House of Lords

Tuesday 6th July 2010 Lords Chamber

Tuesday, 6 July 2010.

14:15

Prayers—read by the Lord Bishop of Gloucester.

Introduction: Lord McFall of Alcluith

Tuesday 6th July 2010 Lords Chamber

14:23

The right honourable John Francis McFall, having been created Baron McFall of Alcluith, of Dumbarton in the County of Dunbartonshire, was introduced and took the oath, supported by Lord Graham of Edmonton and Lord Myners, and signed an undertaking to abide by the Code of Conduct.

Introduction: Lord Wolfson of Aspley Guise

Tuesday 6th July 2010 Lords Chamber

14:28

Simon Adam Wolfson, Esquire, commonly called the honourable Simon Adam Wolfson, having been created Baron Wolfson of Aspley Guise, of Aspley Guise in the County of Bedfordshire, was introduced and took the oath, supported by Lord Wolfson of Sunningdale and Lord Leach of Fairford, and signed an undertaking to abide by the Code of Conduct.

Introduction: Baroness Armstrong of Hill Top

Tuesday 6th July 2010 Lords Chamber

14:34

The right honourable Hilary Jane Armstrong, having been created Baroness Armstrong of Hill Top, of Crook in the County of Durham, was introduced and took the oath, supported by Baroness Morgan of Huyton and Lord Griffiths of Burry Port, and signed an undertaking to abide by the Code of Conduct.

Viscount Younger of Leckie took the oath.

Office for Budget Responsibility

Tuesday 6th July 2010 Lords Chamber

Question

14:40

Asked By

[Lord Barnett]

To ask Her Majesty’s Government how the independence of the Office for Budget Responsibility is guaranteed.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the Office for Budget Responsibility was established to make independent assessments of the economy and public finances. The terms of reference for the interim OBR describe its independence. They make it clear that the OBR’s assessments are produced with no ministerial involvement and that the OBR has the freedom to publish information at its discretion. Sir Alan Budd will be advising the Chancellor on the arrangements for the permanent OBR, including on issues relating to independence.

[Lord Barnett]

I thank the Minister for his Answer. Can he tell us whether it was the sheer incompetence of the Government in not letting the OBR have independence that led Sir Alan Budd to resign, or was it my Question? Is not the real problem the reliability of the OBR’s forecasts? Is the Minister aware that the OBR has itself expressed great uncertainty about its forecasts? In the circumstances, and given the possibility that it could be wrong, as many leading economists have said, is it set in stone that the OBR should continue with its actions even if the economy has actually gone into a downturn even faster than the OBR had forecast?

[Lord Sassoon]

My Lords, in answer to the first question, I am sorry to pour cold water on a newspaper story, but Sir Alan always planned to leave in the summer. He was appointed to provide forecasts for the emergency Budget and to advise on the establishment of a permanent OBR, which is exactly what he has done and will continue to do. The noble Lord, Lord Barnett, asked, secondly, about what he described as “uncertainty” around the forecast. The whole point about the way in which the OBR has presented its forecast is that it has given a transparent probability distribution. The Treasury has never done that before in its forecasts; it has simply given a line and not explained the variability around it. Forecasts are of course subject to probability distributions and the OBR has followed the best practice for forecasts that the Bank of England and others have used for many years. As to what will happen if the forecasts change, the Chancellor has set a fiscal mandate and it is the responsibility of the OBR following each Budget or other fiscal event to report on whether his latest announcement still sets a course that has a 50 per cent or greater probability of meeting the mandate.

[Lord Newby]

My Lords, does the Minister agree that it is vital for the OBR not just that it is independent but that it is seen to be independent? As the Government bring forward their detailed proposals for the OBR, will they ensure that, for example, it is housed outside the Treasury building and that all appointments to it are publicly advertised?

[Lord Sassoon]

I thank my noble friend for reminding us that independence is at the core of what the OBR is about and key to its permanent design. The Chancellor will shortly receive the advice of Sir Alan Budd on the setting-up of the OBR and I am sure that Sir Alan will consider the various factors that my noble friend mentioned.

[Lord Peston]

My Lords, did I hear the Minister right when he said, I think, that the fan charts that are to be found in the Budd committee’s report are best practice? In fact, as a matter of technical economics, they are not. Best practice is to publish confidence limits with appropriate probability distributions, which all the independent forecasters do—the Treasury is perfectly aware of that because it publishes their forecasts on the website. Given that the Government wish to save public expenditure, is not the best thing that can possibly happen the abolition of this body before it starts wasting even more money?

[Lord Sassoon]

I defer to the noble Lord on what is best practice in economics. All I can say is that, as between Treasury forecasts that were produced in the past, completely untransparently and without distributions or fan charts, and Bank of England and other forecasts that had a degree of variability—I see the noble Lord nodding—I think that we have moved to a vastly better place.

[Lord Myners]

My Lords, the heart of the Question relates to the independence of the OBR. The House should be reminded that the OBR is based in the Treasury; it is staffed by people seconded from the Treasury; press inquiries are handled by the Treasury; Sir Alan Budd’s appointment letter is signed by Mr Dave Ramsden, the head of economic forecasting at the Treasury; and Sir Alan reports to Mr Ramsden, whose work he is meant to be reviewing. Will Sir Alan, when he leaves, be subject to any restrictions on his future employment—in particular, taking the knowledge that he has gained in this post back to his occupation in the hedge fund community?

[Lord Sassoon]

On an interim basis, the OBR has been housed within the Treasury to save costs and to give it early and easy access to Treasury models. Part of the advice that Sir Alan Budd gives will be about the location and other governance arrangements for the OBR on a full-time basis.

[Lord Eatwell]

My Lords, if the Treasury was always aware that Sir Alan was going to leave in the summer, why has his replacement not been announced right away? Will the Minister give us the essence of the disagreement that has led to this resignation? Is it not substantially to do with the issue of independence, which my noble friend raised in his Question?

[Lord Sassoon]

I thank the noble Lord for his questions, but I thought that I had addressed the main point already. There has been no disagreement. Nothing has happened. It has always been the case that Sir Alan Budd planned to leave in the summer and that is exactly what he is going to do. My right honourable friend the Chancellor is enormously grateful for the important work that he has done to get the office up and running. As for appointments, it would have been strange to appoint somebody before Sir Alan Budd had even announced his departure. The appointment process for his successor will take full account of the need for continuity.

[Lord Ryder of Wensum]

My Lords—

[Lord Grabiner]

My Lords—

[Lord Strathclyde]

I really do think that it is time to hear from a Conservative Back-Bencher.

[Lord Ryder of Wensum]

My Lords, is my noble friend aware that in nine out of the past 10 years Treasury forecasts for growth exceeded the actual growth levels? Is he therefore not entirely entitled to review the process by which government statistics are worked out?

[Lord Sassoon]

I thank my noble friend, who points out that Treasury forecasts have been as fallible as anybody else’s. That underlines the importance of our now having an independent office up and running to make the forecasts for us.

Sunday Trading

Tuesday 6th July 2010 Lords Chamber

Question

14:48

Asked By

[Lord Hylton]

To ask Her Majesty’s Government whether they will make proposals for Sundays to be as far as possible work-free, following requests to the European Union Council of Ministers.

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)]

My Lords, the Government have no plans to make Sundays work-free. Sunday working brings significant benefits to employers, consumers and employees alike in terms of convenience, flexibility and availability of work.

[Lord Hylton]

I thank the noble Baroness for her reply even though I cannot say that I find it very encouraging. Can I persuade her that a known national day of rest each week would bring huge benefits—for example to family life, amateur sport, voluntary social activities, and even the environment by reducing the pollution arising from commercial activities?

[Baroness Wilcox]

What a lovely thought. However, British workers already have their right to a day’s rest a week, or two days in two weeks, and it is not for the Government to decide for their people which day best suits the individual. We firmly believe in a freedom of choice in this matter. It would be lovely to follow what the noble Lord is asking for, but a significant proportion of people would still be working, because one person’s rest is another person’s work.

[Lord Anderson of Swansea]

My Lords, the noble Baroness will recall that when the noble Baroness, Lady Thatcher, yielded to the commercial pressures of the major superstores and liberalised Sunday trading, concern was expressed about the likely effect on family life. Is it not now the time to say to what extent the experiment in liberalisation has been a success and to have some form of independent inquiry to evaluate what has happened over that period?

[Baroness Wilcox]

My Lords, we see no evidence of requests for change. Nobody is forced to work on Sundays in Great Britain. Employees of large retail and betting shops have special rights to refuse Sunday working, while other employees can negotiate working patterns with their employer. The option to work Sundays gives individuals the flexibility to find employment and working hours that best suit them and their families and take their weekly day of rest when they wish.

[Lord Razzall]

My Lords, can the Minister confirm, after the last question, that the coalition Government have absolutely no intention whatever of reforming the Sunday trading legislation, thereby throwing us back to those dull Sundays that we all dreaded as teenagers?

[Baroness Wilcox]

My Lords, as I said, the Government have no plans to alter anything at the moment.

[The Lord Bishop of Gloucester]

My Lords, can the Minister confirm that the Government have no intention to relax the current Sunday Trading Act in a way that would alter Boxing Day this year, which is on a Sunday, to be a normal shopping day, which would undermine the rights of workers to a proper Christmas break?

[Baroness Wilcox]

I can confirm that the Government have no plans to change the rules on Sunday trading at the moment.

[Baroness Deech]

Does the Minister recognise the gender imbalance in this Question, in that men will always want their pubs open on a Sunday and their sporting fixtures, whereas working women—indeed, women work seven days a week, but I mean those who work outside the home—would be greatly restricted if shops and so on were not open on a Sunday? We should all be allowed to choose our own day of rest—not to mention the diversity issue. Sunday is not a special day for everybody.

[Baroness Wilcox]

My Lords, it is right that everybody should be able to choose the way they spend their day of rest, and there is no pressure for women to be looked at as a special case at this time. However, I am sure that, with the work that the noble Baroness has done on equality, she will bring anything to my attention that she feels we can do something about.

[Lord Young of Norwood Green]

My Lords, does the Minister recognise that in a multifaith and in many cases no-faith, multicultural and multiracial society, Sunday does not have the same significance for all people? Can she also confirm that employees and workers will maintain their right under current employment law not to work on Sundays?

[Baroness Wilcox]

I can confirm all of that.

[Baroness Gardner of Parkes]

My Lords, does the Minister not think that there is a slight misrepresentation in it being put to her that the noble Baroness, Lady Thatcher, bowed to big pressure from big business? Those of us involved in the legislation at the time mostly remember very clearly the splendid campaign run by the noble Baroness, Lady Jay, on Sunday trading.

[Baroness Wilcox]

Yes, my noble friend has a very good point.

[Lord Pearson of Rannoch]

My Lords, will the Minister explain to your Lordships the role of the European Council in this matter? Do we really have to go cap-in-hand to Brussels to seek permission not to work on Sundays? If so, is that not the final nail in the always fraudulent concept of subsidiarity?

[Baroness Wilcox]

I think not. We know that the European Union does the broad legislation, which is then devolved to the individual countries to do as they wish to do. Britain certainly does as it wishes to do—within the European Union, of course.

Agriculture: Farm Animal Disease

Tuesday 6th July 2010 Lords Chamber

Question

14:54

Asked By

[Baroness Byford]

To ask Her Majesty’s Government what steps they are taking to meet the costs of any future outbreak of farm animal disease.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Henley)]

My Lords, we gave an undertaking in the coalition agreement to investigate ways to share with livestock keepers the responsibility for preparing for and dealing with outbreaks of disease. We will take stock of the recommendations of the independently chaired responsibility and cost sharing advisory group before bringing forward our proposals.

[Baroness Byford]

I thank the Minister for his response. Will the group take into account those farmers who already have good biosecurity measures in place? Will the Government put in much stronger measures to ensure that the illegal importation of bush meat and other meats is ended?

[Lord Henley]

My Lords, the group is independent and will consider all matters. As a result of that, as my noble friend will be aware, it will certainly consider the point that she has made.

[Lord Rooker]

Given that the Government are willing to share this issue, would a clean solution not be an insurance-based system that could be made compulsory for animal keepers? The problem at present is that no company would carry the risk, which, by definition, would be too great. The solution would therefore be to have the same system for animals as exists for terrorism: there would not be a commercial market were it not for the pooling system of the contributions, backed up at the end of the day by the Government. This would not be an open-ended commitment, but it would be a very practical solution. I admit to failing, when I was in the Minister’s position, to get that kind of system up and running.

[Lord Henley]

My Lords, I am surprised to hear the noble Lord admit to ever failing in anything, but he makes an interesting suggestion and we will certainly look at it. He will understand, however, that I would rather not comment before the independent advisory group produces its report, which is due to come out in December. When it comes out the noble Lord will want to see it, as will I and, indeed, the Government.

[Lord Livsey of Talgarth]

My Lords, does the Minister remember that the 2001-02 foot and mouth outbreak cost the nation in the order of £6 billion? I speak from memory. What will he do in his planning to ensure that the farming community does not have to go to such lengths to pay that sort of sum?

[Lord Henley]

My Lords, like my noble friend, I remember that outbreak well; I live up in Cumberland, where it started. We will take on board all that we learnt from the 2001 outbreak. If I may correct my noble friend, the cost to the United Kingdom was in the order of £8 billon, while the costs to the Government—to the taxpayer—were something like £3 billion. We will do everything that we can to ensure that such an outbreak does not happen again, but that if it does, we will react to it in exactly the right manner.

[Lord Clark of Windermere]

My Lords, as the Minister is well aware, many of these animal diseases are episodic and, thankfully, those such as foot and mouth occur perhaps only every 30 or 40 years. One of the problems is that lessons are lost with regard to the administrative experience and the backup necessary to deal with them. Will the Minister ensure that his department has in place a lesson-learning system so that, if ever we face foot and mouth again, we are prepared for it? This applies to the non-veterinary side.

[Lord Henley]

My Lords, the noble Lord and I are both old enough to remember the 2001 outbreak. I can just about remember the 1967 outbreak—I was in short trousers—and other Members of this House who are older than me might also remember it. The noble Lord will also remember that there was a good report from, I think, the Duke of Northumberland into that outbreak from which lessons could have been learnt, and lessons could have been learnt from the 2001 outbreak. I appreciate that these outbreaks happen only rarely; I would have hoped that they would have been even rarer, but we will certainly want to continue to learn lessons on each occasion.

[Lord Plumb]

My Lords, I doubt whether the Minister will remember that some 40 years ago I had the privilege of announcing that we had totally eradicated bovine tuberculosis. He will know that 40,000 animals are lost to it every year at the moment, at a cost of £100 million. How are we going to deal with that in the future?

[Lord Henley]

My Lords, I would not want to make any comment about how we will deal with bovine TB, but my noble friend is right to stress how much it costs us each year. The figure that I have is in the order of £80 million and rising. We will, again, look at all evidence. We want all decisions to be made on an evidence-based model. We will make appropriate responses in due course.

[Baroness Quin]

My Lords, in his reply to the noble Baroness, the Minister seemed to herald a possible change in government policy. Before the election the current Minister of State ruled out cost-sharing, but the Minister wisely prefers to wait until the outcome of the report—which the previous Government set in place—and its recommendations. Is the Minister therefore saying that a change in policy on this matter, which would be welcome, is possible?

[Lord Henley]

My Lords, as I said, we will wait until we see what the report says. If the noble Baroness is suggesting that we changed our minds I should remind her that, having set up this review, the previous Government then proceeded, almost straightaway, to publish their draft Bill. That seems a very odd way of going about it. It is distinctly odd to institute a review and then suggest that there should be a Bill. We will look at the results of that review when they come out in December and then we will make the appropriate decisions.

[Lord Corbett of Castle Vale]

My Lords—

[Lord Soulsby of Swaffham Prior]

My Lords—

[Lord Strathclyde]

My Lords, the noble Lord, Lord Soulsby, has been trying to get in.

[Lord Soulsby of Swaffham Prior]

My Lords, I ask the Minister for his assurance that, despite any reduction in funding that may apply to agriculture and animal and plant health, the surveillance systems in this country are safeguarded, particularly with regard to exotic diseases. As has been mentioned by my noble friend Lord Plumb, their introduction can be devastating. It is very important that our surveillance systems are kept in place to safeguard against any incursion from overseas.

[Lord Henley]

My noble friend is right to remind the House of the financial constraints facing the Government as a result of what the previous Government managed to achieve in their 13 years in office. Nevertheless, I can assure my noble friend that we will make sure that the appropriate surveillance continues to be in place to deal with all animal diseases.

[Lord Corbett of Castle Vale]

Do the Government intend to go ahead with the two pilot projects to cull badgers?

[Lord Henley]

My Lords, as we have made clear, we will look at the evidence from the pilot projects that have been conducted by another Administration—that is, the one in Wales. We will make a decision based on the science that comes before us, but we will not make a decision until it is appropriate to do so.

[Lord Swinfen]

Is my noble friend satisfied that we have enough sniffer dogs at ports of entry to detect all meats coming in? The last time I came through Heathrow I could not see one.

[Lord Henley]

My Lords, I am not sure how many sniffer dogs we have at Heathrow or other ports of entry. I will make inquiries for my noble friend and write to him in due course.

Climate Change

Tuesday 6th July 2010 Lords Chamber

Question

15:03

Asked By

[Lord Haskel]

To ask Her Majesty’s Government what steps they will take to implement the recommendations in the report of the Committee on Climate Change published on 30 June.

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Lord Marland)]

We welcome the committee’s second annual report on the UK’s progress in meeting its carbon budgets. The Government believe that climate change is one of the most serious threats that the world faces and we are committed to playing our part in moving to a low-carbon economy. The Government will consider the report in detail and formally respond to it by 15 October 2010, as set out in the Climate Change Act.

[Lord Haskel]

I am glad that the Government welcome the report, which argues that the voluntary and light-touch regulation has not really worked. The committee’s strong and urgent recommendation is for much tougher and stronger regulation. How do the Government reconcile this with their free market policies and their promises of less regulation?

[Lord Marland]

I thank the noble Lord for his question but, as I said, we will look at the report in detail and respond in October. We will have a debate on that in the Lords, as we did last year. If I may say so, that debate held this House in very good shape. We had a strong debate of all the arguments from both side of the House. Obviously, I have read the report and, in fact, have it in front of me. We agree with many of the recommendations that the committee has made, particularly the main one that we must not rely on the recession to meet our targets. The report gives us a platform from which to accelerate and we clearly need to have a step change. All these things, including regulation, will be considered by us in greater detail as we take on board what the committee has said.

[Lord Teverson]

My Lords, one of the key areas for action in the report is road transport travel, which accounts for 25 per cent of emissions. How do the Government intend to fulfil the coalition agreement and set up a system of national charging networks for electric vehicles without putting undue pressure on public expenditure?

[Lord Marland]

I thank the noble Lord for that. The electric vehicle charging network is a very key and fundamental part of the coalition’s policy, but it cannot be done by magic. It needs detailed planning and a lot of work needs to be done, including assessing what it will cost the taxpayer and what incentives are needed to establish it. As I said, we shall look at that in the recess to establish what is required.

[Lord Tomlinson]

My Lords, is the Minister aware that the Government’s own adviser, Mr Bob Wigley, has added his recommendations to those of the Committee on Climate Change? Included in his recommendations are increased rates for companies that do not take energy conservation measures and penalising householders who fail to undertake insulation measures. Are the Government telling us that we will have to wait till October to hear their view on their own adviser’s supplementary recommendations?

[Lord Marland]

My Lords, I have to point out that Mr Bob Wigley is not a government adviser. He was set up to deliver—

[Noble Lords]

Set up?

[Lord Marland]

Yes, he was, absolutely. I thank noble Lords for listening to what I am saying. That is a great start. He was encouraged to set up a plan for the Green Investment Bank, which he has done. Therefore, he is not a government adviser. He has pointed us in a number of directions in terms of reforming the climate change market and we are grateful for his views.

[Lord Jenkin of Roding]

My Lords, in the debate on the Queen’s Speech, I drew the House’s attention to the recently published Hartwell paper, which argues that there needs to be a new approach to dealing with the huge problem of climate change, to which my noble friend has referred. Will he give me an undertaking that the Government will study the Hartwell paper, as it seems to me to have a good deal of wisdom in it?

[Lord Marland]

My Lords, I thank the noble Lord for inviting me to comment on the Hartwell report as I have studied it, which gives me a few brownie points. It raises a number of points of interest, some of which we agree with and some of which we do not. Among other things, it draws attention to the need for energy efficiency, which is high on our list of priorities, and investment in non-carbon energy supplies, which again is high on our list of priorities and is hard to argue against. A lot of things in the report were agreeable but some were not. We shall consider them in the recess and bring them together in a debate in the autumn.

[Lord Hunt of Kings Heath]

My Lords, in reading the report has the noble Lord looked at the section relating to the committee’s concern about the delays in the development of wind farms due to delays in the planning system? He will know that the previous Government established the Infrastructure Planning Commission as a way through this. Why are the Government now abolishing the IPC? Will that not bring about the very concerns about which the committee has complained; that is, insecurity and indecision inhibiting the development of wind energy in this country?

[Lord Marland]

I am very sorry that the noble Lord, Lord Hunt, was not present at yesterday’s Question Time—of course, we missed him—when that question was posed by noble Lords on his Benches. We disbanded the IPC because it was not making enough progress on planning. As the noble Lord rightly said, planning is critical. However, it has been slow and logjammed. We intend to change that.

[The Earl of Onslow]

My Lords—

[Lord Pearson of Rannoch]

My Lords—

[Lord Strathclyde]

We cannot hear both noble Lords. The noble Lord, Lord Pearson, has already asked a question. Why do we not hear from the noble Earl, Lord Onslow?

[The Earl of Onslow]

My Lords, can my noble friend explain why temperatures have not increased at all—if anything, they have slightly reduced globally since 1998—while the amount of carbon dioxide introduced into the air has increased enormously?

[Lord Marland]

I do not know where my noble friend gets his information from, because temperatures have increased by more than 0.15 per cent per decade since the mid-1970s, and since 1997 we have had the hottest 10 years on record. So I am afraid that I cannot answer his question.

[Lord Myners]

My Lords—

Occupational Pension Schemes (Levies) (Amendment) Regulations 2010

Tuesday 6th July 2010 Lords Chamber

Pensions Regulator (Contribution Notices) (Sum Specified following Transfer) Regulations 2010

National Assembly for Wales (Legislative Competence) (Housing and Local Government) Order 2010

Legislative Reform (Licensing) (Interim Authority Notices etc.) Order 2010

Motions to refer to Grand Committee

15:10

Moved By

[Lord Strathclyde]

To move that the draft regulations, order and legislative reform order be referred to a Grand Committee.

Motions agreed.

Arrangement of Business

Tuesday 6th July 2010 Lords Chamber

Announcement

15:11

[Baroness Anelay of St Johns]

My Lords, it is anticipated that proceedings on the Academies Bill this afternoon will last for around two hours. At its conclusion, my noble friend Lord Strathclyde will repeat a Statement on treatment of detainees.

Academies Bill [HL]

Tuesday 6th July 2010 Lords Chamber

Report (1st Day)

15:11

Amendment 1

Moved by

[Lord Phillips of Sudbury]

1: Clause 1, page 1, line 4, at end insert—
“( ) In considering an application by any person to enter into any Academy arrangements, the Secretary of State shall inter alia take into account the potential impact on schools which may be affected.”

[Lord Phillips of Sudbury]

My Lords, I am supported in my amendment by my noble friend Lady Williams of Crosby. This amendment, although different in terminology, covers much the same ground as what was the Amendment 4 that I moved in Committee. I do not propose to rehearse in detail the arguments that I then advanced in favour of that amendment. Suffice it to say that the nub of this amendment is to ensure that before any academy is converted from a maintained school or created completely afresh, the Secretary of State shall take a strategic view of the need for such an academy and, in particular, shall be required to consider its potential impact on other schools —plainly those in the vicinity. It is commonplace to observe that a brand new academy will have to draw its pupils from somewhere. The amendment will require the Secretary of State, in considering whether to grant a request for a school, to consider how that could impact on other good schools in the vicinity. Therefore, the amendment is bang in line with an oft repeated objective of the coalition. In the words of my right honourable friend Michael Gove, we have the most segregated education system of almost any sophisticated democratic country and we need to raise up those who go to schools in underprivileged circumstances. I pay tribute to the previous Labour Government, who strove manfully to do just that, by the creation of the first wave of academy schools.

That is the purpose of the amendment. Not to have such a vital consideration plainly and simply in the Bill would be wrong. I take into account what my noble friend Lord Hill said in Committee, namely that it was his and the Government's view that even without an amendment of this kind they would be under a duty to consider the impact of new academies on neighbouring schools. However, it is a good rule for legislators not to leave principle measures out of a Bill, not least because many of those who in future have to make the Bill work, such as headmasters, governors and local education authorities, will not have access to expert education lawyers who can pick up some of the implications that my noble friend Lord Hill rightly said were in the undergrowth of the Bill. This measure is designed to make plain what is implied.

Finally, I have drafted the amendment to make it clear that it is not the only consideration to be taken into account by the Secretary of State in considering an application for an academy school—it is one inter alia. The prospects to which the amendment relates are important, and there will be a significant number of situations where the amendment will allow sensible, long-term strategic planning of our secondary school system and of our primary school system—but particularly of our secondary school system. I hope that it will commend itself to the House and to the Minister. I beg to move.

[Baroness Williams of Crosby]

My Lords, I support my noble friend, because this is a crucial amendment that would greatly strengthen the Bill if it were to go through. This is not only because a local authority has a profound responsibility in arranging for the provision of adequate education for every child in its area, but for another reason that is very close to all of us at present: namely, the financial issues facing the Department for Education and many other departments. It is to those issues that I will address a few remarks.

It is worth pointing out—I looked up the figures recently—that in primary education there are 4,000,237 places, with 482,930 surplus places unused and unfilled at present which cost the Government a good deal of money. In secondary education, the figures are slightly, but not a great deal, better. There is a surplus in secondary education of 307,712 places, which is 9 per cent of the total. In the case of primary schools, 11 per cent of all places are empty. That puts a heavy burden on those, whether they are local authorities or churches, who are responsible for running the schools. Therefore, it becomes all the more important that, in creating a new school, whether it is a converted academy or a new school altogether, careful consideration is given to the impact on the number of places already being supplied.

An academy can do one of two things: it can add to the number of schools that already exist or it can replace those that are taken out. As many noble Lords know very well—I certainly do—it is not easy to close schools. There is usually a great deal of passionate commitment to them, especially primary schools, and the procedure for church schools can be long involving dioceses, parents and others in agreeing to such a provision being made. On the coolest statistics of all—the effect of financing education by having a large number of surplus places that are then added to—it is crucial that such an amendment is accepted.

From 1999 to 2003 the birth rate in Britain fell—not hugely, but by about 40,000. Those children who are just at the age when they go to school will be entering schools with already surplus places, which will increase because of the drop in the birth rate. That change in the birth rate goes back to a modest increase in 2003-04, which means that that group of children will not be reaching school until next year. For all those reasons, therefore, I strongly urge the Government to give due consideration to my noble friend’s amendment. I hope that they will consider it and feel inclined to accept it on grounds of cohesion, the satisfaction of people involved in schools and because of the fundamental financial difficulties.

[Lord Knight of Weymouth]

My Lords, I support the amendment and the comments of the two previous speakers. It is an important amendment in the context of yesterday’s announcement on Building Schools for the Future. I shall be interested to hear the Minister’s comments, given that Building Schools for the Future began in those areas of greatest educational need. By definition, those are the same areas where parental dissatisfaction is likely to be highest and where parents are most likely to want to start their own free school academies. That raises the scenario of brand new, state-of-the-art, beautifully designed schools effectively having to close down because parents send their children somewhere else and the schools end up being white elephants. That would be a scandalous misuse of resources. I shall be interested in the Minister’s comments and hope that he will support his noble friend’s amendment.

[The Lord Bishop of Lincoln]

My Lords, I also support the amendment for two reasons. First, building on the comments of the noble Baroness, Lady Williams, we are anxious that church schools should be part of a network of choice to those for whom a faith school or an alternative could be their choice. That demands a degree of planning and the amendment would ensure that the Secretary of State took account of a range of possibilities when considering the provision of schools in an area. Secondly, one of our concerns about the Bill in general is the removal of the local authority interest in ensuring a degree of overview or strategic planning. The amendment at least goes some way towards mitigating the consequences of that omission.

[Baroness Walmsley]

My Lords, I support the amendment, although I did not get round to adding my name to it, for which I apologise to my noble friend. The amendment is one of the best that we see on Report because it evolved from an amendment—I think Amendment 4—that my noble friend tabled in Committee. The Minister pointed out that, if my noble friend’s initial amendment were carried, no academy could be formed if there was to be any effect on any school in the local area, whether good or bad. My noble friend’s amendment has evolved to enable the Secretary of State to take into account whether any good local schools will be adversely affected by the creation of a new academy.

My noble friend’s amendment is particularly important given that government Amendment 30, which is about consultation, refers only to existing schools converting into academies and not to brand-new schools. When a brand-new school is introduced, the local community will have to rely on the common sense of the Secretary of State to make sure that that school does not take all the pupils from other perfectly good schools in the locality.

My noble friend’s amendment comes out of his experience in Suffolk, which I think he mentioned in Committee. I, too, have been approached by one of my honourable friends in another place, Mr Don Foster, the Member of Parliament for Bath. He has had similar problems with an academy that was created under the Labour Government and is having an effect on very good schools locally. Of course, we must not underestimate the effect of the view that the grass is greener on the other side of the fence. A new school, which seems to offer something novel, especially if it has a shiny new building, could well take pupils from other schools that really do not deserve to lose them. The amendment would give the Secretary of State the discretion that he requires, in the Bill, so that we can all be reassured that he will take these matters into consideration when looking at an application.

[Baroness Morris of Yardley]

My Lords, I support the amendment. The point has been well made by noble Lords on both sides of the House that there needs to be an element of planning. I suppose that it is for the Minister to make a decision about whether his Government spend money on surplus places or on building schools for the future. It is interesting that one day there is no money for the Building Schools for the Future programme and the very next day, from the same department, there is money to fund surplus places. Surplus places cost money and do not contribute to standards.

I want to raise a slightly different point, which I do not think has been mentioned so far. I should like an assurance that the Minister understands the impact of a new school on another school that might already be doing a good job of raising standards. I start from the premise that it is not only academies that will raise standards; many good schools that do not have academy status are already on the journey of turning round underperformance. They are in a fragile state but are improving—going from failing and underperforming to being successful does not happen overnight. During that important period, when they have good leadership and are changing their reputation within the community, and when parents are understandably nervous but are restoring their confidence in those improving schools, they need a bit of protection. I worry that if an academy opens with a blaze of glory, with new money from the Building Schools for the Future programme, as was indicated yesterday, that will undermine the progress that the school makes.

I am not in the business of defending failing schools—I have done my share of closing failing schools and replacing them with either maintained community schools or, indeed, academies. However, I am in the business of trying to support and nurture schools that have put in a lot of effort and are now improving. Quite honestly, if surplus places are built into a local system, it will not be the schools that are already strong and successful that are damaged but those that have already had a lot of state intervention and support and are on the journey to becoming good schools. I should like to hear the Minister’s comments on that aspect of the amendment. It is an excellent amendment and I look forward to supporting it.

[Baroness Howe of Idlicote]

My Lords, I, too, am sympathetic to the amendment. It is particularly important to emphasise the point made by the noble Baroness, Lady Williams, about the number of places in schools that are already free. Quite apart from the complications that exist with new free schools entering into academy status, I should like to hear from the Minister whether the powers that he already has will allow him exactly the same right to make a decision, and whether having that in the Bill will make any difference whatever, given that presumably he will retain the right to make a decision based on whatever evidence may be brought to him that such a school will have a bad effect on other schools.

[Baroness Royall of Blaisdon]

My Lords, I, too, support the amendment tabled by the noble Lord, Lord Phillips of Sudbury. Most of the issues have already been raised and I certainly agree with the points made by the noble Baroness, Lady Williams of Crosby, and my noble friend about surplus places. Later, many of us will be speaking to amendments relating to the role of local authorities. We do not know what the Government’s attitude to those amendments will be. The role of local authorities ensures that the key role of schools in their local community is properly considered. At the moment, that role is not present in the Bill, because local authorities are excluded from it. If local authorities in their current role continue to be excluded, the importance of this amendment grows. Someone has to take a strategic approach to legislation. Despite what the Government may say, one cannot just have schools springing up all over the place, not just because of the issue of surplus places but because of the key role of schools in the community. If the Government continue to insist that the Bill should apply to primary schools, it is even more important that someone should have an overview of the impact on schools.

15:30

[Lord Bates]

My Lords, I understand why the amendment has been tabled and in many ways find the argument that has been put forward persuasive. I wonder whether the reason why it is necessary in the first place is that it is proposed that catchment areas will be too narrowly drawn. If catchment areas for new schools are too narrowly drawn, they will clearly have a disproportionate effect on neighbouring schools. Would not therefore an answer, along with the amendment proposed by my noble friend, be to broaden out the catchment area of schools to cover, perhaps, a local education authority area or even two local education authority areas? There is a precedent for that. When my noble friend Lord Baker introduced the Education Reform Bill in 1987, which allowed for city technology colleges, the Government overcame the problem of too great an impact on one, two or three schools by broadening the catchment area to cover two local education authority areas. In that way, the impact on neighbouring schools was diminished a little.

[The Parliamentary Under-Secretary of State for Schools (Lord Hill of Oareford)]

My Lords, as I said in Committee when we discussed this last time, establishing new schools is, I know, what exercises my noble friends and, I think, noble Lords across the House, in particular, the new free schools, to which the noble Lord, Lord Knight, referred. I take this opportunity to welcome the noble Lord formally to this House. I hope that I made it clear in Committee that it is very much the Government’s view that the implications for other schools in an area should be considered. The amendment moved by my noble friend brings us back to that debate.

I start by thanking my noble friends Lord Phillips and Lady Williams, and other noble friends, for the time that they have spent with me on this issue. I think that it is fair to say that they accept the reassurances that I have given that the Secretary of State would certainly consider any representations from those affected by academy proposals and that he would want to support only proposals for new schools that lead to an overall improvement in provision. As I have argued to my noble friend Lord Phillips, the general requirements on the Secretary of State to act reasonably will, in our view, provide sufficient protection. That is the answer to the point raised by the noble Baroness, Lady Howe. We think that the protection is there.

However, I certainly accept that my noble friends Lord Phillips and Lady Williams, and other noble Lords, have made the case to me for some further reassurance in the Bill with a great deal of tenacity and great courtesy. I have listened to those concerns and, having listened to this debate today, decided to act on them. I am able to say to my noble friends Lord Phillips and Lady Williams, that I accept the purpose of their amendment in principle. I suggest that my noble friends and I talk further and return to the issue at Third Reading. I hope that that is agreeable to my noble friends and, in the mean time, I ask them to withdraw the amendment.

[Lord Phillips of Sudbury]

I am grateful to my noble friend Lord Hill and am more than happy to leave the matter today on the basis that he suggests. I look forward to an amendment coming forward at the final stage of the Bill. I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

Amendment 2

Moved by

[Baroness Sharp of Guildford]

2: Clause 1, page 1, line 8, at beginning insert “Subject to section 4(4) for a former maintained school,”

[Baroness Sharp of Guildford]

I shall speak also to Amendments 12A, 19, 19A and 28A. The purpose of this group of amendments is to probe a little further the proposed financial arrangements in the setting up of academies. Amendment 2 has unfortunately been placed on the wrong line. It should have been on line 7 and would, therefore, have amended Clause 1(2)(b) to read:

“Subject to section 4(4) for a former maintained school, arrangements for Academy financial assistance”.

We are talking about the financial assistance route as distinct from the agreement route for former maintained schools. This amendment is linked with Amendment 28A, which puts the amendment in its proper place and becomes subsection (4) of Clause 4. It requires that where the Secretary of State makes a grant of financial assistance under Section 14 of the Education Act 2002,

“he must … secure the agreement of the governing body to the terms of the financial assistance”,

before the school can go ahead and convert into an academy.

The purpose of these two amendments is to ensure that all those responsible for the school are fully aware of the terms under which financial assistance is given. When we discussed this issue with the Minister in Committee, he made it clear that for existing schools, as distinct from new schools, the financial assistance route would be the exception rather than the norm. The financial agreement route requires the full co-operation of the governing board, which is kept informed all the time because it is party to the agreement. With the financial assistance route, Section 14 of the 2002 Act gives the Secretary of State considerable powers to decide unilaterally how much finance to give and to set the terms under which that finance is given. This amendment ensures that the governing board is aware of the terms that are being asked for by the Secretary of State before the terms of the grant are agreed. We think it only right that, just as with academy agreements, where the governing board is kept fully informed, when a school goes down the financial assistance route—the grant route—the school’s governing board should be kept in the picture and be informed about what is happening.

Amendments 19, 19A and 20 relate to numbers and needs. They elucidate the terms of financial agreements and financial assistance. The Minister made it clear that that part of the school’s budget that is retained by the local authority—funding for special educational needs and transport—will remain with the local authority. This is often the larger part of the moneys kept by local authorities. The remainder goes on such things as payroll and property management and general support services. However, included among general support services are important services; for example, educational psychologists and language and behaviour specialists. They provide valuable support, especially to smaller primary schools, particularly where special educational needs funding comes from the school for school action and school action plus. If the resources that are left are distributed evenly between schools on a per capita basis according to the number of pupils, schools with a disproportionate number of pupils with learning difficulties of one sort of another and pupils with other disabilities will receive less funding than they do under the present arrangements.

There are worries in two directions. First, will academies with a disproportionate number of pupils, as well as the remaining maintained schools, receive enough funding in these situations? Secondly, many of the schools that are outstanding and are therefore being fast-tracked to academy status are often located in better-off areas and have a relatively low number of children from disadvantaged homes. Dividing local authority funds on a straight per-pupil basis would give them rather more funds than they have traditionally received and would leave a lesser amount in the kitty to be shared out among the SEN services of other schools.

The key amendment in the group is Amendment 20, which stipulates that the funding should follow needs, not numbers. It also raises five additional questions to which I would like the Minister to respond. Will the Young People’s Learning Agency, which is to distribute funds to the academies, distribute the dedicated schools grant in the way that the local authority would have distributed it to each school, or will it have a separate funding arrangement? How accurate is the ready reckoner on the DfE website? Does the money proposed for the removal from local authority expenditure replicate the costs of services that schools will lose from their local authority? What will be the effect on those local authority services, including services outside children’s services, if a significant proportion of schools become academies? Lastly, the pupil premium is not discussed in this Bill. We presume that it will come up in the next Bill, but will the Minister elucidate?

Finally, Amendment 12A is different and arguably should not have been in this group, but I will speak to it now. It is fairly straightforward and brings us back to an issue that we raised in Committee: monitoring the characteristics of an academy as listed in Clause 1(6). In Committee, we asked who was going to monitor how far academies actually adhered to the commitment that they had made to retain those characteristics. The Minister assured the House that the Young People’s Learning Agency would be responsible for monitoring academies’ activities. We have some reservations about this. The Young People’s Learning Agency is very new; it got off the ground only in April. It will be responsible for distributing money to these new academies, but it is understood that it is to be a very lean agency and will not have large numbers of people. Will it have the capacity or the capabilities to monitor the characteristics of an academy? Would it not be better, as we have suggested, for some independent agency, possibly the schools adjudicator or someone like that, to act as monitor on such an occasion and to keep an eye on whether the academies are living up to their promises? I beg to move.

[The Deputy Speaker (Lord Geddes)]

My Lords, to the best of my knowledge, the amendment proposed is on page 1, line 8.

[Baroness Walmsley]

My Lords, I support my noble friend’s remarks. The Minister will, I hope, recall that I asked him in a private meeting last week about the ready reckoner on the department’s website. I pointed out that our colleagues in York told us that if several schools in York applied to become academies, they would get more money than the whole of York local authority for the same services. Have the Minister and his officials had the opportunity to check the ready reckoner? When local authorities find themselves in situations like this, some of them will be left thinking that they will not just be left with no money, but that they will be left with a negative amount. I am sure that the Minister does not intend that. Therefore, I wonder if he can explain.

15:45

[Lord Sutherland of Houndwood]

My Lords, I wish particularly to support Amendment 20 in this group, the direction of which seems to be just and fair for future academies and for schools choosing to remain under the direction of local authorities. Any clarification that the Minister can give us would be very helpful.

[The Earl of Listowel]

My Lords, I support the thrust of these amendments, which are about the concern that, under the new pattern of arrangements, funding for essential services to schools will be depleted. This morning, at a meeting on child protection, the head teacher of a large secondary school in north London said that he would like to have a social work team attached to his school because it would make the world of difference. But he cannot get access to that resource. I have heard of other schools with similar resources, which they find extremely beneficial. It would simply take the strain off teachers who could pass that responsibility to social workers who have the relevant expertise and know-how to connect with the necessary services for the child. I hope that in this process we do not lose the push towards proper partnership with all the services which are working to improve the protection and safeguarding of children.

At the same meeting, the director for quality management of Ofsted said that his research at Ofsted indicated that a very important factor in improving the protection of children is seeing that there is a close partnership between schools, social care and all the services, including health, in the area. It is not just about tackling the problem when children are clearly in need. It is about ensuring that the mainstream services are thoroughly connected together and are all working in partnership to promote the welfare of children.

[Lord Hunt of Kings Heath]

My Lords, this has been a short, interesting debate. I too support the amendments moved by the noble Baroness. In relation to funding, three issues have been raised today and in our previous discussions. First, there is a need for much greater clarity about how these financial arrangements will work. Secondly, there is the question of equity between schools. Thirdly, as the noble Earl, Lord Listowel, suggested, there is a question of whether there will be sufficient resources for the kind of special services that some schools will require.

On clarity, very shortly before our debate today, I received the model funding agreement, as I am sure other noble Lords did. While it is always welcome to receive the funding agreement, in the short time available we have not been able to study it carefully. It therefore would not be amiss to have an opportunity to come back at Third Reading after we have had time consider it more fully. It is helpful to us in these debates.

I am sure that the noble Lord, Lord Hill, will be aware of paragraph 17 of the model funding agreement, which relates to pupils. It starts with the statement:

“The Academy will be an all ability inclusive school”.

Which of these provisions would apply to those grammar schools which select their pupils and choose to become an academy? To what extent does this model funding agreement apply to those schools? In terms of equity, it is very important that we know the answer.

My second point as regards equity goes back to the point made by the noble Baroness, Lady Walmsley. We have been told:

“Funding of academies will be broadly comparable with that of maintained schools, taking into account their additional responsibilities. While converting to academy status will give schools additional freedoms, those who opt to stay within local authority control will not be financially disadvantaged”.

That is a welcome statement of intent. But, as the noble Baroness, Lady Walmsley, has pointed out, there is some concern within educational circles that this may not prove to be the outcome following publication of the ready reckoner and the technical note. I am not going to bore the House by going into the details of the ready reckoner, but it is a point that the noble Lord may wish to come back to.

In Committee we discussed the different approach of the seven-year arrangement with schools, and those are the arrangements that are likely to apply to free schools. The noble Lord said then that there would need to be, in a sense, a get-out clause if for one reason or another it was shown that a free school was perhaps not able to handle the funding arrangements or there were problems which meant that the Secretary of State would not want to get himself into a long-term commitment. I understand that, but it identifies a problem with the whole process of approving free schools by this route. It suggests that the Government are not confident that they will have a rigorous process in place, and that is why they are unwilling to agree to the seven-year commitment. For that reason, I strongly support the amendment tabled by the noble Baroness.

Finally, I come back to the whole question of clarity. I believe that we need further clarity because these financial arrangements are complex and it is important that all schools feel that the system is fair and equitable. Further, I would remind the noble Lord of the suggestion made by my noble friend Lord Adonis that there is a case for having some kind of independent process of assessment and reporting on the overall scheme for funding academies. I know that the noble Lord has put forward his proposal for how that is to be done, but my noble friend’s suggestion of an organisation like the National Audit Office, one that stands well outside the educational establishment, would command greater confidence. Overall, however, this debate has shown that much more remains to be discussed in relation to the financial consequences of this legislation, and I for one hope that the noble Baroness might press her amendment today.

[Lord Hill of Oareford]

My Lords, I start by saying to the noble Lord, Lord Hunt, and other noble Lords that I am sorry that the model funding agreement did not get to them any earlier. I know that there is a lot to take on board and that it is a long document. On his particular point about paragraph 17, the model will need some changes to reflect the particular circumstances of individual schools, which I hope answers his question.

Like the noble Lord, I am grateful to my noble friends for raising the issue of grant funding and for giving me the opportunity, I hope, to reassure them and the rest of the House as far as I am able. On Amendments 2, 19 and 19A, as we discussed at an earlier stage and to which the noble Lord, Lord Hunt, has just referred, the rationale for allowing the Secretary of State to fund via a grant in what is likely to be a small number of cases is to provide more flexibility, and as we have also discussed, we envisage a grant being used particularly in response to proposals for a free school where by definition there is no track record. We think that this flexibility makes more sense than committing to seven years at the beginning, but I want to emphasise that we expect this to be a minority of cases.

[Lord Knight of Weymouth]

Perusing the model funding agreement, I have one question on the specific issue of the general academies grant. Clause 50 talks about the amount of grant that would be available in the first year of conversion, and that the money would be on the same basis as that used by the local authority for determining the budget share of the predecessor maintained school. In the case of an academy free school where there is no predecessor, how would the funding for the first year be calculated so that people who are interested in setting up these interesting new schools can have some certainty?

[Lord Hill of Oareford]

I accept entirely the need for giving certainty to people who are setting up new schools. This process has just started and the question will be worked through with the first group of schools that have expressed an interest. It is a good point to which we will need to return when we have done that work.

On the point my noble friends have raised with me, particularly in relation to Amendment 28A, I stress that any academy funded via a grant will be subject to exactly the same requirements as those which apply to the funding agreement: there will be the same safeguards on admissions, exclusions and special educational needs, about which I know not only my noble friends but others on all sides of the House are concerned. These safeguards will apply equally to the majority of academies, which will be funded by the funding agreement, and to the minority, which may turn out to be funded by grant. The safeguards will be set out in the grant letter just as they are set out in the funding agreement. I can confirm that the governing body and the academy trust would be aware of the terms of the grant before finalising the academy arrangements. I hope that provides reassurance to my noble friends and your Lordships generally and I am happy to place it on the record.

Amendment 20, to which a number of noble Lords have spoken, would require academy funding to be based on the needs of pupils as well as on their numbers. I agree with my noble friends and others who have spoken that the needs of pupils as well as the numbers of pupils must be taken into account. The primary driver of academy funding will be the numbers on the roll because that is the best way to begin to measure the total amount of teaching and other resource that is likely to be required in a school. However, the local authority funding formula which is used to fund an academy also contains factors which measure special educational need and the level of deprivation among pupils. Some do this directly—for example, by measuring prior attainment—others use proxy indicators such as free school meals. The sixth-form formula used for academies and maintained schools also contains a measure for deprivation. In no case is an academy funded simply on the basis of its pupil numbers.

On the point raised by the noble Lord, Lord Knight, we intend developing a simple funding model for free schools based mainly on a per pupil amount. However, of course—I think this point was raised by my noble friend Lady Walmsley; she will forgive me if it was not her—the pupil premium for disadvantaged pupils, on which we will bring forward proposals in the autumn, will also be in operation and so needs will be recognised.

On Amendment 12A and the establishment of an independent monitoring system, as we discussed in Committee, the Bill requires that the academy arrangements will oblige the academy proprietor to comply with these characteristics when establishing and running an academy. The Secretary of State ensures at the outset—

[Baroness Thornton]

I am still not sure about the answer to my noble friend’s question. In layman’s terms, if the money for a new free school is to come from the money that is available to a local authority to fund all its schools, what happens to the other schools?

16:00

[Lord Hill of Oareford]

We discussed this point in connection with the free schools announcement, which was raised in the first group of amendments. It also relates to the amendment tabled by my noble friend Lord Phillips and the desire of people to have some reassurance that the effect to which the noble Baroness refers will be taken into account by the Secretary of State. One of the purposes of the free school measures is to ensure that a new school which proves attractive to parents is able to take funds from a failing school to which parents do not want to send their children. The purpose of the reform is to introduce competition of that kind into the system.

Continuing compliance with the characteristics and all aspects of the funding agreement is monitored by the Young People’s Learning Agency. The Secretary of State has intervention and, ultimately, termination powers that can be used if an academy is not complying with the fundamental characteristics. I say in response to the question asked by my noble friend Lady Sharp that the YPLA has the capacity and capability to do that, but we shall certainly keep it under review.

My noble friend Lady Walmsley asked about the ready reckoner, picked up on also by the noble Lord, Lord Hunt. I understand that there have been issues with the ready reckoner. I shall write to my noble friend about the situation in York.

If anyone has concerns that an academy is not complying with its statutory characteristics or the terms of its academy arrangements, these can be brought to the attention of the YLPA or the Secretary of State, who will look into them and take such action as is appropriate.

I hope that I have provided some reassurance to the House generally and to my noble friends in particular on these matters relating to the funding arrangements. In the light of that, I ask them not to press their amendments.

[Baroness Sharp of Guildford]

I am grateful to the Minister for his response. I am glad that the governing boards will be kept informed about the financial assistance grants.

On needs versus numbers, I am still a little uncertain. If a free school is to be set up, it will have projections of how many pupils it will take but will not necessarily know how many it is going to enrol. How will the Government set its grant in the first place? Is the first year of grant taken from local authority funding when they do not know how the school is going to do?

Will the Minister copy to me the letter that he writes about the York ready reckoner? I am a little unhappy about that, because it seems to set expectations unduly high for a quite a lot of schools. The bulk of money kept back by local authorities goes to meet special educational needs and transport. When that is deducted, the sum likely to be distributed will not be very great. The ready reckoner is leading a number of schools to have quite inflated ideas as to how much they might receive. If the Minister is unable to respond to any of these issues now, perhaps he could write to me. I beg leave to withdraw the amendment.

Amendment 2 withdrawn.

[The Deputy Speaker]

Before calling Amendment 3, I must advise your Lordships that if it is agreed to, I shall not be able to call Amendment 4 due to pre-emption.

Amendment 3

Moved by

[Lord Hunt of Kings Heath]

3: Clause 1, page 1, line 17, leave out “an independent” and insert “a secondary”

[Lord Hunt of Kings Heath]

My Lords, I shall speak also to my Amendments 5 and 7. Primary schools are always a matter of particular interest and certainly were to your Lordships when we discussed them in Committee. A number of concerns were expressed on this side and other sides of the House about the potential rapid conversion of hundreds of primary schools to academy status. I make it clear that my raising these matters is not born out of any objection to allowing the freedoms being granted to existing academies to be extended to primary schools; more, they come from some very practical considerations, stemming often from their relative size and community location of those schools.

In Committee, my noble friend Lady Royall raised a number of important points about the implications of the Bill for primary schools. She referred to the comparatively small size of many primary schools and to their potentially increased overheads. She said that the resources for shared services could be swallowed up by the extra administrative costs that would have to be borne one way or another. My noble friend also warned that many primary schools would have less capacity to budget and plan for the future. Other noble Lords also made those points in our debate.

Today's earlier discussion on the financial arrangements and the uncertainties there are at the moment reinforce that point. Thinking of primary schools and of the limited managerial capacity that one often finds in those schools, one can only worry at the burden that is likely to be placed on the head teacher and the governing body, and the responsibility that is likely to be put on them.

My understanding from local authorities is that the most dependent group of schools that rely on their advice and support are primary schools. The vast majority of their schools are community schools. They will not have had even the experience of being foundation schools in managing the enormous range of responsibilities that would come with academy status. There is a real issue of capacity here. We know that most secondary schools employ a range of staff to deal with the increased administrative requirements placed on them. Often, in many primary schools, there is only one school secretary and the head teacher. One also has to think in terms of public finance and the appropriate monitoring and spending of those moneys

There are also some real practical issues. What would happen, for instance, if a primary school developed a serious structural fault or there were fires on school premises? The normal first port of call for primary schools at the moment is the local authority, which would step in. My understanding is that once a school becomes an academy, Department for Education advice states that it would expect schools facing such problems to take out loans. But could some of the smaller primary schools really be able to take that risk and afford the repayments, even if they could get a loan in the first place?

We know that most primary schools depend on the local authority to pick up the cost of redundancies, employment tribunals and legal costs associated with challenges over accidents and similar incidents. Would smaller primary schools even be able to find the cost of insurance to cover this, when the department's own website states that for most schools the cost of insuring would be “between £60,000 and £100,000”? Add to that the cost of purchasing legal and personal advice commercially.

There is another concern about the immediate conversion of primary schools to academy status. A great deal of work has been done over the years in managing the process of transition from an early years setting to the first year of primary school. I hope that the review of the early years foundation stage announced by the Government will not reverse that very good work. But the reality is that the overlapping responsibilities between early years settings and the children's trusts—the abolition of which would cause concern on this side of the House—raise concerns about the number of childcare and early years settings sited with primary schools which, if they then move to academy status, could have major consequences. The problem is that we have so far seen little evidence that any serious thought has been given to those consequences.

I know that the Minister is being extremely helpful in our debate, but I was disappointed with his response. He acknowledged the importance of the matters that have been raised and said that he understood some of the concerns. He said that he was committed to thinking through the practicalities raised by noble Lords in Committee. But in the end, he gave no comfort to those of us who think that the practicalities ought to be dealt with first before primary schools become academies.

Our Amendments 3, 5 and 7 seek to remove primary-only schools from the Bill entirely. This is done for reasons of practicality. Of course, if the Government are determined to find a way in which to make the academy programme applicable to primary schools, why do they not do some preparatory work, look at the issues and return with proposals at a later date? They have undertaken to bring at least one other education Bill during this Session of Parliament. Surely, that would give them time to prepare some fully worked-through proposals.

I know that the other amendments in this group seek variously to delay the introduction of primary academies, which would obviously give the sector and the noble Lord’s department time to work through some of those issues. We would certainly support those amendments, should our own amendments not succeed.

[Baroness Walmsley]

My Lords, I think that the noble Lord meant to refer to Amendments 3, 4 and 7, because I now speak to Amendment 5, which is in my name.

We on these Benches do not favour a complete ban on primary schools. However, as the Minister knows, we have considerable concerns as we feel that the issue of primary schools should be approached with considerable caution and careful thought. I leave my noble friend Lady Williams to speak to Amendments 22A and 24, which set out our ideas, briefly referred to just now. Amendment 5 paves the way for one of those measures, which is to allow schools to apply as groups. Clause 1(5) says:

“The undertakings are … to establish and maintain an independent school in England which … has characteristics that include those in subsection (6)”,

and so on. My amendment would change that to say that,

“the undertakings are … to establish and maintain an independent school or group of schools in England”.

It is a very small amendment, but it paves the way to the idea that my noble friend Lady Williams will address in a moment that we should perhaps encourage primary schools to apply as a group or federation rather than a single school.

[Baroness Williams of Crosby]

My Lords, as the Minister knows, we have given careful thought to the whole issue of primary schools, and I am grateful for what the noble Lord, Lord Hunt, had to say about it, with which I very much agree. Primary schools have about them a number of characteristics that are simply nothing like as typical of secondary schools. Many of them are relatively small schools in rural areas, and 25 per cent of the population of primary school children in England and Wales attend 75 per cent of the number of schools. In other words, there are a great many very small schools in small towns in rural areas, which no less than 25 per cent of all our schoolchildren attend between the primary school ages. Secondly, of this group of schools no less than one-third are either church voluntary or church-controlled schools, mainly Anglican but some Roman Catholic and others of other denominations. That is a factor about primary schools that is far more significant than would be the case with secondary schools.

Furthermore, as the noble Lord, Lord Hunt, implied—and we have tried to indicate on this side of the House that we share his view—primary schools are often at the heart of the community, the centre of civic life and the place where people meet to discuss things, where they feel themselves drawn to support the school. At a time when schools will need more support—among other ways, financially—that is a very crucial asset that should not be easily put at risk. I suspect that many noble Lords other than myself spend a certain amount of time attending school fetes and competitions and this and that, which all help to contribute some money to the financial needs of the school.

In addition, as briefly said by the noble Lord, Lord Hunt, primary schools are peculiarly dependent on local authority support, whether for SEN, management issues, financial issues or simply to deal with a very difficult governor or parent. As chairman of the judges of the Teaching Awards, which I declare as an interest, I have repeatedly been approached by primary school heads who talk about the support of their local authority and say how important it has been to them. That is not something that I have tried to elicit from them; it is something that they freely mention themselves, over and again. That is even truer if the school is small, isolated or on its own.

16:15

My noble friend Lady Walmsley has pointed to what some of the solutions may be in future for over 17,000 primary schools. One possible solution is to group them together. Geographically that may be almost impossible in some areas, such as the Pennines or Northumberland, but in other areas it is conceivable to bring together a group of schools, possibly under a single head, to form one grouping that can offer rather wider choices to children than one could on its own. In some cases a federation of schools, which might be associated with a single good secondary school or academy, could be brought together and be a very important unit to be considered on its own.

All these developments have occurred a little, but development has frankly not gone very far. That is one reason why I believe that in this area it is crucial to have more time than the Bill gives us. The Minister will know that I have tried to argue this point to him—successfully, I hope.

My amendment has two parts to it. The first part is that there should be no move at the moment by schools with under 500 children to put forward a suggestion that they should become academies. The figure of 500 broadly takes in most primary schools but not all; some are bigger or are linked to secondary schools.

The second part is that there should be a two-year delay before consideration is given to accepting any primary schools for academy status. Despite what the noble Lord, Lord Hunt, said, three months, with the summer holidays intervening, is not going to be long enough except for a tiny handful of schools. The issues here are extremely difficult. In many cases there are more authorities than simply the local authority, including the whole diocesan and church authority structure for the one-third of schools in the controlled and aided status group, which I have already referred to. My amendment therefore proposes that there should be a two-year hiatus, not least because we could learn a great deal from what happens to secondary schools in terms of how one achieves and what the problems of academy status are. As someone who deeply believes in the idea of trial periods and pilot schemes, I think that might be the best possible answer to this difficult situation.

[The Lord Bishop of Lincoln]

The noble Baroness, Lady Williams, has kindly referred to the percentage of Church of England primary schools—over one-third. I declare an interest as chair of the Church of England’s board of education, which has oversight of our care for those schools.

I support this amendment. Like the noble Lord, Lord Hunt, I do not do so because I oppose in principle the possibility of primary schools becoming academies. We can see circumstances in which that may well be appropriate. Rather, it is about ensuring that we do not rush to do something quickly at the expense of doing something well.

There is potential here for real improvement to the Bill if further thought is given to some of the detail that has emerged. I pay tribute to the Minister and the Secretary of State for their willingness to engage with us in a detailed way about some of the implications that in certain cases were foreseen but in other cases have emerged as the conversations have developed. All that seems to point to saying, “If it is possible for there to be a little longer to go on having those conversations to arrive at something even better than what the Government have in mind, then surely that must be as much in the Government’s interest as it is in the interests of those for whom the Bill is being promoted”.

In the dioceses, it is our diocesan directors of education who have an immediate care for the church schools—in the diocese of Lincoln we have 150 primary schools—and they met yesterday. They were very encouraged by this amendment having been tabled. Again, this is not because they are opposed in principle—the point is that they are not entirely sure what they might be asked to promote or oppose when it comes to advising the schools for which they have a care—but because they want to know more, they want to be clear and they want to know that the details have been sorted. Then they will be in a position to provide such support, encouragement and advocacy as may be appropriate to take forward this legislation.

What is there that is lost here? Very little time in the overall scheme of things. What is gained? Perhaps a great deal that could prove to be, in the long run, in the best interests of our children and even our children’s children. If that is the case, we as a revising Chamber will have done our job, which is to have enabled a little more time to be taken, so that something which might well have been done quickly will be done more slowly, but will be done well.

[Baroness Perry of Southwark]

My Lords, I almost feel that I should declare an interest. As the daughter of a primary school head, I feel my mother’s ire rising in my bones, particularly when the noble Lord, Lord Hunt, mentioned the lack of managerial capacity in primary schools. That may well be true in some small primary schools. However, not only are there are many which have extremely intelligent, competent and well educated heads and deputy heads in charge, but even a small primary school has a governing body. Exactly as the noble Baroness, Lady Williams, said, many of these primary schools, particularly in rural communities, are at the heart of the community and can attract very senior and experienced businesspeople and professionals from the community to their governing bodies and the chairmanship of those bodies. Therefore, they do not lack that kind of hard-edged business experience in running their affairs. The right reverend Prelate mentioned the primary schools in his own diocese. I have had two meetings in the past two weeks with church primary schools, both of which are very keen to become academies quickly. I also met their chairmen of governors, who were very competent and in both cases well able to cope with the business affairs that would be involved in running an academy. We should not underestimate the importance of governors in this whole pattern.

The right reverend Prelate’s final point about the one-third of primary schools that are church schools seems important. They have a diocesan board of education; they are a natural federation to start with. At one of the meetings that I referred to, the diocesan director of education was present. She outlined the various ways in which she could support schools in the diocese that become academies. There will be a natural leadership in the diocese, coming from the diocesan board, which in many cases replicates the sort of support—perhaps not financially, but in other ways—which a local authority has previously given to schools.

Finally, in urging that we write delay into the Bill, it seems that we totally forget that any application to become an academy goes to the Secretary of State and his civil servants. He has the power to delay an application, to turn it down entirely or to tell somebody to come back. If a primary school with 23 pupils says that it would like to be an academy, I imagine that the department would perhaps say, “No, unless you come back in a federation with five or six other schools and proper arrangements in place”. The Secretary of State is a wise and intelligent person, with wise and intelligent civil servants, who will make sure that approval is given only to those primary schools—as to all schools—which can convince him and his civil servants that they are able, in all sorts of ways, to take on the responsibilities of becoming an academy. It is already in the Bill that the Secretary of State will be in charge of that approval. We do not need to write in delay. The Secretary of State has the power to enforce delay on those that are not fit.

I do not think that these amendments are necessary. There are already many ways in which the safeguards that we all seek for the primary school academies are built into the structure.

[Lord Sutherland of Houndwood]

My Lords, two important points weigh with me in considering these amendments. The first is the principle of whether primary schools should have a place as academies in the future. I assent to that: I think that they should have the option of becoming academies. The second is the practical point of whether all primary schools are capable of operating under such a system. The answer is clearly no. I made that point at Second Reading. Then the question is—this was put by my noble friend Lady Perry—whether we deny that opportunity now through legislation or look seriously at the fact that there is a double lock on this door. The first lock is whether the head teacher and governing body are prepared to apply for such status. If they apply mistakenly, because they have 23 pupils, perhaps the judgment will be made against them. The second lock is that of the Secretary of State giving assent. We should stress to Secretaries of State—some of them are exceptionally good, although I shall not name names—that they are taking responsibility for this and will be judged on the decisions that they make on primary schools. As has been pointed out around the House, some primary schools may well be in difficulty. The Secretary of State will be judged on the decisions that are made but we should not rule out having this option in legislation.

[Lord Knight of Weymouth]

My Lords, I support the amendments in the name of my noble friend Lord Hunt in respect of primary schools becoming academies. We wrestled with this question in the three years that I was Schools Minister in the old Department for Children, Schools and Families. In discussions on this issue with my noble friend Lord Adonis, it was necessary to go back to first principles about why we were having academies in the first place.

Many people think that the secret of academies lies simply in their freedoms from the constraints of the national curriculum, teachers’ pay and conditions and other matters. Freedoms are a part of it, but it is a question of how they are used. It is important to have the leadership capacity, supported by strong governors, to deploy those freedoms effectively to improve children’s education. Academies also offer opportunities for innovation. However, I do not believe that 23,000 independent schools—that is the implication of primary schools becoming academies—are sustainable on the ground of the capacity for consistently strong leadership.

England has some of the greatest state schools in the world but we also have some weak schools. Our problem is variability, not the overall standard. I agree with the noble Baroness, Lady Perry, that we have some wonderful leaders in our primary schools and some great governing bodies, but I say with the greatest respect to her that we also have some slightly less good leaders and less good governing bodies. We have to be cautious about how we design a system that is dependent on them all being excellent. I advocate—I did so as a Minister—that we pursue primaries becoming academies as part of all-through academies. I greatly encouraged all-through academies when I was a Minister and we are starting to see more of them spring up.

I am not completely against the notion that there might be circumstances where groups of primaries could become academies, but that needs further consideration. I was interested in the arguments of the noble Baroness, Lady Walmsley, in respect of Amendment 5, but my caution about groups of academies in some ways relates to what the right reverend Prelate said about the religious foundation of schools. The obvious form of a group of primaries would be on a geographical basis, but then you start to lose choice and diversity. My experience of dealing with various diocesan boards is that they are very nervous about joint governance of academies—for example, between the Anglican Church and the Catholic Church. In the communities that I represented in Dorset, we could not get boards to agree to single primary schools entering such arrangements because of the importance of their being able to preserve the tenets of their faith and wanting to represent that in the school. Parents also value that choice and diversity in being able to send their children to a school with the sort of foundations that they value.

16:30

There is a great example of an all-through school in Portland in Dorset. Will the Minister in passing look into whether or not the announcements today around funding would have an effect on the academy development there, which will be the most fabulous example of all-through education, bringing together a series of primaries and a secondary? For the first time on the island, the academy will be able to offer education beyond 16 to 18, with a wonderful sponsor.

There may also be groups of primaries that are chains of schools. If we explicitly want to design chains of primaries into our school system, we need to be a lot clearer on exactly what we are talking about, how they would work, who the potential sponsors would be, their ethos and so on. There may also be some merit in forming groups of schools that include special schools. I have reservations about the attitude of the Government on inclusion. You may be able to have the merits of special schools, but in an inclusive environment, through a group of primary schools.

Fundamental issues around primary academies relating to economies of scale have been explored. Mention has been made that integration with wider children’s services is important in primaries. That can be lost if schools are independent from local authorities. I noted with interest that in the other place the right honourable Iain Duncan Smith is very interested in early intervention, as is Graham Allen and, indeed, as we were in government. Early intervention becomes more difficult with independence from the local authority. Has the Minister held any discussions with his colleagues in government who are interested in that area?

In summary, I agree with the right reverend Prelate: do not hurry this. There is no need to rush to primary academies. The offer has been made by my noble friend Lord Hunt to come back with future legislation that we know is in the stocks and to make the case then, having made progress with secondary school academies. Therefore, I say yes to all-throughs but, for now, no to isolated independent primary academies.

[Baroness Morris of Yardley]

I support the amendments and wish to raise two questions. I agree with all the comments about the difficulty of primary schools becoming academies and I shall not repeat them. However, I am a bit concerned about two suggested ways forward.

One is the notion of schools grouping together, which the noble Baroness, Lady Williams, talked about. I am absolutely an enthusiastic advocate of federations and clusters. They are at the heart of school improvement. However, I worry about the Government seizing on that as a way of managing the capacity of primary schools to become academies, as that would be the wrong reason to create a cluster or a federation. There are a lot of reasons for schools getting together to form a federation, which should be about what is best for school standards and for local provision of education. If schools get together to form a federation or a cluster merely to apply for academy status, that would be the wrong reason and I fear that the federation would not do a good job.

Another concern is that the academy will have a legal contract. It will, if you like, be a legal entity in terms of the academy agreement. If in three, five or 10 years’ time the academy sees the possibility of a better partnership that is in the interests of the children in the community, it might be more difficult to form a new set of relationships with the school. Therefore, I have some worries—not about federations but about the wish to become an academy being the purpose that brings the schools together.

I am also concerned about the second lock which the noble Lord, Lord Sutherland, mentioned. I am a bit of a doubter on this, because nothing that the Secretary of State has said so far leads me to believe for one second that he is likely to exercise that amount of discretion and say to a primary school, “You are not ready for it yet”. All that I have heard from the Government is that they are enthusiastically campaigning for as many schools as possible to become academies. If the Government become interested in that second lock, the Secretary of State would need to publish a list of criteria against which he will make the decision and to say under which conditions he would accept an application from primary schools to become an academy. Can the Minister say whether that is likely?

[The Earl of Listowel]

My Lords, I support the amendment in the name of the noble Lord, Lord Hunt of Kings Heath. I understand the Government’s desire to push this flagship policy forward as fast as possible to keep their momentum after a successful election. However, when one is making a revolution—this might be momentous in the culture of education—it cannot hurt and must be helpful, where there is an opportunity to delay for some months until another Bill arrives, to talk more with head teachers.

My concern all the time is that perhaps there has not been sufficient strategic thinking about what the impact of this change will be on every child. I do not doubt that many primary and secondary schools will welcome and want this. My concern is that we may be moving towards a three-tier system of public schools, academy schools and the rest, with many of our children in the poorest areas experiencing a poorer quality of teaching when they need as good teaching as—or even better than—those in more wealthy areas. That may not happen—I may be quite wrong and I hope that I am—but the more time that we give to thinking this through carefully, the more chance there is that I will be wrong.

I talked to a head teacher today who said how frustrated he was with the current system. Certainly things have to change, but I emphasise that the Minister has only recently taken up his Front-Bench post. I am sure that the Secretary of State has put a lot of time into consulting teachers, but it cannot hurt for there to be more time for the Minister to talk with head teachers and to think through what could be the consequences for all our children of these changes. I support the amendment.

[Baroness Howe of Idlicote]

My Lords, it has been an extremely interesting debate and all sides have contributed a lot to one’s thinking. I am sympathetic to the points made by the noble Baroness, Lady Perry. Perhaps I should declare my interest as president of the NGA, because I think that the vast majority of governing bodies are responsible organisations that represent local areas considerably.

I agree that there are two points. Should primary schools be part of the scheme? Yes, I think that they should be. Are they so different that we have to wait for the next Bill to come through? I rather doubt that. We could begin the process now. The Secretary of State has considerable powers already and bodies such as diocesan boards are clearly strong partners.

Bearing in mind the issue of special educational needs, which is important to us all, I would like to know whether SEN pupils will be disadvantaged if we go down this route because they will not have the same backing from the local authority to provide the extra resource support that they are getting. That is my test. We could certainly begin with experiments now. I hope that the Minister can convince us that he will take a view on all these things before he gives the appropriate timescale for schools to apply to become academies.

[Lord Mackay of Clashfern]

My Lords, I very much follow the line that the noble Baroness, Lady Howe of Idlicote, has taken. Assuming that some primary schools would eminently qualify—I rather thought that the noble Lord, Lord Knight of Weymouth, said that there were some—I cannot see why it is right to delay the power to deal with them while you wait to see if others should join them. One has to remember that this is for primary schools and the time spent in primary school is comparatively short. We would deprive children who might well benefit from the system for a considerable portion of their primary school life. While delay is attractive from some points of view, it would damage those who are qualified now to obtain the benefit.

I believe that it is right for the Secretary of State to have discretion to receive these applications and to refuse those that he considers to be unsuitable or to delay them. I have no reason to doubt that he will exercise that discretion wisely. Apart from anything else, as the noble Lord, Lord Sutherland, said, the Secretary of State will be judged and, if the schools are failures, that will come home to roost. I have no doubt that the noble Baroness is aware of that problem.

[Lord Hill of Oareford]

My Lords, I am grateful for the comments made in this interesting debate. There have been three broad sets of comments. Clearly, some are not at all keen in principle that primary schools should become academies. Some on the Cross Benches who have spoken eloquently have said that primary schools should be given the chance to become academies, that there is no reason in principle why they should not and that there are safeguards to provide some reassurance. There is a third group, including some of my noble friends, who agree in principle that academy status for primary schools is good and that they should not be excluded but given the opportunity. But they want reassurance on the timing and the pace. I hope that I can provide that.

I understand the point made by the noble Lord, Lord Hunt, about the particular sensitivity of primary schools and the special part that they play in local communities. The local primary school is very much part of the village where I live and I know that that is true throughout the country. On a general point, in the first instance we are talking about only a relatively modest number of outstanding primary schools. By definition, any that do not fall into that category will involve a longer process of establishing the criteria to enable us to work these things through. If an outstanding local primary were to become an academy, it is not clear why it should automatically become less of a part of the local community, village or town life. It will have the same head, staff, parents and children with some additional freedoms. I am not clear why the change of status should suddenly make those people in their villages, towns and communities suddenly start to behave differently.

Our starting point is that we are keen that schools should determine whether academy status is right for them but I accept that in some—perhaps many—primary schools, it may not be the right decision for them. They may not have the right experience or feel comfortable, in which case they will not want to make the change. Even though there may be many schools for which it is not suitable, that does not mean that those that want to become academies and believe that it is a viable option for which they have the appetite should be prevented from doing so. That links to the point made by the noble Lord, Lord Sutherland, about the double lock in that category. To respond to the question asked directly by the noble Baroness, Lady Morris, it is only outstanding primary schools that will be able to convert quickly. Others will have to meet criteria that we will publish. The question of capacity will include leadership issues.

16:43

I certainly accept the case made, I think, by the noble Lord, Lord Hunt. Small primary schools might be more dependent on their local authorities than other schools, in which case academy status might well not be right for them at this stage or, indeed, later. They will not be under any pressure to convert. That, again, picks up on the point made by the noble Baroness, Lady Morris. She is shaking her head at me but I cannot do more than state what I have said in this House and what the Secretary of State has said. We are not hell-bent on a plan to force every primary school in the country to convert. I and, more to the point, the Secretary of State have said consistently that the whole purpose of the Bill is to be permissive and not coercive. Having a plan to force them all to convert would be utterly against the spirit and purpose of this legislation.

One difficulty with Amendment 3 moved by the noble Lord, Lord Hunt, is that it would prevent all-through schools becoming academies. Of course, there are already many successful all-through academies—23, I think—and it would be wrong to prevent all-through schools which want to convert from doing so simply because they offer primary as well as secondary education.

I certainly agree that federation or partnership arrangements can make sense for primary schools—a point made in relation to an amendment tabled by my noble friends and picked up on by the noble Lord, Lord Knight. I think that the Government would encourage that type of arrangement, as well as any sensible proposals for all-through academies. Under the Bill, federations of maintained schools could apply for academy status in the same way as all other schools, and any federation wishing to convert would simply need to submit a single application. If approved, those schools would be able to continue to work together as an academy federation. We are keen to preserve the excellent work done in federated schools—we know that they work well. A number of academy trusts run groups of academies, such as that established by my noble friend Lord Harris. Therefore, we think that that is worth considering, although we do not believe that it would need to be referred to explicitly in the Bill, as the existing legislation allows for it.

I agree that shared or co-located services, such as children’s centres, raise a sensitive and important point. We would work through the issues with all relevant partners to ensure that services were maintained without interruption. It would obviously mean that the process of conversion would take longer but it is important to do it right.

Overall, I recognise the points that have been raised, in particular by my noble friends but more generally in this House, including by the right reverend Prelate the Bishop of Lincoln, and I shall try to offer this reassurance. First, as I have already said, we believe that the number of primaries that will convert in the very first wave is likely to be very modest. Secondly, the Secretary of State has made it clear that he will keep the situation under review and learn any lessons from the first primary converters. The third point concerns an issue that we are due to come back to later on Report but I hope that, as it is relevant to this part of the debate, noble Lords will forgive me if I touch on it now. I accept the force of the argument made by my noble friends Lady Williams and Lord Greaves that there needs to be some kind of annual reporting process to Parliament on the progress of academies policy. We will be debating that tomorrow but I think that that is the direction in which we should be moving. A consideration of the impact of academies policy on primary schools is precisely the kind of issue that would be picked up in that report. That will, I hope, alongside the other reassurances—the double lock to which the noble Lord, Lord Sutherland, referred—provide some comfort to my noble friend Lady Williams and others, who have argued the case for this approach with great clarity.

Therefore, I recognise the points that have been made by my noble friend and by other noble Lords about primaries and their place in our national life, and we have reflected on them. I hope that my answer provides some reassurance and that, in the light of that, the noble Lord will feel able to withdraw his amendment.

[Baroness Howe of Idlicote]

My Lords, can the Minister give the reassurance that I was hoping for? In the consideration of an application, I hope that the special educational needs side will be borne very strongly in mind, not least because early diagnosis of problems is very important for the future development of that group.

[Lord Hill of Oareford]

I am happy to give that reassurance, but also to make the point that, as the noble Baroness, will know, because of other amendments which I have moved on SEN, with the support of this House we will include in the Bill a commitment that there should be absolute parity in all academies on SEN comparable to that in all maintained schools.

[Lord Hunt of Kings Heath]

My Lords, this has been a very good debate and I am grateful to all noble Lords who have spoken. I apologise to the noble Baroness, Lady Walmsley, for trying to take over her amendment, Amendment 5. The noble Baroness, Lady Williams, put it right at the start of our debate when she talked about the role of primary schools being at the heart of many local communities. All noble Lords agree with that. That means that we should be especially careful about legislation which could have an impact on those schools. That is why noble Lords want to be assured that there will be a rigorous scrutiny process enabling us to understand whether schools are ready to take on the responsibilities which academy status will bring.

The point which has not been responded to fully is that all evidence suggests that primary schools depend the most on local education authorities. That is why we are concerned not about the principle of academy status for primary schools but about capacity. I hope that the noble Baroness, Lady Perry, did not take my remarks as meaning to criticise the capacity of leadership in primary schools; I did not seek to do so. The managerial structure within most primary schools is fairly limited. That is not about the capacity of the people, it is simply about the number of people. She will know that they do not have the managerial structures that many secondary schools have. I agree with her—many governing bodies are indeed excellent—but they still need to reflect on the corporate responsibility that they would be taking on if they went down the path of academy status. We should not underestimate those additional responsibilities.

It has been said in our debate that there are two locks. The first lock is that the Secretary of State himself will have to approve any application. We are reassured that there will be a rigorous process in so doing. I make two points about that. First, the message coming from the Secretary of State is that he is anxious to secure as many academy schools as possible. That is why I question the rigour of the process. Secondly, I come back to the point that I raised in Committee. I know that the Minister has now tabled an amendment about consultation, but the fact is that, none the less, the Bill gives the Secretary of State a huge amount of power without parliamentary scrutiny. That is why I am very worried, particularly in relation to primary schools, about just letting the Bill go through.

The second point, raised by the noble Lord, Lord Sutherland, concerns the second lock, which is that of the governing body. Of course, governing bodies will be able to decide whether or not to take an application forward, but in our previous debate, we discussed the many financial uncertainties that are readily apparent in the academy programme at the moment. I question whether governing bodies, especially of primary schools, are really in a position to make those decisions on the basis of the information that they have at the moment.

My noble friend Lord Knight spoke about the potential of all-through academies. My amendments are not intended to remove all-through schools from the legislation. Third reading is always an opportunity to tidy up legislation, but I want to make it clear that the amendments do not seek to remove all-through academies from the Bill.

Like the noble Earl, Lord Listowel, I am at heart concerned about the pace. We are going too fast, particularly in relation to primary schools. I understand the point the Minister makes about holding back; he made it in Committee. It is one approach, but I think it would be much better to get the policy sorted and to understand where the support for primary schools will come from. Primary schools will need support. The Minister happily has another Bill coming to your Lordships House in a matter of months. Surely we should leave primary schools aside until that point to give his department some months to sort this out. Then I am sure we would look with confidence to agreeing to legislation that would embrace primary schools.

Having heard the Minister, I feel that this is a matter on which we should test the opinion of the House.

16:56

Division 1

Ayes: 154

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Labour: 139
Crossbench: 6
Bishops: 2
Independent: 2

Noes: 239

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Conservative: 139
Liberal Democrat: 49
Crossbench: 36
Democratic Unionist Party: 3
Bishops: 1
UK Independence Party: 1
Ulster Unionist Party: 1

17:11

Amendments 4 to 5A not moved.

[The Deputy Speaker (Lord Geddes)]

I call the noble Baroness, Lady Walmsley, to move Amendment 6.

[Baroness Walmsley]

I am sorry, but I thought that we would now move on to the next business.

[Lord Hunt of Kings Heath]

I am sure that the Government will help us, but I think we are now stopping our discussions on this Bill.

[Baroness Anelay of St Johns]

My Lords, perhaps I may assist my noble friend. As a result of being a Teller for the Division, I was caught in the wrong position on the other side of the House. I apologise for that. There is an agreement that we would spend two hours or so on the Bill. I understand that it is for the convenience of both Front Benches if we halt Report at this stage in order to resume tomorrow. I hope that that assists my noble friend. The House will now go on to the next business, the Statement, which I understand is ready to be taken. We will then move on to the other business. Again, I apologise for taking some time. It was to make sure that we had people in position.

Consideration on Report adjourned.

Intelligence and Security Services: Treatment of Detainees

Tuesday 6th July 2010 Lords Chamber

Statement

17:14

[The Chancellor of the Duchy of Lancaster (Lord Strathclyde)]

My Lords, I think that now is a convenient moment to take the Statement made by the Prime Minister in another place a few minutes ago on the treatment of detainees. The Statement is as follows:

“Mr Speaker, I am sure that the whole House will wish to join me in paying tribute to the Royal Marine who died on Thursday, the soldier from the Royal Dragoon Guards who died yesterday and the soldier from 1st Battalion the Mercian Regiment who died from wounds sustained in Afghanistan at hospital in Birmingham yesterday. We should constantly remember the services and sacrifices made on our behalf by our Armed Forces and their families.

With permission, I would like to make a Statement on our intelligence services and allegations made about the treatment of detainees. For the past few years, the reputation of our security services has been overshadowed by allegations about their involvement in the treatment of detainees held by other countries. Some of these detainees allege they were mistreated by those countries. Other allegations have also been made about the UK's involvement in the rendition of detainees in the aftermath of 9/11. These allegations are not proven.

But today, we do face a totally unsatisfactory situation. Our services are paralysed by paperwork as they try to defend themselves in lengthy court cases with uncertain rules. Our reputation as a country that believes in human rights, justice, fairness and the rule of law—indeed, for much of what the services exist to protect—risks being tarnished. Public confidence is being eroded, with people doubting the ability of our services to protect us and questioning the rules under which they operate, and terrorists and extremists are able to exploit these allegations for their own propaganda.

Myself, the Deputy Prime Minister, the coalition Government—we all believe it is time to clear this matter up once and for all. So today I want to set out how we will deal with the problems of the past, how we will sort out the future and, crucially, how we can make sure the security services can get on, do their job and keep us safe.

But, first, let us be clear about the work they do. I believe we have the finest intelligence services in the world. In the past, it was the intelligence services that cracked the secrets of Enigma and helped deliver victory in World War II. They recruited Russian spies like Gordievsky and Mitrokin and kept Britain safe in the Cold War. And they helped disrupt the Provisional IRA in the 1980s and 1990s. Today, these tremendous acts of bravery continue. Every day intelligence officers track terrorist threats and disrupt plots. They prevent the world's most dangerous weapons falling into the hands of the world's most dangerous states. And they give our forces in Afghanistan the information they need to take key decisions.

They do this without any public—or often even private—recognition, and despite the massive personal risks to their safety. We should never forget that some officers have died for this country. Their names are not known. Their loved ones must mourn in secret. The service they have given to our country is not publicly recognised. We owe them—and every intelligence officer in our country—an enormous debt of gratitude. And, as Minister for the Intelligence Services, I am determined to do everything possible to help them get on with the job they are trained to do—and we desperately need them to do.

However, to do that, we need to resolve the issues of the past. While there is no evidence that any British officer was directly engaged in torture in the aftermath of 9/11, there are questions over the degree to which British officers were working with foreign security services that were treating detainees in ways they should not have done. About a dozen cases have been brought in court about the actions of UK personnel, including, for example, that since 9/11 they may have witnessed mistreatment such as the use of hoods and shackles.

This has led to accusations that Britain may have been complicit in the mistreatment of detainees. The longer these questions remain unanswered, the bigger the stain on our reputation as a country that believes in freedom, fairness and human rights grows. That is why myself and the Deputy Prime Minister are determined to get to the bottom of what happened. The intelligence services also are keen publicly to establish their principles and integrity.

So we will have a single, authoritative examination of all these issues. We cannot start that inquiry while criminal investigations are ongoing. And it is not feasible to start it when there are so many civil law suits that remain unresolved. So we want to do everything we can to help that process along. That is why we are committed to mediation with those who have brought civil claims about their detention in Guantanamo. And wherever appropriate, we will offer compensation.

As soon as we have made enough progress, an independent inquiry, led by a judge, will be held. It will look at whether Britain was implicated in improper treatment of detainees held by other countries that may have occurred in the aftermath of 9/11. The inquiry will need to look at our security departments and intelligence services. Should we have realised sooner that what foreign agencies were doing may have been unacceptable and that we should not be associated with it? Did we allow our own high standards to slip, either systemically or individually? Did we give clear enough guidance to officers in the field? Was information flowing quickly enough from officers on the ground to the intelligence services and then on to Ministers, so that we knew what was going on and what our response should be?

We should not be naive or starry-eyed about the circumstances that our security services were working under in the immediate aftermath of 9/11. There was a real danger that terrorists could get their hands on a dirty bomb, chemical and biological weapons or even worse. Threat levels had been transformed. The urgency with which we needed to protect our citizens was pressing. But let me state clearly: we need to know the answers. If things went wrong, why? What must we do to uphold the standards that people expect?

I have asked the right honourable Sir Peter Gibson, former senior Court of Appeal judge and currently the statutory commissioner for the intelligence services, to lead the inquiry. The three-member inquiry team will also include Dame Janet Paraskeva, head of the Civil Service Commissioners, and Peter Riddell, former journalist and senior fellow at the Institute for Government. I have today made public a letter to the inquiry setting out what it will cover, so that Sir Peter Gibson can finalise the details with us before it starts. We hope that the inquiry will start before the end of this year and will report within a year.

The inquiry cannot and will not be costly or open-ended—that serves neither the interest of justice nor national security. Nor can it be a full public inquiry. Of course, some of its hearings will be in public. However, we must be realistic. Inquiries into our intelligence services are not like other inquiries. There is some information that must be kept secret—information about sources, capabilities and partnerships. Let us be frank: it is not possible to have a full public inquiry into something that is meant to be secret. Any intelligence material provided to the inquiry panel will not be made public, nor will intelligence officers be asked to give evidence in public.

But that does not mean we cannot get to the bottom of what happened. The inquiry will be able to look at all the information relevant to its work, including secret information. It will have access to all relevant government papers, including those held by the intelligence services, and it will be able to take evidence in public, including from those who have brought accusations against the Government and their representatives, and interest groups. Importantly, the head of the Civil Service and the intelligence services will ensure that the inquiry gets the full co-operation that it needs from departments and agencies. I am confident that the inquiry will reach an authoritative view on the actions of the state and our services and make proper recommendations for the future.

Just as we are determined to resolve the problems of the past so we are determined to have greater clarity about what is acceptable and what is not in the future. That is why we are publishing today the guidance issued to intelligence and military personnel on how to deal with detainees held by other countries. The previous Government had promised to do this, but they did not; we are. The guidance makes it clear, first, that our services must never take any action where they know or believe that torture will occur; secondly, if they become aware of abuses by other countries, that they should report it to the UK Government so we can try to stop it; and, thirdly, in cases where our services believe that there may be information crucial to saving lives but where there may also be a serious risk of mistreatment, that it is for Ministers, rightly, to determine what action, if any, our services should take. My right honourable colleagues the Foreign, Home and Defence Secretaries have today laid in the House further information about their role in these difficult cases.

There is something else we have to address, and that is how court cases deal with intelligence information. Today, there are serious problems. The services cannot disclose anything that is secret in order to defend themselves in court with confidence that it will be protected. There are also doubts about our ability to protect the secrets of their allies and stop them from ending up in the public domain. This has strained some of our oldest and most important security partnerships in the world—in particular that with America. Honourable Members should not underestimate the vast two-way benefit that this US-UK relationship has brought in disrupting terrorist plots and saving lives, so we need to deal with these problems.

We hope that the Supreme Court will provide further clarity on the underlying law within the next few months, and next year we will publish a Green Paper which will set out our initial proposals for how intelligence is treated in the full range of judicial proceedings, including addressing the concerns of our allies.

In this process the Government will seek the views of the cross-party Intelligence and Security Committee, and I can announce that I have appointed the right honourable Member for Kensington, Sir Malcolm Rifkind, as the chair of that committee for the duration of this Parliament.

As we meet in the relative safety of this House today, let us not forget this. As I speak, al-Qaeda operatives in Yemen are meeting in secret to plot attacks against us, terrorists are preparing to attack coalition forces in Afghanistan, the Real IRA is planning its next strike against security forces in Northern Ireland, and rogue regimes are still trying to acquire nuclear weapons.

At the same time, men and women, young and old, all of them loyal and dedicated, are getting ready to work again around the world. They will be meeting sources, translating documents, listening in on conversations, replaying CCTV footage, installing cameras, following terrorists; all to keep us safe from these threats. We cannot have their work impeded by these allegations. We need to restore Britain's moral leadership in the world. That is why we are determined to clear things up, and I commend this Statement to the House”.

That concludes the Statement.

17:26

[Baroness Royall of Blaisdon]

My Lords, I am grateful to the Leader of the House for repeating the Statement given by the Prime Minister in the other place and I am grateful to the Government for early sight of it. I join the Leader of the House and the Prime Minister in paying tribute to all those soldiers whom he mentioned at the start of the Statement and wholly endorse his point about the sacrifices made on our behalf.

The use of torture is morally abhorrent and has no place in this country or any civilised society. It is against the law in our country. Indeed, it is one of only two offences that can be brought to court in this country no matter where in the world the offence was committed. It is a grave crime against humanity and its prohibition is embodied in international law. There must be no hiding place for those who practise it and no excuse for those who turn a blind eye to it. The United Kingdom should always be at the forefront of international efforts to detect and expose torture and bring those responsible for it to justice. To play our part in leading the world, we must lead by example.

I note that there was only the merest mention in the Statement repeated by the Leader of the House of the USA’s detention centre at Guantanamo Bay. I ask the Leader of the House to join us in our condemnation of the US Guantanamo detention centre. It is clearly in breach of the law, which is why it is not on the US mainland and why we make great efforts to secure the release of British nationals and British residents from Guantanamo. We are the only country that has successfully brought back all our citizens. Having secured the release of all our citizens and all but one of our residents, we should like to know whether the Government are continuing our efforts to bring back the final remaining British resident who is still detained.

Can I confirm with the Leader of the House that anyone who takes part in or aids or abets torture is criminally liable and must be accountable for their responsibility to the criminal court? There is of course a criminal investigation under way, which was referred to the police by the then Attorney-General, my noble and learned friend Lady Scotland of Asthal. Will he confirm that this investigation will proceed to its conclusion independently and unimpeded?

I agree with the Leader of the House that it is right that we have proper accountability for our security services and I reaffirm our support for the work of the Intelligence and Security Committee. I also welcome his appointment of the right honourable Member for Kensington in the other place to chair the committee. He will, I know, ensure that the ISC plays its part in the strong framework of accountability that includes accountability to Ministers, the heads of the agencies, the two intelligence service commissioners, both retired High Court judges, the independent reviewer of terrorism legislation, the noble Lord, Lord Carlile of Berriew, to whom I pay tribute, and, of course, the courts.

I also welcome the publication today of consolidated guidance for intelligence officers and the military on the questioning of suspects held overseas. I regret the insinuation that we failed to publish the guidance when in government. As the Leader well knows, the process of publication was something to which we on this side of the House were committed in government and it was under way. We are pleased that it has been completed with publication today.

I assure the noble Lord that we support the establishment of an administrative inquiry, led by Sir Peter Gibson, which he has announced to the House today. In order that the security services can proceed with their important work to protect this country with all inquiries concluded, can the noble Lord say how long he expects the inquiry to take from when it starts work? Will he confirm that concluding the question of criminal responsibility will take precedence and that the administrative inquiry will start only when the criminal investigation and any proceedings thereafter are concluded?

As the Leader said, a number of cases are under way in the civil courts where former detainees are taking action. Can he clarify more specifically the effect that the administrative inquiry will have on these cases? Will they be superseded by the inquiry? Will this need the consent of the plaintiffs and any future plaintiffs, or will the cases run alongside the inquiry?

Will the Leader of the House acknowledge the importance of the Human Rights Act, which enshrines in British law the European Convention on Human Rights and the protections afforded by Article 3? Article 3 states:

“No one shall be subjected to torture or to inhuman or degrading treatment or punishment”.

Will he affirm his and his Government’s support for the Human Rights Act, which ensures that, when there is a breach of human rights, the victim can take action in our courts rather than spending up to seven years taking their case to the European Court of Human Rights in Strasbourg? Can he reaffirm that it is never right for us to deport from this country those who would face torture in their home country? I also invite the Leader to reaffirm the UK’s support for the work of the United Nations to end torture, including the convention against torture and the 2002 optional protocol, which establishes an international system of inspections for places of detention.

On the proposed new policy framework for national security and justice, as the Leader says, we await the judgment of the Supreme Court, and we shall examine carefully the proposals that the Government will bring forward in their Green Paper next year.

Finally, I endorse the noble Lord’s support for the difficult and often dangerous work of our security services. The whole country, including all sides of your Lordships’ House, has reason to be grateful to officers from all branches of the intelligence services for the fearless work that they do across the world to keep this country safe.

17:32

[Lord Strathclyde]

My Lords, I thank the noble Baroness for her reply to the Statement and her broad support for the direction of travel that we are taking. She asked a question that will be of interest to many Members of the House on our view on Guantanamo Bay and its closure. The noble Baroness knows well that the UK has long held that the indefinite detention of detainees is unacceptable and that the Guantanamo Bay detention facility should be closed. The Government of whom she was a member welcomed President Obama’s executive order to close Guantanamo Bay and worked closely with the United States to ensure that potential security and human rights concerns posed by the release of the detainees were appropriately addressed, but—this is not a weaselly “but”, but a “but” that is a matter of fact—the timetable for closure is naturally a matter for the United States Government.

The noble Baroness asked about the criminal inquiries set up by the noble and learned Baroness, Lady Scotland. My understanding is that they will continue. The mediation that we have announced today is primarily to deal with the civil cases that are before the courts and to try to deal with them as quickly and rationally as possible. Apart from anything else, that is why the Human Rights Act is extremely important. The noble Baroness will know our long-term views about the Act and the potential review and commission on a Bill of Rights. The package announced on detainees will clearly be of interest to the United Nations torture committee and we will want to cover it in our fifth periodic report. We will provide that report as soon as is practicable.

Today we are setting out how we will settle the issues of the past and make clear our rules for the future and the operation of the security services, thereby building a framework for justice that enhances our security and our liberty. I am not sure whether the noble Baroness asked specifically about the role of the inquiry and whether it would work together with the mediation. We take the view that it is simply not possible to begin the inquiry while some of the allegations are still the subject of criminal investigations. The Government take the view that it is not feasible to begin the inquiry while the civil proceedings are not sufficiently resolved.

The Statement makes a number of proposals on the inquiry, new guidance for intelligence and military personnel, a proposed Green Paper, which we hope to publish next year, and the start of mediation. It is a major Statement about trying to get to grips with what has happened in the past, but it provides for a clear framework on how we can deal with the intelligence and security services in the future.

17:36

[Lord Falconer of Thoroton]

My Lords, I broadly endorse the Statement and congratulate the Government on making it. I thought, with respect, that the reasons given for condemning Guantanamo Bay were slightly understated. It is not the indefinite detention that is bad; it is the fact that there was detention without any access to law and without a legal basis that was so objectionable. I congratulate the Government on setting up the judicial inquiry. I would call it a judicial rather than an administrative inquiry in the sense that a judicial inquiry implies that it is independent and separate from the organisation into which it is looking. Sir Peter Gibson, Dame Janet Paraskeva and Peter Riddell are excellent choices, but I have two further questions.

First, I agree with the Government that it is important that the approach that they take in dealing with detainees held by other countries should be clear. The three principles enunciated in the Statement seem to lack clarity. The first is that,

“our services must never take any action where they know or believe that torture will occur”.

Does that mean that a question should not be put to another country that detains somebody when it is feared that that other country may use torture?

My second question relates to the principle applying to the courts on keeping documents secret. The principles that the courts have applied over the years have been broadly effective; they can balance the interests of secrecy against the interests of litigants. What sort of changes are the Government considering in relation to that?

[Lord Strathclyde]

I thank the noble and learned Lord for his general welcome of the Statement. He clarified a view on Guantanamo Bay and I hope that he would not read anything into what I said as being far from the wording that he used, which is entirely appropriate.

On the inquiry being judicial, the noble and learned Lord will have plenty of experience on this and will understand the view that we have taken and the reasons for making the inquiry as it is. I very much welcome his endorsement of the three individuals who will lead the inquiry.

On the issue of clarity, one of the reasons for making this Statement is to try to give greater clarity in future for some of the decisions that are taken. For instance, there are no circumstances where we would authorise action, including receiving intelligence, in the knowledge or belief that torture would take place at the hands of a third party. If such a case were to arise, we would do everything that we could to prevent the torture from occurring. That is consistent with the absolute prohibition on torture and our values as a nation.

The reality is that, in most cases, countries do not disclose the sources of the intelligence that they share with us. However, the guidance leaves our partners in no doubt about the standards to which we adhere and the action that we will take if we suspect that intelligence has derived from the mistreatment of a detainee.

[Lord Lloyd of Berwick]

My Lords, I apologise to the House for missing the first few minutes of the Statement; I was in my room awaiting the announcement. I welcome all aspects of the Statement, particularly the decision to get to the bottom of what may have gone wrong in the past before looking to what ought to be done in the future. I welcome the appointment of Sir Peter Gibson as the chair of the inquiry. You could not have a better man for the job.

Does the Leader of the House agree that there is an almost exact precedent for the inquiry, as now contemplated, in the work that used to be done by the Law Commission, of which I once had the honour to be the chairman? If the procedure that we had in the Law Commission is followed, I hope that the inquiry will not go wrong. Does the noble Lord agree that the scope of the present inquiry will be altogether different from that of the Saville inquiry and that there is no reason at all to believe that this inquiry, like the old Law Commission inquiries, should not be completed within a year?

[Lord Strathclyde]

My Lords, I thank the noble and learned Lord for what he has said. He says it from a most authoritative position, with all his experience in reviewing terrorism legislation in the past. I am insufficiently well versed in these matters to know whether or not the Law Commission presents an exact precedent but, if the noble and learned Lord says that it does, I am happy to accept it. I also agree with him—this is important for those who might make comparisons with the Saville inquiry—that the scope of this inquiry is very different from that laid out by Saville. As we said at the time, we do not wish to see any more open-ended inquiries of that style. Again, I agree with the noble and learned Lord: there is no reason why it should not be able to complete within the next 12 months.

[Lord Howarth of Newport]

My Lords—

[Lord Goldsmith]

My Lords—

[Lord Dholakia]

My Lords—

[Earl Attlee]

My Lords, I think that we should hear from the Cross Benches—or, rather, the Lib Dems first.

[Lord Dholakia]

My Lords, I join my noble friend the Leader of the House in paying tribute to those who have lost their lives in recent days in Afghanistan. The torture allegation has been a shameful episode for the good name of our country and we welcome this inquiry. I hope that it will be able to look at why this has taken such a long time and that it will question the previous Administration about why the inquiry was not held much earlier. We are aware of the constraints placed on the coalition Government, as a number of outstanding issues need to be resolved, but I have two questions for the Minister. First, does the payment of compensation before the inquiry has reported compromise it in any way? Secondly, the Statement mentions our co-operation on intelligence matters with other countries, particularly the USA. Would it be possible for the inquiry to take evidence from those countries that are involved in the torture allegations?

[Lord Strathclyde]

My Lords, I cannot answer for the previous Administration. The noble Baroness, Lady Royall, has defended the position of the previous Government. However, we have taken action quickly and I know that my noble friend supports that. On compensation, I do not think that the two issues are related at all. We have suggested a process of mediation that could potentially lead to compensation, but that is better than the alternative, which could be years of unsatisfactory litigation in the courts. At least a process of mediation creates the possibility of creating certainty much sooner. With regard to working with other countries, we do not expect evidence to be taken from US officials. It is our intention that the inquiry will have access to material relating to foreign partners. Those partners will be consulted on the terms on which their material will be considered by the inquiry. Any intelligence material will be dealt with in private. We have, of course, discussed our plans with the US and a number of other partners.

[Lord Goldsmith]

Is the Minister aware that I, too, welcome this inquiry? I rather wish that I were welcoming it coming from the previous Administration rather than this one, but it is none the worse for that. The noble Lord is right that it is time to understand the truth or otherwise of these allegations, as I for one have been saying for some time.

I have three specific questions for the noble Lord. First, my noble friend the Leader of the Opposition raised the question of Guantanamo, rightly, because the allegations that have been made are connected with that issue. Is that an issue that the inquiry will look into—the relationship of this country to Guantanamo, the steps that were taken and why it was, as noble Lords all now agree, a wrong-headed thing for the previous US Administration to do, in principle and in practice?

Secondly, will the noble Lord help a little more on the timing of this inquiry? I understand the point about criminal proceedings and civil mediation, but I am still unclear on when this inquiry is going to be allowed to get on with its job. The more time before it starts, I suspect, the more difficult it will be.

Thirdly, the noble Lord finished his Statement by talking about future policy in relation to the use of intelligence in the courts. Is that going to include, finally, a clear answer to the question of the use of intercept evidence in court? I know that many noble Lords take a different view but for myself, from the position that I have held in the past, I believe that it is important to find a way of using such evidence in criminal proceedings. Will that be a part of the policy that will be announced?

[Lord Strathclyde]

Again, my Lords, it is encouraging to receive the noble and learned Lord’s welcome and support for the principles that underlie the Statement. It is important, when we are dealing with these matters of national security, that there is as wide an agreement across the parties as possible. The noble and learned Lord’s experience in this matter will give a lot of encouragement to others who are involved.

His first question was whether the inquiry will look at the reasons behind Guantanamo. I expect that it will be up to the inquiry to take a view about how important that is, and I cannot answer for the inquiry. I do not suppose that the topic will be excluded, but if it is, I shall write to the noble and learned Lord.

Secondly, on the timing of the inquiry, we would like it to start as soon as possible but it cannot begin until most of the legal proceedings have been dealt with, hence the reason for coming forward with mediation. It depends on the satisfactory resolution of the other legal proceedings. I also agree with what the noble and learned Lord said: the longer it is delayed, the more difficult it is to have this inquiry, so it is in everyone’s interest to reach the start date as soon as possible.

As for the noble and learned Lord’s third question, about the future and intercept evidence, I have my noble friend Lady Neville-Jones, our Security Minister, next to me here. The whole issue of intercept evidence still has to be resolved.

[Lord Howarth of Newport]

My Lords—

[Lord Morris of Aberavon]

My Lords—

[Lord Mackay of Clashfern]

My Lords—

[Earl Attlee]

My Lords, I think we should hear from my noble and learned friend Lord Mackay of Clashfern.

[Lord Mackay of Clashfern]

I agree with the Statement, in particular the setting up of a very distinguished inquiry. I entirely agree with the views already expressed by others that these three people are eminently qualified for this task.

I also entirely supported the action of the previous Attorney-General in initiating criminal inquiries in connection with this matter. It must be right that these inquiries are completed before the new inquiry can start. I hope that it will not be unduly delayed. One cannot tell which precise circumstances will arise. However, I think it is clear that the criminal proceedings must take priority and be completed before this inquiry starts. I think I am right in saying that the Statement envisaged the work of the inquiry taking about a year. It will be extremely good if it can be done in that time. I also believe that the three people in question are eminently qualified to do it with reasonable speed. I am very grateful for the Statement. I have no particular question that I want to ask my noble friend, which is why I should not be standing at all.

[Lord Strathclyde]

My Lords, it is always a great pleasure to have my noble and learned friend standing and speaking, particularly on this, where he has very much given his support to what we are doing. I agree with him about the criminal inquiries that are ongoing, that the time for the inquiry is roughly 12 months, and about the people who have been chosen to lead it. I am sure that they, too, will be encouraged by his support.

[Lord Morris of Aberavon]

My Lords, while I welcome the setting up of the inquiry, would the Minister help us a little further on the start line? I can quite see the difficulty of outstanding procedures. As regards civil law, mediation can bring some of those procedures to an end. There are more difficulties with criminal procedures. There is a means of bringing even those to an end; it is a question of balance and whether it is in the public interest so to do. It would be helpful if the Minister could give some idea of when the inquiry is likely to start.

Secondly, I do not know how the Minister can give a firm assurance that this matter is to be completed within a year. I had to set up public inquiries—the first was 45 years ago—the intention being to finish in weeks, but some went on for months. I do not know how the Minister can give the assurance that it will finish within 12 months, as I hope it will.

[Lord Strathclyde]

My Lords, I am glad to hear that the noble and learned Lord shares the aim of delivering as quickly as possible. He is right to ask how we can guarantee that. We cannot, but there is a general will from all sides to complete an inquiry once it has started. When can it start? Like us, the police take the view that it is simply not possible to begin the inquiry while some of the allegations are still the subject of criminal investigations. The Government take the view that it is not feasible to begin the inquiry while the civil proceedings are not sufficiently resolved. We hope that we can deal with the civil proceedings through mediation if that is acceptable to all sides. The police are continuing their criminal investigations. It is in everybody’s interests to start this inquiry but, for the reasons that I have laid out, I cannot give an exact date.

[Lord Wright of Richmond]

My Lords, as a former chairman of the Joint Intelligence Committee—admittedly a very long time ago—I endorse everything that the Minister said about the professionalism, effectiveness and bravery of our security and intelligence services. I have one question. Will the inquiry address or readdress the question of the rendition of detainees through British territory and, in particular, through Diego Garcia?

[Lord Strathclyde]

My Lords, the noble Lord is experienced and knows full well about the bravery and work of our security services. As far as extraordinary rendition is concerned, there is no barrier whatever to the inquiry looking into such issues and the matter of Diego Garcia if that should be pertinent to it.

[Lord Howarth of Newport]

My Lords—

[Baroness Hamwee]

My Lords—

[The Lord Bishop of Chester]

My Lords—

[Earl Attlee]

My Lords, shall we hear from the noble Baroness, Lady Hamwee, and then the noble Lord, Lord Howarth?

[Noble Lords]

Bishop!

[The Lord Bishop of Chester]

My Lords, would the noble Lord the Leader of House comment a little more on the terms of reference of the inquiry? Is it an inquiry into the facts of what happened or into the broader reasons why it was permitted to happen?

[Lord Strathclyde]

The inquiry will look at whether the UK was implicated in the improper treatment of detainees held by other countries that may have occurred in the aftermath of 9/11.

[Baroness Hamwee]

My Lords, building on the last question and those of the noble and learned Lord, Lord Goldsmith, and the noble Lord, Lord Wright of Richmond, would the Government consider consulting on the precise terms of reference? We have seen on previous occasions that where matters fall outside the precise terms of reference of an inquiry, it can cause some problems. Secondly, can the Government be clearer about whether the Green Paper which is referred to will be part of the review of security which we know is in train?

[Lord Strathclyde]

My Lords, I do not think that the terms of reference have been finalised at this stage, not least because the inquiry has not been set up. I am sure that what the noble Baroness has said will be taken into account. I have completely forgotten the other matter which the noble Baroness raised.

[Baroness Hamwee]

Is the Green Paper to be part of the review of security?

[Lord Strathclyde]

The Green Paper is a Green Paper. It will be published next year. Because of that, we have not yet decided what will go into it.

[Lord Howarth of Newport]

My Lords, I was a member of the parliamentary Intelligence and Security Committee for four years. My whole disposition is to believe in the good principles and integrity of the agencies, and in their competence as they go about their crucial work which, as the Statement reminded us, often comes at a high price to them and their families. Is it not the case that because of the real danger of terrorist assaults on our people and of weapons of mass destruction getting into the hands of terrorists or irrational regimes, we live in a permanent state of emergency, and that the secret state is no less powerful now than it was in the Cold War? Will the Government ask the panel of inquiry, if it should find that there have been failures of standards, to propose reforms to the apparatus of deception and secrecy—necessary deception and secrecy—so as to make sure, as far as possible, that there would not in the future be covering up of embarrassments; concealment of crimes; circumvention of parliamentary oversight; and, at worst, manipulation of Ministers and disabling of the proper processes of policy-making?

Everybody must surely welcome without reservation the appointment of Sir Malcolm Rifkind to chair the ISC. Will the Government consider further empowering the ISC so that it can have access to persons and papers as it requires, without having to seek special permission from Ministers, case by case; and supplying it with a stronger secretariat to enable it to use those powers, so that if the parliamentary committee has the political will, it will be better able to do the job of exercising oversight and ensuring accountability to Parliament?

[Lord Strathclyde]

My Lords, it is because all those who have spoken today and the Government care so much about the integrity and reputation of the security services that we have made this Statement. It is not just about their reputation in the United Kingdom. What is so important is the international reputation of the security services. That is why we need to find out the truth of the allegations. When the inquiry comes to its conclusions, we will be able to see what action, if any, needs to be taken. None of us is in favour of anything being covered up, whether the defence is in the public interest or not. We wait for the inquiry to reach its conclusions.

As for the ISC, I am glad of the noble Lord’s welcome for the chairman, Sir Malcolm Rifkind. I think we all agree that he will do an extremely good and useful job. On the ISC generally, the Government are committed to maximising the role of the oversight mechanism, which is why the Prime Minister has appointed a strong and experienced chairman who has committed to serving for the full parliamentary term and to undertaking a serious work programme, including public hearings. What “maximising the role of existing oversight mechanisms” means at this stage is something that will be reviewed in due course.

Cabinet Office: Constitution Committee Report

Tuesday 6th July 2010 Lords Chamber

Motion to Take Note

18:00

Moved By

[Lord Goodlad]

To move that this House takes note of the Report of the Constitution Committee on The Cabinet Office and the Centre of Government (4th Report, Session 2009–10, HL Paper 30).

[Lord Goodlad]

My Lords, I welcome the opportunity to debate the fourth report of the 2009-10 session of your Lordships' Select Committee on the Constitution, entitled The Cabinet Office and the Centre of Government. The committee was grateful to all who gave evidence to us, including a number of your Lordships, and to our specialist advisers. I am also grateful to the previous Government for their response to the Select Committee report, whose consideration by the committee was forestalled by the Dissolution of Parliament.

The Cabinet Office originated in 1916. Its role has evolved greatly over time and continues to do so. Its three core functions today are: supporting the Prime Minister; supporting the Cabinet; and strengthening the Civil Service. Some of the most important elements of the centre of government are the Treasury and the Prime Minister’s Office. The committee considered the relationship between, and functions of, the Cabinet Office, the Treasury and the Prime Minister’s Office, and the roles of the Prime Minister, the Chancellor of the Exchequer, the Minister for the Cabinet Office and the Cabinet Secretary. We also considered Cabinet government and collective ministerial responsibility, departmental responsibility and accountability for policy, the genesis and co-ordination of policy across departments and the accountability of government to Parliament. We asked all our oral witnesses what they viewed as the main constitutional principles affecting the Cabinet Office and the centre of government. Five themes emerged: the role of the Prime Minister; the role of the Cabinet and collective responsibility; the role of the Civil Service; the changing role and function of the centre; and the accountability of the centre. The committee’s report is based on the evidence which we received. We have made a number of recommendations, some of which I shall draw to your Lordships’ attention.

The world has moved on very considerably since the response of the previous Government to the report and I know that the House greatly looks forward to the remarks of my noble friend the Minister. The committee was agreed that structures of accountability should mirror structures of power and, where the latter have changed, that the structures of accountability should change accordingly. For this to take place, all elements of the centre and its work must be transparent and parliamentary scrutiny must be upheld and improved. The previous Government, in their response to the report, agreed that transparency and accountability are key aspects in the working of the centre of government and that accountability structures should adapt to reflect changing roles and responsibilities. The question now is what must be done to achieve these objectives.

We received conflicting evidence on the relationship between the Cabinet Office and the Prime Minister’s Office—whether the latter is a subset of the former and a business unit, or whether the two are functionally distinct. We suggested that the nature of the relationship should be clarified by the Cabinet Office and reflected in government publications, which recently appeared to suggest that the two offices are independent institutions.

The Prime Minister’s Office is crucial to the role and structure of the centre of government. The establishment by the previous Government of the post of Permanent Secretary to the Prime Minister’s Office was a new step in the evolution of the structure of the centre. We noted the arguments advanced by Sir Gus O’Donnell and Jeremy Heywood for the new arrangements, and Sir Gus O’Donnell’s analysis of the roles of the six Permanent Secretaries now located in the Cabinet Office. We recommended that the Prime Minister’s Permanent Secretary, and the six Permanent Secretaries located within the Cabinet Office, should be subject to appropriate parliamentary accountability mechanisms.

A substantial involvement in and influence by the Prime Minister on policy formation and delivery is a feature of recent years, although there is no shortage of historical precedent. As with the Cabinet Office, the role of the Prime Minister has evolved over many years under different Governments. Successive Prime Ministers have made different uses of financial, human and other resources in what they have seen to be their roles. We recommended that the Prime Minister’s and the centre’s roles in policy development and delivery should be both transparent and accountable to Parliament, as should the Delivery Unit and the Strategy Unit.

We accepted the evidence of the then Minister for the Cabinet Office that the current flexibility of the structure of the centre of government is in the public interest. We accepted the value of an incubator role, where the Cabinet Office develops units and functions which are subsequently transferred to other government departments, but shared the fears of some witnesses that the Cabinet Office has sometimes operated less as an incubator and more as a dustbin. That policy units for which there is apparently no other obvious home have been put in the Cabinet Office underlines the importance of ensuring that the Cabinet Office and all the units within it are properly held to account.

We consequently recommended that a review of the units which have accrued to the centre be undertaken by the Government, including an examination of the justification for each unit’s continued existence and for its location at the centre of government rather than in a department. We recommended that a copy of the review be circulated.

We took evidence on the subject of special advisers and recognised that they can play an important role in government, but thought that their role should complement rather than diminish, or, indeed, duplicate, the role and responsibilities of Ministers and civil servants. Transparency should apply to the role of special advisers as elsewhere. We supported the idea of a code of conduct for special advisers. We recommended that the Government should define the role of special advisers and prevent a recurrence of the 1997 Order in Council giving advisers the power to instruct civil servants.

Following our recommendation that structures of accountability should reflect the existing structures of power, we expressed the view that the role of the Prime Minister should be subjected to more effective accountability and greater transparency. While the committee welcomed the biannual appearance of the Prime Minister before the House of Commons Liaison Committee, we did not believe that these appearances went far enough in achieving adequate parliamentary accountability of the Prime Minister’s Office. There is a view that transparency has gone far enough. It is not a view which I share. I regard it as complacent and potentially dangerous.

We did not support calls for the creation of a separate Office of the Prime Minister, or an Office of the Prime Minister and the Cabinet, as we did not believe that either would enhance the effective functioning of government. Rather, we recommended that supporting the Prime Minister should remain a core function of the Cabinet Office, provided that the manner in which the office fulfils the role is accompanied by full transparency and that the accountability mechanisms reflect the importance of the function.

The ever-changing kaleidoscope of issues involving more than one department poses a ceaseless challenge to the machinery of government. So as to ensure that structures of accountability reflect structures of power, we in Parliament must, of course, ensure that our own accountability mechanisms take account of changing circumstances. But government must, we believe, ensure that the mechanisms of policy formation and delivery in respect of multidepartmental issues remain transparent. The previous Government in their response concurred.

We recommended that the post of Minister for the Cabinet Office should be retained in order not only to ensure that the work of the Cabinet Office is transparent but that Parliament can hold the Cabinet Office to account effectively—namely, through one of its own members. We were concerned that the responsibility of the Cabinet Office Minister seemed to be ill defined. We recommended that the Government should reassess the functions of the Minister for the Cabinet Office to ensure that his or her responsibilities accurately reflect the strategic role that the Cabinet Office plays. The world has moved on and this recommendation has in my view gained greater force now that the Deputy Prime Minister is in the Cabinet Office.

We examined the circumstances surrounding the proposal to abolish the office of Lord Chancellor in June 2003 and were critical of the procedures followed. We recommended that the Cabinet Office should consider means to ensure that such failures did not recur.

We also recommended that the Cabinet Office should play a formal role in investigating the likely consequences of any machinery of government changes, particularly those with constitutional implications. We recommended that Parliament and its committees should have a role and that ministerial Statements should be made in Parliament.

On the Civil Service, we were persuaded by the arguments which we heard that the current arrangements whereby the Cabinet Secretary has acted as head of the Civil Service have worked well. We recommended that the Cabinet Secretary should continue to fulfil the function of head of the Civil Service and that the Cabinet Office should continue to exercise responsibility for managing the Civil Service.

We noted with concern the evidence which we received suggesting that the authority of the Cabinet Secretary had diminished, despite being assured by Sir Gus O’Donnell that he had all the authority he needed. We agreed with his assessment that much,

“depends on the engagement between the individual Cabinet Secretary and the Prime Minister of the day as to how they use their Cabinet Secretary”.

Clearly, the Cabinet Secretary has a key role in promoting the effective operation of government and can fulfil that role only with the full support and backing of the Prime Minister.

The report necessarily covers a complicated network of offices, structures, functions and trends. The operation of the centre of government is of vital importance to our system. The committee’s core conclusion was that structures of accountability should mirror structures of power, and where the latter have shifted so should the former. Our recommendations are designed to achieve that outcome, and I hope that they will be implemented.

It may appear to some that what we are debating is somewhat arcane—even abstract. Perhaps it is. However, not only at times of crisis, but rather over the lifetime of a Government and well beyond, structures and procedures have a very large, some would say insidious, influence on the balance between success and failure, both in war and in peace. As ever, the sands are shifting. My noble friend will, I trust, unlock their riddle.

18:12

[Lord Goldsmith]

My Lords, I am in a happy position as the second listed speaker to congratulate the noble Lord, Lord Goodlad, on three things: first, on securing the debate; secondly, on this report, about which I want to say something in a moment; and, thirdly, on his stewardship and chairmanship of the committee. He is leaving, although I do not know whether this is the last time that he will speak in this House as chairman. Yesterday, during the Statement on constitutional reform, he made a remark that suggested that there may be at least one more report that he will bring to the House, but in any event I take the opportunity to congratulate him on the way in which he has steered this important committee through some choppy waters. I should say that, although I am listed as a member of the committee, I was not a member of it on this occasion and I have a sadness that I will not be under the noble Lord, Lord Goodlad—if I may put it that way—when the work starts.

I will focus on one aspect of the report—the part that deals with changes in government machinery and, particularly, the proposal to abolish the office of Lord Chancellor. The report and the evidence collected by the committee make striking reading, not least because of the dignified silence that the noble and learned Lord, Lord Irvine of Lairg, kept over this issue, despite, as the House now knows, the sudden and perhaps even brutal way that his office ended. As someone who stood a little to the sidelines, I am glad that that is now in the open.

I am, as it happens, a great admirer of the former Prime Minister, Tony Blair, but this was a bad business. There are lessons for the future, which is why I want to say a few words about it. It is plain from the report that inadequate consultation and advice were taken on the effect of a proposed change in the machinery of government, as it may have seemed to some, although it was in fact a major constitutional change. In the end, it is unclear from the report just what advice was provided. I say simply to avoid the accusation of being among the rogues gallery that my office was not consulted about the change either.

The consequence of what took place was not merely problematic in terms of how this House was to operate and how the judiciary was to act; it was much more serious. There was perhaps a comic element. I remember at least hearing stories that my noble and learned friend Lord Falconer had to scurry around to find tights so that he could sit on the Woolsack for the House to have a session. That is all very amusing, but there is a much more serious problem, because, if I may say so, he and the then Lord Chief Justice, the noble and learned Lord, Lord Woolf, who is in his place, were left in a strange position. It was not at all clear what the constitutional position would be in relation not just to a great Minister of State—the Lord Chancellor—but to the judiciary. Noble Lords will recall that what then took place was a period of negotiation between the noble and learned Lords, Lord Falconer and Lord Woolf, on behalf of the judges, which ended up with a concordat. However, that might well not have occurred and we have a great deal to thank the two noble and learned Lords for their wisdom and persistence. Dealing with the relationship between the Executive and the judiciary—the appointment of judges and who was responsible for what aspects of the courts—was a hugely important issue, which needed careful thought before the structure was changed.

Although the concordat was a good result that resolved many of the problems, it was done in an unsatisfactory way in terms of great public scrutiny and obvious concern by the judges. It put a great deal of strain on what had to be done by the noble and learned Lords, Lord Falconer and Lord Woolf, and led to one or two not wholly satisfactory results. I, for example, as Attorney-General at the time, was concerned to find a speedier way of dealing with certain court cases. That led to a question about whether we could produce lists of court cases that were ready for prosecution. It is a technical, but important, issue. The blank answer from the judges was, “It has been agreed in the concordat that listing is exclusively a matter for the judges”. I see that the noble and learned Lord, Lord Woolf, is smiling. He thinks that that is absolutely right. I should have liked an opportunity to debate that question further, but it is one of the consequences of a decision about the critical constitutional position of the judges and the Executive being made in that way.

The moral is clear. I want to end with two points, including a question to the Minister. Constitutional changes require proper thought and planning, and then more thought. The pieces of our constitution fit together; sometimes, like an unsolved jigsaw, it is not apparent how they fit together, but fit together they do. That does not mean that they are immutable, but it does mean that if you are going to make changes you need to plan carefully and be clear what the end result will be.

The changes were rescued on this occasion because of the work that was done, but that might not be the case on a future occasion. The present Government need to bear that very much in mind. My question to the Minister relates to paragraph 212 of the report, where the committee—I was going to say “complains”, but it is too elegant for that—states that it never received sufficient information, as it perceived, in documents from the Cabinet Office on what had actually taken place. As a result, the committee states in paragraph 213:

“It is impossible to discern a consistent picture from the evidence received of what happened. With regret”,

the report says with English understatement,

“we must therefore leave it at that”.

Can the Minister say whether, if a similar problem were to arise in the future with the committee, he and others in government would make sure that that sort of information was provided to the committee?

18:20

[Lord Butler of Brockwell]

My Lords, I endorse in every respect the tributes paid by the noble and learned Lord, Lord Goldsmith, to the noble Lord, Lord Goodlad. They are richly deserved.

It was timely of your Lordships’ Select Committee on the Constitution to choose the Cabinet Office and the centre of government as a subject for inquiry in the period leading up to the general election. It was timely for two reasons. First, the committee’s report could inform a new Government. Secondly, it is clear from the report of the committee and from the evidence taken that the centre of our government had become something of a mess. The committee puts it more diplomatically, referring to,

“a complicated and at times confusing web of offices, structures, jobs and personalities”.

The reason why that situation developed is clear. Recent Prime Ministers have tried to adapt an organisation designed for Cabinet government to a system more like the American presidency. There used to be a clear distinction of function between the Cabinet Office and the Prime Minister’s Office. The function of the Prime Minister’s Office was to serve the Prime Minister exclusively, whereas the function of the Cabinet Office was to serve the Cabinet collectively, including the Prime Minister as chairman of the Cabinet. Of course, since the Cabinet Office had responsibility for Civil Service management, it also supported the Prime Minister as the Minister for the Civil Service.

During Mr Blair’s premiership, the role of the Cabinet Office was formally changed in the way that the noble Lord, Lord Goodlad, described. The Cabinet Office was given a separate and specific remit:

“Supporting the Prime Minister—to define and deliver the Government’s objectives”.

Professor Peter Hennessy told the Constitution Committee that the Cabinet Office had become a Prime Minister’s department in all but name. The present Cabinet Secretary, Sir Gus O’Donnell, in his evidence to the committee, said that,

“there is one Cabinet Office of which Number 10 is a subset”.

I found myself asking what Winston Churchill would have said about his office being a subset of the Cabinet Office. The logic would suggest that, in this respect, the Prime Minister is junior to the Minister for the Cabinet Office.

There is no doubt that the role of Prime Minister has become more dominant within the Government in recent decades. Media attention focuses on the Prime Minister, who is expected to answer for any aspect of government in Parliament. The Prime Minister deals with other heads of government not through the Foreign Office but by picking up the telephone. However, it does not follow that the Prime Minister should take on the role and trappings of a president. The Prime Minister certainly needs people in the Cabinet Office to advise him and to enable him to monitor the Government’s progress. However, he should not have, in No. 10 and the Cabinet Office, executive units that usurp the role of departments and bypass Secretaries of State. Dr Tony Wright, the former chairman of the Public Administration Committee in another place, said that he had found the number of units that had come and gone in the past 10 years “utterly bewildering”. The organogram at Appendix 4 of the Select Committee’s report of No. 10 and the Cabinet Office is like a demented knitting pattern.

This confusion of roles at the centre of our government matters, as the noble Lord, Lord Goodlad, said. We are aware of things that have gone wrong; to some extent they have gone wrong as a result of this confusion. The Constitution Committee, as the noble and learned Lord, Lord Goldsmith, said, looked in detail at just one episode—the Government’s attempted abolition of the post of Lord Chancellor. As the noble and learned Lord said, the Government would not release the papers that would have enabled the Select Committee to get to the bottom of this episode. Even so, it is clear from the evidence that one government hand did not know what the other hand was doing and that the Prime Minister acted in ignorance of factual advice that was available to him.

Fortunately, one of the many advantages of the coalition is that it will force some of these muddles to be sorted out. Decisions will have to be discussed and properly recorded and something approaching Cabinet government will be—perhaps is being—restored. It is generally agreed—I know that this is the view of my noble friend Lord Armstrong of Ilminster, who could not take part in the debate because of its postponement—that the Cabinet Office in general, and Sir Gus O’Donnell in particular, performed superbly both in the lead-up to the general election and in the negotiations leading to the coalition.

The noble Lord, Lord Goodlad, referred to the three functions of the Cabinet Office, but I have looked at the Cabinet Office website and I am glad to be able to say that that is now out of date. The website says:

“Following the outcome of the general election … the objectives and business plans for the Cabinet Office are being revised”.

I am very pleased to hear it. I hope that, under the coalition, the Cabinet Office will no longer be a Prime Minister’s department, because who would then support the Deputy Prime Minister? Will the Minister assure us that the new terms of reference and objectives of the Cabinet Office will revert to being to support an effective system of collective Cabinet government?

18:27

[Lord Shaw of Northstead]

My Lords, it is a privilege to take part in this debate. The report was produced under the very able chairmanship of my noble friend, who has had great experience in all these offices, and so many of our witnesses could not be bettered in their experience of the matters that we were discussing. As a lifelong Back-Bencher, I felt that I had a lot to learn—but I confess that my basic beliefs remained the same.

I believe strongly that we must continue to support the system of Cabinet government. I also believe that modern conditions, particularly intensive media scrutiny, often of deliberately disruptive nature, can make this all the more difficult. The government response to the Select Committee report stated:

“We conclude that a greater involvement and influence by the Prime Minister on policy delivery is inevitable in the modern age, that the Prime Minister's role has evolved over a long period under different governments”.

I agree with that, up to a point—but the point is that he should never forget that he is leader of a Cabinet team.

Some 50 years ago, when I first entered Parliament as a united Liberal and Conservative member—some things do not seem to change—I had in my mind the picture portrayed by Harold Macmillan of the role of the Prime Minister as chairman of his Cabinet team, relaxing in Downing Street, the works of Jane Austen by his side, while the details of government were attended to by his Cabinet team with their own departmental teams in support of them. This view curiously enough was sustained to a certain extent by the then procedure at Question Time. Prime Minister’s Questions at that time were in two quarter-hour sessions on Tuesdays and Thursdays. Any Question relating to a department was switched to be answered by the appropriate Minister. I confess that before we undertook this report I continued to have a hankering for the return of such a system, but I have to admit that things have changed considerably since those days.

While the principles of Cabinet government must be preserved, and the role of the Cabinet with its Ministers, backed up by their own departments working as a team under the leadership of the Prime Minister must also be preserved, today it is very necessary for the Prime Minister to work more actively and closely with his Cabinet team so that he can express and give a lead to agreed policies on behalf of his colleagues. The intrusive and varied nature of the modern media and the various international and other meetings that the Prime Minister must now attend often demand that he gives such a lead, but he should always remember that he speaks as the leader of a team. On this point, incidentally, it was interesting to hear the evidence of the noble Lord, Lord Butler, when he said:

“Lady Thatcher has often been talked about as ignoring the Cabinet but she did not. She tried to dominate them, succeeded in dominating them, but felt that she had to get their agreement”.

That view was not always held by her successors.

That leads me to the question of a possible presidential role for a Prime Minister. As a firm supporter of Cabinet government I cannot resist quoting Professor Hennessy in answer to my question, which was that,

“if a Prime Minister is determined to perform as a President with a presidential style of government how could anybody stop him?”.

His reply was:

“Cabinet Ministers are there to say, ‘Wait a minute’”.

They are the,

“only sprinkler system that the British system of government has—because for all the laws that we have there are no laws that cover proper conduct in the Cabinet room—if the Cabinet collectively or sufficient of them is not prepared to say, ‘Oh, come off it’ or, ‘Are you sure?’, you cannot do anything about it. The press cannot be a substitute; the Houses of Parliament cannot be a substitute; the Civil Service cannot be a substitute. If the Downing Street 22 do not act as the sprinkler system on an over-mighty or potentially over-mighty Prime Minister nobody else can or will”.

Those are strong words but they are well worth noting.

For myself, if Cabinet government is to continue successfully I believe that there will have to be rules insisting in some way or other that important statements made by the Cabinet, including of course the Prime Minister, have the backing of the Cabinet.

The only other point that I wish to make is on the subject of special advisers. While we believe that there is a role for special advisers we say in our report that,

“it is necessary to ensure that advisers fulfil an appropriate function that complements rather than diminishes the role and responsibilities of ministers and civil servants”.

I would add only the trenchant words of the noble Lord, Lord Heseltine, on the subject of special advisers when he said that he would,

“have the lot out if they are political advisers”.

That was good sound sense.

18:34

[Lord Rodgers of Quarry Bank]

My Lords, I, too, am grateful to my noble friend Lord Goodlad for steering through the Constitution Committee’s inquiry shrewdly and on a tight timetable. Although we might have investigated some further areas, such as the link between the Cabinet Office and departments—and more about the Treasury—the report is a useful contribution on how best to run government. Much of the evidence is certainly worth reading to those who share responsibilities in Westminster and Whitehall, to the academic world and beyond.

The Government’s response, published a week ago, is a puzzle. It is bland and complacent as if drafted in the twilight of the previous Administration, or very hastily last month. It refers to:

“The Constitutional Reform and Governance Bill currently before Parliament”,

but there is no such Bill. The Bill existed in the previous Parliament. In the circumstances I shall not refer further to the response as it serves no purpose. I would, however, be grateful if the Minister could clarify the purpose and origin of this response.

I was first introduced to the Cabinet Office, particularly the Cabinet Secretary, when I became a junior Minister serving George Brown, the First Secretary of State and, in effect, the Deputy Prime Minister in 1964. In the 1960s there was relatively little public discussion about the processes of government and Prime Ministers strongly discouraged newspapers from probing into the recesses of offices and departments. The Cabinet Office was the holy of holies, or so it seemed to me.

Life between George Brown and Harold Wilson, especially on the telephone, was often lively. George was vigorous and outspoken and Harold was calm enough to be discreetly absent. In that case, when George was frustrated, he would shout to his Principal Private Secretary, “Get me Burke”—Sir Burke Trend, Secretary of the Cabinet. Clearly, he had an important role as a peacemaker in the warring relationships between the major figures in the early years of that Government. I hope that no such warring relationships exist between David Cameron and Nick Clegg today but I am sure that Sir Gus O’Donnell, the current Cabinet Secretary, has a very important role in resolving the inevitable tensions between the two and avoiding unintended conflicts.

Six months before the October 1964 general election, arrangements were facilitated by the Cabinet Office for what became the Department of Economic Affairs. Eric Roll—later Lord Roll, a distinguished Member of this House—was to become Permanent Secretary. Parts of the Treasury and the Board of Trade would be detached to make the new department. Similarly, two months ago the Cabinet Office played a crucial role in making organisational sense of the coalition.

I hope that the Cabinet will play an effective role between general elections. As the report makes clear, and as the noble and learned Lord, Lord Goldsmith, reminded us, there was a failure to recognise the consequences of abolishing the office of Lord Chancellor. The Prime Minister always has the right to make changes to the machinery of government but the Cabinet Secretary has an obligation to examine any proposals carefully and not to accept them sight unseen. The Prime Minister of the day may be primarily concerned with the personal relationships of Ministers, shuffling them around and making them happy, but the Cabinet Secretary must examine the rationale as, in future, Parliament may wish to explain the outcome.

In our inquiry, we considered the role of the Minister for the Cabinet Office. I was not entirely persuaded that there should be any such Minister, as there had been a long list of Ministers without a clear function or responsibilities and who had not carried real weight at the centre of government. In the previous Administration, the Minister doubled up with the person responsible for the Olympics, and two other Ministers lodged in the office. However, now we have not two but four other Ministers in addition to the Minister for the Cabinet Office, who is also the Paymaster-General. Why? I should be grateful if my noble friend could give me the terms of reference for both the Paymaster-General and the Minister without Portfolio. There is also the Minister for government policy. What does he do and to whom does he report?

In taking evidence, we dwelt on the “dustbin” function of the Cabinet Office—the bits that are stuck on to the core of its work. We acknowledged an incubator role, whereby the Cabinet Office develops units and functions that are consequently transferred to the relevant government departments. However, we recommended a review of these to justify their existence. This is precisely the time to slim down the office, wholly in keeping with the new Government’s approach.

I return briefly to the structure of the Cabinet Office, as spelt out in the report and on the Cabinet Office website on 31 May, to which the noble Lord, Lord Butler, referred. I told my noble friend Lord Taylor of my interest and am asking for the relevant parts of the report to be updated, given that there is now a coalition and a Deputy Prime Minister.

In taking evidence, we discovered that there were six Permanent Secretaries in the Cabinet Office. Are there still six? Jeremy Heywood remains Permanent Secretary in the Prime Minister’s office. Does the Deputy Prime Minister’s office have a Permanent Secretary and, if not, what are the role and status of the head of his office? He seems to have a small staff dealing wholly with constitutional matters. The structure chart does not show the line of responsibility from Jeremy Heywood to Sir Gus O’Donnell. I should be grateful if my noble friend could confirm that there has been no change in the relationship between the two, with the Prime Minister’s office remaining fully within the Cabinet Office. The same relationship exists between the Deputy Prime Minister’s office and the Cabinet Office. Again, I reflect on a comment made a moment ago by the noble Lord, Lord Butler.

I am tempted to ask further questions but it might be better to invite the Cabinet Secretary back to the Constitution Committee later this year, given that a new Prime Minister may wish to reshape the Cabinet Office. Plainly, there are implications in coalition government.

Making government work better is a very good objective. In that, the Cabinet Office has been a crucial stabilising factor over very many years since Maurice Hankey put together an efficient secretariat in 1916, as my noble friend Lord Goodlad reminded us. I think that the Constitution Committee was right to conduct an inquiry, and there is a great deal of interest—at least, among insiders—about the role of the Civil Service, its structure and management.

There is also concern about the prospect of moving from Cabinet government towards a presidential style and presidential practices—the dominance of the Prime Minister, as the noble Lord, Lord Butler, referred to it. However, if this is to be checked or reversed, most of all we need men and women with character, strength and independence who are ready to enter Parliament and play their part.

18:44

[Lord Norton of Louth]

My Lords, the noble Lord, Lord Armstrong, has had to leave, but if Hansard wishes to confuse me with him, I shall not object.

I congratulate my noble friend on securing this debate. I, too, declare an interest as a member of the Constitution Committee. As my noble friend said, this is an important debate. It may appear to some to be a somewhat dry discussion of the machinery of government but it is crucial to how government policy is agreed and delivered.

Government is often viewed as a single entity—a smooth-running body, agreeing collectively on policy and structured in order to deliver that policy. In practice, it comprises a range of bodies that have their own views on the content and delivery of public policy.

The Prime Minister has always been a powerful figure in government—at least, relative to the Cabinet. As has already been mentioned, the report notes the recent development of a presidential style of prime ministerial government. The term is often employed but rarely defined. It is designed to identify the growing detachment of the Prime Minister from the other parts of the political system—from Parliament, from the Cabinet and from the party. The Prime Minister is not directly elected by the people but acts as though he is so elected. This was a notable feature of the Blair premiership.

We have also seen the development of a more powerful role for the Treasury—always a powerful department but operating in recent years as a supra-departmental policy-maker. At the same time, other government departments have remained important political actors. Statutory power continues to rest with Secretaries of State. I have elsewhere likened senior Ministers to medieval barons, albeit operating in a shrinking kingdom. Senior Ministers have their own departmental bailiwicks, their own courts and courtiers.

Then one has the officials within departments. They serve their Minister but also have a loyalty to the Civil Service and to the department. A department can develop its own ethos. Officials remain important as policy advisers and implementers, and indeed as ministerial gatekeepers. They are also important links with bodies outside government and at times may develop a strong affinity with them. There are occasional accusations of departmental capture by particular interests.

We thus have a range of bodies within government and their interests may at times not be wholly compatible with one another. There has always been the potential for tension within government and that potential has variously been realised. There has never been a golden age of government—that is, internally harmonious and wonderfully efficient—but there have been times when tensions have been less severe than they have been in recent years.

The disparate nature of government and the potential for clashes between the several parts means that the Cabinet and the institutional support for it in the form of the Cabinet Office have a crucial role to play. We have arguably never had Cabinet government in the sense of consistent collective policy-making. None the less, the Cabinet has a critical role to play in integrating and co-ordinating government policy. It is the essential buckle in government, linking the Prime Minister and senior Ministers with the rest of government. It can form a vital two-way transmission belt and constitute the body through which Ministers understand and feel engaged with the collective goals of government. At times it may not appear powerful, but without it the Government lack coherence.

In recent years, the role of Cabinet has been downgraded, especially under the premiership of Tony Blair. He exhibited some leadership skills but lacked an understanding of the processes of government. That was illustrated by the decision, covered in the report, to abolish the role of Lord Chancellor and to create a Supreme Court. These were seen as machinery-of-government matters rather than important constitutional issues, with the result, as the noble and learned Lord, Lord Goldsmith, detailed, that there was inadequate consultation. Throughout his premiership, Tony Blair failed to grasp the significance of Ministers and the Cabinet. He told Dennis Kavanagh and David Butler that Ministers were the “agents of the centre”. He saw the Cabinet as little more than a forum for reporting matters already decided. He worked around it rather than with it. The result was to exacerbate tensions within government; the means of relieving those tensions was in essence closed.

At the same time, as we have heard, the Cabinet Office became increasingly cluttered and diverted from its core roles. As various witnesses told the committee, it came to fulfil something of a dustbin function, housing various agencies and units. We were told that it performed a useful role as an incubator for such bodies before some of them moved on to departments, although why it was uniquely placed to fulfil such a role was never fully explained. The effect was to produce a larger and less coherent body than had existed previously.

As has been mentioned, we have also seen the development and growth of the Prime Minister's Office, which appears to have had a distorting effect, essentially helping to draw the Cabinet Office more and more into a supporting role for the Prime Minister. It could be argued there was always something of a skewed effect, given that the Cabinet Office answers to the Prime Minister as chairman of the Cabinet. However, recent years appear to have seen an exacerbation of that tendency. As Professor Kavanagh noted in his evidence to the committee, after 1997, the Cabinet Office changed from its traditional role of an honest broker between departments to an arm of the centre, which is decided by the Prime Minister. The Cabinet Office appeared to become misshapen and too much the creature of the Prime Minister.

I agree with the committee that that situation was not satisfactory. I disagree with the Government's response, which constitutes a notably poor piece of work. I agree with the noble Lord, Lord Rodgers of Quarry Bank: the response is notable for its complacency. It fails to accept that there is a case for change. I appreciate that the response is the product of the late Government. I hope therefore that my noble friend Lord Taylor of Holbeach—whom I very much welcome to his new role—will discard that response and tell us not only what the Government are doing to address the concerns of the committee but what plans they have for the future.

I note that the Cabinet Office under the new Government has retained some features from the last Parliament, but has acquired not only a new dimension in the form of the Deputy Prime Minister's Office and Constitution Unit, but also some other units.

I welcome the statement on the current Cabinet Office website as to its purpose—not least,

“helping to ensure effective development, coordination and implementation of policy and operations across all government departments”.

That strikes me as eminently appropriate—certainly in line with what I regard as the purpose of the Cabinet Office.

However, I have some concerns which I hope that my noble friend can address. Enabling the Cabinet Office to focus on its core functions entails decluttering it, so that it no longer fulfils a dustbin function. I can see the relevance of many of the units—the secretariats, groups and other bodies—that appear in the organisation chart of the Cabinet Office. However, there already appears to be an element of incremental accretion. The Office of Government Commerce and the public sector procurement agency have moved from the Treasury to the Cabinet Office. Some Ministers in the Cabinet Office have been giving talks or making statements on important issues, but matters which are not obviously—to me, anyway—within the remit of the Cabinet Office, such as the regional growth fund and the Government's commitment to children and families.

What is being done to ensure that the clear institutional remit of the Cabinet Office is maintained? What mechanism is in place to protect against the Cabinet Office becoming, in the phrase of my noble friend Lord Heseltine, a bran tub?

Again repeating a question that has already been asked, what is the status of the Prime Minister's Office? The organisation chart shows it is as one of the component parts of the Cabinet Office. It continues to be headed by a Permanent Secretary. When the committee took evidence, there was some confusion as to the relationship of the Prime Minister's Office with the Cabinet Office. Some witnesses told us that they were functionally distinct. The Permanent Secretary, Jeremy Heywood, said the border between the two was “very porous”, and the Cabinet Secretary, Sir Gus O'Donnell, told us that No. 10 was a subset of the Cabinet Office.

Like the noble Lord, Lord Butler, I favour a formal institutional separation, reflecting the physical separation, with no porous borders, with the other units in the Cabinet Office fulfilling roles on behalf of government and kept separate from the influence of the Prime Minister's Office. Are they indeed functionally distinct?

Peter Hennessy, in his evidence to the committee, said that Cabinet Ministers were there to say, “Wait a minute”. That is appropriate in terms of policy. What is also required is a Cabinet Secretary who can say, “Wait a minute”, in terms of process. The Prime Minister has to be prepared to accept guidance on process if government is to work effectively.

The relationship with the Cabinet Secretary is thus crucial, although, as the committee recognises, much depends on the individuals involved. The crucial point is that the Prime Minister needs to be cognisant of what is appropriate—indeed, necessary—in terms of the relationship. There is a responsibility on Parliament, through the Constitution Committee in your Lordships' House and the Public Administration Committee in the other place, to monitor the relationship and check the health of the system operating at the heart of government.

My penultimate point follows and relates to accountability. The committee stresses the need for greater accountability. The Deputy Prime Minister is but one of seven Ministers, excluding the Prime Minister, located in the Cabinet Office. I welcome the fact that the Deputy Prime Minister has a dedicated slot in Question Time in the other place, as does the Minister for the Cabinet Office and the rest of the ministerial team. The decision to establish a Select Committee in the other place to cover constitutional and political reform—in other words to scrutinise the Deputy Prime Minister—is also very welcome. That goes a long way to enhance accountability to Parliament. However, it divides the Cabinet Office into two halves and raises the question as to how the Cabinet Office, other than the Deputy Prime Minister, is to be held regularly to account, other than through Question Time. The Public Administration Committee in the other place and the Constitution Committee in your Lordships' House can play an important role of general oversight, but is there a means of more regular scrutiny that can deliver the accountability sought by the Constitution Committee? I ask that for information rather than to make a critical point. I very much welcome how much has already been done to deliver accountability.

My final point is that effective government derives not just from structures but from those responsible for creating those structures and making them work. I have highlighted the capacity for tension within government. If government is to work harmoniously, or at least reduce tension between the different parts, there has to be an acceptance by the Prime Minister and senior Ministers that leadership does not mean dictation. There needs to be an appreciation of the extent to which the component parts of government rely on one another, and that you get most from Ministers and civil servants by making clear that you are working with them and that they are part of a team. Cabinet is a bonding element, not a channel through which Prime Ministerial orders are relayed to Whitehall. If the Prime Minister sends out that signal, we are moving very much in the right direction.

18:58

[Lord Bichard]

My Lords, I, too, very much welcome the report of the Constitution Committee. It makes a number of important points about the structure and accountability systems at the centre of government, which I very much hope the new Government will take note of. As the noble Lord, Lord Goodlad, said in opening the debate this evening, the way in which the Cabinet Office and the centre works is vital to the effectiveness of the whole of government. It is, as the noble Lord also said, anything but arcane. It should not be something which interests only insiders, and certainly not something about which any of us can be complacent. All of which are reasons why the Institute for Government, of which I have to declare an interest as the current director, this year looked at the issues surrounding the Cabinet Office and the centre of government in a report entitled Shaping Up. We, too, concluded that there remained considerable scope for making the centre more effective. The findings of the institute report sit very happily alongside the Constitution Committee’s report, and perhaps could provide some pointers for the Government on a way forward.

In that report, our first recommendation was that the centre and the Cabinet Office should be very much smaller, but more strategic, with fewer of the ad hoc functions that we have already touched upon this evening and a much greater sense of purpose and direction. It is rather surprising that at the time of the election, there were no fewer than 1,500 civil servants working in the Cabinet Office. We can argue about whether there were six or seven Permanent Secretaries, but it was a fair clutch. Whatever the structure, the centre had become overextended and, as the noble Lord, Lord Butler, said, it had become something of a mess. It needs to be smaller and more strategic.

Our second recommendation was that the powers of the centre should be clearer, especially where Whitehall departments are concerned, so that it is more apparent where the responsibility for final decisions rests. We do not need a larger centre—on the contrary—but people need to know when the centre has the final say. As a former Permanent Secretary, I have to say that on many occasions, that was not clear to me and it is one of the reasons why some rather strange things have happened across government.

Our third recommendation was that the Cabinet Office should support the Cabinet more vigorously in developing a strategy for the whole of government. Perhaps we should try to encapsulate that in 20 key outcomes which should then be reflected in the business plans of departments. That is even more important in the current fiscal crisis. It is really important at a time when there is very little money that government is absolutely clear about its priorities and the issues on which individual departments should be focusing. The Cabinet Office—the centre—has a really important part to play in ensuring that there is that clarity.

The fourth issue that we commented on was the need for the centre to play a greater part in ensuring that departments collaborate where necessary, not just in the development of policy that crosses bureaucratic boundaries, but also in some more prosaic areas, such as the purchase, management and use of materials, goods and services. I have said before in this House that the public sector procurement budget amounts to £220 billion a year, and more than £100 billion of that is spent on common goods—goods that are purchased by different departments and public agencies—yet no convincing purchasing strategy is in place, and a vast amount of public money is consequently being wasted. Those of us who have worked in any bureaucracy know that too often there is a tendency to defend territories and resist justified attempts for greater co-operation, not least where procurement is concerned. Such behaviour is simply unaffordable in times like these, and the centre—the Cabinet Office—needs to have the power to exert its authority. It may be that the recent appointment of a chief operating officer or the establishment of an office of efficiency and reform will improve that situation.

Finally, we concluded that, contrary to popular belief, we have in this country one of the most devolved systems of central government in the developed world, by which I mean that departments retain a huge amount of power. Eighty-five per cent of the budgets allocated to departments remain within their control. This contrasts rather sharply and strangely with the wider governance system in this country in which power is heavily centralised in Whitehall and Westminster.

I think that most of us are now agreed that we need to devolve the power of government closer to communities and neighbourhoods. However, paradoxically, it may just be the time to think about rebalancing the power within government between the Cabinet Office and individual departments with a smaller, stronger, more strategic centre playing its part in ensuring that government really does work, when necessary, collectively.

19:05

[Baroness Quin]

My Lords, it is a great pleasure to follow the speech of the noble Lord, Lord Bichard, and his reflective comments with which I had a great measure of agreement. I am also very glad to be able to say a few words about this report as a former member of the Constitution Committee who participated in the work that led to it being formulated. I join other members in taking the opportunity to say how good it was to work with members of the committee and to pay my own tribute to the outgoing chairman not only for the efficiency with which he always chaired our proceedings but for his considerable good humour. It caused the meetings to be interesting and full of often amusing and entertaining anecdotes as members drew on their considerable experience when considering issues such as those contained in the report.

When we have these reports, they are often dominated by members of the committee. That is not entirely the case on this occasion, but it always allows committee members to stand back and reflect on the outcome of their work as a whole in a way that is not always possible when you are going through the details of a report in committee. From that perspective, I think the debates are extremely valuable.

Given some of the comments that have been made, it is fair to say that the background to the report was the concerns that had been expressed inside and outside Parliament about the centralisation of government and the worries that we could be moving to a presidential system rather than a prime ministerial one and moving away from our traditional system of collective Cabinet decision-making and responsibility. From the evidence that was given to the committee and from my experience in Parliament as a parliamentarian and as a Minister under the previous Government, I think that a lot of those fears are somewhat exaggerated. There have been fears of an elective dictatorship—I think the phrase was coined in the 1970s—and of growing presidentialism for a long time. As many members pointed out, there are certain pressures in the system that seem to push in that direction. The emergence of the open question at Prime Minister’s Questions—meaning that the Prime Minister is increasingly called on to answer on virtually all areas of policy—makes me, like the noble Lord, Lord Shaw, hanker back to the days of Prime Minister Attlee who would apparently say in answer to a question, “Don’t ask me. That’s a matter for the Home Secretary” or whichever Minister was responsible.

However, those pressures are with us and continue to operate. As other members have pointed out, they have been supplemented by the pressure from the media, particularly from television, which tends to focus visually on the leaders of parties in a way that we saw very vividly during the recent general election campaign. As the noble Lord, Lord Shaw, pointed out, these days, Prime Ministers tend to get very heavily involved in foreign policy simply because of their attendance at EU summits, G8 meetings and so on. I accept that the pressures exist. I also accept the point made by the noble Lord, Lord Butler, that in response to those pressures it is possible to create a rather messy structure and, in that sense, the report of the Constitution Committee is valuable in trying to look at some of those intricacies. However, at the same time, I do not believe that there is a deliberate attempt to create a presidential system in Britain. It is a danger because of the pressures, but it is not something that Prime Minister Blair or previous Prime Ministers actively espoused. On the contrary, there is still a very strong belief in the traditional virtues of our Cabinet government.

The system is elastic in many ways. It changes depending on the nature of the Prime Minister, on the nature of the Prime Minister’s political situation—whether or not that Prime Minister has a big parliamentary majority—and partly on the Prime Minister’s personality. In some ways, there were similarities between the style of the Thatcher Administration and that of the Blair Administration. Both Prime Ministers were very much bolstered by very big parliamentary majorities.

On the other hand, in between those two premierships we had the premiership of John Major. Many people commented during our inquiry that his was a very collective approach to government, although I am not sure that we would put it quite as the current Justice Secretary put it when he said, “It was frightfully collective, allowing people to talk and talk until the last dissenter came on board”.

Even the careers of strong Prime Ministers might end when they lose the confidence not necessarily of the electorate but of their colleagues in Parliament. Many of us who remember the dramatic exit from the Prime Minister’s office of Prime Minister Margaret Thatcher remember that very vividly indeed. While Prime Minister Blair’s career did not end in entirely the same way, there was a feeling among colleagues that there needed to be change. That was an important aspect of it.

I took slight issue with my good colleague on the committee, the noble Lord, Lord Norton of Louth, when he talked about Ministers being seen perhaps simply as an agent of central government under the Blair Administration. As a Minister in departments at that time, that was certainly not my experience. The loyalty to departments was very strong, and although one might be very much aware of his view on particular issues, that did not always mean that his view or the view from the centre prevailed. An interesting example of that was given to us in evidence by a former Home Secretary, David Blunkett, who described how officials, and sometimes political advisers from No. 10, would attend departmental meetings and would very often “go native”—his words—as a result. The balance between the departments and the Prime Minister is not always as it has been caricatured. I agree very strongly with the committee that accountability is important, and that any change that seems to occur to structures at the centre should be mirrored by a corresponding accountability to Parliament.

I am perhaps less cynical about the creation of the Liaison Committee in the House of Commons, which tests the Prime Minister very thoroughly in the twice-yearly grillings that last several hours and that allow committee chairmen from across the spectrum of policy—on behalf of their colleagues in the committee, too—every opportunity to put the Prime Minister under searching scrutiny. I was struck by the evidence that was given to us by the former Justice Secretary Jack Straw. He talked about how he hardly ever had to accompany Barbara Castle to committee grillings when he was a political adviser in the 1970s, but how as a Minister and as a Cabinet Minister he went weekly or fortnightly to committees either of your Lordships' House or indeed to committees of the House of Commons to answer questions, and indeed subject himself to rigorous scrutiny, sometimes for hours at a time.

I definitely do not think that there was a golden age and that somehow things suddenly went wrong in recent years. There is a great deal of continuity, as well as a certain amount of change, in the way in which the system works. I would not go as far as the noble Lord, Lord Heseltine, did when giving evidence to us. On page 109 of our report, he says:

“Watersheds—I should be the Vicar of Bray; nothing changes except the titles on the doors”.

There have been changes, and the committee was right to highlight some of them. None the less, Ministers and the Prime Minister have many avenues of accountability that ensure that they are held to account.

The report is right to preach the virtues and the importance both of accountability to Parliament and of Parliament’s vigilance in this respect. The report very much reinforces the message that ensuring that Governments of all persuasions are properly and thoroughly held to account is vital. While I am not a supporter of the coalition Government, I wish them well in taking forward the task of Cabinet government. They are unlikely, as the previous Government were, to turn to a presidential system, but will retain the elements of parliamentary democracy and Cabinet responsibility that we all rightly think are very important.

19:15

[Lord Pannick]

My Lords, it has been a great privilege to serve on your Lordships’ Constitution Committee under the chairmanship of the noble Lord, Lord Goodlad. His wise judgment, experience of practical politics and deep commitment to fundamental constitutional principle embody all that the committee seeks to achieve.

The report that we are debating today examines a notorious episode when the Cabinet Office was unable to prevent a serious lack of judgment in practical politics that resulted in a fundamental breach of basic constitutional principles. The noble and learned Lord, Lord Goldsmith, has already drawn attention to the matter, but I will add some details. In June 2003, to the surprise and anger of the senior judiciary and politicians, who had not been consulted, the Prime Minister announced that the office of Lord Chancellor would be abolished and that a Supreme Court would be created to replace the Appellate Committee of this House. The noble Lord, Lord Turnbull, who was Cabinet Secretary at the time, gave evidence to the committee in which he agreed that the implementation of this reform, however sensible its substance, was “a complete mess-up”. For so distinguished a civil servant, who was always careful in his use of language, to apply such a term demonstrates the magnitude of this egregious mistake.

In his written evidence, the noble and learned Lord, Lord Irvine of Lairg, pointed out that as Lord Chancellor he had been kept in the dark about the proposal until very late in the day, because the Prime Minister, Mr Blair, knew that he would not support it. When he discovered how far advanced the proposals were, he understandably complained to the Prime Minister that it was constitutionally inappropriate for decisions of this importance to be made without consulting the Lord Chancellor, other members of government, the judiciary and, indeed, the authorities of this House, which would lose its Speaker. This was not so much sofa government as pulling the chair from under a senior member of the Cabinet as he was about to sit down.

That episode was an object lesson in unconstitutional government. Fundamental changes were announced without proper consultation and without proper consideration by politicians, who did not receive adequate advice from senior civil servants about the impropriety of their conduct. If they did receive proper advice, neither the Cabinet Office nor the Cabinet had the power to prevent such an abuse of proper process. That these reforms were designed to secure greater transparency in the legal and political process is a rich irony, which was entirely lost on their promoters.

The merits of the substantive reforms that were eventually introduced, which I entirely support, cannot begin to excuse the abuse of proper process. Your Lordships’ Constitution Committee has done a valuable service in casting considerable light on this unsavoury episode in our constitutional history. Before this report, students of our constitution who wanted to know how and why proper governmental processes failed so abjectly in 2003 would find little on the subject, apart perhaps from Mr Alastair Campbell’s diaries. The entry for 12 June 2003 commences:

“TB was dreading the Derry discussions”.

It is a matter of considerable regret that these events occurred at all in 2003, but it is truly astonishing that the previous Government did not understand these issues seven years later when they published their response to the committee’s report, dated 31 March 2010. The response says that it was not possible to consult the judiciary in 2003 because the Government had not consulted their own Lord Chancellor. If a Prime Minister does not have sufficient confidence in his Lord Chancellor to discuss matters of profound constitutional reform, the obvious answer is not to go ahead with reform behind his back but to appoint a new Lord Chancellor to consult and, through him, the judiciary. The 2003 process remains a serious stain on the reputation of the previous Government. Their 2010 response to the committee’s report shows an obstinate refusal to understand the need for proper process in considering constitutional reform, even when the issues are set out with conspicuous clarity in the report.

I dwell on this extraordinary episode not just because it is of historical interest and importance. I hope that the present Government will study the report so that when they bring forward, as they will, their proposals for constitutional change they will have understood better than their predecessors two vital constitutional imperatives. The first is the need for full consultation on proposals for constitutional change, which means that they do not just consult those who agree with them but listen with an open mind to views other than their own. The second imperative is that proposed constitutional change should be rooted in an objective assessment of the advantages and disadvantages. It must not be based on perceived short-term political advantage. That is how this House will judge the proposals for constitutional change to be brought forward by this Government.

19:24

[Lord Maclennan of Rogart]

My Lords, I hope that your Lordships will not regard me as unwelcome intruder on this debate, for I think that I am the only person to speak who neither is a member of the committee nor has given evidence to the committee. None the less, I believe that this is a most important report for all of us who are interested in the quality of government. I pay strong tribute to the chairman of the committee, which has produced the most fascinating insights and evidence on which we can formulate political responses. No time seems to me to be more appropriate than the present, with a new coalition Government, for seeking to build on the central message of the report, as I read it, which is that changing structures of decision-making should lead to changing structures of accountability.

I believe that this debate is timely in two senses. First, the report is up to the moment. It has a response, albeit not very eloquent, from the previous Administration. It is also timely in that the new Government can take account of some of the principles and suggestions that have been raised. I hope that they will come back to Parliament with their own statements about the new structures of decision-making in Cabinet government and, in particular, describe how the newly structured Cabinet Office, in which the Deputy Prime Minister sits with a lot of constitutional experts, is apparently considering further constitutional reform.

As a first step, we should hear from the Government. I cannot expect the noble Lord, Lord Taylor of Holbeach, to reply in full to all the questions that have arisen from this report tonight, although I am extremely grateful that he is here to give us his thoughts. When that process has settled down, we need to have another debate on broadly the same questions with particular answers on the responses that the Government will make.

In my short contribution, I should like to focus on issues that were well described prior to this committee’s report, although it more than alludes to them, by the executive committee of the Better Government Initiative. The third chapter of its report dealt with the issues of the centre of government. It drew particular attention to the growing complexity of decision-making and a number of issues which perhaps might have been more easily divided between departments in the past but which it described as “cross-cutting”. That raises an issue that needs to be addressed in considering the proper role of the Cabinet Office.

I have heard, and I broadly agree with, the suggestion of the noble Lord, Lord Bichard, that the Cabinet Office needs to be slimmed down as far as possible. Certainly, if it is going to be properly accountable, its heads of responsibility need to be fairly sharply defined. Then there are the balancing considerations of incubator activities. The Better Government Initiative pointed out that a number of matters are intractable and are regulated within government to some extent by public service agreements. They cover matters such as social inclusion, drug misuse, environmental policy and, it was suggested, foreign affairs, including Iraq and Afghanistan.

What is the role of the Cabinet Office in these areas? I ask the question because it seems that we cannot rest on the old assumption that it is a matter for individual departments to take up these issues and simply to resolve them by sitting around the table in Cabinet committee. A deeper ongoing discussion is required before positions are formalised so that all those who are to contribute to the ultimate debate are able to be properly informed and bring whatever particular departmental interest or knowledge they have to bear on the conclusions. That could well be a role for the Cabinet Office.

Again, on reading the evidence, I am struck by the growing tendency towards presidential government. The noble Baroness, Lady Quin, attempted to rebut that view, arguing that fears about presidential government were somewhat exaggerated. However, that is not the thrust of the evidence that has been reproduced in this valuable report. Within the space of four paragraphs, we have the noble Lord, Lord Burns, saying that the search for joined-up government had,

“tended to push power towards the centre”;

we have in paragraph 147 Professor Peter Hennessy saying that departments were “thinly used” in comparison with the past; and we have the former Cabinet Minister, David Blunkett, saying that he,

“saw the tendency of both the Prime Minister’s Office and the Treasury to interfere in and to want to own the major decisions of all departments”.

What is that if it is not a tendency towards presidentialism? This is a serious issue, although I believe that a beneficial side-effect of the coalition may be that it less likely that one power, that of the Prime Minister—described by Sir Gus O’Donnell as a “subset” of the Cabinet Office—will attempt to hijack not just the presentation of policy to the cameras but the decision-making itself. Some of us were shocked at what we had read in earlier reports about the decision-making process on the Iraq war, which seemed to exemplify this danger at its very worst. Again, the report is constructive in its approach to these things. Sir Michael Bichard is reported as saying that,

“one of the central roles of the Cabinet Office should be to ensure co-ordination between departments because ‘we still have a very silo-based governmental system’, although ‘in other areas it should not interfere; it should not intervene; it should stand back and have a light touch monitoring of what is going on in departments’”.

It would be helpful if the present Government, in addressing these problems, could take a long, hard look at the issue of co-ordination by the Cabinet Office and indicate how they are going to improve it.

In the past 48 hours, a respected broadsheet has reported that the Foreign Secretary intends to take under his wing all matters to do with the European Union within government. That is an interesting suggestion, but it has to be recognised that many other departments are involved in decisions on Europe. If we are going to make those decisions properly accountable, which again is the thrust of this report, we need to know exactly where and how they are being made. The Cabinet Office could play a great part in all this.

I ask the House to forgive me for these external thoughts on this valuable report. I am most grateful, as I am sure many others are, for the work that has been done and I hope that it will be followed up.

19:35

[Lord Brett]

My Lords, first, I welcome the noble Lord, Lord Taylor of Holbeach, to his new position. As everyone has before responding to reports of this kind, he already has a whole list of questions, and I can absolutely guarantee that I will add to that burden.

I am not sure that there is anything particularly new about the tensions that exist between Prime Ministers and Cabinets. Was it not the Duke of Wellington who said of his first Cabinet that, when he gave his instructions, it “argued back”? Those arguments are healthy and they certainly take place. I think that we can be grateful to the noble Lord, Lord Goodlad, and his committee for this excellent report. The timing is perhaps accidental because we would have wanted its publication to be the same but the result of the election to have been somewhat different, but it provides a detailed view on how the Cabinet Office and the centre of Government work; gives a clear insight into the operation of the Cabinet Office and the centre; and comes to a broad range of conclusions and makes a number of recommendations.

While I agree with much of the report, there are certain areas where we do not enjoy the same degree of agreement. I suppose that one can instantly recognise the conclusions of the committee on the handling of the departure of the previous distinguished Lord Chancellor, my noble and learned friend Lord Irvine of Lairg. The official response on this side of the House on that issue is set out in the letter from my right honourable friend the Member for Dulwich and West Norwood. I see no point in going back to it because the significance of this report is its relevance to today and moving forward, a point made also by the noble Lord, Lord Goodlad.

This report was prepared and a government response was made before the general election, and therefore it refers to a time before the formation of a new and relatively, for most of us, unique form of coalition government. It is not unique in history, but it is for the present time, and certainly in the context of the question of whether we have presidential, co-presidential or Cabinet government. We think that the report’s analysis and recommendations are equally important to the new coalition Government. We will seek to hold the new coalition Government to account against the recommendations made by your Lordships’ Committee, and indeed against the considerable weight of argument made by distinguished Members of the House in the debate today. Also, I yield to no one in my experience, which is tangential to government, in my admiration for senior British civil servants. We have had a mandarin cadre which has given us great service over many years and I see no diminution of that. With Cabinet Secretaries from the noble Lords, Lord Armstrong, Lord Butler and Lord Wilson, to Sir Gus O’Donnell, I can see that the quality is there. It is of course for the machinery of government and for Parliament to hold to account how we use the good talents that we have before us. The central points of the report as reflected in the concerns recorded and the recommendations made relate to the previous Government, but they must apply equally to the future.

The central recommendation is that the structures of accountability should mirror more closely the structures of power. We have seen another adjustment because we now have the fairly unique relationship of a Prime Minister and a Deputy Prime Minister almost walking hand in hand—the Ant and Dec of politics. I see that they are to make another major announcement on Thursday. If you look up that announcement with the Lobby correspondents, you will see that they are going to make it together. I do not criticise that because it makes sense in a coalition, but it does present a new dynamic both in terms of how the Government operate and, indeed, the role of the Cabinet Office with an Office of the Deputy Prime Minister. We have two parties, not one, in the coalition Government, and we have a Prime Minister and Deputy Prime Minister acting jointly on many occasions. We agree with the committee’s conclusion that where the structures of power have changed—they unquestionably have—so should the structures of accountability.

This leads me on to a number of questions, some of which have been raised by other noble Lords. The noble Lord, Lord Butler, asked whether the Minister could tell us what effect on accountability the changes in the structures of power and the conjoining of the Prime Minister and the Deputy Prime Minister will have, and where that will take us. Will, for example, the Government continue in this House with the innovation introduced by these Benches—when they were on that side and in government—of providing an opportunity to question members of the Cabinet who are also Members of your Lordships’ House? Specifically, will the Government now declare their commitment to provide an opportunity to question the one Member of your Lordships’ House, apart from the Leader of the House, who is a Cabinet Minister—the noble Baroness, Lady Warsi?

Can the Minister make clear to the House the noble Baroness’s responsibilities in government? Can he specifically make clear what those responsibilities are in relation to government? She is, I am sure, an excellent chairman of the Conservative Party and will be a great asset in that function, but she is a member of the Cabinet and therefore it is reasonable to ask what role she has in government. Will the Minister undertake to bring forward proposals to give the House the ability to question and scrutinise the noble Baroness, Lady Warsi—if he can find out what she does? If she does not do anything, it begs the question, given the years of austerity before us, whether we can afford the luxury of Ministers who have no responsibility in government.

The committee recommends that the Prime Minister’s Office should be subject to appropriate parliamentary accountability mechanisms. In the light of the formation of the coalition Government, can the Minister set out what mechanisms are now considered appropriate in that direction? Equally, the committee recommends that the Prime Minister’s role and the centre’s role in policy delivery should be transparent and accountable to Parliament—I am sure every Member of your Lordships’ House will agree with that—but, in the light of the committee’s recommendations, what do the Government propose to make the deliberations of the committee headed by the Deputy Prime Minister on further reforms of your Lordships’ House transparent and accountable? The coalition Government have, to their credit, named these two measures of transparency as being among the key objectives they hope to achieve.

This is a good report which, by and large, we accepted when we were in government, with all its strictures and criticisms. I would like this Government to do likewise—not in terms of our operations in government but in terms of the coalition, which, of course, is a different animal.

I endorse the remarks of the noble Lord, Lord Maclennan of Rogart. Clearly the Government need to consider these matters—I would not expect all the answers to be available when the Government have been in office for only a few weeks—but it would be useful to have either a further report from your Lordships’ Committee or a debate in this House when we have a greater understanding of where the Government are taking us and how far they will go in implementing the excellent recommendations in the report. We will probably find more differences than we would wish, but that is politics.

The coalition Government should be and will be held to account. We on these Benches will do all we can. We commend the committee for its report and its attention to the question of good governance. We hope that it, too, will continue to keep a careful eye on the coalition Government and its intentions in relation to the Cabinet Office. I prefer “bran tub” to “dustbin”, but I understand the point that has been made.

Although I do not go back as far as when the Duke of Wellington was Prime Minister, reading the report reminds me that as long ago as 1971 I found myself making representations to the then Minister for the Civil Service about the decision to eliminate the Civil Service Department. Little did I think then that, going on for 40 years later, that Minister would now be the Minister for Foreign Affairs in your Lordships’ House, the noble Lord, Lord Howell of Guildford. However, time passes and, in government, some of the problems come back. Questions about the machinery of government have been around for all of my time in the Civil Service. I understand that we now have coming up questions about regional pay and the dispersal of civil servants to the regions. All these questions have been posed before; all have been answered. However, all the answers have not been correct. Let us hope that on this occasion the excellent report of your Lordships’ committee helps the Government to reach the right conclusions.

19:45

[Lord Taylor of Holbeach]

My Lords, I thank my noble friend Lord Goodlad for securing the debate and for his typically cogent introduction of it. Tributes have rightly been paid to him for his chairmanship of the House’s Constitution Committee and we will miss him in that role.

This is an important topic which is even more relevant to the current scene than might have been envisaged by all those who took part in the Constitution Committee’s deliberations in the summer of last year. This is reflected in the contributions of all noble Lords who have participated in the debate, which, as might have been expected, has been of an exceptionally high quality. The depth of experience that the House possesses when investigating such an issue is an invaluable attribute of the Chamber.

I thank my noble friend for having chaired the committee. Together, he and his committee have produced a report which has made an important contribution to the debate on the complex role of the Cabinet Office and the centre of government. The report sets out clear recommendations that need to be addressed to ensure that the Cabinet Office’s position and its role at the centre of government are evidenced and fortified.

I remind your Lordships, however, that the basis of the committee’s report goes back to a previous time—almost to a distant age—and, while I thank the noble Lord, Lord Brett, for his welcome, I was not surprised that he seemed as enthusiastic as I am to look to the future. He was right to note the way in which the creation of the coalition has changed things.

I hope that the noble and learned Lord, Lord Goldsmith, will forgive me if I do not pursue the insight and analysis of the eclipse of the Lord Chancellor’s role and the lack of information on the matter made available to the committee. I say to the noble Lord, Lord Pannick, that I realise there are lessons to be learnt from this episode. However, I give the noble and learned Lord, Lord Goldsmith, my assurance that I am committed to openness and accountability in government, and I see openness and accountability to this House and its committees as part of that commitment.

When the nature and shape of government was somewhat different from today, the Government in their response noted that there was a need for the centre of government to react quickly and flexibly to new challenges. It is right to accept, as did the noble Lord, Lord Rodgers of Quarry Bank, that there needs to be a mechanism within government to cope with change. The noble Lord asked me a large number of questions and I hope that he will forgive me if I go through some of them and write to him about those I do not answer. It is important that we use this debate to analyse the current structure and to recognise the role of the Deputy Prime Minister in leading political and constitutional reform.

The Minister for the Cabinet Office deals with efficiency across government; the Minister for Government Policy sets policy objectives and milestones for government departments. The Minister for political reform is working very closely with the Deputy Prime Minister, and the Minister for Civil Society seeks to place the role of community in government—in other words, the big society agenda. If the noble Lord had been in his place, he would have been able to hear the noble Baroness, Lady Warsi, the Minister without Portfolio, responding on behalf of the Government to a debate on this very issue. I assure noble Lords that her role, particularly in connection with children, families and diversity across Parliament, is seen as very important, and I expect that they will find her at this Dispatch Box answering for the Government on a number of issues in future. I hope that the noble Lord will accept those assurances.

Since the last general election, the new coalition has continued to make necessary changes to the centre of government to rise to the challenges that face it and at the same time to strengthen the accountability and transparency of all Ministers and government departments to the citizens of the country. As found by the report, despite the role of the Cabinet Office evolving and changing constantly, the same three core functions remain at the heart of its work. They are: to support the Prime Minister; to support the Cabinet; and to strengthen the Civil Service. These core functions are not exclusive to any one group within the Cabinet Office. Not for the first time, I learnt much from the contribution of my noble friend Lord Norton of Louth. He rightly pointed out the potential for tension that can exist within government. I hope that what I have to say satisfies his desire to learn how the Cabinet Office views its role within a coalition Government. Similar views were expressed by the noble Lords, Lord Butler and Lord Bichard, who sought a small, uncluttered and powerful Cabinet Office, while the noble Baroness, Lady Quin, and the noble Lord, Lord Maclennan of Rogart, pointed to the danger of power being too concentrated. I hope that the noble Baroness will be reassured by the update that I provide.

The Prime Minister’s office is directly responsible for supporting the Prime Minister on a day-to-day basis, but this is not done in isolation. It is fully supported in this role by a number of other groups within the Cabinet Office as well as more widely across government. The Prime Minister’s office is further strengthened by the inclusion of a dedicated Permanent Secretary whose role complements that of Sir Gus O’Donnell, the Cabinet Secretary. The transparency and accountability mechanisms for these roles, which the noble Lord and his committee recognised as needing to be strengthened and formalised, are key areas of political reform specifically highlighted in this Government’s coalition agreement. It is accountability not just to Parliament but also to the electorate. This applies equally to the roles played by other Permanent Secretaries located in the Cabinet Office, of which there are currently six in addition to the two whom I have already mentioned. Much of their work is focused across government.

To increase the transparency of the centre’s role in policy-making, it is the coalition agreement’s pledge to introduce a public reading stage for Bills to give the public an opportunity to comment online on proposed legislation, and for these comments then to form the basis for debate by the scrutiny committees. These new routes of transparency and accountability will sit alongside established routes such as parliamentary Questions, Written and Oral. Along with departmental publications, fewer but higher-quality websites and Select Committees, they will enhance their work and allow greater involvement and influence on the part of the public.

The Cabinet Office’s flexibility has always allowed it to function as a unique department within government. The report describes the Cabinet Office as operating at times as an “incubator”—a department that can grow and nurture vital policy areas prior to bedding them out into a home department. In this new era of political reform, this unique practice will provide solid ground from which policy areas can flourish. The diverse skills, knowledge and expertise housed within the Cabinet Office allow it to morph and adapt quickly to include new objectives while maintaining its core functions.

The part played by the Cabinet Office in supporting negotiations following the general election is a good example of its flexibility and professionalism, which, coupled with the core values of the Civil Service—impartiality, integrity, objectivity and honesty—helped to deliver a coalition Government. That was referred to by the noble Lord, Lord Butler of Brockwell. The Civil Service fully recognises, however, that its role was one of helping the politicians who made the coalition a reality.

I can reassure the noble Lord that an intrinsic part of the UK Government is their focus on Cabinet with its ministerial and Cabinet committee system. This will continue under the coalition Government, where an effective Cabinet committee system will be critical to securing agreement across the coalition as well as across departments. The coalition Government have set out their aspirations and plans in the document, The Coalition: our Programme for Government. A new coalition committee has been set up to support the governance of the coalition. The committee provides a place to bring about resolution of any difficult coalition issues arising in these unprecedented times that are not resolved through the policy-focused Cabinet committees. I hope that my noble friend Lord Shaw of Northstead will be reassured to learn that the new guidance produced by the Cabinet Secretariat, headed by the Cabinet Secretary, reinforces the need for proper collective consideration of policy decisions and for the business of government to be taken forward in a timely and efficient way. The coalition is committed to there being focus and efficiency in government.

The Cabinet Secretariat chairs interdepartmental, official-level committees to provide rigorous scrutiny and discussion of policy issues prior to their being raised with the relevant Cabinet committee or, where further joint working is required, after a committee has discussed an issue. The officials’ committees are held primarily to monitor policy development, particularly in cross-departmental priority areas. They are well placed to monitor progress on departmental action points from previous meetings, to resolve interdepartmental disputes and to identify topics for future ministerial consideration.

Overall, under the coalition, ministerial responsibility and strategic direction in the Cabinet Office have increased to include the Deputy Prime Minister, with responsibility for political and constitutional reform. The very nature of the work to be led by the Deputy Prime Minister shows the flexibility of the Cabinet Office, as it has taken on policy responsibility for a wide range of political and constitutional reform. Some of that work might be described as “incubation” within the interpretation that I mentioned earlier. Examples include: introducing fixed-term parliaments; a referendum on the alternative vote system; power for the electorate to recall their Member of Parliament; reforming party funding; and heading the committee on House of Lords reform. His wider role as deputy to the Prime Minister and in leading one half of the coalition partnership brings with it oversight of the full range of government policy and a need to ensure strong processes between his office and the office of the Prime Minister. It might be concluded that the existence of a coalition Government reinforces the role of the Cabinet Office in supporting government cohesion and accountability.

The Minister for the Cabinet Office published in June this year a structural reform plan that sets out six key priorities: reform of the Civil Service; a reduction in the number of quangos; to reduce the cost of information and communications technology; to drive efficiency in government operations; to drive transparency in government; and to support the building of the big society.

The new Efficiency and Reform Group will, in the main, work to deliver the milestones identified against the priorities in that plan. This group has been formed by pulling together capabilities from the Cabinet Office and HM Treasury, such as the Office of Government Commerce and Office of the Government Chief Information Officer, to help deliver efficiency savings across government. The board of the group is jointly chaired by the Minister for the Cabinet Office and the Chief Secretary to the Treasury. I hope that it pleases the noble Lord, Lord Bichard, that I have read the Institute for Government’s report and agree that although it is not directly the subject of this debate, it is an important contribution to the consideration of the structure of government and the role of the Cabinet Office in particular.

The Efficiency and Reform Group is already leading much of the drive to deliver the £6 billion efficiency savings announced by the Chancellor of the Exchequer in May and is now developing longer-term approaches to improving the performance and efficiency across government.

I do not propose to discuss each of the six priorities of the structural reform plan in full, but I will highlight actions within two areas as examples. Under the auspices of the first of those six priorities, the Minister for the Cabinet Office will be focusing on improving accountability and governance across government. To further support good levels of accountability each government department will appoint at least one non-executive director to its main board. This community of non-executive directors will meet regularly under the leadership of the Government’s lead non-executive director who has recently been appointed. That appointee, a Member of this House, is the noble Lord, Lord Browne of Madingley. The noble Lord will work with Secretaries of State to appoint non-executive directors to their departments, and will work with the Minister for the Cabinet Office in overhauling how departmental boards are run and, thereby, improve governance across Whitehall.

The appointment of such non-executives will galvanise departmental boards as forums where political and official leadership are brought together to drive up performance. While these are roles within government they are also independent of government and their purpose is to assist in the implementation of policy using relevant experience from business. During these challenging times for our country, there is a great need for both the best of the business community and the best public servants to be involved. I am sure that the House will welcome the appointment of the noble Lord.

Turning to the second priority, reducing the number of public bodies, or quangos as they are often called, might be seen as exactly the opposite of incubation. Here the centre is co-ordinating a cull of functions that would then be removed from the portfolio of government-funded or government-sponsored activities or, where appropriate, taken back into departments. Those bodies that remained at arm’s length would find that new standards were being more rigorously enforced.

The Minister for the Cabinet Office who is also the Minister for government policy performs a new role in driving the Government’s structural reform agenda and providing a counterpart to the Chief Secretary to the Treasury as a key partnership in the management of the coalition. The role for such work is exemplified in the way that the Government are preparing for the next spending review. The spending review 2010 has already begun and all departments are fully engaged with the Treasury. However, the process has been enhanced to include more robust challenges to plans across the public sector at both ministerial and official levels. In this, Ministers based in the Cabinet Office and the Cabinet Secretary are taking key roles. The Government are committed to working collectively to make the decisions about how to reduce spending in a way that is in line with their values.

To lead this collective approach in government, the Prime Minister has appointed a committee of senior Cabinet Ministers—the Public Expenditure (PEX) Committee. Chaired by the Chancellor of the Exchequer and supported by the Chief Secretary, the PEX Committee will advise the Cabinet on the high-level decisions that will need to be taken in the spending review. Secondly, a spending challenge has been launched to engage all public servants in thinking about ways that public services are and, more importantly could be, delivered in different or better ways to make more effective use of the available resources.

The Minister for Civil Society is also located in the Cabinet Office with responsibility for co-ordinating government action in relation to social exclusion and the voluntary sector. The Cabinet Office is currently restructuring to align itself to the new priorities and provide a more strategic approach to its work while maintaining strong core services.

[Lord Brett]

I am grateful to the Minister for setting out more clearly than I understood the role of the noble Baroness, Lady Warsi, for whom I have great admiration. He may not have time to answer the question that I asked, which I am sure he will be writing to me about along with the other questions that I asked. But will there be an opportunity, through the usual channels, to question her about her portfolio on the big society, as we have had when previous Cabinet Ministers had responsibilities across departments? I hope that he will take that on board.

[Lord Taylor of Holbeach]

I understand the significance of the noble Lord’s question. I will ask the usual channels for an answer and let the noble Lord know. I am indeed running out of time and therefore the noble Lord was correct to prompt me.

I am grateful to all noble Lords who have spoken in this debate. I have not had a chance to answer all the questions. There will be many that I will need to write to noble Lords about and I will make sure that answers are copied to all noble Lords who have participated. It has been an encouraging debate about a well-considered report and I thank the noble Lord, Lord Goodlad, for securing it for us. It would be a foolish Government who did not study the report and listen to this debate.

20:07

[Lord Goodlad]

My Lords, I join other noble Lords in welcoming my noble friend to the Dispatch Box and I thank him very much for his very thorough reply. I would expect no less from a fellow Lincolnshire yellowbelly.

My noble friend emphasised the Government’s commitment to accountability and openness about which there has been a confluence of views during the course of this debate. The Government will of course be judged not only by their words but in future by their deeds. I am extremely grateful to all other noble Lords who participated in the debate. We had extremely trenchant contributions from the noble Lord, Lord Butler of Brockwell, about the avoidance of muddle and from the noble Lord, Lord Bichard, and the noble and learned Lord, Lord Goldsmith, and others about the regrettable—if not disgraceful, as the noble Lord, Lord Pannick, said—events of June 2003. I will not add to that other than saying that I hope that they act as an example to the present Government in their ambitious programme at the centre of government to have regard for due process and respect for our constitution and institutions. I have every confidence that that respect will be forthcoming.

I have had far less contact with the centre of government and the Cabinet Office than many noble Lords in their places tonight, but over the years I have developed an enormous admiration for their dedication and skills and I hope that the committee’s report and our debate tonight will make some contribution towards the future development of these institutions. I suspect that other noble Lords will join me in assuring my noble friend that, like General MacArthur, we shall return.

Motion agreed.

EU Committee: Alternative Investment Fund Managers

Tuesday 6th July 2010 Lords Chamber

Motion to Take Note

20:10

Moved By

[Baroness Cohen of Pimlico]

To move that this House takes note of the Report of the European Union Committee on the Directive on Alternative Investment Fund Managers (3rd Report, Session 2009–10, HL Paper 48).

[Baroness Cohen of Pimlico]

My Lords, in introducing this debate, I need to alert the House to a potentially major threat to the United Kingdom financial industry. The alternative investment fund managers directive is an unexciting title for a piece of European Union financial legislation that could cause substantial damage to an industry worth €250 billion in Europe and the UK, of which 80 per cent is located in the UK, and which sustains 40,000 jobs also in the United Kingdom. Unless the new Government can achieve some amendment to the present cumbersome proposals for regulation, much of this economic activity could vanish from the United Kingdom, leaving an ever higher financial mountain for us all to climb.

This particular directive has been bedevilled from the start by a misunderstanding of the industry and confusion of objectives. The Commission, which has been under acute political pressure to produce regulatory proposals for this rapidly growing sector and its highly paid employees, has not helped. The result has been politically charged and highly emotive rhetoric, which has resulted in a confused directive that risks killing the goose that has been laying the golden eggs. This is the more curious because, from the outset, from the report written by Monsieur de Larosière, all Commission officials have publicly accepted that the components of the alternative investments—mostly hedge funds and PE funds—did not cause the financial crisis. Investors in those funds lost money but those who lent to the funds—the banking community—lost virtually nothing. This was well controlled lending that left the risk with investors and produced no systemic threat, in stark contrast to the poorly controlled lending to individual householders and uncontrolled trading of products, such as CDSs and CDOs, which did threaten the financial system and whose effects we are still working through.

My committee spent quite a long time on this important inquiry, from June 2009 to February 2010. We found that the term “alternative investment fund” includes a broad spectrum that most significantly consists of hedge funds and private equity funds. We found serious problems with the European Commission’s draft of the directive, which, if it came in the form that we considered, could seriously damage competiveness. The effect would be wider than fund managers and investors. One is not just worrying about a few highly paid young men. Many pension funds and charities include alternative investments funds in their investment portfolios and, as such, anyone with a pension or a charitable contribution will be affected indirectly by this directive. We took evidence for the report from June to December 2009, including two lots of evidence from the former Financial Services Secretary to the Treasury, the noble Lord, Lord Myners. We also travelled to Brussels and heard from representatives of think tanks, the European Parliament and member states. We published the report in February 2010, just at the moment when it appeared that agreement might be reached on a Spanish presidency compromise in the Council, though that was not to be. I thank Professor Robert Kosowski of Imperial College, London, for acting as specialist adviser to this inquiry.

Before I discuss the main conclusions of the report, I shall say where the directive stands today and explain its passage through the European institutions. On 17 May, the ECON committee of the European Parliament, chaired by Sharon Bowles MEP, agreed its amendments to the Commission's original draft. On 18 May, the ECOFIN council, under the direction of the Spanish presidency, reached a general approach on the directive. But in order even to get to a general approach, a minuted statement was agreed setting out the opposition of some member states—actually very few—including the United Kingdom, to parts of the Council text. This has allowed tripartite negotiations to begin in Brussels, where the three parties—the Council, the Parliament and the Commission—attempt to reach a compromise between the texts of the Parliament and the Council. By all accounts, little progress has so far been made toward agreement and it looks as if the original objective of reaching a compromise by the summer will not come to pass. This apparently blessed relief in the timetable should not be taken as meaning that we are really making progress; it is just impossible to tell.

The necessity for regulation of some sort is not disputed. In our inquiry we found that the size of these funds and the potential for crowding out, when a lot of managers all follow the same financial strategy, can indeed unbalance the financial system. We welcomed the aspects of the directive that attempted to reduce the risk proposed by fund managers. It is perfectly true that there is very little supervision of managers at EU level and it is impossible to find an alternative investment fund manager who does not accept that some regulation is necessary. The principal difficulty seems to be the recommendation surrounding the alignment of the directive with the global regimes and the proposals on the EU passport. In our report, our principal recommendation was that the Government must ensure that the directive is in line with and complements global arrangements. Co-ordination with the US regulatory regime in particular is essential to avoid a situation in which the EU alternative investment fund industry loses competitiveness at a global level as a result of regulatory arbitrage. The industry can go overseas but much will be lost if European investors do not invest in it. I shall be particularly grateful if the Minister could explain in his speech how the new Government will ensure that this does not happen.

As it stands, the directive would provide the opportunity for authorised managers to market their funds to professional investors across the EU. The directive would extend to non-EU managers but would apply restrictions to these managers that would, as originally drafted, restrict investment into and out of the EU to the disadvantage of the EU economy. Many of our witnesses described these measures as protectionist. This is a sensitive subject and solutions need to be found to prevent disadvantaging EU investors, which, as I mentioned earlier, include charities and pension funds.

The EU passport could provide fund managers with access to the whole EU market, which would deliver all the benefits of the single market, and most EU fund managers are keen that this should be so. If, however, the requirements for attaining a passport are made too difficult to meet, then non-EU fund managers could be locked out from marketing in the EU and EU investors’ options for investment severely restricted. On the other hand, if the restrictions come out being too tenuous, that will not solve the difficulties of those who argue that regulation should be a gold standard in order to protect market stability effectively.

My committee supported the passport and the principle of its benefits being extended to non-EU funds, so long as the passport was not so difficult to attain as to prevent managers marketing non-EU based funds in the European Union. The committee also supported—this seems like a sensible measure—the continuation of national regimes until an equivalency regime with third countries could be set up. While national regimes continue, you can make adjustments to the passport regime to make it work effectively without damaging the EU economy. If the passport regime is set up before it works, it will damage the EU.

We concluded that the original draft of the directive made it difficult, if not impossible, for third-country regimes to achieve the equivalency required for managers to get EU passports. It appears that this issue is still where the biggest divide remains between the European Parliament and the Council. The Council text does not provide for a passport but would allow member states to continue operating national regimes, should they wish to do so. The Parliament text provides for a passport to third-country funds with either an EU or non-EU fund manager, but would not allow the continuation of national regimes.

It is important that the Government find a workable solution. How will the Minister ensure that an effective compromise is found between the Council’s and the Parliament’s texts that does not disadvantage non-EU fund managers—mostly us—or EU investors?

There are other difficult bits in the directive. One of those is the requirement for transparency. The provisions of the directive that aim to ensure increased market stability are its requirements for disclosure of information on funds by fund managers to supervisors. This seems like a good idea. It could include leverage caps that would set a cap on how much a manager could borrow, while disclosure and transparency requirements would also allow supervisors to spot build-ups in risk, the infamous crowded trade, and take some action to reduce it.

These requirements, however, are not free from the problems that bedevil the detail of the directive in its original draft. We concluded that the directive should differentiate more effectively between different types of alternative investment funds, in order to prevent the disclosure requirements from placing EU funds at a competitive disadvantage. We also argued that national supervisors, rather than a pan-European body, should play the key role in analysing and acting upon data retrieved from fund managers, as not only would they be most effective in carrying out this task but it is national supervisors who will carry the can if it all goes wrong.

We also suggest that it is important that national supervisors identify here and now what specific data they need from managers to monitor risk. The directive, as drafted, could require supervisors to collate huge volumes of data, most of which is irrelevant to stability. It is clear that the possibility of analysing such data effectively would be reduced, thereby reducing the effectiveness of supervision.

In fact, one of the things generally wrong with the directive is that it operates on a one-size-fits-all principle, so that big hedge funds would be regulated in the same way as very small property investment funds. This leads to the kind of overregulation that will disadvantage everyone. We therefore recommended that the Government push for the directive to be appropriately tailored to different types of funds, and I would be glad if the Minister could provide an update on how successful efforts in this direction have been.

I shall conclude by briefly discussing the process behind the drafting of the directive. We found that the Commission had not followed its own better regulation guidelines in the drafting. There was an insufficient consultation process, a wholly inadequate impact assessment and a general rush to draft the directive, driven heavily by political motivation. Most of the problems with the detail could have been avoided if the better regulation guidelines set by the Commission had been followed.

With this in mind, how will the Government ensure that in future the Commission has sufficient time to follow its own better regulation practices in order to prevent the problems with this directive occurring again in future directives? There is a large amount of financial legislation still coming forward that may well suffer from all these defects, and the pressure on the Commission for it to happen as soon as possible could easily cause the same problems all over again.

All in all, there is quite a lot to do to this directive. I am sorry that we were not able to press the previous Government to do more—they were very willing to do more but made no progress—and I can only wish the next Government better luck with making progress on this one. I beg to move.

20:23

[Lord Woolmer of Leeds]

My Lords, I congratulate my noble friend Lady Cohen on opening the debate and on her chairmanship of the committee over a considerable time. It is 14 months since the draft directive came out. It was conceived in a rush, it was supported by a very weak impact assessment, and it was conceived in a heavily political and politicised context both before and following the financial crisis. In many respects it is a very good example of how not to bring forward legislation in such an atmosphere.

I suppose it is easy now to forget that the mood at the time of the financial crisis was one of “something has to be done”. When something has to be done, people pile in behind that to solve many other problems at the same time. The objectives were stated to be twofold. The first was to increase the stability of the financial system. The second was to facilitate a single market in financial services. Those were the stated objectives but for some there were, in addition, at least two others. The third objective was to bring tighter controls on activist hedge funds and intrusive private equity in different cultures and environments, such as Germany and, in particular, France. The fourth was to bring all remaining financial services under regulation and have a full house of all nine UCITS funds—so achieving a single market, but achieving it with political aims and controls which often conflicted with the wider global nature of the financial services concerned.

There was also, at the time, very little discussion about who uses alternative investment funds and what their views were and are. It struck me, as I think it did many members of the committee, that much of the evidence was from people who felt that something had to be done and saw problems with the industry itself. However, there was not much discussion—certainly in the European Parliament—about who is investing in these funds. What were the benefits of them? Of course, in part, it is high-wealth individuals but, as we know in this House, hedge funds receive something in the order of three-quarters of their capital from institutional investors, particularly pension funds and endowment funds. This is not a retail operation; these are people who take a lot of time and care over which hedge funds they invest in. It is a very professionalised business. As my noble friend said, the industry itself is extremely important, not only to the UK but to Europe.

In a sense, this was a draft directive that was conceived as a series of objectives, many of which conflicted. In the European Parliament in particular, one sensed that, having got the draft directive going, there was then an attempt to reconcile those conflicting objectives in a way that was inherently very difficult, if not impossible. I am not at all surprised by the European Parliament for sticking to the directive as it is amended. Essentially, there are some objectives in the minds of Members of the European Parliament that conflict with a global environment and open global markets in finance, as I shall comment on in a moment.

What are the remaining issues 16 months after the draft was published? I shall mention just very few; the Minister will have all this at his fingertips. He knows that there are many problems but some are slightly more important. To everyone who has a problem, every problem is important, but some are probably more significant than others. There is no doubt that third-country issues are extremely important, not only for the operation of the alternative investment fund industry in this country, but because of the global nature of the marketplace. These issues include the ability of European fund managers to market non-European funds, which is a large part of the business; the ability of non-EU managers to market into the EU funds and non-EU funds into the EU; and the question of passport versus single placement.

In principle, I would like to see an EU-wide passport and so would the committee; that is, a measure conferring the ability to sell funds anywhere within the European Union on the basis of a single approval. However, the tough issues that remain of the equivalency conditions, access conditions, who would regulate and who would supervise are exceptionally important and conflict with the global nature of the business, as I said. The idea that we can simply say in Europe, “These are the rules, you have got to play by them; otherwise you do not sell into Europe” is not in my view the way in which we should handle relationships in global markets. When the crisis arose I sensed that the European Union felt that it had an opportunity to set global standards and to be the leader. It was slightly fed up with the United States always setting down the rules. There was a feeling that this was Europe’s chance to be the leader, that it should set the terms and that you either traded on those terms or you did not. Those feelings have moderated a little but when it comes to getting votes through the European Parliament, such views are not always easy to reconcile. That mood still exists in the European Parliament.

I mentioned supervision and the role of the European Securities and Markets Authority. I understand the position of the European Parliament is that ESMA—the European Union’s supervisor—should supervise whether funds meet the necessary criteria or equivalency tests. As I understand it, the Council of Ministers does not go along with that. I should be grateful if the Minister could confirm the UK’s position on that. As regards the Commission’s proposals for credit rating agencies, Her Majesty’s Government appear to be saying that they accept that the European regulator—or supervisor in our language—of credit rating agencies should be the body that approves them. That seems to me potentially something of a precedent. I am beginning to wonder whether we are seeing the early stages of Her Majesty’s Government beginning to believe or accept that supervision of European-wide matters will have to be carried out at European level. Rather than being given a simple yes or no answer, it would be helpful to be given an explanation of the thinking behind this. Will credit rating agencies be an exception?

Clearly, private placement is not ideal. In many senses it would be much better to move beyond individual countries approving funds for marketing. However, if that has to be the case, I will support it. I certainly would not want to see a European passport going forward on terms that were simply unacceptable to the industry and unacceptable to us in terms of supervision. There are still some unrealistic and uncommercial limitations in the draft directive and in the discussions going on regarding who can be used as depositories and on the liability of depositories. The Council of Ministers’ position seems to be more reasonable than that of the European Parliament, but there are deep concerns among alternative investment fund managers about the liabilities that might be imposed on depositors.

I will not say that the committee had an enjoyable time, but it had a busy time looking at this draft directive. It threw up a number of issues and I am greatly concerned that after 14 months the Council of Ministers has not been able to reach an entirely agreed position without the need for dissenting notes, and that the European Parliament seems fundamentally not to have changed its position, but in the fine print is seeking to retain what I would regard as a rather insular view of a very global marketplace. It also does not recognise the enormous experience and contribution that this country can make in the discussions on and resolution of difficult but nevertheless important global relationships.

20:35

[Lord Newby]

My Lords, I congratulate the noble Baroness, Lady Cohen, and her committee on producing such a clear and thoughtful report on an extremely esoteric but vital area for the UK.

The report highlights a number of areas where anyone, at least in this country, who has looked at the draft directive is in agreement. First, there is agreement that alternative investment funds did not cause the financial crisis, but equally, given their scale and size, there was a need to regulate alternative investment fund managers on an EU-wide basis. This is now accepted within the industry.

However, the proposals have major shortcomings from a UK financial services sector perspective. We have seen in recent months frantic attempts by the industry and government to make the proposals more palatable to UK interests. I do not intend to detail the shortcomings in the current text. The noble Baroness and the noble Lord, Lord Woolmer, have done that extremely well, but I should like to discuss the broader question of why we find such unsatisfactory detail in these proposals and how we should attempt to avoid this situation when future proposals come forward.

The problems flow in some part at least from the UK’s at best schizophrenic approach to EU initiatives in general. The predominant mentality of previous British Governments—not just the last one—has been to stand back or positively oppose many initiatives which are of vital concern to the UK. When it has become clear that a policy is to be adopted, we have none the less fought a series of rearguard actions at EU level to minimise the damage to UK interests of these initiatives, as we see them. This has been a debilitating and wearisome approach, but when applied to the financial services industry it borders on madness. London is the predominant financial centre in the EU and it is clearly in our national interests that it remains so. There has been much discussion, during and since the election, of the need to rebalance the economy, but the way to do that is not by humbling and bringing down the financial services sector but by building up other sectors. The figure quoted by the noble Baroness of 40,000 people employed in this sector, which is a relatively small subset of the financial services sector as a whole, gives some idea of the importance of the sector to the UK economy.

If we look at the attitude of the previous Government, we saw in Gordon Brown an approach which in my view, in terms of achieving the best deal for the UK in Europe, was almost completely misguided. It comprised an attitude of patronising disdain and an unwillingness to show the common courtesy of attending meetings to their conclusion, if attending them at all, with the inevitable outcome that those who were patronised and ignored were disinclined to be helpful to British interests when considering specific proposals that came forward. I strongly urge this Government to take a different approach.

I do not support the idea that was floated before the election, but not so far pursued, of posting a Treasury Minister permanently to Brussels. This would isolate them from events at home and deny them the joys of having to explain themselves and the Government to Parliament. No other EU member state, as far as I am aware, does that—and for a good reason. There needs to be a continued link between the domestic ministry and Brussels. However, Treasury Ministers should spend much more time in Brussels and also, just as importantly, should do the rounds and visit their opposite numbers in their own countries to discuss on a one-to-one basis what we believe is the sensible way forward on proposals like this. For example, during the Swedish presidency, the noble Lord, Lord Myners, did just that. We need to be in a position where we know our opposite numbers better, at an earlier stage, because the value of that kind of charm offensive in an international body such as the EU cannot be overestimated. I realise that this is very time-consuming, but diplomacy—which to a considerable extent is what we are talking about—is a time-consuming business.

I also think that the Government need to review not the quality but the quantity and seniority of officials dealing with European financial matters. It has been a constant theme of debates during my time in your Lordships' House that, while individual officials are extremely bright and work very hard, they are trying to do too much and very often they are not at a level of seniority where their voices carry as much clout as they should. I realise, of course, that in an era of cuts, talking about strengthening anything by putting in more resources is a difficult proposition to make. However, making sure the financial services industry is not hobbled is such an important economic necessity for the UK that I hope the noble Lord will feel emboldened to make representations in that direction.

It is also important, as the Foreign Secretary pointed out last week, that we make sure that we get more of our best civil servants working in EU institutions. The value of this has been well understood for many years by a number of other member states—the French and the Irish in particular spring to mind—but we have been woefully neglectful in this area, and it has been reflected subsequently in the policy documents that have flowed from the EU.

In the months ahead, Treasury Ministers will necessarily be in a defensive mode on this directive, mitigating the potential damage that it might cause. However, for the sake of the UK financial services sector and the British economy, they need to get onto the front foot, think ahead and get in first so that when the first drafts of future directives in this area appear, they will more broadly reflect UK interests than has so often been the case in the past, and has been in the directive that we are discussing tonight.

20:44

[Lord Tunnicliffe]

My Lords, I, too, thank my noble friend Lady Cohen for initiating this debate. We should all be particularly grateful to the European Union Committee for its report—more grateful than usual, as it has had to deal with a moving target. As the letters to the noble Lord, Lord Roper, from the noble Lord, Lord Myners, and from the Vice-President of the European Commission clearly demonstrate, improvements to the directive are still being made. It is clear that the committee has made a valuable contribution to the improvement of the directive, on which it is to be congratulated. I believe that everyone now welcomes the directive’s goal of providing a coherent regulatory framework, particularly for hedge funds and private equity firms. Indeed, this goal has been endorsed by the G20. The difficulty has been in agreeing what exactly a coherent framework would look like.

The committee’s report provides a useful overview of the tortuous history of the directive. I do not intend to go into all the political cross-currents that seem to have contributed to the lengthy saga. Instead, I shall concentrate on four areas that are important in going forward. First, is the report’s analysis entirely satisfactory and do any deficiencies in that analysis detract from the conclusions? Secondly, is the general criticism of the one-size-fits-all approach of the directive still valid? If so, what is to be done about it? Thirdly, are the conditions for passporting non-EU alternative investment fund managers now satisfactory? Fourthly, what can be learnt from the history of this directive for future regulatory reform?

I turn first to the analysis. The report devotes itself almost entirely to the impact of the directive on hedge funds and on private equity firms. The report accepts the widespread position that hedge funds did not cause the financial crisis, but I am not at all sure that that is correct. It should be remembered that the crisis at Bear Stearns, the first major investment bank to encounter serious difficulties, was precipitated by the collapse of two hedge funds that the firm owned. Even if we leave those direct losses aside, it is inconsistent for the report to accept the argument that hedge funds contribute significantly to the liquidity of markets but not to take into account the devastating role that hedge funds played in the downward spiral of prices once deleveraging had begun.

On the same theme, it is worth pointing out that the report’s acceptance of the argument that hedge funds’ contribution to price discovery is valuable activity is not now universally shared. Hedge funds’ trading may help to make a price, but the link between that price and wider economic efficiency is now recognised to be tenuous at best. Hedge funds are contributors to systemic risk—that is, the risk inherent in the structure of the financial system as a whole—and it is right that they should be incorporated in new attempts to mitigate systemic risk. Perhaps the report takes too benign a view of hedge fund activities in this respect.

With regard to private equity firms, the report is surely right to focus on leverage. However, it is not the leverage of the private equity firms themselves that is the relevant issue but the actions of those private equity firms that pursue a strategy of leverage buyout, leaving the firms that they buy burdened with excessive levels of debt. It would have been useful to have had the committee’s views on the economic value of this sort of activity. It would be helpful if the Minister would, when he sums up, comment on the Government’s attitude to leveraged buyouts and their impact on stability and growth.

Next, I come to the criticism of one size fits all. One of the oddities in earlier versions of the directive was the presentation of relatively precise regulatory controls on disclosure, capital requirements and independent valuation that were to be applied to firms with very different business models The consequence was not only a number of anomalies but the general feeling that the directive was not well fitted to any particular business model. Significant progress has been made since the early drafts of the directive to remove such anomalies and perhaps the committee’s conclusion on this point has been overtaken by events.

The position taken by the Commission, as outlined in the letter of the Vice-President of the Commission to the noble Lord, Lord Roper, is that,

“the all-encompassing scope of the Directive is a prudent approach to the regulation of a sector in which business models are diverse and fluid. An alternative approach based on rigid definitions of business models would not respond comprehensively to risk and would create real risks of circumvention”.

This is surely right. Moreover, it is in tune with the British approach to principles-based regulation. The issue, then, is whether the directive in the compromise form developed by the Spanish presidency is really playing that tune or whether it is a discordant cacophony of principles and rules. It would be helpful if the Minister could tell us whether the Government now feel that the key problems of one size fits all have been overcome and whether the directive has now assumed the flexible form that the Vice-President of the Commission suggests.

Finally on this topic, the report does not deal with the impact of the directive on investment trusts. These are peculiarly British institutions, which play an important part in the UK savings and investment industry. Is the Minister content with the application of the directive to investment trusts? It would be helpful if he could give us the Government’s assessment of the impact of the directive on the UK investment trust industry.

I turn now to the conditions for passporting non-EU firms. The report is surely right to argue that passporting should be available to all fund managers operating in well regulated, although not necessarily perfectly equivalent, jurisdictions. However, it was not clear whether the report supported one important aspect of the directive—the need for reciprocity between jurisdictions allowed passports into EU markets. Will the Minister help us on this point when he sums up? Are the UK Government wedded to the notion of reciprocity?

Finally, I turn to the question of what lessons can be learnt about future regulatory reform from this episode. The obvious first lesson is that, given the central role of the UK financial services industry in the economy of the UK, and indeed the economy of the European Union, it is vital that the UK authorities should be in the forefront of regulatory reform. In this respect, I must take issue with one of the report’s conclusions:

“The Government should ensure that EU regulation is in line with, and complements, global arrangements. We believe that the Government should not agree the Directive unless it is compatible with equivalent legislation with regulatory regimes in third countries and in particular in the United States, in order to avoid a situation in which the EU AIFMs lose competitiveness at a global level”.

That conclusion was rendered out of date by the Toronto G20 summit. At that summit, the consensus that had until then characterised the international reaction to the financial crisis substantially evaporated. Of course, we all hope that the G20 meeting in Seoul in November will reinvigorate a common approach to regulatory reform. However, it would be a serious mistake to allow the search for consensus to be an excuse for inaction.

The United States has already indicated by its actions—notably the passing of Senator Dodd’s Bill by the Senate—that it intends to pursue its own interests in the first instance. We should do the same—not to try to create division but to set the agenda and lead constructive thinking on reform. The most damage that the directive, with its tortuous history, could do would be if it were to stifle European, and more especially British, regulatory initiatives. On this count, it is disturbing that the committee established to consider the future of the banking system will not report until September 2011—10 months after the Seoul meeting. Will the Minister assure us that the Government will not be waiting for international consensus to publish their reform proposals?

This is a valuable report both because of its detailed assessment of the directive’s impact and because of the light that it sheds on the process of regulatory reform and the necessity for that reform to proceed with some dispatch. It is for the Government to lead in the development of financial regulation in Europe and the world. To do otherwise would be a grave disservice to this crucial British industry.

20:54

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, I thank the noble Baroness, Lady Cohen of Pimlico, for bringing forward this debate and I thank noble Lords for their contributions. It has been an important and thoughtful discussion. She started by giving an admirable summary of the importance of the alternative investment fund industry to the UK and indeed to Europe, and she drew attention to the troubled and tortuous history of the directive. It is striking that, in the debate, noble Lords have focused on the same series of key issues.

I commend the European Union Committee on producing such an excellent report. The Government have fully noted its conclusions, and my honourable friend the Financial Secretary has responded to the committee outlining the Government's position on the issues that it raised. These have indeed been difficult negotiations, with a wide range of views being expressed across the EU. We have considered a number of drafts and potential solutions but it is regrettable that, throughout this process, we have had no proper Commission impact assessment to refer to. We have stressed that this should absolutely not set a precedent for EU legislation. The noble Baroness rightly emphasised the importance of that point. I can assure the House that the Government will press for that, bearing in mind that decisions on the scope of Commission impact assessments are taken independently of member states.

Nevertheless, Ministers and officials have been in regular discussion with representatives of the industry and their associations to understand the impact of various measures in the directive and to find a way through. Of course, the EU negotiations are far from over. At ECOFIN in May, the Chancellor made clear that progress was needed on key issues before the UK could offer its support to the directive, and he secured an important minute statement from the Council to endorse further discussion on the issues. Separately, the European Parliament voted on its own compromise text. Following that, the trialogue was initiated, with a view to reconciling the different positions of the Council and the Parliament, with some significant differences still remaining.

I should like to outline some of those issues and, in doing so, respond to some of the points that noble Lords have raised, but first I shall set out the Government's overall position on the directive. The Government are committed to finding an acceptable compromise, and are looking forward to working constructively with the Belgian presidency in that spirit. However, we have made it clear to our European partners that we should not be seeking agreement for agreement's sake. We need to ensure that the directive is non-discriminatory, in line with our G20 commitments. We also need to find workable and proportionate solutions that provide a sufficient level of regulation, while allowing the industry to function effectively. The Government will use our influence with the European Commission, Members of the European Parliament and other member states to improve the drafts on the table to find a solution that meets the broad objectives that I have just outlined.

I turn to some of the specifics raised in the debate. First, on the question of international consensus—a point raised by the noble Baroness and by the noble Lords, Lord Tunnicliffe and Lord Woolmer of Leeds—the G20 agreed at its London summit in April 2009 that all systemically important institutions, including hedge funds, should be subject to regulation and supervision. Developing a harmonised EU framework for the regulation of hedge funds and other alternative investment fund managers is clearly consistent with that objective.

The Government are keen to ensure that, in line with the G20’s broader commitment to global co-operation in addressing those issues, and in line with the G20 communiqué of 5 June, the final directive adopts an open and non-discriminatory approach in respect of non-EU fund managers and service providers; and that, where it imposes equivalent standards, these are consistent with the emerging global norms. Furthermore, we support the approach in the Council text to align co-operation agreements between EU supervisors and international supervisors to international standards, such as the IOSCO standards, where such standards exist. We consider that using that approach is more likely to ensure that co-operation arrangements are achieved with third-country jurisdictions.

That takes me to the direct question of the third-party arrangements, which were drawn attention to by most noble Lords who spoke. That is perhaps the most difficult issue under the directive. The majority in Council favoured an approach that maintained national regimes but restricted a passport to EU managers of EU funds only. On the other hand, the European Parliament took a completely different approach that is more similar to the Commission’s original proposal. The Parliament voted for a harmonised EU regime to allow a passport for all EU and third-country alternative investment fund managers. However, those failing to meet the conditions of the directive would be excluded from marketing to member states. In other words, national regimes would come to an end. In addition, ESMA, one of the new supervisory authorities yet to be created, would have a role in ensuring that third-country managers of third-country funds were effectively suspended.

The Government agree with the conclusion of the European Union Committee report and have taken a clear position. First, we believe that this directive should be non-discriminatory. The G20 agreed this in principle and it is important. We therefore also do not believe in reciprocity as a condition for access to EU markets. Secondly, the directive should not restrict investor access. It is crucial that EU investors should continue to be able to access alternative investment fund management throughout the world. In line with these principles, the Government will push for what we call a dual regime, with an achievable EU passport operating alongside national regimes. This is precisely the position advocated by the committee. We have presented this to others as the middle ground between the ECOFIN and Parliament positions. It is very difficult to predict how this debate will unfold. Given the significant difference of view, it is one of the key issues in this debate for the Government.

The noble Baroness made a point about requirements for disclosure to regulators. There is some history here because over the past five years the FSA has been gathering information on the potential impact of hedge funds on the market through its survey of prime brokers. It is in the process of completing the second year of a hedge fund survey that focuses on the 50 largest managers that have the greatest potential impact on the effective functioning of markets. Deciding exactly what information alternative investment fund managers should provide to their supervisor is one of the questions that the FSA has considered in developing this survey. The FSA will continue to refine its approach as it undertakes further iterations of the survey, including reflecting on whether to broaden the range of managers to whom the survey should apply.

The Council’s general approach on the directive allows aggregate data to be provided for small firms. Managers above a threshold would have to provide more detailed information to their supervisor. However, the Council text envisages level 2 measures on this issue, and there is a clear requirement on the Commission to take into account the need to avoid an excessive administration burden for supervisors. The Parliament position does not make any distinction on the size of manager or fund and applies all the requirements on all managers. The Government clearly favour the more proportionate approach and so support the Council’s position.

A number of speakers raised the one-size-fits-all question. The Government agree with the committee that the one-size-fits-all approach of the original Commission proposals did not properly cater for different types of fund structure. In common with many other member states, the UK has argued for a more tailored approach. There have been significant improvements in this area in the text. The Council and the Parliament texts adopt a more proportionate approach to the various types of AIFM by including a number of important thresholds and carve-outs. For example, the Parliament approach looks to exclude investment trusts and private equity from certain requirements in the directive, and the Council approach recognises smaller private equity firms and self-managed firms by requiring lower capital requirements. The Government will continue to push for a compromise that adopts a tailored approach as far as possible.

The noble Lord, Lord Woolmer of Leeds, talked about ESME. I find it hard to see how a directive that is now being finalised can prescribe a role for a body that has not yet been created. The Government certainly believe that it would be inappropriate to set out roles for ESME through the AIFM directive. They certainly do not concede that there should be direct supervision at the European level more generally than there is over credit rating agencies, which has been the sole agreement to date.

The noble Lord also made an important point about depositories, which is another key issue of the provisions that remain open. While neither the Council’s nor the Parliament’s texts are ideal, we are working hard to find an acceptable compromise and we will continue to work to see that there is a proportionate system of liability in the framework for depositories.

My noble friend Lord Newby made a rather wider series of points that are fundamental to the UK’s approach to directives more generally. I completely agree with him that the rearguard action that the previous Government took was a bit late, although they pursued it with considerable vigour, and that we have to find a way of getting on the front foot more generally on directives. The UK has not been good at this over the past few years, and my noble friend the Financial Secretary spent a considerable time in Europe recently discussing the forward pipeline with Commissioner Barnier.

My noble friend also talked about being in other European capitals. I completely agree. The Financial Secretary was precisely on this type of operation last week in Paris. Yes, this is a charm offensive, but we have to be tough and realistic in our negotiations. As my right honourable friend the Chancellor of the Exchequer has made clear, we should be prepared to trade concessions on non-financial services directives, where appropriate, for what is in the UK’s interests on critical issues in financial services dossiers.

Finally, I endorse my noble friend’s point about getting the best UK officials into key positions in the European Commission. I was pleased that he recognised that my right honourable friend the Foreign Secretary highlighted this very point in a recent speech.

The noble Lord, Lord Tunnicliffe, talked about leverage buyouts and private equity. I trust that the Government’s position on private equity is clear. We consider that EU private equity should not be unduly disadvantaged against its competitors, and again the requirement should be proportionate to the size of the business. The Government are well aware of the proposals in the EU Parliament text on private equity, and consider that many of the provisions that are proposed would increase costs to EU private equity and would be likely to leave those investors at a disadvantage compared with other forms of investors. We consider that the threshold for private equity disclosure is set at a more appropriate level in the Council text, which is the definition that is used in the Commission’s recommendation on micro, small and medium-sized enterprises. We also consider that the directive should take care not to require the disclosure of sensitive information about target companies so that it is in the public domain and could be used by competitors to secure an advantage over it, thereby risking not only the prospects of the target company but possible returns for EU investors. We also consider that the Parliament’s approach to apply the second company law directive to private companies may be problematic, so we do not support that approach.

The noble Lord, Lord Tunnicliffe, also talked about investment trusts and the scope of the directive. We agree that investment trusts should in principle be excluded from the scope of the directive. The European Parliament text on this matter is very positive. It applies a more proportionate approach to investment trusts and private equity by drawing all firms into the scope of the directive but then disapplying a number of the provisions of the directive for these managers. However, not all member states in the Council or the Commission agree with that approach. They instead favour the Council’s approach to have a simple scope threshold without any disapplications of provisions. The Government will continue to push for a proportionate approach to cater for small and large firms. We are also supportive of the European Parliament’s approach, which we consider to be to the benefit of investment trusts and private equity.

Before I conclude, it may be helpful if I set out the likely next steps for these negotiations. Given the difficulty of some of the issues, it now seems extremely unlikely that there will be consensus on a single text before the summer break. However, I anticipate the Belgian presidency taking up this dossier as a priority in September. The Government will use the time available to further the UK’s position on this directive. We do not want to stand in the way of agreement, but it is clear that progress needs to be made before the Government can support the directive.

I hope that noble Lords have found this statement useful in setting out the Government’s position in the negotiations as they progress and in responding to the many important points that have been made this evening. I would welcome continued support and co-operation from both Houses as we continue this vital work.

21:11

[Baroness Cohen of Pimlico]

My Lords, I thank everyone who has taken part in this debate at the end of a long, hot day. I very much wanted the debate to take place before the summer break because, although progress has clearly been made—I congratulate the Government on the progress that is being made—this is a difficult issue on which nothing is really settled until the final deal is signed. It could all go pear-shaped quite quickly.

I hope that the Government are taking advantage of the slightly easier atmosphere in Europe. When this directive was first drafted and we were also dealing with the initial drafts of other financial legislation, we were coping with a situation where the whole of the financial crisis was regarded as the fault of the Anglo-Saxon model. The figurehead for the Anglo-Saxon model in Europe is and was the United Kingdom. I hope that I see signs of a more rational approach beginning to appear. I wish this Government every luck in dealing with this important directive.

Motion agreed.

City of Westminster Bill [HL]

Tuesday 6th July 2010 Lords Chamber

Message from the Commons

A message was brought from the Commons that they concur with the resolution of this House of 10 June.

Canterbury City Council Bill

Tuesday 6th July 2010 Lords Chamber

Message from the Commons

A message was brought from the Commons that they have considered the Lords message of 10 June and have made the following order:

That the promoters of the Canterbury City Council Bill, which was originally introduced in this House in session 2007–08 on 22 January 2008, may have leave to proceed with the Bill in the current session according to the provisions of Standing Order 188B (Revival of bills).

Nottingham City Council Bill

Tuesday 6th July 2010 Lords Chamber

Message from the Commons

A message was brought from the Commons that they have considered the Lords message of 10 June and have made the following order:

That the promoters of the Nottingham City Council Bill, which was originally introduced in this House in session 2007–08 on 22 January 2008, may have leave to proceed with the Bill in the current session according to the provisions of Standing Order 188B (Revival of bills).

House adjourned at 9.13 pm.