Financial Services and Markets Bill

Lord Bridges of Headley Excerpts

Committee stage
Monday 20th February 2023 Grand Committee

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I will make three brief points in support of this amendment.

First, from a constitutional perspective, it is essential that the accountability is to Parliament. It is subdelegated from us. It seems inconceivable to me that any legislative body should give power to a body that is not accountable to it. That is the first constitutional point.

Secondly, it seems to me that the Treasury is not the right body to do this job—partly for the reason I have given and partly because some of the objectives that are already in the Bill span areas way beyond the Treasury’s competence. One can certainly see on climate change, for example, a real worry that, if the Treasury is left in charge, there will be all kinds of considerations—short-term, mainly; certainly not long-term—that will not be able to examine precisely whether the regulators are doing what they should be doing.

Thirdly, we cannot ignore the vast pace of change. It is difficult to stand back and appreciate that many of the things we have developed over the centuries are having to be changed within a few years. The financial markets is one area where change is enormous, such as in dematerialisation and the use of digital assets. This morning we debated electronic trading documents in this Room. Therefore, we need such a body. I am afraid that whoever joins this committee will find it very hard work but that is no excuse not to set it up, because it must be absolutely on top of things and gingering the regulators. I hope the regulators will come to see that this is good. We cannot have delay and, without a special committee to do it, that is what will happen.

[Lord Bridges of Headley (Con)]

My Lords, I will make a couple of points quickly. In so doing, I once again declare my interests as an adviser to and shareholder in Santander and, more appositely, as current chairman of the Economic Affairs Committee.

I want to pick up on the noble and learned Lord’s excellent points. If I may be very frank, I was disappointed that in the Minister’s response to the previous group he consistently referred to accountability to the Treasury. We are talking here about accountability to Parliament. This is what matters; it is what concerns so many noble Lords who take a great interest in this debate. There is just nowhere near enough of that in the Bill. I am very disappointed by the tone and approach that the Government seem to be taking, so far, to what I see as a highly constructive set of amendments, especially my noble friend Lady Noakes’s amendment, which I entirely support. I have two brief points to make about the committee structures of this House and of the other place.

As we have seen and are already seeing, the remit of committees here and in the other place is not set up to handle and scrutinise the avalanche of regulation coming out from all the regulators. It is nowhere near adequate to handle the consultations, let alone everything else. They do not have the resources either. It is imperative that the Bill is amended to reflect this. I very much hope that when my noble friend responds she will give this amendment some warm words of support, go away and think of ways in which she might support it. I will be speaking again in support of my noble friend’s other amendments.

[Lord Sharkey (LD)]

My Lords, I strongly support the amendment in the name of the noble Baroness, Lady Noakes, and observe that the Government have said, more or less consistently, that it is for Parliament to decide what form of scrutiny it requires. This acknowledges the importance of the issue. This is Parliament, and the amendment sets out a clear way ahead to establish parliamentary oversight. If the Government mean what they say, they will not oppose these amendments. They might join in a constructive discussion of how to make them better, but they will not oppose these amendments if they are to be at all consistent.

It is worth noting, though, that accountability and scrutiny are not quite the same. Even if we were to pass the amendments in the name of the noble Baroness, Lady Noakes, we would need to take a closer look at the delegated powers mechanisms that the Bill contains. As things stand, Parliament will have no meaningful say in whatever the new rules may be. Unless I have misunderstood, the proposed financial services regulators review committee will not be able to intervene as the new rules become law. We will need to think about that carefully as we make progress with the Bill.

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

My Lords, I have to inform the Committee that if Amendment 89 is agreed, I cannot call Amendment 90 by reasons of pre-emption.

[Lord Bridges of Headley (Con)]

My Lords, I am grateful to my noble friend Lord Forsyth for tabling this amendment. As he said, there has been an outbreak of consensus on this point overall, and the fact that the noble Lord, Lord Tunnicliffe, and the noble and learned Lord, Lord Judge, have also put their names to the amendment, shows what we have heard time and again on this Bill: that it does not go nearly far enough to increase parliamentary accountability and scrutiny.

As I said in a previous debate, and as my noble friend mentioned, we need to improve this Bill in three ways. First, we need to ensure that the regulators publish more data about their own performance. Secondly—this is an amendment we will come to on another Committee day—we need to create a new source of independent analysis of regulators’ actions and performance. Thirdly, by this amendment, as with those in previous groupings, we need to ratchet up parliamentary scrutiny.

I see this amendment—I use this word carefully—as a backstop. My noble friends who have Brexit dispositions may take exception to the word, but it is absolutely a backstop to what we need to achieve here, given the reservations that my noble friend the Minister made about my noble friend Lady Noakes’s previous amendment. As I have said before, and as my noble friend just mentioned, the Treasury Select Committee is an admirable body. We all know that it has created a new sub-committee to scrutinise consultations published by the regulators but, as many noble Lords will be aware, although consultations are very important, they are just one aspect of the regulators’ work. Furthermore, there are numerous consultations. I spent a joyous few minutes counting the number of consultations published last year by the FCA, PRA and the Payment Systems Regulator; I counted 75.

Finally, as my noble friend pointed out, there is expertise in this House. I will spare the blushes of those in this Room, but there is enormous expertise not just here or on the Economic Affairs Committee or the Industry and Regulators Committee but in numerous other aspects. That expertise should be mobilised effectively and systematically to scrutinise this avalanche of regulation. For those reasons alone, it is critical that the Bill ensures that this House—not just the other place—is seen as a key means of increasing scrutiny and accountability.

Before I end—I know that others want to speak—I say just this: increasing accountability and scrutiny should not be portrayed as a means of undermining independence. I very much hope that no one thinks that. The scrutiny of our regulators and their accountability to Parliament should and indeed must go hand in hand with their independence. This is not just to ensure that regulators are accountable, nor simply because there should be no regulation without representation, but because if regulators wield great powers, as my noble friend said, they must be seen to account for their actions in public, and those actions must be seen to be scrutinised and judged by Parliament to be appropriate and within their remit. The point is that doing so increases the legitimacy of the regulators themselves. That is why this debate is not arcane but highly relevant to the power and the position that regulators hold.

I was grateful to hear my noble friend the Minister’s constructive tone in her response on the previous group, so I end by asking her a very simple question; it requires only a yes or no answer. Does she think that this Bill contains sufficient measures to increase parliamentary scrutiny of the regulators in the light of the powers that those regulators are now getting—yes or no?

Central Bank Digital Currencies (Economic Affairs Committee Report)

Lord Bridges of Headley Excerpts

Thursday 2nd February 2023 Lords Chamber

Moved by

[Lord Bridges of Headley]

That this House takes note of the Report from the Economic Affairs Committee Central bank digital currencies: a solution in search of a problem? (3rd Report, Session 2021-22, HL Paper 131).

[Lord Bridges of Headley (Con)]

My Lords, I am delighted to open this debate on central bank digital currencies, and in so doing I declare my interest as an adviser to, and shareholder in, Banco Santander. The words “central bank digital currencies”, or the acronym CBDC, can be met with either a blank look or a reply of, “Oh yeah, crypto and all that”. There is undeniably and understandably a lot of confusion about what a CBDC is and is not. So before I go any further, for those watching or listening who may need some clarity on this point, what we are talking about here is the creation of a digital pound or bank note that the Bank of England would issue. It is not a new currency, nor a cryptocurrency, which is privately issued and not banked by a central party.

For those who may remember it, whereas Harold Wilson talked of the “pound in your pocket”, a central bank digital currency would mean we might have digital pounds in our digital wallets, which does not quite have the same ring to it, but there we are. A number of central banks are looking at introducing a CBDC, and the Bank of England is among them. So a year ago, the Economic Affairs Committee published a report which, at its core, asked a simple question: is a central bank digital currency a solution in search of a problem?

A year on, I think that that question still needs answering. The fact that this is so shows the wisdom of the then-chairman of the committee, my noble friend Lord Forsyth, in instigating this inquiry. I thank him for and congratulate him on his chairmanship of our committee. In so doing, I also pay tribute to the Bank of England for the thorough work that it—in particular Sir Jon Cunliffe and his team—is doing on a central bank digital currency, and the transparent way in which it is doing so. I thoroughly recommend that anyone who is interested looks at their website, for as their work progresses it highlights the issues that the creation of a CBDC raises and that our report highlighted.

Let me turn to that main exam question that our report poses: what problem is a central bank digital currency attempting to solve?

“I start by saying—it can come across the wrong way—that we have to be very clear about what problem we are trying to solve before we get carried away with the technology and the idea. I am not convinced about some of the problems that we might be trying to solve.”


Those are not my words; they are the words of the Governor of the Bank of England himself, Mr Andrew Bailey, just a few weeks ago. He is quite right; I would actually go further. There is still no clear, simple answer to this fundamental question, nor in my mind a clear answer to the follow-up question: if there is a problem that needs solving, could it not be solved in other ways?

The Bank of England website states that it is

“considering a central bank digital currency (CBDC) because the way people are choosing to pay for things is changing.”

The argument is that a digital pound would effectively be a new payment system. Our report found that a CBDC could indeed spur competition and innovation in payments, possibly lowering costs for merchants. But we heard few significant advantages for UK consumers if there were a digital pound in their digital wallets, and the Governor himself told us that issuing a CBDC was

“a disproportionate response to that issue”

of competitiveness in the payments system.

Then there is the argument that we need a CBDC to address the decline in cash, and that we need a digital pound as an anchor of confidence. But it is not obvious that the properties of CBDCs would satisfy any residual demand for cash, which is often valued for its physical properties and the privacy that it can provide. Our committee also noted that the Bank itself has said that it would continue to issue cash. Next, and linked, is the argument that a CBDC would increase financial inclusion. Possibly, but it is not clear that a digital pound will break down the barriers currently preventing or deterring people from accessing the financial system. It is likely that there are more straightforward and targeted ways to support access to financial services than launching a CBDC.

The next argument is that CBDCs are needed to avoid the risks that new forms of private money creation, such as stablecoins, pose to financial stability. We heard that greater regulatory control over stablecoins might be sufficient to manage such risks, although there are technical and jurisdictional issues to overcome. That begs the question whether such regulation undermines the need for a digital pound or, to flip this point on its head, whether if there were to be a sterling stablecoin—that is, a stablecoin backed by sterling—that would undermine the need for a digital pound.

Finally, there is an argument that a CBDC is needed to make cross-border payments cheaper and easier. Well, CBDC payments could, in theory, bypass some of the existing frictions in the internal payments systems, with lower costs. Nevertheless, the CBDC system would still have to comply with oversight frameworks, national laws, and international technical standards, which are a long way from being agreed. Furthermore, cross-border payments are already improving as a result of innovation and competition in the fintech sector.

My first question to my noble friend the Minister is: can she summarise in a couple of sentences what problem a CBDC would solve, and why that problem cannot be solved in other ways? Given her ability and expertise, I assume that she will be able to knock that ball straight out of the park and we will get a very clear answer, so I will proceed on the basis that it is clear that we need a CBDC.

The next issue, which our report went into, is how we avoid a CBDC undermining financial stability. If a CBDC is introduced, it is inevitable that some people will transfer money out of their bank accounts and into their CBDC wallets—their digital wallets. It is unclear how much such so-called disintermediation might take place; that will ultimately depend on how the CBDC is designed. But the impact could infect the entire economy, as higher levels of disintermediation would lead to more expensive credit and tighter lending criteria. Without safeguards, CBDCs could exacerbate financial instability during periods of economic stress, as people would likely seek to replace bank deposits with CBDCs.

There are two main options for reducing the negative effects of this disintermediation. The first is to limit the amount of CBDCs that can be held or spent by an individual. The second is to disincentivise use by paying uncompetitive rates on a CBDC above a certain level of holdings. Either of these options, or a combination of both, would be likely to reduce the attractiveness of a CBDC to users, depending on their stringency. This could therefore undermine other possible objectives, such as the ones that I have mentioned: financial inclusion or crowding out privately issued stablecoins.

So, the next question for my noble friend is: what studies has the Treasury or the Bank done on this crucial issue of disintermediation over the last year? In answering that, as we unpeel this onion, I fear we get to other big issues. The first is monetary policy. I assume that the Government do not envisage CBDC wallets to be interest-bearing, and that the CBDC would not be used to implement monetary policy, but, to ask a simple question, can my noble friend rule that out?

Then there is the issue of privacy. In this entire debate, privacy is the dog that has yelped but not yet barked. We heard that any CBDC system could not support anonymous transactions in the same way that cash can be spent anonymously. For that to happen, payments data on CBDC users will exist. The question of who performs the necessary checks on when and where that data is held is a major privacy issue. The Governor of the Bank of England said that a digital ID would be needed but that it was yet to be determined what form that ID would take. So the next question for the Minister is: how has thinking on know your customer rules progressed? How can a CBDC ensure strong privacy safeguards while also meeting financial compliance rules? Which organisations will be able to access sensitive CBDC payments data, and for what purpose will that data be used? Crucially—this is the main question—what kind of digital ID would be needed?

A retail CBDC raises many other issues which our report touches on; for example, its impact on national security and sanctions. There is also the key question of priorities: whether the Treasury and the Bank should focus more on a wholesale CBDC, which would arguably be less disruptive than a retail CBDC and have fewer economic and political risks.

However, I will end by focusing on two less technical points. Our report touched on the first one, but it needs further scrutiny: how much will the creation of a CBDC cost? Secondly, who will foot the bill? Can the Minister give us some indication on that? Thirdly and finally, there is the important issue of the role of Parliament. Given the importance of the creation of a CBDC and the issues that I have raised, can my noble friend confirm without equivocation that if the decision is taken to proceed with creating a CBDC, Parliament will be given the opportunity to scrutinise, debate and vote on primary legislation to do so, and that Parliament—not the Treasury or the Bank of England—will have the final decision on whether we press ahead and create a digital pound?

I apologise for giving my noble friend so many questions to answer. To do so is not to question the need to explore the potential that a CBDC might offer—I repeat that the Bank of England is right to do so—but before we proceed, we need clear answers to these core questions, especially the first: what is the problem that only a CBDC can solve? I beg to move.

--- Later in debate ---

[Lord Bridges of Headley (Con)]

My Lords, I thank all the speakers who have contributed to this short debate. What we have lacked in quantity we have certainly made up for in quality.

As my noble friend rose, I was wondering why the House was suddenly filling up with other noble Lords. Was there a sudden massive outbreak of interest in CBDCs? Then I remembered that of course, we are about to debate Brexit. As a captive audience is here, I ask all noble Lords to start to focus a bit more on this subject, which I think demands more parliamentary scrutiny, given the profound issues we have been hearing about from the noble Lords, Lord King, Lord Desai and Lord Tunnicliffe, the noble Baroness, Lady Kramer, and obviously the Minister. What we are talking about here could have a profound impact not just on our currency and how we pay for things, but on our wider economy.

I have three brief points to make. First, the noble Baroness, Lady Kramer, is quite right that we need to keep our critique of CBDCs balanced. We certainly need to explore this subject, and she is right that 114 countries are looking at it. Obviously, we should avoid falling into groupthink, which is I think where the noble Lord, Lord King, is coming from. But at the same time, the fact that China and particularly the EU are progressing incredibly fast in the development of central bank digital currencies could have deep geopolitical and global macroeconomic implications. So the noble Baroness is right that we need to look at the subject, and in so doing it may have spin-offs in terms of benefits and innovation.

My second point is equally important, and this is where the noble Lords, Lord King and Lord Desai, came in. As I said in my opening speech, the challenges that the creation of a central bank raises are significant. As the noble Lord, Lord Desai, put it—and he is right—the question is not just, “What problem is the CBDC trying to solve?” but, “What problems might it also create?” We need to bear that in mind. I noted down the motto that the noble Lord, Lord King, wants to have for every central bank, and which he certainly abides by: only do what you can do alone. How very true, and that should certainly be a guiding thought.

Whether one is sceptical about the rationale for introducing a CBDC or more persuaded of its merits, we must continue to scrutinise and debate these issues. For sceptics, too little scrutiny means that we might stumble into introducing a CBDC, which could have profound unintended consequences. For those who are more forward-leaning, a failure to progress might mean not just missing out on opportunities but getting left behind, which could have geopolitical and macroeconomic consequences.

I say for those who were not present that I bombarded my noble friend with lots of questions—I apologise—but the central question was: what problem is the CBDC trying to solve and, crucially, why can it not be solved by other means? I think my noble friend said that the reason for it is to address the decline in cash. That is obviously a reason, but I make two points. First, the Bank of England itself recognised that the CBDC would be an imperfect substitute for cash, saying two years ago:

“For those in society who value the physical nature of cash, the introduction of CBDC is unlikely to affect their payment behaviour, and so we consider that CBDC would likely act as a complement to cash rather than a substitute.”


Secondly, are there not other means to address that?

Finally, and I am grateful to the noble Lord, Lord Tunnicliffe, for raising this, we still need a much clearer and unequivocal answer to the question: will it be Parliament that votes on whether to introduce a CBDC? It could have a major impact on this country, and it is only right that Parliament takes that decision. It cannot be taken by the Bank of England and the Treasury alone. We will return to this point, but I thank my noble friend.

Motion agreed.

Financial Services and Markets Bill

Lord Bridges of Headley Excerpts

Committee stage
Wednesday 1st February 2023 Grand Committee

[Lord Remnant (Con)]

My Lords, I declare my interest as a director of Prudential and chairman of Coutts.

I apologise to the Committee that I was unable to attend the first two days of this debate, but I spoke at Second Reading. I said then that I was very much in favour of the additional reporting requirements introduced to the Bill at that stage but hoped that they could be strengthened further. Many of these amendments do just that. I will not repeat the eloquent arguments of those noble Lords advancing them—indeed, there seems to be a large amount of consensus in this Committee—but I would like to emphasise my support in two areas.

First, on Amendments 45 and 63, in the names of the noble Earl, Lord Kinnoull, and my noble friend Lord Naseby, and Amendment 66, in the names of my noble friends Lord Holmes of Richmond, Lady Noakes, Lord Trenchard and Lord Naseby, I regard as of paramount note the introduction of the secondary objective for our regulators to promote the sector’s international competitiveness to support long-term growth. As this is a new objective, it is critical that the regulators should account to Parliament for their performance against this objective and against a clear set of reporting and performance metrics, measurements which are indeed measurable, verifiable and independently set.

Secondly, I especially support Amendments 115 and 116, in the names of my noble friends Lord Holmes of Richmond and Lady Noakes. I have direct experience, both personally and at firms with which I am involved, of how long it can take for seemingly eminently well-qualified individuals to gain authorisation. For the avoidance of doubt, I exclude myself from that category. Businesses have choices about where they place capital and people. The burden and cost of regulatory supervision really can damage London’s ability to attract talent and capital. I do not for one moment suggest that there should be any diminution in the rigour with which applications should be assessed, merely that in pursuance of their competitiveness objective, our regulators should give enhanced emphasis to the speedier clearance of the applications before them. These amendments should help them do just that.

[Lord Bridges of Headley (Con)]

My Lords, I will make a brief intervention. I declare my interests as an adviser to and shareholder in Banco Santander in Madrid. I have a lot of sympathy with some of the amendments in this group, especially those in the name of my noble friends Lord Holmes of Richmond and the noble Earl, Lord Kinnoull.

I will take a quick step back. The Bill needs to be improved in three key ways. First, we need to improve the reporting by the regulators. Secondly, as the noble Baroness, Lady Bowles, said, we need to make sure that the regulators are not marking their own homework, which is why it is important that we create a form of independent analysis. Thirdly, we need to improve parliamentary accountability. The amendments clearly address the first point on reporting. I will not repeat the number of points made very eloquently by the noble Earl and others, especially my noble friend Lady Noakes. However, I strongly believe that, as has been said, this will help regulators define their actions and, in so doing, help address confidence in the regulators that they are meeting those objectives.

I listened to the noble Baroness, Lady Kramer—I was about to call her my noble friend; she is a good friend—and she is absolutely right. We absolutely have to get right the balance between competitiveness and stability here. I do not think anyone here is arguing for a race to the bottom; that would be a disaster for our financial services sector. A strong financial services sector is based on robust, proportionate and simple regulation, so I completely heed that concern. However, I look at some of the amendments, especially some of the metrics being quoted here, and the data that they would provide would be exceptionally valuable to us as Parliament when we come to assess the performance of our regulators in a critical sector for our economy, and we can then judge them on those actions. I look at the consultation that the PRA set out, which states that it will include its performance in meeting this new objective but it does not say how. It is important that we send a signal, and at least have a very thorough debate as to what that might be.

I end on this point: does the Minister seriously think that the current reports we get from our regulators are satisfactory and adequate, especially in the light of the new powers and the new objective that the Bill confers on them and the concern that I think many on both sides of the Committee have about what that means for their powers and their accountability? That is a simple question.

[Lord Ashcombe (Con)]

My Lords, I declare my interest as an employee of Marsh & Co, the insurance broker. I too support Amendments 66, 115 and 196 in the names of my noble friends Lord Holmes of Richmond, Lord Naseby, Lord Trenchard and Lady Noakes. Since Second Reading the Bermuda authority has reported that it saw the highest number of new insurance-broking companies registered in more than a decade as 84 new companies were set up in 2022, but not one has been set up in the UK for 15 years. This is the reality of international competition that the UK is facing as it competes with jurisdictions around the world for investment, capital and jobs, but we note that we depend on high standards of regulation. It seems that a number of key changes are needed to address this to improve the accountability of UK regulators, making them more consistent in their approach and more responsive in ultimately ensuring that they act more proportionately, as mentioned by the noble Earl, Lord Kinnoull.

Amendment 66 requires that the FCA and the PRA each publish an annual report setting out how they have facilitated international competitiveness and growth against a range of data and analysis requirements. Clause 26 currently allows regulators to decide for themselves how they believe they have met the requirements of their new competitiveness, as already mentioned. For example, the clause states that the FCA can decide “in its opinion” how to report on the objective and therefore decide solely for itself how it has met the objective’s requirements. The objective must therefore have alongside it a clear reporting criterion so that the Government and Parliament can properly hold the regulators to account. It is unclear whether the regulators will consider metrics specific to international competitiveness, not simply domestic competition. The criteria set out in the amendment can be measured and targets created to ensure that the regulators are operating effectively.

The Bermuda Monetary Authority takes a different approach and has different classes of insurers and reinsurers, together with authorisation criteria and KPIs that match the level of risk that the entity poses to the system. This allows it to undertake an authorisation of an international reinsurer with clients that are solely other insurance companies in less than one week—can you imagine?—thereby freeing resources to focus on entities serving individual retail customers.

Clause 37 gives Ministers a power over the regulators’ reporting requirements by providing them with a mechanism through which to direct information to be published. The danger is that this clause becomes more of a backstop measure, rather than something embedded in our new regulatory framework. While the clause is welcome in demonstrating the Government’s recognition of issues around needing to improve regulatory culture, it asks more questions than it necessarily answers. It is unclear how the Government will decide the criteria for requesting a report and whether they will seek input from industry and Parliament or the new bodies that the Bill creates, such as the cost-benefit analysis panels, in understanding where there is a demand for information. It is unclear whether, as part of its report, the regulator will undertake comparative analysis of its performance against the UK’s competitor jurisdictions as well as analysis of product and service innovations taking place in key markets. This is how Parliament will best understand whether the UK is performing well globally.

What we need are mechanisms in the Bill that help ensure that accountability becomes part of the day-to-day operation of the regulators, not something used ad hoc. That is the only way that we will get culture change and deliver the kind of culture change that we in Parliament and industry want, as addressed by my noble friend Lord Hunt of Wirral at Second Reading. That is why measures set out in these amendments are so important. I hope we can look at further changes along these lines.

Financial Services and Markets Bill

Lord Bridges of Headley Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Lord Bridges of Headley (Con)]

My Lords, I declare my interest as an adviser to and shareholder in Banco Santander.

This Bill touches on many topics, but I want to focus on two big questions: what are the objectives of financial services regulation, and who holds the regulators to account, and how?

On the first question, we know that the main objectives of regulation are ensuring that markets function well and that there is market stability, market integrity and consumer protection. As has been said, this Bill adds a secondary objective of competitiveness and growth. I support that new objective entirely, not because I want a race to the bottom—quite the reverse. I believe that simple, proportionate and robust regulation, applied by regulators in a timely, consistent way, is the bedrock of a competitive financial centre. To achieve that, regulation must reflect developments in finance.

We all know how much finance has changed over the past decade or so, since the financial crisis: crypto, AI and blockchain—technology in all its guises—turbocharging areas such as payments; green finance and ESG; not to mention the rise in Asian markets. All this has dramatically reshaped the financial sector, not just here but across the world. For us, obviously we have had Brexit, raising challenges but also opportunities. We need our regulators to be mindful of this new world in all they do, so that our financial service sector continues to attract capital, investment and talent—and, yes, that means change. But regulations are judgments; they are made at a moment in time. We should not get into the mindset of treating them, dare I say it, as tablets of stone, brought down from the mountain and never to be changed.

To ensure that our regulatory framework is fit for purpose, we must remember the lessons learned in previous crises, but we must not regulate via the rear-view mirror but for the world as it is and for emerging risks. My concern is not that the new objective goes too far but the reverse: that it will not have any meaningful impact. One reason for that is that it is a secondary, not a primary, objective. Another reason is that I question how it is going to sit alongside the new regulatory principle contained in the Bill that regulators must be mindful of the Climate Change Act 2008. How many trade-offs, should they arise, would be made between the green objective and competitiveness?

This brings me to another concern and my second big question: who holds the regulators to account? There is of course the specific issue of how regulators will be held to account in implementing the new secondary objective, but there is a much broader issue, raised a moment ago by the noble Lord, Lord Vaux. The Bill will give ever more power to unelected regulators; how are they going to be held to account? Of course, they are independent, but independence and accountability must go together hand in hand, and by accountability I mean regular systematic processes whereby the main actions of the regulators are thoroughly scrutinised by Parliament. As has been said, we have no such effective system at the moment.

I know the Bill stipulates that the Treasury Select Committee will scrutinise consultations, but consider just one fact: last year, on my reckoning, the FCA, the PRA and the Payment Systems Regulator between them launched 75 consultations—and that is just consultations, not policy statements or anything else. On my reckoning, there is no way that one parliamentary committee, under the current system as currently resourced, can possibly scrutinise this torrent of regulation; it will simply be washed away by the flood. Of course, we need to avoid politicising the regulatory process, which would undermine the confidence we all want. We also need to avoid parliamentary scrutiny making regulators so nervous that they become excessively cautious in all they do, gold-plating regulation and creating the stability of the graveyard. That said, we need to have an answer to this simple question: who regulates the regulators? At the moment, as the Bill stands there is no clear and effective answer.

Autumn Statement 2022

Lord Bridges of Headley Excerpts

Tuesday 29th November 2022 Lords Chamber

[Lord Bridges of Headley (Con)]

My Lords, I start by drawing your Lordships’ attention to my entry in the register. I welcome my noble friend Lady Penn back to the Front Bench. It is excellent see her there. I absolutely echo the words we have just heard. I warmly welcome my noble friend Lady Lea. It gives me great pleasure to be able to call her “my noble friend”. I congratulate her on her excellent speech, which I am sure all noble Lords agree shows the great wealth of talent she will bring to our deliberations. I thought it was a wonderfully uncontroversial speech, and next time I very much hope that the gloves will come off.

In that spirit, the season of good will is about to be upon us, so I will try to start with some words of praise about the Autumn Statement. I think that the Prime Minister and the Chancellor are quite right to be honest with us all about the dire economic situation we are in. I agree with a lot of what my noble friend Lord Lamont said. The oncoming recession would be worse. My reading of it is that inflation would have been higher if the Government had not taken some of the measures they have announced. As my noble friend Lord Lamont said, those measures were tough.

From where I sit, the worrying reality is that although we have avoided falling into the economic abyss, we are still very close to the edge of the precipice. Why are we there? There was the mini-Budget—there is no doubt about that—and there has obviously been the economic shock of the two undeclared wars this country has fought, first against Covid and now against Putin, the impact of which my noble friend also eloquently referred to, so I will not repeat those points. I will also point to something else where I think that the noble Lord, Lord Eatwell, who is sadly no longer in in his place, and the noble Lord, Lord Hain, will profoundly disagree, so I am testing the spirit of good will. I see Conservative-led Governments bit by bit defaulting to a mentality that higher spending and higher taxes are the solution to all the problems we face. My concern is that that mentality has been nurtured and watered by quantitative easing, which has become the magic money tree. Our QE addiction, as the House of Lords Economic Affairs Committee warned 18 months ago, has left us perilously exposed to what might happen when the era of cheap money ended, and that era is now over. Interest rates, as we all know, are up, belatedly, to grip the tiger of inflation, and that tiger is already gnawing into household incomes, pushing up welfare costs and creating havoc with government finances.

The noble Lord, Lord Fox, is absolutely right that the Autumn Statement lays out the gruesome cost of debt servicing. It is at its highest level in a generation. In the seven minutes of my speech, if I am right in my calculations, we will spend roughly £1.5 million on debt interest. That is quite an expensive speech—I think it is six times even what Boris Johnson gets paid. More than this, our public finances are more sensitive to movements in interest rates than they have been for decades. Every one percentage point rise in short-term interest rates now adds £13 billion to debt interest costs the following year. As to the debt stock itself, despite the £60 billion of tax rises and spending cuts in the Statement, debt will be £400 billion higher in five years than forecast just back in March. Added to all this are other uncertainties. The volatility of the gas prices is one. If prices go back to their late August peak, that could add £42 billion to borrowing next year.

So, given all this, taking a step back, I think the question the Autumn Statement begs is this: as we look ahead—and when I say “look ahead”, I mean look ahead several years out—are we really addressing the enormity of the situation we are in and the need to bring spending and, with it, taxation back under control?

I fully accept the pressures we are under, as my noble friend Lord Lamont and others have said, but let us just consider spending. The cuts are not being implemented until after the next election. Even then, by 2027-28, total departmental spending will be more than £90 billion higher in real terms than at the start of this Parliament.

Consequently, in the meantime—the next couple of years—we are tackling borrowing by raising taxes. As has been said, the tax burden will be at its highest sustained level since just after World War II. Millions more people will be dragged into a higher rate of tax. Worse still, our workforce appears to be becoming sicker and more people are becoming inactive. Thanks to all this, we are destined to become poorer, which to me is the most startling fact of the Autumn Statement. Real household disposable income per person is set to see its largest fall since Suez.

Having said all this, I do not question the need for the Government to act to stabilise the economic situation—but we must beware stability becoming the stability of the graveyard, where ever-higher taxes and spending snuff out enterprise and growth. If we are to wrest control of tax and spending, we need to answer the really difficult questions and topics that I believe we—and I take full responsibility for this, as a Conservative —have failed to tackle: our appalling productivity, our planning system, and how we are going to pay for an ageing population in a sustainable way. Above all, we have to ask ourselves how we are really going to encourage enterprise, innovation and investment—the essential ingredients of growth—if we keep taxing and spending at this level.

That begs a very difficult question: what do we want the state to do? Here I sense a creeping consensus that we must somehow accept that we are in a new era of higher taxation, higher spending and a bigger state. We are told that this is the solution to the challenges we face and the way to grasp the opportunities of the future. Others will profoundly disagree, but I reject that thesis outright. It is not what I believe in, not just for reasons of principle but because this approach, I contend, will fur up the arteries of our economy. That will hinder growth, and our children’s and their children’s ability to pay for the services their generations will need.