Financial Services Reform

Statement

The following Statement was made in the House of Commons on Wednesday 16 July.

“With permission, Mr Speaker, I shall update the House on the content of the Leeds reforms.

The reforms encompass the Government’s financial services growth and competitiveness strategy, which is our 10-year plan for financial services. This plan will make the UK the global centre of choice for financial services investment by 2035, with all parts of the country benefiting from its success, building on our thriving regional financial services clusters around the country.

The financial services sector is one of this country’s largest and most productive sectors. It is worth 9% of total economic output and provides 1.2 million jobs across the UK’s nations and regions. Our strategy will unleash the potential of the sector to catalyse growth, enterprise and opportunity in the rest of the economy. That will mean that working people will get better returns on their savings, that home ownership will be unlocked for tens of thousands more people, and that more businesses will get access to the capital that they need to grow.

The Secretary of State for Business and Trade recently presented to this House our modern industrial strategy in which financial services was identified as one of the key eight growth driving sectors on which the Government will focus. This builds on the successes of our first year in office, which I am proud to highlight: the fastest growth in the G7 in the first quarter of this year; four interest rate cuts; faster wage growth in the past 10 months than the previous 10 years of the last Government; the FTSE100 yesterday at a record high; and business confidence at its highest in nine years.

Our vision is of an active state working in partnership with business, and the Leeds reforms were co-designed with industry. The Chancellor and I undertook extensive engagement in its preparation, and I was pleased to see financial services firms across the country and the CBI welcome our reforms publicly. The reforms reintroduce informed risk-taking into our financial services system to deliver prosperity for working people. We will always ensure that financial stability is a prerequisite for economic growth, and we continue to uphold our commitment to the high international standards that underpin the resilience of the global financial system.

I will briefly set out the details of our package to the House. First, the Government are delivering a competitive regulatory environment to attract investment and drive growth. We have set out plans to deliver the most significant reform to the Financial Ombudsman Service since its inception, ensuring that it no longer acts as a quasi-regulator and returning it to its original purpose as an independent, impartial dispute resolution service for complaints between consumers and financial services firms.

We are also streamlining the senior managers and certification regime to reduce the burdens imposed on firms by 50% and to reduce approval times. We have tasked the Financial Conduct Authority to report back by September on how it plans to address concerns about the application of the consumer duty for firms primarily engaged in wholesale activity.

Secondly, our reforms unlock capital for investment into our infrastructure and businesses. We are doing this by supporting the Bank of England’s changes to MREL—the minimum requirement for own funds and eligible liabilities—and by confirming our approach to Basel 3.1, implementing lower capital requirements for domestically focused banks from January 2027 while preserving flexibility in our approach for international banks to ensure that the UK remains competitive and aligned with international standards.

We are also committing to meaningful reform to ring-fencing, while maintaining the aspects of the regime that support financial stability and protect customer deposits. We welcome the Financial Policy Committee’s review of the overall bank capital levels needed for UK financial stability and its decision to ease its loan-to-income restriction on mortgage lending. I am delighted that this decision will enable up to 36,000 additional first-time buyers to access mortgages in the first year.

Thirdly, we are making the UK the location of choice for fintechs to start up, scale and list, and we want the wider financial services sector to embrace innovation too. The FCA and the Prudential Regulation Authority will launch a scale-up unit to ensure that fast-growing businesses have the support they need to grow. The regulators will also introduce a new stream- lined authorisation regime that will enable innovative firms to start operating while they await full approval. We are modernising and future-proofing the regulatory framework for payments and e-money, including stable- coin, and we are establishing a new model to deliver next-generation retail payments infrastructure.

Fourthly, we are seizing opportunities in key areas of UK leadership, from speciality insurance and asset management to sustainable finance. Our insurance sector has been world-leading for centuries, and we are committed to staying at the front of the pack by creating a new captive insurance framework and holding an industry showcase event later this year to sell the sector globally. We are also future-proofing the regulatory regime for our asset management sector, which is the second largest in the world, and we will publish draft legislation on that early next year.

The UK is already a leading global hub for sustainable finance. We have set out plans for a stable regulatory framework, and we are giving industry clarity by deciding not to pursue a green taxonomy and by focusing instead on ambitious policies that support investors to invest in the transition. I look forward to continuing to work with Lord Alok Sharma and the Transition Finance Council, which he chairs, to make the UK the leading international hub for raising transition finance.

Fifthly, we want to go further in building a new retail investment culture and boosting our capital markets’ competitiveness. We have taken great strides to reform our pensions system, led by the Parliamentary Secretary to the Treasury, my honourable friend the Member for Swansea West, Torsten Bell, so that people can have better savings in retirement. We want savers to get the best returns on their savings. For too many their money is not working hard enough, and for too long advice on investments has been the preserve of only the wealthiest in society. To address this, the Chancellor has announced the biggest reform of the financial advice and guidance landscape in more than a decade and the introduction of targeted support in time for the new tax year. The Chancellor and I welcome the steps being taken by industry to help consumers engage with investing. I particularly thank Chris Cummings of the Investment Association for the work he is leading on that.

We are also considering reforming the individual savings account system to ensure better outcomes for both savers and the UK economy. We are allowing long-term asset funds to be held in stocks and shares ISAs next year. This will allow more individuals to invest in assets that will support the UK’s success while seeing better returns on their savings. To ensure that our capital markets support British business, we are announcing a new listings taskforce with the Office for Investment to attract world-leading businesses towards initial public offering in the UK. We are publishing a wholesale financial markets digital strategy to harness innovation as well as our ambitious design for the digital gilt instrument pilot.

Finally, we are taking steps to enhance the UK’s leadership in financial services, ensuring that the UK remains the most open and connected financial centre in the world. We will launch a concierge service—the Office for Investment: Financial Services—to attract international financial services firms to invest in the UK and grow their business. We are further facilitating cross-border activity with the publication of guidance on our overseas recognition regimes and a memorandum of understanding with UK regulators, a copy of which I will place in the Library in both Houses.

Through these steps, the Government have placed financial services at the heart of our growth mission. Our 10-year strategy is ambitious, includes the most far-reaching reforms to financial services for a decade, and will unleash the fantastic potential of our world-leading financial services sector. We are backing British businesses, unlocking home ownership for tens of thousands of people across the country, supporting savers to get better returns, and investing in our shared future. I commend this Statement to the House”.

20:07:00

My Lords, the proposed changes outlined by the Government in what they are calling their Leeds reforms are broadly to be welcomed. It is essential to get the balance right between protection and risk. Like the Government, we accept the analysis that while financial prudence is important, we have moved too far towards protection and away from delivering economic growth and competitiveness. It is right that we take steps to facilitate our financial services sector, which contributes 9% of economic output. However, I have to take some issue with the tone that the Government have adopted when introducing these proposals. The Government have spoken of our country “thriving” and of our nation “benefiting”. The statistics tell a different story. The ONS reported last week that the rate of UK unemployment increased to 4.7% in the three months to May, up from 4.6%, and, meanwhile, average earnings growth has slowed to 5% in the period to May, its lowest level for almost three years. GDP contracted 0.1% in May and 0.3% in April. Inflation has risen beyond all expectations to 3.6%. Industry experts have said that the UK’s economic situation is simply staggering. They have said that the Government’s management of economy has been dire and that the Chancellor has to seriously rethink her policies. Perhaps most worrying of all, yesterday we saw the second-highest June borrowing figures since records began, with spending exceeding income by over £20 billion and debt interest now at 96% of GDP. I turn to the reforms. The hard-hitting recent report by the Financial Services Regulation Committee, chaired by my noble friend Lord Forsyth of Drumlean, outlined how the Government could support the FCA and the PRA in meeting their vital secondary objective of supporting the UK’s international competitiveness and medium to long-term growth. I am pleased that the Government have bowed to the spirit of this cross-party report and implemented several important ideas, such as reform of the Financial Ombudsman Service, improvements in product authorisation rates—including those for high-growth fintechs—and in the senior managers and certification regime. These approvals are all too slow in my experience as a non-executive director. Moreover, as the report makes clear, the truth is that firms are inundated with information requests from the FCA and the PRA and the burden of compliance in the UK is perceived to be disproportionately high. So these are welcome steps, and we agree that things must change. However, the Minister will not be surprised to know that my first question is: how quickly will these changes take place? I cannot hope to cover all that was announced last week in the other place and at Mansion House. We need a proper debate for that. However, I would like to tease out some detail. First, we were told that the Government were considering reforming the individual savings account system. They have already said that they will allow long-term asset funds to be held in stocks and shares ISAs next year. Is this only one of the changes under review? How will the Government support funds to invest in such projects? How will the relevant information be communicated to retail investors? Can the Minister confirm what the Government’s plans are for cash ISAs? Without clarity on this question, the Government risk undermining their own efforts to promote home ownership and hitting customers who rely on cash ISAs for their investments. Secondly, on financial education, both the Government and the Opposition are clear that we need to stimulate investment and support our financial services sector. These reforms take us some way, but there remains the question of how we can create a culture of investment in our country. We have seen an uptick in the rates of retail investment, stimulated in part by online trading platforms. But for many people, the idea of investing their money is concerning and the language technical, dense and confusing. We need a society in which people understand the possibilities and risks better and actively invest their money across a wider range of products, not letting it sit largely dormant. Education needs to start in schools, where children can be taught about markets, savings, investment, even pensions, and how to make best use of their money. The report for the Financial Services Regulation Committee, which I mentioned earlier, highlights the poor financial literacy that is prevalent in the UK. Can the Minister outline the steps that the Government are taking to support people across the UK to become retail investors and how they are educating our citizens so that they are willing and able to take responsible investment decisions? Above all, does the Minister agree that this education has to start in school lives? What steps will he take with colleagues in the Department for Education to do this more effectively? Thirdly and finally, we need more clarity from the Government on pensions. Since last week a revival of the Pensions Commission has been announced; it will involve the noble Baroness, Lady Drake, whose expertise on pensions is so much appreciated here. However, I have a concern that this further review risks delaying action and creating uncertainty for businesses and savers. There are serious and urgent questions around pensions adequacy, as the OBR forcibly reminded us on 8 July. What will the Government do, and do soon, to capture those who do not benefit from auto-enrolment and/or save too little for their retirement? What is the timing of the Government’s plans to encourage pension funds to use more of their capital to support growth and infrastructure at home? The clock is ticking. To sum up, the financial services reforms are in the right direction, but the UK’s financial position is troubling and may be deteriorating. I am sure that we will return to these concerns all too soon.

My Lords, I spent two years on the Parliamentary Commission on Banking Standards following the 2008 crash. We were all aware that the financial sector and the City would, over time, work hard to erode the protections that we recommended to prevent a repeat of financial instability, casino-type risk-taking and consumer abuse. The financial sector plays a long game. Inch by inch the erosion is well under way, while the Government are seen as eager for nominal growth and too eager to resist that erosion. Let me give a short list on the erosion: the competitiveness and growth objective for regulators; the changing to matching adjustment in Solvency UK, increasing the illiquidity of the insurance sector; the removal of the cap on bankers’ bonuses; the permanent permission for pension funds to transact derivatives without using central counterparties and holding margin collateral; the watering down of the senior managers regime, which is key to accountability; the weakening of the Financial Ombudsman; the pressure on pension funds to invest in high-risk and illiquid assets; and the weakening of bank ring-fencing, which was absolutely at the heart of the commission’s recommendations, removing that incentive to take free deposits and roll them in the casino. That list is just what springs immediately to mind. It is far from complete. Regulation cannot be written in stone, and adjustment and streamlining are always necessary, but will the Government now issue a compendium of all the changes, along with a proper assessment of the cumulative shift in risk? I mean changes by not just the Government but the various regulators. Parliament will then be in a position to make a proper judgment. The financial sector has approved this move back towards what it sees as a return to the light-touch regime, a regime that made it very rich. But remember that when the inevitable crash came, leading financiers were pretty much untouched. Ordinary people bore the brunt. It is crucial that this is not repeated.

My Lords, I am very grateful to the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, for their questions and comments. I will do my best to address all the points they raised. The noble Baroness, Lady Neville-Rolfe, spoke about the economy in general. She will be aware that we have had to take very difficult decisions on the economy to generate the stability that we all want to see—not least to restore stability to the public finances in the Budget last October. The stability that we have restored is already delivering. We have seen four cuts in interest rates by the Bank of England since the general election, reducing the cost of mortgages and business lending. Real wages have risen more in the first 10 months of this Labour Government than in the first 10 years of the previous Conservative Government. Investment is returning to our economy. At the spending review, the Chancellor set out £120 billion of additional public investment. The IMF has long identified the insufficient amount of investment in our public sector as a barrier to growth. The UK has attracted £120 billion of private sector investment in just the last 12 months. The noble Baroness mentioned recent growth figures. Those growth figures were disappointing, but we are determined to go ever further and faster to deliver on our growth promise. That is why we are doing all the reforms that we have embarked on—not least the spending review and increased investment. We have increased investment in better city region transport, have committed record funding for affordable homes and are backing major infrastructure projects such as Sizewell C. We are investing in the parts of the economy that genuinely will be growth generative. The noble Baroness also talked about the importance of financial services to the economy. The financial services sector is critical to our growth ambitions for our country. It is one of the largest and most productive sectors in the UK, worth around 9% of total economic output, as she said, employing 1.2 million people in clusters right across the UK. London is the financial centre of the world, home to the deepest equity capital market in Europe and the third-biggest venture capital market globally. It is right that we support the sector as we have in the strategy that we have set out, to see the growth that we want to see and for that growth to feed through to the real economy. I am grateful to the noble Baroness, Lady Neville-Rolfe, for welcoming what we have said about the rebalancing between risk, growth and competitiveness. The noble Baroness, Lady Kramer, struck a very different tone. I know that she has huge expertise in this. I do not for a second intend to in any way doubt her expertise. I know that she played a huge role post financial crisis in putting together much of the architecture that is in place. I disagree, though, with the way in which she characterised our reforms. She asked for a compendium of those reforms. The financial services growth and competitive strategy is the compendium of those reforms. I think that what have been called the Leeds reforms are the totality of the reforms that she identified. We are not removing the regulatory architecture that was put in place and that she played a major role in after the global financial crisis. As the Chancellor has specifically said: “The protections that were put in place … were the right thing to do, with better protections for consumers and more accountability injected into the system”. The core elements of that—adherence to international standards, ensuring robust MREL, remaining committed to ring-fencing, which we do despite what the noble Baroness said, and the structure to the regulatory system—all remain in place. But we believe that the pendulum swung too far in the opposite direction. The balance of regulation has gone too far towards regulating for risk and not enough towards regulating for growth. Clearly, this is a highly competitive sector, and no other globally competitive financial services hub imposes such bureaucracy on its businesses. Neither should we if we want to be competitive. So, absolutely, we are recalibrating. We are rebalancing the approach to risk so that it is more proportionate and so that, in the right places, consumers and industry can take informed risk and create the space for the innovation and growth in the sector that we want to see. The noble Baroness, Lady Neville-Rolfe, mentioned the Financial Services Regulation Committee of this House and the fact that it identified many of the issues that have been addressed in this strategy. Obviously, I pay tribute to that committee and the work it has done. I look forward to debating its report in due course. That points to a degree of cross-party consensus in some of the challenges we face and want to address. She specifically mentioned financial education, for example, which was one of the key recommendations made in that report. I hope we can find consensus on the importance of that, if nothing else. As the noble Baroness said, we need to build confidence for retail investment among the general public on a platform of greater education. As part of the Leeds reforms, we are looking to take forward a series of measures to give consumers the confidence to invest, so that they can grow their savings and access the long-term benefits that investing can bring. There are three specific measures for that. The first is a new targeted support framework, enabling people to access the help they need to make the right financial decisions. The second is a cross-industry initiative to reframe how firms talk about investing, so that they talk about the growth benefits and not just the risk and warning people off. The third is an industry-led, multiyear advertising campaign to showcase some of the benefits of investing for the general public. As the noble Baroness, Lady Neville-Rolfe, said, that of course has to come on the basis of greater financial education. We discussed this previously and I have looked into it. Financial education does form part of the school curriculum in all UK nations. In England, financial education forms a compulsory part of the curriculum for mathematics at key stages 1 to 4, and citizenship at key stages 3 and 4. Together, they cover personal budgeting, saving for the future, financial risk, managing credit and debt, and calculating interest. But the noble Baroness is quite right that of course we should go further. The Government have established an independent curriculum and assessment review covering ages five to 18 in England. The review is considering whether the curriculum provides sufficient coverage of key knowledge and skills, including financial education, to prepare young people for future life and to thrive in a fast-changing world. The review’s final report and recommendations will be published in the autumn with the Government’s response. On that note, the noble Baroness also asked about the timescale for a lot of what we have announced. Many of the reviews we have announced as part of these reforms will report in the autumn. At that point, we will see a lot of the things she spoke about coming to fruition. The noble Baroness asked about ISAs. The Government will continue to talk to industry and others about the options for ISA reform. We recognise the potential for ISA reform to improve returns for savers and access to capital for UK businesses. Although there are differing views out there among stakeholders, we are all united in wanting better outcomes for savers and the UK economy. Finally, the noble Baroness, Lady Neville-Rolfe, asked about pensions and quite rightly paid tribute to my noble friend Lady Drake, as I do too. I cannot think of anyone better equipped to take part in that review. Many of the questions she asked will be answered in phase 2 of the pensions review, so I shall wait until that is in place before commenting on the points she raised.

20:25:00

My Lords, I thank the Minister for the Statement. The Government want to reintroduce informed risk-taking into our financial services system to deliver prosperity for working people. As my noble friend Lady Kramer pointed out, the last time we had risk-taking in the financial services system in a context of global competitive deregulation, in 2008, it created a crisis that meant the taxes of working people bailed out the bankers. How confident are the Government that we are not going down that path again? In that context, why is the Chancellor disagreeing with the Governor of the Bank of England, who said that “we can’t compromise on … financial stability” and, notably, failed to endorse the route the Chancellor is taking? On what the Minister called “reforming the ISA system”, I certainly agree with the comments that have been made about the need for more financial education, and it may be that ISA reforms can be discussed. But I question the way in which the Chancellor went about this. She created a scare story about how cash ISAs were going to be abolished. That scare story has run for several months, which will surely discourage the normal punter who is not confident in retail investment from saving at all. Should the Chancellor not sack the spad or speech-writer who is encouraging her to shoot from the hip, which she seems to have a bit of a tendency to do, and take the better route of launching a reasonable debate, instead of letting these issues float and scare people?

I am grateful to the noble Baroness for her contribution. There was a lot there. There was a crumb of truth in the things she said, but I certainly do not accept the characterisation of any of the three points she made. She started by talking about risk-taking. Do we want informed consumers to be able to take risks in order to get better returns? Yes, we do. She talked about how just that alone would take us back to the situation at the time of the financial crisis. I have already set out that I fundamentally do not accept that point. We are not removing any of the regulatory architecture that was put in place after the global financial crisis and, as I have said, the Chancellor said very clearly: “The protections that were put in place … were the right thing to do, with better protections for consumers and more accountability injected into the system”. Does the noble Baroness think it is right that if a consumer has a large amount of cash sitting in their bank account, the banks that money is with cannot say to them that there might be better ways to invest their money? That is at the core of what she talked about. She started her remarks talking about better returns for consumers. That is exactly what we are talking about: getting better returns for consumers. That is why introducing a greater level of risk is important. The noble Baroness talked about the Chancellor being at odds with the Governor of the Bank of England. Again, I do not think that is the case. I have read the comments. He is talking about the things that we are doing, so I do not think that that is true, and I do not think that they are at odds. I think I have already addressed the question on ISA reforms. As I have said, the Government will continue to talk to industry and others about the options for ISA reforms. Again, we recognise the potential for ISA reforms to improve returns for savers and access to capital for UK businesses. At the end of the day, all these reforms are about getting better returns for savers—surely, we can all agree with that—and better returns for the UK economy and, again, I hope we can all agree with that.

My Lords, history shows that infatuation with deregulation of the finance industry always ends up destabilising the economy. At the moment, shadow banks are bigger than retail banking and totally unregulated. Private equity is devouring care homes, water, veterinary services, town centres and companies all over the UK. Its gearing ratio is higher than that which brought down Lehman Brothers and Bear Stearns, but the Government have still not moved to look at that sector. Under the so-called effective or tighter regulatory regime that we have now, money laundering by HSBC was buried, and we are still waiting for a report on the 2003 HBOS fraud and no regulator even wants to look at it. It will not get any better under the Government’s proposals, because the post-2008 crash reforms are being repealed and the regulator’s consumer protection duties have been diluted. There will not be enough money to bail out banks, businesses, markets and households when the next crash inevitably comes. Effective risk management must consider the likelihood of what are often called black swan events. What assessment have the Government made of the probability of a financial crash?

I am always grateful to hear from my noble friend on all these topics. I disagree with him, as always. He said that the 2008 reforms are being repealed. I cannot see anywhere in the Chancellor’s statement where that is the case. As I have said clearly and as the Chancellor has said clearly, the protections that were put in place were the right things to do with better protections for consumers and more accountability in the system. My noble friend said that there would not be enough money to bail out banks in a crisis. We have been clear that the minimum requirement for own funds and eligible liabilities regime plays a crucial role in maintaining financial stability and ensuring that taxpayers do not pick up the cost of bank failures. However, it is important that the regime is proportionate so that smaller banks can scale up, expand and support lending to UK households and businesses. As my noble friend will know, the Bank of England has announced the outcome of its MREL consultation.

My Lords, the Minister mentioned how interest rates have been cut, and other noble Lords on the Government Benches have mentioned the same thing. Does he agree that the Bank of England dictates monetary policy, not the Government, and that the reason why the Bank of England has been cutting interest rates is because of clear evidence of a slowing economy, not because the Government’s policy is working?

As the noble Earl says, the Bank of England has operational independence to achieve the inflation target set by the Government. We absolutely support it in the work that it does to do that. However, it is absolutely the case that the Government’s fiscal policy has created the space for the Bank of England to cut interest rates. At the risk of repeating an old favourite of ours, if we still had a £22 billion black hole in the public finances, it would not have had the space to do that. It is obviously right that fiscal policy and monetary policy work together.

I think it is worth reminding the House that I spent my entire working life in the financial services industry in one form or another, and I am afraid to say that my practical experience of the industry has made me a sceptic of much of the promotion provided by it telling us how it will do the economy a favour. Does my noble friend agree that there are potential downsides to the financialisation of the economy that seems to lie behind these proposals? We need to realise that there is a form of resource curse in overfinancialising the economy. There is also a dynamic within the industry driven in large part by the inevitable asymmetry of information. You can provide all the education and explanation that you wish, but there will still be this asymmetry of information leading to a succession of scandals. There is a dynamic in the industry—in personal pension scandals, endowment scandals and the Northern Rock scandal there was a dynamic that has to be recognised. Finally, I am concerned that, in the Statement, the Government appear to be giving people financial advice. I am sure my noble friend will deny that that is what they are doing, but saying that the Government are going to get people better financial returns is a very dangerous path to go down. Does my noble friend the Minister accept that there is a need for robust safeguards for ordinary investors? I press him to accept that those appear to be contemplated by some of those commenting on these proposals. Significant weakening is a grave danger to the economy and individuals.

I am grateful to my noble friend for his question, and I pay tribute to his experience in the industry that he outlined. I do not agree with his view of the industry. I am incredibly proud of the financial services sector in this country: it makes a massive contribution to our economy, and it is incredibly important that we enable it to grow and that that growth feeds through to the real economy so we can see the investment in the real economy that we want to see. My noble friend talks, perfectly correctly, about finding the right balance between risk and growth. As I say, we are not dismantling any of the architecture that was put in place in the aftermath of the financial crisis, and it is quite right that we do not do that, but we believe that the pendulum has swung too far towards regulating only for risk. It needs to regulate not just for risk but for growth, and that is the right thing to do. I think my noble friend is wrong to say that we are in any way giving financial advice. We are trying to put in place what has been called a targeted support framework that enables people to access the help they need to make the right financial decisions for them, and that will be ready to support consumers by ISA season next year. It would enable authorised firms, not the Government, to proactively suggest appropriate products or courses of action, using limited information about a customer and their circumstances. That could include helping people to make decisions about how to access their pension, supporting people with excess cash savings to consider investing for the first time. I cannot believe that anyone would think that was anything but a good idea.

My Lords, my question follows on from those of the noble Lords, Lord Davies of Brixton and Lord Sikka, both of whom spoke about financialisation. Earlier this year, the head of UNCTAD—UN Trade and Development —Dr Anastasia Nesvetailova wrote a piece on a path out of the “finance curse”. It offered suggestions to global South countries—developing countries—using the UK as a case study of what to be aware of from the finance curse. She wrote that “financialisation had progressed against the backdrop of deepening asymmetries—sectoral and regional—in incomes, wealth, employment and even access to public services”. I think we would all have to agree with that. She went on to say that “the system … appeared to serve the interests of global asset owners rather than those of the people of the United Kingdom”. How are the Government going to ensure, if indeed their changes have the effect that they desire, that the benefits are going to trickle down to people outside the financial sector? How else is the rest of the economy going to benefit?

I have already made it clear in previous answers that I disagree with that analysis. It is not at all how we see the financial services sector. How are people going to benefit? I think the 1.2 million people employed in the financial services sector right across the UK will benefit from that. That is a pretty substantial benefit. The noble Baroness will know that we need to get more investment into our economy, and we are not going to get that investment unless we have a growing and thriving financial services sector. So I am very clear that I disagree with the noble Baroness’s analysis.

My Lords, any system of regulation consists of rules and administration. If you have good rules and bad administration, you will get bad regulation. Is my noble friend satisfied that the quality of administration is sufficient? If not, what is he doing about it?

My noble friend sums up quite nicely the balance between rules and administration. We are maintaining many of the rules that were put in place, as I have tried to make clear this evening. We are maintaining the architecture that was put in place after the global financial crisis, but the way in which those rules were administered was overly burdensome and probably disproportionate, placed too much of a burden on the sector and stifled the growth there that we want to see. As I have said, the pendulum swung too far in the opposite direction, and the balance of regulation has gone too far towards regulating for risk and not enough for also regulating for growth. As I have said before, no other globally competitive financial services hub imposes such bureaucracy on its businesses, so neither should we. My noble friend asks what we are doing about it. What we are doing about it underpins the entirety of these reforms. We are seeking to recalibrate and rebalance the approach to risk so that it is more proportionate and that, in the right places, consumers and industry can take informed risks so that we create the space for the innovation and growth in the sector that I think we all want to see.

My Lords, I welcome the Leeds reforms that have been announced, and I thank my noble friend the Minister for his comments. I am delighted that the noble Baroness, Lady Neville-Rolfe, agreed that the balance was being successfully struck between achieving financial stability and growth objectives. If some in the financial services industry have expressed disappointment, I suggest that that came from unrealistic expectations—perhaps a reminder of the challenge that it is for the Government to communicate the striking of that balance. I particularly welcome the commitment to review and prospectively reform bank ring-fencing. The headlines resulting from the Governor of the Bank of England’s comment to the Treasury Select Committee that it was “not sensible” to scrap ring-fencing perhaps exaggerate the difference between his views and those of the Government. Will the proposed review assess the effect of unreformed ring-fencing on the supply and cost of credit to business?

I am grateful to my noble friend for his comments. He started his remarks on the reception for these reforms. I think there is quite a consensus that they are a sensible and proportionate attempt to rebalance the system in the way that he describes. He spoke specifically about the ring-fencing regime and the Governor of the Bank of England’s comments yesterday, which were also referred to earlier. What the governor said and what we are doing are entirely consistent because the Government remain committed to retaining the ring-fencing regime, and that is what the governor was saying should be the case. I think what he said and what we are doing are the same thing. We have announced an intention to implement material reforms to the ring-fencing regime. This will be enacted via a Treasury-led review of the regime with input, crucially, from the Bank of England and the PRA, which will consider both legislation and PRA rules. The review will be published by early 2026. It will look in detail at how reforms to the regime could relieve unnecessary burdens, strengthen the banking sector’s ability to support economic growth and deliver against our commitment to ensure that post-global financial crisis regulation is balanced and proportionate. My noble friend asked about specific details of the reforms. These will be subject to the outcome of the review, so I am unable to detail them at this stage, but we will legislate to take them forward when parliamentary time allows if that becomes necessary.