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.