Budget: Taxes and Borrowing
Lord Livermore Excerpts(1 year, 6 months ago)
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The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, the Budget raises taxes by £40 billion as we repair the public finances and rebuild our public services. Borrowing falls from 4.5% of GDP this year to 2.1% of GDP by the end of the forecast. The current budget moves into surplus from 2027-28, ensuring that we do not borrow to fund day-to-day spending.
Baroness Penn (Con)
My Lords, after delivering the biggest tax-raising Budget on record, the Chancellor rightly said at the weekend that she was wrong to rule out those tax rises ahead of the election. She also said that this Budget
“wiped the slate clean … set the spending envelope for the remainder of this Parliament”,
and that
“we don’t need to increase taxes further”.
Will the Minister repeat the Chancellor’s reassurances today and rule out any further tax rises in future Budgets, or should we not believe what the Chancellor has said this time round either?
Lord Livermore (Lab)
We had to take some very difficult decisions in the Budget. They were the right decisions to clear up the mess that we inherited from the party opposite, to rebuild the NHS after years of neglect, to choose investment and not decline, and to keep our promises to working people. However, the noble Baroness is absolutely right and of course I agree with what the Chancellor said. This was a very significant Budget, because of the need to repair the public finances and rebuild our public services simultaneously. We have now wiped the slate clean, meaning we never have to do a Budget like this again. The noble Baroness asks about tax, and I point out that we have kept every single promise that we made on tax. Her Government, when she was a Treasury Minister, froze income tax thresholds, costing working people nearly £30 billion. We could have extended that but we chose not to.
Lord Spellar (Lab)
My Lords, is it not the case that the last Government’s plans would have taken tax as a share of GDP to 37.1%? Even then, they subsequently announced, but failed to account for, billions of additional public spending while promising unrealistic tax cuts. Does my noble friend agree that last week’s Budget measures were necessary to fill the last Government’s black hole and get this country back on track?
Lord Livermore (Lab)
My noble friend is absolutely right in what he says. We faced a £22 billion black hole at the heart of our public finances, which we had to take steps to address. We also faced promises for compensation payments, which the previous Government had completely failed to put a single pound behind, and we had to repair public services simultaneously. In the process, though, we kept every single one of our manifesto commitments to restore stability, invest in our public services and protect working people.
Baroness Kramer (LD)
My Lords, the Budget basically ignored social care providers, even though the sector is on its knees and taking the NHS with it. Will the Minister take seriously the need to exempt care providers from the increase in employers’ NICs?
Lord Livermore (Lab)
The noble Baroness is absolutely correct: we had to take some very difficult decisions on tax. We have acknowledged that the impacts of those measures will be felt beyond business. We have chosen to compensate the public sector with £5.1 billion, to ensure that there is sufficient funding to support our vital public services, including the NHS. On social care, the Government have provided a significant funding top-up to local government, which can be used for pressures, including adult social care.
Viscount Hailsham (Con)
My Lords, the Minister will know that the OBR has forecast that growth will peak at 2% in 2025 and thereafter fall back, after 2026, to around 1.5%. Does the Minister regard that as a satisfactory outcome of a Budget that imposed £40 million in taxes?
Lord Livermore (Lab)
It was £40 billion in taxes. The noble Viscount is right that growth was one of the biggest failures of the previous Government, and we are absolutely determined to turn that around. We cannot undo the damage of the past 14 years in just one Budget. The OBR has said that growth is largely unchanged over the Parliament; that is in the context of a Budget with some very difficult decisions on tax to clear up the mess that we inherited. Of course, we need to go further and we need to go faster. That is why we are doing planning reform, pension reform and skills reform, all of which will boost growth and none of which is included in the OBR’s forecast. Let us remember that, under the previous Government, we were the only G7 country with investment below 20% of GDP. Our growth rate was dismal by OECD standards. Their Brexit deal imposed new trade barriers on business equivalent to a 13% increase in tariffs for manufacturing and 20% for services. They crashed the economy, with interest rates peaking at 5.25%.
Lord Patel (CB)
My Lords, does the Minister agree that the Budget failed to address the financial difficulties faced by the higher education sector?
Lord Eatwell (Lab)
My Lords, the noble Lords opposite have some difficulty in understanding the arithmetic of coming through the black hole of £22 billion. Even if they cannot do the arithmetic, they can see that the prisons are full, waiting lists in the NHS are the highest they have ever been, schools are crumbling and there is a lack of police on the streets. It is their failure. Would the Minister agree that that is the core of the failure that this Budget is designed to correct? Is there not one important word missing in statements from the party opposite? That word is “sorry”.
Lord Livermore (Lab)
I 100% agree with my noble friend. It is incredibly striking that, in everything we have heard from the party opposite, not once has it apologised for the record we inherited. One of the reasons this is a once in a generation Budget is that we have had to simultaneously repair public finances and rebuild public services. That is why it is such a historic Budget. My noble friend is absolutely right that what we have not heard from those in the party opposite is an alternative. Would they not have repaired the public finances? Would they not have prioritised working people? Would they now cut funding to the NHS and schools?
Baroness Vere of Norbiton (Con)
My Lords, the Labour Government are taking money from pensioners this winter, taxing family farms on the death of a loved one, and hiking taxes on the hospice and care sectors, all while handing out inflation-busting pay rises to train drivers with no strings attached. Can the Minister confirm that this practice will stop and that there will be no more above average inflation pay rises without an agreement on productivity improvements and reform?
Lord Sikka (Lab)
My Lords, I have long said that government debt is overstated, and I am surprisingly supported by a man called Jacob Rees-Mogg. On 2 August 2022, he effectively said that the balance at that time of £875 billion of quantitative easing—the amount owed by the Government to the Government—should not be included in the national debt. Its exclusion would reduce public debt to 60% of GDP, meaning that the Government would have more headroom to borrow, invest and grow the economy. Does the Minister agree?
Lord Livermore (Lab)
I absolutely agree with the importance of investment to the economy, which is why we have set out an investment rule which enables exactly that. The Government’s number one commitment is to economic and fiscal stability, which is why we have put in place those robust fiscal rules. It is interesting to note that average borrowing over the next five years will be 2.6% of GDP compared to 5.6% of GDP over the previous 14 years.
Lord Deben (Con)
My Lords, the Minister told the House that there were no promises broken in the Budget. The Secretary of State for Defra, which looks after agriculture, promised farmers that there would be no tax on inheritance. Why has he not resigned?
Lord Livermore (Lab)
On inheritance tax, currently the largest estates pay a lower effective tax rate than the smaller estates. I do not think that that can be right. Agricultural property relief is given on top of the normal inheritance tax thresholds. Individuals can pass up to £500,000 to a direct descendant, and then agricultural property relief would provide a further £1 million tax-free allowance. This means a couple can pass on up to £3 million tax free. Above that, there is a 50% discount on inheritance tax, so a rate of only 20% applies, and any liability can be paid in 10 yearly instalments. This seems to me to be pretty fair in the context of the decisions we have taken and in the context of what everyone else in society gets.
Lord Wallace of Saltaire (LD)
This Budget provided only a limited increase in defence spending, under circumstances in which the Ukraine war is depleting British stocks and our Armed Forces are under very considerable strain. If the Government were to consider that they needed to increase defence spending further, and to raise tax for that, would they be confident that the Conservative Party would support that, or do they think they would oppose it?
Lord Livermore (Lab)
I cannot speak for those in the Conservative Party—and it does not seem that they can speak for themselves either right now. It is very unclear what they would do at all in response to this Budget. We have set out a path for defence spending that fully meets our commitments, and we will set out a path to 2.5% in due course.
Bank Resolution (Recapitalisation) Bill [HL]
Lord Livermore ExcerptsMonday 4th November 2024
(1 year, 6 months ago)
Lords ChamberRead Full debate Bank Resolution (Recapitalisation) Act 2025 View all Bank Resolution (Recapitalisation) Act 2025 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 2-R-I Marshalled list for Report - (31 Oct 2024)
Lord Livermore
Member’s explanatory statement
See the explanatory statement for my second amendment to Clause 1.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, in moving government Amendment 1, I shall speak also to government Amendment 4. The Government have tabled these amendments after considering the concerns raised in Grand Committee by the noble Baronesses, Lady Noakes, Lady Bowles, and Lady Vere, and the noble Lord, Lord Vaux. I am extremely grateful to all of them for all of the points they have raised.
Reflecting in particular on the points made by the noble Baroness, Lady Noakes, the Government have decided to clarify in the Bill whose expenses can be covered by a recapitalisation payment from the Financial Services Compensation Scheme. I am grateful to the noble Baroness for her engagement on this matter since Grand Committee.
The Bill as introduced permitted a recapitalisation payment to cover the expenses that the Bank of England or another person has incurred, or might incur, in connection with the recapitalisation of the firm in resolution. These amendments replace that broad formulation with “relevant person”, then specify that “relevant person” means the Treasury, a bridge bank or an asset management vehicle. They further specify that “bridge bank” and “asset management vehicle” have the meanings given by Sections 12 and 12ZA of the Banking Act 2009 respectively.
In Grand Committee, the noble Baroness, Lady Noakes, indicated that she had no objection to the Treasury, the Bank of England and its entities having certain expenses covered by the new mechanism, but that this should be specified in the Bill. These amendments tabled by the Government seek to do just that; I hope that she and other noble Lords will be able to support them.
In Grand Committee, the noble Baroness, Lady Noakes, also asked questions about the specific expenses that would be in scope under the terms of the Bill. On this point, I should be clear that the Government maintain the position set out in Grand Committee: it is important that the Bill is not overly prescriptive, allowing the Bank to respond flexibly when costs arise. I refer to the explanations given in Grand Committee, in the Government’s response to the consultation and in the draft updates to the code of practice of the types of expenses that will be expected to be covered. The Government maintain that it is prudent to ensure that there is broad provision to cover these potential additional costs. Ultimately, it should be borne in mind that the alternative may be for such costs to be met by the taxpayer.
By way of reassurance, I reiterate that, in determining whether to include certain ancillary expenses in its request for funding, the Bank of England is subject to the usual obligations under public law to act in a way that is reasonable and proportionate. In addition, the legislation does not allow the Bank of England or any other person to claim expenses that arise exclusively for preparing for a Bank insolvency. The draft updates to the code of practice also set out that the Government would expect any final report on the use of the mechanism to explain why certain expenses were considered reasonable and necessary.
I hope that the Government’s approach as set out in these amendments addresses the points raised by noble Lords in Grand Committee, and that noble Lords will feel able to accept them. I beg to move.
Baroness Noakes (Con)
My Lords, I spoke in Committee. I draw attention to my interests as included on the register; in particular, I hold shares in a number of banks that could be affected by the contents of this Bill.
I thank the Minister for the comprehensive letters that he wrote to Members who took part in Committee—and, indeed, for the subsequent meeting that he organised. I also thank the Treasury for publishing the draft extra chapter for the code of practice, which has been very helpful to those of us trying to work through the Bill.
I certainly support the two amendments to which the Minister has just spoken, which go some way to limiting the wide power in new Section 214E(2), but I have some further questions for the Minister, building on the comments he has just made. These amendments constrain to whom payments can be made under that new subsection but they do not do anything to constrain the types of expenses that can be incurred. In Committee, I tried to explore what happens if litigation or regulatory actions arise in relation to issues that had occurred prior to the resolution action being taken but which do not emerge until a little later. We did not get very far, so I will spend just a couple of minutes on them here.
I am talking about material litigation or regulatory action. There could be shareholder litigation, which happened after RBS was bailed out by the Treasury. There could also be other kinds of issues that result in both regulatory action and civil litigation, as happened in relation to Libor, for example. Today’s hot issue is vehicle financing commissions, following the Court of Appeal’s decision recently, and no one knows how much it will cost.
Before this Bill, the working assumption was that smaller banks would be placed into the insolvency procedure and that, in that event, the kind of liabilities I am talking about would likely be extinguished as part of the insolvency because there would simply be insufficient money there to pay for them. However, once the recapitalisation power is used, it opens up the possibility that the Bank of England could use the power to raise capital in order to pay for litigation or regulatory costs that had arisen and were crystallising after the recapitalisation event.
The issue of litigation was raised by my noble friend Lord Moylan at Second Reading, and the Minister wrote to him on 21 August. The letter confirmed that litigation costs could well be covered through the use of the recapitalisation power. The Minister expressed this in terms of it being
“a judgement to be taken at the time, noting that the alternative could be to use public funds instead”.
From the perspective of the financial sector, which will be picking up the costs using the power—then doubtless passing them on to their customers—the alternative is using not public funds but the insolvency procedure. If we let the insolvency procedure take its course, at least nine times out of 10, those costs will not be met at all. So, that is the heart of the problem from the financial sector’s point of view.
I have not tabled an amendment on Report because it is very difficult to table one that would cover all eventualities. The redraft of the code of practice does not appear to deal with this issue either, whether in relation to expenses per se—in the terms of the new subsection we are discussing—or in relation to which liabilities the Bank should allow to go into the bridge bank. Today, I am seeking that the Government recognise that this is an issue and that it should be dealt with somehow as part of the code of practice.
I accept, as I have throughout, that there may be public interest reasons for avoiding the bank insolvency procedure, and for settling historical liabilities through the recapitalisation power, but the public interest test is a rather slippery concept and gives no real comfort to those who are expected to pick up the tab. I hope that the Minister will accept that this new power must not become a blank cheque to avoid bank insolvency and to pick up all kinds of costs that would otherwise fall by the wayside. I look forward to hearing what reassurances he can give.
Baroness Vere of Norbiton (Con)
My Lords, I too thank the Minister for the recent letters and documents he published in relation to the Bill. It was incredibly helpful to have them for the House to scrutinise the Bill properly. I am also grateful for these sensible amendments, which clarify the persons to whom the Bill’s measures apply as they relate to expenses. They are a bit technical, but they are improvements to the Bill and I am particularly pleased that the Minister has listened to concerns from across the House, including from my noble friends Lady Noakes and Lord Moylan.
I listened with great interest to the points raised by my noble friend Lady Noakes, and I urge the Minister to note what she said. I hope that some of these issues might be resolved in some way, either through the code of practice or by other means, as she seemed to me to make an awful lot of sense. However, on this basis, we support the Government’s amendments.
Lord Livermore (Lab)
My Lords, I am grateful to noble Lords for their contributions today and, as I said previously, in Committee. As I said at the start of this debate, the purpose of the Government’s amendments is to clarify whose expenses may be covered under the mechanism in the Bill. I hope that noble Lords will be able to accept the amendments, and I am grateful to both noble Baronesses for saying that they will.
I will respond to the points raised by the noble Baroness, Lady Noakes. As she said, I wrote previously to the noble Lord, Lord Moylan, on this matter. I will briefly repeat some of the points I made to him. In relation to litigation being brought against the authorities themselves, the Bill allows the Bank of England to request that funds from the Financial Services Compensation Scheme cover expenses that have been incurred by it or by the Treasury, a bridge bank or an asset management vehicle in connection with the recapitalisation or the use of the stabilisation power. This may include litigation costs arising from the recapitalisation or use of the stabilisation power, such as from challenges to decisions made by the authorities.
Any decision to request Financial Services Compensation Scheme funds for these purposes would be a decision for the Bank of England to take, but I stress that, in making this decision, the Bank of England would consider all relevant factors, including the fact that the alternative may be to use public funds. I note what the noble Baroness, Lady Noakes, said on that point. A decision to use insolvency depends on whether the conditions for resolution action are not met. If the conditions for action are met, public funds would be the alternative for covering these costs instead of FSCS funds.
I hope that the points I have made demonstrate that the Government have engaged in good faith with the concerns raised by noble Lords and have sought to address them where it has proved possible to do so. These amendments put beyond doubt which parties’ expenses may be covered by the new mechanism, and I hope that noble Lords will support them.
Lord Livermore (Lab)
My Lords, I am grateful to all noble Lords, and to my noble friend Lord Eatwell for the points that he made. The scope of firms in relation to which the mechanism can be applied has been a key issue in all our deliberations to date. I am very grateful to noble Lords for their engagement on this topic since Grand Committee.
As I stated then, the Government’s policy intention is for the mechanism provided by the Bill to be used primarily to support the resolution of smaller banks. We have reaffirmed that intention by including it in the updates to the special resolution regime code of practice, drafts of which have now been published and shared with noble Lords. The Bank of England must have regard to the code of practice when exercising its resolution powers, and this is set out in statute.
The Treasury is involved in the exercise of any resolution powers, either by being required to provide a response to consultation or by consent. Nevertheless, the Government maintain that it is right for the Bill to contain some flexibility for the Bank of England to be able to use the mechanism more broadly in some circumstances. That is because firm failures can be unpredictable and there could be circumstances in which it would be appropriate to use the mechanism on other firms. To repeat the example I gave in Grand Committee, this may be especially relevant in situations where a small bank has grown but is still in the process of reaching its end-state MREL requirements. Firms in this position would have at least some MREL resources to support recapitalisation, but the new mechanism could be used to meet any remaining shortfall if judged necessary. Without the proposed mechanism, there will be a potential gap in this scenario, creating risks to public funds and financial stability.
There is, of course, a counterargument here that the scope could instead be constrained, such that firms on the glide path to their full MREL requirement remain in scope of the mechanism but firms that have met their end-state MREL are excluded. The Government note that this is the desired intent of the noble Baroness’s amendment and it is an argument that we have considered carefully.
Ultimately, noting what has been set out in the code of practice and the strong expectation that the mechanism will be used on small banks, the Government’s view is that it is still right for the tool to have additional flexibility for unpredictable circumstances. To narrow the scope would constrain the Bank of England’s optionality, particularly where it might be necessary to supplement the resources bailed in with additional capital resources.
I note that these are considered unlikely outcomes, rather than a central case. However, given the uncertainty and unpredictability of a crisis scenario, the Government consider it important to avoid constraining that optionality.
None of the Bank of England’s other stabilisation powers are constrained for use on a specific type of in-scope firm and that the choice of stabilisation option used remains a decision for the Bank of England to take, having considered the resolution conditions and objectives. The Government believe that it is right for a similar approach to be taken in relation to the new mechanism. To be clear, the Government’s clear view remains that this mechanism should be intended for smaller banks and that the Bank of England should not assume the use of this mechanism for larger firms. In that regard, I agree with the noble Baroness on the crux of the issue she is raising. The Government simply do not wish to hard-wire that principle into the Bill.
Since we last debated this issue in Grand Committee, the Bank of England has published a consultation on proposed changes to the MREL regime. These proposals include the removal of the additional MREL requirement associated with the transactional accounts threshold for being set to the transfer strategy, given the availability of FSCS funds under the mechanism in the Bill as an alternative. There are currently only a limited number of firms with a transfer strategy, and firms with such a strategy would typically be expected to have a relatively small balance sheet. As such, the proposed change to the MREL regime is modest, consistent with the policy intention for the Bill mechanism to be intended primarily for smaller banks and it has the additional benefit of seeking to ensure that the MREL regime is proportionate for growing firms.
I reiterate the message delivered in the Written Ministerial Statement I made on the day the Bank of England’s consultation was published. As I have already said, the Government and the Bank of England agree that the Bank should not assume use of the new mechanism when setting a preferred resolution strategy of bail-in and corresponding MREL requirements for larger banks.
Recognising the level of interest rightly expressed in Peers being able to scrutinise the changes to the code of practice before the Bill begins its passage in the other place, the Government published updates of that document on 15 October. Notably, on the issue of scope, these updates to the code of practice explicitly state that the Bank of England will not assume use of the new mechanism when setting a preferred resolution strategy of bail-in and the corresponding MREL requirements for a large bank. Those updates to the code also made it clear that the Bank of England is still expected to abide by the so-called 5% and 8% rules in the case of larger banks.
I hope the explanations I have given have been helpful. Throughout the commitments I have given today and in Committee, in publishing draft updates to the code of practice, in the Written Ministerial Statement and in the engagement I have had with noble Lords, I have sought to reassure noble Lords on the question of scope, the primary intention for the mechanism in the Bill and the importance of maintaining flexibility for the Bank of England to act in the public interest. I recognise that I may not have been successful and that strong views remain, but I hope that the noble Baroness may feel able to withdraw her amendment as a result.
Baroness Vere of Norbiton (Con)
My Lords, I am grateful to all noble Lords who have contributed to this debate, particularly those who have spoken in favour of my amendment. This has been the subject of numerous discussions with the Minister. I listened carefully to what he had to say, and I still cannot quite understand why the Government will not accept this amendment and are unfortunately still using terms such as “It is the strong expectation that it would be used for X, Y, Z-type of bank”, or “It’s primarily for smaller banks”. That does not give me comfort, as we may be storing up significant challenges for the future. Therefore, I am not encouraged by the Minister’s response, and I wish to test the opinion of the House.
Baroness Vere of Norbiton (Con)
My Lords, I thank the noble Lord, Lord Sikka, for bringing his amendment and for explaining it so well. We on these Benches are concerned that a statutory requirement to make assessment of potential clawbacks of executive pay may simply hinder the efficient use of the recapitalisation mechanism, which of course usually has to be done in a very timely fashion. Having considered his amendment, we feel that it would not be an improvement to the Bill and will not be supporting it.
Lord Livermore (Lab)
My Lords, the amendment tabled by my noble friend Lord Sikka replicates the one he tabled in Committee. I hope that my noble friend will therefore forgive me for repeating some of the points that I made when we discussed this amendment then.
Amendment 3 seeks to ensure that the Bank of England and the Financial Services Compensation Scheme consider whether there should be a clawback of executive pay and bonuses from a failed firm before using the new mechanism. Although the bank resolution regime does not set out powers allowing the Bank of England to claw back money from management, it does provide it with an extensive and proportionate set of powers to impose consequences on the management of a failed firm in resolution.
First, we expect that any existing shareholder equity would be cancelled or transferred when a firm is placed into resolution. This ensures that the firm’s owners bear losses, which is an important principle of the resolution regime. In many circumstances, this will affect directors and management who hold shares or other instruments of the failed firm.
Lord Livermore
“(4A) In subsection (2)(b), “relevant person” means—(a) the Treasury,(b) a bridge bank, or(c) an asset management vehicle.(4B) In this section, “bridge bank” and “asset management vehicle” have the meanings given by sections 12 and 12ZA, respectively, of the Banking Act 2009.”Member's explanatory statement
This amendment, together with my first amendment to Clause 1, clarifies the persons (in addition to the Bank of England) in respect of whose expenses a recapitalisation payment may be made.
Baroness Vere of Norbiton (Con)
I am enormously grateful to all noble Lords who have spoken today. I too add my thanks to the noble Lord, Lord Vaux, for tabling his amendment. This group epitomises what is so good about your Lordships’ House: a lot of movement has happened to date on these issues from the Minister, and we are grateful for his engagement and for the fact that we have been able to get a little further down the road. However, like terriers with very sharp teeth, noble Lords are not quite willing to let it go just yet, and I too support the amendments in the name of the noble Lord, Lord Vaux, and of course those of my noble friend Lady Noakes, who has also done a fantastic job in ensuring that the issues she raised, and which most noble Lords agreed with in Committee, come to the fore. Helpfully, the noble Lord, Lord Vaux, has tabled Amendment 9, which plugs a big gap, and I hope the Minister will accept that and the amendments in the name of my noble friend Lady Noakes.
Lord Livermore (Lab)
My Lords, this large group includes a number of the Government’s proposed amendments to the Bill. I begin by responding to the amendment from the noble Lord, Lord Vaux, which is intended to ensure that there is transparency about the Bank’s use of the new mechanism. It does this by creating a requirement for the Bank to report to the Chancellor of the Exchequer within 28 days on certain matters where a recapitalisation payment is made, and for the Chancellor of the Exchequer to lay these reports in Parliament.
I assure noble Lords that the Government recognise absolutely the importance of transparency and accountability regarding the new mechanism and appreciate the strength of feeling in the House. The debates at Second Reading and in Committee were helpful and constructive and have informed the Government’s approach. The Government therefore agree that there should be an explicit requirement for the Bank of England to report to the Chancellor when it uses the new mechanism. To that end, government Amendment 8 means that the Bank of England must report to the Chancellor about the use of the mechanism in any circumstances where it is used.
The Government’s amendment outlines two elements to reporting. First, it would require the Bank of England to produce a final report at a time to be specified by the Treasury. This is intended to be a comprehensive account of the use of the new mechanism and to include an assessment of the relative costs to insolvency. Secondly, the amendment would require the Bank to provide an interim report within three months of using the mechanism in the event that a final report has not been provided within that time. This would ensure a prompt initial public justification for the use of the new mechanism, even if further details would follow later.
Government Amendment 14 would require the code of practice to include guidance on what should be included in the reports. Taking these points together, the Government’s approach has a broadly similar intent to that of the noble Lord’s amendment. However, there are some points of detail where the Government have taken a different approach in order to avoid unintended consequences. In particular, while recognising the importance of clear reporting arrangements, the Government believe that it is critical that the timing and content of any reports do not complicate a successful resolution.
I would highlight two challenges with the approach set out in Amendment 5 from the noble Lord, Lord Vaux. First, the Government believe that requiring an initial report as soon as 28 days after using the mechanism is likely to be too soon. As noble Lords know, the complexity of firm failures mean that they may not always be fully resolved within a short period of time. This is particularly the case when using the bridge bank tool, which is anticipated to be an interim step before an eventual sale. It is possible that a resolution process remains ongoing 28 days following a firm failure. It is therefore important that sufficient time is allowed so that the Bank can focus on its primary function of maintaining financial stability through managing the failure of the firm, before turning to the process of reporting. The Government therefore believe that providing an interim report within three months is a more proportionate approach to take, allowing the Bank more time to ensure that an interim report is as meaningful as possible while still ensuring that the Chancellor and Parliament are updated on use of the mechanism in short order.
This takes me to my second point, which is that disclosing certain information too early in the resolution process, especially information relating to the relative costs of different options such as insolvency, risks complicating a resolution because such information is either incomplete or highly sensitive. Regarding the noble Lord’s proposal to require an initial report to disclose certain costs, it is worth noting that when conducting the resolution conditions assessment, the Bank of England would make an assessment of the costs that the Financial Services Compensation Scheme may incur if the firm was placed into insolvency. However, by virtue of necessity, this would be only an initial assessment based on the information available at the time. It is therefore important that the Bank of England’s assessment of relative costs is reported on only once the resolution is fully complete. This will ensure that the Treasury, Parliament and industry are provided with a comprehensive and accurate account.
In addition, if the firm was in a bridge bank, as it may well be after just 28 days, the early disclosure of this interim financial information could complicate negotiations regarding a sale, especially if it was subsequently revised. It may also be market sensitive and increase speculation about the failed firm during a period of heightened sensitivity. Ultimately, therefore, the Government see risks in requiring the Bank to report too early and in too much detail during a highly unpredictable and sensitive situation. This is in part why the existing reporting provisions within the Banking Act in relation to resolution require reports as soon as reasonably practicable only after a year has passed.
The Government have sought to reconcile these different issues in our proposed amendment, while recognising the important substantive point of principle raised by the noble Lord, Lord Vaux. First, the Government have proposed an interim report to be provided within three months. While it is possible that a resolution process may not have concluded by this point, as the FSCS is likely to levy firms within this timeframe, it seems reasonable to expect the Bank to provide a public justification of the decision to use the new mechanism by this point. I note that, alongside the notification requirement covered in government Amendment 10, which I will turn to shortly, this will ensure that the Treasury and Parliament have a prompt explanation of why resolution has been undertaken.
Secondly, the Government’s amendment means that the Bank of England must provide a separate final report, in the event that this has not already been provided within three months of using the mechanism. This final report is where the Bank would outline its assessment of the relative costs of different options. This reflects the points that I have already made, namely that the Government believe that the key reporting obligation should fall once the resolution process has concluded. This reduces the risk that disclosure frustrates that process and ensures that any report can be meaningful.
To support this approach, the Government have also tabled an amendment requiring guidance on the content of such reports to be included in the code of practice. This will ensure that there is clear public understanding of the key issues that any interim or final report is expected to cover. As I have noted, both interim and final reports would be expected to provide a justification for the use of the mechanism, and as set out in the current draft of the code of practice, the final report would need to set out an assessment of the costs if the firm had entered insolvency. The current draft updates to the code of practice also make clear that the Government expect to require the Bank of England to provide an explanation of why ancillary costs were considered reasonable and prudent.
I am grateful for the helpful engagement that I have had with the noble Lord, Lord Vaux, who has rightly emphasised the importance of the Bank of England providing a comparison of the expected and actual costs in its final reports. I am happy to reassure the noble Lord that the Government intend to request that the Bank of England include this in final reports and will ensure that the final updates to the code of practice reflect this.
The noble Lord, Lord Vaux, has also tabled Amendment 9 to require the Bank to produce a report three months after the resolved firm has been sold or otherwise closed. I understand that the intent of this similarly reflects a desire to ensure that the Bank of England is compelled to report after a resolution process has fully concluded and provide an assessment of how the expected impacts of its actions compared to the actual events that took place in resolution. The Government of course appreciate the importance of the Bank of England reporting promptly. Reflecting on the noble Lord’s proposal, the Government intend to further update the code of practice to make clear that, where feasible and appropriate, the Treasury would expect the Bank of England to report soon after the sale or closure of the resolved firm.
The Government believe that it would be preferable not to put this expectation into legislation. This reflects the point I have already made: that the Bank of England should be required to provide final reports with the more detailed assessments only at the appropriate moment. While the Government do expect, as I have said, the Bank of England to be in the position to report soon after the end of the resolution process, this cannot always be guaranteed. For example, in the case of selling a firm, it may not have been possible in all cases to complete the full post-resolution independent valuation process within three months of a sale. I believe the Government’s approach still captures the intent of the noble Lord’s amendment, which is to ensure that full reports following the conclusion of a resolution process are presented expediently, with some discretion for the Treasury to ensure that reports are still provided only at the right moment.
I hope that, taken together, the Government’s amendments address the noble Lord’s concerns on both the timing and the content of reports, while retaining the flexibility necessary to avoid unintended consequences. On the specific additional point raised by the noble Lord’s Amendment 9, I agree of course with his intention and I will be happy to update the code of practice to this effect. However, the Government believe it would be preferable not to put this into legislation. I would be happy to consider this matter further and discuss it with my honourable friend the Economic Secretary to the Treasury, but I cannot give any firm additional commitments at this stage.
Turning to government Amendment 10, on notifying Parliament when using the power, I note that both the noble Baroness, Lady Noakes, and the Government tabled similar amendments on the theme of parliamentary scrutiny. I am extremely grateful to the noble Baroness for raising this issue and for her engagement on the matter; I am especially grateful to her for agreeing to withdraw her original amendment. The Government’s amendment reflects the point made by noble Lords in Grand Committee concerning parliamentary notification and the creation of the Financial Services Regulation Committee in your Lordships’ House as a result of passing the Financial Services and Markets Act 2023.
Building on that innovation in parliamentary scrutiny and accountability, the Government’s amendment seeks to harness the role played by that committee, as well as the Treasury Select Committee. It requires the Bank of England to notify the chairs of both committees as soon as reasonably practicable after the new mechanism under the Bill has been used. It includes provisions to future-proof this requirement following use of the new mechanism, such that if the names or functions of those committees change, the requirement for the Bank of England to notify the relevant committees by which those functions are exercisable would still stand.
The noble Baroness, Lady Noakes, has rightly argued that the Government’s amendment requires some tweaking, in particular to refer to the Financial Services Regulation Committee in the House of Lords by name. I am grateful to the noble Baroness for bringing this to my attention, and I note her amendments to the Government’s amendment—Amendments 11, 12 and 13—which attempt to address this point. I am of course very happy to agree to those amendments being made.
I hope that the Government’s approach across all the issues debated in this group demonstrates that the issue of accountability to Parliament is being taken seriously, ensuring that there will be transparency in use of the new mechanism. In particular, I hope that the Government’s amendments on the new reporting requirements address the noble Lord’s concerns on both the timing and content of the reports, while retaining the flexibility necessary to avoid unintended consequences. On the basis of these points, I hope noble Lords will be able to support both the Government’s amendments and those tabled by the noble Baroness, Lady Noakes, and I respectfully ask the noble Lord, Lord Vaux, to withdraw his amendment.
Lord Vaux of Harrowden (CB)
My Lords, first, I thank all noble Lords who have taken part in this debate, and the Minister for his constructive approach to it. I take on board everything he said about Amendment 5, which is why, as I have already indicated, I do not intend to push it to a vote.
However, I take issue with the Minister’s thinking it is appropriate that the relative costs of the recapitalisation process versus the insolvency process are looked at only after the event, at the very end of the process. It is quite important that we see why the Bank made decision it made at the time it made it, and that it has not reverse-engineered the results and facts to justify what it did. So I am not totally sure that I fully agree with the Minister on that point. Be that as it may, I am not going to push Amendment 5, because Amendment 8, along with the code of practice, covers most of what is needed.
However, as to Amendment 9, I am afraid that I did not hear anything particularly new there. The Minister has confirmed that his intention is that the reporting should cover the final result of the resolution process, which, as I say, could be a number of years later—but that is not what government amendment 8 says. The amendment specifically refers to
“the exercise of the power to”
recapitalise and
“the stabilisation power and stabilisation option to which”
it
“relates”.
It does not refer anywhere to what happens at the end. It is all very well saying that it might go in the code of practice and that there is an expectation that this will happen, but this is a really important issue.
We must know what actually happened, to be able to see how that compares with what we were told was going to happen, and to be able to learn the lessons arising from that. With the best will in the world, it may not be the Minister who is at the Treasury whenever this is used. I absolutely believe and trust that he would do exactly the right thing, but whoever comes next might not. It is important that this is in the Bill.
I am afraid that I intend to divide the House when the time comes, but in the meantime, I beg leave to withdraw the amendment.
Baroness Vere of Norbiton (Con)
I rise briefly to speak to Amendment 7 in the name of the noble Baroness, Lady Bowles of Berkhamsted, and Amendment 16 in the name of my noble friend Lady Noakes.
On Amendment 7, I will not reiterate the points raised. I deeply appreciated the explanation by the noble Baroness, Lady Kramer, as to how she got to her supportive position. From our perspective, we feel that Amendments 7 is a reasonable objective that would ensure the Bank facilitates the international competitiveness of the UK economy and economic growth in the medium term—that is very clear. It also has the ability to look at the level of risk within the banking sector over the medium term. Given the Government’s stated objective of focusing on economic growth, I am very interested to hear the Minister’s view on these amendments.
Amendment 16 in the name of my noble friend Lady Noakes, which I have signed, seeks to minimise the net costs recouped from the banking sector via this mechanism. Again, it is a very sensibly drafted amendment that would improve the Bill, and I look forward to hearing the Minister’s response.
Lord Livermore (Lab)
My Lords, I start by noting that the Government fully understand the concerns raised by noble Lords regarding the objectives the Bank of England should adhere to when taking resolution action.
Amendments 6 and 7 tabled by the noble Baroness, Lady Bowles, seek to ensure that the Bank of England considers growth and competitiveness when using the new mechanism, by introducing a new objective that the Bank of England would need to consider. In the case of Amendment 6 this would be alongside the existing special resolution objectives, while in the case of Amendment 7 it would be a secondary objective. This objective would be to facilitate the competitiveness and growth of the UK economy, subject to aligning with relevant international standards.
I appreciate wholly the intent of the noble Baroness’s amendments. The Government have reflected carefully on this issue in the weeks running up to Report. Growth and competitiveness are, of course, fundamental priorities for this Government. The Government are resisting these amendments because, while we understand and appreciate their intent, they would pose challenges within the specific context of this Bill. I intend to make three main points—about the wider context of the Bill; the particular challenges a new objective may pose in the case of the new mechanism; and the steps the Government are taking to ensure that costs to industry are properly considered.
First, I note that the aim of the Bill is to enhance the resolution regime, but in a way that avoids making more fundamental changes to the regime or to the way in which the Bank of England exercises its resolution powers. This reflects a key conclusion from the Government’s consultation, which is that the regime already broadly works well. This was demonstrated by the successful resolution of Silicon Valley Bank UK.
As noble Lords are aware, the resolution regime has been developed over a number of years to align with international best practice. The relevant authorities have invested considerable time and energy in contingency planning to use the existing powers within their existing framework of objectives. As it stands, the regime therefore reflects a carefully calibrated judgment about the key priorities that should be considered in what is an emergency, firm-specific failure scenario.
Lord Livermore
“ReportingIn the Financial Services and Markets Act 2000, after section 214E (as inserted by section 1 of this Act) insert—“214EA Recapitalisation payment: report(1) This section applies where the Bank of England requires the scheme manager to make a recapitalisation payment under section 214E.(2) The Bank must report to the Chancellor of the Exchequer about—(a) the exercise of the power to require a recapitalisation payment to be made, and(b) the stabilisation power and the stabilisation option to which the payment relates.(3) The report (“the final report”) must—(a) comply with such requirements as to content, and(b) be provided within such period or at such time,as the Treasury may specify.(4) The Bank must provide an interim report if—(a) the period specified under subsection (3)(b)is a period of more than 3 months beginning with the day on which the Bank requires the recapitalisation payment in question (“the first 3 months”), or the time specified under subsection (3)(b)is after the first 3 months, and(b) the Bank does not provide the final report within the first 3 months.(5) An interim report must—(a) comply with such requirements as to content as the Treasury may specify, and(b) be provided within the first 3 months.(6) Subject to subsection (7), the Chancellor of the Exchequer must lay each report, and any interim report, before Parliament.(7) The Chancellor of the Exchequer may omit from the report, and any interim report, any information which the Chancellor of the Exchequer considers it would not be in the public interest to publish.”” Member's explanatory statement
This new Clause imposes a reporting requirement on the Bank of England when it requires a recapitalisation payment to be made.
Lord Livermore
“Notification to Parliamentary CommitteesIn the Financial Services and Markets Act 2000, after section 214EA (as inserted by section (Reporting) of this Act) insert—214EBNotification to Parliamentary Committees(1)Where the Bank of England requires the scheme manager to make a recapitalisation payment under section 214E, the Bank must, as soon as reasonably practicable, notify in writing the chair of each relevant Parliamentary Committee that it has done so.(2)The relevant Parliamentary Committees are—(a)the Treasury Committee of the House of Commons, and(b)the Committee of the House of Lords which—(i)is charged with responsibility by that House for the purposes of this section, and(ii)has notified the Bank that it is a relevant Parliamentary Committee for those purposes.(3)The reference to the Treasury Committee of the House of Commons—(a)if the name of that committee is changed, is to be treated as a reference to that committee by its new name, and(b)if the functions of that committee (or substantially corresponding functions) become functions of a different committee, is to be treated as a reference to the committee by which those functions are exercisable.(4)Any question arising under subsection (3) is to be determined by the Speaker of the House of Commons.”Any question arising under subsection (3) is to be determined by the Speaker of the House of Commons.””Member's explanatory statement
This new Clause requires the Bank of England to notify relevant Parliamentary Committees when it requires a recapitalisation payment to be made.
Lord Livermore
“Code of practiceIn the Banking Act 2009, in section 5 (code of practice), after subsection (2) insert—“(2A) The code must include guidance on the contents of a report, and of any interim report, under section 214EA of that Act (recapitalisation payment: report).””Member’s explanatory statement
This new Clause require the Treasury to include, in a code of practice under section 5 of the Banking Act 2009, provision relating to the content of reports about recapitalisation payments.
Baroness Vere of Norbiton (Con)
I wholeheartedly support the noble Lord, Lord Vaux, in his work in this area. Over the course of our scrutiny of the Bill, we have had some happy and quite nerdy discussions around this amendment. It is clear to me that it is a complicated situation. There is clearly an issue to be solved, but unfortunately the issue may not be exactly the same for each case of resolution that one might be addressing, so it needs further thought.
I am pleased that we will not be voting on this, but I impress upon the Minister that if there is something we can do in this area, whether that be in the code of practice or by other mechanisms, it is important. It is unconscionable to me that, because a particular entity goes down the route of resolution rather than insolvency, certain creditors could be significantly better off. That cannot happen and we must do something about it.
Lord Livermore (Lab)
My Lords, the amendment tabled by the noble Lord, Lord Vaux, seeks to give the Financial Services Compensation Scheme rights with respect to the recapitalisation payment, in the event that the firm in resolution is subsequently placed into insolvency or wound up, by then requiring it to be treated as a debt. It also seeks to grant the Financial Services Compensation Scheme super-preferred status in the creditor hierarchy with respect to that debt, enabling it to recover that claim in an insolvency process before other unsecured creditors, uncovered depositors and shareholders.
I am grateful to the noble Lord for the constructive engagement that I have had with him on this matter prior to this debate, and I am especially grateful for his time and expertise on it. I assure him that my officials and I have spent considerable time considering the concerns that he raises, and I shall set out the Government’s position.
The Government’s concern about the amendment is that it could frustrate the primary intention of the Bill to achieve recapitalisation in a way that restores financial stability and, as such, could potentially result in the resolution failing. The Government’s view is that the amendment could create uncertainty as to how such a payment would be perceived by the market when a firm was operating, rather than only in the unlikely circumstance of the firm winding up.
The effect of the amendment would be to create a shadow claim on the recapitalisation. Potential purchasers, investors and unsecured lenders to the firm would be aware that in the event of insolvency a new debt would materialise above them in the creditor hierarchy. Indeed, the shadow claim would follow the firm in perpetuity for as long as it was a going concern, even after the resolution was complete and the firm had been sold to a buyer.
It would also follow the firm even where the original shareholders and creditors were no longer involved with the business, creating a series of risks. That raises a number of potential issues. First, it could inhibit the sale of the firm in resolution. While the insolvency position would not be a primary consideration for potential buyers, it would naturally be part of the potential purchaser’s due diligence to understand the risk to its investment in a subsequent failure. That risk may be substantially greater with the existence of this debt, which may in turn impact potential interest in purchasing the firm and any purchase price.
Secondly, both while the firm was in the bridge bank and once it had been sold, current and potential future creditors and investors in the firm could be deterred from investing in and engaging with the firm for similar reasons. That would frustrate a key goal of the resolution, which is to maintain continuity. For example, uncovered depositors would have an additional incentive to withdraw deposits as they may perceive a potential risk to the seniority of their claim in insolvency. Thirdly, it could potentially undermine restoring market confidence in the resolved firm.
As a result of the issues that I have outlined, the amendment could make it more expensive to run the firm, putting it at a competitive disadvantage. It may perpetuate the circumstances that the resolution is intended to address; namely, uncertainty around how and to whom potential future losses would fall. It may also make it difficult to secure the agreement of directors, who may not be comfortable running a firm under such a shadow while it was in a bridge bank.
In addition, existing legislation means that instruments may currently be classified only as common equity tier 1, the highest form of capital, if they are not subject to any arrangement, contractual or otherwise, that enhances the seniority of claims in insolvency or liquidation. The noble Lord’s amendment would mean that a capital injection arising from a recapitalisation payment under the Bill may not count as the highest form of capital, as it creates a seniorised claim for the Financial Services Compensation Scheme in the event of a subsequent insolvency. That brings into doubt whether it would have the desired effect of restoring market confidence in the firm.
Overall, the effect of granting the Financial Services Compensation Scheme a super-preferred claim over the recapitalisation payment, even if only at the point of insolvency, would be to increase the risk of the resolution not achieving its objectives. Therefore, while the Government absolutely understand the noble Lord’s concerns, we have concluded, for the reasons I have outlined, that the amendment may end up doing more harm than good.
I appreciate that this is a matter that the noble Lord feels extremely strongly about, but I hope this explanation has provided some clarity over the risks attached to the amendment and that as a result he feels able to withdraw it.
Lord Vaux of Harrowden (CB)
My Lords, I thank every noble Lord who has taken part in this short debate. It is a fairly nerdy and technical subject, and the Minister has just described very well why it is a complicated situation. I am sorry that he was unable to say that the Government would keep it under review —to keep an eye on the situation—because there is a problem. This process could lead to creditors being preferred unreasonably over the FSCS money in some circumstances, and that is not desirable. It comes back to some of the moral hazard points that the noble Lord, Lord Sikka, made earlier as well, albeit in a different context, so I am sorry that the Minister was unable to say anything on that front.
I agree with the Minister that it is complicated and that there probably are unintended consequences to my amendment. I again urge him to keep this under review and to look at whether anything might be done on it under the code of conduct. On that basis, I beg leave to withdraw the amendment.
Employment: Tax Policy
Lord Livermore Excerpts(1 year, 6 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Vere of Norbiton (Con)
My Lords, it is a great pleasure to follow the noble Lord, Lord Razzall. I agreed with some of what he had to say, which is a bonus for me today, so I am enormously grateful for his contribution. I am also grateful to my friend Lord Leigh for tabling this debate. Who knew that it was going to be so well timed? Like many others, I too will fall into the trap of focusing on the Budget because it is top of mind at the moment, and not in a good way.
I have to say, from listening to my noble friend Lord Leigh’s opening remarks, that he brings extraordinary expertise of commerce and the private sector, as of course do many other speakers in this short debate today, notably my noble friend Lord Petitgas and of course the noble Lord, Lord Bilimoria. Unfortunately, that is more than can be said of the current Chancellor and indeed the wider Cabinet—I think some analysis has been done, and private sector experience is somewhat lacking—so I hope that the suggestion made by the noble Lord, Lord Davies of Brixton, that some of the Labour Peers are promoted to positions of greatness such that they can share their private sector expertise, is taken up. It is definitely the case that there is private sector expertise on the Labour Benches; it just does not seem to have got up to the top levels.
Yesterday the new Labour Government raised the tax burden to the highest level in our country’s history. Despite making an outright promise not to raise taxes on people, they raised taxes on working people. In hiking the employers’ national insurance contributions—NICs for short—to raise a headline figure of £25 billion, the Government have committed a straightforward breach, according to the IFS, of their manifesto. Furthermore, there are numerous examples of the now Prime Minister and Chancellor promising before the election not to hike taxes. Can the Minister give the Committee any insight into how the discussions went when drafting the section of the manifesto about no increase in taxes on working people? Was it a cunning sleight of hand that left the words “national insurance contributions” unencumbered by the “employees’” qualifier, or was it just incompetence?
The noble Lord, Lord Bilimoria, made an excellent contribution. I appreciate his comments about the last Government. As a Conservative, I can say that no one wants to see taxes go up—it is just not in our DNA.
I remember many debates when I was a Treasury Minister and the noble Lord, Lord Livermore, in opposition, would slam me for tax rises. I was going to come up with various quotes today about the number of times he has previously slammed me for tax rises, but I thought that would be really cruel.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
Could the noble Baroness not be bothered to do so?
Baroness Vere of Norbiton (Con)
No; my speech is already six minutes long, but I will do it next time.
Of course, at that time, we were dealing with the pandemic and its fallout, and the fallout from the energy price support we had given. Therefore, we had a very firm footing on which to raise taxes.
The Minister will try to bring out his fictitious black hole; I sincerely hope that he will not, given what the OBR has now said about it—I am starting to feel a bit embarrassed for him. Plainly and simply, promises have been broken, and we need to now think about what we can do to ensure growth in the private sector. The views of the private sector on this are now well known. Can the Minister share with me whether anyone in the private sector thinks the rise in employer NI is a good idea?
I want also to look at what the OBR has to say in its economic and fiscal outlook. My noble friend Lord Elliott is right. It is like beer, which is going down by 1p in a pint—that is huge, is it not?—and wine: the more you tax it, the less you get. The noble Lord, Lord Razzall, was very helpful in this regard. If you tax the film and creative industries less, they grow more. Unfortunately, we have seen taxes go up, so—surprise, surprise—the labour supply is forecast to come down by 0.2%. I do not know whether the Minister is happy with this, but I wonder what the Government will do to mitigate for those people who would otherwise have been in a good job.
But it is worse than that. Real earnings will then stall in 2026 and 2027, as firms rebuild their margins and pass on the costs of higher employer NICs. Real wages are not expected to resume growing in line with productivity until beyond the forecast horizon. What interventions will the Minister set out in terms of increasing productivity such that we can get some sort of real wage growth going?
It is not just the OBR that has an issue here; it is also HMRC, which reflects that 940,000 employers will lose an average of £800 per employee. This is not good news for employment, and it is not good news for growth. Labour’s No. 1 mission is to secure the highest sustained growth in the G7. I am an optimist, but this Budget literally has the forecasts for growth coming down. I cannot see how that is compatible with Labour’s No. 1 mission.
The noble Lord, Lord Razzall, asked for alternatives. I will give him two that are still on the table. First, if we increased productivity to pre-pandemic levels, we would get £20 billion a year. Secondly, reforms to adult welfare would save £34 billion a year. That was our plan; we did have a plan but, unfortunately, we were not able to put it in place.
Lord Livermore (Lab)
My Lords, I congratulate the noble Lord, Lord Leigh of Hurley, on securing this debate and on his opening speech. I thank all noble Lords for their contributions.
The manifesto this Government were elected on promised to invest in our public services and prioritise working people. Keeping those promises was at the core of yesterday’s Budget. Many noble Lords focused today on specific tax decisions made in the Budget, and the impact and analysis of those decisions as set out by the independent Office for Budget Responsibility. It may be helpful to noble Lords if I begin by explaining the background to the decisions we made.
First, in July, as the noble Lord, Lord Leigh of Hurley, kindly mentioned, the Chancellor exposed a £22 billion black hole at the heart of the previous Government’s plans—a series of promises they made but had no money to deliver. This Government yesterday published a line-by-line breakdown of that £22 billion black hole, and the OBR published its own review of the circumstances surrounding the Spring Budget forecast.
For the benefit of the noble Baroness, Lady Vere, the OBR’s report says that the previous Government “did not provide” them “with all the information” that was available and that, had the OBR known about these
“undisclosed … pressures that have since come to light”,
its spring forecast would have been “materially different”.
Secondly, the country inherited not just broken public finances but broken public services too, with NHS waiting lists at record levels, schools literally crumbling, and rivers filled with waste. Yet, since 2021, there had been no spending review—no detailed plans for departmental spending set out beyond this year.
Thirdly, the previous Government had failed to budget for costs which they knew would materialise, including funding for compensation schemes for the infected blood scandal and the Post Office Horizon scandal.
Put together, these three things—the black hole in our public finances, the compensation payments which they did not fund and their failure to assess the scale of the challenges facing our public services—meant that, in order to meet our first fiscal rule, yesterday’s Budget needed to raise taxes by £40 billion.
So, we had in yesterday’s Budget some very difficult decisions to take in order to rebuild our public finances and our public services. In doing so, we made an important choice: to keep every single commitment we made on tax in our manifesto. We did not raise taxes on working people—their income tax, their national insurance or VAT—and we were able to go further, by not increasing fuel duty and by not extending the last Government’s freeze of income tax thresholds, which hit working people so hard, as the noble Lord, Lord Bilimoria, mentioned.
Of course, in the circumstances I describe, any responsible Chancellor would need to take difficult decisions to raise the revenue required to fund our public services and to repair our public finances. So, in yesterday’s Budget, the Chancellor announced an increase in employers’ national insurance contributions by 1.2 percentage points to 15% from April, and that the secondary threshold would be reduced from £9,100 per year to £5,000.
We know that it is particularly important to protect our smallest companies, so we also increased the employment allowance from £5,000 to £10,500, meaning that 865,000 employers will not pay any national insurance at all next year, and over 1 million will pay the same or less than they did previously. In the Budget, we also increased the lower rate of capital gains tax from 10% to 18%, and the higher rate from 20% to 24%, which means that the UK will continue to have the lowest capital gains tax rate of any European G7 country.
Alongside these changes to the headline rates of capital gains tax, we are also maintaining the lifetime limit for business asset disposal relief at £1 million, to encourage entrepreneurs to invest in their businesses. Business asset disposal relief will remain at 10% this year before rising to 14% in April and 18% from 2026-27, maintaining a significant gap compared with the higher rate of capital gains tax.
We also published a Corporate Tax Roadmap, which confirms our commitment to cap the rate of corporation tax at 25%—the lowest in the G7—for the duration of this Parliament, while maintaining full expensing and the £1 million annual investment allowance and keeping the current rates for research and development reliefs to drive innovation.
The Budget also set out additional tax measures, including reforming inheritance tax and measures on tobacco duty, vehicle excise duty, air passenger duty and alcohol duty.
We also delivered on our other commitments, which some noble Lords addressed during this debate: to abolish the non-dom tax regime and replace it with a new residence-based scheme; a new approach to the way carried interest is taxed; reforms to the stamp duty land surcharge tax for second homes, and to the energy profits levy; and we introduced VAT on private school fees. In total, these changes—alongside our measures to tackle tax avoidance—will raise over £9 billion to support our public services and restore our public finances.
We are asking businesses to contribute more, and the Chancellor acknowledged in her speech that the impacts of this measure will be felt beyond businesses, too, as the OBR has set out and as noble Lords raised in today’s debate. In addition, as my noble friend Lord Davies of Brixton observed, the employment rate will increase by 1.2 million over the forecast. These are, however, very difficult choices, and not ones that the Chancellor took lightly. But, in the circumstances we inherited, we believe they are the right choices to make.
Several noble Lords mentioned growth, and it was of course welcome that the OBR was so clear: this Budget will permanently increase the supply capacity of the economy, boosting long-term growth. However, there is of course much more to do.
It is important that we also consider in this debate the purpose of the difficult decisions we have taken on tax, which enable us not just to repair the public finances but to begin to rebuild our public services. It is worth noting that, in this debate, some noble Lords spoke in favour of some of this investment, but without supporting the taxation necessary to fund it. Because of the difficult decisions the Chancellor has taken on tax, day-to-day spending from 2024-25 onwards will grow by 1.5% in real terms, while total departmental spending, including capital spending, will grow by 1.7% in real terms.
In this, the first phase of the spending review, the Chancellor has prioritised day-to-day funding to deliver on our manifesto commitments. We will increase the core schools budget by £2.3 billion next year to support our pledge to hire thousands more teachers into key subjects; to triple investment in breakfast clubs to put them into thousands of schools; and to provide an additional £300 million to our further education colleges, while taking steps to transform the apprenticeship levy into a more flexible growth and skills levy.
We will deliver a real-terms funding increase for local government next year, including £1.3 billion of additional grant funding to deliver essential services and £200 million to tackle homelessness and rough sleeping. We are also providing funding to support public services and drive growth across Scotland, Wales and Northern Ireland, with the largest real-terms funding settlement since devolution delivering an additional £3.4 billion to the Scottish Government, £1.7 billion to the Welsh Government and £1.5 billion to the Northern Ireland Executive in 2025-26.
Finally, we are fixing the NHS after years of neglect. Because of the difficult decisions the Chancellor has taken on tax, which we are debating today, and because of our commitment to a new investment rule, yesterday’s Budget announced that we are now able to provide a £22.6 billion increase in the NHS budget over two years. That is the largest real-terms growth in NHS spending outside of Covid years since 2010. Many NHS buildings were left by the previous Government in a state of disrepair, so we will provide £1 billion of health capital investment next year to address the backlog of repairs and upgrades across the NHS estate. To increase capacity for tens of thousands more procedures next year, we are providing a further £1.5 billion for new beds in hospitals across the country and more than 1 million additional diagnostic tests, as well as new surgical hubs and diagnostic centres, so that the people waiting for treatment can get it as quickly as possible. Because of this record injection of funding, the thousands of additional beds that we will secure and the reforms that we are delivering in our NHS, we can now begin to bring waiting lists down more quickly and move towards our target of an 18-week waiting time by delivering our manifesto commitment for 40,000 extra elective appointments a week.
The difficult decisions on tax that we made in yesterday’s Budget, which have been debated here today, were made for a purpose. We made choices to rebuild the public finances and our public services, to invest in the national interest and to keep our manifesto commitment to prioritising working people. It is perfectly possible to make different choices, of course, but noble Lords should keep in mind that, at the last election, the country voted for change. They did not reject the previous Government so overwhelmingly because they thought the choices they had made were the right ones; they gave this Government a mandate to fix the foundations of our economy and to deliver the change they voted for.
As the noble Lord, Lord Razzall, observed, we did not hear very much about any credible alternative during this debate. We believe that any responsible Chancellor would have had to take action in the circumstances we faced, but, of course, it was possible to choose not to act. Some noble Lords may think that it would have been better to choose the path of irresponsibility and ignore the problems in the public finances altogether. If that is their choice, they should say so. I believe that the choices the Chancellor set out at the Budget are the right choices for our country, to repair our public finances, to protect working people, to fix our NHS and to rebuild Britain.
Other choices could have been made, of course, but let me be clear: not making the choices that we have made would make it impossible to protect working people; not funding public services in the way that we have would mean cuts to schools and hospitals; not supporting our investment rule would mean delaying or cancelling thousands of projects that drive growth across our country. We have made our choices—the only responsible choices—to protect working people, to fix the foundations of our economy and to invest in Britain’s future.
Baroness Vere of Norbiton (Con)
Before the Minister sits down, if I may say so—he has a minute left—I am concerned that he is answering the wrong exam question, as he did not seem to mention employment. However, he did mention the NHS and the £22 billion for it. How much of that sum is the RDEL compensation for the public sector, which will not have to pay employers NI?
Also, I would like the Minister to write, if possible, to cover the question from my noble friend Lord Petitgas about any sector-by-sector analysis of the impact of this tax policy on employment.
Lord Livermore (Lab)
I am very happy to write. I did mention employment: I set out that there would be an increase of 1.2 million over the course of the forecast. That is the question I was asked.
Fiscal Rules
Lord Livermore Excerpts(1 year, 6 months ago)
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Baroness Kramer (LD)
My Lords, we on these Benches have long called for vital investment into infrastructure, not least to fix our crumbling hospitals and schools, to tackle the failings and gaps in our transport system, and to deliver the affordable housing needed by so many. Infrastructure investment, including private investment, must be scaled up to drive sustainable economic growth across the nation, including the green energy revolution. But fiscal responsibility remains crucial.
These Benches have argued before for the use of the public sector net fiscal liabilities as the appropriate measure to sit behind a borrowing rule, because it allows productive investment to be considered separately from day-to-day spending. I tried without success to persuade the noble Lord, Lord O’Neill of Gatley, to look more closely at this issue during the Conservative Government.
Changing the measure also means reshaping the borrowing rule and the guard-rails to make them appropriate to that new measure. This Statement so far offers only the vaguest language, so I hope very much that we will hear a proper discussion of the rules and the guard-rails tomorrow in the Budget. Will the draft charter for budget responsibility, which I understand should contain much of that, be among tomorrow’s documents?
There also seem to be a number of referees to oversee the rule and its implications, from the OBR to the national infrastructure and service transformation authority, an office for value for money and the NAO. How does this fit together and what oversight will be before Parliament?
We cannot have a repeat of the Truss mini-Budget, which nearly wrecked the public finances with £40 billion in unfunded tax cuts. Does the Minister agree that the Budget must be credible to the markets, the interest burden on our public finances must be tackled and, at the same time, we must make good our infrastructure deficit—investing to fix hospitals and schools but also driving economic growth? None of it is easy, but all of it is necessary.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, I am very grateful to the noble Baronesses, Lady Vere of Norbiton and Lady Kramer, for their comments and questions.
Let me start by setting out the context in which our fiscal rules will be set. The Budget that my right honourable friend the Chancellor will present tomorrow will be driven by this Government’s number one mission: to deliver sustainable growth after a decade and a half of stagnation. That growth can only be built on stable foundations, so the first and most important task in the Budget will be to turn the page on 14 years of instability and uncertainty, which have deterred investment and undermined business confidence.
I agree with the noble Baroness, Lady Kramer, about the importance of fiscal responsibility—that is why the fiscal rules are so important. They will set the basis for stable fiscal policy, prudent management of day-to-day spending and responsible investment for growth. That commitment to responsibility and stability requires us to address in tomorrow’s Budget three challenges.
First, there is the £22 billion black hole in the public finances that the noble Baronesses, Lady Vere, helpfully reminded the House about, which we inherited from the previous Government, and the vast majority of which will persist into future years. Secondly, the compensation payments for those who have suffered because of the infected blood and Horizon scandals were announced by the previous Government but never budgeted for. Thirdly, the state of the UK’s public services means that they cannot survive a return to the austerity that has done so much damage over the past 14 years, including by holding back growth.
The noble Baroness, Lady Vere, mentioned our manifesto commitments. Our manifesto set out in our fiscal rules that
“the current budget must move into balance, so that day-to-day costs are met by revenues and debt must be falling as a share of the economy by the fifth year of the forecast”.
Our manifesto also said:
“These rules allow for prudent investment in our economy. This represents a clear break from the Conservatives who have created an incentive to cut investment; a short-term approach that ignores the importance of growing the economy”.
To deliver on these manifesto commitments, the Government’s fiscal rules will do two things. First, and most importantly, the stability rule will mean that day-to-day spending will be matched by revenues, as committed to in our manifesto. We will meet this rule within this Parliament. Given the state of the public finances and the need to invest in our public services, this rule will bite hardest. Alongside tough decisions on spending and welfare, the Chancellor has been clear that this means that taxes will need to rise in tomorrow’s Budget to ensure that this rule is met.
The Government’s second fiscal rule—the investment rule—will deliver on our manifesto commitment to get debt falling as a proportion of our economy. That will make space for the necessary increases in investment in the fabric of our nation, and it will ensure that we do not see the falls in public sector investment that were planned under the previous Government. The plans that we inherited would have seen public sector investment decline to the lowest level in over 10 years. The noble Baroness, Lady Vere, seemed to confirm that that would still be the Conservatives’ approach. That cannot be right. If we continue on this path of decline, we will continue to miss out on the opportunities of the future, and other countries will continue to seize them. To rebuild our country, we must increase investment, in partnership with the private sector. The UK lags behind every other G7 country on business investment as a share of our economy, and the IMF has been clear that weak investment and low productivity are holding back growth.
We must create the conditions for the private sector to invest, by stabilising our economy and introducing reforms to planning and skills. At the recent International Investment Summit, we saw £63 billion of new private sector investment committed to our economy, creating nearly 38,000 new jobs. The Government must invest alongside business, through expert bodies like the new national wealth fund, multiplying the impact of public money. However, there is also a significant role for public investment. For too long, we have seen Conservative Chancellors cut public investment and raid capital budgets to plug gaps in day-to-day spending. The result of that approach is clear for all to see: hospitals without the equipment they need, our schools literally crumbling, sewage in our rivers and growth held back. We cannot continue on this path of decline. We need to invest more to grow our economy and seize the huge opportunities that exist in digital, tech, life sciences and clean energy. To do this—to grow our economy, free up more money, invest in capital and meet our manifesto commitment to remove the incentive to cut investment—the Chancellor has said that, in tomorrow’s Budget, we will change the Government’s measure of debt.
As the noble Baroness, Lady Kramer, said, it is of course important that every pound of taxpayers’ money that is spent gets value for money and delivers returns for the taxpayer when we invest in capital projects. So we will put in place guard-rails with the National Audit Office and the Office for Budget Responsibility, enabling them to validate the investments we are making to ensure that we deliver value for money, and give markets confidence that there are rules around the investments we can make as a country.
The Chancellor will set out the Government’s full fiscal plan, including the precise details of our fiscal rules, in tomorrow’s Budget, alongside an economic and fiscal forecast produced by the OBR—and the noble Baroness, Lady Vere, helpfully reminded us that the disastrous Liz Truss mini-Budget failed to commission one. In our Budget, we will turn the page on the past 14 years, fix the foundations of our economy and restore economic stability to our country. We will invest to rebuild Britain and begin a decade of national renewal.
Lord Clarke of Nottingham (Con)
My Lords, we used to have a rule of Budget purdah in this country for the very good reason that it prevented market speculation in the run-up to the House of Commons hearing the Budget details. Every Chancellor who followed me in office has steadily weakened that and, this year, we have had three months of absolutely absurd semi-debate, with hints, leaks and suggestions from the Government being debated. It began by ruling out any question of raising the four most basic taxes that everybody previously turned to when they needed more revenue, because they share the burden more fairly across the country. This has now accumulated with the Prime Minister deciding, two days before the Budget, that he will take for himself a popular announcement—to some of his Cabinet colleagues and Back-Benchers—that he will ease the fiscal rules on which the Budget is based.
Fortunately, this nonsense has so far had only a slightly dampening effect on investors and markets, but it has had an undoubtedly dampening effect on business activity for the last two or three months. Will the Minister ask his colleagues to consider returning to Budget purdah in future years? If this circus is now to be the pattern for every Budget throughout this Parliament, then, sooner or later, we are going to have market speculation and a financial crisis of the kind that followed Liz Truss’s Budget.
Lord Livermore (Lab)
The noble Lord is far more experienced in these matters than me, and I have the greatest respect for him. He mentioned three types of activity. The first one he mentioned was the manifesto commitments we gave: he mentioned the major taxes and he is absolutely right. In our manifesto, we committed to not increasing taxes on working people, which is why we will not increase the basic, higher or additional rates of income tax, national insurance or VAT. I think it is perfectly right that we do that and specify that in our manifesto. He also mentioned speculation. There has been huge speculation ahead of this Budget around specific taxes which at this Dispatch Box, on multiple occasions, I have been unable to comment on, and I think he will understand why. As for announcements being made ahead of a Budget, that is a perfectly routine thing to do, and it is right that Parliament then has the opportunity to scrutinise those at the appropriate moment.
Lord Macpherson of Earl’s Court (CB)
My Lords, I broadly welcome the Government’s Statement, but we have to recognise that so many fiscal rules have come and gone in recent years that the credibility of the macroeconomic framework has been severely dented. Can the Financial Secretary confirm that the investment rule will apply to a specific year and not take the form of a discredited five-year rolling period where fiscal virtue is for ever deferred? Does he agree that what matters more than any rule is whether the Government have a credible plan for promoting growth and for stabilising and ultimately reducing the country’s debt in relation to national income?
Lord Livermore (Lab)
Once again, I address a noble Lord who has far more experience in these matters than I do. I agree with a huge amount of what he says. I think that stability in fiscal rules is incredibly important and that they should not change particularly frequently—perhaps at the point when Governments change. I am tempted to agree with a lot of what he said, but unfortunately the Chancellor will set out the Government’s full fiscal plan, including the precise details about fiscal rules that he asks for, in tomorrow’s Budget, alongside an economic and fiscal forecast produced by the OBR.
Lord Eatwell (Lab)
My Lords, does the noble Lord agree that the noble Baroness, Lady Vere, is quite wrong when she suggests that the Chancellor has just announced her change in fiscal rules? They were proposed in her Mais Lecture in February, if one keeps up. Does he also agree that the fiscal rules implemented by Mr Hunt were yet another component of the irresponsible economic policies pursued by the Conservative Government?
Lord Livermore (Lab)
I wholeheartedly agree with both points made by my noble friend. Our fiscal rules, as he says, were set out by the Chancellor in her Mais Lecture and set out again in our manifesto. Everything that we have said subsequently is consistent with what we said in our manifesto, and I think that the policy of the Opposition is the reason our country is in the state it is in. It is why growth has been held back and why our critical infrastructure is basically on its knees.
Lord Forsyth of Drumlean (Con)
My Lords, I am a little confused. The Chancellor said before the election that she would not change the fiscal rules, because that would be fiddling the figures. Was she right then and wrong now? Can the Minister explain why we are having this Statement at all, ahead of the Budget? Why is it not part of the Budget consideration? Is it to distract attention from the fact that the Government are basically fiddling the figures and, in fiddling the figures, committing us to borrow more money to pay the interest on the money that has already been borrowed?
Lord Livermore (Lab)
The noble Lord knows that I have huge respect for him, so I hate to say when he is wrong, as I think he is in his first point. We were extremely clear that we would change the fiscal rules to the new ones that we set out, first, as my noble friend Lord Eatwell said, in the Mais Lecture and then in our manifesto, which said:
“This represents a clear break from the Conservatives who have created an incentive to cut investment; a short-term approach that ignores the importance of growing the economy”.
We were crystal clear that we would change the fiscal rules. On the second point, it is perfectly reasonable that, when the Chancellor is at the IMF, she sets out her policies in this regard.
Lord Davies of Brixton (Lab)
I thank my noble friend for this Statement; the real meat will come tomorrow. I also thank noble Lords opposite for reminding us of their gross irresponsibility and refusal to accept any responsibility for this situation. When you have fiscal rules that distinguish general expenditure and investment in one way or another, you need a clear definition of investment. The problem is that pinning down such a definition is difficult in practice. When we on the Economic Affairs Committee took evidence from Joseph Stiglitz, he drew attention to this, instancing the possibility that spending more money on nurses would count as investment towards the sort of growth we need in the economy.
Lord Livermore (Lab)
My noble friend makes an extremely interesting point. I am grateful for his support for what I have set out and will take away his point to give it further consideration.
Lord Leigh of Hurley (Con)
My Lords, the Chancellor can fiddle figures all she likes to allow more borrowing, but that will simply lead to more interest payments, in excess of the £100 billion or so that we already have, which will lead to great damage in the market. The change of fiscal rules on borrowing is apparently to fix an alleged black hole, so would the Minister care to comment on the highly respected IFS director Paul Johnson’s statement that:
“The numbers may be a little bit worse than they thought at the time … but the overall picture over the next four or five years is very, very similar to what we knew before the election”?
Lord Livermore (Lab)
I am grateful to the noble Lord for giving me an opportunity to talk about the £22 billion black hole left to us by the previous Government. He has done that in the past and I continue to be grateful to him. The independent Office for Budget Responsibility said at the time of the July statement that it did not know about this black hole at the heart of our finances; it established an independent review into it which will report in due course. I think there will be plenty more information on the £22 billion black hole in tomorrow’s Budget for the noble Lord to peruse.
Baroness Smith of Llanfaes (PC)
My Lords, changes to the fiscal rules are welcome, as our devolved Governments need a new fiscal settlement. The Barnett formula has no legal standing, and the convention can be changed by the Treasury. Are there any plans on the horizon to replace the Barnett formula? If so, would this be a needs-based formula to ensure that wealth is redistributed fairly?
Lord Livermore (Lab)
I am not aware that the Government have any such plans, but I hope that tomorrow’s Budget will include good news for Wales.
Lord Liddle (Lab)
My Lords, the new policy on investment that has been announced will be widely welcomed on this side of the House as giving an opportunity for the public sector, in partnership with the private sector, to raise the dismal rate of growth that we experienced under the last Government. Will my noble friend not let noble Lords opposite get away with the total unsustainability of their fiscal plan to cut public investment from 2.6% of GDP to 1.9%, which would have had disastrous consequences for growth and public services?
Lord Livermore (Lab)
I am extremely grateful to my noble friend for that point and for his support for what we have set out. He is absolutely right to draw attention to the record we inherited. As he says, the UK lags behind every other G7 country on business investment as a share of our economy, and the plans we inherited from the previous Government would have seen public sector investment decline to the lowest level in over 10 years. Nothing we have heard so far today suggests that they think there is anything wrong with that.
My noble friend also drew attention to the importance of partnership with the private sector. To rebuild our country, it is vital that we increase investment in partnership with the private sector. As he says, we must first create the conditions for the private sector to invest by stabilising our economy and introducing reforms to things such as planning and skills. The Government must invest alongside business, through expert bodies such as the new national wealth fund, to catalyse more private sector money. As we have been discussing today, there is also a significant role for public investment to play.
Lord Waldegrave of North Hill (Con)
My Lords, when I was Chief Secretary, working with the former Chancellor, the noble Lord, Lord Clarke, every single spending department that presented its plans to me described them as “investment”. There is often a very good case for saying that spending more on nurses or teachers is going to help productivity more than building new hospitals or schools is. Does the Minister agree with me, and indeed with the noble Lord opposite, that without a really tough definition of what investment means, this will turn out to be just an increase in public spending?
Lord Livermore (Lab)
It may surprise the noble Lord but, yes, I absolutely agree with what he says. That will be a vital part of the guard-rails we set out in the Budget tomorrow.
Baroness Wheatcroft (CB)
My Lords, borrowing to invest in genuine projects that will improve the productivity of the country obviously makes sense, but if the Government are going to look at the fiscal rules again, will they consider when and how they will account for unfunded public sector pensions? At some stage, the country needs to know about those obligations too.
Lord Livermore (Lab)
I hear what the noble Baroness says. As I have said already, the Chancellor will set out the Government’s full fiscal plan, including the precise details of our fiscal rules, in tomorrow’s Budget.
Lord Hamilton of Epsom (Con)
My Lords, when the Minister was first talking about the so-called black hole, it was £21 billion. Does he accept that this is actually less than 2% of total government spending? It is almost inconceivable that anybody with their head screwed on properly in the Treasury could not find savings to that amount.
Lord Livermore (Lab)
I am very grateful to the noble Lord for allowing me to talk about the £22 billion black hole in the public finances that was covered up from the British people, from this House and from the OBR, which has confirmed it by establishing its independent review. It was always £22 billion, contrary to what the noble Lord says. If he would like to come up with £22 billion of savings, I would more than like to hear them.
Lord Grayling (Con)
My Lords, the Government’s goal in announcing these changes is to increase capital spending. The Minister made reference to putting in place additional process to assess the viability of that capital spending, yet we already have extensive process that can be immensely costly, with organisations such as the Infrastructure and Projects Authority going through public spending and public capital projects with a fine-toothed comb. Exactly how does he think adding additional process to what is already there is going to speed things up, given that the Government are determined to deliver capital projects more quickly?
Lord Livermore (Lab)
I am grateful to the noble Lord for highlighting the guard-rails that will be set out tomorrow, when further details will be set out in the Budget.
Lord Forsyth of Drumlean (Con)
My Lords, the noble Lord corrected me and said I had made a mistake in saying that the Chancellor had said that she would not alter the fiscal rules, because that would be fiddling the figures. On 9 October 2023, in interviews around the Labour Party conference at that time, that is exactly what she said. She stressed that Labour would not alter the fiscal rules to fit its spending goals, as doing so, in her words, amounted to “fiddling the figures”. What happened between October 2023 and the Mais Lecture to change her mind about the unwisdom of fiddling the figures?
Lord Livermore (Lab)
Nothing changed. There is a slight misunderstanding here. We have always been very clear that we would change the previous Government’s fiscal rules. The Chancellor was referring to the fact that we would not change the fiscal rules we set out—and we have not. The fiscal rules that we are delivering absolutely fit our manifesto commitments, and I do not understand the lack of understanding on the Benches opposite. The
“stability rule will mean that day-to-day spending will be matched by revenues”,
exactly as we committed to in our manifesto—that is a direct quote. In addition, the investment rule will deliver on our manifesto commitment to get debt falling as a proportion of our economy. Both those things were set out in our manifesto, both were set out in the Mais Lecture and both will be delivered in tomorrow’s Budget.
Baroness Vere of Norbiton (Con)
Does the Minister agree that the Labour Party manifesto was, in essence, just smoke and mirrors? There are smoke and mirrors surrounding not only the fiscal rule—I am still trying to understand his sentence about changing your own fiscal rules, but I will leave that there—but what a “working person” is. When one writes a manifesto, one does not do it such that one can get things round the British people; one should do it with clarity. I suspect that there is a certain lack of clarity in the Labour Party manifesto.
Lord Livermore (Lab)
I fully sympathise with the noble Baroness that she struggles to understand the concept of keeping manifesto commitments. She will see in the Budget tomorrow that we will keep every manifesto commitment we made to the British people.
Lord Sikka (Lab)
My Lords, is the Minister aware that the party opposite made six or seven changes to the fiscal rules between 2010 and when it left office, and never really explained how that worsened the public finances?
Working From Home: Public Sector Productivity
Lord Livermore Excerpts(1 year, 6 months ago)
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Lord Londesborough
To ask His Majesty’s Government what assessment they have made of the impact of working from home on productivity in the public sector.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, the Government inherited a situation where public sector productivity remained 6.4% below pre-pandemic levels. This is clearly unacceptable. Our focus is on fundamental reform of our public services, to drive greater efficiency and productivity. Further details on this agenda will be set out in the Budget and spending review.
Assessments of the impact of working from home on productivity seem—so far—to be inconclusive. The Government are very clear on the benefits of collaborative face-to-face working, in the Civil Service in particular. Studies by the IMF, the University of Manchester, the CBI, Google and Amazon have set out clear advantages to a hybrid working model.
Lord Londesborough (CB)
My Lords, my Question was prompted by an interesting claim made by the Minister’s colleague the Business Secretary. He said that
“allowing working from home creates a more productive, loyal workforce”.
I suggest that that is a sweeping statement, lacking in hard evidence. This is clearly an area where one size does not fit all. When will we see some credible, data-driven research, across all areas of the public sector, to measure the real impact of working from home on productivity?
Lord Livermore (Lab)
I agree 100% with the noble Lord that one size does not fit all. So far, studies have been reasonably inconclusive. Some have shown significant drawbacks to working from home, including a lack of social interaction and the associated mental health impacts that that brings, less progression—especially in the early stages of a career—and less creativity and innovation. But there are also some clear advantages to a degree of hybrid working, including more focused working, the ability to work on confidential issues and some interesting labour-supply impacts, particularly for those with disabilities or childcare responsibilities. So I think the jury is out, but more studies are being undertaken all the time.
Lord Maude of Horsham (Con)
My Lords, is it not the case that the biggest contribution to improving productivity, particularly in central government, would be to control and reverse the ballooning size of the Civil Service? It fell by 21% in the time of the coalition Government, but has since increased by 34%. Is not that uncontrolled growth a contributor to poor productivity? Could the first step be to have someone unequivocally in charge of the Civil Service, instead of the fudged arrangements that are apparently about to be continued?
Lord Livermore (Lab)
The noble Lord makes an interesting point. The Government inherited a situation where public service productivity remained 6.4 % below pre-pandemic levels, and the ballooning size of the Civil Service—as he described it—under the previous Government may have contributed to that. I do not know the answer to that, but the Chancellor has been very clear that the Government will establish a programme of public sector reform to drive much greater productivity, improving the quality of public services and the value for money that we receive.
Lord Wallace of Saltaire (LD)
My Lords, the Government have inherited a rather shrunken Whitehall estate from their Conservative predecessors, where hot-desking had become the norm in a number of departments. Are the Government confident that, if all civil servants turned up five days a week, there would be enough desks for them to sit at?
Lord Livermore (Lab)
No, there would not. One of the benefits of working from home is a much more efficient use of office space. It has a beneficial impact on capital in terms of releasing office space for more productive use, and that is currently what is under way.
Lord Sherbourne of Didsbury (Con)
My Lords, how does the Minister measure productivity in the public sector?
Lord Livermore (Lab)
There are a variety of measures, as I understand it. The ONS has a fairly standard measure. However, the noble Lord is absolutely right that it is much harder to measure productivity in the public sector than it is in the private sector. Measures that the Government are undertaking, such as increasing the number of GP appointments or reducing waiting lists, increase public sector output and therefore productivity.
Lord Patel (CB)
My Lords, following on from that answer from the Minister, NHS England says that productivity in the NHS has declined by 11% since before the pandemic. At the same time, nearly 40% of the staff in NHS England and ICBs work from home. One of the comments made is that we require managers with experience and training to allow for better management of the flow of patients, so that clinicians who cannot work from home are better able to deliver their services. What is the answer?
Lord Livermore (Lab)
I am not sure I am going to be able to answer that right now, but, as set out by the noble Lord, Lord Darzi, in his investigation into the state of the NHS, productivity in the NHS has fallen significantly and is far too low. Improving productivity in the NHS is a key priority. What the noble Lord said about management was really interesting. Emerging studies show that, where workforces are well managed, productivity can rise with working from home. This is a point that the noble Lord who asked the original Question raised in a previous debate on this subject, which I read: the quality of management has a key impact on productivity when working from home.
Baroness Neville-Rolfe (Con)
My Lords, although good management certainly makes a difference, there is strong evidence from academic studies that working from home reduces productivity—although there are other benefits. So far, this Government have been coy about publishing office attendance figures for government departments, as we used to do. Will the Minister ensure that the publication of such figures is restarted and that working from home is limited to those areas where efficiency is not compromised?
Lord Livermore (Lab)
This Government have exactly the same policy in terms of civil servants working from home as the last Government: civil servants should be in the office for a minimum of 60% of the time. That is unchanged and those figures will of course be published in exactly the same way. The noble Baroness said that working from home reduced productivity: that is not actually the case, according to many studies. I read one from the IMF recently that said that the positive and negative effects of working from home roughly offset each other, generating no net productivity impact.
Baroness Thornton (Lab)
Would my noble friend like to comment on the fact that, as a result of the pandemic, disabled people have been able to access work and all sorts of other things—like this House—more than they had previously? I hope that the Government will factor into their examination of this the fact that there are absolutely positive benefits of working from home for those with disabilities.
Lord Livermore (Lab)
I 100% agree with my noble friend. Most of the studies that have emerged so far on this subject suggest that there are very positive labour supply impacts of working from home. They particularly apply to those with disabilities who do not have to commute to the workplace and have their home working environment already adapted to their needs. They also apparently apply to those with childcare responsibilities coming back into the labour market.
The Lord Bishop of St Albans
My Lords, a recently published economic report by Pragmatix has identified the extraordinary gap between urban and rural productivity, including on homeworking, exacerbated by the problem of rural connectivity. Is the Minister aware of some of the local solutions that are now being tried? We are involved in some of those, for example with hosting antennae in church spires and towers and bouncing signals into more remote areas to enable homeworking and to increase productivity. Would he be willing to support some of these important initiatives for the sake of rural sustainability?
Lord Livermore (Lab)
It is an interesting question, and the answer is yes, I would be very willing to look at those impacts. As we have been discussing, labour supply has impacts across the economy. In rural areas, where sometimes it is difficult to travel into work, being able to work from home and the ability to have fast-speed internet connections can make a massive difference, and I would be more than happy to look at those issues.
Lord Forsyth of Drumlean (Con)
Is the Minister confident that working from home is increasing productivity and does he think there is any correlation between the rise in the number of people watching daytime television and the rise in the number of people working from home?
Lord Livermore (Lab)
At no point in any of my answers did I say it raises productivity—just so I am very clear. I will read from the IMF’s report, for the noble Lord’s benefit:
“Classic firm and individual micro studies typically find that hybrid working … has a roughly flat impact on productivity. Working from home benefits workers by saving them from exhausting commutes and typically provides a quieter working environment. But by reducing time at the office, it can also reduce employees’ ability to learn, to innovate, and to communicate. These positive and negative effects roughly offset each other, generating no net productivity impact”.
Baroness Ludford (LD)
My Lords, are the Government taking into account the effect on customers, and indeed taxpayers? My experience of ringing HMRC was that I was told that the official was working from home and was unable to access the computer necessary to order a tax statement for me. I thought that was odd. I would have thought the infrastructure needed to be in place.
Lord Livermore (Lab)
I obviously cannot comment on the particular phone call that the noble Baroness had, but I will say that the same IMF study says:
“Some studies … found large positive impacts, typically in more self-directed activities, such as call centre or data entry work”.
Crown Estate Bill [HL]
Lord Livermore ExcerptsTuesday 22nd October 2024
(1 year, 6 months ago)
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Baroness Vere of Norbiton (Con)
My Lords, I rise to speak briefly on this group. I note that the noble Lord, Lord Berkeley, is not in this place and so was unable to speak to his amendment. I understand why the noble Earl, Lord Russell, has tabled his amendment, and I am grateful to him for his exposition of the background to it. On these Benches, we recognise the unusual role that the Crown Estate has in the stewardship of the assets held in the right of the Crown. We recognise, too, that the revenues from the assets do not belong to the sovereign, nor is any part of them payable directly to the monarch.
The issue here is one of communication. It must be—it is absolutely essential—that there be no perception of any direct financial link between the sovereign and any amounts received under the sovereign grant and the amount of revenue generated by the Crown Estate. Upon the announcement of the partnership with GB Energy, there was a perception from some of the more excitable end of the media that the sovereign was somehow party to, and specifically approving of, the arrangement. I encourage the Minister and commissioners of the Crown Estate to ensure that information in the public domain about the operation of the Crown Estate, but also any further partnerships that may come down the track, cannot possibly suggest any direct involvement from the sovereign and, therefore, that there should be no undue benefit accrued.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, I am grateful to the noble Earl, Lord Russell, for his amendment and I will seek to address some of the points that he has raised. This amendment would require the Government, within one year of the passing of this Act and annually thereafter, to lay before Parliament a report into the effect of this Act on the size of the sovereign grant. The Government agree that it is important that there is transparency in how the sovereign grant is affected by changes in Crown Estate profits. Indeed, the Sovereign Grant Act 2011 includes a number of requirements that provide for regular effective review and reporting to Parliament.
As the noble Earl observed, under the Act, the grant for each financial year is set by reference to the profits of the Crown Estate. In broad terms, under Section 6 of the Sovereign Grant Act it is currently the higher of 12% of the Crown Estate profits two years previously or the previous year’s grant. For example, the level of the grant for 2025-26 will be set at 12% of the profits the Crown Estate reported in its annual accounts for 2022-23, published in July.
Section 7 of the Sovereign Grant Act provides for regular reviews of the percentage used in calculation of the grant to ensure the grant remains at an appropriate level. These reviews are conducted by the three royal trustees—the Prime Minister, the Chancellor of the Exchequer and the Keeper of the Privy Purse. The trustees must lay a copy of the report of their review before Parliament. The last review concluded in July last year and concluded that the reference rate should be reduced from 25% to 12%, reflecting an expected increase in the Crown Estate’s profits. The next review will commence in 2026, with a view to making any change to the grant calculation for 2027-28 onwards. As with previous reviews, it will consider both the future funding needs of the Royal Household and the likely future path of Crown Estate profits—including, of course, the effect of the Crown Estate Bill that we are debating today on those profits—to determine the appropriate percentage to use.
I should note in this context that the grant for 2026-27 will include the final tranche of funding for the current 10-year programme of reservicing of Buckingham Palace’s infrastructure. The percentage for 2027-28 onwards will therefore need to reflect the significant downward adjustment to the household’s funding requirements. The Sovereign Grant Act currently restricts the level of the grant itself being reduced from one year to the next. That provision was written into the Sovereign Grant Act to reflect the view that many of the duties of the Head of State cannot be abruptly stopped, and therefore it would not be appropriate to significantly reduce funding in response to a sudden drop in Crown Estate profits. That will, however, constrain the ability to reduce the grant by the likely appropriate amount once the reservicing of Buckingham Palace is complete. In 2016, when the previous Government agreed to provide funding for the resurfacing programme, they noted an intention to bring forward legislation to reset the level of the sovereign grant to an appropriate level once the reservicing works have been completed. I can confirm that it is also the intention of this Government.
Those statutory reviews therefore provide Parliament with a report of the impact of this Bill on the sovereign grant. They also provide a mechanism to ensure that additional Crown Estate profits do not lead to excessive funding for the Royal Household. Where that is not possible under the Sovereign Grant Act, the Government will legislate accordingly.
On reporting requirements, the Sovereign Grant Act also requires two further reports on the grant to be produced and laid before Parliament each year. First, Section 5 requires the royal trustees to produce a report annually stating the level of the grant for the following financial year and how that has been determined in line with a prescribed method set out in Section 6 of the Act. This report must be laid before Parliament. Secondly, Section 2 requires the Keeper of the Privy Purse to produce annual accounts relating to the Royal Household, including the use of the sovereign grant. In common with other central government bodies, the accounts are prepared in accordance with an accounts direction issued by the Treasury, audited by the National Audit Office and laid in Parliament. The Crown Estate Act 1961 also contains a requirement for the Crown Estate to produce an annual report and accounts.
The Government therefore agree that it is important that there is regular reporting to Parliament on how the changes in this Bill will impact the sovereign grant. As I have detailed, there is already a considerable set of statutory requirements in this respect and beyond.
Lord Livermore (Lab)
My Lords, I am very grateful to all noble Lords for the points raised during this debate and for powerfully highlighting such important issues. I will respond to the amendments tabled by the noble Lords, Lord Forsyth and Lord Douglas-Miller—who was the Minister for Animal Health and Welfare in the previous Government—and the noble Earl, Lord Leicester, which all touch on environmental and animal welfare protections.
These amendments would require the Crown commissioners to assess, on an ongoing basis, the environmental impact and animal welfare standards of, respectively, salmon farms, offshore energy installation and generation and aquacultural practices on the Crown Estate. Where that assessment determines that a salmon farm, a relevant offshore energy installation and generation, or relevant aquaculture is causing environmental damage or has significant animal welfare issues, the Crown Estate would be required to revoke the relevant licence. The commissioners would also be required to make the same assessment of any applications for new licences for salmon farms or the installation and generation of offshore energy on the estate. Where the commissioners determine that an application may cause environmental damage or raises significant animal welfare concerns, the Crown Estate must refuse the application.
The Government wholeheartedly support the objectives behind these amendments. It might help noble Lords if I set out the protections that currently exist in regulations and legislation, which apply regardless of the landlord. All aquaculture activity in England, including salmon farming, is regulated with the intention of ensuring that it is carried out in a responsible manner that respects the environment and protects consumer health and animal welfare, although I appreciate from the powerful speech by the noble Lord, Lord Forsyth, that this intent is not currently being achieved. At present, virtually all salmon aquaculture in the UK takes place in Scotland. As has been observed, the management of the Crown Estate in Scotland is a devolved matter.
The Government’s starting point is that these amendments may duplicate existing protections that already exist in legislation or protections that are required by regulators as part of the licensing process for aquaculture and offshore energy installations. Specifically, the Animal Welfare Act 2006 makes it an offence to cause unnecessary suffering to any protected animal. The assimilated Council Regulation No. 1099/2009 on the protection of animals at the time of killing requires that farmed fish are spared avoidable pain, distress or suffering during their killing and related operations. The Aquatic Animal Health (England and Wales) Regulations 2009 contain provisions to protect farmed fish from serious disease by introducing a system of authorisation for businesses involved in aquaculture.
To address a point on environmental impacts made by the noble Earl, Lord Leicester, the Conservation of Habitats and Species Regulations 2017 require the competent authority—in this context, the Crown Estate —to determine whether a plan or project is likely to have a significant effect on a European marine site. If so, it is then subject to an appropriate assessment. If that assessment shows that the plan or project could have an adverse impact on the integrity of the site that cannot be mitigated, authorisation of the activity must be refused unless specific derogations apply. For marine areas that are designated as a marine conservation zone under the Marine and Coastal Access Act 2009, a marine conservation zone assessment is carried out by the public authority to test activities that may hinder the achievement of the conservation objectives of the specific zone and decide from the assessments whether the application for an activity can be authorised.
The Crown Estate seeks to supports the regulators through the inclusion of necessary requirements on any leases and requires all practitioners to comply fully with all legal obligations, including animal welfare practices. When developing or managing its assets, especially in areas such as offshore wind farms, coastal management and urban redevelopment, the Crown Estate must comply with regulations that require environmental impact assessments. An example of this happening in practice was in February 2017, when the Crown Estate launched an opportunity for existing wind farms to apply for project extensions. Following a habitats regulations assessment, the Crown Estate confirmed that seven of these extension application projects would progress to the award of development rights.
The Crown Estate also received an application for an extension project where the majority of the site of the proposed extension sat within the Inner Dowsing, Race Bank and North Ridge special area of conservation. The plan-level habitats regulations assessment determined that it would not be possible to rule out an adverse effect on the integrity of the special area of conservation. Therefore, the Crown Estate decided that this extension project would not progress to the award of leasing rights as part of the 2017 extensions round.
On the point raised by the noble Lord, Lord Teverson, about looking at impacts holistically, that is exactly what this Bill seeks, by enabling the Crown Estate to map the whole seabed and therefore improve the understanding of how to ensure benefits for nature for the long term.
I would be interested to know in due course whether noble Lords consider that these existing regulations and the legislation are inadequate or are currently being inadequately applied. I hope that, for now, the noble Lords, Lord Forsyth and Lord Douglas-Miller, and the noble Earl, Lord Leicester, feel able not to press their amendments.
The Earl of Leicester (Con)
Is the Minister able to address the issue of pollution from all these crew transfer boats? I mentioned 125 million litres of diesel every year. If we are to have many more wind farms out to sea, that amount of diesel may get very large. Can he comment on converting these boats to electric?
Lord Livermore (Lab)
I am afraid that is not something I know about, but I am happy to write to the noble Earl.
Lord Forsyth of Drumlean (Con)
My Lords, I am grateful to the Minister for that reply, which was clearly written by Treasury officials who do not get out very much. The Minister has been kind enough to say that we should indicate whether we think the existing legislative requirements and regulations are working. We have just had an excellent debate, which has made it absolutely clear that wild salmon are being destroyed, not just in this country, but elsewhere, so the answer is: it is hurting, and it is not working. A very modest requirement on the landlords, the owners of the seabed to—
Lord Livermore (Lab)
Just to be clear, I wanted clarification as to whether the existing legislation could work, or, in itself, could not work.
Lord Forsyth of Drumlean (Con)
I would be very happy for the Minister to come back with an amendment that would indicate how it could be made to work, because it is not working. It seems to me a very modest measure that would say to the Crown Estate that it has given a licence to these people, so it is therefore under a duty to make sure that they act in accordance with all regulations and in a way which protects the environment for which they have responsibility. I cannot imagine why the Minister would reject that.
In view of the very inadequate response, I am very tempted to test the opinion of the Committee, but I will not because I hope that, perhaps in further discussions with the Minister, we can get an amendment which will actually offer some degree of protection to the hundreds of thousands of fishermen who are concerned about this, to the communities who are concerned about this and to the many, many people on a cross-party basis. I cite the example of the noble Baroness, Lady Jones, and I who are united; we are linked at the hip in our determination to make this happen.
However, I would like to thank everyone who has spoken in the debate in support of not just my amendment but that of my noble friend Lord Douglas-Miller, who made a very fine speech explaining precisely why things are not working. I am grateful to my noble friends Lord Trenchard, Lord Strathclyde, Lord Moynihan and Lord Caithness, the noble Baroness, Lady Jones, of course, and the noble Earl, Lord Kinnoull—it is quite a gathering. The Minister ought to go back and think about this again, and we will table a further amendment on Report.
I am most grateful to my colleague my noble friend Lord Roborough for the support that he gave to this amendment and his careful consideration. I have to say that I am not sure the Minister’s officials have shown the same diligence in looking at what is a major problem which, if not tackled with immediacy, will see the extinction of the wild salmon in this country. That is not something that any Government would want on their record. Given the response, I beg leave to withdraw my amendment.
Lord Roborough (Con)
My Lords, I am afraid that I may not entirely agree with the noble Baroness, Lady Kramer, on this. I agree with the intention of this amendment from the noble Earl, Lord Kinnoull, and the noble Lord, Lord Vaux of Harrowden. While we also acknowledge that the Crown Estate in Scotland is devolved, the entity remains closely aligned in its nature and the objectives sought from it, with considerable overlap in the kind of assets that are owned and managed. The Bill before us creates considerable new powers for the Crown Estate of England, Wales and Northern Ireland. First among those is the power to borrow, with the benefits to investment and flexibility that that allows. It also creates new obligations—hopefully, to include taking full responsibility for the environmental impact of offshore energy and fish farming. Those are not present in the devolved Crown Estate of Scotland. As noble Lords have described, it may well be helpful if the Minister committed to providing clear information on those differences once the Act has been implemented in order to allow both entities to learn what is best practice. Oversight and transparency are desirable in all areas of government, and I am most interested to hear the Minister’s response to this amendment and debate.
Lord Livermore (Lab)
My Lords, Amendment 37D, tabled by the noble Earl, Lord Kinnoull, would require the Secretary of State to lay a report before Parliament within 12 months of the day this Act is passed that assesses any differences between the provisions made by this Act for the management of the Crown Estate in England, Wales and Northern Ireland, and equivalent provisions for the management of the Crown Estate in Scotland.
It is possible now to provide such an assessment, and I am happy to set that out. Section 36 of the Scotland Act 2016 inserted a new Section 90B into the Scotland Act 1998. Subject to certain exceptions, Section 90B provided for the devolution in relation to Scotland of the commissioners’ management functions relating to property, rights or interests in land in Scotland and rights in relation to the Scottish zone.
Devolution occurred on 1 April 2017 under, and in accordance with, the Crown Estate Transfer Scheme 2017. The relevant property, rights and interests are now managed separately by Crown Estate Scotland under the Crown Estate Scotland (Interim Management) Order 2017 and the Scottish Crown Estate Act 2019, as enacted by the Scottish Parliament. They do not form part of the Crown Estate as currently managed by the Crown Estate commissioners.
The relationship between Crown Estate Scotland and the Scottish Government is governed by a public framework document which sets out a broad framework within which Crown Estate Scotland operates, and certain financial aspects. Any changes to that framework document or the wider legislation that underpins it are a matter for the Scottish Government.
I turn to the principal differences and similarities. The Bill grants the commissioners of the Crown Estate a power to borrow with Treasury consent and provides the Treasury with the power to issue loans and financial assistance to the commissioners, including out of the National Loans Fund. The Bill also specifies that the Treasury may determine the rate of interest on any loan and requires the Treasury to pay any sums received in respect of the loan into the National Loans Fund.
In comparison, Part 2, Section 1.1 of the framework document for Crown Estate Scotland explains that
“Scottish Ministers may make grants and loans to Crown Estate Scotland”
and such grants and loans are
“subject to such conditions (including conditions as to repayment) as the Scottish Ministers may determine”.
Part 2, Section 2.1 requires that:
“All borrowing by Crown Estate Scotland … shall be from the Scottish Ministers in accordance with guidance in the Borrowing, Lending & Investment section of the”
Scottish Public Finance Manual.
On investment, this Bill clarifies the commissioners’ existing ability to invest by inserting into the 1961 Act that:
“The powers exercisable by the Commissioners in the discharge of their functions under this Act include powers to do anything which is calculated to facilitate, or is conducive or incidental to, the discharge of those functions”.
It also omits subsection (4) from Section 3 of the 1961 Act, which will broaden the commissioner’s investment powers.
In comparison, Part 1, Section 3.2 of the framework document for Crown Estate Scotland explains that Scottish Ministers are responsible for
“approving Crown Estate Scotland’s Corporate Plan”,
which includes their investment strategy. Part 2, Section 7.3 requires Crown Estate Scotland to
“undertake investment in line with its legislative duties”,
which are set out in the Scottish Crown Estate Act 2019, principally in Part 3, across Sections 7 to 21.
On the constitution of the commissioners, the Bill increases the maximum number of commissioners from eight to 12 and omits the requirement that the second Crown Estate commissioner, if any, be deputy chairman. It also simplifies the legislative process by which commissioners are paid, such that the commissioners’ salaries and expenses are paid directly out of the income of the Crown Estate, rather than out of money provided by Parliament, which comes from the return made by the commissioners to the Government each year.
In comparison, under Part 1, Section 3.5 of the frame- work document for Crown Estate Scotland, the board membership is limited to nine members, including the chair. On remuneration, Section 7 of the Crown Estate Scotland (Interim Management) Order 2017 makes it clear that
“Crown Estate Scotland … must pay each member such remuneration and allowances (including expenses) as the Scottish Ministers may determine”.
The differences between these two organisations reflect the fact that the organisations have formed in different ways. The 1961 Act, which, as I have set out, is the legislative basis of the Crown Estate in its current form, was fulfilling a recommendation of the government Committee on Crown Lands—as set out in its report presented to Parliament in June 1955—to appoint an independent board of commissioners to manage the Crown Estate, with provisions designed to enable Parliament and the Treasury to know how it is discharging its responsibilities. To briefly quote from the 1955 report:
“The board should be a public authority, but not a government department in the sense of an organ of executive government. … We do however respectfully advise that the board should be more, not less, independent than the present Commissioners and that they should be given defined powers and duties as trustees and allowed to work them out with the minimum of direction and control.”
In comparison, Crown Estate Scotland was created by the Scottish Crown Estate Act 2019, which makes specific provisions about the management of the Scottish Crown Estate and followed on from a process of devolution established by the Scotland Act 2016. Crown Estate Scotland is specifically required to align its aims and objectives with the Scottish Government’s published programme for government, and Scotland’s economic strategy and national performance framework.
I hope this assessment was helpful and that I have provided some clarity on the points raised.
The Earl of Kinnoull (CB)
It is very interesting that the Minister has not mentioned—unusually, because he is always incredibly well briefed—the Crown Estate Transfer Scheme 2017, which was the scheme under Section 90B of the Scotland Act, under which this was transferred. Schedule 4 of that is headed, “Protection of UK-wide interests”, which is quite a thing, and the subject we have been talking about this afternoon. I wonder whether he would comment on that and how it affects the assessment that he has just made.
Lord Livermore (Lab)
I am happy to write to the noble Earl on that point. In the meantime, I hope he will feel able to withdraw his amendment.
Lord Forsyth of Drumlean (Con)
The Minister has not really addressed the fundamental point made by the noble Earl, Lord Kinnoull: fish and birds do not know where the border is between Scotland and the rest of the United Kingdom, and there are common interests. All he has done is read out a list of regulations and statutes that apply to the two commissions. I think the noble Earl was asking what provisions can be made, so that the two sets of commissioners are able to operate in the interests of the United Kingdom as a whole. As a unionist, he will surely appreciate the importance of that.
Lord Livermore (Lab)
What I read out was a response to the amendment tabled, which asked for exactly that; that is why I read it out. The noble Lord raises profound constitutional questions which I may not be the right person to address them to.
The Earl of Kinnoull (CB)
I asked a question as well: is the Minister going to afford every assistance to what is going on? This is something worth discussing. There is a danger here, and it is in the interests of all of us, as sub-owners of the Crown Estate, that the position is regularised. I am sorry if symmetry is too strong a word because they are differently enacted, but it is important to be in a position where they have very similar powers. It is in the interests of everyone in these islands that the two things can work together when required and that they have similar powers, so they can engage in the same energy deals and the same things in aquaculture.
Lord Livermore (Lab)
I am very happy to have that meeting. I do not know whether the noble Lord does want to join, but of course he is always welcome.
Baroness Kramer (LD)
My Lords, I confess that I was fascinated by the amendments put down by the shadow Minister, the noble Baroness, Lady Vere, whom I remember on many occasions defending Henry VIII clause after Henry VIII clause. She is now calling for extraordinary levels of accountability, but I suppose going into opposition somehow changes a perspective.
The documents that have been requested, which is the main content of this group of amendments, are, in essence, documents that I requested at the beginning of the process. The Minister has been generous, in a way that I think would not have happened in the past, to assure us that those documents will be made available before we reach Report so that, at that final stage of the process, we have enough information to know whether we need to challenge the content of the Bill or can accept it. I am satisfied to take his word for it, as his comments were made on the Floor of the House.
If the Minister can add anything about timing or content, that would be interesting. We had some confusion at one point about what is a memorandum of understanding and what is a framework agreement, but that has been clarified. I am satisfied that we are getting more information from this Government than, frankly, I ever could have hoped for, on similar issues, from the Government before.
Lord Livermore (Lab)
My Lords, I will respond to the amendments tabled by the noble Baronesses, Lady Vere of Norbiton and Lady Smith, the noble Lord, Lord Wigley, and my noble friend Lord Berkeley, which all seek to alter the timing of the Bill’s commencement.
I start by addressing Amendment 42, tabled by my noble friend Lord Berkeley. This amendment would alter the commencement of the Bill, so that it comes into force either two months after the Bill has passed or after the Crown Estate commissioners have published the Crown Estate’s lease extension policy and a Minister of the Crown has tabled a Motion in both Houses to debate the policy—whichever is later.
Independent School Fees: VAT
Lord Livermore Excerpts(1 year, 6 months ago)
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Lord Hacking
To ask His Majesty’s Government what estimates they have made of the pupil migration arising out of the proposed VAT on independent school fees, and what is the exact basis of such estimates.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, in July, the Government set out their view that the number of pupils who may switch schools as a result of these changes represents a very small proportion of overall pupils in the state sector. Projections from the Institute for Fiscal Studies suggest that this is likely to represent less than 0.5% of total UK state school pupils, with any movement expected to take place over several years. At the Budget, the Government will set out our assessment of the expected impacts and a tax information and impact note. This assessment will be consistent with the costings of this policy by the Office for Budget Responsibility. In making this assessment, the Government will consider pass-through of VAT to school fees as well as the likely elasticity of demand.
Lord Hacking (Lab)
My Lords, I am very grateful to my noble friend for answering my Question. He cites the IFS report that advised that there would be a very small pupil migration of between 3% and 7%. The question is whether that is correct. Do the findings of the IFS provide any clear indication of parents’ ability to pay a 20% increase in the cost of school fees? Also, should not the Government listen to the parents of pupils in independent schools in the various parent surveys? In recent surveys, between 18% and 26% have said that they will not be able to pay this increase and will have to take their child or children out of independent schools.
Lord Livermore (Lab)
At the Budget, we will set out an assessment of the expected impacts of this policy in the normal way by publishing a tax information and impact note. In this assessment, we will consider, first, the likely pass-through of VAT to school fees. Here, after a cover of VAT on input costs, we expect schools to be liable for VAT of an average of around 15% of their fee income. The Government expect that private schools will take steps to absorb a significant proportion of this VAT liability. Secondly, we will consider the likely elasticity of demand, which will be consistent with the elasticity used by the OBR in the costing of this policy. It is worth noting that, despite a 75% real-terms increase in fees since 2000, the number of children in independent schools has remained steady, which suggests an inelastic demand for private school places.
Lord Lexden (Con)
Should we not all be grateful to the noble Lord, Lord Hacking, who has sent a very thorough report to the Prime Minister, showing the dire consequences that the Government’s education tax will have? Is it not time that the Government realised that their education tax—the first in our history—is likely to force a large number of parents, particularly those using small special needs schools in the independent sector, to move their children next term to state schools which are wholly unprepared for them?
Lord Livermore (Lab)
The answer to the noble Lord’s question is no, because the assumptions underlying that report are incorrect. We expect that a large number of private schools will take steps to absorb a significant proportion of this VAT liability, so the majority of that fee will not be passed through.
Lord Vaux of Harrowden (CB)
My Lords, 3,000 military families take advantage of the continuing education allowance and send their children to private school. In previous answers, the Minister has said that no decision will be taken on how the impact of the VAT rise will be dealt with for those families until the spending review. The Armed Forces are facing a retention crisis, as is well known. Why does the Minister think that leaving those families with this level of uncertainty is going to help with that retention?
Lord Livermore (Lab)
The core answer to the noble Lord’s question is that very many private schools will take steps to absorb a proportion, if not all, of the new VAT liability, so there may actually be no increase in fees in such circumstances, which is why it is right that we leave it until the spending review. It is worth pointing out that very many military personnel send their children to state schools and want them to benefit from the improvements that will happen in those schools.
The Lord Speaker (Lord McFall of Alcluith)
My Lords, the noble Lord, Lord Campbell-Savours, is participating remotely.
Lord Campbell-Savours (Lab) [V]
Why not positively foster pupil migration from the public schools into the state boarding school sector, such as Keswick School, a comprehensive in the Lake District? They offer a far wider social mix, often higher standards of education, help to foster far more balanced social interaction among the young, and all at a fraction—often one-third —of the cost. Is this discussion about not just tax receipts but breaking down social division that can begin in childhood and later divide society?
Lord Livermore (Lab)
I am very grateful for my noble friend’s insights. I will take those on board.
Lord Storey (LD)
My Lords, the Minister keeps saying, “Our modelling, our predictions” et cetera. What happens if they have got it wrong? If, for example, 10%, 20% or 30% of pupils leave the private sector, have the Government made contingency plans to ensure a sufficient number of teachers and sufficient provision? A point was made about special needs schools. Many children in the private sector are in special schools providing a particular type of provision. Will that be available in the state system?
Lord Livermore (Lab)
The noble Lord asks about the assumptions we are making. As I said, we will set out our assessment of the expected impacts of this policy in the normal way by publishing a tax information impact note at the time of the Budget. At that point he can judge those assumptions for himself.
Baroness Vere of Norbiton (Con)
According to the Government, VAT is a tax on consumption and therefore falls on the parents. Yet the Minister keeps saying that this consumption tax will be absorbed by the producer—the schools. Many noble Lords have pointed out today that schools cannot simply magic up lots of cash to mitigate against this consumption tax on the parents. Has he considered that he is undermining what a tax on the consumer actually is?
Lord Livermore (Lab)
The noble Baroness will know that how schools will fund this additional cost is a commercial decision for each school. Some schools have already announced a very wide range of fee increases, from zero to 5%, to 10%, up to, for example, Eton at 20% above the average expected VAT liability. This reflects the Government’s expectation that private schools will take steps to absorb a significant proportion of the new VAT liability.
Baroness Foster of Aghadrumsee (Non-Afl)
My Lords, I am grateful to the noble Lord. Is the Minister aware of the disproportionate impact that this tax will have on Christian schools in Northern Ireland given the structure of the education system there? Given that, will a specific impact assessment be carried out?
Lord Livermore (Lab)
The impact assessment will cover the full range of expected impacts.
Lord Foulkes of Cumnock (Lab Co-op)
My Lords, is the Minister aware that many of us think that taxing the schools like other private enterprises is long overdue? Will he confirm that, in the case of the sons and daughters of MoD and FCDO personnel, it is in fact just a transfer from one government department to the other and has no net impact?
Lord Livermore (Lab)
I absolutely agree with the spirit of my noble friend’s point. This is a necessary decision that will generate additional funding to help improve public services, including the Government’s commitments relating to education and young people. The Government are committed to breaking down barriers to opportunity and determined to drive up standards in those schools serving the overwhelming majority of children in this country.
Lord Markham (Con)
What is clear from the comments is that this is all built on a number of assumptions that clearly could be incorrect. Given that the whole objective of this is to raise money, will the Minister undertake a review a year from now when this has been in place to see whether those assumptions were borne out, or, as we suspect, it has ended up losing money and will be repealed?
Lord Livermore (Lab)
The Government are extremely confident in our costings. We expect this policy to raise significant amounts of revenue. The Office for Budget Responsibility will certify the Government’s costings at the Budget. Of course, one keeps all tax policy under review.
Baroness Butler-Sloss (CB)
Do the Minister and the Government realise that we are talking about not only Eton, Winchester and Westminster? There are a large number of small independent schools serving local people on relatively low fees. They are the ones that will fail, in Northern Ireland and other places. There is no point reviewing it in a year’s time—they will be closed and those children may or may not find sufficient places in the local state schools.
Lord Livermore (Lab)
I disagree with the assumptions that underlie the noble and learned Baroness’s assumptions. As I said, some schools have already announced a very wide range of fee increases, from zero to 5% and up to 10%.
Tax Reliefs: Theatre, Orchestra and Museums and Galleries Exhibition
Lord Livermore Excerpts(1 year, 7 months ago)
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Lord Parkinson of Whitley Bay
To ask His Majesty’s Government whether they plan to maintain the current rates of Theatre Tax Relief, Orchestra Tax Relief, and Museums and Galleries Exhibition Tax Relief, as announced in the Budget on 6 March, beyond the current Spending Review period.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, the Government are committed to supporting the creative industries, which play a key role in driving economic growth. As part of the Government’s industrial strategy, a creative industries sector plan will be developed, working with business, local leaders and sector experts. I am unable to comment on any specific taxes ahead of the Budget; any tax changes will be confirmed in the Budget on 30 October.
Lord Parkinson of Whitley Bay (Con)
My Lords, I understand that the Minister is limited in what he can say ahead of the Budget later this month, but the Government were willing last week to provide certainty for one part of our brilliant creative industries by confirming that they would continue the support we announced in March for independent film production. Does he acknowledge that brilliant organisations in theatres, orchestras, museums and galleries are already planning their programmes for 2026 and beyond, and need certainty too? If the Minister cannot give them that today, will he press that point on his colleagues at the Treasury and urge them to confirm the permanent uplift of the tax reliefs we announced in March, particularly in a week when the Government are enlisting the help of cultural icons to promote investment in the UK?
Lord Livermore (Lab)
I know that the noble Lord has genuine concern for, and a great deal of expertise and experience in, the arts and culture sector. As I said, the Government are committed to supporting the creative industries, and to creating good jobs and accelerating growth in film, music, gaming and the other creative sectors that the noble Lord mentioned. That is why we have ensured that the creative sector is a key part of our industrial strategy. As the noble Lord said, I cannot comment on any specific taxes, but he will know that the Government face a very challenging fiscal situation. He will know that the previous Government left a £22 billion black hole in the public finances, which they concealed from the public, Parliament and the OBR. Addressing that will involve very difficult decisions on spending, welfare and tax.
The Earl of Clancarty (CB)
My Lords, given that there are regional museums that are currently facing insolvency, does the Minister agree with me that, while tax relief is useful—indeed, necessary—the real concern for the arts is the wider one of inadequate funding levels?
Lord Livermore (Lab)
Clearly, the Government recognise the importance of the arts to our public life and support the funding of the arts at the appropriate level. Unfortunately, I will have to say that the Government will set out their plans for supporting the arts in the coming spending review.
Lord Razzall (LD)
My Lords, I am absolutely delighted to join in a Question from the noble Lord, Lord Parkinson, because it gives me the opportunity to thank him from our Benches for the collegiate way in which he conducted himself as a DCMS Minister.
Bearing in mind the Minister’s commitment earlier, will he give any indication as to whether at yesterday’s investment conference there were any more commitments to put money into the film industry, or indeed the arts, apart from M&G’s investment in a new film project? Does he recognise that there remains an issue around the visual effects tax relief, which was announced in 2023 but for which implementation was stalled by the election? What is the status of this important tax relief? It is obviously vital to ensure that as much post-production work as possible stays in the United Kingdom.
Lord Livermore (Lab)
I am grateful to the noble Lord for mentioning the investment summit yesterday, when the Government were able to announce a total of £64 billion of investment into the UK economy. That was a vote of confidence in this Government’s handling of the economy and the fact that our economy is now open for business. On the specific tax relief that the noble Lord mentioned, I am afraid that I cannot comment on speculation about any specific taxes ahead of the Budget.
The Lord Bishop of Guildford
My Lords, the current relief offered to instrumental groups of 12 or more players does not extend to choirs, a situation that is logically indefensible, especially given the growing popularity of choirs across the nation. Can the Minister say whether the Government have formed a view on extending the relief to choirs, as requested by musical organisations all around the country, not least given the recent questions over the future of the BBC Singers?
Lord Livermore (Lab)
Orchestra concerts with a vocal element are not excluded from the orchestra tax relief. Concerts with a vocal element, such as a choir, may be eligible if the instrumentalists are the primary focus of the concert. The current rules ensure that the orchestra tax relief meets its objective of supporting and incentivising orchestra concerts specifically.
Baroness Keeley (Lab)
My Lords, on the benefits of the orchestra tax relief, the permanent 45% rate has been transformative. It enables UK orchestras to build new audiences, support new productions, generate employment and develop future talent. The cost of the orchestra tax relief was only 1.5% of the total creative tax reliefs in 2022-23. Does my noble friend the Minister agree that keeping this tax relief is consistent with the Labour Government’s mission for economic growth?
Lord Livermore (Lab)
I am grateful to my noble friend for her question. The creative industries are absolutely a major driver of economic growth in this country. She will be aware that I am unable to comment on speculation about specific taxes. In the coming Budget, we must rebuild our public finances to ensure economic stability, including by addressing the £22 billion black hole inherited from the previous Government, which will involve difficult decisions on spending, welfare and tax.
Lord Leigh of Hurley (Con)
The Minister again raises the alleged £22 billion tax hole. He was asked, this time last week, to explain what was in the £22 billion tax hole. He could identify only two items, which amounted to £9 billion—that is all he could find. It now transpires that HM Treasury’s policy paper of 2 August 2024 reveals that £9.4 billion of the so-called black hole has been created by Labour’s political decision to give public sector workers above-inflation pay grades. Does the Minister not agree with most of the House that this is a fictious black hole, created by Labour?
Lord Livermore (Lab)
I am extremely grateful to the noble Lord for giving me an opportunity to talk about the £22 billion black hole in the public finances, which was concealed from this Parliament and the public, and, most importantly, from the Office for Budget Responsibility, which has confirmed that it exists and set up an inquiry to establish how it happened and to ensure that it does not happen again. The noble Lord asked me to list what went into the black hole. He knows, for example, of the £6 billion overspend on the asylum system, including the failed Rwanda scheme; of the £3 billion of uncosted commitments on road and rail projects; that the reserve was overspent, three times over, just three months into the financial year; and that there was a black hole in the spending plans for the public sector pay rises because the previous Government did not hold a spending review and did not give any affordability criteria to the pay review bodies. That is why it has happened and that is what we will ensure does not happen again.
Viscount Colville of Culross (CB)
My Lords, I declare an interest as a trustee of the Museum of the Home. A recent survey by civic museums has shown that there is a backlog of hundreds of millions of pounds of urgent maintenance outstanding for our great cultural institutions, including the British Museum. Roofs are leaking, threating the museum building structures and the collections within them. Is the Minister aware of the importance of continuing the museums tax relief to ensure that this backlog is addressed?
Lord Livermore (Lab)
I am grateful to the noble Viscount for his question. We of course recognise the important role that the arts play in our lives. The Government will set out their plans to support the arts at the forthcoming spending review.
Baroness McIntosh of Hudnall (Lab)
My Lords, I think that everybody has heard loud and clear from my noble friend that he cannot make commitments that are waiting on decisions in the Budget. However, when he is talking to his colleagues at the Treasury, will he please stress the interdependency of all aspects of the cultural industries? Some generate more income than others but none is less important than any of the others, and without a proper sense of how they connect, all aspects of the cultural industries will suffer. Will he take that back to the Treasury and do the best he can to get the point across?
Lord Livermore (Lab)
I am very grateful to my noble friend. To be honest, I think that the point has already been registered; that is why we have made the creative industries a key part of our industrial strategy. The Government are committed to supporting the creative industries, including all the sectors that have been mentioned today, and that is why they will form a key part of the industrial strategy that was announced yesterday.
Baroness Fleet (Con)
My Lords, can the Minister tell us whether he recognises the vital role that the orchestra tax relief plays in the performing arts sector?
Baroness Quin (Lab)
My Lords, having not had the opportunity before, I warmly welcome my noble friend to his role. I very much endorse the comments that have been made about the importance of tax relief for museums. Will the Government, as I hope they are already committed to do, consult with museums—including in my own region of the north-east, where this has been particularly helpful—before any further measures are considered?
Lord Livermore (Lab)
In drawing up future tax policy the Government will of course consult with all interested stakeholders.
Crown Estate Bill [HL]
Lord Livermore ExcerptsMonday 14th October 2024
(1 year, 7 months ago)
Lords ChamberRead Full debate Crown Estate Act 2025 View all Crown Estate Act 2025 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 5-I(a) Amendments for Committee (Supplementary to the Marshalled List) - (11 Oct 2024)
Baroness Vere of Norbiton (Con)
My Lords, I am enormously grateful to all noble Lords who have spoken before me in this debate today. Predominantly, this is obviously around the devolution of powers over the Crown Estate in Wales to the Welsh Government. On these Benches, we have thought long and hard about this, and I hear the concerns of some noble Lords about how the devolved powers differ between Wales and Scotland and, indeed, Northern Ireland. But this is not a unique situation and I have concluded that I would encourage the Minister to resist any change at this time.
A number of noble Lords have raised certain challenges as to why this might be a good or a bad idea, and I look at this in a purely practical sense. If I look at the documents that have been provided and are available not only for the Crown Estate but also the Crown Estate’s relationship with GB Energy—the enormous commitment that the Crown Estate has made in terms of the amount of seabed licences it wishes to grant to enable energy generation by 2030—I agree with the noble Baroness, Lady Kramer, that change is coming and coming very significantly for the Crown Estate. In 10 years’ time, it is not going to look the same as it does now. Therefore, I think that we would introduce risk into what is already a very ambitious target set down by the Government to develop offshore wind should we be sidetracked by the desire to devolve limited powers over the Crown Estate at this time.
It is also worth bearing in mind that the Crown Estate is very clear in its documents—and I think the Committee will discuss this a bit more later—that it is an independent business and competes against the private sector. Splitting it at this time and taking out a chunk of the assets and going through all the procedures as to how you recognise those assets—as pointed out by the noble Lord, Lord Berkeley—and how you think about which revenue streams go where would be a sideshow.
I note the point made by the noble and learned Lord, Lord Thomas, but I am going to run with it slightly. At the moment, the Labour-run Welsh Government do not have the best record of governance. Of course, that might improve in the future and progress may well be made, so I conclude by saying that we encourage the Minister to resist these amendments and we believe that they would be unwise at this time.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, I am very grateful to all noble Lords who have spoken in this debate in response to the amendments from the noble Lords, Lord Wigley and Lord Hain, and the noble Baronesses, Lady Smith and Lady Humphreys. I hope to be able to explain the Government’s rationale for retaining the existing structure of the Crown Estate.
First, let me set out how the Crown Estate currently operates and why the Government believe this remains the best approach. The Crown Estate Act 1961 requires the Crown Estate commissioners to manage the Crown Estate as a commercial enterprise to enhance long-term value and generate profit and to do so with due regard to the requirements of good management. A key purpose of the 1961 Act was to repeal various detailed statutory provisions that had built up over 150 years previously which were hampering the effective management of the estate. By focusing the commissioners’ duties on enhancing the estate’s value and the returns generated, the commissioners have a clear objective for which they can be held to account.
While the Crown Estate has goals which under its own strategy align with wider national policy objectives, the 1961 Act provides the Crown Estate with independence and autonomy to set and achieve its goals. The Government believe that the Crown Estate should continue to operate in this way, as a commercial business independent from government, because it has shown itself to be a trusted and successful organisation, with a proven track record in effective management.
The Crown Estate is multibillion-pound public corporation, which is required to pay its profits into the UK Consolidated Fund each year, worth more than £4 billion over the past decade. Those revenues are then allocated to public service priorities by the Government, subject to the usual parliamentary controls. That is a valuable outcome, which we need to be careful not to undermine.
I turn to the amendments that deal with devolving the Crown Estate in Wales. I fully recognise that there are now two Labour Governments in the UK. While I believe that there is greater benefit for the people of Wales and the wider United Kingdom in retaining the Crown Estate’s current form, I shall of course continue to discuss these issues with the First Minister and the Secretary of State for Wales to ensure that Wales sees the full benefits of the Crown Estate and other forms of investment.
In response to the arguments made by noble Lords during this debate, I make a number of points. First, devolving the Crown Estate to Wales would most likely require the creation of a new entity to take on the role of the Crown Estate in Wales. This by definition would not benefit from the Crown Estate’s current substantial capability, capital and systems abilities. As my noble friend Lord Hain and the noble and learned Lord, Lord Thomas, referred to, this would indeed further fragment the UK energy market by adding an additional entity and, as a consequence, it would risk damaging international investor confidence in UK renewables and disrupting the National Energy System Operator’s grid connectivity reform, which is taking a whole-systems approach to the planning of generation and network infrastructure. That reform aims to create a more efficient system and reduce the waiting times for generation projects to connect to the grid. The cumulative impact of these effects would likely delay the pathway to net zero by decades.
Furthermore, the Crown Estate’s marine investments are currently made on a portfolio-wide basis across England and Wales. To devolve to Wales would disrupt these existing investments, since they would need to be restructured to accommodate a Welsh-specific entity. Let me give two examples. The first is the Crown Estate’s £50 million supply chain accelerator, which will match-fund early stage projects related to offshore wind leasing round 5, and the £50 million investment in the offshore wind evidence and change programme, which brings together government bodies, the industry and key stakeholders from across the UK to better understand environmental impacts of offshore wind.
Lord Wigley (PC)
The Minister has explained the need for a restructure. As Scotland has devolution of this dimension already, clearly it is not impossible for people to come together after devolution for Wales, too.
Lord Livermore (Lab)
I shall go on to address some of those points further in my speech.
To devolve the Crown Estate at this time would also risk jeopardising the existing pipeline of offshore wind development in the Celtic Sea planned into the 2030s. The Crown Estate’s offshore wind leasing round 5 is spread across the English and Welsh administrative boundaries in the Celtic Sea. It was launched in February this year and is expected to contribute 4.5 gigawatts of total energy capacity, or enough to power 4 million homes. In addition to energy, the extensive jobs and supply-chain requirements of round 5 will also likely deliver significant benefits for Wales and the wider UK. Lumen, an advisory firm to the Crown Estate, has estimated that manufacturing, transporting and assembling the wind farms could potentially create around 5,300 jobs and create a £1.4 billion boost for the UK economy.
As I have said, devolution would also delay UK-wide grid connectivity reform. The Crown Estate is using its data and expertise as managers of the seabed to feed into the National Energy System Operator’s new strategic spatial energy plan. For Wales, the Crown Estate is working in partnership with the energy system operator to ensure that its current pipeline of Welsh projects, the biggest of which is the round 5 offshore wind opportunity in the Celtic Sea, can benefit from this co-ordinated approach to grid connectivity up front. Introducing a new entity, which would have control of assets only within Wales, into this complex operating environment, where partnerships have already been formed, would not make commercial sense.
Secondly, the Crown Estate’s assets and interests in Wales, as compared to its assets in England, are of a fundamentally smaller magnitude, which would very likely not be commercially viable if the costs were unsupported by the wider Crown Estate portfolio. The Crown Estate, in its present form, has the ability to take a longer-term approach to its investments and spread the costs of those investments across its entire portfolio. A self-contained, single entity in Wales would not have the same ability, nor would it benefit from the expertise that the Crown Estate has developed over decades in delivering offshore wind at scale. A devolved entity would be starting from scratch, midway through a multimillion-pound commercial tendering process, at a time when the Crown Estate is undertaking critical investment in the UK’s path towards net zero.
Lord Hain (Lab)
My Lords, before my noble friend sits down, I want to ask him specifically about what he said in relation to Welsh Government Ministers. I pressed him hard to talk to Welsh Government Ministers and consult on this matter. Nobody expects this to be done overnight or, indeed, relatively soon, given everything else and what he has said, but that seems to me the crucial thing which would release me from an obligation at least to press this on Report.
Lord Livermore (Lab)
I am very happy to reiterate what I said: I will, of course, discuss these issues with the First Minister and the Secretary of State for Wales to ensure that Wales sees the full benefits of the Crown Estate and other forms of investment.
Lord Wigley (PC)
I am sure that the noble Lord, Lord Hain, listened to that response, as I did, with some amusement. If the line that the Minister is going to take in discussion with Welsh Ministers, who have very strong opinions on this matter, is the line that he has taken in responding to this debate, there is quite clearly not going to be a meeting of minds. We are talking about a Labour Government in Cardiff and a Labour Government in London, and this is going to be the backdrop to the politics that are running through the next few years, including the run-up to the 2026 election. I beseech the Minister to think more carefully about the way he is handling this.
The way in which the Crown Estate has been devolved in Scotland has not caused immense difficulties. They have been able to disaggregate the things that need to be disaggregated. It has been possible for the Scottish Government to get the benefits they need. The most important thing that I regard as coming from this sort of structural change is to give the Welsh Government the levers and powers—and the encouragement—to take initiatives themselves, to maximise the economic return that they can get in Wales and thereby to generate the income we need to run our government services. We do not want to be for ever and a day coming with cap in hand to the Treasury in Whitehall, begging for money.
On that point, perhaps it was the same noble Lord, Lord Macpherson, who was at the Treasury in 2010-11, when the Welsh Government had aggregated £400 million from money they had not spent on a revenue basis, in order to have a capital fund to build hospitals and schools, and the Treasury took back the whole £400 million. Being careful how they spent money at year end was a policy that the Labour Government in Wales could be proud of, but that is what the Treasury did to us. The Treasury is still, with the same game, trying to stop us taking initiatives on our own behalf to sort out our own problems.
I was grateful to the noble Lord, Lord Hain, who made a persuasive argument, and I hope we return to these matters on Report. I was naturally grateful to my noble friend Baroness Smith of Llanfaes—she will possibly come in on other debates on these matters. I realise where the noble Lord, Lord Macpherson, comes from on these issues. I too had a financial background; I was a financial controller in manufacturing industry and I know the responsibilities that go with finance. I also know the need to have the incentive and inducement to create the money that can then be used for the social services and all the other responsibilities of government —that is what we want to trigger and encourage in Wales.
I was grateful to the noble Baroness, Lady Humphreys, for her substantial speech, which laid out her party’s view. I am glad to see that the Labour Party in the Senedd Cymru, the Liberal Democrats and Plaid Cymru stand together on this, and, indeed, a number of Conservatives there do too, which perhaps Conservative colleagues could bear in mind.
The noble and learned Lord, Lord Thomas of Cwmgiedd, excellently summed up the whole thing. The problem that we have had down the years when it has come to wanting to take responsibility for doing things for ourselves rather than always going cap in hand to others to bail us out is that we are told we cannot do it, or that it will cut across the unity or the way the commercial sector sees it, et cetera. We have got to be able to stand on our own two feet, whether it is in the context of the structures of government we have now or different ones. As in the case of Scotland, we want to stand on our two feet and be able to pay our way in the world, and at least take responsibility on our own shoulders for doing that.
I take the point about Northern Ireland made by the noble Baroness, Lady Ritchie of Downpatrick, and, indeed, Northern Ireland is mentioned in some of these amendments. There is, of course, a need for a co-ordinated approach, but that does not mean that we have all to be lumped together under one overarching structure. The whole point of devolution is to give power and responsibility to those who are best placed to make the most of it, and, in this context, to develop and use our own resources. The noble Lord, Lord Berkeley, mentioned the situation in Cornwall, where there are resources that can be used and maximised for, I hope, the benefit of the people of Cornwall rather than for profits to be syphoned off elsewhere. The noble and learned Lord, Lord Thomas, mentioned our experience with coal, where we were left with the coal tips, industrial disease and all the environmental problems to clear up at our own cost, but when we try to do something about it, we are told we are not capable of doing so. Quite frankly, that is not acceptable.
I thank the noble Baroness, Lady Kramer, for painting her party’s viewpoint on a UK basis so clearly. Obviously, the response from the noble Baroness, Lady Vere, is not one I identify with; I am not entirely surprised as we have had such responses from Conservative Governments for many years. I am, however, surprised at the response from the Labour Front Bench, where we would have hoped for more.
There is currently a shortfall in the Welsh budget of some £250 million a year, which the Government are going to have to find. There is also an increasing dynamic to that figure: it will reach some £750 million by 2028. We want to be able to do something about it ourselves, so why do they not give us the tools we need to do the job when we are willing to take the responsibility to do it? I beseech the Labour Government to look at this again between now and Report. As the noble Lord, Lord Hain, suggested, they should speak to colleagues in Cardiff and try to get a solution that enables us to do more to help ourselves, rather than telling us for ever and a day to come with a begging bowl and hope that somebody will bail us out. I beg leave to withdraw my amendment.
Baroness Vere of Norbiton (Con)
My Lords, this group of amendments on the investment and borrowing powers in the Bill for the most part seeks to put in place limits on borrowing by the Crown Estate. I am grateful to the noble Earl, Lord Russell, who introduced the group, and I agree with him that there should be a limit on the borrowing powers that the Government intend to extend to the Crown Estate commissioners.
I also associate myself with the comments made by both the noble Earl, Lord Russell, and the noble Baroness, Lady Kramer, about the absence of the business case and the draft framework agreement. This is not the first Treasury Bill where accompanying documents have not appeared, but this is a new Government.
I am also grateful to my noble friend Lord Howard of Rising for his Amendment 8—I understand that the Committee will come back to his Amendment 9 separately—which seeks to probe the Government’s intention on borrowing. My noble friend made his points clearly: it is not just about this current Government, or the subsequent Government, but any future Government under whom there may need to be checks and balances in place to prevent the overleveraging of a very important group of national assets run by an independent company or organisation.
Extending the borrowing powers was planned by the previous Conservative Government, and we absolutely support the principle of the Bill. As I said on the previous group, the Crown Estate will be a very different organisation in 10 years and so has to do a lot of things very quickly. It is going to need money and there is an opportunity here. However, I am struggling to figure out how its relationships with GB Energy, on which I still lack clarity, and—one step removed—the national wealth fund, which I understand does not have as much money as was originally planned, will all fit together. Therefore, to protect the integrity of the Crown Estate it is important that a borrowing limit is put in place.
Previously, the Crown Estate commissioners were constrained by the 1961 Act, but we support other noble Lords who have spoken today on considering what the mechanism might be. Different noble Lords have proposed different mechanisms. I appreciate that the noble Earl, Lord Russell, picked a number, and I accept that that might be an outcome, but of course it is not really inflation-proofed; it would be in the Bill and therefore it might not be helpful in due course. I went away and thought about having 2% of total assets as the limit. If one looks at the portfolio as it stands for 2022-23—£15.5 billion—one sees that a 2% cap would represent a cash limit of around £310 million. That would be a more generous cap than that proposed by the noble Earl, Lord Russell, but it is broadly equivalent to the “hundreds of millions”—I think that was the phrase—envisaged by the Minister. We are just trying to be helpful here, by putting a statutory footing underneath the Minister’s intention in any event.
Another thought I had was not only doing this as a percentage of total assets but giving Parliament some sort of say over a five-year horizon. I think this was the point that the noble Lord, Lord Macpherson, was making, but in a separate way. I was not actually aware that borrowing forecasts appear in documents relating to the Crown Estate—maybe they do, and in any event it would be worthwhile to have a look at them. There is a significant loss of parliamentary oversight in this Bill. There is very little parliamentary oversight at all of the Crown Estate anyway, despite it holding some of our national assets, but the Bill takes even more of that parliamentary oversight away, which I will come to in a subsequent group.
I believe that there is an opportunity to add some oversight, and therefore I came up with the idea that Parliament should be required to pass regulations that set out, by year, a five-year borrowing cap. Parliament could do that every year quite simply. That would obviously give flexibility, and it would enable debates to happen about the Crown Estate and whether it was heading in the right direction. The Treasury could be challenged about its involvement—apparently there is a transparent relationship between the Treasury and the Crown Estate, although I have found no notes relating to that which would indicate such transparency. That was my other idea.
There are many ways that the House might decide on Report to put a limit on borrowings. I am happy to hear the views of the Minister; I very much hope that he will appreciate that many noble Lords are trying to help.
Briefly, my Amendment 10 picks up the point made by my noble friend Lord Howard about the situation where the Treasury is going to be lending to the Crown Estate, and that will be down as an asset, and then that money could circulate back and go into day-to-day government spending. To me, that seems slightly odd. It would be good to get some sort of commitment to ensure that that sort of mechanism is somehow broken.
I am grateful to all noble Lords, especially my noble friend Lord Holmes of Richmond. I might come to his element about additionality when we come on to the reporting of the investment strategy of the Crown Estate in a later group.
Lord Livermore (Lab)
My Lords, I am grateful for the contributions from all noble Lords on this group of amendments. I recognise that the issue of controls on borrowing is an important consideration, and I hope to offer some reassurance. I agree with very many of the points raised during this debate, in particular that controls on borrowing by the Crown Estate must be in place. I assure noble Lords that such controls will be set out in the memorandum of understanding that will be in place between the Crown Estate and the Treasury, and will be set at a loan to value ratio not to exceed 25%.
Baroness Kramer (LD)
Is the Minister saying that it will be an MoU rather than a framework agreement, or are they the same thing by another name?
Lord Livermore (Lab)
They are the same thing by another name.
By way of background, as the noble Baroness, Lady Vere of Norbiton, said, the Bill we are considering was conceived under the previous Government, and it was continued by this Government as we share the same objective to increase the Crown Estate’s ability to compete and to invest. The default starting position I inherited was that the memorandum of understanding between the Crown Estate and the Treasury could contain commercially sensitive information and would therefore not be published.
I listened carefully to views expressed by many noble Lords at Second Reading that it should in fact be published. The noble Baroness, Lady Kramer, spoke particularly persuasively on this issue, and I gave her the commitment at Second Reading that it would be published in draft before November. I can confirm to noble Lords that it will, as a result, definitely be published before Report. In hindsight, though, I recognise that I could have reversed the position I inherited sooner and that this would have been more helpful to noble Lords considering this group of amendments. I am also grateful for the conversation I had last week with the noble Lord, Lord Howard, which I found informative and persuasive. I thank him for his time. I believe the question is not whether such controls on borrowing should exist but what those controls are and whether they should be set out in statute or in the memorandum of understanding.
I will briefly recap the purpose of this legislation. The Crown Estate is a commercial business, independent from government, that operates for profit and competes in the marketplace for investment opportunities, but to compete effectively, and to invest in order to maximise its returns to the Exchequer, it needs the ability to borrow, as its competitors currently can. That is the purpose of this legislation, and we should consider the controls we wish to place on its ability to borrow in the context of not undermining that objective. It is important to note that any borrowing by the Crown Estate will be for investment in activities that will drive increases in revenues, therefore increasing the returns it provides to the Government.
The Government’s strong intention is for the Crown Estate to borrow at levels that are proportionate to the nature of the business. I must emphasise that the powers proposed by the Bill are both targeted and measured. The Crown Estate will not be permitted to borrow without the consent of the Treasury. This is a strong safeguard and ensures that borrowing by the Crown Estate will not be uncontrolled. Furthermore, as I set out at the beginning of my comments, the memorandum of understanding will set a loan-to-value ratio not to exceed 25%. It will also set out other operating parameters in regard to the Crown Estate’s borrowing ability.
I turn to Amendments 2, 3, 4 and 8 tabled by the noble Baroness, Lady Vere of Norbiton, the noble Lord, Lord Howard, and the noble Earl, Lord Russell. These amendments each seek to cap the level of borrowing out of the National Loans Fund by the Crown Estate in specific ways. Amendment 3 tabled by the noble Baroness, Lady Vere, would restrict borrowing out of the National Loans Fund to no more than 2% of the value of total assets of the Crown Estate. Measuring 2% against Crown Estate assets would currently equate to £354 million. Amendment 2 from the noble Earl, Lord Russell, would limit Crown Estate borrowing out of the National Loans Fund to no more than £150 million, while similarly Amendment 8 tabled by the noble Lord, Lord Howard, would restrict borrowing out of the National Loans Fund to no more than 10% of capital and reserves, which on current figures equates to approximately £1.5 billion. So there is a wide range of views on the specific size of the limit. Based on current asset values, the proposed 25% loan-to-value parameter would equate to approximately £3 billion.
The principal issue here is whether a specific cap should be set out in the Bill. The Government’s considered view is that such a limit should not exist in statute. The purpose of the Bill is to afford the Crown Estate greater flexibility so that it can continue to deliver on its success, support wider national policy objectives and generate maximum returns for the Exchequer. As such, the measures proposed in the Bill are intended to endure without further amendment for many decades to come. For this reason, the Government’s view is that controls on borrowing are best set outside primary legislation, as is the case for some other public bodies with borrowing powers.
The controls on borrowing for the Crown Estate will instead be set out in the underpinning memorandum of understanding agreed with the Treasury, which I have referred to previously. I remind noble Lords that the fundamental duties of the Crown Estate commissioners, and their general duty, will remain to maintain and enhance the value of the estate and the return obtained from it, with due regard to the requirements of good management. Excessive borrowing would not be consistent with this duty.
We should also be mindful of what an appropriate maximum level of debt for an organisation such as the Crown Estate may be. It has an asset base in excess of £15 billion, overwhelmingly in the form of land and property. Included in the Crown Estate’s original business case, which I have also committed to publish before Report, is information on the loan-to-value ratio of the Crown Estate’s peers in the UK real estate sector. At the most conservative end of this scale is the Duchy of Cornwall, with a loan-to-value ratio of 14%. By contrast, a £150 million limit on Crown Estate borrowing would equate to a loan-to-value ratio of less than 1%.
The Deputy Chairman of Committees (Lord Geddes) (Con)
As the noble Lord has spoken to the amendment, the Government may reply if they so wish.
Baroness Kramer (LD)
My Lords, I very much endorse the comments of my noble friend Lady Humphreys. I too believe that this is another opportunity to make sure that there is a far stronger voice for Wales, so let us seize it and use that as a template for how the Crown Estate goes forward.
I wanted to focus more on a couple of other issues. In a sense, I see a linkage between the comments made by my noble friend Lord Russell suggesting that, by forgoing receiving lease income and instead taking an ownership tranche in a whole series of new energy projects, the long-term income to the Crown Estate and to England and Wales would be significantly larger than the much shallower and shorter-term benefit of charging lease rent. That relates to the same kind of issue raised by the noble Lord, Lord Young of Cookham. Please could the Minister sort that problem out? This really is an unfair situation, and it will just take a Minister to absolutely slap his hand on the table and get it done.
In both cases there is a tendency, which I noticed at Second Reading, for Members of this House to think of the Crown Estate as some sort of cuddly organisation. It may be very generous, and if you read its annual report you can see that it does wonderful things for local communities and talks incredibly sympathetically about disadvantaged people, but when it operates as a commercial entity, my goodness, it is one of the most aggressive commercial entities that anyone could run into—and when you say that within the property sector, you are really saying something. It is infected by the same position adopted by many other property companies, which is to go for very short-term profit and to forget about the long term.
Everything that we hear from the Government is about patient capital—and, if you are going to look for the long term, surely you follow the pattern proposed by my noble friend Lord Russell, which says that, over the long term, you will do much better if you take some serious equity positions and perhaps make an in-kind contribution to a project, rather than charging rent over a relatively short-term period. If it acts in the same way as a commercial entity, surely in its commercial activities the Crown Estate should be treated as a commercial entity and therefore have to live up to the law that applies to other commercial entities operating in that same sector, and not to have an out because of its peculiar status, sitting somewhere between public and private. If that were done, the noble Lord, Lord Young, would not be asking why on earth it was not living up to the terms of the law for other commercial entities in dealing with leaseholders and freehold. It has to be recognised for what it is, and there are changes, consequently, that the Government may wish to make—first to create long-term thinking but also to make sure that, when it operates on a commercial basis, it is subject to the same regulations and requirements as other similar commercial properties.
I want to address very briefly the issues raised by the noble Baroness, Lady Vere. It is wonderful the change that comes when a body moves into opposition —the road to Damascus. The number of times I have asked a Conservative Government: when we have appointments, could we please have pre-appointment scrutiny by a committee of this House? In fact, I may even have requested them of the noble Baroness, Lady Vere, concerning various appointments at the Treasury—I cannot quite remember, there have been so many over the years. I am so glad of this Damascene conversion. We now have a Conservative party that is also supporting pre-appointment scrutiny. I do believe that pre-appointment scrutiny was often the Labour Party position. The noble Lord, Lord Livermore, is shaking his head but I think I may have a longer memory. I have certainly heard it from other Members, both on the Treasury Select Committee when I was in the other House, and on the Economic Affairs Committee. Pre-appointment scrutiny does make sense as a general underlying principle, and it would seem to make sense for the four new commissioners that are to be added to the existing eight.
Like others, I am really curious to know: going from eight to 12, they say, is good practice, but why? What will they do? Where will they come from? I can perfectly well see that this is a great opportunity for regional representation, and the noble Lord, Lord Holmes, touched on a very important point: we now look at most boards and want to see clearly that they understand that the ethics and attitudes of today require inclusivity; that it is not just some token item somewhere in an ethics statement by the company, but that someone is actually taking responsibility, based on knowledge, at a very senior level within the decision-making structure, and implementing that role. Here is an opportunity to seize that, and I hope very much that the Government will do so.
Lord Livermore (Lab)
My Lords, I thank the noble Baronesses, Lady Vere and Lady Smith, the noble Lords, Lord Young, Lord Holmes and Lord Wigley, and the noble Earl, Lord Russell, for raising these very important issues concerning the governance and management of the Crown Estate. I should emphasise again that the intention of the Bill is to afford the Crown Estate greater flexibility to ensure that it can successfully compete in commercial markets to deliver maximum benefits for the nation.
The noble Baronesses, Lady Vere, Lady Smith and Lady Kramer, asked about the number of commissioners. This change reflects the growing diversity of the Crown Estate’s business and will ensure that the Crown Estate can meet best practice standards for modern corporate governance. This will help to broaden the diversity of the board and provide more breadth of expertise and capacity to enable the commissioners to operate more effectively in the constantly evolving business environment. The Bill provides for a maximum number of 12 commissioners, up from eight at present. However, within this limit, the exact number of commissioners serving at any one time will be in the light of advice from the Crown Estate’s board on where it considers additional board-level expertise would be beneficial to the business.
I will start by addressing the issue of the appointment of commissioners to the Crown Estate’s board, reflecting on Amendments 12 and 22, tabled by the noble Baronesses, Lady Vere and Lady Smith. Amendment 12, tabled by the noble Baroness, Lady Vere, would require scrutiny by the Treasury Select Committee or any successor committee of all future proposed commissioner appointments, including the chair, before any appointment can be made. Let me first emphasise that all Crown Estate commissioner appointments are governed by the Governance Code on Public Appointments. The code is clear that commissioners must be selected based on expertise and experience.
As I have previously set out, the Crown Estate operates independently of the King and of government. Affording Parliament the opportunity to scrutinise potential appointments before they are made would significantly alter the appointments process, in a way that would change the relationship between the Crown Estate, government and Parliament. The Cabinet Office’s existing guidance on pre-appointment scrutiny is clear that it should apply only where posts play a key role in the regulation of actions by the Government, protecting and safeguarding the public’s rights and interests in relation to decisions and actions of the Government, or roles where organisations have a direct major impact on public life. It is the Government’s view, as it was of the previous Government, that the Crown Estate’s commissioner posts do not fit these criteria and that it would therefore be inappropriate to require pre-appointment scrutiny.
It should also be noted that pre-appointment scrutiny of roles elsewhere in public life is limited largely to the role of chairs. Therefore, even if the Cabinet Office’s criteria were satisfied, it would be disproportionate and unusual for all commissioner appointments to be subject to such scrutiny. In addition, requiring pre-appointment scrutiny for non-executive commissioner posts, which are not high profile or public facing, may deter some candidates from applying. As I have set out, this would be inconsistent with existing pre-scrutiny arrangements, which are generally restricted to chair positions. Consequently, this might put at risk securing candidates of the necessary quality and calibre to the board and present a more fundamental risk to the overall management of the Crown Estate.
Lord Young of Cookham (Con)
Before the Minister sits down, I am grateful for what he said. Can he confirm that he has not ruled out amending the draft memorandum of understanding in the way that I proposed?
Lord Livermore (Lab)
I would like to be helpful to the noble Lord. I am told that the memorandum of understanding deals exclusively with borrowing powers, so it may not be the most appropriate vehicle to insert that into.
Lord Berkeley (Lab)
Before the Minister sits down, I have a very simple question to ask him. We have had a very interesting debate, and I have understood much of it, but who does the Crown Estate—and therefore the Duchy of Cornwall—report to? Is it the Government or Parliament? Who controls them, or are they a law unto themselves? In spite of the amendment tabled by the noble Baroness, Lady Smith, I do not think the King comes into it.
Lord Livermore (Lab)
It is a very good question, and I shall endeavour to find the answer and write to my noble friend.
Baroness Vere of Norbiton (Con)
I am grateful to all noble Lords. That was an excellent debate and a lot of ground was covered. My favourite line of the debate came from the noble Baroness, Lady Kramer. She put her finger on it when she said that the Crown Estate was not a “cuddly organisation”. It does not need to be—it does not report to anybody, apart from its commissioners, and that is at the heart of the issue that I think many noble Lords are grappling with. The noble Baroness, Lady Kramer, was pleased with my recent conversion to pre-appointment scrutiny. I cannot guarantee that that will continue. I understand a new leader is in the offing in my party, so who knows what will happen?
The amendment that I put down was a useful way of probing some thinking around why the number of commissioners had to go from eight to 12. The response from the Minister was the sort of management jargon I used to learn at business school about 25 years ago. I am not much the wiser, but I will go back to Hansard and study his words carefully. Pre-appointment scrutiny, for the chair in particular, would be a very small but important change, particularly as we are dealing not with a cuddly organisation but with one which happens to own and manage some very important and valuable national assets. Therein lies the tension, and that is my concern.
Turning to the points raised by my noble friend Lord Young, it was a forensic analysis. I am sure many noble Lords learned much from it, not least how to structure a really good argument, which has stumped the Minister. I am pleased that he is stumped because I am sure that he will go away and look at it—indeed, I implore him to do so, such that we do not have to return to this, at length, on Report.
I hope that my noble friend Lord Holmes feels satisfied by the Minister’s response to his amendments. On the point raised by the noble Earl, Lord Russell, I presume that both he and I are pleased that the Crown Estate can already do what he wants it to do. I agree with him that it sounds completely obvious.
I am afraid that I am not happy with the Minister’s response on the question of disposals; in fact, I am probably more concerned by his response than I was beforehand. I am not sure that the nation would expect the complexion of the assets held by the Crown Estate to significantly change, so we may well come back to that. In the meantime, I beg leave to withdraw the amendment.
Baroness Vere of Norbiton (Con)
My Lords, I will speak briefly to this group on the objectives and duties of the Crown Estate. Many of the amendments relate to climate change and nature, and many noble Lords have spoken who are much more knowledgeable about these topics than I am, so I do not propose to add further to those points. As set out in today’s list, one must follow the rules, but I look forward to hearing the thoughts of the Minister on that.
My Amendments 37A to 37C look at another important aspect of potential disruption caused by investments by the Crown Estate, which is to local economies and national economies when it comes to shipping. I am looking to the Minister to reassure me and your Lordships’ House that very important local and national economic activities are considered appropriately by the Crown Estate, and that it does not look at what it does in a narrow and short-term way but thinks about making the cake bigger for everybody over the longer term.
The noble Lord, Lord Berkeley, made several points about the impact on commercial fishing: it should be quantified, consulted on and mitigated where possible, and I say the same for commercial shipping. Some 90% of our goods arrive by sea, and ports are often quite specialised in the goods they handle. Sadly, you cannot move a port, so you have to be quite careful not to obstruct well-established shipping lanes and ensure that the proximity of offshore developments does not cause excessive risk to vessels, particular larger vessels, were they ever to get into trouble. Comments on that would be greatly appreciated.
I did not put down an amendment on this, but it is strongly related. Where ports want to expand and they are surrounded by Crown Estate land, the balance of power is sometimes a little one sided. I would like some reassurance that the Crown Estate will act not only in its self-interest for short-term gain but will think about the longer term and growing the pie for the whole economy and the Crown Estate within that. I do not propose to add anything further at this point, and I look forward to hearing the views of the Minister.
Lord Livermore (Lab)
I thank all noble Lords for their powerful arguments made during this debate. I will address the amendments tabled by the noble Lords, Lord Holmes, Lord Teverson and Lord Young, the noble Baronesses, Lady Hayman, Lady Young and Lady Vere, and the noble Earl, Lord Russell, which all seek to make changes to the Crown Estate’s objectives and duties.
Before I move on, I will address two specific questions from the noble Lord, Lord Teverson, which I may not pick up in my subsequent remarks. He asked about conflicts of interest with leasing rounds. Under UK habitats regulations, the Crown Estate is deemed to be a competent authority for offshore wind leasing rounds. As such, it has a legal obligation to carry out a plan-level habitats regulation assessment for planned activities such as an offshore wind leasing round. It could be challenged through legal action if it fails to do this in line with the prescribed requirements.
The noble Lord also asked about the marine delivery route map’s interaction with the offshore wind report. The marine delivery route map gives the holistic context across sectors and sea users to support and inform individual sector delivery planning, while the offshore wind report offers technical insights and data, with both working in concert to ensure that offshore land development is efficient, sustainable and aligned with national and environmental goals.
The noble Baroness, Lady Kramer, also asked about a point of clarification. I will go away and check the questions she raises. Obviously, I apologise if I have inadvertently confused the two things she mentioned.
Amendments 14 and 28, tabled by the noble Lords, Lord Holmes and Lord Teverson, and the noble Earl, Lord Russell, seek to introduce new duties for the Crown Estate to protect the condition of the seabed. Amendment 14 would require the Crown Estate commissioners to take steps to protect the seabed, which forms part of the Crown Estate, and would include a prohibition on all activities, business practices, leisure pursuits and other actions that permanently or temporarily cause damage to the seabed.
Lord Teverson (LD)
I make this comment as a former board member of the Marine Management Organisation. The 2010 regulations, in particular, which have come through Europe, have been very ineffective, as has much on the Minister’s list. Hence, I believe it important that we put the responsibility down to the owner, rather than to some high-level legislation and regulations that departments have not paid a lot of attention to in the past.
Lord Livermore (Lab)
I am sure the noble Lord is much more expert in those things than I am. I take what he says seriously.
The decision to grant leases is informed by advice from the relevant statutory nature conservation body, either via the statutory consent process or, where appropriate, direct engagement. It can include enhancement requirements. Statutory nature conservation bodies are responsible for providing advice to government and regulators on the management, monitoring and assessment of marine protected areas. For those activities that are deemed exempt from statutory consents, the Crown Estate requires applicants to demonstrate that advice has been sought from relevant environmental bodies to inform their decision on leasing.
More broad protections, which would prohibit even temporary damage anywhere on the UK territorial seabed owned by the Crown Estate, would also cause major disruption to many critical marine sectors. These include, for example, offshore renewable energy, which requires the burial of power cables in the seabed to transport energy to shore; the laying of subsea and telecom cables, which carry 99% of all intercontinental data traffic for the UK; the UK’s ports, harbours, marinas and shipping channels within UK waters that require dredging for the creation and maintenance of navigable depths; and the manufacturing industry, which relies on marine aggregates, which are used, for instance, on major construction projects, beach replenishment and coastal protection schemes across the UK. The Government therefore consider these amendments to be unnecessary given the existing statutory protections and the Crown Estate’s existing practices.
I turn next to Amendments 37A, 37B and 37C, tabled by the noble Baroness, Lady Vere, which would all place new duties in respect of granting licences to access the seabed. Amendments 37A and 37B would prohibit the Crown Estate from granting new licences to access the seabed unless it has considered the impact of those licences on commercial fishing and commercial shipping. While the Government support the spirit behind these amendments, the Bill will not directly impact how much commercial fishing or shipping takes place in areas managed by the Crown Estate, nor is the Crown Estate responsible for the regulation of these sectors.
The Crown Estate collaborates extensively with industry stakeholders, statutory nature conservation bodies, environmental non-governmental organisations and marine licensing bodies to ensure activities on the seabed are conducted responsibly and enable a restored and thriving marine environment. A recent blog post from the National Federation of Fishermen’s Organisations, for example, noted on engagement with the Crown Estate ahead of the offshore wind leasing round 5 in the Celtic Sea that the
“process succeeded in identifying and avoiding the places where it would be most harmful to the fishing industry to see turbines installed. The cooperation between the Crown Estate and fishermen was unprecedented and the outcome was a positive one”.
The Crown Estate has also invested £50 million in the offshore wind evidence and change programme, which includes several initiatives to consider and support the fishing industry. I will give two examples. The first is the fisheries sensitivity mapping and displacement modelling project, which identifies areas of offshore wind development that present risks to the fishing industry to try to reduce the likelihood of conflicts between the two sectors. The second example is the ecological effects of floating offshore wind research programme, which focuses on understanding how marine ecosystems will react to the planned large-scale expansion of floating offshore wind in UK waters over the next decade. The goal of this programme is to change the way the Crown Estate deploys floating offshore wind on a large scale, ensuring nature recovery and enabling co-existence with other sea users, including fisheries.
Amendment 37C would prohibit the Crown Estate from granting new licences to access the seabed unless it has considered the impact of those licences on coastal communities. Coastal communities are already a primary consideration of any investment decision by the Crown Estate. For example, it has specifically designed the leasing process for its offshore wind leasing round 5 opportunity in the Celtic Sea in such a way that developers have to make commitments to deliver social and environmental value as part of the development of their new wind farms. Tender bidders are required to think innovatively and constructively about how their developments can create a legacy of healthier, more resilient, fairer, more vibrant and more prosperous communities which stretch beyond the lifetime of the wind farm leases for the benefit of generations to come. Commitments made during the tender process will be monitored, reported on and enforced throughout the lifetime of the relevant round 5 developments.
We could of course make this an explicit duty for the Crown Estate in legislation, but if we did that then there are many other points we have debated today that could also be added as statutory duties. As I said earlier, a key purpose of the 1961 Act was to repeal various detailed statutory provisions that had built up over 150 years previously, to avoid the Crown Estate having to work through a maze of requirements for each investment decision.
I turn next to Amendments 15, 17 and 29, tabled by the noble Lord, Lord Holmes, and the noble Earl, Lord Russell. These amendments seek to create new objectives for, or impose new duties on, the Crown Estate. Specifically, Amendment 15 would require the Crown Estate to seek to prioritise the objectives of UK food security and to support the development and promotion of new technologies, including artificial intelligence, in the managing and turning to account of Crown Estate land.
Amendment 17 would require the commissioners to publish a review assessing how Crown Estate assets can be deployed to support nature prescribing. The amendment would also require the commissioners to work with NHS England and devolved counterparts to enable the Crown Estate’s nature assets to form part of a major UK-wide nature prescribing scheme.
Amendment 29 would require the commissioners, when exercising their duty in Section 1(3) of the 1961 Act, to act in a way best calculated to further the achievement of sustainable development and to seek to manage assets in a way likely to contribute to the promotion or improvement of economic development, regeneration, and social and environmental well-being.
Before I speak to these amendments it is worth reiterating that the Crown Estate is a commercial business, independent from government, that operates for profit and competes in the marketplace for investment opportunities, yet it is currently restricted in its ability to do so. As I have already set out, the Government believe that it is right that the Crown Estate continues to operate as a commercial enterprise. A key purpose of the 1961 Act, as I have noted, was to repeal various detailed statutory provisions that had built up over 150 years previously, which were hampering the effective management of the estate. Since then, the Crown Estate has shown itself to be a trusted and successful organisation with a proven track record in effective management. That is a valuable outcome, which I stress we need to be careful not to undermine.
This track record includes its commitment to enable the development of new net-zero technologies and to invest in artificial intelligence to enhance its habitat and environmental monitoring system. The Crown Estate has also made it clear that it is prioritising food security alongside nature recovery and enabling the diversification of income for its tenant farmers. The investment and borrowing powers proposed in this Bill will allow for even greater investment in these areas by the Crown Estate.
The Government believe that the Crown Estate’s existing duties give it a clear focus, leading to a consistently significant return to the Exchequer to support the funding of public services. At the same time, the Crown Estate is already able to, and does, focus on activities which also closely align with wider national needs, including energy security and sustainable economic growth. As a public body, the Crown Estate seeks to work with the grain of prevailing government policy.
I turn next to Amendments 25 and 30, tabled by the noble Earl, Lord Russell, and the noble Baroness, Lady Hayman. Amendment 25 would create a new duty for the Crown Estate commissioners in the exercise of their functions to take all reasonable steps to contribute to the achievement of targets under Part 1 of the Climate Change Act 2008; the achievement of biodiversity targets under Sections 1 to 3 of the Environment Act 2021; and to adapt to any current or predicted impacts of climate change as identified in the most recent report under Section 56 of the Climate Change Act 2008. This amendment would also require the Crown Estate to include conditions in all seabed leases for the leaseholder to contribute to the conservation and enhancement of the natural environment.
Amendment 30 would create a new nature recovery duty. This would require the Crown Estate to take steps to embed nature into spatial planning and seabed leasing, allocate space for nature recovery in all projects and invest in clean energy projects.
Before I explain the Government’s position, let me express strong support for the intention behind these amendments. It is right that the public and private sectors make every contribution they can to help achieve our climate change targets, and the Crown Estate should continue to be a national trailblazer in this regard. The Crown Estate has committed to becoming a net-zero carbon business by 2030, aligning with the 1.5 degrees trajectory, and will prioritise activities which help enable a reduction in national carbon emissions, such as building net-zero homes, transitioning its holdings to sustainable agricultural practices and working in partnership with government to meet the national renewable energy targets.
On the biodiversity targets in the Environment Act, the Crown Estate is committed to delivering a measurable increase in biodiversity by 2030. It will publish its delivery plan to meet this goal next year, which will include commitments to restore habitats in line with targets in the Environment Act. As I have already noted, all leases granted by the Crown Estate for development that affects the seabed already require the leaseholder to have the necessary statutory consents in place before development can begin.
The Crown Estate also published its approach on nature recovery last week, where it has committed to delivering increased biodiversity, to protect and restore freshwater, marine and coastal systems, and to increase social well-being benefits from nature. However, as I have already set out, the reforms being introduced in this Bill are not intended to alter the fundamental statutory basis of the Crown Estate as a commercial business independent from government.
The commissioners operate under a clear commercial objective, as set out in the 1961 Act, to maintain and enhance the value of the estate. I know that some noble Lords take a different view as to how the Crown Estate should operate, but it is the Government’s view that the existing statutory commercial focus, coupled with adherence to environmental and other nature requirements as set out in other legislation, as well as the need in the 1961 Act for the commissioners to have due regard to the requirements of good management, remains the best approach. One of the functions of the Crown Estate is to return its profits to the Exchequer each year, and it has returned a combined total of more than £4 billion in the last decade. This is used to fund the priorities of the Government of the day, which currently include spending on policy that helps achieve our climate change goals.
The more the Crown Estate’s core purpose in legislation is expanded, particularly with additional duties or objectives that may unnecessarily complicate, conflict with or risk compromising the achievement of that core commercial objective, the harder—
Baroness Young of Old Scone (Lab)
I know the Minister is anxious to get on to the dinner break business, but I think he misunderstands exactly what we are saying by asking for biodiversity and climate change target achievement to be included. The reality is that we want the Crown Estate commissioners to be able to walk, talk and chew gum. They have to be able to be smart enough to deliver on the commercial and economic imperatives that the Minister has been absolutely clear about—he has repeated them several times—and do the biodiversity and net zero delivery at the same time. That is doable but not if, as the Minister has just done, he continues to say and reinforce for the Crown Estate commissioners that their primary purpose is a commercial one, because that will always take precedence.
Lord Livermore (Lab)
I thank my noble friend for that intervention. With the greatest respect, it is not a lack of understanding; it is just a slight difference of opinion. As I said, I have great sympathy with the motives underlying this amendment, but the Government would seek to achieve them in a slightly different way from my noble friend.
Lord Teverson (LD)
I am very grateful to the noble Lord for giving way; I will make one final intervention. I welcome very much what he said about biodiversity and the wish to do that, but he has not mentioned biodiversity net gain. It is a government policy to introduce marine biodiversity net gain. Will that apply? As one of the co-developers to the Crown Estate, will they be responsible for that when they implement that policy?
Lord Livermore (Lab)
I will be completely honest and say I do not know the answer to that question. I will find out and let the noble Lord know.
I hope these explanations have been helpful and that the noble Lords, Lord Holmes, Lord Teverson and Lord Young, the noble Earl, Lord Russell, and the noble Baronesses, Lady Hayman and Lady Young, will feel able not to press their amendments as a result.
Crown Estate Bill [HL]
Lord Livermore ExcerptsMonday 14th October 2024
(1 year, 7 months ago)
Lords ChamberRead Full debate Crown Estate Act 2025 View all Crown Estate Act 2025 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 5-I(a) Amendments for Committee (Supplementary to the Marshalled List) - (11 Oct 2024)
Baroness Vere of Norbiton (Con)
My Lords, I am very grateful to my noble friend Lord Holmes of Richmond for introducing his amendment, which leads this group, which is fundamentally concerned with the generation of energy on assets owned by the Crown Estate. This is even more important now that there is a formal relationship with GB Energy, which has been announced, although I accept that details of the relationship are quite thin on the ground. I entirely support the intention of my noble friend Lord Holmes of Richmond to require the publication of a report on the potential for energy generation on the Crown Estate, and I draw attention to my Amendment 35, which would ensure that no new electricity generation licences are granted without confirmation that a corresponding grid connection exists.
The problem of grid capacity, connection and storage is real and important. In May of this year, a House of Commons Environmental Audit Committee report found that in order to achieve net zero targets,
“the transmission and distribution network must develop and expand alongside the growth in supply and demand”.
It concluded that renewable energy generation may be stunted by “slow grid connections” and “limited grid capacity”. That is the issue I am trying to fix, and that all noble Lords are very much focused on. The Government must continue to look at it urgently if they are to build on the previous Conservative Government’s progress toward our clean energy targets. However, it is not an easy task. Even Green Party parliamentarians have been known to be vociferously opposed to measures to boost national grid capacity. I hear a Liberal Democrat laughing, and I am not entirely sure that that is appropriate. However, in the face of that kind of opposition, I ask the Minister to reassure the House that the Government have a plan to get on with increasing our national grid capacity.
At this point, I think it worth pushing the Minister, although we will come back to this on a later group, on the partnership with Great British Energy, which was announced to great fanfare a few months ago. I am still at a loss to explain how the new partnership between the two organisations, the Crown Estate and Great British Energy, will work and what difference it will make; indeed, this is the point of my amendment.
When the previous Conservative Government announced in the 2023 Autumn Statement plans to work with the Crown Estate to increase offshore wind capacity, that was predicted to unlock a further 20 to 30 gigawatts of new offshore wind seabed rights by 2030—great; that seems very fair. The Government have claimed that this new partnership will
“cut the time it takes to get offshore wind projects operating and delivering power to homes by up to half”.
Okay, but their press release of 25 July 2024 stated:
“The Crown Estate estimates this partnership will lead to up to 20-30GW of new offshore wind developments reaching seabed lease stage by 2030”.
To coin a phrase, nothing has changed. What difference does the partnership with GB Energy actually make, or did the Crown Estate get it wrong when it was working with the previous Government? Noble Lords can see the issue I have here: I do not understand how the tie-up with GB Energy is going to benefit that organisation, the Crown Estate and, indeed, the nation.
That, among other reasons, is why I tabled Amendment 34, which also requires a report on the energy generation supported by the Crown Estate. Its scope is wider than Amendment 16 and it facilitates greater oversight via reporting. It requires the Crown Estate commissioners to report annually on not only the expected impact of the relationship between the Crown Estate and GB Energy, but the actual impact. It would also include the investment strategy for capital investment in the infrastructure, including port infrastructure. This is where I am confused, because when I speak to the port sector, it tells me that finances are not particularly an issue. In a report published last month, the British Ports Association recognised that the sheer scale and speed of the investment needed to meet the ports’ offshore energy ambitions is significant. However, it called for a carefully managed investment in ports that fills gaps in ports’ supply chains that cannot be met by the private sector. These gaps can be filled by, for example, the national wealth fund, the Crown Estate or Great British Energy. Can the Minister explain who is managing, and which organisation will be investing how much in what, and when? I, for one, am confused. It is right to get some insight into this now, and to monitor progress in the future.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, I will address the amendments tabled by the noble Lord, Lord Holmes, and the noble Baroness, Lady Vere, both of which touch on the topic of energy. I will start by addressing Amendment 16, tabled by the noble Lord.
This amendment would require the Crown Estate to publish a report within 12 months on the potential for energy generation on the Crown Estate, covering onshore and offshore wind grid capacity and energy pricing. While the Government are not in principle opposed to the Crown Estate producing specific reports on energy generation on its own estate, it is not within its remit or ability to report on grid capacity or pricing. As I have set out previously, the national grid and relevant transmission and distribution network operators are responsible for the UK-wide strategy on grid connectivity, and the new National Energy Systems Operator will be responsible for creating a strategic spatial energy plan, which will provide future clarity on grid connectivity.
The Crown Estate has already published, in September, a 53-page report entitled Future of Offshore Wind: Considerations for Development and Leasing to 2030 and Beyond, which looks at, among other things, the prime areas of opportunity for new wind farms. It has also recently published a Marine Delivery Routemap, which sets out its vision for the seabed and coastline.
Amendment 34, tabled by the noble Baroness, Lady Vere, would require the Government to publish a report on the scope, nature and expected impact of the relationship between the Crown Estate and Great British Energy within six months of the passing of the Act, and thereafter publish an annual report. The Government have no principled objection to such a report, but the timing might be more usefully linked to the passing of the Great British Energy Bill, currently in the other place, rather than the Bill we are discussing today.
Baroness Kramer (LD)
My Lords, I will be very brief. I want to thank the Minister for the clarifications he gave on the difference between the framework agreement and the memorandum of understanding—it was really helpful of him to provide that today rather than wait for the next Committee date. While I am on my feet, I will use this opportunity to reinforce the probing amendments of my noble friends Lord Teverson and Lord Russell.
We are in an era of substantial change and I am sure the Minister is very aware of that. The greatest resistance to change comes from a measure of distrust and cynicism; people usually feel that change is not an opportunity, but will be something where they lose and others win. There is also very little trust of very big organisations and of organisations that are controlled at a physical distance from the area that people live in and know. With the proposals for a regional wealth fund and a focus on creating skills within the immediate community, the areas that have visible detriment can now also identify the possibility of benefit in a very real way. That makes change happen more rapidly.
I also come from a party that has great confidence in regional decision-making. Sometimes people use the words “postcode lottery”, but it is not that: it is that people within an area, knowing their local communities and people much more intimately, can target the programmes they put in place to benefit the lives of local people far more effectively than a distant decision-making entity can. I hope the Minister will look at this because, although we are talking about this Bill, we are in a much broader period of change. Creating a strategy such as regional wealth funds, used in this and possibly other instances, will give people the confidence that their community—their people, themselves and their families—will see some direct benefit, rather than being left in a situation where they cynically believe that they are carrying the detriment and that other people will benefit.
Lord Livermore (Lab)
My Lords, I will respond to the amendments tabled by the noble Lord, Lord Teverson, and the noble Earl, Lord Russell, both of which touch on the topic of local and community benefits.
Amendment 27, moved by the noble Lord, Lord Teverson, would require that a percentage of the Crown Estate’s licence fee for leases for offshore wind developments is distributed to a regional wealth fund. The Government are committed to working closely with the Crown Estate to support our target of clean power by 2030, by working collaboratively to accelerate and derisk the sustainable delivery of technologies such as offshore wind.
Local communities already benefit from onshore and offshore developments in the form of the economic benefits that such developments bring, including job creation and increased business for local suppliers. Individual developers also contribute to local initiatives. Over the longer term, local communities will also benefit as we accelerate our transition away from volatile fossil fuel markets to clean, home-grown power to boost Britain’s energy independence and security.
The Crown Estate has also specifically designed the leasing process for its offshore wind leasing round 5 opportunity in the Celtic Sea in such a way that developers have to make commitments to deliver social and environmental value as part of the development of their new wind farms. Tender bidders are required to think innovatively and constructively about how their developments can create a legacy of healthier, more resilient, fairer, vibrant and more prosperous communities, which stretch beyond the lifetime of the wind-farm leases for the benefit of generations to come. Commitments made during the tender process will be monitored, reported on and enforced throughout the lifetime of the relevant round 5 developments.
I recognise that this amendment would go even further, requiring a direct financial contribution from the Crown Estate to local communities. In essence, this is a very similar proposal to that put forward in Amendment 23, requiring a transfer of profits to the Welsh Government, as debated earlier. The concerns I set out there also apply here. Again, agreeing an appropriate level of payment would not be straightforward, because the relevant revenues and costs cannot be easily disentangled from the Crown Estate’s overall financial flows. Any arrangement of this nature would reduce the profits that the Crown Estate pays into the UK Consolidated Fund, reducing the revenues that can be allocated by the Government to the needs and priorities of the day, across all the UK.
Amendment 33, tabled by the noble Earl, Lord Russell, would require the Crown Estate to pay a percentage of its profits into a skills training fund. It would also require that this fund works to provide skills training to persons residing on or employed by the Crown Estate to equip them to perform jobs in the green economy and that the training is agreed with industry in advance.
The Government are, of course, very supportive of the spirit behind this amendment, and I agree with much of what the noble Earl said about skills. We are committed to clean energy by 2030, accelerating to net zero and promoting biodiversity. To meet these ambitions, we need to make sure our workforce has the knowledge and skills to succeed in the green economy, both now and in the future. As part of this effort the Department for Education has set up Skills England, a new body that will tackle skills shortages and support sustained economic growth. The Government also introduced the Institute for Apprenticeships and Technical Education (Transfer of Functions etc) Bill in this House last week, which will, among other things, help support the establishment of Skills England.
The Crown Estate is dedicated to supporting skills and training. As a UK company with a payroll of over £3 million, the Crown Estate pays the apprenticeship levy—0.5% of its payroll over £3 million—and hires apprentices into its business. It also runs various targeted initiatives. For example, it has an existing partnership with the Department for Work and Pensions to address recruitment barriers and is training a pool of 60 job coaches in the east of England, with plans to expand. It is also developing a skills pipeline among the 14 to 16 age group, and has already seed-funded a pilot GCSE qualification in engineering skills for offshore wind, developed by Cornwall College. The Crown Estate also works closely with Pembrokeshire College on the Destination Renewables pilot course, which equips students with skills for careers in renewable energy. In Grimsby, the Crown Estate partners with Projekt Renewable, which aims to spark local community interest in offshore wind activities and encourage careers in that sector.
The Crown Estate consults extensively with communities, charities, businesses and the Government to ensure that its skills initiatives are sensitive to market demands and emerging technologies, to keep them relevant and effective. The Government consider it important that the Crown Estate retains this flexibility in how its skills initiatives are funded and delivered, to ensure it can contribute to skills training in the best possible way.
I hope that these explanations have been helpful and that I have provided some clarity on the points raised. I hope that the noble Lord, Lord Teverson, and the noble Earl, Lord Russell, feel able to withdraw and not press their amendments as a result.
Lord Teverson (LD)
My Lords, strangely enough, I am going to withdraw my amendment, to the shock of the Minister. However, I am seriously disappointed with the response.
I get absolutely all the supply chain arguments about development and maintaining offshore windfarms after the event, once they are operating. However, as the Minister knows himself, although some of the beneficiaries of those supply chains are local, some of them are international and are certainly not anchored to the region and those communities. The great thing about the Shetland example was that while the oil industry did very well—suppliers and lots of people came in—there were whole areas of the population of the Shetland Islands that did not benefit directly from those developments. Yet they did in the end, because of community wealth schemes—two of them, I think—that happened in Shetland. The same is true regionally.
When it comes to the argument that the Crown Estate would lose out on money or whatever from this, I would put the opposite view. A community or regional wealth fund would actually accelerate the ability to deliver these projects, because there would not be the opposition that there might be otherwise. I absolutely agree with the noble Lord, Lord Bellingham, and thank him for his contribution. It was good, as always, and emphasised the effect of coming onshore and all the facilities that are required, such as pylons and all the rest of it.
What it comes down to is a matter that I think everybody normally agrees with: a just transition. A regional wealth fund allows a just transition. I was going to quote back the Labour Party manifesto on just transitions, but strangely enough it does not mention that the transition should be just. That is a shame, but I genuinely believe that this will allow this important programme, which the Government are rightly pushing forward, to accelerate, be successful and have local and regional acceptance. At this point, I beg leave to withdraw my amendment.