Public Finances: Borrowing Costs

Lord Livermore Excerpts

Thursday 9th January 2025 Lords Chamber

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, with the leave of the House, I will repeat as a Statement an Answer to an Urgent Question given in the other place by my right honourable friend the Chief Secretary to the Treasury. The Statement is as follows:

“Financial markets are always evolving, so it is a long-standing convention that the Government do not comment on specific financial market movements, and I will not break with that convention today. Financial market movements, including changes in government bond or gilt yields, which represent the Government’s borrowing costs, are determined by a wide range of international and domestic factors. It is normal for the price and yields of gilts to vary when there are wider movements in global financial markets, including in response to economic data.

In recent months, moves in financial markets have been largely driven by data and global geopolitical events, which is to be expected as markets adjust to new information. UK gilt markets continue to function in an orderly way. Underlying demand for the UK’s debt remains strong, with a generally well diversified investor base. The Debt Management Office’s gilt sales operations continue to see strong demand, with the latest auction held yesterday receiving three times as many bids as the amount on offer.

The Chancellor has commissioned the Office for Budget Responsibility to provide an updated economic and fiscal forecast for 26 March, which will incorporate the latest data. Only the OBR’s forecast can accurately predict the effect on the public finances of any changes in financial markets or the economy and I will not pre-empt its forecast. There should be no doubt of the Government’s commitment to economic stability and sound public finances. That is why meeting the fiscal rules is non-negotiable.

I end by saying I am pleased that the right honourable Gentleman is holding this Government to account on our stewardship of the economy. It is important that he does so, because he will remember when his party crashed the economy with unfunded tax cuts, unrealistic public spending plans and a clear disregard for the consequences on family finances. Families across the country are still paying the price of its disastrous performance on the economy, with higher mortgages and bills. If there was one clear reason why the Conservative Party suffered such an historic defeat at the last general election, it was its performance on the economy—and presumably why the shadow Chancellor himself admitted in December that the lack of trust in the Conservative Party’s management of the economy has left a ‘deep and painful scar’ in the pockets of every person across Britain. Let me tell him what has changed.

This Labour Government have in their first six months exposed the £22 billion black hole in the public finances left by the previous Government. They have dealt with that problem with the Chancellor’s Autumn Budget, protecting working people, wiping the slate clean from the mess the Conservative Party left the country in and investing in our NHS and schools. We have given the independent Office for Budget Responsibility enhanced powers of oversight, so that we never get into the situation again where a £22 billion black hole in the public finances can be covered up, and set tough fiscal rules that are non-negotiable, with a Budget settlement for public services that we must all live within. We have also kick-started growth in this country—the number one mission of this Government—by unlocking investment and bringing forward reforms in planning and in the Mansion House speech.

Might I just say to the right honourable Gentleman that this is in stark contrast to the negligent, shameful horror of a circus performance that the Conservative Party unleashed on this country when they were in government only a few months ago? Until he can come to this House with an apology for the British people, I will not take any lectures from the Conservative Party about how to run the economy”.

[Baroness Neville-Rolfe (Con)]

My Lords, the Government made their first objective high economic growth and, so far, they have not had that much success. Another prime objective, reiterated by the Minister, was economic stability; again, they have not yet got very far with that. Survey after survey has shown that business confidence has simply collapsed and we can see this in the market. In the last 48 hours, borrowing costs have reached a 27-year high and, of course, every pound that we spend on debt interest is money that we cannot spend on public services. In the Budget, the Chancellor hiked up taxes, increased borrowing by an average of £32 billion a year and conveniently adjusted her fiscal rules. Given that she appears to be about to break those rules, does the Minister stand by the Chancellor’s statement that she is not coming back with more taxes? Yes or no? We are keen to have a clear answer.

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. She is absolutely right that growth was one of the biggest failures of the previous Government. We are determined to turn that around. She is also correct to say that there should be no doubt of the Government’s commitment to economic stability and sound public finances. That is why meeting the fiscal rules is absolutely non-negotiable. I am not going to pre-empt future fiscal events or spending reviews now, but the Chancellor has been absolutely clear that she would not repeat the likes of the October Budget and is focused on growing the economy so that people in every corner of the UK see an improvement in living standards. We have set very tough fiscal rules, tougher than those of the previous Government, which we meet two years early. We have set the envelope for the second phase of the spending review, which we will stick to. That will involve tough choices on spending, but they are choices we are prepared to make, and our reform agenda will be central to improving services going forward.

[Baroness Kramer (LD)]

My Lords, the Minister used the phrase “meeting the fiscal rules is non-negotiable”. A few minutes ago in the other place, my colleague the honourable Member for Wokingham asked for a similar reassurance that promised investment in the NHS and care is also non-negotiable. The reply, I hope inadvertently, was somewhat soft and went no stronger than commitment. Can the Minister use the term “non-negotiable”, because we need reassurance that there will be no scaling back of the committed investment in the NHS and care?

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[Lord Livermore (Lab)]

I am grateful to the noble Baroness. As she says, there should be absolutely no doubt of the Government’s commitment to economic stability and sound public finances. She is right to say that meeting the fiscal rules is, for this Government, non-negotiable. We have set very tough fiscal rules which we meet two years early. We have set the envelope for the second phase of the spending review, which we will stick to, but I say again that will involve very tough choices on spending and they are choices that we are prepared to make.

[Baroness Blackstone (Lab)]

My Lords, does my noble friend the Minister agree that the global uncertainty we are now witnessing reinforces the need for economic growth, through both the policies that the Government are now pursuing and other means?

[Lord Livermore (Lab)]

I absolutely agree with my noble friend. Growth was one of the biggest failures of the previous Government and we are determined to turn that around. The OECD recently upgraded our growth forecast, which means that the UK’s economy is now growing faster than those of Germany, France, Italy and Japan over the next three years. Following the Budget, the OBR increased its forecast for GDP for 2024 and 2025 and, for the first time, it has looked at the growth impact across a decade. It is particularly clear that capital investment, which the party opposite opposes, will lead to a significant increase in growth over the longer term.

[Lord Howell of Guildford (Con)]

My Lords, the Minister will be aware—at least, I hope he is—that global Governments’ debt at present is running at about $95 trillion. That is expected to rise to $130 trillion in three years’ time. He is right that there are some countries where the debt is higher than ours at present, but does he accept that it is about not only the size of the borrowing but the bond markets’ and world opinion about the commitment of a Government to enterprise and growth and to dynamic economic policies, particularly affecting small and medium-sized business, which of course is 99% of all business? Will he therefore have a word with the Chancellor to ensure that she recognises that in her next Budget, as she did not seem to in her last Budget, because it would greatly improve our standing and may save us a few tens of billions in interest on our present enormous debt?

[Lord Livermore (Lab)]

I am happy to say to the noble Lord that the Government are absolutely committed to working in partnership with business to grow the economy and to doing what is required to do so. As he knows, the Government are committed to economic and fiscal stability. We have put in place those robust fiscal rules, and there is a significant fiscal consolidation during the course of this Parliament, taking borrowing as a share of GDP from 4.5% to 2.1%. If achieved, this would be the biggest current budget surplus in over 20 years.

[Lord Fox (LD)]

My Lords, the growth of which the Minister speaks will need investment and, given the state of the public finances, a significant proportion of that investment has to come from the private sector. In my experience, that sort of investment requires not just a realistic analysis of the present but a persuasive picture of the future. The Minister has rehearsed the analysis of the present, but does he agree that the Government have to step up and better articulate their vision of the future in order to attract the investment that this country so desperately needs?

[Lord Livermore (Lab)]

I agree with a lot of what the noble Lord says. He and I are both strong supporters of an industrial strategy. The Government’s new modern industrial strategy is a core component of what the noble Lord is asking for. We are introducing a new industrial strategy that will give the private sector the guidance it requires about the sectors that we would like to see investment coming into. We are doing planning reform, which is one of the biggest reforms that we can possibly do to unlock new levels of private sector investment in the economy. We are doing pension reform, which the Chancellor set out in her Mansion House speech. We are doing skills reform—another key component of unlocking investment in our economy. All those things will significantly boost growth in our economy, but none of them is yet included in the OBR’s forecast.

[Baroness Foster of Aghadrumsee (Non-Afl)]

My Lords, how concerned are the Minister and His Majesty’s Treasury that £9.6 billion of cash was withdrawn last year from the London Stock Exchange—the highest amount on record?

[Lord Livermore (Lab)]

Clearly, ensuring that UK businesses have access to finance is crucial to this Government’s economic policy.

[Lord Londesborough (CB)]

My Lords, further to the point from the noble Lord, Lord Fox, about investor sentiment, the pound has suffered its biggest three-day slide in two years, and this morning’s yield on 30-year government bonds has risen to 5.385%. That is the highest level seen since 1998. Does the Minister accept that the pound’s weakness and the bond sell-off signal that investors are sceptical about the Government’s growth ambitions and particularly the impact of the October Budget?

[Lord Livermore (Lab)]

I repeat to the noble Lord what I said in my opening remarks. Financial markets are always evolving, so it is a long-standing convention that the Government do not comment on specific financial market movements. I will not break that convention today. Financial market movements, including changes in government bond or gilt yields, which represent the Government’s borrowing costs, are determined by a wide range of international and domestic factors.

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, the Minister quite rightly said that the Opposition, when in government, had been irresponsible in their economic policies, but does he not agree that their unfair and unjustified criticism of this Government is equally irresponsible and unhelpful?

[Lord Livermore (Lab)]

I am happy to agree with my noble friend that any criticism of this Government is unhelpful.

[Noble Lords]

Oh!

[Lord Livermore (Lab)]

I am grateful to my noble friend for reminding me to remind the House of when Liz Truss crashed the economy with unfunded tax cuts and unrealistic spending plans, undermining the institutions that are crucial to economic stability—the Treasury, the OBR and the Bank of England—and when she pushed up mortgage rates by £300 a month, for which working people of this country are still paying the price. It is extraordinary that we have had no apology from the party opposite for that.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Livermore Excerpts

Wednesday 8th January 2025 Lords Chamber

Moved by

[Lord Livermore]

That the bill be committed to a Grand Committee.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, the substance of this Bill was addressed during the Second Reading debate in your Lordships’ House on Monday. However, I briefly remind noble Lords that, in the Budget last year, the Government set out a plan to repair the public finances while protecting working people and restoring public services. This meant taking some very difficult decisions, some of which are contained in this Bill. I of course understand and respect the legitimate concerns that have been raised, both inside and outside your Lordships’ House, in relation to the Bill, which is why the Government are committed to ensuring thorough and detailed scrutiny of the legislation.

I am aware that an amendment is before the House that the Bill should be considered in a Committee of the whole House, rather than in Grand Committee. There is clear precedent for the latter. Every national insurance contributions Bill since 2006 that has not been fast tracked has been considered in Grand Committee. The Grand Committee has proven to be entirely capable of providing the detailed scrutiny that a Bill such as this requires. Since Committee stages began being held in Grand Committee in 2002, the Grand Committee has been the normal venue for smaller or more technical Bills, including those that have made substantial changes. The precedent set over the past two decades demonstrates that Grand Committees are well equipped to handle the detailed examination required for such legislation. This Bill, while significant, follows the same technical nature, and the Government believe that there is no reason for treating it differently from its predecessors.

As noble Lords know, unless there is an intention to vote in Committee stage, which would be highly unusual for a Bill of this type, there is very limited procedural difference between the Grand Committee and a Committee of the whole House. Both venues afford the same opportunities for thorough scrutiny and debate. Proceedings of the Grand Committee are fully transparent and are recorded in Hansard, just as they are in this Chamber. Members of the public and the media have access to the debates, ensuring that the process remains open and accountable. However, there are important practical considerations and time constraints for this Bill. If it were necessary to wait for a slot in a Committee of the whole House, the Government would be concerned about meeting the resource budgeting and accounting deadlines for the Bill. The Grand Committee offers a timely and efficient solution, ensuring that we can meet our obligations without unnecessary delays.

I look forward to addressing in Committee all the concerns that noble Lords have raised about this Bill. The Government believe that the Grand Committee is the most appropriate forum for detailed scrutiny of this legislation, following the precedent of the past two decades, ensuring that we can proceed in a timely and efficient manner. I beg to move.

Amendment to the Motion

Moved by

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[Baroness Lawlor (Con)]

My Lords, I do not like to disagree with the Minister, but I cannot help thinking that describing this Bill as a technical Bill is rather far-fetched. If you compare the Bills that we have seen in Grand Committee, such as the Financial Services and Markets Bill, which was a very large and technical Bill, or indeed the Product Regulation and Metrology Bill, which went through last time round, you see that these are indeed very technical Bills—of a short and long nature. But this Bill is one of the tiniest Bills I have seen. It is very short. It proposes two simple measures. One is to lower the threshold at which employers will pay national insurance, the consequences of which were pointed out on Monday. The second is to raise the percentage of national insurance paid by employers on every salary, notwithstanding the raising of a certain employment allowance. I therefore cannot help but think that this is a very simple proposition for this country and a very serious one, and to describe it as a technical Bill is a slight exaggeration—perhaps the noble Lord will agree.

[Lord Livermore (Lab)]

I am very grateful to all noble Lords for their contributions to this debate. This Bill is significant and should of course be subject to thorough scrutiny by your Lordships’ House. As I said, the Government believe that the Ground Committee provides the best forum for that scrutiny. It was notable in the comments of the noble Baroness, Lady Williams of Trafford, that she sought to revisit all the arguments that were debated thoroughly during Second Reading of the Bill on Monday and did not address a single question of precedent.

[Baroness Williams of Trafford (Con)]

Oh!

[Lord Livermore (Lab)]

I am sorry. I apologise; I meant procedure. The noble Baroness did not address a single question of procedure. She sought to relitigate all the arguments that were made extensively at Second Reading. That shows that we are far from seeking somehow, as the noble Lord, Lord Forsyth, said, to shy away from debate. Both he and I sat through six hours of debate on the Bill on the Floor of the House just on Monday, so in no way am I or the Government seeking to shy away from debate. I am very happy to debate these matters on the Floor of the House any time, as the noble Lord knows.

As I said in my opening remarks, every national insurance contributions Bill since 2006—in answer to the noble Baroness, Lady Williams of Trafford, this one has not been fast-tracked; the two she mentioned were fast-tracked—has been considered in Grand Committee. This has been the normal venue for small or technical Bills—and, as the noble Baroness said, this is indeed a small Bill—including some that have made substantial changes. She mentioned some that made extremely substantial changes that were considered in Grand Committee.

The precedent set over the past two decades demonstrates that Grand Committees are well equipped to handle the detailed examination that is required for such legislation. This Bill follows the same technical nature and the Government believe that it should be treated in the same manner as all its predecessors. We of course understand and respect the legitimate concerns that have been raised in relation to the Bill. We are committed to ensuring thorough and detailed scrutiny of the legislation which, following the precedent of the past two decades, we believe will be best achieved in Grand Committee.

[Lord Forsyth of Drumlean (Con)]

Will the Minister take the opportunity to correct his noble friend and confirm that Divisions are not allowed in Grand Committee?

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[Lord Livermore (Lab)]

I am not as expert in procedure as the noble Lord. I am happy to defer to my noble friend.

[Captain of the Honourable Corps of Gentlemen-at-Arms and Chief Whip (Lord Kennedy of Southwark) (Lab Co-op)]

I am happy to confirm that you cannot have Divisions in Grand Committee.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Livermore Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

Moved by

[Lord Livermore]

That the Bill be now read a second time.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I wish all noble Lords a happy new year. It is a pleasure to open this debate. I am aware that the noble Baroness, Lady Kramer, has tabled a regret amendment expressing concern about the measures in the Bill. While I of course understand and respect the points raised in it, this Government had to take some very difficult decisions—not decisions we wanted to take, but necessary decisions to clear up the mess we inherited.

In the time I have available today, I will seek to explain why not acting was simply not an option, and why this Bill is necessary to repair the public finances, while protecting working people and rebuilding our public services.

I will begin by setting out the economic context in which the Budget decisions contained in this Bill were taken. As noble Lords will know, on her arrival at the Treasury last July, the Chancellor was informed of a £22 billion black hole in the public finances—a series of commitments made by the previous Government which they did not fund and did not disclose. Ahead of the Budget, the independent Office for Budget Responsibility had conducted a review into the circumstances surrounding a meeting it held with the Treasury on 8 February last year, at which the previous Government were obliged to disclose all unfunded pressure against the reserve.

The OBR’s review established that at that point the previous Government concealed £9.5 billion. However, as we now know, during the remaining five months they had left in office, the previous Government continued to amass unfunded commitments, which they did not disclose. By the time of the spring Budget, Treasury records show these had reached £16.3 billion. By July, they had reached £22 billion.

The Treasury has provided to the OBR a line-by-line breakdown of these unfunded commitments: 260 separate pressures which the previous Government did not fund and did not disclose. Neither did they make any provision for costs they knew would materialise, including £11.8 billion to compensate victims of the infected blood scandal, and £1.8 billion to compensate victims of the Post Office Horizon scandal.

The country inherited not just broken public finances but broken public services: NHS waiting lists at record levels, children in Portakabins as school roofs crumbled and rivers filled with polluted waste. Yet, since 2021, there had been no spending review and no detailed plans for departmental spending set out beyond this year.

Faced with this reality of broken public finances and broken public services, any responsible Chancellor would have had to act. Some noble Lords, during today’s debate, may argue otherwise: that we should have ignored the black hole in the public finances. But this is the path of irresponsibility, the path chosen by the Liz Truss mini-Budget, when mortgage costs increased by £300 a month, and for which working people are still paying the price.

That is not the path chosen by this Government. Our number one commitment is economic and fiscal stability. That is why, as a result of the Budget—and only because of the measures contained in this Bill, combined with other difficult decisions we have taken—instead of £22 billion of unfunded spending plans, within three years not a single penny of day-to-day government spending will be funded by borrowing.

Yes, it was a significant Budget, on a scale commensurate with the challenging inheritance we faced. And yes, it did mean taking difficult decisions. As a result, however—and only made possible by the measures contained in this Bill—we have now wiped the slate clean, creating a platform of stability in the public finances.

The Budget made another very important choice: to keep the manifesto commitments we made to working people to not increase their income tax, their national insurance or VAT. Compare that with the choices made by the previous Government, who chose to freeze income tax thresholds, costing working people nearly £30 billion. This Government could have chosen to extend that freeze, but that was not the choice we made. Instead, from 2028-29, personal tax thresholds will be uprated in line with inflation once again. However, keeping those promises to working people, while repairing the public finances and rebuilding our public services, did mean we had to take some very difficult decisions on spending, welfare and tax, including those in the Bill before your Lordships’ House today.

The Bill contains three key measures: first, an increase to the rate of employer secondary class 1 national insurance contributions from 13.8% to 15%; secondly, a decrease of the secondary threshold for employers—the threshold above which employers begin to pay employer national insurance contributions on their employees’ salaries—from £9,100 to £5,000; and, thirdly, measures to protect small businesses by more than doubling the current employment allowance from £5,000 to £10,500. The Bill will also expand the eligibility of the employment allowance by removing the £100,000 threshold so that more employers now benefit.

I of course understand that some of these measures mean asking businesses to contribute more, and I fully acknowledge that some impacts will be felt beyond businesses too. These are difficult decisions, and I understand and respect the legitimate concerns that have been raised, including by business. However, taken together, the measures in the Bill mean that more than half of businesses with national insurance liabilities will either see no change or see their liabilities decrease. Some 865,000 employers will now not pay any national insurance at all, and over 1 million employers will pay the same or less than they did before. All eligible employers will now be able to employ up to four full-time workers on the national living wage and pay no employer national insurance contributions. The Government are also setting aside support for the public sector of £5.1 billion by 2029-30, ensuring that there is sufficient funding for our vital public services, including the NHS.

I also recognise that concerns have been raised about the wider economic consequences of the measures contained in the Bill—concerns I am sure we will hear in today’s debate. Let me be clear: not to act was not an option. The choices we have made were the only route to putting the public finances back on a stable path, while protecting working people and rebuilding the public services. The economic data we have seen in recent months is, of course, disappointing; in particular, the recent growth figures show the sheer scale of the challenge we face. However, there would have been far greater costs to continuing with the irresponsibility and instability that has been a near-constant feature of the past 14 years: from the chaos of Brexit and the disastrous deal that followed, through to the Liz Truss mini-Budget, which crashed the economy and devastated family finances.

Let us remember that the OECD now expects the UK to be the fastest growing European G7 economy, and at the Budget, the independent Office for Budget Responsibility was clear that, with particular reference to our capital investments, the Budget will increase the size of the economy in the long term. On living standards, the OBR forecast shows that real household disposable income will increase in real terms in each year of this Parliament; the level of real wages will rise by 3% over the next five years; and the number of people in employment will rise by 1.2 million over the course of this Parliament. Our planning reforms, pension reforms, skills reforms and industrial strategy will all contribute to higher growth, but none are yet included in the OBR’s forecast.

The measures contained in the Bill also contribute to significant new investment in the NHS. That vital investment—amounting to £25.7 billion extra for the NHS over this year and next—is only possible because of this Bill. It includes £1.5 billion for new surgical hubs; more than £1.25 billion to deliver over 1 million additional diagnostic tests; over £2 billion for technology and digital improvements to increase NHS productivity and save staff time; and £880 million more in local government spending to support social care. All of that will support the NHS to deliver an extra 40,000 elective appointments a week, helping us to bring waiting lists down more quickly.

The choices we have made are the right choices. They are not the easy ones, but the responsible ones: to rebuild the public finances, to protect working people and to invest in Britain’s future. None of those things would be possible without the Bill. It is of course possible to make different choices: to ignore the problems in the public finances, to continue to neglect our public services or to fail to protect working people. Noble Lords may wish to argue for that during today’s debate, but this Government were elected with a mandate to fix the foundations of our economy. The Bill delivers on that mandate and provides a foundation of stability on which we will now build long-term, sustainable growth. I beg to move.

Amendment to the Motion

Moved by

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[Lord Livermore (Lab)]

My Lords, it is a pleasure to respond to this Second Reading of the national insurance contributions Bill, and in doing so to respond to the points raised by the amendment in the name of the noble Baroness, Lady Kramer. I am grateful to all noble Lords for their contributions during today’s debate. The Budget in October involved taking some very difficult decisions: to clear up the mess that we inherited, to repair the public finances, to protect working people and to rebuild our public services. Faced with the reality of broken public finances and broken public services, not acting was not an option, which is why this Bill is necessary, as my noble friends Lord Chandos and Lord Layard observed.

Some noble Lords, including the noble Baronesses, Lady Neville-Rolfe and Lady Noakes, the noble Lords, Lord Forsyth of Drumlean, Lord Ahmad of Wimbledon and Lord Mackinlay of Richborough, and the noble Viscount, Lord Trenchard, focused on the Government’s fiscal inheritance and sought to deny the £22 billion black hole that the previous Government left behind. I am, of course, very grateful to all noble Lords who mentioned the £22 billion black hole and thank them for doing so.

The Treasury has provided to the OBR a line-by-line breakdown of the previous Government’s unfunded commitments—260 separate pressures. Noble Lords need not just listen to the OBR and the Treasury. They need look only at the out-turn data: central government current expenditure, published by the ONS, shows that for the six months since March the out-turn is £11.8 billion higher than forecast. That is £11.8 billion over six months—well on course for £22 billion over the year. The noble Lord, Lord Moynihan of Chelsea, asked why the money is not there. I politely suggest to him that it is because of the policies he supported under the previous Government.

Faced with this reality, as the Chancellor was, any responsible Chancellor would have to act. Ignoring this black hole, as my noble friend Lord Eatwell said, would have taken us down a path of irresponsibility—the path chosen by Liz Truss in her mini-Budget, for which working people are still paying the price.

Some noble Lords, including the noble Baronesses, Lady Neville-Rolfe, Lady Noakes, Lady Bray of Coln and Lady Porter of Fulwood, the noble Lords, Lord Jackson of Peterborough and Lord Mackinlay of Richborough, and the noble Viscount, Lord Trenchard, sought to argue that the Bill breaches the Government’s manifesto commitments. That is clearly not the case. Despite the pressures on the public finances, the Government made a clear choice at the Budget to keep our promises to working people by not increasing their income tax, national insurance or VAT, and we went further by freezing fuel duty. Compare this with the decision made by the previous Government to freeze income tax thresholds—a decision which cost working people over £30 billion. Instead, our Budget ensures that, from 2028-29, personal tax thresholds will be uprated in line with inflation once again.

Some noble Lords, including the noble Baronesses, Lady Neville-Rolfe and Lady Moyo, the noble Lords, Lord Londesborough, Lord Forsyth of Drumlean, Lord Ahmad of Wimbledon and Lord Ashcombe, my noble friend Lord Eatwell and the noble Viscount, Lord Trenchard, focused on the impact of these measures on employers. We heard a lot during today’s debate from the noble Lords opposite about how much they know about business. One does wonder, then, why the economy was such a catastrophe over the past 14 years.

I accept, though, that the Bill will require some employers to contribute more. These are difficult decisions and not ones we wanted to take. I understand and respect the legitimate concerns that have been raised, including by some businesses. But, taken together, the measures in the Bill mean that more than half of businesses with national insurance liabilities will either see no change or see their liabilities decrease. As my noble friend Lady O’Grady of Upper Holloway said, 865,000 employers will now pay no national insurance at all, and over 1 million employers will pay the same or less than they did before. In answer to the noble Viscount, Lord Trenchard, around 250,000 employers will see their liabilities decrease. Around 940,000 will see an increase and 820,000 will see no change.

The noble Lord, Lord Macpherson of Earl’s Court, asked about reducing distortions. Recent changes, such as reforms of the off-payroll working rules, have reduced distortions and we will keep this issue under review.

To all those noble Lords who asked, we have no plans to combine income tax and national insurance. Relative to other countries, our tax burden on employers hiring average earners remains low. The UK will remain below the OECD average and the third lowest in the G7, below France, Italy, Germany and Japan.

The noble Lord, Lord Jackson of Peterborough, asked about the impact of these changes on the public sector. We have set aside funding to protect the spending power of the public sector, including the NHS, from the direct impact of the changes, totalling £4.7 billion next year, rising to £5.1 billion in 2029-30. We are now working with departments to ensure that this funding is allocated appropriately, and specific allocations will be set out in due course.

In answer to the noble Lord, Lord Bruce of Bennachie, the Barnett formula will apply in the usual way. My right honourable friend the Chief Secretary to the Treasury is in regular contact with the Scottish Government on funding, including on the application of the Barnett formula.

Some noble Lords, including the noble Baronesses, Lady Kramer and Lady Neville-Rolfe, and the noble Lords, Lord Scriven and Lord Sharkey, spoke about the impact of the Bill on GPs, dentists and pharmacists. As the noble Lords will know, every year, the Government consult with each sector about both what services they provide and the money that providers are entitled to in return under their contracts. As in previous years, this issue will be dealt with as part of that process. The Department of Health and Social Care will shortly confirm funding for GPs, dentistry and pharmacy.

The noble Baroness, Lady Kramer, and the noble Lords, Lord Forsyth of Drumlean, Lord Scriven, Lord Udny-Lister and Lord Sharkey, asked about adult social care providers. The Government are providing a real-terms increase in core local government spending power of 3.5% in 2025-26. To support social care authorities to deliver key services, we also announced a further £200 million for adult and children’s social care at the provisional local government finance settlement last month. This will be allocated via the social care grant, bringing the total increase of this grant in 2025-26 to £880 million, meaning that up to £3.7 billion of additional funding will be provided to social care authorities in 2025-26.

Several noble Lords—including the noble Baronesses, Lady Porter of Fulwood, Lady Bray of Coln, Lady Sater and Lady Neville-Rolfe, the right reverend Prelate the Bishop of Southwark and the noble Lord, Lord Blackwell—focused on the impact on charities, including hospices. We are supporting the hospice sector with a £100 million boost for adult and children’s hospices, to ensure that they have the best physical environment for care, and £26 million revenue to support children and young people’s hospices. More widely, the Government provide support for charities, including hospices, via the tax regime, which is among the most generous of anywhere in the world. Tax reliefs for charities and their donors were worth just over £6 billion for the tax year to April 2024.

The right reverend Prelate the Bishop of Southwark asked about listed places of worship. The outcome of this programme is currently being assessed by the DCMS, as it finalises its financial allocation for 2025-26. The right reverend Prelate also asked about SEN transport. In the Budget, the Government announced £2 billion of new grant funding for local government in 2025-26. This includes £515 million to support councils with the increase in employer national insurance contributions, which covers special educational needs home-to-school transport schemes.

The noble Baronesses, Lady Kramer and Lady Neville-Rolfe, asked about childcare and the impact on the rollout of the expanded entitlement. Early years providers play a crucial role in driving economic growth, which is why we have committed to open 3,000 new school-based nurseries in this Parliament. At the Budget, the Chancellor announced that total funding will rise to over £8 billion in 2025-26 to support providers. On top of this, last month, the Department for Education confirmed an additional £75 million to help the sector expand next year, and a further £25 million to support childcare for disadvantaged children through the early years pupil premium.

The noble Baroness, Lady Sater, asked when the impact assessment will be published. The tax information and impact note was published on 13 November, alongside the legislation when it was introduced. The latest forecasts for tax revenues were published alongside the Office for Budget Responsibility’s October Economic and Fiscal Outlook.

Many noble Lords—including the noble Baroness, Lady Neville-Rolfe, the noble Lords, Lord Macpherson of Earl’s Court, Lord Forsyth of Drumlean, Lord Londesborough, Lord Ahmad of Wimbledon and Lord Mackinlay of Richborough, and the right reverend Prelate the Bishop of Southwark—focused on the wider macroeconomic impact of the Bill. As I said in my opening speech, not to act was not an option. The choices we have made were the only route to putting the public finances back on a stable path while protecting working people and rebuilding public services. The economic data we have seen in recent months is disappointing. In particular, the recent growth figures show the sheer scale of the challenge we face, and the noble Lord, Lord Horam, set out the dire inheritance that we faced on growth.

The fact is that there would have been far greater cost to continuing with the irresponsibility and instability that has been a near-constant feature of the past 14 years—from the chaos of Brexit and the disastrous deal that followed, which reduced GDP by 4%, through to the Liz Truss mini-Budget that crashed the economy and devastated family finances. Let us remember that the Office for Budget Responsibility has also been clear that, with particular reference to our capital investments, the Budget will increase the size of the economy in the long term.

The noble Lord, Lord Blackwell, rightly identified the problem of inactivity, which is higher than it was before the pandemic. He rightly identified the issues in the benefits system that contribute to that. The Government will bring forward proposals in this area in the coming months. The noble Lord also asked about public sector productivity. Unlike the previous Government, we have introduced a 2% productivity target for all government departments and have said that above-inflation pay awards will be affordable only if they can be funded from improved productivity.

The noble Baronesses, Lady Neville-Rolfe and Lady Moyo, spoke about the impact on inflation. The independent Office for Budget Responsibility says that it expects inflation to remain close to the 2% target throughout the forecast period. This is of course very different from the previous Parliament, when inflation peaked at 11.1% and was above target for 33 consecutive months, and when mortgages rose by an average of £300 a month following the Liz Truss mini-Budget.

The noble Baronesses, Lady Neville-Rolfe and Lady Noakes, and the noble Lords, Lord Howard of Rising, Lord Elliott of Mickle Fell and Lord Altrincham, spoke about employment. The Office for Budget Responsibility’s October forecast, which takes into account all tax measures announced in the Budget, forecasts that the unemployment rate will now fall to 4.1% next year and remain low until 2029. It also expects the number of people in employment to rise by 1.2 million over the course of this Parliament. As I have said to the noble Lord, Lord Elliott of Mickle Fell, on previous occasions, we remain committed to the 80% employment ambition.

The noble Baroness, Lady Neville-Rolfe, asked about the impact of this Bill on living standards. As noble Lords will be aware, the previous Parliament was the worst for living standards ever recorded. The Office for Budget Responsibility’s forecast shows that real household disposable income will increase in real terms every year over the course of this Parliament.

The noble Lord, Lord Forsyth of Drumlean, and the noble Baroness, Lady Noakes, asked about the impact of the Bill on wages. The independent Office for Budget Responsibility expects real wages to increase by 3% over the next five years.

This Bill also serves another key purpose: to fix our broken NHS and put an end to over a decade of underinvestment, neglect and inequality, as my noble friend Lady O’Grady of Upper Holloway said. That is because this Government inherited not only broken public finances but an NHS experiencing the worst crisis in its history. It is for this reason that the Budget included extra investment of £25.7 billion for the NHS over this year and next—investment that is possible only because of the measures in this Bill.

This Government had to take some very difficult decisions, reflected in the Bill we have debated today; not decisions we wanted to take, but necessary decisions to clear up the mess we inherited. Some noble Lords have today argued otherwise. The noble Baroness, Lady Neville-Rolfe, set out her position eloquently, but I did not hear a single alternative proposal. What is her alternative—that we should have ignored the black hole in the public finances? That is the path of irresponsibility and a repeat of the path chosen by the Liz Truss mini-Budget. That is not the path chosen by this Government. Yes, it was a significant Budget, on a scale commensurate with the challenging inheritance that we faced.

I recognise that the measures in this Bill involve asking some businesses to contribute more. However, as a result, and made possible only by the measures contained in this Bill, we have now wiped the slate clean, creating a platform of stability in the public finances. In doing so, and in contrast to the previous Government’s choice to freeze income tax thresholds, we have protected working people, keeping our manifesto commitments not to raise their income tax, their national insurance, or VAT. Again, as my noble friend Lord Eatwell pointed out, the noble Baroness, Lady Neville-Rolfe, said that this was the wrong tax to raise, but gave no detail about what other taxes she would raise. Would she have raised taxes on working people instead? The noble Lord, Lord Forsyth, at least suggested taxing some pensioners more, but from the Official Opposition there simply is no plan.

We have made historic new investment in our NHS and begun to put an end to years of underfunding and neglect. The choices that we have made to repair the public finances, protect working people and invest in Britain’s future are the only responsible choices in the circumstances that we faced. None of these things would be possible without this Bill. This Government were elected on a mandate to fix the foundations of our economy, and that is exactly what we will do. The Bill delivers on that mandate and provides a foundation of stability upon which we will now build long-term sustainable growth so we can rebuild our public services and make working people better off.

National Insurance: GDP

Lord Livermore Excerpts

Thursday 19th December 2024 Lords Chamber

[Lord Altrincham]

To ask His Majesty’s Government what assessment they have made of the impact of the increase in National Insurance contributions for employers on gross domestic product growth.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, the £22 billion black hole left by the—

[Noble Lords]

Oh!

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[Lord Livermore (Lab)]

The £22 billion black hole left by the previous Government meant we had to make very difficult decisions to repair the public finances, rebuild public services and restore economic stability. Following the Budget, the Office for Budget Responsibility has revised up its growth forecasts for the next two years, as has the Bank of England. The OECD now expects the UK to be the fastest-growing European G7 economy. The OBR has also said that there will be significant increase in growth as a result of the Budget over the longer term.

[Lord Altrincham (Con)]

I wish the Minister a happy Christmas, even with the reminder of the schwarzes Loch.

Memories of Christmas past and the story of A Christmas Carol remind us that extracting the most amount of money from a business can have surprising consequences. In this case, can the Minister comment on whether increasing employment costs will lead to an increase in prices or a reduction in jobs, and can he specifically comment for us on the impact on the hospice sector?

[Lord Livermore (Lab)]

I wish the noble Lord a merry Christmas and a happy New Year in return. As I said, we did have to clear up the mess that we inherited, and that did mean taking some very difficult decisions. I of course understand and respect the legitimate concerns that have been raised, and we have consistently acknowledged that there will be wider impacts as a result of the decisions that we have taken. But I do genuinely say that not to act and not to repair the public finances and restore economic stability was simply not an option. As I have said, let us be clear: following the Budget, the OBR, the Bank of England and the OECD have all revised up their growth forecasts.

[Baroness Kramer (LD)]

My Lords, a report in 2021 by Skills for Care calculated that adult social care alone contributed some £70 billion to the economy and that:

“Sustained growth in adult social care will boost local economies via the induced and indirect effects”—


and this was especially in northern and Midland regions. Does the Minister understand that the ongoing lack of investment in social care, combined with new burdens—notably the increase in employers’ NICs—could put this growth into reverse? Will the Minister make to his Government the economic case for exempting the care sector from increased employer NICs?

[Lord Livermore (Lab)]

I have the greatest respect for the noble Baroness’s consistent focus on the importance of social care. The answer to her last question is no, but the Government are providing at least £600 million of new grant funding for social care in 2025-26, as part of the broader estimated real-terms uplift to core local government spending power of approximately 3.2%.

[Lord Londesborough (CB)]

My Lords, does the Minister agree that the drop in job vacancies in November at the steepest rate since the pandemic is not only bad news for economic growth but reflects very poorly on both the run-up to the Budget and the Budget itself—in particular, raising employers’ national insurance contributions while increasing the minimum wage at three times the rate of inflation? Is this not a recipe for job destruction rather than job creation?

[Lord Livermore (Lab)]

Well, no. The OBR has been very clear that the number of people in employment will increase by 1.2 million over the course of this Parliament. As I said before, we had to take some very difficult decisions to clear up the mess that we inherited. I would simply ask the noble Lord and other noble Lords what their alternative is to the course of action that we took? Are they seriously saying that we should not have repaired the public finances? Are they seriously saying that we should not have restored economic stability? Quite frankly, that is the path that the Liz Truss mini-Budget took. We saw what happened then: she crashed the economy and working people are still paying the price today.

[Lord Blunkett (Lab)]

My Lords, can my noble friend the Minister confirm that, in the 12 months leading up to the general election, the previous Government, in reducing national insurance on employees by 4p, actually gave away £20 billion and that there has been no discernible improvement in economic activity as a result? Is not this entirely their fault and not ours?

[Lord Livermore (Lab)]

My noble friend is absolutely right that the actions taken by the previous Government were consistent with the actions of a Government who had a total lack of regard to the stability of the public finances—which is exactly why we ended up with a £22 billion hole in those public finances because, although they willed the ends, they never willed the means.

[Lord Popat (Con)]

My Lords—

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[Baroness Sugg (Con)]

My Lords, can the Minister respond to the question from my noble friend on the Front Bench about the impact of national insurance contributions on the care sector, and specifically on hospices?

[Lord Livermore (Lab)]

As I said to the noble Baroness, Lady Kramer, the Government are providing at least £600 million of new grant funding for social care in 2025-26.

[Lord Wigley (PC)]

My Lords, colleagues in all parts of the House will have received representations on a scheme drawn up to help disabled children get to school, which is being undermined and will probably have to close down as a result of this increase in national insurance payments. Was that sort of scheme considered by the Government, or was it not considered at all before this decision was taken?

[Lord Livermore (Lab)]

I am not aware of the specific scheme that the noble Lord raises, but I will happily look into it and I shall write to him on it.

[Lord Brooke of Alverthorpe (Lab)]

Given the ever-increasing demands for more and more public expenditure which we listen to every day of the week in this House, will the Minister consider presenting a form of debate for the House whereby we can look to try to extend the area in which tax might be raised to meet those public expenditure demands? Could he also look at the possibility that we may increase national insurance contribution returns by extending national insurance contributions beyond the state retirement age, as we now have 1.5 million people working beyond that age?

[Lord Livermore (Lab)]

The question of which debates the House has is not a matter for me—I think that is somewhat above my pay grade—but my noble friend is absolutely correct to say that we hear consistent demands from the party opposite for more and more spending, but they never seem to be willing to tell us exactly where the funds for that will come from. Of course, that is exactly why we ended up with a £22 billion black hole in the public finances: because they never took the difficult decisions to pay for any of their promises.

[Lord Leigh of Hurley (Con)]

My Lords, I may only have an economics degree but, none the less, that makes me an economist in the way things are currently. As such, the OBR has made it clear there is no £22 billion black hole, which is why there is the same response from this side of the House. But what is clear is that £40 billion has been taken from the private sector to the public sector. Companies have to respond to that. Their only choices are either to increase prices, which they are, to reduce wage increases, which they are, or to reduce investment in jobs and other capital items. As a result, of course, the PMI is at its lowest level since 2009 and, within 24 hours of the Budget, the gilts went up 40 basis points. Can the Minister explain that and can he also please address the issue of care homes? I am involved in a charitable care home which has received a £1.5 million extra bill. We do not know how we are going to pay that bill. I will not name the care home, but I will take this opportunity to wish the Minister a happy Hanukkah.

[Lord Livermore (Lab)]

I am very grateful to the noble Lord for his last comment and I obviously say the same to him. I am also grateful to him for raising the £22 billion black hole again. He is possibly the only Member of this House who mentions it more often than I do and he will be absolutely aware of the outcome of the OBR’s review. It conducted a review into a meeting it had with the Treasury on 8 February, when the Government were obliged under the law to disclose all unfunded pressure against the reserve. The OBR’s review has established that, at that point, the Government concealed £9.5 billion. The OBR made 10 recommendations to stop this ever happening again, which this Government have accepted in full. But, of course, the previous Government still had five more months left in office and they continued to amass unfunded commitment after unfunded commitment that they did not disclose. By July, records show that that had reached £22 billion. The noble Lord asked a number of subsequent questions and I simply ask him: is he seriously saying that we should not have repaired the public finances? Is that his serious contention? That is absolutely what the Liz Truss mini-Budget did and we saw exactly how that ended up.

Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024

Lord Livermore Excerpts

Wednesday 18th December 2024 Lords Chamber

Moved by

[Lord Livermore]

That the draft regulations and orders laid before the House on 6 and 11 November be approved.

Relevant document: 9th Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 17 December.

Motions agreed.

Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024

Lord Livermore Excerpts

Tuesday 17th December 2024 Grand Committee

Moved by

[Lord Livermore]

That the Grand Committee do consider the Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, with the leave of the Committee, in moving this instrument, I shall speak also to the Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2024 and the Short Selling Regulations 2024. Noble Lords may be aware that the Secondary Legislation Scrutiny Committee raised the ring-fencing and short selling regulations as instruments of interest in its secondary legislation report, published last month.

The regulations being introduced today will ensure effective, proportionate regulation for the financial services sector in three ways: first, by reforming the ring-fencing regime to be more flexible while upholding financial stability safeguards; secondly, by creating a new framework for the regulation of short selling; and, thirdly, by enabling better supervision and enforcement of designated activities under the Financial Services and Markets Act 2023.

I will first address the reforms to the ring-fencing regime for banks. As noble Lords will know, ring-fencing was introduced following the global financial crisis, on the recommendation of the Independent Commission on Banking, and came into full force in 2019. It requires large complex banks to separate the services that they provide to households and small and medium enterprises from investment banking activity.

In 2022, an independent statutory review of the regime recommended updates to ensure that it operates as intended and is proportionate. This statutory instrument improves the regime and implements changes from the review. The reforms that it contains will improve competition in the banking sector, reduce costs and support economic growth. They have been developed with the Prudential Regulation Authority, which is content that they also maintain appropriate financial stability protections.

The reforms will ensure that, in future, only the largest and most complex banks are subject to the regime, with two key changes. The first of these is an increase in the primary deposit threshold—the amount of core deposits a bank can hold before it is required to ring-fence—from £25 billion to £35 billion. This accounts for growth in the deposit base and other relevant economic indicators since ring-fencing was introduced, and supports competition. The second is the introduction of a new secondary threshold that exempts retail-focused banking groups from the regime where investment banking activity accounts for less than 10% of common equity tier 1 capital.

This statutory instrument also makes changes to the way in which banks within the regime can operate. It introduces measures to encourage more investment by ring-fenced banks in UK small and medium enterprises and to reduce the compliance burden associated with the regime. It also creates significant new flexibilities to allow ring-fenced banks to operate globally, subject to Prudential Regulation Authority rules, as well as to provide a wider range of goods and services to their customers.

I turn now to the Short Selling Regulations 2024. Short selling is the practice of selling a security that is borrowed or not owned by the seller with the intention of buying it back later at a lower price to make a profit. Short selling plays a role in the proper functioning of financial markets. It provides essential liquidity to markets, which drives investment in British companies; it helps drive economic growth; and it helps ensure that investors pay the right price when investing in shares.

This statutory instrument introduces a more streamlined UK short selling regime, which focuses on equities rather than both equities and sovereign debt. The new regime also includes a reformed public disclosure regime for short selling to ensure that there is transparency over short selling activity, without the issues identified with the current regime through the 2022 call for evidence.

There can, however, be risks associated with short selling. As such, it is important for the Financial Conduct Authority to have the tools necessary to monitor short selling activity effectively and to intervene. This statutory instrument provides the Financial Conduct Authority with broad rule-making powers in relation to short selling. This will allow the Financial Conduct Authority, in effect, to oversee short selling in UK markets. It will also mean that the UK’s short selling rules can be adapted and updated by the Financial Conduct Authority in a more agile way in the future—for example, to better adapt to new global standards or to take account of market innovation and new business models.

This instrument also retains the Financial Conduct Authority’s powers to intervene in short selling activity in UK markets in exceptional circumstances—an important feature of the current regime.

Finally, the Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024 give the Financial Conduct Authority the broad rule-making power for short selling that I have just mentioned. The new short selling regime operates under the designated activities regime introduced into the Financial Services and Markets Act 2000 by the Financial Services and Markets Act 2023.

The designated activities regime allows the Treasury to designate certain activities to be regulated by the Financial Conduct Authority without the requirement for those carrying on the activities to become full authorised persons, such as banks or insurers. This enables proportionate regulation of activities where it would be inappropriate to require full authorisation.

The designated activities supervision and enforcement regulations enable the Financial Conduct Authority to supervise and enforce rules that it makes under the designated activities regime. They do this by extending the Financial Conduct Authority’s existing supervision and enforcement powers under the Financial Services and Markets Act 2000, so that they can be used in relation to designated activities, even where those carrying out the activities are not authorised persons. The extension of these powers applies, in the first instance, to designated activities covered by the Consumer Composite Investments (Designated Activities) Regulations 2024 and the Short Selling Regulations 2024. This will enable effective supervision of the regimes that those regulations introduce.

In closing, these SIs ensure that our financial services industry is subject to a rule book that is fit for purpose, more proportionate and tailored to UK markets. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, first I declare my interests in financial services, as in the register—just in case. I will speak to the Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations and then to the Short Selling Regulations.

The set of rules and provisions under which the FCA can give directions is important. Every time something is the subject of such a direction or supervisory action, there is an opportunity to go to a tribunal. I wonder whether the Minister has any statistics, from looking at the FCA’s present powers and at when tribunals can be invoked, on how frequent that is. I am trying to get at one of the things that has irritated me, which, as the Minister knows, is that the FCA seems quite slow to respond when something is going on in the market. One’s instinct, if we know that something is going wrong, is to want quick action. These provisions allow that, but they could always be subject to challenge. So how might that interfere? The question is a little theoretical, but is anything already being done in that way with which we might compare it? I realise that that information might not be to hand; if it is not, I would be happy to have a letter.

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[Baroness Neville-Rolfe (Con)]

My Lords, I rise to address these three significant pieces of legislation, which collectively aim to refine and enhance the regulation of our financial services sector. The measures come at a pivotal time for not only our financial services industry but the broader economy, as we navigate the challenges and opportunities presented by our post-Brexit regulatory autonomy.

My overall concern is that we are moving too slowly and too modestly to reduce the constraints that existed in the EU regime, and to encourage the competition and dynamism that we need for growth. This means that the US financial services industry and the industry in newer markets, such as Singapore, are eroding our prime position despite our dual advantage of time zone and the English language. Questions have been asked about the effectiveness of our stock market; indeed, that was highlighted today by the reaction to the Canal+ listing in London, which, obviously, we all welcomed. We look forward to debating the reforms announced in the Mansion House speech.

In the light of all this, the instruments demand careful scrutiny. I will also follow the sequence on the Order Paper. The first measure under consideration deals with the supervision and enforcement of designated activities. This legislation builds on the regulatory framework of the Financial Services and Markets Act 2000, empowering regulators to oversee specific activities that pose systemic or consumer risks. From our perspective, this is a necessary and prudent step. By focusing regulatory attention on designated activities rather than institutions alone, we can ensure that oversight remains targeted and proportionate.

Yet it is vital that this power is exercised judiciously. Overzealous enforcement could stifle innovation and deter smaller players and start-ups from entering the market at all. We would like to see a regulatory approach that provides clarity and certainty, enabling businesses to thrive while protecting consumers and market integrity. We also want to keep compliance costs down for business, especially smaller business. Historically, that has not always been the way of the financial regulators—nor, I am afraid to say, of the Treasury. Does the Minister agree that financial regulation should be more careful about the costs that it imposes? I know from the Mansion House speech that the Chancellor wants to be more competitive; I would like to see that reflected in financial regulation.

Incidentally, I was surprised to see this in paragraph 9.1 of the Explanatory Memorandum:

“The government does not generally assess successful enforcement action—such as fines levied after a breach of rules—as a cost to firms”.


From my experience, enforcement can be very costly to a firm: in legal fees, to fight any unfairness and possible reputational damage; in diversion of management time and talent; and in finding money from tight budgets for any fine. That is a good reason for a firm to comply with the established rules but it is also a reason for our regulators to work hard, in order to make compliance with the law easy, and not to judge themselves on the amount of fines they levy.

There is a related point on which I would very much welcome a response. The Minister may be aware of the huge concerns raised by the financial services sector about the FCA’s proposals earlier this year to name and shame firms involved in FCA enforcement action. It is consulting again, I am glad to say, on modified proposals. Can the Minister say whether the FCA intends to apply these new rules to the persons who are within the designated activities regime, which is at issue today, rather than, or as well as, the authorised persons regime? I know that the Chancellor, like her predecessor, has expressed concerns about naming and shaming. Clearly, we need to tread with great care in this area.

I look forward to hearing the answers to the questions from the noble Baroness, Lady Bowles of Berkhamsted, about tribunals and speed. I should like to say that her grasp of technical aspects of financial services law is extremely helpful to this Committee in the scrutiny of complex SIs such as these; we owe her a great deal. However, I have to say, I am not sure that I completely agree with her on FCA objectives, as I think that responsible growth and dynamism need also to come through in the way the FCA behaves.

That brings me to the second measure, which addresses short selling—an activity that has long been a point of contention in financial markets. Short selling, when responsibly undertaken, contributes to market liquidity and price discovery, as the Minister explained. Personally, I would have been more radical in moving away from the EU regulation, and perhaps in giving the FCA narrower rule-making powers. However, the proposed regulations seek to establish a robust framework for managing the risks of short selling while preserving its legitimate role, for example in times of crisis; I think that “exceptional circumstances” was the term the Minister used.

Moreover, on public disclosure, I welcome the move to a list of securities that are within the scope of the rules—this is in paragraph 5.11 of the second SI’s Explanatory Memorandum—rather than having a list of shares the FCA considered to be exempt. This will be clearer and easier. However, I urge the Government to ensure that the reporting and compliance burdens on market participants arising from this new instrument remain proportionate. Excessive red tape hinders the competitiveness of our financial markets, and I believe that we still have too much of it.

I say in response to the noble Baroness, Lady Kramer, that I, too, have learned a lot from history. She mentioned what I think she called “casino banking” but, as a former bank non-executive director—long after the financial crisis—I can vouch for the thoroughness of the checks that are made on personnel with responsibilities. My only concern is that this might be a less leisurely process because, obviously, personnel changes are often needed to run organisations well.

The third and final measure relates to amendments to the ring-fencing framework established in the wake of the global financial crisis. Ring-fencing was designed to protect retail banking operations from the risks associated with investment banking. Although this principle remains sound, the financial landscape has evolved considerably since the original provisions were enacted.

The proposed amendments rightly seek to introduce greater flexibility into the ring-fencing regime. This is a sensible response to changing market dynamics and the need for regulatory frameworks to evolve. Having said that, I think that increasing the limit from £25 billion to just £35 billion is timid, especially given recent inflation. Like the noble Baroness, Lady Kramer, I would like the Minister to remind the Grand Committee which of our banks will need to be ring-fenced going forward and to name some of those that will escape and be able to grow and diversify, both here and overseas, more easily.

In other respects, I say to the Minister and his officials that the Explanatory Memorandum and de minimis assessment on this instrument were very thorough and helpful.

As Conservatives, we understand the critical importance of maintaining the UK’s status as a global financial hub. This requires not only robust regulatory frameworks but a willingness to adapt and innovate in response to new challenges and opportunities, such as AI. I urge the Government to continue the processes of dealing with retained EU law and of engaging with industry stakeholders in order to ensure that domestic measures are implemented effectively and without unnecessary burdens or delays. In doing so, it should be possible to foster a competitive financial services sector that drives economic growth and innovation, creates jobs and enhances our nation’s global standing.

[Lord Livermore (Lab)]

My Lords, I am extremely grateful to all noble Lords who have spoken—specifically, the noble Baronesses, Lady Bowles, Lady Kramer and Lady Neville-Rolfe—for their comments and questions and for, as others have observed, the extraordinary level of expertise that they bring to this debate and, as a result, the level of scrutiny that they are able to provide. I apologise for speaking to the instruments in an order other than that on the Order Paper.

The noble Baroness, Lady Bowles, began by focusing on the designated activities SI. She asked about the direction power. The designated activities regime provides a power of direction to the Financial Conduct Authority. The Treasury can, by regulations, switch on that direction power for the Financial Conduct Authority’s supervision of any given designated activity. This statutory instrument sets out additional procedure for how that power may be exercised, but it does not create or switch on the direction power itself.

The noble Baroness, Lady Bowles, also asked for some statistics on the frequency of tribunals. I will write to her on that, as she requested. If she does not mind, I will also write to her on her second question, which was about the differences in the power of direction between CCIs and short selling.

The noble Baroness then went on to focus on the short selling SI. She asked how the views of consumers were considered. These reforms were informed by extensive industry engagement, taking into account views from a wide range of market participants, including consumers. The new UK regime will ensure that the regulation works effectively to protect against the risks of short selling while improving UK competitiveness.

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[Baroness Kramer (LD)]

Can I ask the Minister for clarification? It would seem that, if individual entities are disclosing their net short position, it is possible for an investor to understand whether the price is being affected by one institution that is making a very big play or by a series of institutions that are making a similar play. That is important information, and I have no idea how you can get it once everything is aggregated —unless I have misunderstood all of this completely, which is perfectly possible.

[Lord Livermore (Lab)]

Since I am going to write to the noble Baroness on those other two points, it is probably best that I write to her on that one, so that we can be absolutely clear.

In the meantime, I move on to the questions on the ring-fence from the noble Baroness, Lady Kramer. She spoke about a return to casino banking, but she will understand that I disagree with her on that point. These are sensible, technical reforms on which the Treasury has undertaken detailed work with the PRA. The PRA is satisfied that they maintain the appropriate financial stability safeguards. The Treasury has considered the combined overall risk of reforms to the sector, alongside detailed cost-benefit analysis through an impact assessment. That impact assessment concluded that the reforms will improve outcomes for banks and their customers by making the ring-fencing regime more flexible and proportionate, while maintaining appropriate financial stability safeguards and minimising risks to public funds.

The noble Baronesses, Lady Kramer and Lady Neville- Rolfe, asked which specific banks will be removed from the ring-fence as a result of these measures. The reforms create significant new optionality for banks, with the eventual benefits depending on their commercial decisions. It is for the banks to announce how they will utilise the new flexibilities created in the regime and the Government do not comment on specific firms.

The noble Baroness, Lady Kramer, also asked about firms being taken out of the ring-fence as a result of the primary threshold. No firms will leave the regime as a result of increasing the core deposit threshold.

The noble Baroness, Lady Neville-Rolfe, in contrast to other noble Lords, spoke of these reforms being too slow and modest. She also asked what assessment the Government had done on the impact of these SIs. We published impact assessments alongside both the ring-fencing and short selling statutory instruments, which set out their estimated impacts on firms. Both these statutory instruments are estimated to result in a net cost saving for industry.

The noble Baroness also asked how these SIs will deliver growth. There are several measures in the ring-fencing SI that have an impact on growth. We are increasing the core deposit threshold at which banks become subject to the regime, allowing them to grow, as well as exempting retail-focused banks from the regime. We have also introduced new flexibilities for ring-fenced banks to invest in UK small and medium enterprises. The Short Selling Regulations introduce a streamlined short selling regime, which reduces costs for firms and improves UK competitiveness, while still effectively protecting against the risks of short selling.

The noble Baroness also asked about the powers that the supervision and enforcement statutory instrument provides. Those regulations extend the normal powers that the Financial Conduct Authority already has over designated activities. They will allow the Financial Conduct Authority to supervise designated activities even where those carrying on the activities are not authorised persons. They mean that it will be able to gather information on and launch investigations into persons carrying on designated activities, and to enforce its designated activity rules, by publicly censuring or imposing financial penalties on persons who breach them. The Financial Conduct Authority will also be able to restrict or prohibit persons from carrying on the activity if necessary. I will write to the noble Baroness, Lady Neville-Rolfe, on the broader FCA enforcement approach.

[Baroness Neville-Rolfe (Con)]

Before the Minister goes on, I want to ask about naming and shaming. Is it to be done at the stage when enforcement becomes public? Can we be clear when the naming and shaming will take place? The Government are still considering exactly what they are going to do on naming and shaming, I think. It would be good to have confirmation on that because this area is of particular concern to the industry, for an obvious reason: the reputational hit of naming and shaming is substantial.

[Lord Livermore (Lab)]

If there is anything more that I can usefully add, I will include it in the letter that I will write to the noble Baroness.

A final question was asked about why we have increased the limit by just £10 billion. It was recognised when the ring-fencing regime was originally designed that the threshold would need to be adjusted over time to reflect the evolution of banking practices and growth in the deposit base. The Treasury considered several metrics, as well as financial stability and competition considerations, in proposing the £10 billion increase.

Increasing the deposit threshold will provide smaller banks with more headroom to grow before being subject to the requirements and costs of ring-fencing. This will support domestic competition in the retail banking market. A competitive and dynamic market improves outcomes for depositors. The reforms may also encourage inward investment in the UK, as new entrants to the UK banking market will have more room to grow and develop economies of scale before becoming subject to the regime.

I hope that I have covered all noble Lords’ questions. As I say, I will write on the points that I indicated.

Motion agreed.

Short Selling Regulations 2024

Lord Livermore Excerpts

Tuesday 17th December 2024 Grand Committee

Moved by

[Lord Livermore]

That the Grand Committee do consider the Short Selling Regulations 2024.

Relevant document: 9th Report from the Secondary Legislation Scrutiny Committee

Motion agreed.

Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2024

Lord Livermore Excerpts

Tuesday 17th December 2024 Grand Committee

Moved by

[Lord Livermore]

That the Grand Committee do consider the Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2024.

Relevant document: 9th Report from the Secondary Legislation Scrutiny Committee

Motion agreed.

Silicon Valley Bank UK Limited Compensation Scheme Order 2024

Lord Livermore Excerpts

Tuesday 17th December 2024 Grand Committee

Moved by

[Lord Livermore]

That the Grand Committee do consider the Silicon Valley Bank UK Limited Compensation Scheme Order 2024.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I beg to move that the Committee do consider this order, which is related to the 2023 resolution of Silicon Valley Bank UK Limited. This order confirms that the former shareholder of SVB UK is not entitled to compensation following the transfer of the bank’s shares to HSBC UK Bank plc.

As noble Lords know, in early March 2023, SVB UK experienced severe financial distress, resulting in rapid deposit outflows. This crisis, originating from its US parent entity, quickly spread to its UK subsidiary. By Friday 10 March, the Bank of England, acting as the resolution authority, declared its intention to place SVB UK into a bank insolvency procedure, absent any meaningful new information.

Over the subsequent weekend, a private sector purchaser was identified. On Monday 13 March, the Bank of England exercised its power under the Banking Act 2009 to transfer the shares of SVB UK to HSBC UK Bank plc. This action was taken following consultation, with the Prudential Regulation Authority, the Financial Conduct Authority, the Treasury and the Bank of England reaching the judgment that the resolution conditions set out in the Banking Act had been met.

The Banking Act requires the Treasury to make a compensation scheme order when the private sector purchaser power is exercised. This order is a mechanism to establish in law what compensation, if any, is due to former shareholders of the resolved firm. The Bank of England undertook a provisional valuation when placing SVB UK into resolution. That valuation found that SVB UK’s shareholder would not have made any recoveries had the firm been placed into a bank insolvency procedure, and therefore no compensation is due to SVB UK’s former shareholder. The Bank of England then commissioned an independent valuation of SVB UK, which confirmed that no compensation is due to the previous shareholder of SVB UK. The order before us today confirms in law the findings of these valuations: that the former shareholder of SVB UK is not due any compensation.

The compensation scheme order for SVB UK is a necessary step to formalise and conclude the resolution process and confirm that no compensation is due to the former shareholder. This decision is based on thorough valuations and adheres to the legal framework established by the Banking Act 2009. I beg to move.

[Baroness Kramer (LD)]

My Lords, the Minister may be pleased to hear that I have very little to say on this SI. It makes sense to me. The Bank of England report on the transfer of Silicon Valley Bank UK to HSBC argues clearly and logically that, in any reasonable scenario, SVB’s UK tier 1 and tier 2 capital would have been wiped out, so there are no grounds to compensate the former US parent.

However, the fact that this SI is needed raises a question. The resolution of large banks that fail would require wiping out shareholders and calling in bail-in bonds under the MREL procedures without compensation. Would those processes all require a report and an SI to be laid in order for action by the Bank of England to be legal? If that is what the legislation currently says, is there a flaw in the resolution legislation? If there is a flaw, does it need to be rectified? In other words, it seems extraordinary that we need an SI under these circumstances at all.

[Baroness Neville-Rolfe (Con)]

I also welcome the draft Silicon Valley Bank UK Limited Compensation Scheme Order 2024. It rightly confirms in law that no compensation is due to shareholders of Silicon Valley Bank UK Ltd on the transfer of shares to HSBC UK Bank plc in March 2023, when, as the Minister explained, the former experienced rapid deposit outflows.

The swift action that the last Government took to facilitate the sale averted a potential catastrophe for tech start-ups and small businesses dependent on that bank—precisely the kind of enterprises that can help to drive Britain’s growth and innovation in the decades to come. The special resolution regime reinforced trust in the financial system while reminding us that stability is the foundation upon which innovation thrives.

Although I welcome this order, can the Minister clarify how the lessons learned from this well-handled crisis will inform future regulation of mid-sized banks? Further, can he elaborate on how the scheme aligns with our wider growth agenda? To my mind, the tech sector is critical to Britain’s global competitiveness, and maintaining its trust in the financial system is key to sustaining our position as a world-leading hub for innovation—an ambition that is under some challenge, as I mentioned earlier. But I am very happy with this order.

[Lord Livermore (Lab)]

My Lords, I am grateful to the noble Baronesses, Lady Kramer and Lady Neville-Rolfe, for their support for the compensation scheme order.

The noble Baroness, Lady Kramer, asked whether this SI was genuinely needed. In terms of the specifics, I can assure her that I would not be standing here if it was not, but I will write to her about the hypothetical that she raises.

I am grateful to the noble Baroness, Lady Neville-Rolfe, for the points that she made. I agree very much with what she said about the importance of the action that was taken. She asked whether we have learned the lessons from that for future regulation. I point to the bank resolution Bill that I have just taken through the House. It is absolutely informed by the experience of the Silicon Valley Bank episode and directly flows from it.

The noble Baroness also asked how this order relates to the growth agenda. As I always say, stability is the first pillar of the growth agenda. Financial stability is as important as economic stability and I believe that this order will help to ensure financial stability as that platform for growth. With that, I commend it to the Committee.

Motion agreed.

Listed Investment Companies (Classification etc) Bill [HL]

Lord Livermore Excerpts

3rd reading
Friday 13th December 2024 Lords Chamber

[The Earl of Effingham (Con)]

My Lords, I thank the noble Baroness, Lady Bowles of Berkhamsted, who has argued so cogently and cohesively for the Bill.

Finding ourselves in this position appears to be a mistake, and it is essential that we take the right steps to ensure that disclosures relating to closed-end listed investment companies are presented accurately. This is not merely a point of minute detail. As the noble Baroness has argued so diligently, the current situation has led to the loss of tens of billions of pounds of potential investments, resulting in economic damage to our country.

The Government tell us repeatedly that they want growth, and therefore the British people expect them to take the right steps to foster that growth. Indeed, as the Minister highlighted at Second Reading, EU-derived legislation related to retail disclosure is not fit for UK markets. We understand that the Government have committed to making changes to address and resolve these issues, and His Majesty’s Official Opposition greatly hope that the Government will continue to listen to the noble Baroness in a co-ordinated and collaborative effort to foster the growth that is essential if we are to deliver optimal outcomes for everyone across the country.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I congratulate the noble Baroness, Lady Bowles, on her Bill, and I thank her for her engagement on this issue so far. The Bill seeks to address an important concern for the sector, and I am grateful for the work of the noble Baroness and other noble Lords to raise awareness of the issue. As she has rightly identified, the previous legislation relating to retail disclosure was not fit for purpose. That is something on which the Government, the Financial Conduct Authority and many Members of this House agree, and it is an area in which this Government have already taken forward action to address industry concerns.

Only last month, the Government passed legislation to replace the package retail and insurance-based investment regulations with a new framework for consumer composite investments. That has provided the FCA with the appropriate powers to deliver a new disclosure regime that is more proportionate and tailored to UK markets and firms, including for investment trusts.

The Government also heard concerns from industry that the cost disclosure requirements have had an unintended consequence for the investment trust sector and its ability to fundraise. As a result, the Government took exceptional action to temporarily exempt investment trusts from cost disclosure regulation, with legislation passed last month to that effect.

Given that investment trusts offer their products to retail investors, it is right that they must provide tailored disclosure on costs, risks and performance to support consumer understanding. Together, the instruments that the Government have already passed will enable the FCA to holistically reform cost disclosure, addressing issues with current disclosure requirements. Ensuring that retail investors can make informed investment decisions is a key component of healthy UK capital markets.

I am grateful to the noble Baroness for her continued championing of the investment trust sector and for bringing her concerns to the Government’s attention. I hope she will recognise the genuine difference that her campaign has made. However, given the Government’s legislative interventions to resolve this issue, I am afraid I must express reservations on behalf of the Government on the Bill.

Bill passed and sent to the Commons.