Financial Services and Markets Bill

Lord Tyrie Excerpts

Committee stage
Wednesday 1st February 2023 Grand Committee

[Baroness Noakes (Con)]

I thank the noble Baroness for that. Of course, I got carried away by my usual desire to knock the EU and lost sight of the essential principle, which is that the PRA is in fact applying the MREL rules disproportionately. I think that on that, the noble Baroness and I will agree.

So the PRA is applying a system that is designed for systemic bank failure to smaller banks, which present no systemic risk at all. While some modifications were made in 2021, medium-sized banks still end up having to issue MREL-compliant capital, which adds to their cost of capital, and this in turn reduces their capacity to lend. A number of mid-sized banks told the Treasury late last year that this reduction in the capacity to lend could amount to £62 billion over the next five years. Everyone loses—except the larger banks, who see smaller competitors facing considerable competition barriers. I believe that the regulators need to focus more on proportionality, which is the aim of my amendment.

Earlier I said that I was sceptical about the regulatory principles in FSMA, but they exist and we need to make sure that they are comprehensive. My Amendment 77A introduces an additional regulatory principle of being evidence-based. We have inherited all those EU rules, which were drawn up in the context of the EU’s well-known precautionary approach to regulation. I can see how easy it is to slip into the habit of regulating in the UK in the same way, just because we had to regulate that way in the past.

On our first day in Committee, we had a short debate on short selling. There is no evidence that short selling is or has been a problem in the UK, and yet the Government and the FCA are lining up to carry on regulating it. We need a shift of mindset in financial regulation in the UK, because the regulators should regulate only where the evidence points to the need for regulation, and we should not be regulating on the basis of hypothesis or speculation. That may well mean stepping back from regulating in areas where there is a possibility of a problem but no evidence that problems actually exist.

If we have a nimble system with agile and responsive regulators—I accept that that might be a rather big assumption—we should have no problem in stepping back, because we can act when a problem emerges. I certainly do not recommend or seek the widespread dumbing down of our regulation, because good regulation is part of the strength of our financial services sector. However, I believe that we are failing to take advantage of our Brexit freedoms to liberate our financial services businesses where there is no evidence that it is not safe to do so. That is what lies behind my seeking to add an additional regulatory principle.

[Lord Tyrie (Non-Afl)]

I declare my interests as in the register. I was not intending to begin with these remarks but I think the one thing we can all agree on is the fundamental weakness of the Bill, which is that it repatriates considerable powers to UK regulators from the EU without giving any meaningful consideration as to how these powerful bodies will be scrutinised and held accountable.

The noble Lord, Lord Bridges, has made a detailed proposal; there are others around. Somewhere in that area we have to put something on to the statute book to accompany these measures. I think that is relevant to the consideration of the amendments in the name of the noble Lord, Lord Lilley. One task such a body can be asked to accomplish is to evaluate and make suggestions for more far-reaching reform. A number of the amendments in the noble Lord’s name might fall into this category and they may have quite profound effects on the way that we are regulated.

As for competition—which I also was not intending to speak about but I cannot resist it—I spent an enormous amount of effort and time, with the noble Lord, Lord Flight, and others, when we were in the other place, trying to get competition and competitiveness built into FiSMA; this was in 1998-99. We largely failed and even now we have not succeeded as much as we would like. I strongly agree with what the noble Baroness, Lady Noakes, said about these multi-tiered objectives and principles—operational objectives, strategic objectives, et cetera. The consequence, of course, is that they are gamed by regulators, which implement the bits that they most like and leave behind the bits that they do not like if they are all too difficult.

These two first points I have made are interlinked. Currently nobody holds regulators to account for that gaming. If we did have a more powerful body, if Parliament could have at its disposal more effective expertise—something akin, perhaps, to the NAO but much smaller and specialising in regulatory scrutiny; we will come on to this in more detail next week—we might find that the regulators stopped picking and choosing.

When I first read the amendments in the name of the noble Lord, Lord Lilley, I thought they were easy to support. They have some of the character of motherhood and apple pie about them. What could be more reasonable than that the regulator should be given the additional statutory objective of predictability and consistency? But, having thought about it a bit and discussed it with quite a few people, now I am not so sure. I am becoming concerned that, taken together—the noble Lord’s amendments are interlinked—and notwithstanding his good intentions, they could have a major effect on the conduct of financial regulation in the UK, and not altogether necessarily for the public good.

Perhaps I could step back for a moment and explain why, in the context of some of the work we did on the Parliamentary Commission on Banking Standards. The current regulatory framework derives directly from that commission, which I chaired, and from the Vickers commission. These proposals have largely been put on to the statute book and implemented, where appropriate, in the rulebook, with many of those rules being implemented only recently.

When the PCBS and subsequently the Treasury Select Committee were trying to work out how to improve the regulatory framework, which had so manifestly failed in 2008-09, we had several core purposes in mind. Among these were, first, to challenge and, where possible, expunge the box-ticking, back-covering culture which had grown up in both the regulators and the regulated community, often in the search for safe harbours—safe harbours for both of them, incidentally. In doing so, we hoped to bear down on regulatory capture—the dangerous community of interests between the regulators, the regulated and the sponsor departments, which develops at the least opportunity. I strongly agree with what the noble Lord, Lord Lilley, said about what regulators will regulate for if no one keeps an eye on them at all.

A second purpose we had in mind was to try to safeguard market entry; that is, in particular, to develop a regulatory framework that did not discourage challenger banks: regulation to competition, not from it. I mention in passing that this is very much unfinished business, to put it mildly. There are barriers to entry everywhere.

A third purpose, and closely related to the second, was to bear down on excessive legalism. Access to the law is rarely cheap and usually favours large incumbents. Regulatory barriers to entry suit them and they are difficult and expensive for small firms to deal with. Big firms can certainly look after themselves. Tracey McDermott—I am almost quoting; I tried to look up the quote just before I came in this afternoon but could not quite find it—once suggested in evidence that we catch the small fry, the big fish get away.

A related point on excessive legalism is that legal scrutiny can provide greater certainty, but after a certain point it comes at the price of effective regulation. Markets are themselves inherently uncertain. Risk-making is of its nature forward looking. It will therefore always be imperfect for the conditions in markets at any one time. Regulation can be a lot better than nothing, but there will always be regulatory failure, and there will always be some legal uncertainty.

The fourth purpose we had in mind was to limit the FCA to a narrow range of objectives and to expect it to explain in much more detail than prior to the crash how they should be applied. This lies at the heart, at least in theory, of principles-based regulation supported by guidance. Multiple objectives, as I said a moment ago, will always be gamed by the regulator. Generally, the fewer the objectives, the better.

Others may disagree with everything I have said, but I still think that those purposes, which were not the only purposes that we had in mind, were probably on the right track. What concerns me about these amendments is that, among other effects, several of them will strike at some of these core purposes. For example, building on Amendment 54, Amendment 85 seems to suggest that the regulator can make new rules only if, or will find it difficult to make new rules unless, they are fully consistent with existing rules and that they are capable of prediction. At the least, even if the regulator can make rules, can they be enforced? This is what I understand proposed new subsections (1) and (2) in that amendment to say. It seems to me that it is how the objectives of consistency and predictability will be satisfied in law. My concern is that this will restrict adaptation and enforcement by the regulator. Fast changes in markets and the creation of new markets are features of much of the financial sector. We want to encourage dynamism and creativity and it seems to me that this proposed new requirement of predictability could make it more difficult for a regulator to enforce rules to address new market developments. It certainly seems likely to make regulators more cautious about enforcement.

I heard calls on the radio today for regulation of the cryptocurrency markets. I offer no view on the merits of cryptocurrency market regulation at the moment, but if they are to be regulated and enforced, does that have to be done in a way that could have been predicted from current regulation; for example, from the regulation of securities markets? I hope not, and I may have misinterpreted. I certainly do not think that was the intention of the noble Lord, Lord Lilley, but I hope it is not the effect of his proposal.

Financial Services and Markets Bill

Lord Tyrie Excerpts

Committee stage
Wednesday 25th January 2023 Grand Committee

[Baroness Penn (Con)]

No, that is not what I am saying; I am saying that we will have procedures in place to allow Parliament to scrutinise legislation. We will also have procedures in place to ensure that, as part of that, relevant parliamentary committees can be notified of work by the regulators. That is just one aspect of how Parliament will conduct its role in the scrutiny of financial services, legislation and regulation. While the notification of consultations is one aspect, there are many others, such as the procedures for secondary legislation, the other procedures that Select Committees have to scrutinise the regulators’ work, the procedures for the provision of annual reports laid before Parliament, and others. So Parliament will be notified of consultations, but that does not imply that the Government view Parliament simply as a consultee in the process.

[Lord Tyrie (Non-Afl)]

The Minister has said that the use of Treasury powers under this Clause will normally be subject to affirmative resolution by Parliament. In the Minister’s experience—she could offer her personal view if she feels unable to offer a government view—does she think that that scrutiny is usually relatively effective or ineffective?

[Baroness Penn (Con)]

My Lords, standing here at this Dispatch Box, I would offer only a government view. I view it as entirely appropriate for the model we have set out today. I acknowledged the wider debate being had within the House of Lords on different mechanisms of scrutiny and lawmaking. As I have noted, the approach we have taken in this Bill has not been drawn to the House’s attention by the Delegated Powers and Regulatory Reform Committee.

In the model of financial services regulation that we seek to put in place, a large number of the rule-making powers flow to the regulators. We are delegating that further to the independent regulators that have the expertise to make rules in this area. This is the right model for the UK. We have consulted on it carefully and extensively, and we received broad support in that consultation. It reflects the careful approach we have taken and the choice we have made as to the model for the regulation of our financial services.

--- Later in debate ---

[Baroness Penn (Con)]

My understanding is that Amendment 28 contains powers to provide for amending secondary legislation, not primary legislation. I will seek a fuller explanation and I suggest that we briefly degroup that amendment, if we reach it today, to provide that explanation for the noble Baroness, so that she has further clarity. I do not think I will provide it for her at this point.

[Lord Tyrie (Non-Afl)]

That would be very helpful. Before the Minister leaves Amendment 28, can she say whether she discussed with officials whether to add a sunset clause to what otherwise will be a very open and extensive power in the hands of the Treasury?

[Baroness Penn (Con)]

No, that discussion was not had. The powers are constrained in that they relate to the provisions in place to transition away from and replace retained EU law, rather than going beyond that.

Amendments 242 and 243, put together, enable provisions subject to the negative procedure under an Act other than this Bill to be included in affirmative regulations made under the Bill. This is a procedural change with well-established precedent. Where any element of a statutory instrument is subject to the affirmative procedure, the combined instrument would also be subject to the affirmative procedure, so there will be no reduction in parliamentary scrutiny.

To conclude, the Bill will repeal retained EU law to establish a model of regulation based on FSMA. It will do so in a way that prioritises growth while moving in a sequenced and measured way, and through scrutiny, engagement and consultation. At this stage, I hope the noble Lord, Lord Sharkey, will feel able to withdraw his amendment and that other noble Lords will not move theirs when they are reached. Subject to providing that extra clarification to the noble Baroness, Lady Kramer, I intend to move the government amendments when they are reached.

Oral Answers to Questions

Lord Tyrie Excerpts

Tuesday 18th April 2017 Commons Chamber

[Mr Hammond]

The truth is that promises made from the Opposition side of the House are not worth the paper they are written on. The voters, pensioners and workers of this country understand that very well, and they will give their verdict on Labour’s promises on 8 June.

[Mr Andrew Tyrie (Chichester) (Con)]

Assuming the House votes for an election, will the Chancellor confirm that he will seek to truncate the Finance Bill, remove its controversial measures, such as making tax digital, and thereby enable everybody to focus on the economic issue that will matter most to the whole country over the next few months: which party can best be trusted to run the economy?

[Mr Hammond]

I certainly agree with my right hon. Friend on that last point. On the matter of process, assuming that the House votes in favour of my right hon. Friend the Prime Minister’s motion tomorrow, there will then be the usual end-of-Parliament process of negotiation with the official Opposition on measures that are currently before the House, with a view to passing them in whatever form is appropriate before prorogation.

Class 4 National Insurance Contributions

Lord Tyrie Excerpts

Wednesday 15th March 2017 Commons Chamber

[Mr Andrew Tyrie (Chichester) (Con)]

This announcement bolsters trust in the Government’s other commitments, and removes the perception of a cigarette paper between No. 10 and No. 11, so it is doubly welcome. Does the Chancellor agree that a differential should, none the less, remain in the long run to reflect the additional risk taken by the self-employed when they are doing their job?

[Mr Hammond]

In the Budget speech last week, I made it very clear that we were seeking to close the gap a little. We were not seeking to equalise the contributions treatment of the employed and self-employed, as there are very good reasons why there may well need to be a gap. That is why we will look at this in the round—contributions, entitlements and the way the whole package works for the self-employed. Let us come back to this once we have completed the review, have the Matthew Taylor work and can look at the problem in the round.

Oral Answers to Questions

Lord Tyrie Excerpts

Tuesday 28th February 2017 Commons Chamber

[Mr Gauke]

It was this Government who announced a long-term, financially sustainable package, which is why, in real terms, funding for the NHS will increase by £10 billion above inflation by 2020-21. Let us remember that since 2010 there are 2,300 more people attending accident and emergency departments within the four-hour A&E standard, 5,000 more operations every day, and 1,400 more people every day treated for mental health conditions, and the NHS is conducting 16,000 more diagnostic tests every day.

[Mr Andrew Tyrie (Chichester) (Con)]

For the past two years the Department of Health has cut its capital budget by 20% and used that for running costs and to pay for salaries. Did the Treasury press for these cuts in capital spending—I hope not—and does the Chief Secretary agree that raiding the capital budget is no way to find efficiency savings?

[Mr Gauke]

The switch from capital to resource was actually made at the request of the health service and the Department of Health. In terms of finding efficiencies in the NHS, and indeed in the public sector as a whole, it is important that we deliver sustainable efficiencies, embed a culture of efficiency, and ensure that we get value for money for the taxpayer.

Oral Answers to Questions

Lord Tyrie Excerpts

Tuesday 17th January 2017 Commons Chamber

[Mr Hammond]

As the right hon. Gentleman says, EU banks use passporting to operate in the UK, and of course, vice versa: UK banks use passporting to operate in the European Union. It is important that EU banks are able to continue operating in the UK, and that UK banks are able to continue operating in the EU. He will know that City UK, the lead City pressure group on this issue, took the strategic decision last week to stop pushing for passporting rights and to focus instead on what I would describe as an enhanced equivalence regime. The important thing is not the mechanism, but the end result, and that is what the Prime Minister will set out today.

[Mr Andrew Tyrie (Chichester) (Con)]

The Treasury Committee has challenged whether the Office for Budget Responsibility’s sustainability reports—the latest such report was published just an hour ago—are worth the effort, given that they amount to 50-year forecasting. The OBR’s latest effort does not even try to take account of Brexit at all. It is required to do this work by statute. Does the Chancellor not think that it might be a good idea to revisit that commitment?

[Mr Hammond]

My right hon. Friend has a point in one sense, in that economic forecasters admit that even with a five-year forecast, there will be a high degree of uncertainty about accuracy. On a 50-year forecast, there will be a very high degree of uncertainty indeed, but we will see how the debate goes on the fiscal sustainability report that is published today. I suspect that it will act as a very useful catalyst for discussing some of the really important strategic issues that we face as a nation, not in the white heat of immediate political debate, but over a much longer term—over a 50-year period—so that we can think about where we go in the balance between public spending and taxation, and how we support our vital public services.

Oral Answers to Questions

Lord Tyrie Excerpts

Tuesday 29th November 2016 Commons Chamber

[Mr Hammond]

We have already made announcements about EU funding during the transition period, giving a Treasury guarantee to underwrite funding that is allocated to projects in the UK, so that people who bid for that funding can do so with confidence. However, as the hon. Lady suggests, after we leave the European Union we will need to review for England, and discuss with the devolved Administrations for Scotland, Wales and Northern Ireland, how we are to replace the streams of EU funding to which many regions have become accustomed. We need to have a debate in the House to ensure that that funding is used in a way that reflects the UK’s priority in the future, not the priority of the wider European Union.

[Mr Andrew Tyrie (Chichester) (Con)]

Selsey Bill, in my constituency, is a special case, but the best thing that can be done for coastal areas is to secure stronger growth throughout the economy. Mario Draghi has suggested that UK growth would be lower if, as a consequence of Brexit, the UK economy were less open to trade and investment. Does the Chancellor agree that both the UK and the EU benefit from an open economy, and that, if the European Central Bank is worried about a Brexit shock to the eurozone, he can and should be lobbying EU leaders to press for a high degree of mutual market access in the Brexit negotiations?

[Mr Speaker]

Order. We are discussing concern for coastal areas.

Autumn Statement

Lord Tyrie Excerpts

Wednesday 23rd November 2016 Commons Chamber

[Mr Hammond]

The Prime Minister has said many times—I shall undoubtedly repeat this many times today—that it remains our objective to try to get the closest possible trading arrangement with the European Union and the greatest possible access for our goods and services to be sold into European markets after we leave the European Union. In response to the right hon. Gentleman’s question, I think we have to disaggregate two effects. There is of course going to be a period of uncertainty as we go through the process of exiting the European Union, and that has had a dampening effect on business investment, as the OBR has identified. However, we have to rise to the challenge of getting ourselves match-fit to seize the opportunities that this country will have after we complete that process, and I would urge him to think about that longer-term challenge as well as the short-term issues.

[Mr Andrew Tyrie (Chichester) (Con)]

I congratulate the Chancellor on delivering a crucial statement for the country. It was a Budget in all but name, and I strongly support his decision to make it the first of many autumn Budgets, for which a number of us on the Treasury Committee have been pressing for a while.

The statement will provide reassurance and certainty for the whole country. Given that the education sector creates export earnings of £20 billion—about the same as the car manufacturing sector—will the Chancellor soon be able to provide our colleges and universities with the certainty and reassurance they need that foreign students will not be caught by the 100,000 migration target?

[Mr Hammond]

I am grateful to the Chairman of the Treasury Committee for his remarks and for the Committee’s work on a single fiscal event—it is much appreciated and the right way for us to go. On his specific question, students are included, as he knows, in the 100,000 or tens of thousands target, and my right hon. Friend the Home Secretary is looking at how best to manage student flows in the interests of what, as he says, is an important industry in this country.

Finance Bill

Lord Tyrie Excerpts

Tuesday 6th September 2016 Commons Chamber

[Mr Andrew Tyrie (Chichester) (Con)]

I am grateful to the Minister for what she has said about the proposals. I am pleased that it has been possible to work out a compromise which I think is very reasonable all round, and which builds on the arrangements made by the former Chancellor for the appointments of the chairman and chief executive of the Financial Conduct Authority earlier in the year. I see no reason why this should not form the basis for a permanent arrangement to ensure that we get the best possible candidate into the OTS, supported by Parliament, in future years.

[Jane Ellison]

I thank the Chairman of the Treasury Committee for his indication of support for these arrangements. As he says, we have set out a procedure for the future. I have written to him, and the Chancellor will write to him as well, to confirm that for the record.

New clause 8, tabled by members of the Scottish National party, would require the Government to review the way in which the changes in dividend tax will affect directors of microbusinesses. First, we feel that it would be impossible to deliver such a review, because information from the self-assessment process will not be available until 2018. Secondly and more fundamentally, the dividend tax changes cannot be viewed in isolation, as I pointed out in the previous debate. Small company directors will have benefited from various recent tax changes made by the Government, including cuts in corporation tax and business rates—with more to come into effect in the spring of 2017—and the introduction of the employment allowance, which has made a considerable difference to business people in my constituency to whom I have spoken and, I know, to those in other constituencies. We think that these matters must be looked at in the round, and we therefore do not feel that we can accept the new clause.

New clause 18 proposes another review, on the impact of section 24 of the summer Finance Act 2015 on affordable housing. Again, we feel that that is unnecessary. The changes made by section 24 are being implemented in a gradual and proportionate way. Only one in five landlords is expected to pay more tax, and we do not expect the changes to have a large impact on either house prices or rent levels owing to the small overall proportion of the housing market that is affected. It is worth noting that the Office for Budget Responsibility has endorsed that assessment.

I gather from my predecessors that the subject of new clause 6, which asks the Treasury to conduct

“a review of the VAT treatment of the Scottish Police Authority and the Scottish Fire and Rescue Service”,

has arisen a number of times in the past, and I am afraid that I cannot add very much to the responses that SNP Members have heard before in the context of this and previous Finance Bills. The Treasury made it clear to the Scottish Government that the proposed changes would result in a loss of eligibility for VAT refunds. They chose to go ahead, which was their legitimate right, but there can be no expectation that we will review the issue, given that the consequences were clear beforehand.

--- Later in debate ---

[Jane Ellison]

The Chancellor will make that clear in due course.

[Mr Tyrie]

As the Minister knows, the issue of distributional analysis is of great importance to the Committee. The previous Chancellor accepted it in 2010, but resiled from it in 2015, to the Committee’s considerable concern. On the understanding that the Chancellor really is considering reinstating the arrangements that had been in operation for the preceding five years, I would not be minded to vote for new clause 19. Am I to understand from what the Minister has said that a serious reconsideration is taking place, and that she or the Chancellor will return to the House in due course to inform us of their conclusions?

Oral Answers to Questions

Lord Tyrie Excerpts

Tuesday 19th July 2016 Commons Chamber

[Mr Hammond]

I suspect that the founder of the company has not had the benefit of discussions with the acquiring company. I have met the leader of the current management team, who are wholeheartedly supporting the purchase by SoftBank. We have achieved some very hard guarantees—these were volunteered without our having to extract them—about the future autonomy of the company, headquartered in the UK, and about its commitment to double the number of UK employees over the next five years. What became very clear from a discussion with the founder and CEO of SoftBank is that it firmly believes Cambridge will be the global centre for developing the internet of things and ARM will play a key role in developing that industry.

[Mr Andrew Tyrie (Chichester) (Con)]

I warmly welcome the Chancellor to his new role. It is probably the job he always wanted—unless of course he wants eventually to move next door. I note that to most questions so far he has said he is going to wait until the autumn statement, so I am hoping I get an answer to this one a bit earlier. Sticking to the fiscal surplus rule has rightly been scrapped by the previous Chancellor, and the automatic stabilisers have been allowed to kick in. The higher deficit implied by that decision will have to be plugged sooner or later. From 2010, the Chancellor’s predecessor planned an 80% consolidation of that to come from spending, with only 20% coming from tax. [Interruption.] There is a question coming, if hon. Members can be patient. Does the Chancellor intend to stick to his predecessor’s target of 80:20 or is he going to vary it?

[Mr Hammond]

My right hon. Friend will know that the surplus rule always came with the caveat that if the Office for Budget Responsibility forecast four rolling consecutive quarters of less than 1% annualised growth, the target would be suspended. The consensus among pretty much all forecasters is that that is likely to be what they forecast this autumn statement, so my predecessor’s announcement was merely pre-empting something that almost everybody expects to happen. I am afraid to tell my right hon. Friend the Member for Chichester (Mr Tyrie) that how we are going to respond over the longer term to the resulting deficit will be set out at the autumn statement.