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Future of Financial Services

Volume 807: debated on Wednesday 11 November 2020


The following Statement was made in the House of Commons on Monday 9 November.

“With permission, Mr Speaker, I would like to take this opportunity to update the House on our plans for one of the UK’s most productive and innovative sectors: financial services. They will be essential to our economic recovery from coronavirus, creating jobs and growth right across our country. As we leave the European Union and start a new chapter in the history of financial services in this country, we want to renew the UK’s position as the world’s pre-eminent financial centre. My honourable friend the Economic Secretary to the Treasury will lay the foundations later, through the Financial Services Bill. I would like to put that Bill into context now by setting out for the House our plans to make this country more open, more technologically advanced and a world leader in the use of green finance.

Financial services have been fundamental to Britain’s economic strength for centuries and they remain fundamental today. The vigour and creativity of this industry adds over £130 billion of value to the UK economy, employs over 1 million people and has been a critical source of revenues to support the NHS through coronavirus, contributing nearly £76 billion in tax receipts last year. Let us put paid, once and for all, to the myth that financial services and the City of London are synonyms; two-thirds of the people employed in financial and professional services work outside London, in places such as Edinburgh, Leeds, Durham, Cardiff and Belfast. About half of all financial services exports come from outside London too, with the north and Midlands alone exporting as much as the entire financial services industry of France.

This is the start of a new chapter for financial services. The industry is better regulated, better capitalised and more resilient than it was in 2008. Coronavirus has reminded us that financial services are essential services, and the whole House will share my gratitude to the people keeping their local bank branches open, supporting vulnerable customers and working at extraordinary pace to deliver over £60 billion of new loan schemes, reminding us that this industry is at its best when it puts the interests of consumers first. As we leave the EU, we have an opportunity to set out a new vision for this sector—a vision based not on a race to the bottom, but for a financial services industry that is open, innovative and leads the world in the use of green finance.

I am taking three steps towards that vision today. Our first task as we write this new chapter for financial services is to give certainty on our approach to regulation after we leave the transition period. One of the central mechanisms for managing our cross-border financial services activity with the EU and beyond is equivalence. I remain firmly of the view that it is in both the UK’s and EU’s interests to reach a comprehensive set of mutual decisions on equivalence. Throughout, our ambition has been to manage these co-operatively with the EU, but it is now clear that there are many areas where the EU is simply not prepared to even assess the UK, so we need to now decide on how best to proceed. Of course, we will always want a constructive and engaged relationship with the European Union, but after four years I think it is time for us to move forward as a country and do what is right for the UK. To provide certainty and stability to industry and deliver our goal of open, well-regulated markets, I am publishing today a set of equivalence decisions for the EU and European economic area member states. Of course, we are ready to continue the conversation where we have not yet been able to take decisions, but in the absence of clarity from the EU we are acting unilaterally to provide certainty to firms, both here and in Europe.

I am also publishing today a detailed framework for our approach to equivalence more generally. Our approach here will be simple: we will use equivalence when it is in the UK’s economic interest to do so, taking a technical, outcomes-based approach that prioritises stability, openness and transparency. And of course, we now have the freedom to build new, deeper financial services relationships with countries outside the EU. We are making good on that promise already, progressing our partnership with: Switzerland, the second biggest financial hub in Europe after the UK; India, holding a significant economic and financial dialogue just two weeks ago; and Japan, agreeing a new partnership that goes further than the EU’s own financial services arrangements.

Equivalence is not our only tool to ensure openness as a jurisdiction. Control of our own regulatory regime means that we need to be clear with our trading partners about how our overseas firms access the UK’s markets in a way that is predictable, safe and transparent, so I am announcing today that we will launch a call for evidence on our overseas regime before setting out our future approach next year. To boost the number of new companies that want to list here in the UK, I am setting up a task force to make recommendations early next year on our future listings regime. To build on the 113,000 jobs already supported by investment management, we will shortly publish a consultation on reforming the UK’s regime for investment funds. To encourage UK pension funds to direct more of their half a trillion pounds of capital towards our economic recovery, I am committing today to the UK’s first long-term asset fund being up and running within a year. To ensure that UK financial services exports to the EU remain competitive, we will treat those exports the same as we do for other countries. That means that UK firms will be able to reclaim input VAT on financial services exports to the EU—support for British industry and jobs worth £800 million.

We are known in this country not just for our openness, but for our ingenuity and inventiveness, too. The second part of our new financial chapter for financial services will use technology to deliver better outcomes for consumers and businesses. We are building on our existing strengths as a leading global destination to start, grow and invest in fintech, and I look forward to welcoming Ron Kalifa’s report in this important area. We are staying at the cutting edge of payments technologies where we have just concluded the first stage of our payment landscape review and will shortly publish new plans to support the sector. We will make sure our regulatory environment is ready to manage the far-reaching implications of technology on money itself. We will publish a consultation shortly to make new forms of privately issued currencies, known as stable coins, meet the same high standards we expect of other payment methods. The Bank of England and the Treasury are considering further whether central banks can issue their own digital currencies as a complement to cash.

Finally, this new chapter means putting the full weight of private sector innovation, expertise and capital behind the critical global effort to tackle climate change and protect the environment. We are announcing the UK’s intention to mandate climate disclosures by large companies and financial institutions across our economy by 2025, going further than recommended by the Task Force on Climate-related Financial Disclosures and we will be the first G20 country to do so. We are implementing a new green taxonomy, robustly classifying what we mean by “green” to help firms and investors better understand the impact of their investments on the environment. To meet growing investor demand, the UK will, subject to market conditions, issue our first ever sovereign green bond next year. This will be the first in a series of new issuances, as we look to build out a green curve over the coming years, helping to fund projects to tackle climate change, finance much-needed infrastructure investment and create green jobs across the country.

We have set out today our vision for this new chapter in the UK’s financial services industry, a vision of a global open industry where British finance and expertise is prized and sought after in Europe and beyond, a technologically advanced industry, using all its ingenuity to deliver better outcomes for consumers and businesses, a greener industry, using innovation and finance to tackle climate change and protect our environment and, above all, an industry that serves the people of this country, acting in the interests of communities and citizens, creating jobs, supporting businesses and powering growth as we direct all our strength towards economic recovery. I commend this Statement to the House.”

My Lords, I am grateful to the Minister for dealing with the second Treasury Statement in as many days. This Statement is billed as a prelude to the Financial Services Bill, which we will be able to scrutinise following its Commons stages. The process promises to be an interesting one, and I hope the Minister will avail himself of the expertise that exists across your Lordships’ House.

The Chancellor was correct to outline the importance to our economy of the financial services sector. It is a huge employer, generates a significant amount of economic activity and makes a large contribution to the Exchequer. It is vital that we harness the potential of financial services to grow our economy, particularly in terms of green growth.

It is a shame that this Statement has come only now. As it stands, we are weeks away from leaving the transition period without an agreement giving UK firms preferential access to the EU markets that are so important to their day-to-day operations. The Government have unilaterally published equivalence decisions for EU and European Economic Area member states, but the Minister will concede that that gets us only so far.

In his Statement, the Chancellor reiterated the Government’s position that an equivalence determination for UK firms should be simple and swift as we start from a point of regulatory alignment. If that were true, why were the Government not able to secure equivalence determinations by the deadline set out in the political declaration? The Chancellor has sought to blame the EU, but when the Government were asked to complete various questionnaires to aid that process they managed just four out of 28 by the June deadline.

While we may start at a point of alignment, decision-makers in the European Commission will no doubt be studying the Financial Services Bill in detail. Equivalence may not require total alignment, but it seems odd for the Government to amend UK regulations at the same time as demanding that our EU colleagues take a snapshot of them. Does the Minister believe that the contents of the Financial Services Bill are likely to have any bearing on the ongoing discussions? Is it possible that the EU will delay a ruling until that Bill is on the statute book? We will scrutinise the Bill closely, not only in the context of equivalence but to ensure that the reforms do not lead to a deregulatory race to the bottom that puts investors and financial stability at risk.

I turn to the green components of the Statement. The Government would have us believe that their commitment to tackling climate change is second to none, but those of us who share an interest in recent legislation will be sceptical, to say the least. We are told that everything done by Ministers is with a net-zero future in mind, but time after time they oppose sensible climate amendments, most recently on the Agriculture Bill. While the various green finance initiatives announced in recent days represent a degree of progress, the Treasury has not gone as far as many would like. It is certainly not the comprehensive green agenda that is needed to make swift and decisive progress towards the 2050 net-zero target and our wider international obligations. As the shadow Chancellor observed in her response in the Commons,

“Over the last decade, the UK has pumped £6 billion into overseas fossil fuel projects via UK Export Finance”.—[Official Report, Commons, 9/11/20; col. 621.]

There is no indication that this behaviour will be banned, undermining any meaningful action taken in the UK.

The Financial Conduct Authority has signalled a change in approach to firms’ disclosure of climate-related information, which we support. However, mandatory reporting will not be implemented until 2025. Why are the Government not being more ambitious? Green gilts are another case in point. How can we be sure that the money will represent genuinely new investment? Why have the Government waited until 16 other countries have introduced their own schemes, rather than taking the lead on the issue of green financing?

I wish I could be more optimistic, but, sadly, I remember the story of the Green Investment Bank. The institution, proposed in the last Labour Government’s final Budget, should have been key to improving the UK’s environmental record. Instead, just years into its existence, it was sold off by the former Business Secretary Sajid Javid. Earlier this year, a government Minister suggested at a roundtable event that the “Green Investment Bank 2.0” could materialise in the future. Can the Minister confirm whether this is being looked at and, if so, when we can expect news?

My Lords, I declare my interests as listed in the register. I agree with the Chancellor that financial services are fundamental to Britain’s economic strength. However, I recommend that anyone looking to assess their future ignore the hype in the Chancellor’s statement—he seems to have drunk the moonshot Kool-Aid—and look at reality. Our failure to negotiate mutual recognition, or at least equivalence-plus, with the EU is a serious problem. If only the Government had taken as much interest in this area as they do in fishing or, as Catherine McGuinness of the City of London Corporation is quoted as saying in today’s Times, finance risks being

“the neglected child of an acrimonious divorce”.

Over £1 trillion in assets have already transferred from the UK to the EU. Last year, Ministers seemed to think that half the financial services business with EU clients, which is about 15% of total UK financial services, had left or was in the process of leaving, including swathes of insurance and asset management. Is 15% still the number, I ask the Minister? The size of these asset transfers suggests that the actuality is well above those expectations. Job transfers are unclear because of Covid, but we do know that, even in 2019, the recruitment of graduates who do not have EU passports had pretty much collapsed for anything except retail banking.

The EU, which I once thought had a 10-year strategy to remove, slice by slice, most EU and euro-related financial services back to the 27, seems to have accelerated that programme. For example, Mr Dombrovskis has cautioned EU businesses to shift a significant portion of their clearing activity out of the UK in the next 18 months. Without dominance in clearing euro-denominated derivatives, the UK’s global role is seriously at risk. Does the Minister agree?

On fintech, many firms have made it clear that they will have to move EU business if we cannot agree on the rules that govern data. Where are negotiations on this, because at the last look they were pretty dire, with the UK determined to please the United States by watering down data protection?

I am delighted that we are finally going to issue a green sovereign. We may be a leader in green finance now, but every single significant financial centre is committed to the green agenda. I note that the EU is expected to issue €200 billion in green bonds as part of its Covid recovery fund, none of which will be issued through London. But will the Government replace the Green Investment Bank? The noble Lord, Lord Tunnicliffe, mentioned it; it was sold off in part because, along with the British Business Bank, it was associated with Vince Cable, but that was also a deliberate act of environmental vandalism. Will it be replaced?

We are entering a period of regional economic blocs. The United States has actively repatriated a great deal of dollar financial services. China and Asia generally, contrary to the expectations of George Osborne, are using Hong Kong and Singapore rather than London, even with all the disruption in Hong Kong. India is developing Mumbai, so I caution the Government not to misread the potential of dialogue with India. We are now outside all the regional blocs. We have capacity and skills in financial services, but everyone else has the clients and issues the major currencies. You can move capacity and skills, but you cannot move the clients. London will remain a global centre but, I fear, one of gradually less significance. Will the Government give us a reality check on the future of this crucial industry and a proper assessment of the damage that their hard-line Brexit is delivering?

I thank the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Kramer, for their thoughtful contributions. I will try to answer the questions as fully as I can.

Unlike the EU, the UK’s equivalence assessment of the EU’s regime was conducted on a proportionate basis, recognising that the UK and EU have the same rulebook. The EU sent us over 1,000 pages of questionnaires—not in a timely manner, with the last 248 pages arriving by 25 May, which is why we were not able to return them within a week, as I think the noble Lord, Lord Tunnicliffe, mentioned. We responded to the questions fully and comprehensively, with over 2,500 pages of response going back at the beginning of July. The EU has not come back with any questions on these responses.

In the absence of clarity from the EU, the Chancellor announced the package of decisions on Monday, which are in the UK’s interest and seek to support UK firms and ongoing cross-border activity with the EU. I assure both the noble Lord and the noble Baroness that we remain open and committed to a continuing dialogue with the EU about their intentions. The Government have taken all reasonable steps to co-operate in good faith with the EU throughout the equivalence process.

The noble Lord asks whether we feel that the EU is holding back, pending the progress of the Financial Services Bill. The measures in the Bill are consistent with a mutual equivalence outcome, and a number of cases actively support it. The UK played an instrumental role in the introduction of a lot of the EU’s regulation, particularly the investment firm regulation and directive, for example, so it is very supportive of the intended outcomes.

The noble Lord asked about TCFD. The UK is the first major country to go beyond comply or explain, or as far as able requirements, and our proposals contain a requisite level of prescription, supervision and enforcement mechanisms to mandate meaningful disclosure. The approach confirms the UK’s position as a global leader on robust climate-related financial disclosures that help investors to make informed decisions. We believe that the timelines set out in the road map provide the right balance between showing ambition and allowing businesses, investors and asset owners enough time to prepare to disclose meaningful information. Initial steps towards introducing TCFD-aligned disclosures have already been taken in respect of certain listed companies, banks and building societies. The FCA consulted in March on comply or explain rules for premium listed companies.

The noble Lord asked about green gilts. The UK’s sovereign green bond will identify specific government green projects that its proceeds will be used to finance, as per the International Capital Market Association green bond principles. These proceeds will then be tracked and reported in a regular and transparent manner to provide clarity to the public and investors.

The UK Government have always remained open to the introduction of new debt-financing instruments but needed to be satisfied that any new instrument would represent good value for money to the taxpayer. We have been regularly reviewing the case for introducing a sovereign green bond, as well as closely monitoring how the green and other ESG bond markets have developed over recent years. The noble Lord asked why we were slow. We have been watching the evolution of this market; indeed, Germany issued its first equivalent only in September this year.

The noble Lord and the noble Baroness asked about a Green Investment Bank mark 2. The Government are committed to ensuring that businesses and infrastructure projects continue to have access to the finance that they need. The UK has a number of existing tools available and we committed, in March last year, to an infrastructure finance review. We still intend to respond to that within the next few weeks.

The noble Baroness asked about asset transfers and the future role of the City. One of the advantages of leaving the EU’s regulation is that it gives us the opportunity to launch a number of initiatives. For example, we will review Solvency II. We will have a call for evidence on the overseas regime, some parts of which have not been reviewed since 1986. We are carrying out a task force on future listings given that there is, for example, quite a big discrepancy between the minimum size of a prospectus in this country and in the US. We are carrying out a consultation on the UK funds review to look at ways of making this country more attractive for international funds.

I remain more optimistic than the noble Baroness that there is a good future. She also asked about fintech and its role. We are a major player in the fintech market. We are developing an ecosystem that supports fintech firms to grow and reach scale. We are fostering partnerships between fintechs and incumbents to enable mainstream adoption of innovation. Being a large economy, we provide the opportunity for high levels of domestic demand; the British public tend to be early adopters of the opportunities that fintech throws up. We have the third-largest number of tech unicorns in the world, with 77 companies valued at over $1 billion. We are absolutely committed to supporting the growth of that market.

We now come to the 20 minutes allocated for Back-Bench questions. I ask that questions and answers be brief so that I can call the maximum number of speakers. The first speaker is the noble Baroness, Lady Hayman.

My Lords, I declare my interest as co-chair of Peers for the Planet. I very much welcome the emphasis in the Statement on green recovery and the ambition to lead the world in green finance. I have a couple of questions on TCFD and the decision to mandate climate disclosures. Could the Government not be a little bit more ambitious on the 2025 deadline, given the number of companies that are already taking on these responsibilities and have acted on disclosure? In the run-up to COP 26, will the Government take this as an exemplar and persuade other countries to act in a similar fashion so that we can have an even playing field across countries?

The noble Baroness asks important questions. I certainly take on board her desire to try to accelerate the mandatory implementation date. I will feed that back to the Chancellor and see if it can be done. It is always a matter of balance between doing these things too quickly and being slow-footed. The TCFD is a key component of our international efforts at the G7, which we are hosting, the G20, COP 26, which the noble Baroness mentioned, and the Coalition of Finance Ministers for Climate Action. Making this announcement will mean that we can set this as an example for other countries to emulate and harmonise approaches on disclosure.

My Lords, I, too, declare my interests as set out in the register and welcome the launch of green gilts and the aim of a green recovery.

I shall ask my noble friend two questions. First, I welcome the equivalence decision that the Government have taken unilaterally, but which areas in particular will we have equivalence for, and will there be the same sort of short-notice withdrawal for equivalence as exists in the EU?

Secondly, could my noble friend clarify the welcome statement in the document released by the Chancellor about UK pension funds directing more of their capital towards our economic recovery and setting up a long-term asset fund? Utilising the money in long-term pension schemes to boost recovery directly is an excellent idea, but could we have a little more detail on the plans?

I thank the noble Baroness for her question. In relation to the equivalence announcement, we are taking on board 17 equivalence rules. In the interests of brevity, I shall not go through all of them, but I shall ask that they are entered into Hansard. The point the noble Baroness makes about the early or perfunctory removal of equivalence is something we have taken on board. Indeed, other countries have expressed this as one of the EU’s problems, and it will be our intention to have a more transparent process that gives those countries the ability to respond to issues and have a more iterative dialogue.

In relation to the noble Baroness’s points on pension fund assets allocation, I touched on this yesterday in the Statement in relation to local government pension funds, and it is certainly a priority for us to try and steer some of these assets, on a low-risk basis, into infrastructure development.

My Lords, the finance industry has been engaged in bribery, corruption, money laundering, tax avoidance and mis-selling of numerous products. The victims of RBS and HBOS frauds are still awaiting compensation. In July this year, the Intelligence and Security Committee said some aspects of the finance industry were also a threat to national security. I ask the Minister and urge the Government to appoint an independent inquiry into the finance industry, as that would be a good way of promoting public confidence in the industry.

I do not accept the noble Lord’s harsh criticisms of the sector. As in any sector, one gets miscreants, but is important to remind the noble Lord that this industry employs over 1 million people in this country and contributes £130 billion to our national economy and some £75 billion in tax receipts.

My Lords, I refer to my interests in the register.

A lot of time was used up seeking equivalence, and now it is right to move on with reforms and new matters. But what is the overall timeline, and will there be more democratic oversight than mere devolving of power? I welcome the unilateral equivalence decisions the UK has made. Many of them show that equivalence can benefit the granter; it is not all about benefits to those receiving equivalence.

I would also like to pursue the matter of pension funds investing in infrastructure. It is something we have envied in Australia and Canada for a long time. Has the Treasury considered how much more could be unleashed if there were not a systemic obsession of regulators with risk-free, liquid investment in government bonds? Post-Covid, is that not an even more outdated comfort blanket, which robs both public and pensioners?

To reassure the noble Baroness, full disclosure will be made on any further progress with equivalence. The new Finance Bill, just starting its progress through both Chambers, will give opportunities to noble Lords to contribute.

On the issue of pension fund asset allocation, I agree that we have been too focused on pushing too many assets into government gilts or equivalent instruments and that enormous opportunity exists for investment in UK infrastructure.

My Lords, I take this opportunity to welcome the Statement from my noble friend today, in particular the part relating to the issuing of the green sovereign bond. Among my interests on the register, I am vice-president of the Association of Drainage Authorities. I urge him to consider that a fundamental shift of thinking is required on environment issues at the heart of the Treasury, relating to spending on environmental projects and more especially flood defences, which will increasingly become a challenge given the threat of climate change. Will the Government ensure that revenue and maintenance activities receive a greater balance of spending than those on capital work? So often when flood defences fail, it is due to the lack of maintenance. Given the pressure of climate change, I hope that my noble friend will agree to review this urgently.

I take on board my noble friend’s comments. In relation to flood defences, I must declare an interest: my farm runs down to the sea and I have some three miles of coast, which is under continual attack by the elements. But we have increased the commitment of funding for flood defences; I think it was in the Budget in March, and it certainly recognised that this is a major element of our national infrastructure. In terms of seeing an allocation into these kind of assets, this falls partly into the previous question about ensuring that we get a wider allocation into infrastructure and of course into sea defence and indeed flood defence.

My Lords, if fluency in fintech will define the future prosperity of the UK, policy alignment and regulatory equivalence are essential with the EU and global counterparties. Does the Minister agree that a key goal is to encourage digital trade, and then to help our SMEs access global markets? I refer to my declaration in the register. The range of financial interventions from Governments and regulators has expanded in an unco-ordinated fashion, underlining the need to strengthen regulatory co-operation. What incentives and assistance will be available to promote standardisation, reusability and rationalisation of technology to standardise taxonomies, document digitalisation, implementation of distributed ledger technology and artificial intelligence?

My Lords, we absolutely acknowledge the role of fintech in the economy. It generated some £11 billion in 2019 and employed more than 76,000 people. The 2020 report has highlighted the UK as a global leader. Likewise, in the payments landscape, we are also highly innovative because we again are a large economy. In 2018, more than 230,000 faster payments were sent every hour, compared to fewer than 3,000 10 years earlier. The noble Viscount is concerned about regulation. The financial regulators continue to provide a platform that facilitates innovation in this space. For example, the Financial Conduct Authority has accepted a significant number of DLT-based projects into its regulatory sandbox to enable the adoption of this technology to deliver better financial services with appropriate consumer safeguards.

I refer to my interests in the register. Unlike some others, I congratulate the Chancellor and my noble friend on getting ahead and providing as much certainty as possible in financial services, despite the ongoing difficulties with the EU. We need this innovative £130 billion industry, especially as we start to pay for Covid. How does my noble friend think that this package will help the large number of smaller financial services providers—and indeed the businesses they serve—outside London and outside the leading-edge areas of fintech and green finance, which will of course take time to grow?

My Lords, we absolutely accept that small businesses are the backbone of the wealth-creating part of our economy. One of the answers I gave earlier was looking at the listing rules in this country to see whether we can make it more accessible for smaller firms. I mentioned that I think that you have to issue a full prospectus for anything in excess of €8 million, whereas in the US it is $50 million, so we certainly will be looking at that.

On a slightly unrelated element, but connected to SMEs, the rules reform that we are working on now, post transition, on procurement opens up an enormous opportunity for SMEs, because it will allow us to set our own rules and not be controlled by the EU regime. That covers some £290 billion-worth of government expenditure each year, and we will be making sure that SMEs get a good slice of that.

You are on mute. Please unmute. No, you are still on mute. We will move on to the next speaker and come back to the noble Lord, Lord Bhatia, if we have time. I call the next speaker.

My Lords, I declare my interests as listed in the register. The Treasury papers say that it will give audit equivalence to the EEA states and approve as adequate their competent authorities. It is important that investors should be able to have confidence in audits provided by EEA auditors for overseas operations of UK businesses. However, does this also mean that EEA auditors will be able to continue practising in the UK after the end of the transition period, while UK auditors will be excluded from EEA markets? If this is the case, can the Minister say what the cost will be of this lack of reciprocity?

I am not able to give specific answers to the noble Baroness, Lady Wheatcroft, on those subjects at the moment. They will, no doubt, be included in the ongoing negotiations. If we receive clarity on that in the next few weeks, I will happily write to her.

My Lords, I apologise that my screen has gone wrong while waiting. I first declare my interest. [Inaudible.]

My Lords, we look forward to the Ron Kalifa report on fintech. The trade credit insurance guarantees making a real difference. Would the Government agree it should be extended until June 2021? Will the Government consider instituting a new 3i-type funding to help provide equity finance for funding, recovery and scale-up? Will the Minister clarify if the Government will consider reinstituting a Green Investment Bank—a question that has been asked before? Finally, will the Minister agree that getting an EU deal with make equivalence much easier to resolve?

The noble Lord asks a lot of questions: I will take the last one first. Of course, getting a deal will make the whole relationship far more constructive. We remain cautiously optimistic that this can be achieved. I think the Government are broadly sceptical about creating an equity distribution fund or a fund that makes equity available. As I am sure the noble Lord will know, the private equity industry has some $1.5 trillion-worth of dry powder available for investment around the world, including this country. I believe that we should be accessing that rather than using taxpayers’ money.

My Lords, I welcome the content of this Statement and the recognition of the significant contribution of financial services to our economy. However, could I press my noble friend on equivalence? For those following the trajectory of our approach to securing continuing market access, we have been on a ski slope for mutual recognition to enhanced equivalence to equivalence and now to unilateral equivalence—which, by definition, involves no reciprocity. Does this Statement effectively signal we have abandoned hope for a substantive financial services chapter in the UK-EU trade deal? How does that reconcile with the ambitions set out in paragraphs 35 to 37 of the political declaration?

My Lords, we have certainly not abandoned any aspirations of mutual equivalence. As I said earlier, we cannot start from a position of almost perfect equivalence, and it is disappointing that the EU has not seen it appropriate, at this stage, to engage on a more collaborative basis. We had to provide clarity to UK-based firms and show that we were ready for business on 1 January, whatever the EU’s attitude. We continue to engage with the EU proactively.

My Lords, I thank the Minister for repeating the Chancellor’s Statement. It quite rightly emphasises the high regard that the United Kingdom is held in throughout the world for its financial services, which, as he said, bring £130 billion to the Exchequer. We are also renowned for our gold standard legal system, which, again, attracts many high-value disputes in our courts, and we rightly take pride in our word being our bond. Therefore, does the Minister agree that, as we leave the European Union, our enviable reputation is tarnished by an open admission by a Minister of the Crown in another place that we will place on the statute book an Act which, on his own admission, will breach international law?

My Lords, the UKIM Bill is there as a precautionary instrument in the event that we do not achieve a deal at the end of this year, to protect the interests of this country.

My Lords, some years ago, when the European Union was trying to negotiate the TTIP agreement with the United States, one of the United Kingdom’s principal aims was to include financial services in that deal. But when we went to Washington on a Select Committee visit, the United States Treasury was totally—even aggressively—opposed, saying that it was totally unacceptable to include financial services in a trade agreement. Does the Minister agree that there has been no change in the American attitude, and that it will be almost impossible to get a satisfactory and acceptable new trade agreement with the United States in the short term? To suggest that it will be simple and swift is some way from the truth.

My Lords, I am not involved in the intricacies of the trade discussions between the US and ourselves. There is a very simple principle with any trade agreement: the more you try to agree in one go, the harder it is. If you include something as complex as financial services, then it will be very difficult. I am sure that that is why the EU has still not been able to negotiate its own deal with the US. However, we will continue to engage with it as practically as we can.