Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

Tel: 020 8346 3482
Mobile: 07800 608 674


From the desk of Ruth Lea

Economic insight and financial comment related to the ever-changing financial landscape and the economic world at large.

Economic Perspectives

28th November 2016

Economic Insight - 28th November 2016

The Autumn Statement: weaker growth, higher public borrowing and debt, extra infrastructure spending

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the Autumn Statement (23 November).
Press Release

The Autumn Statement: weaker growth, higher public borrowing and debt, extra infrastructure spending

Date: 28th November 2016

The Autumn Statement: weaker growth, higher public borrowing and debt, extra infrastructure spending

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the Autumn Statement (23 November):
  • The OBR downgraded their GDP growth forecasts for 2017 (to 1.4%) and 2018 (to 1.7%), much as expected, reflecting the depressing effects of the Brexit vote. And they increased their CPI inflation forecasts for 2017 (to 2.3%) and 2018 (to 2.5%).
  • The projections for public finances were substantially revised, with an extra £122bn of borrowing for FY2016-FY2020 (inclusive). The sources of the extra borrowing were: the effects of Brexit (£59bn), ONS classification changes (£12bn), non-Brexit forecasting changes (over £25bn) and Government polices (£26bn).
  • Public sector net debt as a % of GDP is now expected to peak at over 90% in FY2017, before falling.
  • The Chancellor abandoned his predecessor’s fiscal rules, replacing them with much less taxing objectives. Nevertheless, fiscal consolidation is expected to continue.
  • The Autumn Statement was expansionary, reflecting the extra infrastructural spending within the new National Productivity Investment Fund (NPIF).
  • Tax changes included the freeze on fuel duty for FY2017 and the increase in the Insurance Premium Tax. The earnings taper on Universal Credit was reduced from 65% to 63%.
  • The National Living Wage hourly rate is to be increased to £7.50 from April 2017.
  • The Chancellor announced that, after next spring’s Budget, Budgets will be in the Autumn. There will also be a Spring Statement, not a major fiscal event, on the OBR’s revised forecasts.

Other developments include:
  • UK data suggest continued economic resilience. GDP growth was confirmed at 0.5% (QOQ) in 2016Q3, with growth being driven by household consumption (which grew 0.7%), a 1.1% increase in gross fixed capital formation (GFCF) and an improvement in the trade balance. General Government consumption also grew.
  • October’s public finances data were better-than-expected. Nevertheless, taking the total for the first seven months of FY2016, they have disappointed.
  • There are two key political events in the Eurozone on 4 December: Italy’s referendum on constitutional reforms and the second-round vote in Austria’s presidential elections.

Ruth Lea said, “commentary on this year’s Autumn Statement has tended to focus on the impact of the Brexit vote on growth and the public finances. But the OBR’s growth forecasts do look on the pessimistic side, given the resilience of the economy to date. The current weakness in the public finances, for non-Brexit reasons, continues to be a source of concern.”

For full story:

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482  
Follow Ruth on Twitter @RuthLeaEcon

David Marshall, Director of Communications
020 7012 2432, 07502 285 835  

Bell Pottinger:
Dan de Belder
020 3772 2561

Download full article

21st November 2016

Economic Insight - 21st November 2016

The Autumn Statement: steady-as-she-goes

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the forthcoming Autumn Statement (23 November)
Press Release

The Autumn Statement: steady-as-she-goes

Date: 21st November 2016

The Autumn Statement: steady-as-she-goes

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the forthcoming Autumn Statement (23 November):
  • There will be some “resetting” of fiscal policy, but given the current state of the public finances, it will be modest. The objective of the “balanced” budget by FY2019 has been dropped.
  • The OBR is expected to downgrade its GDP growth forecasts, possibly to about 1.3% for 2017 (2.2% for the March Budget) and to about 1.5% for 2018 (2.1% in March).
  • Such large GDP downgrades, along with the disappointing outturns for the PSNB so far in FY2016, are likely to have a significant impact on the OBR’s projections for the public finances. The IFS projections give a fair idea of the “direction of travel”. The IFS estimate that there will be a cumulative worsening in borrowing between FY2016 and FY2019 (inclusive) of around £62bn, compared with the OBR’s March forecasts.
  • Policy announcements are expected to include increased infrastructure spending, measures to improve productivity, and measures to help the Just About Managing (JAMs), including (possibly) a freeze on fuel duty and further progress on raising personal allowances and the 40p tax threshold.
Other developments include:
  • UK data suggest continued economic resilience. October’s retail sales were especially strong.
  • Despite Donald Trump’s surprise victory in the US presidential elections, the Fed is still expected to raise rates at its December meeting.
  • Eurostat confirmed that the Eurozone grew by just 0.3% (QOQ) in 2016Q3, to be 1.6% higher (YOY). The German economy grew by a disappointing 0.2% (QOQ).
  • The European Commission’s latest economic forecast included a downgrade for Eurozone GDP growth for 2017 to 1.5% (from 1.8% in May).
Ruth Lea said, “there will be keen interest in the OBR’s GDP forecasts for this week’s Autumn Statement. Though it is expected there will be sizeable downgrades, and the projections for the public finances will look worse than in March, it should be noted the economy could continue to out-perform ‘consensus expectations’. Forecasts are, after all, just forecasts. Otherwise, we are likely to see a “steady-as-she-goes” Autumn Statement, which is surely appropriate given the resilience of the economy.”
For full story:

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482  
Follow Ruth on Twitter @RuthLeaEcon

David Marshall, Director of Communications
020 7012 2432, 07502 285 835  

Bell Pottinger:
Dan de Belder
020 3772 2561
Download full article

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Comment, at a glance

£2.0bn trade deficit in October, compared with £5.8bn in September
9 December 2016

The total trade (goods & services) deficit narrowed to £2.0bn in October, compared with £5.8bn in September. Monthly data are erratic but the trend seems to be fairly stable at present.

Within total trade, the visible trade deficit fell to £9.7bn in October, compared with £13.8bn in September (revised up). Exports of goods increased by £2.1bn (MOM), whilst imports fell by £2.0bn. Within the goods total the oil deficit narrowed to £0.9bn, and the deficit on non-oil narrowed to £8.8bn. The services surplus was estimated to be £7.7bn in October, compared with September’s £8.0bn (revised up). Services exports were 42.3% of total exports in October. On a trend basis, services exports are increasing as a proportion of total trade.

Turning to the area analysis of the goods figures for October, the UK recorded deficits with EU and non-EU countries of £8.1bn and £1.6bn respectively. A geographical breakdown of services trade is not yet available.

The largest country deficits in October were recorded with Germany (£2.8bn) and China (£2.15bn). There were also sizeable deficits with the Netherlands (£1.4bn), Belgium-Luxembourg (£1.1bn), Norway (£1.1bn), Italy (£0.7bn), Spain (£0.5bn) and France (£0.4bn). Trade with the Netherlands and Belgium is distorted by the Rotterdam-Antwerp Effect reflecting UK exports routed through these ports for other destinations. Surplus countries included the US (£1.1bn), Switzerland (£0.7bn) and the Irish Republic (£0.4bn).

The recorded share of UK goods exports going to the EU, which is also distorted by the Rotterdam-Antwerp Effect, was 46.3% in October. On a trend basis, the share of goods exports going to the EU is declining.

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Production output slips in October
7 December 2016

Industrial production (15% of GDP) slipped 1.3% (MOM) in October, and was 1.1% lower than a year earlier. Manufacturing (10% of GDP) was down 0.4% (MOM), to be 0.9% lower (YOY). The monthly decreases in manufacturing were broad-based across the sector, with the largest downward pressure coming from pharmaceuticals, which fell by 3.6%. Mining and quarrying fell 8.6% (MOM) due to ongoing maintenance reducing production in the oil and gas extraction industry. But electricity and allied industries grew 3.5% (MOM) and water and allied industries rose 1.8% (MOM).

The ONS warned against overly interpreting one month’s figures. Taking the three months’ comparison (3 months to October), production fell 0.9% (QOQ), whilst manufacturing fell 0.3% (QOQ). In the 3 months to October, industrial production and manufacturing were 8.6% and 5.7% respectively below their levels reached in the pre-recession GDP peak in 2008Q1.

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Markit Surveys for November show continuing growth
5 December 2016

The much-followed Markit/CIPS surveys for the three main economic sectors indicated across-the-board growth in November.
·         The Markit/CIPS manufacturing PMI was 53.4 in November, a little softer than in October (54.2), but still in positive territory. Even though there was some loss of impetus in the growth performances of both production and new orders, they remained above long-term trends. The weak exchange rate continued to boost export competitiveness but added to cost pressures. There was improved demand from the USA, mainland Europe and the Middle East. (Data released on 1 December 2016.)
·         The Markit/CIPS construction PMI was 52.8 in November, compared with October’s 52.6, signalling an expansion in business activity for the third month running. Housebuilding remained the best performing category, whilst there was a marginal rebound in commercial activity. Civil engineering work remained the weakest area of activity. (Data released on 2 December 2016.)
·         The Markit/CIPS services PMI firmed further and was the strongest since January. The overall Business Activity Index was 55.2 in November, up on October’s 54.5. Growth in both new business and outstanding contracts encouraged service providers to take on more staff in November. Prices inflation, still an issue for firms, eased for the first time since May. (Data released on 5 December 2016.)

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October’s mortgage approvals for house purchase stronger
29 November 2016

Mortgage approvals for house purchase firmed further in October to 67,518, compared with September’s 63,594, and were higher than the average for the previous six months (63,914), according to the Bank of England’s latest “Money and credit” press release (table I). But they were still down on the recent peak of over 75,000 (January 2014). And they were well down on the monthly data recorded in the years prior to the recession, when mortgage approvals averaged 104,000 (2007), 119,000 (2006) and 100,000 (2005). The interest rate cut in August may have stimulated the housing market, amid general market confidence. 

 he stock of total lending to individuals (secured and unsecured) rose to £1,508.1bn in October, of which over 87% was secured on dwellings. The growth rate was still fairly modest, at 4.0% (YOY), unchanged from September (table G). Within the total:
·         The amount outstanding on lending secured on dwellings rose to £1,318.0bn, to be up 3.1% (YOY), compared with 3.2% in September (table H).
·         The amount outstanding on unsecured consumer credit rose to £190.1bn, a robust increase of 10.5% (YOY), compared with 10.4% in September (table J). The amount outstanding is still down on the £208bn peak of September 2008.

Total loans (amounts outstanding, including overdrafts) to non-financial businesses were £452.7bn in October, compared with September’s £448.3bn. The growth rate rose to 3.1% (YOY), compared with September’s 3.0% (YOY, table M). Within the total:
·         Loans to large businesses increased to £289.4bn, and the growth rate picked up to 4.0% (YOY).
·         But loans to SMEs (defined as turnover of less than £25 million) slipped to £163.3bn, and the growth rate eased to 1.7% (YOY).

Net lending (excluding overdrafts, gross lending minus repayments) to large businesses was +£0.6bn and to SMEs was -£0.1bn (table N, growth rates are not published).


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GDP growth unrevised at 0.5% in 2016Q3
25 November 2016

GDP (second estimate) increased by an unrevised 0.5% in 2016Q3 to be 2.3% higher (also unrevised) than a year earlier. This compares with a rise of 0.4% in 2016Q1 and 0.7% in 2016Q2. The ONS said the “growth in GDP has been in line with recent trends…this suggests limited effect so far from the referendum”. GDP in 2016Q3 was 8.1% higher than the pre-recession peak (2008Q1) and was the 15th consecutive quarter of expansion since the beginning of 2013. From peak (2008Q1) to trough (2009Q2) the economy shrank 6.3%.

In 2016Q3 GDP per head increased by 0.3% (QOQ). It is now 1.6% above the pre-downturn peak in 2008Q1, having surpassed it in 2015Q3.

Growth was driven by the services sector (79% of the economy), which rose by 0.8% (QOQ, unrevised). But production (15% of GDP) fell by 0.5%, within which manufacturing fell 0.9%, after a strong second quarter, though mining and quarrying bounced by 4.3%. Electricity, gas, steam and air conditioning supply industries decreased by 4.3%, whilst water supply and sewerage fell 0.5%. Construction output (6% of output) fell 1.1%.

Turning to the expenditure side, the main driver of growth was household consumption, which increased 0.7% (QOQ) and has grown for 7 consecutive quarters. Gross fixed capital formation (GFCF) grew by 1.1% (QOQ), to be 1.2% higher (YOY), whilst the level of inventories (including the alignment adjustment) increased by £3.1bn. General government consumption increased 0.4% (QOQ). The trade balance in goods and services also contributed to growth, with exports rising 0.7% whilst imports fell 1.5%.

Separately the ONS reported that business investment rose in 0.9% (QOQ) in 2016Q3, but was 1.6% lower than a year earlier. Also separately, the ONS said the services sector grew by 0.2% (MOM) in September, to be 2.9% higher than a year earlier. Over the year, all of the 4 main components of the services industries increased (the components are: distribution, hotels and restaurants; transport, storage and communication; business services and finance; and government and other services). The ONS said that “growth in the services sector has been in line with recent trends…this suggests limited effect so far from the referendum”.

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Autumn Statement 2016
weaker growth, higher public borrowing and debt, extra infrastructure spending
23 November 2016

The forecasts for the economy and the public finances were significantly revised, as expected. GDP was forecast to be 2.1% in 2016 (2.0% in the March Budget), 1.4% for 2017 (2.2%), 1.7% for 2018 (2.1%), 2.1% for 2019 and 2020 (2.1%, unchanged, in both years) and 2.0% for 2021. (The OBR extended the forecast by one year to 2021.) The growth downgrades for 2017 and 2018 were much as expected. The Chancellor added that “While the OBR is clear that it cannot predict the deal the UK will strike with the EU, its current view is that the referendum decision means that potential growth over the forecast period is 2.4 percentage points lower than would otherwise have been the case.” Concerning CPI inflation, the OBR’s revised forecasts were 0.7% for 2016 (unchanged compared with March), 2.3% for 2017 (1.6%), 2.5% for 2018 (2.0%), 2.1% for 2019 (unchanged), 2.0% for 2020 (unchanged) and 2.0% for 2021. The forecast hikes in inflation for 2017 and 2018 are on the modest side of expectations.

On the public finances, the OBR forecast public sector net borrowing (PSNB) to be £68.2bn (3.5% of GDP) in FY2016 (£55.5bn in March), £59.0bn in FY2017 (£38.8bn), £46.5bn in FY2018 (£21.5bn), £21.9bn in FY2019 (-£10.4bn), £20.7bn in FY2020 (-£11.0bn) and £17.2bn (0.7% of GDP) in FY2021. ONS classification changes, weaker-than-expected tax receipts and weaker growth projections contributed to the higher public borrowing forecasts. Concerning public sector net debt (PSND) as a % of GDP the OBR forecast 87.3% for FY2016 (82.6% in March), 90.2% for FY2017 (81.3%), 89.7% for FY2018 (79.9%), 88.0% for FY2019 (77.2%), 84.8% for FY2020 (74.7%) and 81.6% for FY2021. These are, clearly, substantial increases.

The Chancellor announced a new draft Charter for Budget Responsibility, emphasising that the government remained committed to fiscal discipline and “seeing the public finances return to balance as soon as practicable”. It has three fiscal rules:
·         The public finances should be returned to balance as early as possible in the next Parliament, and, in the interim, the cyclically-adjusted PSNB should be below 2% of GDP by the end of this Parliament. The OBR expects the cyclically-adjusted PSNB to be 0.8% of GDP in FY2020 and the interim target was deemed to be met.
·         Public sector net debt (PSND) as a share of GDP must be falling by the end of this Parliament. Given that PSND as a % of GDP is forecast to be falling after FY2017 this was deemed to be met.
·         Welfare spending must be within a (revised) cap, set by the government and monitored by the OBR. The rule was deemed to be met. The Chancellor noted that “In the absence of an effective framework, the welfare bill in our country spiralled out of control, with spending on working-age benefits trebling in real terms between 1980 and 2010”.

Key policy announcements were:
·         The Autumn Statement was expansionary. Whilst policy decisions increased the tax take over the forecast period, extra spending commitments were stimulatory.
·         A new National Productivity Investment Fund (NPIF) will amount to £23bn of spending for FY2017-FY2021. The new spending includes:
             • £7.2bn for housing, including spending by Housing Associations. This includes £2.3bn for a new Housing Infrastructure Fund.
             • £4.7bn for science and innovation (R&D).
             • £2.6bn for transport networks.
             • £0.7bn for full-fibre connections and future 5G communications (telecoms).
·         Continued commitment to raising personal allowance to £12,500 and the Higher Rate Threshold to £50,000 by FY2020.
·         Fuel duty was frozen.
·         Increases in National Living Wage and National Minimum Wage (from April 2017).
·         Universal Credit taper will be reduced from 65% to 63% from April 2017. There are no plans for further welfare savings for this Parliament.
·         Ban on letting agents charge fees to renters.
·         Commitment to cutting Corporation Tax to 17% by 2020 and £400mn through the British Business Bank to invest in growing innovative firms.
·         Further crackdown on tax avoidance. “Salary sacrifice schemes” (most) will be taxed as cash income.
·         Insurance Premium Tax (IPT) will increase from 10% to 12% in June 2017.
·         The Departmental spending plans set out in 2015 Spending Review will remain in place. The Chancellor said “In 2010, public spending was 45% of GDP – this year it’s set to be 40%”.
·         Autumn Statement to be abolished. From 2017 there will be an Autumn Budget. From 2018 there will be a Spring Statement - responding to the latest OBR forecast but not a major fiscal event.

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Public sector net borrowing deficit £4.8bn in October
22 November 2016

Public sector net borrowing (PSNB-ex, excluding public sector banks) recorded a better-than-expected deficit of £4.8bn in October 2016, helped by buoyant tax revenues, compared with a deficit of £6.4bn in October 2015. Of this £4.8 billion, £2.0bn related to the cost of the “day-to-day” activities of the public sector (the current budget deficit), while £2.8bn related to the spending on infrastructure (net investment).  

Due to the volatility of the monthly data, the cumulative financial year-to-date borrowing figures provide a better indication of the progress of the public finances than the individual months. The cumulative total for PSNB for the first seven months of FY2016 was £48.6bn, £5.6bn down (10.3%) on the £54.2bn recorded for the first seven months of FY2015. The OBR forecast a total for FY2016 of £55.5bn (March Budget), compared with an outturn of £76.0bn (revised) for FY2015, an implied improvement of £20.5bn (27.0%). On current trends the March Budget forecast for FY2016 is almost certain to be missed, despite the better October figure, possibly by around £10bn. The OBR will revise its forecasts in the Autumn Statement (23 November). The poor state of the public finances suggests that the Autumn Statement will have to be very cautious.

Public Sector Net Debt (PSND) was £1,641.6bn at the end of October 2016 (83.8% of GDP), compared with £1,590.7bn (84.3% of GDP) at end-October 2015. One of the previous Chancellor’s objectives was to reduce debt as a % of GDP over the forecast period.

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Retail sales increased 1.9% in October
17 November 2016

Retail sales (volume, GB) increased 1.9% (MOM) in October to be 7.4% higher (YOY). The annual growth rate was the highest since April 2002. The ONS reported that all store types showed growth with the largest contribution coming from non-store retailing.  The ONS added that “the underlying pattern in the retail sector continues to show strong growth”; retail sales in the three months to October were 1.9% up (QOQ), to be 5.9% higher (YOY).

The value of retail sales rose 2.1% (MOM) in October, to be 6.6% higher than a year earlier.

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Unemployment fell 37,000 in 2016Q3, total annual earnings growth 2.3% in 2016Q3
16 November 2016

Employment rose to 31.80m in the three months to September, 49,000 higher than the previous 3 months and 461,000 higher than a year earlier. Within the total, full-time workers and part-time workers rose by 350,000 and 110,000 respectively (YOY). The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.5%, the highest since comparable records began in 1971.

Unemployment was 1.60m in the three months to September, 37,000 fewer than the previous quarter and 146,000 down YOY. The unemployment rate was 4.8%, compared with 5.3% a year earlier. The last time the rate was lower was for July-September 2005. The inactivity rate (the proportion of people aged 16-64 who were economically inactive) was 21.7%, down from 22.0% a year earlier.

Job vacancies remain very strong. There were 749,000 job vacancies in the three months to October 2016 (sic). This was up 12,000 compared with the previous 3 months and up 18,000 compared with a year earlier.

Average weekly earnings for employees in Great Britain in nominal terms increased by 2.3% (including bonuses) and by 2.4% (regular pay, excluding bonuses) in the three months to September compared with a year earlier. The introduction of the mandatory National Living Wage (introduced 1 April) boosted earnings in April. CPI inflation in October was +0.9%, so earnings growth is still easily outstripping prices inflation.

All in all, this report suggests the labour market remains firm.

Separately, the ONS said that output per hour (their main measure of labour productivity) grew by 0.2% (QOQ) in 2016Q3, compared with +0.6% in 2016Q2. The weakening of productivity growth in 2016Q3 was the result of slower GDP growth combined with an increase in average weekly hours worked and stronger employment. Despite the slower growth in 2016Q3, the level of output per hour in the UK remained higher than its pre-downturn peak, a largely symbolic threshold which was passed in 2016Q2. The ONS noted that productivity growth had been weak since the onset of the economic downturn (2008Q1) as a result of the relative strength of the labour market compared with GDP.


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House prices inflation unchanged in September, at 7.7%
15 November 2016

UK house prices inflation was 7.7% (YOY) in September, unchanged from August (revised), continuing the strong growth seen since the end of 2013. There has, however, been some evidence that the imposition of the 3% stamp duty surcharge on second homes (1 April) has subdued the market.

The UK’s four countries showed very different inflation rates in August: England (8.3%), Wales (4.4%), Scotland (3.4%) and Northern Ireland (5.4% (2016Q3)). In England, there was, as always, a significant range across the regions: East of England (12.1%), London (10.9%), South East (9.9%), East Midlands (8.2%), West Midlands (7.7%), South West (7.5%), North West (5.7%), Yorkshire & Humberside (4.7%) and the North East (1.5%).

Average house prices rose by 0.2% (seasonally adjusted, MOM) in September. The annual inflation rate for first-time buyers was 7.5%, compared with 7.9% for former owner-occupiers (existing owners) (GB data only).


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Parliamentary Committees: Evidence

Download Ruth Lea’s evidence to Parliamentary Committees of the House of Lords and Commons.