and Northern Ireland in 2021-22 versus the current year. We will ramp up new HMG funding over time so that total domestic UK-wide funding will at least match EU receipts, reaching around £1.5 billion a year. In addition, to help local areas to prepare over 2021-22 for the introduction of this new fund, we are providing £220 million through the community renewal fund to support our communities to pilot programmes and new approaches.

The noble Lords, Lord Empey and Lord Taverne, are worried about the NI protocol being bad for trade. We are absolutely committed to ensuring that Northern Ireland makes the most of the arrangement, and the Budget announces that almost half of the £400 million new deal for Northern Ireland funding package has been allocated across four areas, subject to business case. I offer my own personal reassurance that I am working on this as the HMRC Borders Minister and doing everything that I can to make the friction as minimal as possible for traders in Northern Ireland.

Lastly, noble Lords asked about the movement of civil servants out of London. Again, this is important to me as the Government’s Property Minister. As noble Lords will know, we recently announcedly moving MHCLG to Wolverhampton and the Treasury to Darlington. There will be an announcement on the Cabinet Office’s second HQ shortly. The key is not about numbers of civil servants but the percentage of the senior Civil Service that is outside London. At the moment, a shocking 68% of senior civil servants are in London. That is what we are trying to address.

I thank noble Lords again for their contributions. The Chancellor has been clear about the challenges we face. This is a Budget that, as he rightly said, meets the moment, that continues to protect jobs and livelihoods, and which starts the work on the building of the economy. I beg to move.

Motion agreed.

Financial Services Bill

Lord Agnew of Oulton Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Thursday 28th January 2021 Lords Chamber

Moved by

[Lord Agnew of Oulton]

That the Bill be read a second time.

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

My Lords, as set out in the register of interests, I declare shareholdings in Close Brothers, Hampden & Co and Ovington Investments—the last of which I have significant control over.

The financial services sector drives growth and generates millions of jobs in every corner of our country. It has secured our reputation as a dynamic and world-leading financial centre and it contributes vast sums to the public purse—money that has helped this Government support millions of individuals and business through the pandemic.

Now that we have left the European Union and begin our recovery from Covid-19, we commence a new chapter in the sector’s story. As the Chancellor set out in his wider vision for the UK’s financial services sector in November, we remain committed to ensuring that the UK maintains the highest regulatory standards and remains an open and dynamic global financial centre. This is even more important now that we have left the European Union. Having left, the UK must assume full responsibility for its financial services regulation. The Economic Secretary has assured the other place—as I can assure noble Lords—that this will be underpinned by an unwavering commitment to high-quality, agile and responsive regulation, with a focus on safe and stable markets.

There will inevitably be some areas where the UK will take an approach which better suits our markets. To capitalise on this opportunity, we will fundamentally review our financial services regulatory framework to ensure that it is fit for the future. A consultation on this is open as we speak. The Financial Services Bill should, therefore, be understood as a key part of a wider process—the important first step in taking back control of our financial services regulation. It does so in a way that delivers our international commitments, is consistent with the highest standards of regulation and provides certainty and clarity for this important sector.

The Bill has three overarching objectives: first, to enhance the UK’s world-leading prudential standards; secondly, to promote openness to international markets; and, thirdly, to maintain the effectiveness of the financial services regulatory framework and sound capital markets. I will briefly set out each of the Bill’s measures, and how they contribute to these objectives. Much of the content is highly technical. I will do my best to explain each measure, but we have provided detailed explanations of each measure in the Explanatory Notes.

The Bill intends to enhance the UK’s world-leading prudential standards and to protect financial stability. Clauses 1 and 2, together with Schedules 1 and 2, empower the Financial Conduct Authority—the FCA—to create a tailored prudential regime for investment firms. Investment firms are currently part of the same prudential regime as banks, even though they do not typically provide banking services and therefore do not pose the same risks to financial stability. This Bill will allow the FCA to set prudential requirements which are more appropriate for investment firms. The reforms are similar to changes being taken forward in the EU, which the UK strongly supported while we remained a member.

The UK’s financial services regulators have the technical expertise and market understanding necessary to set complex rules for firms. I thank the Delegated Powers and Regulatory Reform Committee for its work in scrutinising the Bill’s approach to the delegation of powers and welcome its conclusion that there was nothing necessary to draw to the attention of the House.

The regulators will also be guided by the statutory objectives established in the Financial Services and Markets Act. Their independence ensures that they will not be swayed by political considerations. This Bill introduces a new accountability framework. It will require the FCA to consider the most significant public policy issues relevant to the regime, including the UK’s international competitiveness, and publicly report on how consideration of these factors has affected its rules. In addition to the existing accountability mechanisms in the Financial Services and Markets Act, this will allow Parliament to scrutinise the work of the regulators.

This approach aligns with suggestions made by the EU Financial Affairs Sub-Committee to the Chancellor in March last year, when it recommended giving the UK’s regulatory regime more flexibility. However, I can reassure noble Lords that systemically important investment firms and all banks will remain subject to internationally agreed prudential standards, namely the Basel banking standards. Clauses 3 to 7, along with Schedules 3 and 4, will enable the prudential regulatory regime for these firms to be updated in line with the latest Basel standards, endorsed by the G20. This will build on the existing regime and increase the UK’s resilience to economic shocks, meeting our international commitments to protect the global financial system. In a similar way to the prudential regime for investment firms, responsibility for making the detailed firm-facing rules will be delegated, in this case to the Prudential Regulation Authority. This will also be subject to a new accountability framework.

As noble Lords will be aware, promoting financial stability goes wider than prudential regulation. The Libor benchmark is referenced in upwards of $400 trillion-worth of contracts across the financial system and beyond—from complex derivatives to household mortgages. I am sure that noble Lords will recall the Libor scandal of 2012, which saw many banks attempt to manipulate the Libor benchmark for their own gain. Since then, significant improvements have been made to the administration of the Libor benchmark by its administrator, and to the regulation of benchmarks in the UK. This is in part due to the important work of the Parliamentary Commission on Banking Standards, which includes a number of Members of this House.

The Financial Stability Board—the international body that monitors the health of global financial markets—has made it clear that the continued use of certain interest rate benchmarks such as Libor represents a potentially serious source of systemic risk. The decline of the inter-bank lending market has meant that Libor and other similar benchmarks are increasingly reliant on the judgments of panel banks, rather than on actual transactions. The FCA’s voluntary agreement with the Libor panel banks, requiring them to continue contributing to the benchmark, so preventing the premature collapse of Libor, will expire at the end of this year. After this point, there is a risk that Libor will become unrepresentative, which may cause disruption. Clauses 8 to 19, and Clause 21, along with Schedule 5, give the FCA the powers it needs to oversee the orderly wind-down of critical benchmarks—including Libor—thereby reducing significant risks to market stability. This includes powers to provide for the continuity of Libor for those contracts which are unable to transition away from it. Alongside this, clause 20 will extend the transitional period for benchmarks with non-UK administrators from the end of 2022 to the end of 2025.

I turn to the Bill’s second objective: to promote openness to overseas markets. Clauses 22 and 23, together with Schedules 6 to 8, establish a framework to provide and effectively maintain long-term market access between the UK and Gibraltar for financial services firms, now that we have both left the EU. This delivers on a ministerial commitment made to Gibraltar and recognises our special, historic relationship. The arrangements will preserve Gibraltar’s regulatory autonomy and enable it to choose where it wishes to access the UK market, on a basis of alignment and co-operation.

Clauses 24 to 26, together with Schedule 9, simplify the process under which overseas investment funds obtain permission to be marketed in the UK. These changes will supplement the current regime, which requires the FCA to assess every individual fund. The changes will introduce a system under which the Treasury can determine whether a specific category of funds from another country has equivalent regulatory standards to those in the UK. This means that funds in this group wishing to market in the UK can undergo a simpler process, due to the confidence provided by the equivalent regulatory standards of their home country. This will increase choice for UK investors and maintain the UK’s position as a centre of asset management. The current regime will remain in place for overseas funds located in countries which have not been found equivalent. Clause 27 and Schedule 10 amend markets in financial instruments regulations to update the equivalence provisions for investment firms based outside the UK.

The Bill’s third objective is to maintain the effectiveness of the financial services regulatory framework and sound capital markets. Clause 28 introduces a streamlined process for the FCA to remove an inactive firm’s authorisation and position on the public register. This will improve the accuracy of the register and reduce the risk of fraud. Clause 29 will make small changes to market abuse regulations to make the regime more effective while reducing some of the administrative burden on firms. Clause 30 raises the maximum sentence for criminal market abuse from seven to 10 years, bringing it into line with other economic crimes.

I would like to pause at Clauses 31 and 32, along with Schedule 12. These clauses were added by the Government by amendment in the other place.

It has recently become clear that some provisions in the Proceeds of Crime Act 2002 are creating challenges for some e-money institutions and payment institutions, such as Revolut, Worldpay and TransferWise. They currently need to submit a defence against money laundering request to the National Crime Agency to seek consent before proceeding with any transaction where there is suspicion of money laundering, however small. Standard banks do not have this administrative burden. In certain circumstances they are exempt from submitting a request for transactions under £250.

The £250 threshold exemption was originally introduced to allow those with frozen accounts to pay for their day-to-day living expenses. While the transactions may be under suspicion, these low-value reports provide little useful information for law enforcement, so processing them is not a good use of resources. E-money and payment institutions must submit a large number of these requests for low-value transactions. This is burdensome and, again, a poor use of law enforcement’s time and resources. This Bill therefore equalises the treatment of banks and payment and e-money institutions in this respect. Importantly, e-money and payment institutions will still be required to submit reports of suspicious activity to law enforcement.

Similarly, we have expanded the scope of account freezing and forfeiture powers in the Proceeds of Crime Act 2002 and the Anti-Terrorism, Crime and Security Act 2001 to include accounts held at payment and e-money institutions. This will ensure that law enforcement agencies are able to quickly and effectively freeze, and activate forfeiture of, the proceeds of crime and terrorist property when held in payment and e-money institution accounts; this mirrors their existing powers with banks.

Clause 33 will ensure the continuation of existing powers assigned to HMRC to access information on who really owns and benefits from overseas trusts with links to the UK. The Government are also taking proportionate and effective action elsewhere to prevent the misuse of these trusts, including recent changes expanding the requirement for non-UK trusts to register with the HMRC trust registration service.

The Bill underlines the Government’s commitment to helping people in debt rebuild their finances. Clause 34 gives the Government the full range of powers they need to effectively implement statutory debt repayment plans, part of the Government’s breathing space debt respite scheme. These changes will mean creditors can be compelled to accept different repayment terms. They will also allow for the administration of the scheme and repayment plans to be funded by a charging mechanism and will allow debts owed to the Government to be included in a statutory debt repayment plan. This will support the Government’s work to ensure that those in problem debt can make repayments to a manageable timetable.

Clause 35 relates to the Help to Save scheme, which supports those on low incomes to build up savings. Help to Save accounts have a four-year term, during which the Government pay a bonus of 50% on up to £50 of monthly savings. At the end of the four years, customers will be asked to provide instructions about where they want their savings transferred to. This clause gives the Government the power to introduce successor accounts for Help to Save customers who do not provide instructions in future, where this is necessary. For now, the Government propose to support these disengaged customers by transferring their savings into the same account where the bonus has been paid, reuniting these customers with their savings.

Clause 36 makes amendments to the packaged retail and insurance-based investment products regulation, known as the PRIIPS regulation. This EU regulation has been widely criticised for its potential to mislead consumers. The Bill will allow the FCA to clarify the scope of the regulation, addressing significant uncertainty that exists now, along with some other helpful changes.

Clause 37 finalises reforms to the European market infrastructure regulation, which the UK supported as a member state. Clause 38 confirms the legal effectiveness of the financial collateral arrangements regulations and makes associated amendments to the Banking Act 2009. Finally, Clause 39 will make the appointment of the chief executive of the Financial Conduct Authority subject to a fixed five-year term, able to be renewed once. This is in line with other high-profile roles in the financial services regulation field.

In summary, this Bill is a necessary and important step in ensuring that our financial services regulatory framework delivers for the UK now that we have left the European Union and the transition period is over. It forms part of a wider programme of regulatory reform that will be guided by what is right for the UK’s financial services industry. It will support economic prosperity across the country, ensure financial stability, market integrity and consumer protection. It will ensure that the UK remains a world-class financial centre. I beg to move.

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

My Lords, I thank noble Lords for their help in the thorough scrutiny of this Bill, both in this Chamber today and outside it. First, I offer my congratulations to my noble friend Lord Hammond of Runnymede, both on his speech and on the timing of his arrival at the beginning of this important piece of legislation. I also congratulate the noble Baroness, Lady Shafik, whom I have had the pleasure of meeting on one occasion. I know she will bring great wisdom to this House.

As I have said, this Bill represents the first step in a wider programme of reform and work to deliver the ambitious vision for financial services that the Chancellor set out in November. My noble friends Lord Hammond, Lord Hunt and Lord Bridges, among others raised the issue of how to appropriately balance the UK’s competitiveness as a global financial centre with the need to ensure the safety and soundness of the market. It cannot be a race to the bottom, and I take the point of the noble Baroness, Lady Kramer, that we cannot be a first-class global financial centre if we try to race to the bottom, bearing in mind her comments about Janet Yellen. We need to show to the rest of the world that this will be a soundly regulated environment.

As the Chancellor stressed in his November speech, the Government are committed to maintaining and enhancing the UK’s position as a global hub for finance. We will continue to consider appropriate ways to further this ambition in the way we approach this legislation. This is demonstrated by the inclusion of a duty on the regulators, when making the prudential rules covered by the Bill, to have regard to the likely effect on the UK’s competitiveness.

The noble Lords, Lord Oates and Lord Naseby, and the noble Baronesses, Lady Hayman, Lady Sheehan, Lady McIntosh, Lady Ritchie and Lady Bennett, underlined the important role that the financial services sector must play in our efforts to tackle climate change and its impact. To reassure noble Lords, green finance will remain integral to financial services legislation in the UK. The Chancellor made a number of green commitments in his November speech. The noble Lord, Lord Reid, noted that net zero was not explicitly addressed in the Bill, but this Government can show a substantial track record in tackling carbon in our economy. I believe that we are one of the fastest reducers of carbon emissions of any G7 country. The regulators already consider climate change as a risk to the economy, including through climate change stress tests, which assess the impact of climate-related risks on the UK’s financial system.

My noble friends Lord Holmes and Lord Leigh of Hurley spoke on the importance of fintech. The UK is building on its existing strengths as a leading global destination to start, grow and invest in fintech. We will shortly have Ron Kalifa’s report on this important issue and I am sure that this House will debate it further once the report is available.

Constraints on time mean that I may not be able to address all the issues raised in detail, but I will write to any noble Lord to whom I am not able to respond today. I start with the first objective: to enhance the UK’s world-leading prudential standards and protect financial stability. It would be remiss of me not to acknowledge the strong views across the whole House on the issue of regulatory oversight and the delegation of powers to regulators. It will be the Government’s job over the next few weeks to try to reassure this House that we have got the right balance. We have heard much on this from the noble Baronesses, Lady Kramer, Lady Noakes, Lady Altmann and Lady Bowles, the noble Viscount, Lord Trenchard, the noble Lords, Lord Sharkey, Lord Blackwell, Lord Tunnicliffe, Lord Desai and Lord Sharpe, and the right reverend Prelate the Bishop of St Albans—quite a wide spectrum.

I do not, however, accept the suggestion that anything in the Bill undermines Parliament’s role in relation to financial services regulation. The Financial Services and Markets Act 2000 creates the existing UK model for financial services legislation. It sets the objectives for the PRA and FCA and confers broad rule-making powers to give them the tools that they need to meet those objectives. It also specifies the mechanisms for Parliament to scrutinise the regulators’ success in meeting the objectives that are set for them. Through the FSMA, Parliament therefore establishes the appropriate architecture to guarantee that our financial services sector is well regulated. Parliament entrusts the detailed rule-making needed to deliver this to the UK’s independent and expert regulators. Our role is to give them the right objectives to ensure that they prioritise the safety and soundness of our financial system.

While the original FSMA model is 20 years old, following the financial crisis there was a thorough review of our approach to financial services legislation. We made significant changes to the regulatory architecture, splitting responsibility for prudential and conduct regulation and establishing a Financial Policy Committee with a remit to identify, monitor and take action to address systemic risks to the UK’s financial system. We also made regulatory changes, such as ring-fencing retail parts of banks from their investment and international banking activities. However, there was no change to the principle that independent and expert regulators are best placed to make detailed rules, albeit with the appropriate parliamentary scrutiny. The International Monetary Fund, the OECD and wider academic literature consider the FSMA model to be world leading. The Government likewise continue to believe that it forms the appropriate basis for our financial services regulation. However, they also recognise that it is important to balance the regulator’s role as a rule-maker with a greater level of democratic oversight and accountability.

The approach that the Bill seeks to take in relation to prudential measures builds on our respected FSMA model of regulation. We are consulting on the broader approach to regulation. This will close shortly on 19 February. However, it is necessary to act now on these elements of prudential regulation to ensure that we keep pace with international developments. In relation to these specific measures, having considered the issue, the other place reached the view that the Bill gets the balance right.

The approach taken here will ensure that our regime has the agility and flexibility needed to respond quickly and effectively to emerging challenges. There is a balance to be struck between the level of detail put down in legislation and regulators’ ability to respond to a changing environment. We are seeking to help UK firms seize new opportunities safely and responsibly. The accountability framework we have written into the Bill provides appropriate strategic policy input and democratic oversight from the Government and Parliament in these specific areas. Through this accountability framework and related provisions, Parliament will set the policy framework within which the regulators operate. For example, it will require the PRA to have regard to the effect of the Basel rules on the provision of finance to the real economy. The Bill places obligations on the regulators to report on how the matters specified in the Bill have influenced the rules that they make. Various mechanisms are available to Parliament for further scrutiny—for example, calling the regulators to appear before the relevant committees. As my honourable friend the Economic Secretary said in the other place, the make-up of these committees is primarily a matter for Parliament, and not the Government, to determine.

I hope these points have addressed some of the issues and concerns raised by my noble friends Lord Naseby and Lord Blackwell. I look forward to discussing this further in Committee, with my other government colleagues, to see what assurance we can provide for noble Lords that we have the right approach.

My noble friends Lord Northbrook and Lord Blackwell asked about the FCA’s use of Libor powers. The FCA published a consultation on 18 November, on the use of its power to provide for the continuity of Libor after panel banks withdraw their contributions. The Bill will mean that the FCA is required to publish, and have regard to, statements of policy when exercising its power to change the methodology of a benchmark. Industry respondents have noted that our legislation marks an important step in the wind down of Libor, but we also recognise their suggestions that it may be beneficial to provide additional legal protections to limit the potential for litigation associated with the application of a synthetic Libor. In Committee in the other place, my honourable friend the Economic Secretary stated that the Treasury was committed to looking into the issue further and providing industry with the reassurance that it needs.

The Bill’s second objective is to promote openness between the UK and international markets. The noble Lord, Lord Butler, spoke about the markets in financial instruments directive and the investment firm prudential regime measures. I can confirm that the FCA has already published its first consultation on the details of this regime. I will write to the noble Lord further on his wider questions, which extend beyond the Bill specifically. Likewise, I will respond to the question of the noble Lord, Lord Jopling, about our relationship with the USA, in writing. I reiterate the point I made at the beginning: we have a common interest in having a regulatory framework that is attractive to large markets such as the United States. Similarly, I will write to the right reverend Prelate the Bishop of St Albans on his questions surrounding the access to Gibraltar.

The noble Earl, Lord Shrewsbury, the noble Lords, Lord Reid, Lord Gadhia, Lord Northbrook, Lord Holmes and Lord Hodgson, and the noble Baroness, Lady Altmann, spoke of equivalence, in our new relationship with the EU. In November, the Chancellor announced as many equivalence decisions as we could for the EU and EEA member states, in favour of openness and it made sense to do so. Equivalence is an autonomous, unilateral mechanism, and our preference has always been for a full set of mutual decisions for both the UK and the EU. We remain open for further discussions with the EU on the decisions. The UK and the EU have agreed to structured regulatory co-operation for financial service based on a shared commitment to preserve financial stability, market integrity and the protection of investors and consumers. A memorandum of understanding will be agreed in discussion between the EU and the UK in March, to establish a framework for this co-operation. However, I accept the realpolitik of the situation and that, as many noble Lords have said today, we must not put all our hopes in that particular expectation. We need to use our new-found independence to create a regime that can have a successful relationship with the EU, but if it is not prepared to reciprocate, we need to move on to deal with that.

I will say a little bit more to the noble Baroness, Lady Kramer, on delegated powers. Several other jurisdictions largely use regulator rules to regulate financial services; indeed, the EU is the outlier in this regard. This means that the EU is used to assessing regulator rules and practice as part of its equivalence assessments. There is no reason why it would not be able to assess the UK in the same way, if the will is there. There is no suggestion that the US would not accept this as a proper and responsible regulation.

I say to my noble friend Lord Leigh of Hurley that the Government are continuing to work together with the Financial Services Compensation Scheme, the PRA and the FCA on the issues he outlined. I will ask officials to write to him specifically on the example he gave about the scam to which he was subjected, and this strange anomaly about the regulator not being able to deal with it because he was not actually a customer. That deserves a detailed response.

The Bill’s third and final objective is to support the maintenance of an effective financial services regulatory framework and sound capital markets. I greatly appreciate the efforts of colleagues on the opposite Benches, particularly the noble Lord, Lord Tunnicliffe, in engaging with the Bill. The noble Lord, Lord Stevenson, and my noble friend Lady Altmann spoke about bills of sale and logbook loans. I am grateful to them for raising the issue. I will write to my noble friend Lord Naseby on the issues he raised regarding home-collected credit and the perhaps mistaken conflation with payday lending.

I restate my commitment, and that of all my government colleagues, to work constructively with the noble Lord, Lord Tunnicliffe. I have found him to be a very constructive interlocutor and I want to try to maintain that dialogue over the next few weeks.

From economic crime to buy now, pay later, which the noble Baroness, Lady Ritchie, raised, it is important to stress that the Government are firmly committed to protecting consumers. Chris Woolard, the former interim CEO of the FCA, is undertaking a review of the unsecured credit market, including buy now, pay later. This report is due shortly. If it concludes that regulation is necessary, we are ready to take quick and proportionate action to implement it.

I can assure my noble friends Lord Jopling and Lord Naseby, my noble and learned friend Lord Garnier, the noble Lords, Lord Hendy and Lord Rooker, and the noble Baronesses, Lady Ritchie and Lady Bennett of Manor Castle, that the Government are committed to making the UK a hostile place for illicit finance. The UK is internationally recognised as having some of the strongest controls worldwide for tackling money laundering and terrorist financing. In 2019 the Government published the landmark economic crime plan, which brought together the Government, law enforcement and the private sector in closer co-operation than ever before, to deliver a whole-system response to economic crime.

I listened intently to the comments of the noble Lords, Lord Rooker and Lord Davies, and the noble Baroness, Lady Coussins, regarding the statutory debt repayment scheme measure. I confirm that implementing this scheme remains a key priority of this Government. We will consult of draft regulations as soon as possible after the Financial Services Bill receives Royal Assent.

Now that we have left the EU, this comprehensive package of measures represents the UK assuming responsibility for making its own laws in this area. The Financial Services Bill is a first step towards achieving that goal. I beg to move.

Bill read a second time and committed to a Grand Committee.

Customs Miscellaneous Non-fiscal Provisions and Amendments etc. (EU Exit) Regulations 2020

Lord Agnew of Oulton Excerpts

Tuesday 19th January 2021 Grand Committee

Moved by

[Lord Agnew of Oulton]

That the Grand Committee do consider the Customs Miscellaneous Non-fiscal Provisions and Amendments etc. (EU Exit) Regulations 2020.

Relevant document: 41st Report from the Secondary Legislation Scrutiny Committee

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

My Lords, we are here to discuss a further statutory instrument that is part of the Government’s package of SIs for the end of the transition period: the Customs Miscellaneous Provisions and Amendments etc. (EU Exit) Regulations 2020. This statutory instrument will be debated in the other place on Thursday. It came into force at the end of the transition period and is subject to the urgent “made affirmative” procedure. It has already taken effect, but still needs to be approved by both Houses.

Under the European Union withdrawal agreement and the Northern Ireland protocol, certain provisions of EU law continue to apply in Northern Ireland after the end of the transition period. In Great Britain, those same provisions are modified to reflect the fact that the UK has left the EU. Previous amendments to the relevant legislation applied across the whole of the UK. However, further changes were needed to address the specific arrangements for Northern Ireland. Noble Lords will be aware that the Secondary Legislation Scrutiny Committee reported the regulations as an instrument of interest in its 41st report, published on 14 January 2021.

The instrument amends and modifies three fields of legislation: legislation relating to customs safety and security procedures, including entry summary declarations and the registration of businesses for movements from Northern Ireland to Great Britain; application of the Customs and Excise Management Act 1979 and the Finance Act 1994 to movements between Northern Ireland and Great Britain for non-duty purposes; and it ensures that HMRC can continue to collect and process trade statistics data in the same way it did before the United Kingdom left the EU.

I will now turn to each topic in greater detail, starting with entry summary declarations. These declarations contain safety and security information about the movement of goods. Declarations must be submitted to HMRC, then risk-assessed before the goods arrive at the border. These assessments are used in conjunction with intelligence-led targeting by Border Force, to protect the security of the UK. This instrument removes the requirement for an entry summary declaration for the movement of “qualifying Northern Ireland goods” from Northern Ireland into Great Britain, in line with our wider commitments on unfettered access. It also retains the requirement of an entry summary declaration for the movement of “non-qualifying Northern Ireland goods” from Northern Ireland into Great Britain. Non-qualifying Northern Ireland goods include those that are not in free circulation in Northern Ireland—for example, those subject to customs procedures such as inward processing or that are in an authorised temporary storage facility—before they are moved to Great Britain. It also includes the trade of goods subject to specific obligations binding on the United Kingdom and the EU, such as endangered species or conflict diamonds.

These changes are necessary to allow safety and security declaration requirements to be maintained for non-qualifying Northern Ireland goods moving into Great Britain from Northern Ireland, while simultaneously allowing appropriate Northern Ireland traders to maintain unfettered access to the rest of the United Kingdom market. Anti-avoidance measures are also in place to deter businesses from rerouting goods via Northern Ireland if they do so in order to avoid United Kingdom duty or import formalities.

In addition, this legislation states that for goods arriving by sea from Ireland, the Channel Islands and other nearby ports, where an entry summary declaration is required, it must be submitted two hours before the vessel arrives at a port in Great Britain. Without this amendment, earlier submission would be required, which may be impractical given the duration of crossings. It also aligns the declaration time limits to those already in place for the same sea movements in the opposite direction.

This instrument also requires economic operators to obtain a UK economic operators registration and identification number—otherwise known as a UK EORI number—to move non-qualifying Northern Ireland goods from Northern Ireland to Great Britain. An economic operator is a person who, through the course of their business, is involved in customs activities covered by customs legislation. It is necessary for these operators to have a UK EORI number starting with GB to make declarations or get a customs decision in Great Britain. Registration is quick and simple and an EORI number will usually be issued straightaway. This instrument also ensures that penalties apply to failures to comply with the requirements to submit an entry summary declaration, including the need to be registered for a UK EORI number.

I turn to the second area of legislation covered by this statutory instrument: the regulations relating to the Customs and Excise Management Act 1979, otherwise known as CEMA, and the Finance Act 1994. First, CEMA provisions that relate to movements between the Republic of Ireland and Northern Ireland are revoked by this instrument. This is because EU rules concerning the movement of goods continue to apply to these movements under the Northern Ireland protocol. Secondly, this instrument allows CEMA enforcement powers—for example, the ability to seize and detain goods—to be used for enforcing prohibitions and restrictions on the movement of goods, people and vehicles between Great Britain and Northern Ireland, where there is no connection to customs duty.

This instrument also ensures that the enforcement provisions in Part I, Chapter 3 of the Finance Act 1994 can be used in relation to the export of restricted or prohibited goods, as appropriate. These include HMRC’s powers to require the production of documents, to remove documents and to enter premises. This applies in Northern Ireland for the movement of goods from Northern Ireland to Great Britain.

Finally, I turn to trade statistics. This instrument makes minor amendments to the law on statistical data collected on the trade of goods between the United Kingdom and members of the EU, to take account of the Northern Ireland protocol. This is important in order to meet international reporting requirements. This instrument ensures that the legislation works properly in Northern Ireland, where EU statistical rules will continue to apply as a result of the Northern Ireland protocol, and in Great Britain, where they will not. As a result, HMRC will be able to continue to collect and process trade statistics in the same way that it did before the United Kingdom left the EU.

These technical but important customs regulations are already in place. They will help ensure that goods continue to move smoothly and safely between Northern Ireland and Great Britain and that matters related to their movement can continue as anticipated. I hope noble Lords will join me in supporting these regulations. I beg to move.

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

I thank noble Lords for their well-considered and insightful comments during this debate. As I said earlier, these measures are necessary to address specific arrangements pertaining to Northern Ireland now that the transition period has ended. I will try to address the questions put forward by noble Lords.

The noble Lord, Lord Liddle, was modest in saying that he did not understand these trade regulations in detail. He displayed enormous knowledge, to my mind, so I will try to answer his questions. The joint committee agreement protects unfettered access, by ensuring that there is no requirement for export checks or declarations for Northern Ireland businesses moving goods in free circulation directly from Northern Ireland to GB. There are some limited exceptions when businesses need to submit an export declaration for the movement of goods from Northern Ireland to GB. The Government have published comprehensive guidance on these exceptions online to ensure that businesses have a thorough understanding of when to submit the export declaration.

As outlined in the Government’s Command Paper, there are no plans for any new bespoke customs infrastructure in Northern Ireland. Agri-food movements from GB to NI will be carried out at existing facilities and designations at NI ports. Expanded infrastructure will be needed at some of these sites for agri-food checks and assurance. The Government have collaborated with Northern Irish ports to agree on the utilisation of existing space and capacity, until infrastructure expansion has been completed. A full impact assessment has not been produced for this instrument, as an assessment was made of the impact of the then European Union (Withdrawal Agreement) Bill in 2019 and the Northern Ireland protocol.

The Government recognise that the priority remains to have a regime in place that strongly focuses on the benefits of unfettered access for Northern Irish businesses, and ensures that they have a competitive advantage over traders elsewhere in Ireland. That is what the second phase of unfettered access will provide, in the second half of 2021. Once delivered, it will ensure that benefits are conferred to genuine Northern Irish traders only. Goods coming from the EU or outside the EU to Great Britain via Northern Ireland will be regarded as imports and subject to controls.

The noble Lord, Lord Dodds, asked about timing and what has happened since leaving—post the transition period. On timings, Royal Assent to the Taxation (Post-transition Period) Act 2020 was required before this instrument could be laid. Section 2 of that Act inserted Section 30C into the Taxation (Cross-border Trade) Act 2018. This imposes a customs duty charge on the movement of goods from NI to GB if the goods are not qualifying Northern Ireland goods. It ensures that unfettered access is available only to appropriate NI traders and deters businesses from rerouting goods via Northern Ireland to avoid import formalities. The Taxation (Post-transition Period) Act received Royal Assent on 17 December last year; this instrument was then made on 21 December and laid on 22 December. The instrument came into force at the end of the transition period and has already taken effect, but still needs to be approved by both Houses.

No formal consultation on this specific instrument has taken place. However, the instrument, together with the Taxation (Post-transition Period) Act 2020, makes provisions in relation to the application of certain provisions in the protocol. Consultation on the practical implications of the protocol has taken place with businesses. Throughout the transition period, the NI stakeholder engagement team consulted a wide range of businesses and representative bodies who would be impacted. Consultation with businesses will continue.

Defining qualifying Northern Ireland goods is a matter for the UK, not for the joint committee. To this end, the Government laid a statutory instrument setting out the definition of qualifying Northern Ireland goods—statutory instrument 2020/1454. A qualifying Northern Ireland good is one that is eligible for unfettered access to Great Britain. Goods will be qualifying Northern Ireland goods from 1 January 2021 if they are in free circulation in Northern Ireland—that means not under a customs procedure or in an authorised temporary storage facility before they are moved from Northern Ireland to Great Britain. The Government will focus the benefits of unfettered access on Northern Irish businesses and ensure that we have a competitive advantage over traders elsewhere.

The Government have been unequivocal in our commitment to unfettered access for Northern Ireland goods moving to the rest of the UK market, and there will be only very limited exceptions to this. This instrument simply ensures that the requirement for entry summary declarations for non-qualifying goods moving from Northern Ireland to Great Britain is retained. This is in line with the requirement for goods imported into Great Britain from the EU and outside the EU.

I was asked about paperwork and costs. In practice, safety and security declarations are made into the same system used for other goods arriving into GB that attract a safety and security requirement. The data required for an entry summary declaration includes fields such as mode of transport, description of the goods and routing information. Traders may use an intermediary to complete safety and security declarations for them. To avoid disruption and facilitate continuity, the Government have introduced a waiver for ENS requirements where such requirements would not have existed before the end of the transition period. This means that there is no requirement for entry summary declarations to be submitted for the movement of non-qualifying EU goods from Northern Ireland to Great Britain until 1 July 2021. This SI does not affect that waiver.

My noble friend Lady McIntosh asked similar questions about ENS: can they be made electronically? These declarations can and are being submitted digitally. They will be made into the safety and security GB system, the same system used for other goods. This instrument retains the requirement of an entry summary declaration for the movement of non-qualifying goods. She asked about training. HMRC and other departments have undertaken a significant programme of ongoing communication and engagement to inform traders of new requirements and to support preparedness. The two-hour time limit requires traders to submit their entry summary declaration a minimum of two hours before arrival to GB, but this two-hour period includes time taken on the journey, so, in practice, will not come about much before traders arrive at ports.

My noble friend is worried that this might provide a backdoor entry into GB for non-qualifying goods. To prevent traders seeking to abuse unfettered access in the first place, it is accompanied by anti-avoidance provisions which deter businesses rerouting goods via Northern Ireland if they do so in order to avoid UK import formalities. HMRC will be able to undertake spot checks when there is evidence that the qualifying goods regime is being abused. HMRC also has the power to prosecute anyone who tries wrongly to claim unfettered access for their goods. This will ensure that only businesses with a legitimate reason to route goods via NI can benefit from unfettered access.

My noble friend Lady McIntosh asked whether there will be two regimes: NI to GB and GB to NI. The Government recognise that the priority remains to have a regime in place that strongly focuses the benefits of unfettered access on Northern Ireland business and ensures that it has a competitive advantage over traders elsewhere in Ireland.

The noble Baroness, Lady Ludford, had similar questions, but I will deal with her particular emphasis on the preparations for the end of the grace period. A dedicated team in government is already working with supermarkets, the food industry and the Northern Ireland Executive to develop ways to streamline the movement of goods in accordance with the protocol, backed by significant UK funding. The Government will provide a major injection of new funding to support preparations for the end of the grace period for supermarkets and suppliers. Further details will be announced in due course.

The noble Baroness asked about the trade and co-operation agreement. The TCA governance requirements were set out clearly in the agreement and will be set up in due course. The agreement builds on multiple avenues of business representation and input and clear independent systems of dispute resolution outside the jurisdiction of the European Court of Justice. The TCA provides a role for domestic advisory groups which will include business and employers organisations. They will be able to submit views and recommendations for consideration by the UK and the EU and may be consulted during consultations as part of the dispute resolution mechanism for the agreement. Businesses may also take part in the civil society forum provided in the TCA. It will meet at least once a year and provide a forum for independent civil society organisations from the UK and the EU to meet and discuss the implementation of the agreement. On the actual governance arrangements, the governance arrangements agreed under the withdrawal agreement will continue through the joint committee supported by the specialised committee on Ireland and Northern Ireland and, in due course, the joint consultative working group. Once established, the joint consultative working group will provide further opportunities for detailed engagement.

I would like to continue for a couple more minutes if the Deputy Chairman will allow it.

[The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)]

We have time.

[Lord Agnew of Oulton (Con)]

In addition to the questions asked by other noble Lords, the noble Lord, Lord Tunnicliffe, asked about penalties. They will be used where a person is found contravening a customs rule, such as failing to complete an entry summary declaration or not providing an EORI number. There is a maximum penalty of £1,000. HMRC may take mitigating factors into consideration, which could lead to a lower or nil penalty depending on the circumstances. While HMRC will penalise non-compliance, it will seek to support those who make genuine errors while trying to get it right. HMRC is planning a package of activities to support and educate traders on their obligations during this period. This includes promoting keeping good records, which will be crucial in minimising errors once supplementary declarations are made. Further tweaks of the regulations will be required, but the changes currently envisaged are improvements rather than corrections.

The noble Lord asked about a general update on the situation regarding trade between GB and NI. I think I can report on a good position over the last two and a half weeks. That has been largely supported by the Trader Support Service, which was set up just before the end of the transition. Some 29,500 businesses have now registered with the TSS and over 25,000 of those are marked as ready to trade. The TSS has handled over 75,000 declarations so far, and 99% of those have been processed within 15 minutes. The contact centre has over 700 staff to assist with trader queries. It handled some 7,000 inbound calls between 1 January and 17 January. Some 97% of those calls were answered within 30 seconds, and they have spare capacity which they have been using to do outbound dialling to other traders who have not yet reached ready-to-trade status. As of 18 January, HMRC had received 1,518 UK trader service applications.

The Government are committed to maintaining unfettered access to the rest of the UK market for Northern Ireland businesses, protecting Northern Ireland’s place in the UK customs territory and ensuring that Great Britain to Northern Ireland trade flows as smoothly as possible. I sum up by saying that these regulations, which are already in place, will help to ensure that goods can continue to move safely and effectively between Northern Ireland and Great Britain. I commend the regulations to the Committee.

Motion agreed.

Economic Update

Lord Agnew of Oulton Excerpts

Tuesday 12th January 2021 Lords Chamber

[Baroness Kramer (LD) [V]]

The Chancellor has once again responded to a long-term economic crisis with only very short-term measures. The evidence from the Resolution Foundation of sharply growing inequalities is scary, frankly, as low-income families have to spend more to survive the pandemic. Will the Government at least make permanent the £20 uplift in universal credit?

Economic recovery cannot take hold before the summer even with a successful vaccine rollout, so will the Government now extend furlough, SEISS, the loan and various other support schemes at least to July, if not beyond?

Why have the Government continued to exclude 3 million of the self-employed from help, especially now that the Federation of Small Businesses has devised a scheme that avoids the risk of fraud? The FSB has also pointed to the recapitalisation crunch that could destroy businesses in 2021. Where is the long-term economic plan for recovery that businesses need to enable them to hang in, protect jobs, invest and grow again?

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

My Lords, I am grateful to the noble Lord, Lord Tunnicliffe, for his comments. I shall to try to address some of his points.

It is clear that the UK, along with the rest of the world, continues to face economic disruption in the wake of the Covid pandemic. No major economy has avoided a dramatic fall in its GDP in the past year. In the face of the significant and far-reaching impact of Covid, the Government’s priority has been to protect lives and livelihoods with a flexible and adaptable response. This response is one of the largest and most comprehensive in the world, totalling more than £280 billion since March. The IMF judges the UK’s initial response as being aggressive, effective and an excellent example of well-co-ordinated action.

While we should expect the economy to get worse before it gets better, as my right honourable friend the Chancellor said yesterday, there are reasons to be cautiously optimistic for the future. The peak of the unemployment rate is expected to be significantly lower than that estimated earlier in the crisis. The OBR has revised down its central scenario from 12% in July’s estimate to 7.5% in November’s estimate. The household savings ratio has reached its highest level since records began in 1963. The corporate sector cash buffers have improved, with large businesses making large net repayments every month since May. The furlough scheme has seen some 1.2 million employers and almost 10 million employees supported and has been extended until April to provide certainty during these difficult times. We have provided significant support to the creative industries through the £1.5 billion Culture Recovery Fund and to the hospitality industry, which I recognise has been severely impacted by the restrictions. It has also been supported by cash grants, loans, VAT reductions and deferrals, and business rate holidays.

The support for the self-employed has been unprecedented and among the most generous of schemes in the world. It has so far supported almost 3 million people at a cost of nearly £20 billion. As the Chancellor has said, sadly we are not able to save every job and business and, in recognition of this, have boosted the welfare system by £7.4 billion in 2021.

I thank the noble Lord for mentioning the vaccine, which represents a significant sign of hope and a path out of the coronavirus. Vaccine rollout is our most important economic lever and we have made available more than £6 billion to facilitate that. We have now administered more than 2.4 million vaccine doses across the UK. By 15 February, we aim to have offered a first vaccine dose to everyone in the top four priority groups identified by the Joint Committee on Vaccination and Immunisation.

The road ahead remains tough, with significant uncertainties. The Chancellor and this Government will continue to work to support individuals, businesses and public services during this time. As the Chancellor said yesterday, he will provide an update on the next stage of our economic response to coronavirus and the economic outlook for the rest of the country in the Budget on 3 March.

On retaining the uplift in universal credit, referred to by the noble Baroness, Lady Kramer, as with all responses so far in the crisis, we have tried to adapt to changing circumstances and this matter will be kept under continual review. In the same vein, we have extended furlough until April, it already having been extended from an earlier time, and we will continue to be alert to the state of the economy.

On the noble Baroness’s point about the self-employed and the Federation of Small Businesses, my right honourable friend the Chancellor said yesterday that he was considering the ideas put forward by the FSB.

[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

My Lords, we now come to the 30 minutes allocated for Back-Bench questions. I ask that questions and answers be brief so that I can call the maximum number of speakers.

[Lord Balfe (Con)]

My Lords, I will quote from the Statement, where the Chancellor said:

“Across almost all areas of economic policy, we are providing comparable or greater support than all our international peers.”—[Official Report, Commons, 11/1/21; col. 23.]


We are supporting with borrowed money and using the inheritance of the country. When the Government cut back, as they inevitably will have to, they will be opposed and told that they should spend more. I will ask two questions. Do the Government have any perspective on getting back to a balanced budget? And have the Government factored in the possible impact of increases in interest rates on the amount they will have to pay back on all the money that has been borrowed?

[Lord Agnew of Oulton (Con) [V]]

The noble Lord asks very important questions. I am not in a position to give a date by which we will attempt to rebalance the budget, but I assure the noble Lord it is a very high priority. Indeed, on his second question, we are aware that we are able to borrow large sums of money at the moment because of the very low interest rates that will not necessarily remain, which re-emphasises the need to bring the budget back into balance as soon as possible.

[Lord O’Neill of Gatley (CB) [V]]

My Lords, I would like to, once more—I have done so before—compliment the Chancellor and the Treasury on their general agility in their policy response to this unpredictable, ongoing and, at times, devastating twist in the pandemic. I have two very brief questions. First, in view of the highly appropriate importance being attached to the speed of the vaccination programme, and the high level of personal savings that has built up, as the Chancellor acknowledged yesterday, has the Treasury undertaken—if it has not, perhaps it might consider doing so—exploring research that directly links the speed of vaccine rollout to business and consumer confidence in an effort to encourage more people to take the vaccine and to build confidence across our society? Secondly—this links to what has already been raised—are we to believe that, once more due to the severe complications brought about by the new variant, further specific policies on the crucial levelling-up agenda, which the Prime Minister and his Cabinet frequently refer to, are likely to be delayed again, and that the planned March Budget is likely to be yet another Covid-19 support-based event?

[Lord Agnew of Oulton (Con) [V]]

The first question, on the link between vaccination rate and economic confidence, is absolutely fundamental. I am not aware of specific research being done on that. If there is any, I will make the noble Lord aware of it. From my own interaction with businesses, there seems to be a strong sense that the two are intertwined, which is why we are putting so much emphasis on it.

I reassure my noble friend that the commitment to levelling up remains as strong as ever. We will be making a Statement in the next few days on our progress in moving civil servants out of London and into some of the areas that the noble Lord refers to. My right honourable friend the Chief Secretary has a large fund for levelling up, for which regions can bid, and that is moving forward as well.

[Viscount Chandos (Lab) [V]]

My Lords, the Economic Affairs Committee, of which I am a member, urged the Government in December to make the £20-a-week increase in basic universal credit permanent, as the noble Baroness, Lady Kramer, has done today. We may not be known for our footballing prowess, but the committee, chaired by the Minister’s noble friend Lord Forsyth, is hardly partisan. The Minister said that the Government were responsive to changing economic conditions, and these have only deteriorated since the committee’s report. Why does the Minister not commit now to this, thereby mitigating the deep anxiety of an inevitably increasing number of recipients, rather than prevaricate until only days before the scheduled expiry of the temporary increase?

[Lord Agnew of Oulton (Con) [V]]

As I said in my earlier comments to the noble Baroness, Lady Kramer, I am not able to give the commitment the noble Lord asks for. The Chancellor will give an economic update in his Budget on 3 March, and I am sure that this matter will be addressed then.

[Lord Fox (LD) [V]]

My Lords, in the self-congratulatory response of the noble Lord, Lord Agnew, he favourably mentioned the household savings ratio. As my noble friend said, this pandemic will hit poorest families hardest; they are already having their incomes squeezed, and they have no savings at all to see them through this. It is clear also that the most deprived in the UK are the least likely to self-isolate; given the current level of support, they simply cannot afford to. The poorest people in this country cannot afford to wait for a March Budget and, despite the Minister’s smug response, this Statement offers them nothing. So can the Minister explain why the Government are blind to the fact that adequately helping the poorest people in this country is not only right but vital in the national fight against Covid?

[Lord Agnew of Oulton (Con) [V]]

I would remind the noble Lord of the large number of interventions we have made which will substantially support the most vulnerable in society: support to renters to reduce the ability to force evictions; the mortgage holiday, which has been granted to 2.7 million people since last March; the support in the many individual programmes we have announced. All these are applicable to some of the poorest in our society. We are very aware of their vulnerability. I would gently remonstrate with the noble Lord that it was not a statement of self-congratulation when I was answering the noble Lord, Lord Tunnicliffe; it was merely a statement of what we have done over the last 10 months.

[The Lord Bishop of Birmingham [V]]

I am grateful for the much-appreciated provisions made by the Chancellor so far in this extreme crisis and for his honesty in outlining the significant harm already caused to the economy by the pandemic. Will the Minister reassure the House that, following these emergency measures, many of which have been outlined just now, there are plans and policies already being formed for a recovery? Would he indicate some of the economic and social principles that the Government will be applying in leading the recovery? In addition to the question from the noble Lord, Lord Balfe, will the inevitable need to rebalance the public finances not unfairly burden the poorest?

I have another question. Will the Minister draw on the wisdom of the Institute for Fiscal Studies Deaton review, which is seeking to understand the UK’s complex mix of unacceptable inequalities and how to alleviate them? It takes into account the hollowed-out jobs market and the need for more crucial investment in education, skills and vocational training, as our willing, talented and diverse population competes with dignity and enterprise in the global market.

[Lord Agnew of Oulton (Con) [V]]

The right reverend Prelate asks important questions. I can assure him that very active thinking is going on about how to come out of this awful event as quickly as possible. I will mention one or two examples. The Kickstart scheme is designed to support hundreds of thousands of newly and fully subsidised jobs for young people. By the end of December, 50,000 Kickstart jobs had already been created. Additionally, £2,000 is being paid for each new apprentice taken on. I mentioned in answer to an earlier question our levelling-up commitment and the funds behind that. Those again will go to the regions where some of the most vulnerable people in this country live.

[Lord McLoughlin (Con) [V]]

I much appreciate many of the financial decisions the Government have taken—at very short notice, in some cases. However, will the Government, in future, have more of a mind for those businesses and people who have been most directly affected by the rules and regulations that the Government have—correctly—felt it necessary to put on to businesses, and not give relief right across the board? We have seen some large supermarkets pay back their business rates, but not all of them. That needs now to be addressed in the future, so that help goes to those who have been most directly affected and suffered the most damage. We do not need, as the leader of the Opposition said yesterday, a council tax freeze across the country, which would affect people who have not had any problems as far as the Covid crisis is concerned.

[Lord Agnew of Oulton (Con) [V]]

It is right that we should always aim to get the help to the most vulnerable areas, but there is a trade-off between speed of policy announcement and execution and the complexity of creating the sort of flexibility my noble friend refers to. I take on board his comments on the return of the rate rebate by supermarkets. I think a continued public programme to call out any of the larger supermarkets that have not done that will put pressure on them, as most of us are their customers.

[Lord Singh of Wimbledon (CB) [V]]

My Lords, the Government are to be commended for their furlough schemes and economic packages to mitigate the devastating effects of the Covid pandemic. The Statement rightly acknowledges that things will probably get worse before they get better. Does the Minister agree that, in light of difficulties being experienced by our supermarkets, this applies also to possible benefits from our new economic independence—benefits taken for granted in the Statement?

--- Later in debate ---

[Lord Agnew of Oulton (Con) [V]]

I am not entirely sure what the noble Lord is referring to—perhaps to supply chain issues in the first few days of Brexit. If that is his question, I can assure him that all is being done to iron out these initial problems. Overall, the system has worked remarkably well when one considers the enormous change in operating procedures that businesses have had to bring about on an essentially cliff-edge basis.

[Lord Sikka (Lab) [V]]

My Lords, the Government have imposed pay freezes on public sector workers, and many others have received little or no financial support and are struggling to survive. However, they face the full and escalating costs of gas, electricity, water, broadband and even the funerals of their loved ones. What consideration have the Government given to freezing prices of these services to enable hard-pressed families to make ends meet?

[Lord Agnew of Oulton (Con) [V]]

I am not aware of a huge jump in inflation, as suggested by the noble Lord. Indeed, inflation remains extremely low. The pay freeze in the public sector was carefully targeted to ensure that those on the lowest earnings still received some protection.

[Lord Razzall (LD) [V]]

My Lords, what the Statement does not refer to—although the noble Lord, Lord Balfe, touched on it—is the amount of debt incurred to fund government spending since the start of the pandemic. Government debt is now in excess of £2 trillion, of which nearly 50% has been bought by the Bank of England. Do the Government take the view that the Bank of England can continue to fund significant purchase of government debt, thereby avoiding damaging tax increases so long as inflation and interest rates remain low, or does the Minister think the Government would prefer to return, when they can, to cuts in public spending?

[Lord Agnew of Oulton (Con) [V]]

My Lords, there is a balancing act here. We all absolutely accept the grave state of the government finances following this crisis, and we will be doing everything we can to bring the books back into balance; however, if that is done too quickly, it will cause greater suffering to those who are most vulnerable, and therefore we have to try to strike a balance. The optimum way out of this will be by economic growth, which is where we are putting a great deal of emphasis.

[Lord Lancaster of Kimbolton (Con)]

My Lords, the £1.4 billion government-backed loan that easyJet announced yesterday demonstrates the perilous state of the aviation sector. Given that a higher tax rate does not always result in increased revenues, is it time to review the air passenger duty, partly to help stimulate demand but also partly, potentially, to increase revenues for the Exchequer?

[Lord Agnew of Oulton (Con) [V]]

My Lords, the Government are acutely aware of the challenging circumstances aviation is facing. The sector is able to draw on the unprecedented package of measures announced by the Chancellor, including schemes to raise capital, flexibilities with tax bills and the furlough scheme. The Government have committed to consult on aviation tax reform and will provide an update on the timing of this in due course.

[The Earl of Clancarty (CB)]

My Lords, in answer to a question I asked last week in this House, I was told that the Government were looking at whether the guidance in the Culture Recovery Fund might be changed to enable freelancers to benefit directly, as many freelancers have so far received no support at all. Can the Minister say anything more about this?

[Lord Agnew of Oulton (Con) [V]]

My Lords, I do not have an update on the response that the noble Earl received last week, but we will of course notify the House as soon as any is issued.

[Baroness Blackstone (Ind Lab)]

My Lords, it is clear that there are gaps in support, with some groups having had no help since the first lockdown began, which can only widen inequality. What is being done to change this and when will more support for these groups be provided?

[Lord Agnew of Oulton (Con) [V]]

My Lords, we have used such instruments as discretionary funding support for local authorities. We have just given an additional £500 million to enable them to fill gaps, for example, in the small business community, where hardship is being experienced. We remain alert to any other pockets of the economy where we feel we may be able to assist.

[Lord Dodds of Duncairn (DUP) [V]]

My Lords, the Government’s economic measures to get through the pandemic are very welcome but, as has just been said, there are people who have been excluded and their situation needs to be addressed at a national level. In his Statement, the Chancellor also talked of the certainty for businesses as a result of the trade deal with the EU. Unfortunately, it does not look that way in Northern Ireland at the moment, where the detrimental economic effects of the Northern Ireland protocol are all too evident, as we warned. The Government must urgently come to solutions or this will have a big impact on our economic recovery, including invoking article 16 of the Northern Ireland protocol as required, to smooth the way for frictionless trade and commerce to continue between Great Britain and Northern Ireland. Can the Minister update your Lordships’ House on steps that will be taken in the coming days to fulfil the promises made by the Prime Minister on this issue?

[Lord Agnew of Oulton (Con) [V]]

The Government do not accept that the approach the noble Lord is suggesting is the right one. We have put in place the trader support scheme in Northern Ireland, which I had some responsibility for; some 28,000 businesses have registered for it, including more than 12,500 in Northern Ireland, and 23,000 of those are in a ready-to-trade state. Only last weekend, we managed to move 1,000 lorries across from GB into Northern Ireland; that was after the end of the in-flight concession, which was a big concession, essentially saying that goods were already in transit out of the EU at the point of delivery into Northern Ireland. That has worked smoothly. We will, of course, see problems over the next few weeks as people adjust to a very new system, but I am confident that we will be able to reduce the friction substantially over the weeks and months ahead.

[Lord Lilley (Con)]

My Lords, one lesson of the pandemic is that in a crisis, government bodies, from the MRHA authorising vaccines to local authorities authorising pavement cafes, can take decisions in a fraction of the time they used to. Given the importance of encouraging the growth of existing businesses and the creation of new ones, will my noble friend put pressure on all government bodies to accelerate decision-making, by requiring them to publish the times they take to make decisions and by setting times after which approval will automatically be deemed to be given?

[Lord Agnew of Oulton (Con) [V]]

I very strongly support my noble friend’s views on this. We have seen some remarkable decision-making across government over the last few months, at a much faster rate than normal, and I encourage my noble friend to keep up his campaign to remind people of what is possible. In my own oversight of HMRC border-readiness, I used a simple mantra, which is that it does not take any longer to make a decision than not to make a decision, and it was remarkable how quickly decisions were made. I hope very much that we can continue with that philosophy.

[Lord Loomba (CB) [V]]

My Lords, I welcome the Chancellor’s timely update on our economy and the large amount of support he has given to businesses across all sectors throughout the country. As we are all too aware, we have a challenging time ahead balancing the books. Can the Minister say what steps are being taken to ensure that businesses inappropriately claiming financial assistance pay it back?

[Lord Agnew of Oulton (Con) [V]]

We are aware of the possibility of wrongdoing by businesses and the claiming of grants that were not legitimately theirs but, as I said on an earlier question, the priority was to get the money out quickly to the overwhelming numbers of people who deserved it. Some 1.4 million bounce-back loans were approved, worth over £43 billion; on CBILS, there were 82,000 loans worth £19 billion. There will undoubtedly have been wrongdoing in that. I assure the noble Lord that we are active in our efforts to clamp down on any wrongdoing.

[Lord Berkeley (Lab) [V]]

My Lords, I live in the Isles of Scilly. We were very grateful for the support the Government gave to the lifeline services to the mainland in the first lockdown, but now, apparently, nothing is available to keep them going during winter. We are at risk of companies having to stop services, and we will have no freight and very few passengers. Can the Government explain why they have not given any more support to these companies? Or will they wait until they go bust, and then what will they do?

[Lord Agnew of Oulton (Con) [V]]

My Lords, we expect to provide over £3 billion-worth of support to local authorities over the next year, on top of the support we have already given. For example, over Christmas we provided the £1,000 Christmas support payment to wet-led pubs in tiers that were subject to lockdown. I feel the noble Lord might be being a little harsh; there has been a great deal of intervention to support local authorities and small businesses.

[Lord Flight (Con) [V]]

My Lords, I congratulate the Government and the Treasury on a remarkably quick response through very large programmes of financing. I have a simple question: we see different figures of the impact on the economy, but what was the net UK economy contraction during the calendar year 2020 and what is the forecast contraction for the calendar year 2021?

[Lord Agnew of Oulton (Con) [V]]

My Lords, I do not have those figures to hand, but there will be ongoing economic Statements and my right honourable friend the Chancellor will address this in his Budget in a few weeks’ time. It is perhaps worth pointing out international comparisons; the way the ONS uses data here has had a detrimental impact on how it has reported on the shrinkage of our economy, because it considers outputs instead of inputs on things such as the salaries of teachers and other civil servants, who were not necessarily working because of the crisis but were still being paid. There will be more information on this, particularly in the Budget.

[Viscount Waverley (CB)]

My Lords, noting the expected but regrettable economic downturn, is it not excellent economic news that Unite has suspended strike action at Rolls-Royce at Barnoldswick, saving 350 jobs? Hurrah to that. But how will the Government address the challenge, talking more in UK terms rather than taking a four-separate-nations approach, of how we will unite the four kingdoms to speak with one voice on economic priorities and an implementation strategy?

[Lord Agnew of Oulton (Con) [V]]

I share the noble Viscount’s view that we need to talk more of a single nation. I fear we will hear more of this up to the devolved elections over the next few months, but I hope that, after that, we can get back to speaking more as a single country.

[Lord Moynihan (Con) [V]]

My Lords, I welcome the £4.6 billion in grants announced for the retail, hospitality and leisure sectors, as well as the sports winter survival loan package of last November, which covered 11 major spectator sports. Will my noble friend ask his colleagues to turn their attention to the community sports and recreation sector, whose clubs and community centres are currently on their knees, so that, when safe, they can be opened up as soon as possible, to enhance the physical and mental health of the nation, with at least some financial oxygen in essential life-support grants and loans?

[Lord Agnew of Oulton (Con) [V]]

I share the noble Lord’s concern about all these institutions that have been forced to shut down. We all very much look forward to the moment when they can reopen, which is why so much emphasis is being placed on the rapid rollout of the vaccine.

[Lord Empey (UUP) [V]]

My noble friend has referred to the economic difficulties Northern Ireland will face being separated in some way from its principal single market. However, the biggest challenge we face here is that his right honourable friend the Secretary of State announced a few days ago to the world that there was no border in the Irish Sea. This provoked a response of ridicule and anger in equal measure. How can we start a recovery if our representative in the Cabinet cannot even admit the practical situation that businesspeople face every day? Can my noble friend prevail on him at least to acknowledge the realities on the ground?

[Lord Agnew of Oulton (Con) [V]]

My noble friend raises important points. As I mentioned earlier, we are a few days into an enormous change in how trade operates across GB and the EU, and across GB and NI, but I reiterate the Government’s absolute commitment to keep the friction between GB and NI to an absolute minimum. We are doing everything we can to do that. I ask my noble friend to bear with us, because there will be a learning process over the next few weeks.

[Baroness McIntosh of Pickering (Con) [V]]

My Lords, the night-time economy contributes, in its heyday, over £66 billion per annum in revenue and employs 8% of the workforce—a disproportionate number of whom are young people, helping motivate them and often launching them on a career. Will my noble friend look carefully at what specific long-term help can be given to all businesses in the night-time economy, not just bars, nightclubs, restaurants and street vendors but also those that advise them—marketing companies, record labels, agents, managers, PR companies, taxicabs and newsagents—to enable those which are not facing ruin in the meantime to bounce back sustainably?

[Lord Agnew of Oulton (Con) [V]]

The noble Baroness raises a very important point. I share her concern for this sector because, as she quite rightly says, it is not just about bars and clubs but our cultural heartland—theatres and everything that goes with it. I reassure her that this is very much on the Government’s mind and will be addressed as we come out of this crisis.

[Baroness Altmann (Con) [V]]

My Lords, I congratulate the Government on their rapid reactions but reiterate my concerns about relying so much on debt and QE to try to sustain growth. Given the extraordinary widening of wealth inequality entailed by QE asset purchases, disadvantaging the poorer, younger citizens, would the Government welcome the Bank the England now considering a people’s QE when creating further additional funds to boost growth directly, as well as contributing to levelling up rather than continuing to distort capital markets, undermine pension funding and help the wealthiest?

[Lord Agnew of Oulton (Con) [V]]

The noble Baroness will know that the Government are not in favour of a people’s QE. The QE that has happened this year has been more effective than the QE in the 2008-09 crisis; at least in this situation the money has gone directly into our economy to solve and help the problem, whereas in 2008-09, as far as anyone has ever been able to explain it to me, at least half the money left the country. We are learning, but there is a great deal of nervousness about something such as a people’s QE, because being able to print money without any comeback is almost too good to be true. Indeed, at the weekend, I bought a book by Ray Dalio on debt crises in history to try to understand more about this, because I feel we need to be very cautious about borrowing more and more money.

[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

My Lords, the time allowed for this Statement has now elapsed. I apologise to the noble Lords, Lord Walney and Lord Holmes of Richmond, that we did not have time for their questions.