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Lords Chamber

Volume 830: debated on Tuesday 13 June 2023

House of Lords

Tuesday 13 June 2023

Prayers—read by the Lord Bishop of Durham.

Archbishops’ Commission on Families and Households: Love Matters Report


Asked by

To ask His Majesty’s Government what assessment they have made of the report of the Archbishops’ Commission on Families and Households, ‘Love Matters’, published on 26 April; and what steps they plan to take in response to its findings.

My Lords, I thank all members of the Archbishops’ Commission on Families and Households for their report, which underlines the importance of love in family life. This has particular importance for those children with a disrupted family life, hence the focus in our recent strategy for children in the social care system, Stable Homes, Built on Love. We will consider the report’s recommendations alongside the Government’s response to the Office of the Children’s Commissioner Family Review.

I thank the noble Baroness for her Answer. There are five key messages in the archbishops’ commission report. The second is that relationships need to be supported all the way through life. Obviously, relationships education in school is one thing, but the thrust is how we support adults in relationships. Adults have to take responsibility for themselves, but there are ways in which support can be offered. How might the Government encourage relationship support, particularly at life transition points?

The right reverend Prelate makes an important point, and the question about when and how the state gets involved in adult relationships is obviously a very sensitive one. Underpinning our approach we have the family test, which means that all departments need to think about the impact of their policies on families, including at the key transition points which the right reverend Prelate referred to. Where the state must be involved in adult relationships, we strive to do so sensitively and effectively. Where families want to engage with the state, those services should feel accessible and non-judgmental.

My Lords, I echo the thanks given to the archbishops for their report, which is a thoughtful and compassionate approach to putting families at the heart of policy-making. One of the key recommendations of the report is to give every child the best possible start in life. Successive cuts to local government funding and other funding have decimated the provision of the Sure Start programme, started under the last Labour Government to provide comprehensive and vital support to children and their families. In the wake of Covid, such support is more important than ever. Will the Minister outline how future funding settlements will take account of the archbishops’ recommendations?

My Lords, some of the work that we are doing has already anticipated the recommendations, including the one to which the noble Baroness referred. She will be aware of our significant investment of around £300 million to enable 75 local authorities to create family hubs designed to give children the best start in life and of our childcare reforms which include £4.1 billion of investment by 2027-28 to fund 30 hours of free childcare for children over the age of nine months.

My Lords, as co-founder of the Family Hubs Network, I am pleased that the archbishops’ report, Love Matters, mentions family hubs more than 30 times and recommends that they also help separating families. The Ministry of Justice’s mediation reforms for England and Wales anticipate family hubs helping separated or separating parents to access services. However, there are not yet family hubs in Wales. While recognising that social care is a devolved matter, how might the Government encourage Wales to integrate family support in this way?

Like my noble friend, the Government are committed to championing family hubs. I will ensure that my officials engage with colleagues in the devolved Administration to share evidence and best practice about them.

My Lords, it is very clear that despite the very important report from the archbishops’ commission, and indeed other reports, the Government have still not grasped the seriousness of this issue. In the north-east, we now have more children in families living in poverty than ever before, or at least in recorded time, and more than elsewhere in the country. It is also the region where the heaviest cuts to local government spending are and where the difference between children who are achieving and those who are not has grown and remains starkly difficult. Do the Government begin to grasp the nature of the problem in areas and regions such as the north- east and what are they going to do to work with those of us from the north-east, including the right reverend Prelate, on how we tackle these urgent issues?

I am pleased to say that I was in the north-east on Friday visiting schools in Hartlepool and was very impressed. The noble Baroness rolls her eyes, but I can only tell her what I saw on the ground, which was teachers working tirelessly with children, children with aspiration striving, and opportunities in their local area which the Government are supporting. Time does not permit me to go through all the initiatives that the Government are taking, but in everything from children’s social care to levelling-up areas to the education investment areas we are very focused on exactly the areas the noble Baroness cites.

My Lords, on a slightly less serious note, the Beatles sang “All You Need Is Love”, but does the Minister agree that while love matters, we need more than that to achieve the worthy recommendations in the report? Does she agree that, specifically, we need more compassion, more political will and more hard cash? Can she tell the House which, if any, of the recommendations the Government are minded to implement and how much additional hard cash they have set aside to achieve that?

In terms of which recommendations we plan to implement, I refer the noble Baroness to my original Answer, which is that we will be responding as part of our response to the Family Review by the Office of the Children’s Commissioner and will reflect at that point on the recommendations in this excellent report. I absolutely agree with the noble Baroness about compassion, and I agree with her about hard cash. That is why we are making such a significant investment in the children’s social care system, in our support for early years and in children with special educational needs so every child in this country has the best start in life.

My Lords, one of the transition points in a family is divorce and, predictably, no-fault divorce has pushed the rate up. At a seminar yesterday we heard evidence not only on how acrimony over money on divorce depletes children’s assets but on how the bitterness in that process has a lasting effect on their lives. When will the Government set out a timetable for reforming financial provision on divorce and will they ensure that child maintenance is paid? It is shamefully neglected at the moment.

On the noble Baroness’s last point, I know that my colleagues in DWP are making important progress in terms of the payment of child maintenance and I think they would share the noble Baroness’s sentiments when it is not paid. In terms of financial provision on divorce, in April this year the Government asked the Law Commission to carry out a review of the law in this area. It will look at whether the current law on financial provision provides a cohesive framework in which parties can expect fair and sufficiently certain outcomes.

My Lords, I declare my interest as a patron of Dingley’s Promise and thank my noble friend the Minister for her comments on investment and funding. I particularly congratulate the Government on their investment through the safety valve fund and acknowledge that £6.9 million has just been given to Wokingham Borough Council, which is the next-but-one authority to where I live.

I am in such shock to have such appreciation for the Government’s actions, but I thank my noble friend for his comments.

My Lords, inequalities identified in the archbishops’ commission’s report ultimately blight life. Last year, a study estimated that the Government’s austerity policies caused 335,000 excess deaths between 2012 and 2019 alone. Will the Minister answer just two questions? First, what forgiveness have the Government sought from the families of individuals killed by their policies? Secondly, will the Minister ensure that all Bills from now on are accompanied by an assessment showing their capacity to cause premature death?

I am happy to look at the research to which the noble Lord refers, but my own experience of looking at linking mortality to policy is that it is an extremely complicated business and I take exception to the suggestion that any Government—and this Government—would ever intentionally do anything that they believed would harm their people.

Elections: Voter ID


Asked by

To ask His Majesty’s Government what assessment they have made of the impact of voter ID rules on people’s ability to vote, and what plans they have to review these rules before the next general election.

My Lords, we are encouraged by the first rollout of voter identification and are confident that the vast majority of voters will have cast their vote successfully based on sector feedback and our own observations on the day. As set out in legislation, we will be conducting an evaluation of the implementation of voter identification at the May polls and intend to publish the report no later than November this year.

I am quite surprised at that Answer, because initial reports suggest that thousands, if not tens of thousands, of people were not able to cast their votes. Of course, the really disturbing thing is that a former member of the Government—still a Member of the other place, recently knighted, Sir Jacob Rees-Mogg—said at the National Conservatism Conference in Westminster last Monday:

“Parties that try and gerrymander end up finding their clever scheme comes back to bite them, as dare I say we found by insisting on voter ID for elections”.

So a member of the Minister’s own party has called it “gerrymandering”.

The successful introduction of voter identification at May’s elections was to ensure the future integrity of our voting system. Comments from elsewhere do not reflect the reality of the reason for or the administration of that change. The Parliamentary Under-Secretary of State for Local Government and Building Safety, Lee Rowley MP, made the Government’s position absolutely clear in a letter responding to a point of order raised in the House of Commons on 16 May. This letter has been deposited in the House of Commons Library.

My Lords, several years ago I was concerned in a case involving allegedly forged postal votes. In the course of that time it became clear to me that many heads of family in some communities were providing postal votes that were, in my eyes, highly questionable. I very much hope that the Government are still keeping the matter under review.

I assure my noble friend that voter identification is just one of a series of measures within the Elections Act that are aimed at tackling voter fraud and ensuring the future security of our electoral system. Further changes will be delivered later this year to introduce sensible safeguards against the abuse of absent voting, clamping down on the practice of postal vote harvesting and tightening the rules around postal and proxy votes.

My Lords, according to the Electoral Commission, 1.2% of people who attended a polling station at this year’s local elections were turned away because they lacked photo ID. We are not talking about ID but photographic ID; that is the concern. If the next general election reflects the turnout of 2019, this could mean that 380,000 voters are sent home and prevented from exercising their right. On this basis, can the Minister really say that these photographic voter ID requirements, as they stand, are fit to be applied at the next general election?

As I have said, we are undertaking a review. It is essential that, before we make claims such as we are hearing from the other side, we understand how the policy has operated in practice, what has gone wrong and where there are any areas for improvement in the future. Of course, where there are lessons to be learned, we will do so and we will change at the point of that evaluation. We are already gathering evidence as a Government. Also, the Electoral Commission is conducting extensive evaluation; we expect its initial findings later this month and a full report in September. I suggest that the whole House waits until we get that full evaluation before we start throwing stones.

My Lords, we already have a problem with fewer young people turning out to vote than others. The clear implication of what Jacob Rees-Mogg said was that this was intended to discourage more young people from voting, but it ended up discouraging some older people from voting as well. Would not one of the easiest things be to expand the number of possible means of identification that young people could present when voting, and make it clear that that is being relaxed?

We will look at the evidence of that. We have said we that we will look at other forms of identification when we have the evidence to do so; that is what the Government will do.

Do the Government have any intention of specifying what sort of ID is acceptable? I decided to test this out in the recent local elections. I took my House of Lords pass; it has a photograph, as we all know, but it was not acceptable. Luckily, in my pocket I also had a passport, so I was able to vote. This should not be left unclear.

The returning officers have a clear list of acceptable forms of photo identification that they use. They have been fully trained on those. As I have said, we will look at other methods of photo ID and get the evidence to say when something is particularly useful. ID is changing all the time, but we have to ensure that it is secure ID that is being used in a polling station.

My Lords, there is plenty of anecdotal evidence in London and, indeed, councillors have reported cases of voter fraud to the police in previous elections and been ignored. Can we have an assurance that there is going to be proper evaluation, particularly in some of the London boroughs where this evidence exists?

We have made it very clear in the legislation that will be doing a review, not only after this general election but after the next two to ensure that the voter identification system we are putting in place is right, is correct and is not disenfranchising any voters from electing.

My Lords, does the noble Baroness agree that this Question would not be relevant if the introduction of biometric ID cards by the last Labour Government had not been opposed by the party opposite? Does she also agree that such a measure would also have addressed the scourge of criminal identity theft that blights our country as fraud offences go through the roof?

A national identification card is a totally different subject; it is much wider and further than this. That debate is perhaps for another day.

My Lords, the integrity of our electoral system is important. In the light of what the Minister has told the House about the Government’s review, will she now undertake in advance to raise with her noble friend the Leader of the House that we should have an opportunity to debate that review in government time in the autumn?

I do believe that it was agreed in the legislation that when the review came out it would be discussed by both Houses. If that is not correct, I will correct it in a letter in the Library—but I am pretty sure that that is what was agreed.

My Lords, whenever photographic ID was introduced for elections in Northern Ireland, it was supported by all parties and all Members in both Houses of Parliament. Why should it be different for any other region of the United Kingdom?

We took the good practice from Northern Ireland that has been in place for 20 years and we thought that it was correct and right for the integrity of our democratic system to bring it across the whole of the United Kingdom.

My Lords, I welcome the comment that my noble friend made in relation to the Electoral Commission report, which is due in the next few days, but is she aware of the Democracy Volunteers report, already published, which would appear to indicate deficiencies in terms of communications and publicity, particularly with the ethnic communities, and also, as indicated previously, that certain returning officers did not have adequate information as to what photo ID was acceptable at polling stations?

I am certainly well aware of that report and we will take into account any comments made and any evidence in it. We will also be doing quite a lot of talking to people who went into those polling stations and taking their views as we move through the review. What I have to say is that some local authorities were exceptional at reaching out to their communities in many different ways in order to ensure that people had full access to their polling stations We need to use that best practice across the whole of the local government sector.

Renewable Transport Fuel Obligation


Asked by

To ask His Majesty’s Government when they intend next to review the renewable transport fuel obligation.

My Lords, the department continually keeps the renewable transport fuel obligation under review to ensure that it delivers cost-effective emission reductions and is best placed to meet our carbon targets.

I thank the Minister for her information, but at the last estimate over 107,000 hectares of land in the UK grew crops for biofuels—land that could have fed 3.5 million people. First, given the pressure on land, the need for greater UK food security and the global shortage of cereal crops caused by the war in Ukraine, will the Government end biofuel production from food crops in the UK? Secondly, on imported biofuels, will the Government ensure that only biofuels produced from waste, agricultural or otherwise, are imported for use in the UK?

The Government have incredibly high standards of sustainability for the fuels that we allow under the renewable transport fuel obligation. As I am sure the noble Baroness is aware, many of the crops grown for biofuels are not fit for human consumption. However, they are grown because they are useful not only for biofuels but for animal feedstock. There is a very careful balance to be struck. The Government are well aware of the land use issue and the need to be able to develop enough human-supporting crops. As I say, we keep all of this under review.

My Lords, I declare my interests in the register. I have two questions. First, what progress is being made with regulations to enable support for nuclear-derived fuels and recycled carbon fuels within the RTFO following the recent amendment to the Energy Bill? Secondly, quota-based systems such as the RTFO are being implemented in other countries for the purposes of decarbonising ammonia and fertiliser production. What plans do the Government have for similar schemes to clean up ammonia?

As the noble Lord will be aware, the Energy Bill is currently working its way through the other place. I am very pleased that we were able to get the amendment for recycled carbon and nuclear-derived fuels, as it goes into primary legislation. We are working concurrently on the secondary legislation to bring that into effect as it is needed and into the various schemes. On ammonia and various other renewable fuels, we are looking very carefully across the entire suite of low-carbon fuels. The Department for Transport will be publishing a low-carbon fuel strategy later this year.

My Lords, the logistics sector is calling for a stronger partnership with government over the use of low-carbon fuels. What arrangements will the Government put in place with the logistics industry for this to happen, including the much-promised publication and delivery of a low-carbon fuel strategy? It was promised last year and then at the end of this year. When will that be published?

As I mentioned in the previous answer, it will be published later this year. The low-carbon fuel strategy is incredibly important. We have been working very closely with the freight and logistics sectors to understand their needs in terms of decarbonisation. For example, we have invested £200 million in the zero-emission road freight demonstration programme. An enormous amount of work is going on in this area. The low-carbon fuel strategy is but one of those things.

My Lords, I refer back to the original Question asked by the noble Baroness, Lady Walmsley. We import 90% of the fuel we use for transport. It is coming from land that could be used to grow food. Last year we imported crops from Ukraine that were then used in biofuels in this country. It is a question of due diligence. Can the Minister reassure the House that we are genuinely using stuff that would otherwise be wasted?

I agree that there is an issue of due diligence here. The Government are always willing to hear from anyone who has any insight as to crops or biological items that may be coming from places that are not within the sustainability criteria. It is not fair to say that renewable fuels come from biogenic materials. It is the case that biofuels from waste represent 76% of the renewable fuels supplied; for example, 93% of all biodiesel comes from used cooking oil, which has very few other uses. While I accept that we need to look at crops and whether they are for human consumption or not—obviously, the latter is the one we focus on—we need to recognise that alternative sources of bioethanol are fairly thin on the ground at the moment.

My Lords, the Renewable Transport Fuel Obligations Order 2007, as amended, says in Article 1A:

“The Secretary of State must from time to time … carry out a review of the regulatory provision contained in this Order; and … publish a report setting out the conclusions of the review … The first report must be published before 15th April 2023”.

Now, I think that date has passed. Has such a report been published? I spent time with my friend Google this morning, and after two hours, could not find it, but with the messy way our legislation is formed, I may have missed it. If it has not been published, why not? It is crucial that commitments such as this are honoured.

I agree with the noble Lord, and I accept that it should have been published by 15 April. It is in its very final stages of preparation and will be published as soon as possible. There is an important component of this post-implementation review: there will be an opportunity for feedback on the scheme as it currently exists. Therefore, I hope that the noble Baroness, Lady Walmsley, and anyone else with an interest will look at the post-implementation review, consider various reports which have recently come into the public domain, and think carefully about how we can improve the scheme. We are always looking for improvements, we keep the scheme under review, and I am willing to keep an open mind.

My Lords, does my noble friend agree that, looking at the long term and particularly our 30 by 30 commitment on land use, we should not be devoting agricultural crops to vehicle fuels—certainly not ordinary vehicle fuels—and that anything we can get from waste should be directed at aviation and other sectors where it is extremely difficult to create substitutes, rather than ordinary domestic road vehicles?

The noble Lord is right. It is the case that the road vehicle sector is at a transition moment, as we go to battery electric and hydrogen fuel cells, but we can use it in this transition period. We are focused on using things such as recycled carbon fuels for sustainable aviation fuels, because we see that as a key way to decarbonise sectors that are much harder to abate, such as aviation. We will be looking at similar technology for maritime, if that exists.

My Lords, long-haul flying looks to be the most challenging sector to decarbonise. It is likely that sustainable aviation fuels will have a major role in doing that. Will the Minister commit to introducing a price stability mechanism, to encourage the development of a UK-based sustainable aviation fuel industry, so that we have the jobs and investment coming to this country, rather than going to our competitors overseas, as it looks like at the moment?

The Government have already recognised the strong case for sustainable aviation fuel for all types of flying, whether short- or long-haul. We will implement a sustainable aviation fuel mandate requiring operators to use 10% SAF by 2030, which acts as a pull on the market. Therefore, we are considering what else needs to be done to make SAF plant projects in the UK investible. This will not be a government-sponsored contract for difference as the SAF mandate does an awful lot of the heavy lifting, but we are working very closely with industry to look at an industry-led solution to improve the revenue certainty when it comes to SAF.

My Lords, is it not the case that this small island is crying out for a land strategy policy, and that the House of Lords Land Use in England Committee recommended that we have the strategy and resources for it, and that all departments take part? Does the Minister share my disappointment that this is not happening?

I understand that it is happening, but I am slightly more excited by the biomass strategy, which will look at all the elements of biomass—what their potential uses are for our domestic environmental goals but also how they interact with our land-based goals. Therefore, we will also have the opportunity to look at our sustainability criteria, and how they can be strengthened in the context of looking at land strategy.

Nova Kakhovka Dam


Asked by

To ask His Majesty’s Government what is their assessment of the destruction of the Nova Kakhovka dam and the international response.

My Lords, at least 80 communities and 40,000 people are affected by flood water. Damage to homes, infra- structure and agriculture will affect thousands more. Our partners are working hand in hand with the emergency services to evacuate people and provide vital relief. We have also provided an additional £16 million to the United Nations and the Red Cross to help civilians, including those affected by flooding and others elsewhere in Ukraine in humanitarian need. To bolster efforts, we are also sending boats, water filters, pumps and waders to Ukraine.

I thank the Minister for his reply; it is particularly good to hear of the support the British Government are giving to those affected by the floods. My Question concerns a different aspect of the matter: adherence to the Geneva conventions. Article 56 of the 1977 Protocol 1, additional to the 1949 Geneva conventions, says that dams and nuclear sites must not be the object of attack if civilians are going to suffer. Over 170 nations have signed up to this, including Ukraine; Russia originally signed up and then withdrew ratification. Will His Majesty’s Government reaffirm the importance of adhering to that in a world where there are now so many dams and nuclear power stations?

My Lords, I agree with the noble and right reverend Lord. The essence of all the Geneva conventions was to ensure that these important elements are protected during conflicts, so I very much support his sentiments. However, I remind the House that, as my right honourable friend the Prime Minister has said, our intelligence communities are still looking at the incident, and it remains too soon to make a definitive judgment as to the cause.

My Lords, vast areas of Ukraine are now under water. Is the Minister aware that there is a big shortage of boats there, as he might expect? Will he work with me to try to repurpose some of the boats coming across the channel with so-called illegal immigrants, so that they can be reused in Ukraine, instead of being wrecked to stop them being reused in this country?

My Lords, the basis of what the noble Lord says is important: we need to ascertain what the needs of Ukraine are and to meet them. If boats are required, as I said in my first Answer, we will seek to provide them.

My Lords, the consequences of the breach of the Nova Kakhovka dam have been described as “generational” in their impact. Does the Minister agree that this underlines the importance of next week’s Ukraine Recovery Conference and the need for it to address ecological issues as well as infrastructure and economic development matters?

My Lords, I totally agree with the noble and gallant Lord. In preparation for this Question, I saw the mapping made of the flooding, which is on both sides of the Dnipro river; half is on the Russian side. Even organisations such as the ICRC cannot access the area, and people are suffering. I agree with the noble and gallant Lord that there are issues concerning agriculture and the natural habitats, which will be impacted, but as the waters recede we will be able to make a better assessment. However, we will not be able to make that assessment unless Russia allows access to its side of the river.

Further to the noble and gallant Lord’s question, it is very welcome that London is hosting the second Ukraine Recovery Conference jointly with Ukraine, but if that is to be successful for the state’s future, proper scrutiny, oversight and accountability of any private sector reconstruction work for Ukraine will be necessary. The Ukrainian Parliament, the Verkhovna Rada, is not included in the agenda for the recovery forum. Does the Minister agree with me that Parliaments and their scrutiny are very important for effective, sustainable recovery after any conflict? Will he ensure that there is always an eye on proper parliamentary involvement in these fora?

My Lords, my understanding is that parliamentarians are also attending that conference. As the noble Lord will be aware, it is primarily aimed at the private sector and focused on reconstruction, but I note what he said.

I accept what my noble friend says. The challenge has been that, as the dam broke, pollutants and other substances such as oil and petrol contaminated the whole river. As I said to the noble and gallant Lord, Lord Stirrup, there are implications for both agricultural land and the ecological habitats along the river. The assessment is still yet to be made fully.

My Lords, I draw attention to my entry in the register of interests. Like many other parliamentarians, I am an ambassador for the Halo Trust. The breach in the Kakhovka dam is flooding extensive minefields and dislodging many thousands of landmines. In fact, Halo has cleared 5,000 landmines from that area in the last month alone. Looking ahead, as the noble Lord is constantly being invited to do, to 21 June and the Ukraine recovery conference, there can simply be no talk of reconstruction in Ukraine without first focusing on making the land safe from explosions. What steps are the Government taking to ensure that landmines and unexploded ordnance, of which there is an incredible amount in that country, are firmly at the forefront of delegates’ minds as they gather in London later this month?

My Lords, I agree with the noble Lord. What is very evident, as he said, is that large sections around the dam and the river have been cleared of landmines. The United Kingdom Government have worked with the Halo Trust, and its CEO, James Cowan, will be addressing the Ukrainian conference on the specific issue of demining in advance of reconstruction in Ukraine.

My Lords, I return to the question of agriculture. I know it is early days to undertake a full impact assessment, but can the noble Lord reassure us that our expertise will be used fully to support Ukrainian agriculture in the long and medium term? Will he ensure that the issue of the impact on agriculture is properly addressed at the Ukraine recovery conference?

My Lords, I can give the noble Lord that assurance. In a previous Question, we talked about the importance of Ukraine’s supplying the world’s economies with grain. We have yet to see how this will impact, for example, the Black Sea grain initiative. The Dnipro river goes straight into the Black Sea, so of course there are implications. As the noble Lord, Lord Browne, pointed out, many mines have been washed through and that assessment has still to be made, but specific parts of the conference are allocated to agriculture. Half a billion people used to get their grain from Ukraine, so there is a major task ahead of us.

My Lords, further to my noble friend Lord Selkirk’s remarks about drinking water, is it right that this reservoir provided drinking water for Crimea, and what are the implications long term for that?

My Lords, I assure my noble friend that we are seeking to make early assessments of the full implications. What is clear is that this provided water to many parts of Ukraine, including those areas currently occupied by Russia. Frankly, a full assessment cannot be made until we get full and unfettered access. I regret to say—I would be glad to be proven wrong—that I do not think we will be able to make that assessment until Russia does the decent thing and withdraws from Ukraine.

My Lords, one of the perhaps unintended consequences of this tragedy is the recreation of considerable areas of wetland that previously had been drained. Will thought be given to the preservation of some of that wetland and the biodiversity that it might offer to the people of Ukraine?

Again, the noble Lord is correct. When we look at the devastation, many of the natural habitats and wetlands have been impacted. A full assessment has yet to be made but what is clear from early reports is that much has been damaged and impacted. Of course, areas are being damaged further downstream because of the pollutants being carried forward by the river, and there is the impact of the mines. The noble Lord is correct and I assure him that that will be very much part of the work of the international community. That is why it is necessary to involve the private sector at this time, next week, to make sure we can have a collective effort in rebuilding Ukraine.

My Lords, the Government should be congratulated on their initiative in convening the reconstruction conference next week. Has an attempt been made to estimate the cost of reconstructing the dam when conditions allow? It can only add to the costs of the damage Russia has caused, and of course add considerably to food prices and affect food availability in the developing world.

My Lords, on the noble Lord’s final point, of course, the developing world, particularly parts of north Africa, is severely impacted by the lack of grain supplies from Ukraine. On his earlier point, I have asked that specific question, and assessments are being made. According to an early assessment, the dam is irreparable and would require rebuilding. Then, of course, there is a timeline associated with that, which runs into not weeks or months but years. The other issue to bear in mind is that one side of the dam is in Russian-controlled Ukraine territory. A concerted effort will be required to ensure that, first and foremost, we see peace and see Russia withdraw, so that all arrangements can be put in place to rebuild the dam, which serves so many people across Ukraine and the wider region.

Business of the House

Motion on Standing Orders

Moved by

That Standing Order 38(1) (Arrangement of the Order Paper) be dispensed with on Wednesday 14 June 2023 to enable Committee stage of the Illegal Migration Bill to begin before oral questions that day.

My Lords, on behalf of my noble friend the Lord Privy Seal, I beg leave to move the Motion standing in his name on the Order Paper.

My Lords, when we had a similar Motion to this some weeks ago, calling us in on a Wednesday morning at short notice, I raised some objections, particularly on behalf of people who do not live round the corner in London and who are expected to change all their plans to get here without proper advance notice. On that occasion, I got virtually a promise from the Government Front Bench that we would not have it again. But here we are, having it again, because the Government’s legislative programme is in total disarray. We sat until 4 am last week and 2 am this morning; they cannot organise their legislative programme. It is really ridiculous that Members should be treated in this way.

I wonder if Boris’s friends who are going to be joining us have been told what to expect. How is Ben Houchen going to manage to get down from Teesside suddenly on a Wednesday morning? What about Charlotte Owen? It is going to interfere with her social life, that is one thing for sure. Indeed, Nadine Dorries does not realise what she is gaining by not being nominated to this place.

This is ridiculous. This place is being treated disgracefully and Members are being treated disgracefully. We are human beings. We need to sleep at night, we need to be treated properly, and we need to be consulted on the programme. This is not happening, because this Government are in total disarray.

My Lords, I am sure the noble Lord was sleeping soundly in his bed when the Committee stages were being heard last night and on Wednesday of last week. Sitting early was the suggestion of one of the usual channels and was agreed to by all the usual channels.

I also want to say, if I may, that I find it utterly condescending that the noble Lord would speak about a young lady and her social life in such a way.

Motion agreed.

Strategic Highways Company (Name Change and Consequential Amendments) Regulations 2023

Motion to Approve

Moved by

That the draft Regulations laid before the House on 24 April be approved.

Relevant document: 38th Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 5 June.

Motion agreed.

Employment Relations (Flexible Working) Bill

Order of Commitment

Moved by

My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Unless, therefore, any noble Lord objects, I beg to move that the order of commitment be discharged.

Motion agreed.

Equipment Theft (Prevention) Bill

Order of Commitment

Moved by

My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move manuscript amendments or to speak in Committee. In these circumstances, and if no noble Lord objects, I beg to move that the order of commitment be discharged.

Motion agreed.

Financial Services and Markets Bill

Report (3rd Day)

Relevant document: 23rd Report from the Delegated Powers Committee

Amendment 91

Moved by

91: After Clause 65, insert the following new Clause—

“Forest risk commodities

(1) FSMA 2000 is amended in accordance with subsection (2).(2) After section 410 insert—“Forest risk commodities410ZA Forest risk commodities(1) A person must not carry on a regulated activity in the United Kingdom that may directly or indirectly support a commercial activity in relation to a forest risk commodity or a product derived from a forest risk commodity unless relevant local laws were complied with in relation to that commodity.(2) A person that intends to carry on a regulated activity that may directly or indirectly support a commercial activity in relation to a forest risk commodity or a product derived from a forest risk commodity must establish and implement a due diligence system in relation to that regulated activity to ensure compliance with relevant local laws.(3) The due diligence system referred to in subsection (2) must be in place within 24 months of the day on which the Financial Services and Markets Act 2023 is passed.(4) Within the period of one year beginning with the day on which the Financial Services and Markets Act 2023 is passed, the Secretary of State must by regulations made by statutory instrument make provision about the details of the due diligence system referred to in subsection (2).(5) A statutory instrument containing regulations under subsection (4) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.(6) In this section, “due diligence system” means a system for—(a) identifying and obtaining information about the commercial activities of any beneficiary of the regulated activity and of their group regarding the use of a forest risk commodity,(b) assessing the risk that relevant local laws were not complied with, or that free, prior and informed consent was not obtained from local communities, or from indigenous people in accordance with their rights under international law, in relation to that commodity, and(c) mitigating that risk.(7) A person that carries on a regulated activity in the United Kingdom that directly or indirectly supports a commercial activity in relation to a forest risk commodity or a product derived from a forest risk commodity is subject to—(a) the reporting requirements under paragraph 4 of Schedule 17 to the Environment Act 2021 (“the Environment Act”) in relation to the due diligence system required under subsection (2), and(b) Part 2 of Schedule 17 to the Environment Act as though they are a person to whom Part 1 of that Schedule applies.(8) Terms used in this section that are defined in Schedule 17 to the Environment Act have the meanings given in that Schedule.”(3) In paragraph 17(1) of Schedule 17 to the Environment Act 2021 (use of forest risk commodities in commercial activity), for “and any Part 2 regulations (“relevant provisions”)” substitute “, any Part 2 regulations (“relevant provisions”) and section 410ZA of the Financial Services and Markets Act 2000”.”

We debated this amendment last Tuesday but it has taken until today to get to the vote. Needless to say, its importance has not diminished. The Amazon is the lungs of the world, and this is a straightforward amendment that aims to clamp down on illegal deforestation. While I thank the noble Baroness for her response last week and much appreciate all the points that she made, we need to move faster in this direction, and so I would like to test the opinion of the House.

Amendments 92 and 93 not moved.

Clause 68: Liability of payment service providers for fraudulent transactions

Amendment 94

Moved by

94: Clause 68, page 85, line 9, at end insert—

“(8A) At least annually after the Payment Systems Regulator has imposed the requirement set out in subsection (5), it must publish a report on the impact of the requirement, including its assessment of the impact on the protection of consumers and the behaviour of payment service providers in relation to consumer protection.(8B) Reports published under subsection (8A) must provide at least the following information for each payment service provider subject to the requirement—(a) the number and value of authorised push payment (APP) scams notified to them;(b) the percentage by number and value of APP scams that have been reimbursed;(c) the percentage by number and value of APP scams initially rejected and subsequently appealed and the results of such appeals;(d) the percentage by number and value of APP scams that have been finally rejected;(e) the shortest, longest and average time from notification to decision about reimbursement.”Member’s explanatory statement

This amendment aims to ensure that the impact of the APP reimbursement requirement is assessed and reported on regularly and to ensure that consumers can see whether the rules are being applied consistently and which institutions are better and worse at reimbursing victims fairly and promptly.

My Lords, I introduced a number of amendments on the subject of authorised push payments fraud in Committee. At the time I said I was broadly happy with the Minister’s responses but would look to return to the reporting question again, which is what Amendment 94 does. I should say at the outset that I support what the Bill is trying to do in respect of APP fraud to make it easier, and in particular fairer, for victims of APP fraud to get their money back. Before I go any further, I remind the House of my interest as a shareholder of Fidelity National Information Services, Inc., which owns Worldpay.

My new Amendment 94 has two elements to it. First, it would introduce requirements on the PSR to report annually on the impact that the reimbursement requirement had had on consumer protection and on the behaviour of payment service providers. Secondly, it would effectively create a league table to enable consumers to see how each bank is actually performing both in preventing fraud and in reimbursing victims.

On the first point, the annual impact report is necessary because the mandatory reimbursement requirement could have unintended consequences that might damage consumer protection. I shall give a couple of possible examples of that. First, there is the possibility of moral hazard. If the mandatory requirement means that consumers start to take less care about protecting themselves because they will be repaid anyway, that could have the undesirable consequence of actually making it easier for the fraudsters to commit fraud and so actually increase levels of fraud. While, as we discussed in Committee, we must not put the blame on the victims, there is a balance to find in this area to avoid making it easier for the fraudsters while improving consumer protection and outcomes. We will know whether we have found the right balance only when we start to see the results.

A second example might be that the banks change their behaviour in an undesirable way. Rather than improving their fraud detection and prevention processes, they might simply decide that the easiest thing to do would be to stop providing services to people whom they see as being at the highest risks of fraud in order to reduce their potential reimbursement liability. I think many Members of this House have seen similar behaviour in respect of PEPs—politically exposed persons—where, rather than undertaking sensible risk-based steps, banks have on occasion just decided that it is too difficult or expensive to deal with PEPs and have refused to open accounts or have even closed accounts. We will come to that later today, but it is a good example of a well- intentioned risk measure having undesirable consequences. In the case of APP fraud, if the banks see it as too great a financial risk to provide banking services to those deemed to be at a higher risk of fraud, then we might see a whole swathe of more vulnerable people unable to obtain banking services.

These are just two examples, but I hope that they demonstrate the importance of the PSR keeping the impact of the requirement for mandatory reimbursement under regular review and amending it if it turns out to have unintended negative consequences. Reporting on this regularly and publicly will ensure that the impact assessment is robust.

Turning now to the second element of the amendment, the requirement to report annually on the performance of the banks, a major criticism of the current voluntary reimbursement code is that it is completely non-transparent. While numbers are published, they are anonymous. Consumers cannot see which banks are behaving best, and which are behaving worst, unless, as TSB does, they tell us voluntarily. The TSB example is encouraging—it is using its 100% reimbursement policy as a selling point. Introducing competitive good behaviour is highly desirable, and this amendment would help achieve that.

The amendment would effectively create an annual league table that would enable consumers to see which banks have the lowest levels of fraud—which will give an indication of how good they are at detecting and preventing fraud—which banks are better and quicker at reimbursing victims when fraud occurs, and, by including the appeal information, which banks make it more difficult for victims. That would allow consumers to take this information into consideration when deciding whether to stay with their existing bank or when considering opening a new account—something that would otherwise not be possible. That would, I hope, provide a real competitive incentive for banks to change their behaviour both in detecting and preventing fraud and in treating victims promptly and fairly.

This would not introduce a significant additional burden; the PSR will have all this information anyway, so reporting it is not a significant job. However, the benefits to consumers of making this information public are potentially significant.

When we discussed this in Committee on 13 March, the Minister stated in relation to the impact assessment that the PSR

“has committed … to a post-implementation review”

and that the Government would also

“monitor the impacts of the PSR’s action and consider the case for further action where necessary”.

That does not go far enough. Fraudsters keep changing their business models in reaction to actions by industry and the authorities, so it is essential that this is kept under continual review rather than only a one-off, post-implementation review. It is also important that the impact assessments are published. Can the noble Baroness provide any greater comfort in those respects?

On the league table, the noble Baroness said on 13 March that the PSR

“is currently consulting on a measure to require payment service providers to report and publish fraud and reimbursement data”.—[Official Report, 13/3/23; col. GC 166.]

It is now nearly three months later, so can the noble Baroness provide an update on whether this consultation has progressed and whether the data will in fact be published? It would be better if such data was published by a single source such as the PSR rather than piecemeal by payment service providers. I beg to move.

My Lords, I support this amendment and I can be relatively brief. It is important not only to collect the statistics but also at times to dig underneath to see how they might be being gamed. From personal experience, I know of instances where banks are treating microbusinesses more strictly than they are treating consumers, saying that a business should know and therefore rejecting them out of hand at the first time of asking, if I can put it that way. I have heard, in a similar case, stories of someone making contact by telephone repeatedly, their inquiry getting lost and the person having to go through the whole story with a case handler multiple times, the strategy obviously being, “Let’s try and make them give up”. That was with a very large bank; I will not name it because I do not have absolutely all the detail. Therefore it is quite important that different criteria are not being used between sole traders and individuals when it has already been determined via the ombudsman that both have a route.

Finally, there is the behaviour of banks and how fraudsters pick up on it quickly. The instance that was brought to my attention was the behaviour of banks divesting themselves of accounts. Fraudsters were using this, saying “Pay this genuine-looking invoice, but the bank has closed down my normal account so please pay it into this other account”. Since there are so many instances of banks divesting themselves of people who they find slightly a nuisance or whatever, that rings true, and it helps the fraudster to con the person into making a payment to another account. I think that those kinds of things that underlie the statistics also have to be looked at. I hope that the Government can ensure that it is not just bald statistics that are now disguising the deterrent effect.

My Lords, this amendment has to be seen in the context of the statement by the Payment Systems Regulator on 7 June, which was only a few days ago. It seems to me that that is the key starting point. I say to my noble friend on the Front Bench that that statement is enormously welcome. It states clearly that:

“For the first time, our new reimbursement requirement will introduce consistent minimum standards to reimburse victims of APP fraud”.

I do not want to detain the House by going through some of the detail of that because that is not what we are doing here today, but it seems to me that that is a significant step forward.

Secondly the PSR says quite clearly:

“We are increasing protections within Faster Payments”,

and that is also a key issue. There is a timeline in the statement which states that there will be consultation on:

“The allowable claim excess that Payment Service Providers can charge”.

That is to be done in August and the whole lot will be finished by October. I wish it were to be done a little quicker, but it seems an excellent start.

The only part of the amendment which I think is extremely valuable is the one-year report. Frankly, with the volume of illegal activity that there is at the moment, if it were me—and I was the marketing director at a couple of the companies I used to work for—I would not wait a year; I would like to see what happens within the first six months of the new regime being in place. Later on, you can decide if there is some consistent reason that you move to a six-month situation.

Finally, I would like to know exactly what the starting point was before the new regulations came in. At the moment, I do not know that we have any official statistics. We may do and, if so, it would be very helpful to the House to know, not necessarily at this moment but in the near future, the starting point for the number of these terrible situations that people are being faced with today.

My Lords, the Payment Systems Regulator is now putting in place requirements to ensure more consumers will receive a refund if they fall victim to authorised push payment scams. This is very welcome. Many banks have already taken steps to make customers aware of the risk of scams, but the sophisticated nature of many such scams means there is a need for even stronger efforts to prevent fraud occurring in the first place. Not all of the detail is yet settled, with consultation on key aspects of the new scheme to follow later in the year, but we hope the Minister can give an indication of the levels of protection likely to be offered.

We welcome the tabling of Amendment 94 by the noble Lord, Lord Vaux, which we understand to be a probing text. As the new system beds in, it will be vital for banks and other financial institutions to collect data and share that with the regulator, in order to inform future changes to guidance and regulation. The amendment also proposes public reporting of data to enable consumers to see which institutions have a good or bad track record. This is an interesting idea and we look forward to hearing the Minister’s response on this specific point.

While APP scams fall within the financial services realm, anti-fraud initiatives cut across departments and legislation. That is why one of our priorities for the Online Safety Bill is to ensure robust media literacy provisions, so internet users are able to better identify which articles, websites or emails are legitimate. With a significant amount of financial fraud taking place online but with the limited scope of that Bill, we hope the Minister and her department will engage with the Online Safety Bill as it approaches Report stage. Scams cause a significant amount of emotional distress, as well as coming with financial costs, so we hope that the Government and the regulators will do everything possible to keep ahead of the curve.

My Lords, the Government and the Payment Systems Regulator recognise the importance of regular, robust data collection. This is crucial for monitoring the effectiveness of the reimbursement requirement and ensuring that firms are held accountable. I am grateful to the noble Lord, Lord Vaux of Harrowden, for his considered engagement on this issue. I reassure noble Lords that the PSR has committed to half-yearly publication of data on authorised push payment scam rates and on the proportion of victims who are not fully reimbursed.

I can tell my noble friend Lord Naseby that a voluntary system is already in place and the PSR has already begun collecting data from the 14 largest banking and payment groups. The first round of transparency data is due for publication in October this year. The data that the PSR will publish includes the proportion of scam victims who are left out of pocket, fraud rates where the bank has sent customers’ money to a scammer, and fraud rates where the bank has hosted a scammer’s account. That means that, from October this year, the PSR will publish data for total fraud rates, both for sending money and receiving fraudulent funds, and reimbursement rates, on a twice-yearly basis for the 14 largest banking groups. This so-called league table will provide customers with the information they need to consider the relative performance of different banking groups on these metrics, and to factor that into their banking decisions.

Further to this data, once the reimbursement requirement is in place the PSR will use a range of metrics to monitor its effectiveness on an ongoing basis. These include the length of reimbursement investigations, the speed of reimbursements, the value of repatriated funds, the treatment of and reimbursement levels among vulnerable customers, and the number and value of APP scams. Data on appeals will be captured and reported by the Financial Ombudsman Service separately.

More broadly, the PSR will publish a full post-implementation review of the reimbursement requirement introduced by this Bill within two years of implementation. The review will assess the overall impact of the PSR’s measures for improving consumer outcomes. That does not mean it will not also consider the effectiveness of this measure on an ongoing basis. Indeed, more widely, the PSR will consider risks across different payment systems and, where necessary, address them with future action. This includes a commitment to work with the Bank of England to introduce similar reimbursement protections for CHAPS payments, and with the FCA in relation to on-us payments.

The PSR has been working closely with industry to develop effective data collection and reporting processes for its work on fraud. While the Government recognise the intention behind the noble Lord’s amendment, they do not consider it necessary or appropriate to prescribe specific metrics to be collected in primary legislation. I hope that, given the reassurance I have been able to provide today, he would agree with that point.

The noble Lord, Lord Livermore, spoke about the wider impacts of fraud and the duties that go beyond financial services companies or payment system providers in addressing those risks of fraud. That is being looked at through both the Government’s counter-fraud strategy and other Bills. He mentioned the Online Safety Bill. I disagree with his assessment of the measures in there. The measures that we have to tackle fraud in that Bill are a significant step-change in what we expect of companies in this space, and I think they will make a real difference. We are committed to working across all sectors to look at what more we could do in this space once we have implemented those measures and see how effective they are. I hope noble Lords are reassured by our commitments more broadly on this issue, and specifically by the fact that the PSR will be publishing data in this space once we have implemented the measures in the Bill.

My Lords, I thank all those who have taken part in this debate, particularly the Minister for her constructive engagement on this and the reassurance she has just given. In fact, in one area, she has actually gone further than my amendment suggested, as the noble Lord, Lord Naseby, pointed out: the annual report is now to be six-monthly, which is hugely welcome. It is only for the top 14 payment service providers, which will cover the bulk of the market, but that is something that the Government and the PSR might want to keep under review, particularly as different players come in and out of the market. I thank her very much for her reassurances.

I will make one comment more generally, echoing some of the comments made by the noble Lord, Lord Livermore. It is not only the banks that are players within the fraud chain, it is all those other parties that enable or facilitate fraud, from the tech companies to social media companies, the web-hosting companies, the telecom companies, et cetera. This measure puts all of the liability on to the banks. While it is a simple solution for victims—and that is to be commended—we need to find some way of incentivising all those other players in the fraud chain to behave properly and to stamp down on their services being used by fraudsters. I am hoping that we will see progress on that in the Online Safety Bill, and also in the failure to prevent fraud clauses in the economic crime Bill that is coming forward. With that, I beg leave to withdraw my amendment.

Amendment 94 withdrawn.

Amendment 95

Moved by

95: After Clause 71, insert the following new Clause—

“Arrangements for the investigation of complaints

(1) The Financial Services Act 2012 is amended in accordance with subsections (2) and (3).(2) In section 84 (arrangements for the investigation of complaints)—(a) omit the “and” at the end of subsection (1)(a);(b) omit subsection (1)(b);(c) after subsection (1) insert—“(1A) The Treasury must appoint an independent person (“the investigator”) to be responsible for the conduct of investigations in accordance with the complaints scheme.”;(d) omit subsection (4);(e) in subsection (5), in the opening words, for “regulators” substitute “Treasury”.(3) In section 87 (investigation of complaints)—(a) in subsection (9A), after paragraph (b) insert—“(ba) for the regulator’s response under paragraph (b) to include a summary of—(i) the cases in which the regulator decided not to follow any relevant recommendations, and(ii) the reasons for not following those recommendations;”;(b) in subsection (9B), after paragraph (e) insert—“(f) such other matters as the Treasury may from time to time direct.”;(c) after subsection (9B) insert—“(9C) In subsection (9A)(ba) the reference to “relevant recommendations”, in relation to the regulator’s response in respect of an annual report, is a reference to—(a) any recommendations to the regulator contained in that annual report, and(b) any recommendations to the regulator contained in final reports relating to individual complaints given during the period to which that annual report relates.”Member’s explanatory statement

This new Clause would amend the Financial Services Act 2012 to make the Treasury, rather than the regulators, responsible for the appointment of the Complaints Commissioner and would impose additional reporting requirements.

Amendment 95 agreed.

Amendment 96

Moved by

96: After Clause 71, insert the following new Clause—

“Politically exposed persons: money laundering and terrorist financing

(1) The Treasury must exercise the power conferred by section 49 of the Sanctions and Anti-Money Laundering Act 2018 (power of appropriate Minister to make regulations about money laundering etc) for the purpose mentioned in subsection (2).(2) The purpose is to make provision amending Part 3 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692)(“the 2017 Regulations”) (customer due diligence) so as to secure the result required by subsection (3).(3) The result required by this subsection is that, where a customer is a domestic PEP, or a family member or a known close associate of a domestic PEP—(a) the starting point for the relevant person’s assessment under regulation 35(3) of the 2017 Regulations is that the customer presents a lower level of risk than a non-domestic PEP, and(b) if no enhanced risk factors are present, the extent of enhanced customer due diligence measures to be applied in relation to that customer is less than the extent to be applied in the case of a non- domestic PEP.(4) In this section—(a) “customer” includes a potential customer;(b) “domestic PEP” means a politically exposed person entrusted with prominent public functions by the United Kingdom;(c) “enhanced risk factors”, in relation to a customer who is a domestic PEP or a family member or a known close associate of that domestic PEP, mean risk factors other than the customer’s position as a domestic PEP or as a family member or known close associate of that domestic PEP;(d) “non-domestic PEP” means a politically exposed person who is not a domestic PEP;(e) the following terms have the same meaning as in regulation 35(12) of the 2017 Regulations—“politically exposed person” or “PEP”;“family member”;“known close associate”.(5) Section 55 of the Sanctions and Anti-Money Laundering Act 2018 (Parliamentary procedure for regulations) does not apply to regulations made in compliance with the duty imposed by subsection (1).(6) Regulations made in compliance with the duty imposed by subsection (1)—(a) are subject to the negative procedure, and(b) must be laid before Parliament in accordance with paragraph (a) before the end of 12 months starting with the day on which this section comes into force.(7) The Treasury must, before the end of 6 months starting with the day on which this section comes into force, lay before Parliament a statement setting out what progress has been made towards making the regulations in compliance with the duty imposed by subsection (1).(8) The duty in subsection (7) does not apply where the regulations have been laid before Parliament in accordance with subsection (6)(a) before the end of 6 months starting with the day on which this section comes into force.”Member’s explanatory statement

This new Clause would impose a duty on the Treasury to amend the money laundering regulations with the effect of ensuring that a politically exposed person who is entrusted with a prominent public function by the UK (or their family members or known close associates) should be treated as representing a lower risk than a person so entrusted by a country other than the UK, and have lesser enhanced due diligence measures applied to them.

My Lords, there has been significant discussion throughout the passage of this Bill, and more broadly in parliamentary debates, around the treatment of politically exposed persons—PEPs—under the money laundering regulations. Noble Lords have made many valuable contributions on this issue, sharing their personal experiences and those of their family members. I appreciate the concern expressed across this House that noble Lords and their family members can face disproportionate treatment as a result of their PEP status, including burdensome requests for information and even being prevented from accessing financial services. The Government are clear that action is needed to address this. In looking at this issue, we have sought to balance the need to maintain our adherence to the international standards in this area, as set by the Financial Action Task Force, with the need to ensure proportionate treatment of PEPs.

Therefore, the Government are tabling amendments to this Bill to achieve this in two areas. The Government are clear that domestic PEPs are lower-risk than foreign PEPs, and this must be reflected in both policy and practice. Noble Lords will be aware that while the money laundering regulations require all PEPs to undergo enhanced due diligence, the Government require the FCA to publish guidance on how banks and other financial institutions should meet this requirement. The FCA’s current guidance, published in 2017 following a provision introduced in the Bank of England and Financial Services Act 2016 with cross-party support, makes it clear that financial institutions should treat domestic PEPs as lower-risk than non-domestic PEPs in the absence of other high-risk factors.

If this distinction was comprehensively applied, it would strike the right balance between recognising the need to mitigate the risks that domestic PEPs face while preventing such protection becoming needlessly burdensome and disproportionately affecting both PEPs and their family members. However, the Government have heard the concerns and evidence provided in this area that this distinction is not being made consistently in practice and that some banks, in particular, are taking a blanket, one-size-fits-all approach, failing to take into account individual circumstances.

It is critical, therefore, to identify whether this is a systemic failure by banks to adhere to the FCA’s guidance. Therefore, Amendment 97 will require the FCA over the next 12 months to conduct, and publish the conclusions of, a review into how financial institutions are following its guidance. This review will also consider whether the FCA’s guidance on PEPs remains appropriate and Amendment 97 requires the FCA to amend its guidance if the review finds it necessary to do so. If the FCA finds that the guidance is no longer appropriate, it must publish draft revised guidance for consultation within the 12-month timeframe given for the review.

I recognise that some noble Lords have raised concerns about the FCA’s approach to this issue in the past. The amendment therefore requires the FCA to publicly set out, within three months, the terms of its review. As part of its review, the FCA will consult affected consumers to ensure that their views are taken into account. I have also today written to the FCA to set out the Government’s expectations of what the review should cover and have made it clear that the treatment of the family members of domestic PEPs is a key issue that must be properly considered as part of the review.

Amendment 96 clarifies that the risk associated with domestic politically exposed persons is generally lower than for non-domestic politically exposed persons. The Government have tabled this amendment to address the potential issue that the FCA’s guidance is not being fully adhered to, by seeking to place the explicit difference between domestic and foreign PEPs, currently established in guidance, into law.

The amendment will require the Treasury, within 12 months of Royal Assent, to amend the money laundering regulations to make it clear that the starting point for regulated firms in their treatment of domestic PEPs should be to treat them as inherently lower-risk than foreign PEPs, and to reflect this in the approach to due diligence measures that they use.

The Government will undertake a technical consultation with industry to ensure that the wording of the amendment has the desired effect. As this distinction is not currently present in legislation, it is crucial that necessary time is given for the Government to develop an approach that will lead to a significant impact on the behaviour of regulated firms that are not following the current guidance. To demonstrate to noble Lords that sufficient progress is being made, this amendment contains a legislative requirement for the Treasury to, within six months, provide Parliament with an update on the work that is being undertaken to deliver this change.

Amendment 119 provides that the provisions I have just detailed come into force on the day of Royal Assent.

I hope that, on the basis of the government amendments, noble Lords will feel that we have listened to and acted on their concerns, and that we are committed to ensuring that domestic PEPs are treated in an appropriate and proportionate manner, while effectively maintaining our anti-money laundering framework and remaining fully compliant with international best practice. I beg to move Amendment 96.

My Lords, when I went home after the last time we discussed accountability of the regulators to Parliament, my wife said to me, “I was watching you speaking on TV and, very unusually, you were praising the Minister to the skies”. Here I am having to do it again. My noble friend Lady Penn, the Minister, has listened very carefully to all the points that have been made and has come forward in these amendments with a package that makes my Amendment 101 look rather feeble, for which I am extremely grateful.

I do not propose to spend much time talking about Amendment 101 but want to make just a couple of points. First, I declare my interest as a chairman of Secure Trust Bank. Secondly, it is not just the banks causing difficulty here; it is also credit card providers such as American Express, which seems to have been particularly heavy handed.

I have had an American Express card since 1979 and yet, only recently, I got an email which I assumed was a spoof that said I had to provide copies of my passport and bank statements, details of my investments and income, and my payslips—such as they are—to American Express within a certain number of days. I assumed this was some fraudster. Then I got another email telling me that my card had been suspended because I had failed to produce this material. When I rang American Express and said: “What is going on here?”, they said: “Unless you produce it, your card will remain suspended”. Of course, there were a number of payments on my card, which caused me some embarrassment.

That is a completely disproportionate use of the regulations. I am not even sure that some of the financial institutions are even looking at this work themselves. They may be contracting it out to other people who are simply involved in box ticking.

I will give another example from some years ago. My daughter had an account at the same bank as me, Coutts, and the manager said to her: “Is there any chance that you could move to another bank because you are such a pain to look after because your dad is a politically exposed person?”. In my view, that is an absolute disgrace. Our children find it difficult to get mortgages. People find it difficult on probate. What my noble friend is proposing today goes further than my amendment and I hope it will result in change.

There is a problem, however, in that the regulator is judge and jury in their own court on this matter, although I appreciate the measures which my noble friend has put in place to hold them to account. Of course, if we set up a committee of this House or a Joint Committee, I think this will be very high on the agenda if they have not actually dealt with it.

I have one slight niggle with Amendment 97 in my noble friend’s name, which is that she gives the FCA 12 months to publish. That seems an inordinate length of time. In the previous amendment we discussed today, my noble friend reduced the time to six months from 12 months. Perhaps she might reflect on whether it really needs 12 months to carry this out. At first, I thought it might be a move in the hope that perhaps there might be a general election and it might get lost in that and there might be a change of government and it might not happen. But one thing is clear: everyone on all sides of this House feels very strongly about this issue and I commend my noble friend for having taken this action, which I know has not been easy, and for the care with which she has listened to colleagues in coming forward with these proposed changes.

My Lords, I shall speak to my Amendment 105 in this group. I express enormous gratitude to my noble friend the Minister for all the effort she has put in to resolving this problem in the last couple of years and now in this Bill. I have had a number of meetings with her, for which I am grateful. I have learnt much from her in the course of those meetings and in Committee. I think this is also an appropriate occasion for me to apologise for the fact that in Committee I insisted on one particular point of detail that I was right and, of course, it turned out on closer inspection afterwards that she was 100% right and I had got it wrong, so I apologise for that.

She has made sterling efforts, and what she is proposing today is welcome. None the less, those efforts—at least until we came to this debate today—have not been successful in scrapping a system which is cruel, capricious and unjust. In part, that is because of resistance in parts of the Civil Service. While I accept her proposal today, it worries me—I am wary—that 12 months is being sought in which to come forward with proposals which will resolve it definitively.

I would prefer, in principle, my Amendment 105. I am grateful for the support given to it by the noble Baroness, Lady Hayter of Kentish Town, the noble Lord, Lord Sharkey, and my noble friend Lord Forsyth of Drumlean—which I think pretty well represents most sides of the House.

The legal background, which my noble friend explained to some extent, is that this all originates with the Financial Action Task Force—an international group in which British officials play an important part. It is not binding. It is not law, but it is like a standard of good behaviour, if you like. I can understand why my noble friend and the Government at large wish to continue to adhere to those standards. I have no problem with that.

However, it is clear that the FATF—I am afraid that is the expression I am going to use for the Financial Action Task Force—recommendations make a distinction between domestic and foreign PEPs. It is difficult for the European Union to make such a distinction internally— I think the noble Baroness, Lady Bowles, who was involved with the European Union at the time, will confirm this—so when the FATF recommendations were incorporated into a European Union directive, that distinction between domestic and foreign PEPs was lost. So, as it was then transposed into UK law through the money laundering regulations, that distinction no longer appeared. However, it is clearly there in the FATF recommendations.

Since we are no longer obliged to adhere to the European Union directive, it is entirely possible for us, and entirely consistent with any sense of international obligation we have, to restore that original distinction. That is what my amendment would do in law straightaway. The FATF recommendation is that domestic PEPs should not be subject to the money laundering regulations unless they are in what is described as a “higher risk business relationship”. I have stuck very closely to that wording in my amendment.

It is also my view that when the Government come back in a year’s time, or maybe sooner—I hope it will be sooner; it does not have to be a year—they will end up more or less with my amendment. If they want to stick to the FATF recommendations and yet alleviate some of the burden on domestic PEPs, this is more or less where they will have to be. That is what I would prefer, but I am clearly not going to see it today.

I will add a few other points. As I say, I think my amendment is the standard against which within a year we will be judging what the Government come back with. There are a few other points not captured in the amendment that I think the Government have to address in the course of the review. First, at the moment, banks claim that the tipping-off provisions in the money laundering regulations mean that they cannot tell us when they are investigating us as PEPs. So, one gets these bizarre requests, as described by my noble friend Lord Forsyth, but if you try to have an intelligent conversation with them about what is going on, you are completely blanked and no explanation whatever is forthcoming. They claim that this is mandated upon them. I think that is possibly a misinterpretation, but in either event, it has to go. We have to be able to talk sensibly to people who are trying to make such inquiries if we are indeed within scope of them at the end of this process.

Secondly, it must be made clear to the banks that the closing or freezing of accounts should be very much a last-resort action, and only if there is already evidence of a suspicious transaction. It cannot be resorted to in the way that some banks have been doing. It is simply unconscionable that perfectly ordinary people who are family members—not necessarily Members of this House—are having their accounts closed down or frozen while investigations take place, when there is no evidential basis for doing so. It is simply, “Your turn has come round on the agenda to be inquired into”. Can my noble friend say whether we can look forward to any alleviation in practice during the next 12 months while we are waiting for this to happen, or is the full rigour of this unjust system to be persisted with while we are waiting?

I will deal with another point raised in Committee. We have been told that there are concerns in the Security Service that this system should remain in place. I have to say that I find that unconvincing. I can understand why the service might want to have a special legal right to some sort of access to the finances of people likely to be engaged in money laundering or terrorist financing—the activities at which all these instruments are aimed—but I would not myself populate that list with the King, members of the Royal Family, Members of the House of Lords, admirals, judges and former diplomats. Those are not the people I would instantly think of; I would probably populate it with people engaged in running brothels or Turkish barbershops or operating American sweetshops on Oxford Street. The Security Service might have a more fruitful time investigating and having a grip on these people, rather than those currently on the list. So I really do not accept that it is a very credible argument and I hope we will not hear any more of it.

I appreciate the efforts made by my noble friend and I have confidence in her, but we should be clear about the standards against which we will judge whatever the Government come back with over the next 12 months. My amendment does that, along with the other comments I have made, but, in the meantime, I will not be moving it.

My Lords, it is exactly three months ago today that we debated this issue in Committee, when the Minister heard many examples of what had been going on. She has done rather more than any of her predecessors in acknowledging that there is a problem with how the AML rules are applied to PEPs and that change needs to happen—but she has gone even further and done something about it. I will not say that it is simply because she is a woman and that is what we do, but it is interesting that she has done it. As we heard, she has tabled Amendments 96, 97, 118 and 119, which she has outlined.

I have added my name, as the noble Lord, Lord Moylan, said, to Amendment 105, which goes a bit further and is more specific than the Government’s amendment. Ideally, they might have accepted it and made a carve-out for our family members; as we have heard, we may be guilty because we are here, but they have done nothing wrong and it is awful that they are caught by it. So I welcome the Minister saying in her introduction that the review will specifically look at whether it is possible to tweak that somewhat.

As I said in Committee, this has been going on for rather a long time. The noble Lord, Lord Flight, was the first noble Lord to raise it that I could find, in 2013, and I have been on about it since 2015, as the House knows. We have had Written Questions, Oral Questions, meetings, press coverage and all of that. In addition to the inconvenience for us, this has also meant that all these banks and others are wasting their time looking at our business instead of, as we have heard, at some other people. It is not just Amex and others; it is car purchase firms and everybody else inconveniencing us and wasting their time.

The Minister has acknowledged that it is time for legislation. The key part of her proposal is distinguishing between domestic and foreign PEPs and a requirement both on HMT and the FCA to do something. What the Government have done may not be perfect, but it is a real step forward. I think the Minister is well aware that we will keep a rather beady eye on what is happening, and we will be back here if nothing changes.

In the meantime, we should thank the Minister for what she has done. We have made a big step forward and I am delighted that the noble Lord, Lord Moylan, will not be pressing his amendment. It is right that we accept where we have got to with the Minister, and we will watch that being implemented.

My Lords, I have added my name to Amendment 105 in the name of the noble Lord, Lord Moylan, and I congratulate him on his determination and persistence. I do not quite understand his dislike of Turkish barbers, but we can deal with that some other time.

His amendment’s simplicity and its direct modification of the regulation is an appealing approach, as is the absence of the word “review”. I was very pleased to see the government amendments in this group, chiefly because, of course, they are government amendments. I am very grateful for the Minister’s clear and long-standing commitment to resolving, or at least ameliorating, the problem. I have only a couple of observations about the government amendments.

The explanatory statement to Amendment 96 says that UK PEPs

“should be treated as representing a lower risk than a person so entrusted by a country other than the UK, and have lesser enhanced due diligence measures applied to them”.

The amendment itself, in proposed new subsection (3)(b), states that

“if no enhanced risk factors are present, the extent of enhanced customer due diligence measures to be applied in relation to that customer is less than the extent to be applied in the case of a non-domestic PEP”.

Neither of those offers a definition or sets an upper limit to what this lesser form of due diligence should be. Is that decision to be left entirely to the financial services companies? If it is, can we reasonably expect uniformity of definition and behaviour?

Why would we expect the banks to significantly change their current behaviour? Would it not be more likely that they will simply water down some minor aspect of the diligence they currently feel is due and carry on otherwise much as they do now? In a way, that is what is happening anyway. The banks mostly ignore the FCA’s current guidance, as set out in paragraph 2.35 of FG17/6. The FCA, in response to that, applies no sanctions. Nowhere in the government amendments is there mention of sanctions for non-compliance with the new arrangements.

Given the rather cavalier disregard some banks have displayed towards the current guidance, do we not need some sanction for future non-compliance, or a way of making the FCA properly enforce its own guide- lines? What use are guidelines if they are not enforced? I would be very grateful if the Minister could say how a workable definition of “lesser due diligence” is to be arrived at and how the new regime may be enforced.

My Lords, I declare my interest as a director of two investment companies, as stated in the register. I was interested to hear the remarks of my noble friend Lord Forsyth of Drumlean about American Express. He said that he had had a gold credit card with that company since 1979. Well, I had a gold card issued by American Express in 1978. I was very proud of having that card. I did not use it often, but it is one of those cards that clears automatically every month so there is no danger of running up unpaid debts and paying 20% or 30% interest.

In November 2021, I missed an email from them asking me for KYC information, including my passport details, proof of address and a utility bill, and I omitted to reply. I then got another email a month later—with no telephone call or letter through the post—saying that my account will be closed down. I telephoned them and, after waiting for three-quarters of an hour or so, I spoke to someone who agreed that they did not really need KYC information on me, but if I supplied it and uploaded it to their website, my account would not be cancelled, and all would be fine. I duly did that, but the account was still cancelled in about February 2022. I was not happy about this, because, as I said, I rather liked my gold card issued in 1978, so I took issue with them.

Over the past 15 months, I have spoken with them about six times; I have been on the chat function about six times. I now have two names of individuals and an email address I have been corresponding with, but my account is still cancelled—although they still send me a monthly statement through the post giving me a credit balance. I will print out the Hansard report of this debate and attach it to my next email to American Express, because I am not giving up on this.

I will not make a speech giving my experience of American Express, but it is remarkably like that of my noble friends Lord Trenchard and Lord Forsyth. I decided that I could not be bothered with such outrageous burdens being placed on me. Having had my card from some time in the 1970s, I have allowed them to cancel it. Having heard of my noble friend’s experience, I am rather glad that I just let it go and reverted to using my Barclays visa card on all occasions.

I will take my noble friends’ points further. My experience was identical to that of my noble friend Lord Forsyth. Frankly, I have cancelled the whole thing; Barclaycard does a far better job.

Both my noble friends have a much more sensible approach to this matter.

I echo the other remarks of my noble friend Lord Forsyth, whose Amendment 101 I was minded to support. I too am most grateful to my noble friend the Minister for listening to the opinions of your Lordships expressed in Grand Committee. I added my name to Amendment 227 in Grand Committee, tabled by my noble friend Lady Noakes. Her amendment was debated on 13 March alongside Amendment 215, tabled by my noble friend Lord Moylan and other noble Lords. I would have added my support to my noble friend Lord Moylan’s Amendment 105, but it was too popular and there was no room.

My noble friend the Minister will recognise the disproportionate difficulties which UK PEPs must endure as a result of the money laundering regulations 2017. On balance, I would have preferred to be excluded by virtue of being a UK citizen, but my noble friend has decided that exclusions will apply to domestic PEPs, which does not sound so nice, but will achieve the same outcome.

Unfortunately, it will take years for British citizens resident abroad who are connected to UK PEPs to be released from similar regulations in many different jurisdictions. For example, my son has found it impossible to be appointed as a bank account signatory in Taiwan and South Korea. However, my noble friend the Minister’s amendment should make the life of UK PEPs easier. I am interested to see whether, in a year’s time, the amendment proposed by my noble friend Lord Moylan will be the triumphant, most successful and best one of these. In any event, I am most grateful to her for taking up this point, as she said she would.

My Lords, we seem to be predominantly discussing personal experiences at the moment, so I declare an interest as the former chairman of the Jersey Financial Services Commission.

The definition of a politically exposed person in Amendment 96 refers to persons

“entrusted with prominent public functions by the United Kingdom”.

Presumably, that would not apply to the Crown dependencies, since they are not part of the United Kingdom. I think that this is a mistake; it should be corrected by the Government, given the important role many UK citizens play in the Crown dependencies and in the financial services industry in the Crown dependencies. Would the Minister agree to take this away and see whether the omission of the Crown dependencies is just an error that has been made in drafting this amendment.

My Lords I rise because this amendment allows me to do two things that I do not do very often. One is to thank the Minister because the amendments that she has brought forward are constructive, as others have described. The second is to say to the noble Lord, Lord Moylan: finally, a benefit from Brexit. One down, which pleases me, I have to say.

I want to ask the Minister if, in the course of the review, she will look at the industry that has mushroomed from the vetting of PEPs. I dealt with the American Express problem that others have described. I filled in my forms and still have my card—I am afraid that the BA miles win me over. I decided that I would open a savings account at Chase Bank as they were offering some good rates but discovered that I was caught up in this PEP process and the bank asked for a raft of information that, frankly, I should have never been asked for. The breaking point was a phone call asking me for payslips for my husband. On his death, I had inherited from him and therefore the bank wanted historical payslips. My husband died 17 years ago and I do not know how many people still have their payslips from 17 years ago, never mind those of a dead spouse.

To me, that was typical of the overstepping and exaggeration—gold-plating is almost an understatement —that has been going on in this process. It caused me to go on to the web and discover that there is a raft of consultants, advisers and legal entities that have become engaged in this process and taken straightforward guidelines from the FCA and blown them up into something extraordinary and complex. I am furious with the FCA because it does not enforce the guidelines; I hope the Minister will convey that and that the Government will become furious with the FCA for not enforcing its own guidelines. I hope that she will also encourage it to use the review to look at the vast industry that has burgeoned and makes its profits from making life an absolute misery for anybody it can catch in the system.

My Lords, I should like to add to this because I have had enough trouble with the PEPs issue for a long time. First, I thank the noble Lord, Lord Moylan, for explaining an important point about why I can get no information from Northern Trust on administering an investment trust in which my wife owned shares in Ireland. We had to get probity in Ireland, but the trust will still not release the money and will not say why. I am getting an absolute blind spot. Even Barclays, which wants money over here to pay off something does not seem to be getting any joy. I suspect that it is because the trust is not allowed to tell us that we are under investigation. That is wrong. If there is a problem, we could unlock it if the trust could just say, “We are trying to investigate this because we think we have to”.

I personally find it offensive that I am deemed to be a risk and a crook. I thought that in this country we were innocent until proven guilty. Actually, this is the other way around. Just because I happen to be a Member of the House of Lords, it is assumed that I am corrupt. This has caused a lot of problems for me and my family, but I am not going any further into detail. We have heard good stories from others, but I do not understand why we are PEPs. I have no access to government contracts and there is no reason to bribe me, sadly. I do not understand the logic behind that, and something should be done. The classification of PEPs should be looked at and revised because a lot of other people who are not PEPs are in places handling government contracts. As far as I know, they are not under permanent scrutiny, so I think you have got the wrong people and it is a nightmare.

My Lords, the noble Lord, Lord Eatwell, mentioned the Crown dependencies. I want to ask my noble friend on the Front Bench about the position of the British Overseas Territories.

My Lords, I accept that we are politically exposed people—of course we are—and we can be bribed, so it is right that there are rules around this. This topic has attracted a lot of interest throughout the passage of the Bill, along with a number of questions and debates. I completely understand why that is.

While the enhanced checks faced by politically exposed persons are often onerous, as we have heard—all power to the elbow of the noble Viscount, Lord Trenchard; well done to him for finding the names of two actual human beings to speak to at American Express, and I hope he gets his situation resolved—it is vital that this country maintains strong anti-money laundering regulations and acts in a manner consistent with international standards. Unfortunately, to an extent that involves us, but I think the Government’s amendments in this group do what is needed in making the distinction, as do many other jurisdictions, between domestic PEPs and those from other countries, which is consistent with the Financial Action Task Force guidelines.

We welcome the support for the amendments from the noble Lord, Lord Forsyth, and my noble friend Lady Hayter of Kentish Town, both of whom have raised this issue consistently for some time. Most of all, though, it is right that we thank the Minister for bringing the amendments forward. She has worked hard to try to resolve colleagues’ concerns on this issue, and we hope that those will be dealt with by the upcoming changes to the regulations and the accompanying guidance.

My Lords, I reiterate what the noble Baroness, Lady Chapman, has just said: our approach in this area has always been guided by ensuring that the rules in place in the UK maintain the international standards that are set in this area. That has been the guiding principle in looking at resolving this issue. Nevertheless, we felt that it was right that action be taken. Examples such as that from the noble Baroness, Lady Kramer, demonstrate clearly that the approach taken by institutions is not always proportionate, and we need to address that.

I have heard from noble Lords, including my noble friends Lord Forsyth and Lord Moylan, questions about the timescale for the two pieces of work that are committed to in the amendments. I understand that feeling, but we have engaged closely with the FCA on the review that it is committed to undertaking through the government amendment, and it is clear that if there is to be a thorough assessment of the treatment of domestic PEPs at a systemic level—we have already raised individual issues or individual institutions in response to previous debates—then it must be given adequate time to be conducted.

The 12-month timeframe will allow the review to benefit from fuller engagement with industry and with affected PEPs, and it will ensure that the FCA is able to develop a full understanding of the scale and extent of this issue. I think it gives the FCA time to address issues such as those raised by the noble Baroness, Lady Kramer. Included in that timeframe is the fact that, if it deems it necessary to update its guidance, it will produce the draft within that timeframe.

The Government have 12 months to amend the money laundering regulations. As I said, the distinction between domestic and foreign PEPs does not currently exist in law, and we want to make sure that we get the drafting right to ensure that it achieves the intended outcomes without unintended consequences. That will require us to consult with industry to ensure that the language in the amendment has the desired outcome of altering firms’ behaviour in how they treat low-risk domestic PEPs. These points relate to the questions posed by the noble Lord, Lord Sharkey, because this definition will come in part through the amendment of the regulations but in part from looking at the FCA’s guidance, and what needs to be set out more fully there when it has done its review.

Acknowledging the interest from parliamentarians—perhaps we should all have declared our interest as we stood up to speak, in respect of PEPs—we have committed to updates on progress both from the FCA and the Government in delivering on these amendments.

My noble friend Lord Moylan and the noble Earl, Lord Erroll, raised the interaction with tipping-off requirements and communication to customers. We have asked the FCA to consider this as part of its review. The noble Baroness, Lady Hayter, and others, mentioned the impact on family members. Again, we have asked the FCA to consider this in its review.

My noble friend Lord Moylan also asked if we need to wait for 12 months for action. The FCA remains committed to taking action where it identifies non-compliance with its current guidance on PEPs and will do so throughout the course of the review. I encourage noble Lords to use the contacts provided in my letter on this issue in November, if they encounter difficulties while the Government amendments are being implemented. I am sure that those in the FCA responsible for this area will look at this debate carefully.

The noble Lord, Lord Eatwell, raised a question on Crown dependencies, and my noble friend Lord Naseby asked about overseas territories. I will write to noble Lords on that. If it is right or appropriate that this should extend that far, there is nothing in the amendments to prevent the Government doing that, but I would want to double-check the right interaction and the right locus for addressing those concerns. With that, I beg to move.

Amendment 96 agreed.

Amendment 97

Moved by

97: After Clause 71, insert the following new Clause—

“Politically exposed persons: review of guidance

(1) The FCA must review its guidance on politically exposed persons (“PEPs”) given under section 139A of FSMA 2000 and in compliance with the requirements under regulation 48 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692)(“the 2017 Regulations”).(2) The review required under subsection (1) must include—(a) an assessment of the extent to which the guidance is followed by those persons to whom it is given under regulation 48 of the 2017 Regulations, and(b) in the light of that assessment, consideration as to whether the guidance remains appropriate or whether it should be revised.(3) The FCA must—(a) before the end of 3 months beginning with the day on which this section comes into force, publish an update on the FCA’s plan for the review required under subsection (1), and(b) before the end of 12 months beginning with the day on which this section comes into force—(i) publish the conclusions of the review, and(ii) where the FCA concludes that the guidance should be revised, publish draft revised guidance for consultation.(4) Publication as required by subsection (3) must be in the way appearing to the FCA to be best calculated to bring the publication to the attention of persons likely to be affected by it.(5) The FCA is not required under this section to publish any information whose publication would be against the public interest.(6) In this section—(a) “domestic PEP” means a politically exposed person entrusted with prominent public functions by the United Kingdom;(b) the following terms have the same meaning as in regulation 35(12) of the 2017 Regulations—“politically exposed person” or “PEP”;“family member”;“known close associate”.”Member’s explanatory statement

This new Clause would impose a duty on the FCA to review the guidance that the FCA produced in 2017 on the banks’ treatment of politically exposed persons, and publish draft guidance alongside the review, if the FCA concludes that the guidance should be revised.

Amendment 97 agreed.

Amendment 98

Moved by

98: After Clause 71, insert the following new Clause—

“Withdrawal of banking services

(1) When a provider of banking services in the United Kingdom decides to cease to provide banking services to an existing customer, or decides not to offer banking services to a specific prospective customer, because of one or more of the reasons specified in subsection (2), the bank is required to inform the FCA about that decision within the period of 4 weeks after the decision is taken. (2) The specified reasons are—(a) there is a reasonable suspicion that the customer is, or has, engaged in money laundering;(b) there is a record or specific instance of the customer not complying with requirements under money laundering regulations in a significant and easily-avoidable manner;(c) the provider cannot accept the regulatory risk of providing banking services to the customer despite the reasons set out in paragraphs (a) and (b) not applying;(d) ethical reasons;(e) the customer is in the defence industry.(3) The FCA must maintain a record of decisions notified to it under subsection (1).”

My Lords, I will also speak to my Amendments 99 and 100. In Committee, I moved an amendment similar to Amendment 99. I will not weary the House with the arguments I made in Committee in detail. Suffice it to say that, in the new year, I became aware of a small business that was exporting armoured fighting vehicles to Ukraine under export licences granted by His Majesty’s Government’s Export Control Joint Unit. I will call the businessman in question “Peter” for reasons of security.

Peter’s major high street bank has withdrawn provision of banking facilities and will give Peter no reason—exactly the problem discussed in the previous group. In these circumstances, I understand that the banks will generally stonewall a Member of another place. However, the bank in question was very helpful to me, and explained that the problem was the money laundering regulations and the attendant unacceptable regulatory risk. I tried as hard as possible to resolve this problem discreetly and behind the scenes. The bank indicated that it could continue to provide financial services if it received a suitable letter from a Treasury Minister. Sadly, Ministers would not provide one. I am grateful to the Minister for meeting with me many weeks ago, but she was unable to change her position, which is why I moved a suitable amendment in Committee.

All export licences for lethal military equipment are very carefully considered. In Committee, the Minister correctly made the point that the export licensing machinery tests whether or not the equipment should be exported, while the money laundering regulations are a different test to check for, and counter, illicit finance. The reason I drew the export licence point to the attention of the Committee was that it proves that it is within the defence and security policy of His Majesty’s Government for these vehicles to be exported to Ukraine. If it was thought undesirable, or even just unhelpful, a licence would not be granted. I therefore contend that the money laundering regulations are thwarting the intent of His Majesty’s Government.

Unfortunately, rather than becoming aware of a little problem that I could resolve by the close of play at the end of the first week, I found I was just touching the tip of an iceberg. I found that it was not just Peter being adversely affected. For instance, I quickly found that a man dealing in helicopters all around the world, and outside of the OECD, was having his bank accounts closed, presumably because of the money laundering regulations, although of course we cannot tell. He is a member of the respectable ADS trade association and deals with both Governments and commercial concerns. I can understand why the banks would act as they have done: it is simply not worth the regulatory risk for the sake of a few large currency transactions that do not actually generate much income.

In Committee, the Minister did not believe that there was a systemic problem but indicated that, if there was, the Government would act. I drew this to the attention of ADS, the aviation and defence trade association. It asked its members to contact me if they were experiencing similar problems. While the numbers who came back to me were not large, the problems were very serious indeed. Not only do we have the problem of money laundering regulations but the ESG agenda means that banks are reluctant to deal with defence businesses, particularly ones that make things that go bang. This includes businesses supplying the MoD, according to ADS.

SME defence firms are in a difficulty because they have to be very discreet for reasons of security and to avoid further difficulties. I talked to one firm which said that it had lost its premises because of the nature of its business and had had to find alternative premises. Your Lordships could be forgiven for wondering why affected defence suppliers do not simply call for the great clunking fist of the MoD. The difficulty here is that a junior procurement official will simply assume that the bank is being difficult because of financial problems at the SME and will therefore cancel the contract. For the SME, it is better to keep quiet than ask for help from the MoD.

I am pleased to say that, earlier this afternoon, I had a meeting with my noble friend Lady Goldie, your Lordships’ Defence Minister. I think she now understands that there might be a much wider problem than just those of Peter. We will have to see what transpires, but I will be helping her and her officials as much as I can. I am absolutely convinced that we have a systemic problem, which is why I have brought this matter back to the House for consideration on Report. My noble friend the Minister could solve Peter’s problem today by writing to the bank directing it to ignore the money laundering regulations in certain specific ways, but I know that she will not and probably cannot.

Turning to my amendments, I contend that my noble friend the Minister does not have the foggiest clue what is going on with banks terminating accounts, simply because the FCA does not either. The FCA will claim to Ministers that it is doing a great job in countering money laundering, and it may or may not be, but forgive them for they know not what they do. As far as I am aware, there is no data, so nobody knows what is going on. If the House agreed to my Amendment 98, data would be collected and Ministers would soon have a clear picture because the banks would have to inform the FCA when they restrict the provision of banking services. Unfortunately, I did not include PEPs as one of the categories in my amendment.

My Amendment 99 seeks to protect respectable and bona fide aerospace and defence companies from being caught up in money laundering regulation problems. It does this by requiring the Treasury to amend the money laundering regulations so that banks are not prevented from providing financial services. However, for a business to benefit from this protection, it would have to be a member of a designated trade association and have satisfied the Secretary of State that it is beyond reproach.

My Amendment 100 is designed to help the Peters of this world. It works in the same way as Amendment 99 but is specific to the export of military equipment to Ukraine under export licence. It is of course unnecessary, because my noble friend the Minister could simply write a letter to the relevant bank.

I have not made a long and impassioned speech about Ukrainian soldiers unnecessarily running around the battlefield in soft-skin vehicles. Nevertheless, these are exceptionally important defence and security matters. If the Minister does nothing about it, they will surely bite her or some other Minister, hard, at some point in the future. My question for the Minister is this: is it the settled policy of His Majesty’s Government that the complete integrity of the money laundering regulations is more important than facilitating the supply of armoured fighting vehicles to Ukraine? I beg to move.

My Lords, I declare an additional interest as stated in the register as a provider of geostrategic advice to Safe Security (SSL) Ltd. I will not repeat the arguments so well put by my noble friend Lord Attlee, who has given much voluntary military service over the years. I have added my name to my noble friend’s Amendment 98, but I also support both Amendments 99 and 100.

The Export Control Organisation at the former Department for International Trade grants export licences for controlled goods for military purposes. Its online export licensing system is called SPIRE. The organisation’s website states:

“We advise that you register your company on SPIRE, benefits include: More Control … Time Saving”.

I understand that it takes much time to obtain a SPIRE licence, but I am not convinced that it saves any time in carrying out this control business. It is of course right that companies wishing to receive licences to conduct this kind of business should be properly vetted and undergo the most stringent checks. However, once they have done that and been granted SPIRE accounts, why do they then find that the money laundering regulations prevent banks opening accounts in order to execute this kind of business under any circumstances?

In Committee, my noble friend the Minister acknowledged that

“the government process for the granting of export control licences focuses on the end use of goods rather than the source of funds paying for them”.

She told the Committee that the Treasury has

“engaged with the Export Control Joint Unit, the Financial Conduct Authority and other partners on this issue”.

She said that she was

“not aware of a systemic issue”,—[Official Report, 21/3/23; col. GC 297.]

but would “act to address it” if the Government identified one. I rather think there is a systemic issue here, because banks run a mile when anyone, particularly an SME, tries to open a bank account to do this kind of business. Banks are not aware of the SPIRE system and give absolutely no recognition to any licence granted under it to a prospective customer. The result of this, at least in some cases, is that the business is being carried out in other jurisdictions, such as Finland, that do not apply these regulations in such a stringent manner. This obviously deprives the Exchequer of corporation tax revenues and results in the official statistics understating the extent of British support for Ukraine.

This does not apply only to military equipment but includes the provision of vehicles to be used as field ambulances. I want to ask the same question of my noble friend the Minister as that asked by my noble friend Lord Attlee: do the Government think that absolute observation of the money laundering regulations is more important than permitting those who are licensed to do this business to do so?

My Lords, we should thank the noble Earl, Lord Attlee, for raising a set of significant issues. I have no specialist knowledge in this area, but I am very well aware that SMEs generally are disadvantaged under our current framework arrangements. As the Minister will know, individuals and micro businesses—usually a small sole trader or somebody of that ilk—fall within the FCA’s regulatory perimeter, but the SMEs that have just been described fall outside of it.

Therefore, where there are gaps or where their treatment is completely inappropriate, they have nowhere to turn. In those circumstances, they face significant disadvantage compared to their competitors across the globe. So I hope the Minister will understand that this is a reflection—I think “tip of an iceberg” was the correct term—of something that is quite systemic in many different ways, and an area where the Treasury, and the regulators, need to focus attention.

My Lords, as I set out previously in Grand Committee, I commend my noble friend Lord Attlee for his strong role in supporting Ukraine and bringing the value of his expertise in support of efforts to provide Ukraine with vital supplies. I understand that my noble friend wishes to ensure that the money laundering regulations do not hamper the private export of armoured vehicles or military vehicles to Ukraine. However, this cannot come at the expense of weakening the regulations in a way that would allow them to be circumvented by those wishing to launder money or finance terrorism.

The Government are committed to providing economic, humanitarian and military support to Ukraine. That is why the UK is proud to have pledged £6.5 billion in support of Ukraine, including £1 billion of World Bank guarantees to go towards closing Ukraine’s 2023 financing gap and £2.3 billion in military support for 2023. In 2022, 195 standard individual export licences and three open individual export licences were granted for the export of military items to Ukraine.

I recognise that my noble friend has concerns about a wider issue relating to provision of banking services to those involved in the defence industry and the refusal or withdrawal of services for other reasons connected with money laundering or ethical concerns. As I said in Committee, I am not aware that banks are taking a blanket approach to such customers. I am grateful to my noble friend for setting out some further specific cases today and I am glad that he had the opportunity to meet my noble friend the Defence Minister. The Treasury would be happy to look further into these cases with my noble friend and the Ministry of Defence. Equally, if the defence industry has wider concerns, I would encourage it to bring them to the attention of the Government and the regulators.

My noble friend made a comment on the Government’s ESG policy and its impact on defence companies. Our ESG policy is focused on delivering the net-zero commitment and there is nothing in that policy framework that prohibits or otherwise disadvantages defence companies and the war in Ukraine—

I am sorry to interrupt the Minister, but it was not the Government’s ESG policy that had caused me a problem but the banks’ ESG policies.

I understand the point that my noble friend makes, but I think that is rather a matter for the banks. Nevertheless, as I have said to my noble friend, if there are wider or more systemic issues in this area, I would encourage him to draw this to the attention of the Government and the regulators. The Government are clear that investment in the defence sector remains important.

My noble friend suggested again that I or another Treasury Minister write to the bank which withdrew services from his associate telling it to relax steps to be taken to comply with MLRs. However, it would be extraordinary and inappropriate to override the MLRs in this way. Further, banks would still be under obligations in relation to the Proceeds of Crime Act which relate to dealing with such money.

I thank my noble friend for raising this issue. I am glad that he has met the Ministry of Defence on it. If there are wider issues that he would like to highlight to the Government, the Treasury is committed to working with the MoD to look at them. None the less, I hope my noble friend does not press his amendments at this time.

My Lords, I am grateful for the response of my noble friend the Minister. I detect a little bit of movement, but I am not surprised at her response. Of course, I am very happy to withdraw my amendment.

Amendment 98 withdrawn.

Amendments 99 to 101 not moved.

Amendment 102

Moved by

102: After Clause 71, insert the following new Clause—

“Performance bonds for small or medium-sized enterprises

(1) Within six months of the passing of this Act, the Secretary of State must lay before each House of Parliament a report on the availability of performance bonds to small and medium-sized enterprises from the financial markets to cover stage payments in capital projects.(2) The report must, among other things, cover collateral requirements.”

My Lords, during my research into the money laundering problems identified in the previous group, I identified another problem for SMEs: the availability of performance bonds from the financial markets to cover stage payments in capital projects. I do not need to explain to your Lordships what stage payments are or how bonds work, and it is certainly something that I do not have any expertise in. The difficulties are that the banks require so much collateral that the system is intractable. It is not a problem for large firms with correspondingly large balance sheets; this problem affects only SMEs and tends to keep them small. I talked to a manufacturer of hovercraft, and if all their current enquiries came to fruition, they would simply not be able to secure the necessary bonds to finance the work. I beg to move.

My Lords, this is an issue that I have raised in the House before, having run into the same set of issues—I suspect with some of the same companies down in the West Country involved particularly in large-scale exports which require performance bonds to be able to meet their contractual obligations. In these instances, performance bonds were denied by the banks unless the collateral included the homes and personal possessions of the directors and senior managers of the company. This was despite the fact that the firms had long-standing records of being able to deliver on the projects they engaged in and indeed the customers at the far end had reputations, again, of being excellent payers.

It is a real weakness in the system that we have no one who deals with market gaps, particularly when it applies to SMEs. I attribute part of this to the regulatory perimeter, but regardless of where the fault lies, there needs to be a remedy if we are to build a future economy which will be based very largely on SMEs and, hopefully, very significantly on exports.

My Lords, the Government recognise the importance of ensuring that SMEs are able to access appropriate financial products, including performance bonds, and of ensuring the availability of useful information on such products. As noble Lords are aware, performance bonds are a type of financing product that provides a financial guarantee to one party in a contract in the event of the failure of the other party to fulfil its obligations.

More broadly, SMEs already benefit from a diverse financial market, made up of high-street banks, smaller banks and a range of non-banks, to ensure they can continue to access suitable finance. The Government support SMEs’ access to finance through a variety of debt and equity finance programmes through the British Business Bank. These programmes were supporting more than £12 billion of finance to more than 94,000 smaller businesses as of June 2022.

The British Business Bank also produces several reports on access to finance on an annual basis, including the Small Business Finance Markets report, providing expert and independent assessment of the availability and options within the wider funding landscape for SMEs. Fundamentally, the commercial terms that banks and insurers offer, including the collateral they require for performance bonds, are a matter for the firms, subject to meeting the relevant regulatory requirements.

The Government remain committed to maintaining the highest international standards of regulation, and the Financial Services Act 2021 granted the PRA the powers to implement the latest international standards, known as Basel III.1. These include revised capital requirements for performance bonds for banks. The PRA recently consulted on its proposals and specifically requested comments and data from firms and wider stakeholders on its proposals for capital requirements for products such as performance bonds, and it will be considering feedback provided by respondents in formulating its final proposals. For insurers providing performance bonds, the Government are reforming one of the capital requirements, the risk margin, removing a barrier to lower product pricing.

As noble Lords are aware, under the provisions in the Bill, our independent regulators will take on new responsibilities. This means that the PRA will take on responsibility for setting the relevant regulatory requirements that are currently set through retained EU law, acting within the framework set by the Government and Parliament.

As we have discussed a number of times in relation to the Bill, when making rules designed to ensure the safety and soundness of financial services firms it is also important to consider how those firms can support the wider UK economy. That is why the Government have introduced the new secondary growth and competitiveness objectives, which will require the regulators to act to facilitate the competitiveness of the UK economy and its growth in the medium to long term. The PRA’s current consultation has been undertaken before the provisions in the Bill will come into effect. However, the Financial Services Act 2021 requires the PRA to “have regard” to the Government’s economic policy, including investment in SMEs and infrastructure, as well as the effect of its requirements on the UK’s international standing and the provision of finance to businesses and consumers in the United Kingdom on a sustainable basis.

Measures in the Bill also allow for parliamentary scrutiny of the regulators’ performance, including how they have advanced their new secondary competitiveness and growth objective. In addition, the Bill requires the regulators to produce statements of policy on how they will review their rules. Recent government amendments will require these statements to include information on how stakeholders can make representations to review rules, and on the arrangements for ensuring that these representations are considered.

In conclusion, the Government are committed to ensuring that SMEs have access to suitable financial products which are subject to suitable prudential safeguards to appropriately manage any risks. This is particularly important to ensure that UK SMEs are accessing finance to support their goals and contribute to the UK’s growth agenda. I therefore ask my noble friend to withdraw his amendment.

My Lords, I am particularly grateful to the noble Baroness, Lady Kramer, for her intervention, which showed how much more she knows about finance than I do. She did a great job. I am not convinced that industry will be cracking open the champagne after listening to my noble friend’s response to my amendment; nevertheless, I am grateful for it. In the meantime, I beg leave to withdraw my amendment.

Amendment 102 withdrawn.

Amendment 103

Moved by

103: After Clause 71, insert the following new Clause—

“Bank of England digital currency: legislation

The Bank of England may not issue digital currency unless authority to do so is granted by an Act of Parliament which is passed after this Act.”

My Lords, I will speak to Amendment 103 in my name. It is supported by my noble friend Lord Bridges of Headley, who is currently chairing the Economic Affairs Committee, where the Governor of the Bank of England is before the committee. I hope he is giving him a good roasting on the issue of central bank digital currencies, which is the subject of this amendment.

I shall not bore the House by explaining what central bank digital currencies are and why they represent a threat as well as an opportunity, because all that was well set out in the Economic Affairs Committee’s report Central Bank Digital Currencies: A Solution in Search of a Problem? which was published in January 2022. The report was debated in the House in February this year. In the report’s recommendations was a simple suggestion that the Government give a clear indication that, should they decide to go forward with introducing a digital currency, it would be subject to primary legislation. To the astonishment of the committee, the Government have consistently refused to do so. They are arguing that they have not yet decided whether they think a central bank digital currency would be appropriate.

More recently, the Chancellor wrote a letter addressed to the chairman of the Treasury Select Committee and my noble friend Lord Bridges, addressing him as “Dear James” rather than “Dear George”. Ah—my noble friend is now in his place, so I do not need to elaborate too much. My noble friend Lord Bridges has been a vigorous champion of the need to have parliamentary accountability concerning this matter.

A main theme in Committee and throughout consideration of the Bill has been accountability. I have on several occasions now paid tribute to the Minister for responding to that. There are real issues about having a central bank digital currency. The first point is it is not a currency; it is simply a means of having digital banknotes. However, the fact that people are able to have an account in which their money is in digital form through a clearing bank with the central bank has huge implications for financial stability, depending on how much can be held in a digital account. The ability to move money from a conventional bank account to a digital wallet instantly would mean people would be able to react to financial events almost instantaneously. The fact that people could move their money to a central bank digital wallet would mean there would be less money—I should declare my interest as chairman of Secure Trust Bank—available to be lent, which would have huge implications for credit and, if taken to the extreme, would amount to the nationalisation of credit in our country, although no one is suggesting that.

There are also huge implications for privacy. If a digital currency is to operate effectively and not be prey to crooks and organised crime, it is essential that it is organised in a way that will monitor people’s transactions, and that, plus the ability to limit transactions, has big implications for civil liberties. For the first time in my life, I have had left-wing libertarian organisations writing to me saying how much they appreciate what I have been saying on this subject.

I will not take up the time of the House—and by the way, this Report stage is the very model of how Report on a Bill should be conducted. I will simply say to my noble friend that the notion that the Treasury and the Bank of England could get together and introduce a central bank digital currency without having proper parliamentary scrutiny and debate about these issues is utterly ridiculous in my view and I do not understand why the Government have been resisting doing so.

As an aside, as far as the Bank of England is concerned, another report which the committee produced was Quantitative Easing: A Dangerous Addiction?, which predicted the inflation we are now experiencing. The Governor of the Bank responded at the time by saying that we should not have used the word “addiction” as it might offend people who had real illnesses. Our report said that there was a real danger that continuing with quantitative easing on that scale would result in inflation. He said in response that inflation—at the time at less than 3%, I think—was a transient phenomenon.

The Bank has been able to increase its balance sheet from about £90 billion to 10 times as much—short of a trillion. It has done so because of its independence. Therefore, it seems to me that it is very important that we have parliamentary accountability. You can have independence but you can also have accountability. This area is very dangerous and I feel it is one of these fashionable issues about which people say, “Other central banks are doing it, perhaps we should be doing it too. We don’t want to be left behind—it is essential that Parliament does it”.

In moving this amendment, I say to my noble friend that I would be satisfied by an absolute undertaking—although I would prefer it in the Bill because it would then apply to all Governments, and I would want to hear it from the Opposition Front Bench as well—that the Government would not consider introducing a central bank digital currency in this country without having primary legislation and the opportunity for both Houses to consider it, and all the implications, and consider how it is going to be constructed.

Where I sympathise with the Government it is that they have an argument in saying that they do not know how it is going to be constructed, if at all. I understand that, but it is not a reason to not give an undertaking that a matter of this kind has to be properly considered by Parliament, and that the public need to understand what the implications are for them and their privacy, and for the stability of our economy. I beg to move.

My Lords, I will speak very briefly and I apologise for being late.

The Governor of the Bank of England was just in front of the Economic Affairs Committee and our final question was on CBDCs. He gave an answer that I thought was lukewarm at best in his support for them, which was very interesting in and of itself. Before going any further, I remind the House of my interest as an adviser to Banco Santander.

The last time I debated a CBDC, I think there were five of us in the Chamber. Just as I was summing up my speech, suddenly the Chamber filled up, and I thought: “My God! Everyone is suddenly interested in my thoughts on CBDCs”. Only then did I realise that there was just about to be a debate on Brexit for the 231st time, and my views on CBDCs were completely and utterly irrelevant.

As my noble friend has just so eloquently summarised, this is an issue that we really need to focus on a lot more in Parliament as a whole. You may be a fan of CBDCs—here I am looking at my friend the noble Baroness, Lady Kramer, who I think is more persuaded by the merits of them and may see them as the best thing since sliced bread, or perhaps in this case one should say decimalisation—or, like me and my noble friend Lord Forsyth, you may be of a more conservative disposition and need to be convinced of the need for change. Whichever view you have, as my noble friend has just said, it is imperative that Parliament has the chance to debate, scrutinise and vote on primary legislation before a CBDC is introduced.

My noble friend has summarised many of the most important points, including privacy, financial stability and the impact of bank disintermediation. There is also the entire issue of how a CBDC might affect the operational independence of the bank, as my noble friend pointed out. One estimate is that a CBDC could—I stress “could”—increase its balance sheet by £400 billion, and it would obviously give the bank entirely new tools in monetary policy.

Then there is the entire issue of cost. I have to say that the words “IT infrastructure project” are possibly the most expensive three words that you can put together. I am very concerned about how much this will cost. No one seems to be able to say how much it will cost or who will pay.

Then there are issues of cybersecurity. The Bank states that new infrastructure needed to support a digital pound would make

“an attractive target for hackers and fraudsters who wish to steal funds”


“may become a target for hostile attacks with the aim of disrupting the system and, potentially, the wider economy”.

According to GCHQ, while a digital currency presents “a great opportunity”, it goes on to say:

“If wrongly implemented, it gives a hostile state the ability to surveil transactions”.

Those are just some of the enormous issues that a CBDC raises, and why we must have primary legislation to be able to scrutinise and vote on all this. I am very grateful to my noble friend the Minister, her colleague the City Minister, Mr Griffith, and the Chancellor for focusing on this.

I should actually say that the Chancellor may be forgiven: I am christened James George, so he might have just been signing this late at night, even though I have known him for 20 years. I will put that to one side. I got a very nice letter from the Chancellor, as did Harriett Baldwin. The problem is that, although it is signed by Jeremy Hunt, I feel that it is almost signed by Lewis Carroll because it gives you the feeling that it comes from Alice in Wonderland at a certain point.

If I may, I will detain your Lordships by reading two paragraphs:

“The Government and the Bank of England are at an early stage of policy development and have not made a decision on whether or not to introduce the digital pound”—

that we all know. It goes on:

“As a result, we do not yet know whether a digital pound will require primary legislation”.

When you read that back a few times, it begs a question, and I would be grateful if my noble friend the Minister, when she sums up, could answer it. Could a digital pound be introduced without primary legislation? This seems to suggest that potentially you could have one and it would not require primary legislation.

Be that as it may, the letter then goes on to say:

“However, in recognition of the potential significance of a digital pound, and the views of Parliamentarians, the Government commits to introducing primary legislation before launching a digital pound”.

So even though one might not need primary legislation, the Government are committing that there would be primary legislation.

Obviously, that is a great step forward. My problem is that it is still is not watertight. Much as I would like to say that my noble friend, Mr Griffith and the Chancellor are going to be there for years to come, I somehow do not know whether that is going to be the case. That is why I very much echo what my noble friend has said, and would like the Minister to go as far as possible in saying why it is not the case that they are not willing to put this into primary legislation. Moreover, I would be very interested to know the view of the Labour Party and the Liberal Democrats on this, and whether they too would say that they will commit not to introduce a CBDC without primary legislation.

I end by echoing my noble friend. The introduction of a digital pound—a “Britcoin”, as you might call it —would be an enormous undertaking. We cannot and we must not leave it to be passed by statutory instrument one wet Wednesday afternoon in the Moses Room. That would be an absolute disaster. It needs to be debated on the Floors of both Houses and voted on.

My Lords, I too apologise to the House for being late.

I have added my name to my noble friend’s amendment. I urge my noble friend the Minister and the House to think very carefully about what possible advantages there could be relative to the disadvantages of having a central bank digital currency. We have seen so many people lose so much money, and so many money launderers, thieves and so on make so much money from digital currencies. This may be one of the biggest scams of the century.

It is very difficult to see why we need digital currencies at all. The risks for money laundering and economic crime, the lack of transparency and security for anyone putting money in, and the opportunity that this would offer to rogue states and actors to try to undermine our entire financial system require significant warning. The possibility that this could be introduced without primary legislation seems to me to be unconscionable and a dereliction of our duty to make sure that we are looking after the currency of this country.

My Lords, I had the privilege of serving on the Economic Affairs Committee, with the noble Lord, Lord Forsyth, as chair, when it produced the report. Your Lordships will gather that my views on whether we adopt a digital currency are distinctive somewhat from others who have spoken today. It is not that I am some enthusiast for it; I recognise all the issues and disadvantages that have been named today, particularly financial stability and privacy. However, 18 countries will be adopting a central bank digital currency this year—including China, initially for its domestic market. It has been piloting it in 12 cities, but eventually it will become an offering that it takes to the many other countries where it expects to exercise influence, in both Asia and Africa.

I am afraid that we are facing potentially a King Canute situation: we may not particularly want such a currency but might simply have to accept that to remain in the forefront and in play within financial services and as a major exporter and participant in global trade, we may have no choice but to go down this route. But I absolutely share with every other speaker the view that this should be determined by Parliament in primary legislation. The issues are sufficiently fundamental and far-reaching. They carry risk, and they require judgment and perspective—and it is in debates in the other place and here that that can happen.

It seems to me that something so fundamental as currency surely is the responsibility of a democratic Parliament. It cannot be transferred, in effect, to either the Treasury to run through an SI, or to the regulators to not even bother with an SI but largely to put it in place through various regulatory changes. So, here we have absolute common ground; this should be on the face of the Bill. I am concerned that this may be the last piece of legislation coming forward where we have the opportunity to put it in the Bill. There might be a further opportunity in a year’s time, but it depends on the speed of change that we experience.

Guarantees from the Government would be good. I am glad that a letter has been written to Harriett Baldwin and the noble Lord, Lord Bridges, but we need something that recognises the significance and importance of doing this through primary legislation.

My Lords, we welcome the amendment in the name of the noble Lord, Lord Forsyth, which has enabled this short and informative debate on the process for establishing a central bank digital currency. As technology develops and people’s habits change, it is vital that we keep pace. Therefore, the principle of a digital pound has much to commend it, although the arguments, implications and details clearly need to be properly worked through. The introduction of a digital pound would represent a significant step, and it is therefore right for the noble Lords, Lord Forsyth and Lord Bridges, to ask about the underlying processes, though it is a novel experience for the two noble Lords to be asking for commitments from this side of the House.

We very much welcome the clarification offered by the Chancellor in his letter to the noble Lord, Lord Bridges, and the Economic Affairs Committee that there would be primary legislation before a digital pound could be launched. We agree that this is an important safeguard.

My Lords, I thank my noble friends Lord Forsyth and Lord Bridges for their leadership in the House on this important topic. I do not intend to relitigate the debates around the question of a central bank digital currency; I was one of the five or so noble Lords who debated the Economic Affairs Committee report in February, and I enjoyed it very much.

As we set out then and in Grand Committee, the Government have not yet made a decision on whether the digital pound should be introduced, and that remains the case. But we also take the view that a digital pound may be needed in the future, so further preparatory work is justified. Therefore, the Treasury and the Bank of England issued a joint consultation on a potential digital pound on 7 February. As that consultation paper makes clear, the legal basis for a digital pound will be determined alongside the consideration of its design.

To answer the question from my noble friend Lord Bridges, we do not yet know whether primary legislation would be needed to make it work. To answer the subsequent question, and in response to the EAC’s report and others, my honourable friend the Economic Secretary and I raised the matter with the Chancellor, and he has made a clear commitment to Parliament. I draw noble Lords’ attention to the Chancellor’s letter to the chairs of the Economic Affairs Committee and the Treasury Committee, which informed us that my noble friend’s given first name is indeed John and not George—although I have always known him as George. In that letter, dated 23 May, the Government commit to introducing primary legislation before launching a digital pound. A copy of the letter has been placed in the Library and has also been published by both committees. That commitment to having primary legislation before introducing a digital pound is straightforward and unequivocal.

Another question was asked by my noble friend Lord Bridges and the noble Baroness, Lady Kramer, on why the commitment is not in the Bill. There could be unintended consequences, such as inadvertently preventing the Bank carrying out its existing day-to-day duties. For example, the term “digital currency” is not defined in the clause or elsewhere. However, in practice, the Bank already issues some forms of digital money other than cash which could be considered digital currency without further definitional clarity—for example, in the form of reserves it issues to financial institutions, which are used in wholesale settlement. I reassure all noble Lords that, while we cannot support the amendment placing the commitment in the Bill, it does not change in any way the Government’s commitment, made very publicly to both Houses, to the intention to introduce primary legislation should a decision be taken to go forward with the digital plan.

My noble friend has made valid arguments for not putting the amendment, as drafted, in the Bill. However, she and her very clever officials could get around this by tabling an amendment at Third Reading to that effect.

I am afraid that I am not in a position to commit to my noble friend’s suggestion. I hope that the reassurance he has heard from all Front-Benchers on this issue will persuade him not to press his amendment at this time.

My Lords, once again, my noble friend has gone beyond what we might expect in responding to the debate, so it is a pleasure to beg leave to withdraw my amendment.

Amendment 103 withdrawn.

Amendment 104

Moved by

104: After Clause 71, insert the following new Clause—

“Defined contribution and defined benefit pension funds investment review

(1) The Treasury must publish a review of how to incentivise defined contribution (DC) and defined benefit (DB) pension funds to invest in high-growth firms and a diverse range of long-term assets in the United Kingdom, which must include green infrastructure.(2) The review must consider how best to do this while protecting the safeness and soundness of pension funds.(3) In carrying out the review, the Treasury must consult—(a) the Department for Work and Pensions,(b) the Department for Business and Trade,(c) the Pensions Regulator,(d) the FCA,(e) the PRA,(f) the Pension Protection Fund,(g) pension trustees, and(h) relevant financial services stakeholders.(4) The review must consider the merits of—(a) amending the definition of “specified scheme” within the meaning of the Occupational Pension Schemes (Scheme Administration) Regulations 1996 (S.I. 1996/1715) so as to increase the threshold of such DC schemes in respect of which trustees and managers are required to produce a value for members assessment under regulation 25 of those Regulations;(b) adjusting the terms of reference for DB Local Government Pension Schemes (LGPS) funds to consider regional development as an investment factor;(c) establishing frameworks to enable DB pension funds to invest in firms and infrastructure alongside the British Business Bank.(5) The Treasury must prepare a report on the outcome of the review, and lay it before Parliament within one year of the passing of this Act.”Member’s explanatory statement

This amendment would compel the Treasury to publish a review within a year of Royal Assent on how to incentivise pension fund schemes to invest in high-growth firms and green infrastructure. The review would have to consider requiring DC schemes to assess the merits of: consolidation, establishing frameworks for British Business Bank investments (so that DB pension schemes will be able to invest alongside them), and adjusting the terms of reference for Local Government Pension Schemes (so they consider regional development as an investment factor).

My Lords, we are pleased to bring back Amendment 104. I am grateful to the noble Baronesses, Lady Bowles of Berkhamsted and Lady Altmann, for signing the amendment.

Since Committee, and following the suggestion from the noble Lady Bowles, we have incorporated an additional consultee in the form of the Pension Protection Fund. If we are looking at different and better ways to utilise pension funds, it is only right that that body be formally involved in the process. It is important to note that the amendment would not directly lead to changes in how defined contribution and defined benefit pension funds are invested; it merely seeks consideration via a formal review of a number of potential ways forward.

I draw colleagues’ attention to subsection (2) of the proposed new clause in the amendment, which puts

“the safeness and soundness of pension funds”

front and centre. While no investment fund is risk-free, this is about identifying how funds could be used to support high-growth firms and long-term assets, including green infrastructure.

In 2019, the British Business Bank and Oliver Wyman published research which found that the UK’s defined contribution firms are not investing in fast-growing and innovating companies. It is a problem because the UK is home to incredible tech start-ups and life science companies. They are Great British success stories, but their growth potential is sometimes limited by a lack of access to finance. The research found that retirement savings could be increased by a significant amount with just a modest investment in these firms. For example, a 22 year-old whose defined contribution scheme made 5% of investments in the UK’s fastest-growing companies could see an increase in their retirement pot of 7% to 12%.

Having amended the Bill to include a nature target, we must also consider how pension funds can do their bit to help the environment. This review would look at investments to the types of green infrastructure which will fuel our future economic growth and help deliver the transition to a net-zero economy. The Government recently included nature-based solutions as part of the definition of infrastructure in the UK Infrastructure Bank Act. If investment in nature is a suitable purpose for a Government-backed investment bank, we should harness the power of pension funds as well. This review would be timely, with the recent collapse of Silicon Valley Bank and its UK subsidiary and the demise of Credit Suisse sparking panic in the financial markets and hitting the value of pension funds.

The world is changing. More people shop online and work from home, meaning that investment in things like shopping centres and office blocks no longer produces the returns it did in the past. If done properly, small changes to how pensions are invested could have a significant impact on UK economic growth and, more importantly, a significant impact for the scheme members themselves. I beg to move.

I declare an interest as trustee of the Parliamentary Contributory Pension Fund. As a trustee, but also on my own behalf, I have no concern about pension funds being incentivised. We are there, as trustees, to look after our pensions in the future. Incentives are one thing, but, as a trustee, I am not sure I want to be dictated to and told I have to consider high-growth funds in particular.

When I look at proposals from our fund managers, I look at the return expected over a period of time. Obviously, we are long-term investors, and it may be that a firm has the potential to be one that produces excellent returns. I do not think, on the whole, that pension funds are there to help smaller and newly created firms grow. On the other hand, I can say quite honestly that proposals are in front of us in relation to infrastructure which have considerable merit. I suspect that positive decisions will follow in due course. I ask my noble friend and the Opposition to bear that in mind.

I will also comment on the proposed new subsection (3) on consultation. In addition to the parties listed, I would like to see the trade associations of, for instance, investment trusts, the associations of fund managers and a number of other organisations in the financial world which group together. If we are going to help our country in terms of growth, consultation should be with those at the coalface and those varying funds, et cetera.

I have reservations. I understand the driving force behind the amendment, but it does need some refinement before it is considered as a possible way forward.

My Lords, I support this amendment, which fits very well alongside the discussions we had on the fiduciary duty of pension fund trustees. I will not push those amendments to a vote, but the work being done, as the Minister described, on having a clear and close look at the fiduciary duty for pension fund trustees would complement this amendment. I do not think it is threatening in any way to pension fund trustees; it is very carefully framed and asks the Treasury to publish a review on incentivisation. It is perfectly possible, in the words of the noble Lord, Lord Naseby, to fine-tune it after the review—that is the purpose of the consultation.

This amendment is worth while. The noble Baroness, Lady Chapman, referred to the UK Infrastructure Bank and its recognition of nature-based projects and types of infrastructure as assets that could be invested in. I was involved in that amendment, on which the Minister, in her usual helpful style, listened and took action. I hope that she will similarly recognise the virtues of this proposed new clause and I support the amendment.

My Lords, I added my name to this amendment and suggested the inclusion of the Pension Protection Fund, partly because there is already quite a big conversation around how we will incentivise investment and be prepared to take a bit more risk, because the UK seems to have become very risk-averse. There has been regulatory encouragement, if you like, for pension funds to be somewhat risk-averse; I am not sure it is actually risk- averse to end up in a situation where you invest everything in sovereign bonds and have a systemic risk but, setting that conversation aside, gilts have always been regarded as a very steady investment. It has perhaps been forgotten how to invest for reward.

The fiduciary duty is important and we need to look at it, because there are implications if you suggest in any way to trustees what they ought to do. Of course, that does not mean that you have to take zero risk as a trustee—you must understand the risk and reward dynamic—but, if we move through legislative steps, we would have to add to the list of consultees a whole load of lawyers to help sort out how we deal with the common-law fiduciary duty. Overall, this is a good amendment, making the Government part of this conversation and drawing in more consultation so that more people can input with common purpose, instead of there being lots of consultations all over the place.

Of course, there is work being done by parliamentary committees and I hope notice will be taken of those, and maybe care taken, looking at proposed new subsection (4)(b) and

“adjusting the terms of reference for DB Local Government Pension Schemes (LGPS) funds to consider regional development as an investment factor”.

To some extent they can do that already, especially in the amounts that are retained where the local authorities are investing directly rather than through the pooled funds—and I have to declare an interest here in potentially listing a fund.

I have been talking to local authorities, but they are also very conscious that they want diversity. If we are going to have regional development, it is not, “Let us go off and all invest in our local shopping centre” again, which led to a slight disaster; they need to spread it around. So it may not be just regional development in their region, it would be regional development somewhere else to get the balance of risk. That is something that pension funds themselves are already very aware of. They are very interested in things such as place-based impact investing, but not solely in their own place. If everybody is taking that same attitude, they will have the diversity and we will also have that kind of development and the funding for it.

Overall, you could put many more things into this and it will not be the end of the story, but I think it is important to put this into the Bill so that work starts on it quickly, because we are almost in an emergency with the state of investment in this country and, therefore, the sooner we begin to address to address it and to make our money work for the things that are better for the economy, the sooner we will get results.

My Lords, this is not just a good amendment, it is a very important and timely one. Noble Lords will recall that after the death of Robert Maxwell and the exposure of the way in which he had looted the Mirror Group pension funds, the Government introduced a new pensions structure to protect defined benefits pensions, as well as new accounting standards which needed to be obeyed by pension funds. The effect of this protective barrier placed around defined benefits funds has been that they have adopted extremely conservative investment strategies and the return on investments has correspondingly been extremely low compared with what could be achieved by quite modest amendments of investment strategy.

These issues are now a matter of widespread discussion where the unfortunate unintended consequences of the post-Maxwell legislation have been revealed. It is necessary quite rapidly to take account of the discussions, to assess the performance of pension funds since the last significant pensions legislation, and to come up with sensible proposals for reform. That is why this amendment is crucial, for both the pensions funds industry and the wider economy. I encourage the Minister to support this amendment because by doing so the Government would make a major contribution to the future prosperity of a whole raft of pensioners in this country and to the success of pension funds as investment vehicles within the UK economy.

My Lords, I am concerned that, while seemingly innocuous, this amendment might turn out to be the thin end of the wedge of government intervention in pension investment. Clearly, the obligation on pension trustees should be to do their best to get the right returns for their investors. Once we start incentivising trustees to take decisions based on incentives offered to them, that raises the question of who then bears the consequences and the responsibility if those investments turn out in the long term not to be the right thing for their pensioners to be invested in.

I do not dispute the point that pension fund investments have not been optimal in the past, but to my mind that is to do with regulatory restrictions that have been placed on pension funds and the requirements to meet those restrictions. I think there is a case to look at the regulations around pension funds that restrict their investment choices and to enable them to invest in a wider set of assets, but I do not think the right way to do that is to start proposing incentives that would turn into the Government mandating the way that pension funds should be invested.

My Lords, I support the amendment. I still think of myself as a relatively new Member of the House, so it is useful to remind the House of my lifetime spent working in the pensions industry, broadly in support of scheme members. I have been a scheme trustee, I have chaired the Greater London Council investment panel and I have advised trustees of pension schemes as the scheme actuary. I am just stating my expertise here.

I support the amendment because I think a review is required. I take on board the remarks about the thin end of the wedge, but unless we have the review those concerns cannot be addressed. As the noble Baroness, Lady Bowles, said, there is now a big conversation about using pension scheme money to promote the British economy. There is actually a long history of that sort of proposal going back over many years, but it seems to have reached a crescendo over the last year or so.

It is essential that we have a review. What is also essential, of course, is that the review is undertaken by those who know what they are talking about, but that has not necessarily been true about all the comments made so far. For example, I draw the attention of the House to the recent useful report produced by the Pensions and Lifetime Savings Association—not a body that I consistently agree with—on supporting pension investment in UK growth and thinking up quicker and simpler ways to promote pension fund investment in our economy.

I was going to raise two issues. One has already been explained clearly by my noble friend Lord Eatwell: the funding standards that have been established work against the principles that I am sure we all support. Another problem that we have is the Conservative Government’s introduction of freedom and choice. It is difficult to oppose freedom and choice but, when you come to pensions, which are long-term arrangements depending on long-term investment, giving people freedom of choice weakens the very basis upon which they are being organised. It is all very well saying to pension funds, “You’ve got to invest in infrastructure”, but if the members of that scheme have the right to pull their money out at any time, it is very difficult to take the long-term view. That is a fundamental incoherence behind the so-called policy of freedom and choice. Those issues need to be addressed in the review.

I also hope that the list of consultees for the review is not a complete list; to the extent that it is possible to consult the scheme members, they should be consulted as well. I also hope that the issues can go somewhat broader than those listed in the amendment.

In general terms, a review is needed, and I hope it will lead to the objective being clearly set out of promoting the UK economy.

My Lords, I fully support and have added my name to this amendment. It is a pleasure to follow the noble Lord, Lord Davies. We both go back a long way in the pensions industry. My entire career has been in pensions—examining occupational pension schemes as an academic, then managing occupational pension investments in the City, then advising schemes and Governments. I have also been a trustee on investment committees for pension schemes.

I have to say that the current position that members of pension schemes find themselves in—both members of defined benefit schemes and members of too-often-forgotten defined contribution schemes—has not been positive in terms of the experience of the 2022 markets. As we have heard, trustees and managers of pension schemes have been encouraged to believe that the right way in which to invest a pension fund is in supposedly low-risk—which actually also means relatively low-return —investments, rather than in the traditional and older-fashioned way of managing schemes that persisted until the noughties, which was to try and maximise returns.

We have now moved to a position whereby we were supposed to be minimising risk, but I argue that that entire movement away from supporting the British economy and away from supporting UK equities and UK growth assets has been underpinned and misled somewhat by quantitative easing. The Bank of England’s policy, which effectively offered a natural large buyer that underwrote and underpinned the government bond market, perhaps led people to believe that that was the best or safest way in which to invest pension funds. That was partly because the long-term value of the liabilities, as well as their present value, is discounted and measured as of today by using the gilt yield or bond yield measure. In corporate reporting it is double-A corporates; in actuarial valuations it is typically gilt yields.

In 2022, conventional gilts lost 20% and index-linked gilts 30% of their value. The FTSE 100 rose a little. Yes, smaller companies did not do so well, but the idea that pension schemes were investing in a low-risk manner was actually confounded last year, and I would argue that, as we move into a post-QE world and as we have recognised and I have been warning since 2011, or even earlier than that, the policy of quantitative easing is a significant danger for pension scheme investments and members.

We must recognise that we do not fully understand what investment risk means any more. The capital asset pricing model is based fundamentally on the idea that gilt yields are the lowest-risk assets and all assets are more risky—even if they offer more returns, potentially they are more risky—and may need to be considered with a little more circumspection.

That leads on to the idea that, if we do not quite know whether gilts and fixed income are indeed low risk in the way that we thought they were and they have been in the past—because central banks are going to need to offload at some point and are certainly no longer underpinning the markets—diversifying investments and supporting the domestic economy in the way that this review would be investigating must come into the public debate.

I know that the Chancellor will be looking to do something on this in the autumn. However, when you consider that taxpayers fund at least, and probably more than, 25% of every pension fund, and that 25% of everyone’s pension is tax free when they take it, the taxpayer does have a direct interest, over and above what has happened to members’ and employers’ money, in ensuring that these pension schemes can support the economy, whether in infrastructure, in investments that will boost sustainable growth, or in social housing.

So far, in a range of different investments over the last 15 years, domestic pension funds, despite having so much money—at least £50 billion a year of taxpayers’ money—have neglected our own stock market and small companies. So, if the Government want to boost growth —and they need to—and if we have a fiscal constraint post Covid, which we clearly do with the fiscal deficits we have, there is a rationale for the Government to look into how much of the money currently going into pension funds, and has already been put into pension funds, which suffered such huge loses last year in what were supposed to be safe investments, could and should be directed to boost growth from now on. Let us face it, when you boost domestic growth in the UK, you will also be helping to boost the retirement prosperity of our future pensioners, as well as current pensioners.

At the very least, I hope the Minister can see the merits of adopting this review and promoting the idea that there are important reasons why the long-term investments of our domestic pension funds, which had been the jewel in the crown of our financial system for many years, should be directed to work to the benefit of the economy and the pension scheme members themselves.

My Lords, I speak from these Benches on behalf of my party, as a group of realists. The current Government, and any future Government, look at the pools of money in pension funds, whether defined contribution or defined benefit, and see them as a tempting source of investment in the area of scale up and infrastructure, where we are desperate to find additional investment. I point out that pension funds are not disadvantaged in investing in investment-grade assets in any way. It is in investing in sub-investment grade assets where they carry a burden under the current arrangements.

These investments in scale up and infrastructure are, by definition, high risk and illiquid, and we have to face up to that. Some 40% of scale-ups fail and infrastructure projects run notoriously late, and well over budget. I challenge people to come up with a very long list of infrastructure projects that have come in on time and on budget. It is hard to identify virtually any project that meets that test. It means that pension obligations must be fully protected if we are to open up these funds to be able to invest in a far more illiquid and high-risk way.

That is why I am comfortable with this amendment, because proposed new subsection (2) insists:

“The review must consider how best to do this while protecting the safeness and soundness of pension funds”.

I was also pleased that the noble Baroness, Lady Chapman, introduced the additional consultee identified by my noble friend Baroness Bowles—the Pension Protection Fund—in this process, because that is clearly a mechanism which could provide the kind of protection for pensioners who may be exposed if we change the risk profile of pension fund investment.

I insist that the first responsibility of a pension fund is to pay out its obligations on time and in full. I suspect that everyone who is invested in a pension believes that that is, and must continue to be, true. Often when we discuss these issues the Canadian pensions funds are cited because they do indeed invest in illiquid and high-risk assets, but anyone reading the credit rating agencies discussing those pension funds will find that the pension funds are pretty much backstopped by the Canadian Government.

What I hope will come out of this review process are new opportunities to fund our economic growth but also protections commensurate—it may not be the same strategy but through some mechanism—with those that the Canadians have put in place, to make sure that our pensioners will still be paid on time and in full. If that no longer remains true, we end up in a very serious pickle but, having read through this set of amendments, I think they get us to the right place to be able to achieve that.

My Lords, the Government welcome the further discussions that this debate has given us the opportunity to have on the issue of unlocking pensions capital for long-term, productive investment where it is in the best interests of pension scheme members. Indeed, as I set out in Committee, the Government have a wide range of work under way to deliver the objectives set out by this review. While I was a little disappointed not to hear those initiatives referenced in this debate—apart from, perhaps, by my noble friend Lady Altmann—I will give it another go and set out for the House the work that is already under way in this area.

As previously set out, high-growth sectors developing cutting-edge technologies need access to finance to start, scale and stay in the UK. The Government are clear that unlocking pension fund investment into the UK’s most innovative firms will help develop the next generation of globally competitive companies in the UK.

The Chancellor set out a number of initial measures in the Budget to signal a clear ambition in this area. These included: increasing support for the UK’s most innovative companies by extending the British Patient Capital programme by a further 10 years until 2033-34 and increasing its focus on R&D-intensive industries, providing at least £3 billion in investment in the UK’s key high-growth sectors, including life sciences, green industries and deep tech; spurring the creation of new vehicles for investment into science and tech companies, tailored to the needs of UK defined contribution pension schemes, by inviting industry to provide feedback on the design of a new long-term investment for technology and science initiative—noble Lords may have seen that the Government launched the LIFTS call for evidence on 26 May; and leading by example by pursuing accelerated transfer of the £364 billion Local Government Pension Scheme assets into pools to support increased investment in innovative companies and other productive assets. The Government will come forward shortly with a consultation on this issue that will challenge the Local Government Pension Scheme in England and Wales to move further and faster on consolidating assets.

At Budget, the Chancellor committed the Government to undertaking further work with industry and regulators to bring forward an ambitious package of measures in the autumn. I reassure the noble Baroness opposite that this package aims to incentivise pension funds to invest in high-growth firms, and the Government will, of course, seek to ensure that the safety and soundness of pension funds are protected in taking this work forward, as in proposed new subsection (2). Savers’ interests will be central to any future government measures, as they have been to past ones. The Government want to see higher returns for pension holders in the context of strong regulatory safeguards.

In addition, the Government are already working with a wide range of interested stakeholders, including the DWP, the DBT, the Pensions Regulator, the FCA, the PRA and the Pension Protection Fund, as well as pension trustees and relevant financial services stake- holders. Proposed new subsection (3) in the amendment seeks to set out this list in legislation. I reassure the House that this is not necessary as the Treasury is actively engaging with them already, as appropriate. The Government would also be happy to engage with other interested stakeholders, as raised by my noble friend Lord Naseby and the noble Lord, Lord Davies of Brixton.

I note the specific areas of review outlined in subsection (4) of the proposed new clause, and I reassure noble Lords that the Government are considering all these issues as part of their work. In particular, proposed new subsection (4)(a) references the existing value-for-money framework. As I set out in Grand Committee, one area of focus for the Government’s work in this area is consolidation. To accelerate this, the Government have been working with the Financial Conduct Authority and the Pensions Regulator on a proposed new value-for-money framework setting required metrics and standards in key areas such as investment performance, costs and charges, and the quality of service that schemes must meet.

As part of this new framework, if these metrics and standards were not met, the Department for Work and Pensions has proposed giving the Pensions Regulator powers to take direct action to wind up consistently underperforming schemes. A consultation took place earlier this year, and the Government plan to set out next steps before the summer.

Turning to proposed new subsection (4)(b), I have already set out the forthcoming consultation to support increased investment in innovative companies and other productive assets by the Local Government Pension Scheme. Noble Lords may also be aware that the levelling up White Paper in 2022 included a commitment to invest 5% in levelling up. This consultation will go into more detail on how that will be implemented.

I turn to proposed new subsection (4)(c). The Government are committed to delivering high-quality infrastructure to boost growth across the country. We heard references in the debate to the UK Infrastructure Bank, which we will work with. The Treasury has provided it with £22 billion of capital. Since its establishment in 2021, it has done 15 deals, invested £1.4 billion and unlocked more than £6 billion in private capital. Furthermore, we have published our green finance strategy and Powering Up Britain, setting out the mechanisms by which the Government are mobilising private investment in the UK green economy and green infrastructure.

The Government wholeheartedly share the ambition of the amendment to see more pension schemes investing effectively in the UK’s high-growth companies for the benefit of the economy and pension savers. We agree with noble Lords on the importance of this issue. Where we disagree with noble Lords is on how crucial this amendment is to delivering it. Indeed, the Government are currently developing policies to meet these objectives, so legislating a review would pre-empt the outcome and might delay the speed at which the Government can make the changes necessary to incentivise investment in high-growth companies. Therefore, given all the work under way, I hope the noble Baroness feels able to withdraw her amendment.

My Lords, I am grateful to everyone who has taken part in this debate. The Minister’s response was not awful. It was encouraging to hear some of the things that she had to say, and we recognise the work the Government are leading on this issue. However, the benefit of taking the approach outlined in the amendment, notwithstanding some of the comments that have been made about it, is that it would give focus and prominence to this issue and would bring together some of the threads that the Minister referred to. It is an important piece of work that, given everything the Minister said, ought to be not too onerous and is something that the Government ought to be a little more enthusiastic about starting—because it needs to start. This is something we would like to see proceed quickly. I think there has been sufficient support for the amendment from all sides of the House, and I wish to test the opinion of the House.

Amendment 105 not moved.

Amendment 106

Moved by

106: After Clause 71, insert the following new Clause—

“Protection of banking reform: ring-fencing and SMCR

(1) Parts 1 (ring-fencing) and 4 (conduct of persons working in financial services sector) of the Financial Services (Banking Reform) Act 2013 and amendments made by them to FSMA 2000 may not be modified or revoked except by an Act of Parliament.(2) No change or revocation may be made by secondary legislation, including by the PRA and FCA, to—(a) the requirements for ring-fenced bodies, and(b) the senior managers and certification regime, or other rules for the conduct of persons working in the financial services sector,that departs from the principles set out in the final report of the Parliamentary Commission on Banking Standards.(3) For the avoidance of doubt, subsection (2) includes secondary legislation that would allow ring-fenced bodies permanently to carry out excluded activities.(4) This section may not be amended except by an Act of Parliament.”Member’s explanatory statement

This amendment would prevent the Government from making substantive changes to the policy on ring-fencing and SMCR by statutory instrument, and would prevent policy from being amended in a way that departs from the report from the Parliamentary Commission on Banking Standards.

My Lords, in Committee the Minister reassured the House that the principles of ring-fencing and the senior managers regime which protect our banking system could be changed only by primary legislation. Then came the Silicon Valley Bank UK crisis and we discovered that breaking down the ring-fence in particular can be done by simply using statutory instruments and without the full engagement of Parliament. My Amendment 106, which is written from the two tabled in Committee, is intended to reassert the fundamental principle that change has to be driven by primary legislation and it removes the loophole which we experienced with Silicon Valley Bank.

I shall explain very briefly the Silicon Valley Bank issue. As part of their agreement with HSBC to acquire SVB UK, the Government permitted HSBC to transfer funds from its ring-fenced retail bank into SVB UK, which is outside the ring-fence. The transferred funds can now be used for activities which the HSBC retail bank would be prohibited from, including high-risk and speculative transactions.

If this was a temporary state of affairs, I could understand this awkward response to an emergency, but on Thursday the Minister will bring a statutory instrument to this House to make that breach of the ring-fence for HSBC permanent and notably with no limits on the amount of funds that can be transferred from ring-fenced to unring-fenced. Unless I misunderstand the SI, there are no conditions on the use of those funds, even though last month the Minister seemed to imply that we could expect conditions or limits. In effect, the ring-fence is now fully breached for HSBC. Its rival banks, not surprisingly, expect further government action soon to give them exemptions in order to level the playing field. We have in effect destroyed the ring- fence.

Ring-fencing and the SMCR, I would argue, are vital protections against another 2007 banking crisis. They limit the incentives and mechanisms for banks to mingle the culture and capital behind retail banking with the very different and high-risk world of investment banking, with the SMCR establishing individual responsibility for bad or abusive management. The Government have posited in discussion that these protections can be safely weakened because banks now have resolution plans to protect the taxpayer from a bank failure. But that presumption, frankly, has been blown out of the water. Both the Swiss and the US regulators in the last few months facing bank failures—one Credit Suisse and the other the three regional banks in the US—decided that, in the circumstances, resolution would be far more damaging to their economies than seeking taxpayer support to extract those banks from their predicaments and failure.

We have had an illustration that makes it clear that the resolution plans that we have in place for banks may work in certain limited circumstances but very often, particularly when there is high risk in the economy, may indeed not work and are more damaging to use than to discard. In that situation, it is absolutely crucial that we return to the protections provided by ring-fencing and the SMCR.

That is my view. If the Government disagree with me and believe this is time for weakening the ring-fence or diluting the SMCR, I argue they have to come to Parliament and do it under primary legislation, not through the backdoor that we experienced over the last couple of months through the mechanism of the purchase agreement for Silicon Valley Bank UK.

I am not asking this House to make the decision on whether we keep ring-fencing or the SMCR. What I am saying is that it is this House and the other place that need to actively understand and make the determination if that change is to happen. It is fundamental to the financial stability of our country and therefore that is the way this issue would be addressed. My Amendment 106 combines into one the two amendments from Committee and adds a clause to require primary legislation for any permanent exclusions from ring-fencing rules, closing the loophole used by the Government and reasserting the original intent of the law. I beg to move.

My Lords, I have joined the noble Baroness in supporting her Amendment 106, as I did her two amendments on this topic in Committee. This amendment seeks to prevent change which goes against the two years of work of the Parliamentary Commission on Banking Standards, which looked in detail at both issues and produced its final report, Changing Banking for Good, 10 years ago. I declare an interest: I sat on the commission along with the noble Baroness.

As I said in Committee on 21 March, the underlying motivation of this amendment is to ask us not to forget the hard lessons learned after the 2008-09 financial crash, for which the whole country, especially the poorest, paid, then and to this day. Recent events show that the memory in the markets is strong, even if it is not in the Government. Alarm spreads easily.

Both the ring-fence and the SMCR were designed to better align the incentives and risk calculations of the financial sector to avoid the privatisation of profits and the socialisation of losses, and to force the financial sector to be conscious of the cost its action has, not only on itself but on the wider economy. The SMCR enables us to make sure that those individuals who are making decisions which have significant consequences are held accountable. It goes some way to bringing individual incentives in line with high collective standards.

The electrification of the ring-fence, which the Parliamentary Commission on Banking Standards recommended, was designed to deter banks from the inevitable temptation to test it. The commission’s first report said:

“any ring-fence risks being tested and eroded over time”

and the new framework at that time

“will need to be sufficiently robust and durable to withstand the pressures of a future banking cycle”.

SVB showed that the concept of a non-systemic bank is a very dubious one, as even banks with good resolution plans, and of very moderate size in the global context and systemically, create a sense of contagious alarm. Banking, as we know—and some noble Lords know very well indeed—is not based on logic but on confidence. There is logic there somewhere, but the confidence is that the bank is secure, despite the fact that its equity is a very small part of its total balance sheet. The contagion caused by the failure of SVB is not yet over among US regional banks, which continue to fail or need rescuing. That moment may come, but let us wait and see.

The Swiss taxpayer is on the hook for Credit Suisse and the US taxpayer for several regional banks that were meant to be non-systemic. Not to learn from the past or the present is, frankly, reckless. Reform may come—there are good arguments for it—but it should not come outside a proper parliamentary process of primary legislation. People and sectors can have short memories. I urge the Government to accept this amendment, which would go some way to making sure that we remember the hard and bitter lessons learned and do not repeat the same mistakes.

I will speak very briefly to offer Green support for the amendment in the name of the noble Baroness, Lady Kramer, and the most reverend Primate. The amendment, in a way, is a smaller and lighter version of my attempt to strike out the competition clause, on setting a competitiveness objective, which has sadly remained in the Bill.

In November last year, City Minister Andrew Griffith told the Financial Times:

“The overall thrust of things is to allow more risk … you shouldn’t be risk”


“we just need to manage that in an appropriate way”.

He went on to say that the aim of reducing ring-fencing was

“to release some of that trapped capital over time”.

I acknowledge that the Minister said that before the collapse of SVB and Credit Suisse, and the other crunches in the American banking system.

In an April piece in the Financial Times, Martin Wolf said:

“A shock like this should make mindless deregulation less appealing to politicians”.

As has been clearly outlined already, the amendment does not actually make anything happen; it just ensures parliamentary oversight. When we get to the dinner break business, my noble friend will seek to ensure that parliamentary oversight is included there. Surely, this is what democracy is supposed to be about.

My Lords, I support the amendment. We will return to these issues on Thursday, when we discuss the regulations in Grand Committee. However, it is worth mentioning to the House the clash today between this Bill and a meeting of the Economic Affairs Committee, of which the noble Baroness, Lady Kramer, and I are members. By chance, the committee was interviewing the Governor of the Bank of England. The issue of this arrangement arose, and the governor was quizzed on these very issues. It will be useful on Thursday to explore further why and how this action was taken. The governor provided a justification, but, in the light of his remarks, it will be worth while exploring these issues in more detail when we get the regulations.

My Lords, the noble Baroness, Lady Kramer, and the most reverend Primate have retabled as a single amendment—Amendment 106 —the two amendments that were debated in Grand Committee: Amendment 241C on ring-fencing, and Amendment 241D on the senior managers and certification regime.

As my noble friend Lady Noakes said during that debate, these amendments are trying to set in stone for all time the conclusions of the report of the Parliamentary Commission on Banking Standards. Times change, and I cannot support this amendment because it introduces an inappropriate degree of rigidity.

As my noble friend also pointed out, the lesson of the HSBC and Silicon Valley Bank episode was that the ring-fencing rules were not, after all, considered inviolable. It was necessary to provide HSBC with special statutory exemptions from the ring-fencing rules to enable it to acquire Silicon Valley Bank. That exemption has brought permanent changes to the ring-fencing regime for HSBC which affect it alone. Can my noble friend say whether that means it has a permanent competitive advantage over rival ring-fenced banks in the UK?

In any case, I rather doubt whether the introduction of ring-fencing has reduced the risks to which bank customers’ deposits are exposed. I disagree that it is therefore important to make it very difficult to weaken the ring-fencing regulations in any way. As I said in Committee, I worked for Kleinwort Benson for 23 years, for a further 12 years for Robert Fleming and then for Mizuho. All three banks operated both commercial and investment banking businesses. Internal Chinese walls between departments made it quite impossible for customers’ commercial banking deposits to be diverted to risky investment banking activities. As I said in Grand Committee, there is no positive correlation between the two cash flows of retail and investment banking. It follows that universal banks are in fact gaining diversification benefits. There is little global evidence that splitting up the banks has made them less likely to get into trouble.

Following the Lehman shock, is it not interesting that the US Government did not go for the reintroduction of a kind of Glass-Steagall Act? I am not convinced that ring-fencing is a good thing, and in general I am opposed to market distortions of this kind, which actually make the consumer less safe rather than safer. Ring-fencing also makes it harder for smaller banks to grow, because they must compete for a small pool of permitted assets against the capital of the larger banks. Will the Government conduct a review of the effectiveness of ring-fencing?

As for the senior managers and certification regime, I am sceptical as to whether it has been effective, because there is no hard evidence that it has been used as the stick that was originally intended. Most well-run banks operate in a collegiate manner, and I think it rather odd to attempt to attribute personal responsibility to managers and directors of banks for the decisions and actions of those banks, beyond the responsibilities that the directors carry in any event.

The SMCR has especially inconvenienced foreign banks operating in London. As an example, I refer to the Japanese megabanks. It used to be their practice to assign a very senior executive to London to take responsibility for all the bank’s activities in the UK and in most cases the whole EMIR region. Often, this might be the executive’s last major management position before retirement, and would typically be for two to three years leading up to his retirement date. Such executives have typically worked for 40 years or more for that bank and have managed regulated financial businesses in Japan for many years. However, the FCA has consistently been extraordinarily slow in approving those executives under the SMCR.

Therefore, the Japanese banks have given up on this strategy and feel compelled to appoint as head of their UK and EMIR operations not the person most appropriate for the job, but the most senior person who has already been working in London for three years or so, merely in order to meet the criteria of the SMCR regime. This has caused considerable inconvenience, because it is unreasonable to send a trusted senior executive overseas for five or six years in the last years of his active career, rather than a more reasonable stretch of two to three years. I know that the SMCR is much resented by Japanese and other foreign banks and I ask my noble friend if she will agree to conduct a review of how it is being implemented by the FCA.

My Lords, I must say that, listening to the noble Viscount, Lord Trenchard, just now, I think he has given strong arguments in favour of this amendment—strong because what the amendment asks for is accountability to Parliament on the performance of the ring-fence and the SMCR. If that accountability existed, the noble Viscount would have the opportunity to present his views in a framework, which might then have greater effect than, I am afraid, his speech had without such a mechanism.

I simply want to argue in favour of the ring-fence because I think the competitive future of the City of London depends upon it. The reason for this is that the City of London is a financial entity that does not have its own savings hinterland, as I have argued previously. It therefore depends on attracting funds from around the world and other forms of financial business. What it does is repackage risk; it is extremely skilled, and has almost unique skills in this process. But this is a unique position which it cannot preserve if it also has the problem that, in repackaging risk, it deals with instability that could be imported into the domestic economy. If that instability is imported into the domestic economy, there is natural resistance to the continued internationally competitive performance of the City of London.

The great virtue of the ring-fence, as proposed by the Independent Commission on Banking, is that it provides some insulation from the instability that is inherent in the successful operation of the City of London and for the domestic economy—households and small and medium-sized firms, which are targeted by the banking structure, as set out by the Independent Commission on Banking.

The ring-fence is not a restriction; it is both a benefit to the performance of the investment banking activities so ably performed in the City of London and a protection for commercial banking that is necessary for families and small and medium-sized firms.

This amendment, requiring that any changes in the ring-fencing system should be a matter of parliamentary discussion, seems to me to place the importance of the ring-fence and the accountability of the regulatory management of the ring-fence exactly where they should be, which is in Parliament.

My Lords, we fully support the steps taken by the Treasury, the Bank and the regulators in relation to Silicon Valley Bank UK. The system worked at pace to ensure SVB UK could continue its operations. However, while we endorse the outcomes, legitimate questions have been asked about the ring-fencing exemption granted to HSBC and the potential long-term implications.

The arguments have been excellently outlined by the noble Baroness, Lady Kramer, the most reverend Primate the Archbishop of Canterbury and my noble friend Lord Eatwell, and I will not repeat them now. The financial system has experienced much volatility in recent months, so preventing major changes to ring- fencing being made by secondary legislation is a sensible step and one that we believe the Commons ought to consider before this Bill goes on to the statute book.

My Lords, it has been over 10 years since the Independent Commission on Banking recommended important structural changes, including the introduction of ring-fencing for the largest UK banks, and the Parliamentary Commission on Banking Standards recommended the introduction of the senior managers and certification regime, or SMCR, to embed a culture of greater accountability and personal responsibility in banking. I pay tribute to the important work of these commissions and their lasting legacy in improving the safety and soundness of the UK’s financial system. Amendment 106 from the noble Baroness, Lady Kramer, covers the ring-fencing and SMCR reforms.

In response to my noble friend Lord Trenchard, the legislation that introduced the ring-fencing regime required the Treasury to appoint an independent panel to review the regime after it had been in operation for two years. That independent review was chaired by Sir Keith Skeoch and concluded in March 2022. The review noted that the financial regulatory landscape has changed significantly since the last financial crisis. UK banks are much better capitalised and a bank resolution regime has been introduced to ensure that bank failures can in future be managed in an orderly way, minimising risks to depositors and public funds.

In the light of these considerations, the independent review concluded that changes could be made in the short term to improve the functionality of the ring-fencing regime while maintaining financial stability safeguards. In December, as part of the Edinburgh reforms, the Chancellor announced a series of changes to the ring-fencing regime that broadly follow the recommendations made by the independent review. The Treasury will consult later this year on those near-term reforms. The panel also recommended that, over the longer term, the Government should review the practicalities of aligning the ring-fencing and resolution regimes. In response, the Government published a call for evidence in March. This closed at the beginning of May and the Government are in the process of considering responses.

The noble Baroness, Lady Kramer, and other noble Lords referenced the resolution of Silicon Valley Bank UK, which was sold to HSBC on Monday 13 March. The Government and the Bank of England acted swiftly to facilitate the sale of SVB UK to HSBC after determining that action was necessary to protect depositors and taxpayers and to ensure that the UK’s world-leading tech sector could continue to thrive. To facilitate the sale, the Government made modifications to the ring-fencing regime that apply to HSBC only in relation to its acquisition of SVB UK.

It is critical that the Government have the necessary powers to act decisively to protect financial stability, depositors and taxpayers. The power under the Banking Act 2009 enables the Treasury to amend the law in resolution scenarios. Parliament gave the Treasury this power recognising the exceptional circumstances that can arise. However, I say to the noble Baroness that the changes made to the ring-fencing requirements are specifically in relation to the acquisition of SVB UK and should not be viewed as an indication of the future direction of government policy on ring-fencing. The Chancellor has been clear that, in taking any reforms forward, the Government will learn lessons from the crisis and will not undermine financial stability.

The core features of ring-fencing are set out in primary legislation, which generally may be amended only by primary legislation, so the Government are already constrained in one of the ways that this amendment seeks to ensure. In passing that legislation, Parliament delegated certain detailed elements of the regime to the Government to deliver through secondary legislation, given its technical nature and to allow it to evolve over time, where appropriate. Parliament also included clear statutory tests and objectives within the framework, which the Treasury and the PRA must satisfy when making changes to the regime. These statutory tests continue to reflect the underlying objectives and purposes of the regime. The Government are of the view that they remain appropriate and that no further constraints are necessary.

Turning to the SMCR, I can confirm to the House once more that the framework of the SMCR is set out in primary legislation, so it is already the case that significant amendments can be made only via primary legislation.

Let me also reassure the House that the Government continue to recognise the contribution of the SMCR in helping to drive improvements in culture and standards. The principles of accountability, clarity and senior responsibility that are emphasised by the PCBS report were reflected in the SMCR. We should take confidence from the findings of separate reports by UK Finance and the PRA, which both show that these principles are now more widely embedded in financial services than before the introduction of the regime.

The Economic Secretary made it clear to the Treasury Select Committee on 10 January that the purpose of the review was to seek views on the most effective ways in which the regime can deliver its core objectives. It is important to review significant regulation from time to time to ensure that rules remain relevant, effective in meeting their aims and proportionate to those aims. The Government are grateful to those who have submitted responses to the SMCR call for evidence. This information will help the Government, alongside the regulators, build a proper evidence base for identifying what, if any, reforms to the regime should be taken forward.

I hope that I have sufficiently reassured noble Lords that the Government remain committed to high standards of regulation, and to the important reforms introduced following the global financial crisis. Therefore, I ask the noble Lady, Baroness Kramer, to withdraw her amendment.

I thank the Minister, but she has essentially repeated the speech she gave in Committee. At the time, I took her assurances at face value that primary legislation would be necessary to make a fundamental change to the structure of the ring-fence. I was therefore frankly shocked when, within a matter of days, the Government took a different point of view in the acquisition of Silicon Valley Bank UK by HSBC. There is no reason why HSBC should have used its ring-fenced arm to make the purchase of SVB; it chose to do so because it got, as a consequence, this opportunity to take that ring-fenced money and put in into non-ring-fenced activities, with no constraints whatever in terms of amount or activity.

The Government are bringing forward another statutory instrument to make that change permanent for HSBC. It is unconscionable that our largest bank should have a competitive advantage like that and other banks not be given it. I am extremely concerned about the way in which statutory instruments are being used to undermine the principle that changing the principles should be only by primary legislation. Therefore, I wish to test the opinion of the House.

Amendment 107

Moved by

107: After Clause 71, insert the following new Clause—

“Interest rates for mortgage prisoners

(1) The Financial Services and Markets Act 2000 is amended as follows.(2) After section 137FD insert—“137FE FCA general rules: interest rate for mortgage prisoners(1) The FCA must make general rules requiring authorised persons involved in regulated mortgage lending and regulated mortgage administration to introduce a cap on the Standard Variable Rates charged to mortgage prisoners and to ensure that mortgage prisoners can access new fixed interest rate deals at an interest rate equal to or lower than an interest rate specified by the FCA.(2) In subsection (1)—“mortgage prisoner” means a consumer who cannot switch to a new mortgage deal (with a new lender or with their existing lender) and includes—(a) all 195,000 mortgages identified in CP576 Mortgage Prisoners Review, and(b) those who have a regulated mortgage contract with one of the following types of firms—(i) inactive lenders: firms authorised for mortgage lending that are no longer lending;(ii) unregulated entities: firms not authorised for mortgage lending and which contract with a regulated firm to undertake the regulated activity of mortgage administration; or(iii) closed mortgage books within larger financial groups: a closed mortgage book that is within a larger financial group but in a different entity to an active lender;“new fixed interest rate deals” means the ability for the consumer to fix the rate of interest payable on a regulated mortgage contract for periods of 2 years and 5 years with their existing lender;“Standard Variable Rate” means the reversion rate which is a variable rate of interest charged under the regulated mortgage contract after the end of any initial introductory deal.(3) The general rules made under subsection (1) must set the level of the cap on the Standard Variable Rate at a level no more than 2 percentage points above the Bank of England base rate.(4) The general rules made under subsection (1) should make new fixed interest rate deals available to mortgage prisoners who meet criteria determined by the FCA.(5) When specifying the criteria which mortgage prisoners need to meet to access the new fixed interest rate deals required by subsection (1) the FCA should take into account the criteria used by active lenders to enable their existing customers to access product transfers and ensure that similar criteria apply in the rules required by subsection (1).(6) When specifying the interest rates for new fixed interest rate deals required by subsection (1) the FCA should specify rates for a range of Loan-To-Value (LTV) ratios taking into account the average 2-year and 5-year fixed rates available to existing customers of active lenders through product transfers.(7) The FCA must ensure any rules that it is required to make as a result of subsection (1) are made not later than six months after this Act is passed.””Member’s explanatory statement

This new Clause would require the FCA to introduce a cap on the Standard Variable Rates charged to mortgage prisoners and ensure their access to fixed rate interest deals.

My Lords, I declare an interest as co-chair of the APPG on mortgage prisoners and I thank the noble Viscount, Lord Trenchard, for adding his name to this amendment.

The amendment is similar to the one we debated in Committee: the only difference is that it gives the FCA the power to determine which mortgage prisoners may qualify for new fixed interest rate deals. The Committee amendment was more prescriptive. Its chief purpose was to allow discussion of the new Martin Lewis-funded LSE report on resolving the plight of mortgage prisoners. I said then that we would bring back the amendment on Report if no discernible progress had been made. No discernible progress has been made. The LSE report contains detailed and costed proposals and was published on 8 March this year. HMT officials were present at the launch and copies of the report were made available. When we debated the amendment in Committee on 13 March, the Minister committed to arranging an urgent meeting to discuss the report.

That urgent meeting with HMT, interested Peers, Seema Malhotra MP, researchers and representatives of the mortgage prisoners finally took place on 26 April, six weeks after the Minister had promised to arrange it. I am pretty sure that that long delay was not the fault of the Minister but simply a clear indication of the very low priority that HMT gives to the matter. In fact, the Minister had written to me to say that he was extremely disappointed that HMT had made no contact, and that his team had called for the meeting to be organised on multiple occasions and had stressed the urgency of the situation.

The Minister was absolutely right to stress the urgency. We stressed it again in our letter of 17 May to the noble Baroness, Lady Penn, asking HMT to make a full response to the LSE proposals before Report. We have had no response to the letter or to the LSE report.

Interest rates are rising significantly and the already intolerable burden on mortgage prisoners is growing steeply, increasing their misery, despair and uncertainty. HMT seems not to understand that or even to care much about it. We know that HMT officials have recently had contact with the academic authors of the LSE report. We also know that those officials told the academics that they hoped to have a response to the report before the Summer Recess. That would be five months since HMT first had sight of the report—an intolerable and unjustifiable delay and a clear indication of the low priority the Treasury is giving the matter.

The treatment of mortgage prisoners is certainly uncaring and at times almost contemptuous. Whatever the outcome of today’s debate on this amendment, I urge the Minister to galvanise the Treasury team and replace what seems to be a leisurely approach with real urgency. After all, in February 2020 the then Economic Secretary to the Treasury said in a letter to Martin Lewis:

“My officials … will take any new proposals under full consideration if they meet our strict requirements that they a) deliver value for money for government (not just individuals), b) are a fair use of taxpayer spending, and c) address any risks of moral hazard”.

The LSE report explains how its proposals satisfy those requirements. I ask the Minister to deliver urgently on John Glen’s promise.

Mortgage prisoners are not to blame for the very high SVRs that are ruining or have ruined their lives; the Government are to blame. HMT sold mortgages to vulture funds without protection for the mortgagees. It later claimed to have been misled by those funds but in fact, research funded by Martin Lewis found that the Treasury was aware of the potential problems as early as 2009, when it recognised that the sale of closed books to investors had the potential to harm borrowers. Martin Lewis’s report went on to say:

“It has subsequently become clear that many prisoners did suffer harm; our first report detailed negative effects including paying high interest rates and difficulty in remortgaging, leading in some cases to anxiety, depression, physical and mental ill health and the prospect of losing the family home”.

Interventions by the Government to date have helped at most 2,200 of the 195,000 mortgage prisoners, and in fact only 200 borrowers have been directly helped to switch as a result of the modified affordability tests run by the FCA. As things now stand, the Government and the FCA are not proposing any further action to help mortgage prisoners. All this misery and harm could have been prevented, but even now the Government still refuse to acknowledge their responsibility or to provide any help.

The amendment would provide immediate and practical support to mortgage prisoners. It would introduce a cap on the standard variable rates paid by mortgage prisoners. Capping at 2% over the base rate would return the margins to what they were prior to the financial crisis. That should stop firms exploiting their captive customers but would have no impact on the wider market.

To ensure that mortgage prisoners can gain some certainty over their mortgage payments, the amendment would also require mortgage prisoners who meet FCA criteria to be offered fixed rates. These fixed rates would vary according to the loan-to-value of the mortgage prisoner, so would be reflective of risk.

The amendment does not single out mortgage prisoners for help that is not available to other borrowers in the active market. It just ensures that mortgage prisoners are able to access fixed-rate deals on the same terms as others in the active market. It stops mortgage prisoners being exploited by vulture funds and inactive lenders and it ensures that they are treated fairly. The amendment requires the FCA to set the criteria for accessing new fixed-rate deals and interest rates based on those in the active market so that mortgage prisoners are treated the same as those in the active market and can access new deals with their existing lender.

There will be no cost to the Government in ensuring that mortgage prisoners are treated in the same way as borrowers in the rest of the market. Taken together, these changes will tackle the harm being caused to mortgage prisoners and their families. It is surely time for the Government to acknowledge their moral obligation to help solve the problem they have created and do something to relieve the plight of mortgage prisoners. I beg to move.

My Lords, I am pleased again to support the noble Lord, Lord Sharkey, in his noble quest to protect mortgage prisoners, as I did when he tabled a similar amendment in Grand Committee.

I appreciated the commitment of my noble friend Lord Harlech in his winding up that the Government would consider the proposals of Martin Lewis, the LSE and the APPG on Mortgage Prisoners that have been put forward. As he said, mortgage prisoners are the forgotten victims of the financial crash. The banks were bailed out at the expense of these borrowers. Furthermore, the margins between the Bank of England base rate and typical standard variable rates have expanded by more than double.

The problem is that the unlicensed lenders that bought the mortgage books of this group of borrowers do not offer the fixed-rate products that are available to borrowers in the active market. I stress that my motive in supporting the noble Lord’s amendment is to support this group of genuine mortgage prisoners, who are unable to switch to a new fixed-rate mortgage despite having been up to date and not missed any payments.

The Government have acknowledged the detriment caused to mortgage prisoners. This Bill offers an opportunity to provide them with some relief from the difficulties that they are trying to cope with. I hope to hear from my noble friend some concrete plan to assist them as the Government have done for many disadvantaged groups—as a result of the Covid pandemic, for example. I look forward to the Minister’s reply.

My Lords, I rise briefly, having spoken on this issue both in Committee and back in the last financial services Bill, just to put a human face on this. In doing that, I remind the Minister of the representatives of the mortgage prisoners whom we heard from at the meeting in the Treasury a couple of months ago.

The face I have chosen to put on is that of 63 year- old Jacqueline Burns, who spoke to the I newspaper in April about what her life is like now that she is a mortgage prisoner. She said:

“I am cutting back on food because I can’t afford to eat … I am so stressed out right now, I am at the end of my tether”.

The story, as Ms Burns told the I, was that she bought her home in Cambridgeshire for £69,000 in 2006 from SPML, which was an arm of Lehman Brothers. Ms Burns remembers that the broker “was really nice” and “pushed me … towards SPML”. We can all probably imagine why that was. The situation in which Ms Burns now finds herself is that she is on the standard variable rate and owes £109,000; remember that she paid £69,000 for the house. Because of the rise in interest rates, her mortgage payments have gone up from £333 a month to nearly £700 a month. She simply cannot pay.

She is in this situation because of a failure of government regulation, and because of arrangements made by the Government that made a significant profit. There is a huge moral responsibility. If we think about the costs that must be being imposed on the NHS by people who eventually become homeless and need council homes et cetera, it is clear that the Government should look not just at their moral responsibility; they also need to ensure that people get a fair deal and do not end up—even if the Government are not thinking of anything else—costing the taxpayer a great deal.

My Lords, we are grateful to the noble Lord, Lord Sharkey, for bringing back this amendment and for his persistence on this issue over many years. We are also grateful for the work of the APPG, particularly to Rachel Neale, who herself is a mortgage prisoner and has become a champion for those people who have been affected by this problem. I also want to mention my colleague in the Commons, Seema Malhotra, who is doing a lot of work on this issue.

We are hugely sympathetic towards mortgage prisoners, who have endured difficulties over so many years now, and wish that the Government had acted earlier to ease the burden on them. We were pleased to back this amendment during the passage of the Financial Services Bill in early 2021, when it passed by 273 votes to 235. However, we are mindful that at that point the House of Commons rejected that amendment, and did so at a time when a much larger proportion of the population was experiencing issues with mortgage affordability. In recent weeks, however, we have seen hundreds of mortgage products pulled and rates hiked on those that remain available. A number of major banks have even temporarily withdrawn offers for new customers, putting the brakes on the aspirations of many first-time buyers.

Of course, mortgage prisoners are in a different position, in that they have been facing problems for many years and are just not able to simply switch products in the way that others can. As the Minister will no doubt outline, while this amendment did not make it into the Financial Services Act 2021, it did prompt some new and welcome actions from the Treasury, regulators and banks. New advice was available and a number of lenders relaxed their criteria in certain cases. We know that the elected House has already rejected this proposal and, realistically, it is unlikely to reconsider in the current context, but more does need to be done. Can the Minister let us know whether the Government intend to respond to the recommendations that were made by the LSE in its report? If they are, when will that response be forthcoming? The Government urgently need to get a grip on the issues facing the mortgage market generally and, once that situation has calmed, we hope they will be able to do what they can to ease the difficulties faced by mortgage prisoners.

My Lords, I thank all noble Lords who have spoken in this debate, and in particular the noble Lord, Lord Sharkey, for tabling this amendment. I start by emphasising that the Government take this issue extremely seriously. We have a great deal of sympathy for affected mortgage borrowers and understand the stress they may be facing as a result of being unable to switch their mortgage. That is precisely why we, and the FCA, alongside the industry, have shown that we are willing to act, and have carried out so much work and analysis in this area, partly in response to prior interest from this House, as alluded to by the noble Baroness, Lady Chapman. This has included regulatory changes to enable customers who otherwise may have been unable to switch to access new products.

The Government remain committed to this issue and welcome the further input of stakeholders. For this reason, during Committee, the Government confirmed that they were carefully considering the proposals put forward in the latest report from the London School of Economics. Since then, as noted in the debate, I have met with the noble Lord and further members of the APPG and representatives of the Mortgage Prisoners Action Group to discuss the findings of the report and the issue of mortgage prisoners more widely.

The Economic Secretary to the Treasury has also written to the noble Lord, including to provide further clarity on the proceeds from the sale of UKAR assets. The LSE report recommends free comprehensive financial advice for all. That is why the Government have continued to maintain record levels of debt advice funding for the Money and Pensions Service, bringing its budget for free-to-client debt advice in England to £92.7 million this financial year.

The other proposals put forward by the London School of Economics are significant in scale and ambition. While the Treasury has been engaging with key stakeholders, including the LSE academics behind the report, for some time, including since Committee, we have concerns that these proposals may not be effective in addressing some of the major challenges that prevent mortgage prisoners being able to switch to an active lender. For example, the proposals would not assist those with an interest-only mortgage ultimately to pay off their balance at the end of their mortgage term.

We continue to examine the proposals against the criteria put forward originally by then Economic Secretary to the Treasury, John Glen, to establish whether there are further areas we can consider. I remind the House that those criteria are that any proposals must deliver value for money, be a fair use of taxpayer money and address any risk of moral hazard. This does not change the Government’s long-standing commitment to continue to examine this issue and what options there may be. However, it is important that we do not create false hope and that any further proposals deliver real benefit and are effective in enabling those affected to move to a new deal with an active lender, should they wish to.

I will not repeat the arguments against an SVR cap, as we discussed them at length previously in this House. An SVR cap would create an arbitrary division between different sets of consumers, and it would also have significant implications for the wider mortgage market that cannot be ignored. It is therefore not an appropriate solution, and I must be clear that there is no prospect of the Government changing this view in the near term. In the light of this, I ask the noble Lord to withdraw his amendment.

I thank all noble Lords who have spoken in this customarily brief debate on mortgage prisoners. I especially thank the noble Viscount, Lord Trenchard, for his contribution today and in Committee.

I am uncertain about what the Government’s response consists of. It seems to me that perhaps it consists of three things. The first is exculpatory—it was not our fault. It was the Government’s fault; it cannot be anybody else’s fault that these mortgage prisoners are in the position they find themselves in.

The second thing I am uncertain about is what the Government are actually going to do. I hear expressions of good will and care for mortgage prisoners but I do not hear anything at all that amounts to a plan, or the sight of a plan, or an objective, or something concrete that would help these people. I did not even hear whether we will get a response to the LSE report any time before the Summer Recess, or indeed whether there is a date by which response can be made—perhaps the Minister can enlighten us. I remind her again that by the Summer Recess it will be five months since the LSE report was presented, and the Treasury surely has had time to analyse it in some detail and to make a considered response.

It is quite clear that the real distress experienced by these mortgage prisoners is not understood or felt deeply within the Government or the Treasury. When we had a meeting with the Minister, we had a couple of the leaders of the Mortgage Prisoners group alongside us who told us some terrible stories about what has happened to their families over the past 10 years; 10 years of paying too much money—more than they should have done and more than they needed to in many ways—to these vulture funds.

I remind the Minister that, in the beginning, what happened was this: after the Northern Rock debacle, when the Treasury took over the mortgage books and then decided to sell them on, it sold them to vulture funds without any of the normal protections. The Treasury at the time—or UKAR—said it had an agreement with these vulture funds that would allow changes to fixed rate mortgages and changes out of the mortgages themselves. The vulture funds, of course, deny all that, and there was nothing in writing. In other words, the Treasury chose to sell these products on to the closed market without any protection because it knew that if it did that it would get a higher price for the mortgage books than if it had installed the protections it said it had but turned out not to have done at all.

It seems to me that this leaves us not knowing whether the Government are committed to helping or not. It would be enormously valuable if the Minister could at some point say exactly what they think they can do, or should do or will try to do, to help these people whose lives are being ruined—suicides have taken place and illnesses are common among these people, with stress and anxiety afflicting entire families. We should not leave them without any help, which is effectively what we have been doing up until now.

I am not going to ask the House to divide on all this because, as the noble Lord, Lord Tyrie, memorably said a couple of days ago, the troops do not seem to be here for that. However, I repeat that the Government are being cold-hearted and cruel with these mortgage prisoners and should offer some meaningful support. With that, I beg leave to withdraw the amendment.

Amendment 107 withdrawn.