House of Commons

Monday 11th June 2012 Commons Chamber

Monday 11 June 2012

The House met at half-past Two o’clock

Prayers

Monday 11th June 2012 Commons Chamber

[Mr Speaker in the Chair]

Oral Answers to Questions

Monday 11th June 2012 Commons Chamber

The Secretary of State was asked—

[Karen Lumley (Redditch) (Con)]

1. What his Department’s planned expenditure on new equipment is over the next 10 years.

[James Morris (Halesowen and Rowley Regis) (Con)]

8. What his Department’s planned expenditure on new equipment is over the next 10 years.

[The Secretary of State for Defence (Mr Philip Hammond)]

Before I answer the question, I am sure the House will wish to join me in paying tribute to the three servicemen who have lost their lives in Afghanistan since the House last met: Captain Stephen Healey of 1st Battalion, The Royal Welsh, who was killed by an improvised explosive device in the upper Gereshk valley on Saturday 26 May; Corporal Michael Thacker, also of 1st Battalion, The Royal Welsh, who was killed by gunfire in Nahr-e Saraj on Friday 1 June; and Private Gregg Stone of 3rd Battalion, The Yorkshire Regiment, who was also killed by gunfire, on Sunday 3 June. We owe them a debt of gratitude for their service and sacrifice, which we will never forget. I know the thoughts of the whole House will be with their families and loved ones.

I am sure the House will also want to join me in paying tribute to the bravery of the British and American forces involved in the operation to rescue aid worker Helen Johnston and her three colleagues, and to the Afghans for the huge help they provided throughout. The rescue operation was conducted with immense skill and professionalism in the most difficult terrain imaginable. Through this operation, we send a clear message to terrorists around the world that the UK will not tolerate the kidnapping of our citizens.

As I announced to the House in May, the core committed equipment programme—which covers investment in equipment, data systems and equipment support—amounts to just under £152 billion over 10 years. This includes some £80 billion for new equipment and its support and, for the first time, over £4 billion of centrally held contingency to ensure the robustness of the plan. In addition, the Department has a further unallocated £8 billion in the equipment budget. This will be allocated to projects not yet in the committed core programme only when it is necessary to commit in order to ensure the required delivery, and when the project in question is demonstrated to be affordable and with military advice.

[Karen Lumley]

May I join the Secretary of State in offering my condolences to all those brave troops?

My visit to Afghanistan last year served to bring home to me how important it is for our troops that any uncertainty about future equipment supplies is eliminated. Therefore, will my right hon. Friend offer more details on the £4 billion contingency fund that is in place to ensure the robustness of the equipment programme?

[Mr Hammond]

I agree with my hon. Friend that what our armed forces particularly want to know is that, unlike sometimes in the past, they will always have the protective equipment and the support helicopters that they need. Through our balancing of the equipment plan and introducing the £4 billion contingency fund, they will have much greater assurance that that will the case. That is the least we owe to them.

[James Morris]

Whilst having a long-term plan for defence equipment is crucial for our conventional military capability, does the Secretary of State agree that we also need to be investing in cyber-defence capability, to combat threats to our national security from this rapidly evolving threat?

[Mr Hammond]

The Department certainly recognises the rapidly evolving threat from cyberspace, and we keep it under constant review. The national cyber-security programme has provided the Department with £90 million, and the Department has allocated some additional funding to increase investment in cyber-security this year, enhancing our existing capabilities. It will also be increasingly appropriate to consider cyber-security issues as an integral part of wider projects that depend on networked command and control capabilities.

[Mr Ian Davidson (Glasgow South West) (Lab/Co-op)]

The sums the Secretary of State mentions are, indeed, substantial and will guarantee thousands, if not tens of thousands, of jobs. How many of those jobs does he envisage will be in Scotland in the event that Scotland decides to be separate?

[Mr Hammond]

Clearly, at this stage it is not possible to identify how many jobs will be created in different parts of the United Kingdom by the equipment programme we currently envisage. However, we enjoy an exemption from European Union procurement rules in respect of defence capabilities when we are procuring them in a way that protects our national defence capability, and if Scotland were not a part of the UK, it would be competing for defence contracts in the open market along with other providers in Europe and beyond.

[Mrs Madeleine Moon (Bridgend) (Lab)]

Since May 2010, £1,250,000 worth of kit and equipment have been stolen from the Ministry of Defence and its bases across the UK. That includes night vision goggles, body armour, military uniforms and boots, and even an aircraft fuselage. How much of the new spend will be covering unexplained thefts which have not been investigated and for which only one person has ever been prosecuted?

[Mr Hammond]

The hon. Lady can probably do the maths: she says £1.25 million worth of equipment has been stolen, and I have announced a £152 billion investment, so she can work it out for herself. As a member of the Defence Committee, which asked questions about this matter, she will know that of the equipment listed as stolen, a significant amount has been recovered, but not necessarily netted off against that figure, so in fact the total is probably less than the £1.25 million she suggests.

[Alison Seabeck (Plymouth, Moor View) (Lab)]

May I, on behalf of the Opposition, join in the condolences offered to the families of the three servicemen who, tragically, gave their lives serving their nation?

A decision has been taken to cut the co-operative engagement capability, which was designed, among other things, to enable and support a reduction in the number of type 45s from eight to six. Dropping the programme, which has already cost the taxpayer £45 million, therefore poses capability risks. Will the Secretary of State tell the House what were the strategic—not the budgetary—reasons for his changing his mind?

[Mr Hammond]

I notice that the hon. Lady did not tell the House what was the strategic reason for Labour having delayed the programme for five years, before we grasped the nettle and decided to cancel it. We take decisions on the basis of advice from the Armed Forces Committee, which takes the budget available and decides what the priorities should be. In this case, the First Sea Lord and his colleagues on the Armed Forces Committee have decided that the programme is not a high priority for naval spending.

[Rosie Cooper (West Lancashire) (Lab)]

2. What his policy is on providing life insurance for service personnel.

[The Minister for the Armed Forces (Nick Harvey)]

The Ministry of Defence provides pensions and compensation for personnel injured due to service, and benefits for the dependants of those whose death is due to service, through the armed forces pension schemes and armed forces compensation scheme. However, we also have a duty of care to ensure that personal accident and life insurance cover is available to those service personnel who consider they require it. This cover is voluntary and separate from the benefits provided by the Government. The Ministry of Defence arranges personal accident and life insurance cover through the PAX and service life insurance schemes provided through Aon Ltd and the Sterling Insurance Group respectively.

[Rosie Cooper]

I think most military families will not be entirely happy with the Minister’s answer. How much would it cost to provide fully funded—100%—state-funded insurance to all those on the front line, and will he and his Department consider doing that?

[Nick Harvey]

In a sense, we already provide cover for those on the front line in the matter I have described—through the armed forces compensation scheme and the armed forces pension schemes—so that anyone who suffers in consequence of their military service is compensated appropriately. The hon. Lady will be aware that, after the previous Government ordered an independent review of the armed forces compensation scheme, the amounts payable were substantially increased. If members of the armed services decide, for personal reasons, that they want to seek cover additional to that, we are determined to ensure that they are not disadvantaged or prevented from doing so on account of their service in the armed forces. That is why we intervened in the market to ensure that the schemes I mentioned are available, but it would not be right for us to go out and procure those policies on behalf of individuals: these are personal decisions that those individuals make. We provide death-in-service and injury-in-service benefits; it is up to—

[Mr Speaker]

Order. Minister of State, I think there is extensive scope for an Adjournment debate on the matter.

[Mr James Gray (North Wiltshire) (Con)]

I will not start an Adjournment debate on the matter, Mr Speaker, but the armed forces compensation scheme, although first class, does not go quite far enough. It was recently reported that as many as 50 soldiers killed on the front line in Afghanistan had no private life insurance at all. Could not the MOD do more both to encourage and to facilitate the provision of private life insurance to everyone on active service in Afghanistan?

[Nick Harvey]

We do encourage individuals to take out additional cover, but people’s circumstances will vary enormously in terms of mortgage liabilities, the size of their family or anything else they wish to cover for. We heavily subsidise these schemes while people are on active service in Afghanistan, but it would not be right for the state to assume responsibility for this and take it over completely.

[Guy Opperman (Hexham) (Con)]

3. What plans he has for maintaining aircraft carrier cover in co-operation with key allies.

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

The strategic defence and security review confirmed the Government’s intention to re-introduce a carrier strike capability from around 2020. This capability will be delivered by the Queen Elizabeth-class aircraft carrier, operating the STOVL— short take-off and vertical landing—variant of the joint strike fighter. Until then, the Government have accepted that expeditionary air power will need to be deployed by other means, which may include agreements with allies regarding overflight and basing rights. In addition, the Government are considering the scope for us to co-ordinate carrier strike operations with those NATO allies that currently operate aircraft carriers, including the United States, France and Italy, both prior to and following the re-introduction of the United Kingdom’s own capability.

[Guy Opperman]

Our future aircraft carriers are being built by our Scottish allies. What happens to the construction of those carriers if Scotland declares independence and does not contribute to the cost?

[Peter Luff]

As a good Unionist, I must emphasise that the carriers are being built by the United Kingdom, and that many English yards, as well as Scottish yards, are making a fine contribution to these outstanding ships. The best thing that I can say to my hon. Friend is that it is two thirds of a century since the United Kingdom built a warship outside the UK—that happened during the second world war—so the facts speak for themselves.

[Nick Smith (Blaenau Gwent) (Lab)]

The Telegraph conservatively says that it is £250 million, but can the Minister say how much the bad decision to proceed with the F-35C cost? Surely this should include the costs of carrier conversion, too.

[Peter Luff]

I can confirm what my right hon. Friend the Secretary of State has said on many occasions: as of the end of April, we had committed £39 million on conversion studies and a further £1 million on an air-to-air refuelling study. We do not think that the money has been wasted. Changing the variant was considered the best course of action under the SDSR, and these costs were necessarily incurred.

[Dr Julian Lewis (New Forest East) (Con)]

Can my hon. Friend confirm that it is our intention to build the two carriers so that both are able to operate fixed-wing aircraft and that we will purchase enough fixed-wing aircraft to operate from both of those carriers?

[Peter Luff]

I can confirm that both carriers will be built; it will be a decision in the next SDSR as to whether or not both are operated. Similarly, we are following an incremental acquisition policy on the joint strike fighter itself. Therefore, I cannot give my hon. Friend the comfort he is seeking at this stage, as this relates to a commercial negotiation and a strategic decision for the next SDSR.

[Richard Graham (Gloucester) (Con)]

4. What his policy is on pensions for war widows.

[Jason McCartney (Colne Valley) (Con)]

17. What his policy is on pensions for war widows.

[The Parliamentary Under-Secretary of State for Defence (Mr Andrew Robathan)]

War widows have our deepest respect for their loss. War widows today span the generations, from those who have lost their husbands in world war two through to those who have died in Iraq and Afghanistan. I would like to take the opportunity to pay tribute to the work of the War Widows’ Association, whose tireless help and support is invaluable. Payments are made through either the armed forces compensation scheme or the former war pensions scheme. In addition, pensions may be paid through one of the occupational armed forces pension schemes.

[Richard Graham]

I am grateful to the Minister for his reply. My constituent, Iris Thorogood, is an 85-year-old former chairman of the War Widows’ Association, an organisation founded in 1971, at a time when war widows received very little by way of a pension. I am sure that Iris, and indeed the War Widows’ Association, would appreciate confirmation from him that, contrary to some rumours being peddled, war widows have received the full increase of 5.2% this year, in line with disability benefit, and will continue to do so?

[Mr Robathan]

First, I pay tribute to Mrs Thorogood and reassure her about the 5.2% uprating of her pension, in line with the Department for Work and Pensions disability benefit. I was very surprised at the recent comments by the shadow Defence Secretary about

“veterans’ and war widows’ pensions being frozen year-on-year.”—[Official Report, 14 May 2012; Vol. 545, c. 265.]

That is completely incorrect, and it is a pity that he does not know a little bit more and is not a little bit better informed of such important issues in his brief.

[Jason McCartney]

Given the unveiling of the Royal Air Force Bomber Command memorial later this month to remember the 55,000 airmen who died during the second world war, does the Minister agree that when we are talking about war widows’ pensions, we must give accurate information and not engage in the skulduggery of misleading people about this?

[Mr Robathan]

I certainly do, as I believe I have already made clear. I am proud to be an honorary member of the Bomber Command Association, and I look forward to the opening of that memorial at the end of June. We need to remember the debt that we owe to those 55,000 people from Bomber Command who died and to all the others who died in the second world war, as well as to their dependants and their surviving widows.

[Ian Lucas (Wrexham) (Lab)]

6. What recent assessment he has made of the UK’s maritime surveillance capability.

[The Minister for the Armed Forces (Nick Harvey)]

The wide range of assets capable of conducting maritime surveillance were reviewed during the strategic defence and security review and decisions were made in the light of our future requirements and the challenging circumstances facing the Government. Due to the financial legacy we inherited from the previous Government, including the woeful mismanagement of the Nimrod MRA4 project, we had little choice but to cancel that project and make a number of other adjustments to our force structure. I believe we have the capabilities we require in this area, but we keep our requirements under close review against operational circumstances. Should the threats change, we stand ready to respond.

[Ian Lucas]

The Government have made a commitment to additional maritime surveillance with respect to Somalia because of the serious maritime threat posed there. What additional steps are the Government taking to support the Prime Minister’s peace process initiative in Somalia and what steps are they taking on the threat to the peace process caused by piracy?

[Nick Harvey]

The hon. Gentleman is right to point to the importance of the international efforts being made in Somalia, in which the UK is proud to play a part. Surveillance is certainly a part of the international effort, but the UK did not specifically engage to undertake it—it is done on an international basis, and other allies provide the surveillance capabilities.

[Mr Russell Brown (Dumfries and Galloway) (Lab)]

The Minister’s right hon. Friend the Secretary of State has said that he has balanced the budget, but the lack of maritime surveillance demonstrates that he can make such a claim only because he has cut the equipment budget so deeply that he has left our nation with a capability deficit. He cannot deny that we have a capability deficit in terms of maritime surveillance.

[Nick Harvey]

The hon. Gentleman has answered his own question. If one has had to balance the budget having inherited a £38 billion black hole, inevitably certain capabilities would have had to be deleted. I remind him that the previous Government were using alternative methods of providing maritime surveillance. They considered that such methods would be adequate for a two-year period, and we have concluded that they provide sufficient cover for a further period.

[Heidi Alexander (Lewisham East) (Lab)]

7. What recent assessment he has made of the armed forces contribution to implementation of security plans for the London 2012 Olympics; and if he will make a statement.

[The Secretary of State for Defence (Mr Philip Hammond)]

The armed forces recently conducted an extensive exercise to test their operational readiness to provide safety and security, in support of the police, during the Olympic and Paralympic games. The exercise achieved its objectives and I am confident that we are well placed to deliver this important role.

I am grateful to the hon. Lady for the constructive way in which she engaged with the Army on the air defence missile site at Blackheath in her constituency for the exercise, and to her constituents, the overwhelming majority of whom were supportive of it.

[Heidi Alexander]

The Secretary of State mentioned the proposal to site surface-to-air missiles on Blackheath as part of the Olympic security plan. It is my understanding that a final ministerial decision has yet to be taken. When will that decision be made, and will the Department be in direct contact with residents who live in close proximity to the proposed site to inform them of it?

[Mr Hammond]

The hon. Lady is right. We have received the military advice on the outcome of the exercise and Ministers will now consider it and make a final decision on the deployment of ground-based air defence systems. As you would expect, Mr Speaker, when a decision is taken, an announcement will be made first to the House, but I will ensure that the Army engages with residents who live in close proximity to the site to ensure that they are aware of all the ramifications of any decision to go ahead and deploy.

[Mark Pawsey (Rugby) (Con)]

Will the Secretary of State confirm that, to ensure effective interoperability between the emergency services and the armed forces, all parties involved with Olympic security will use a common communications platform?

[Mr Hammond]

The arrangements for effective command and control will involve military commanders being embedded with police gold commanders in their headquarters. I cannot give my hon. Friend a guarantee that they will use a common communications system, but the key decisions will be made by people sitting in the same room. They will then be passed down the respective chains of command.

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

My constituents living in Bow quarter are rightly concerned about the Ministry of Defence’s plans to base surface-to-air missiles on their rooftops ahead of the Olympics. I wrote to the Secretary of State about that more than a month ago. When does he intend to respond to my request for a meeting to explain the risks to my constituents and answer their concerns? The consultation has been very thin.

[Mr Hammond]

I am not aware of a request from the hon. Lady, but the Army and MOD officials have engaged with a number of Members of Parliament who have sought a briefing. She is welcome to come to the Ministry of Defence at any time for a detailed briefing. There appear to be a very small number of her constituents who are opposed to the proposal, and there has equally been significant support from other areas. There is no risk to residents of the building. The water tower at Bow quarter was selected on military advice, because it is the right place to locate this particular defensive equipment.

[Mrs Helen Grant (Maidstone and The Weald) (Con)]

What has been done to keep local people informed about the deployment of those assets in their communities during the Olympic period?

[Mr Hammond]

The Army has engaged with local authorities in the first place, and more recently with local community groups. We have a standing Army capability to go out and engage with any groups that want to be engaged with, and to brief Members of Parliament. I am very happy to brief any Members who are affected by the proposals.

[David Mowat (Warrington South) (Con)]

9. What recent discussions he has had with the Secretary of State for Communities and Local Government on access to social housing for former members of the armed forces.

[The Parliamentary Under-Secretary of State for Defence (Mr Andrew Robathan)]

I regularly speak with the Minister for Housing and Local Government and raise such issues as are necessary. My hon. Friend will be aware of the consultation recently undertaken by the Housing Minister on what more can be done, and particularly on statutory guidance on giving precedence in social housing lists to service personnel with local connections when they leave the services.

[David Mowat]

The Minister will be aware of the recent changes to the housing allowance, which mean that those aged between 25 and 35 will have to share. Exemptions have been announced for those living in homeless hostels and for certain offenders. Will the Government consider also exempting servicemen returning from active duty, particularly those who may be at risk of redundancy?

[Mr Robathan]

My hon. Friend will know that Lancashire county council’s Councillor France has expressed his concern, and I am grateful to my hon. Friend for also doing so. We obviously always keep an eye on the matter, but the changes to the shared accommodation rate were discussed between Ministry of Defence officials and Department for Communities and Local Government officials prior to the announcement in June 2010. We will take a look at how we can best serve our personnel, but those who are exempted are those who are considered to be in difficult circumstances, such as people leaving prison. I do not think our personnel leaving the armed forces should be equated with, for instance, those leaving prison.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

The Minister also has responsibility for forces accommodation. The Government recently announced that they would be giving an extra £100 billion, but they forgot to inform the public that they were taking away £141 million. Armed forces accommodation is the largest single issue raised in complaints to the authorities. What will the Minister do to address the sorry state of some of our armed forces accommodation?

[Mr Robathan]

First, I should say that we announced £100 million extra, not £100 billion, for accommodation?

The hon. Gentleman is quite right, but there has been no hiding the fact that we have had a three-year pause in the amount that we have put into forces accommodation. He will know why—we inherited the most ghastly financial situation. I have talked the matter through with the families federations, and they understand that times are very hard. If he does not understand that, he should read the newspapers.

[Sir Bob Russell (Colchester) (LD)]

May I remind the Minister of the armed forces covenant in respect of housing? In his discussions with his colleagues in the Department for Communities and Local Government has he been advised of when the mandatory guidance will be issued to councils on that matter? Will there be more money in significant areas of garrison towns?

[Mr Robathan]

We are discussing the matter. I am not sure that mandatory guidance will be given, but there will be guidance on giving preference to those leaving the armed forces. We are very concerned about the matter, and we are continuing to uprate kitchens, bathrooms and so on with the money that we are spending. I know that the hon. Gentleman is as well aware as I am of the difficult situation in which we find ourselves.

[Mr Jim Murphy (East Renfrewshire) (Lab)]

I want to raise an issue about housing on which I am sure there will be all-party consensus. Recent research by Lord Ashcroft showed that a third of junior ranks in the Army and more than a quarter of those from the armed forces who have applied have been refused a mortgage, loan or credit card in the past five years. Although individual circumstances can always lead to a refusal, that number is far too high. Will the Minister agree to cross-party talks, involving service charities and the military, on how to deal with this and other issues of discrimination raised in the report?

[Mr Robathan]

Of course, I am very happy to indulge in cross-party talks on such matters. I talk to service charities the whole time about them. For instance, the right hon. Gentleman talks about mortgages being refused, but that is one thing that we have put right. Although I am not blaming the previous Government in particular, it is a fact that British Forces Post Office addresses were not accepted by mortgage companies. We have now said that they are to be accepted—[Interruption.] I hear the hon. Member for North Durham (Mr Jones) saying from a sedentary position that that is not true, but that was what I was told by all the service charities and servicemen to whom I spoke.

[Mr Jim Murphy]

For the purpose of this question, I shall set aside the partisanship and ask the Minister about the issue again. When one in five members of our forces is shouted at in the street and almost as many are refused service in a pub, hotel or elsewhere, we must all go further. There are sensible examples of legal protections for other specific groups that go much further than the military covenant to protect against discrimination, harassment or abuse. In the light of the research, in the build-up to Armed Forces day and as part of these indulged in—or indulgent—all-party talks, will the Minister consider new legal protections for those who keep our country safe?

[Mr Speaker]

The Minister should make particular reference to access to social housing.

[Mr Robathan]

I hear your strictures, Mr Speaker. I am not sure whether new laws are required. What is required is a greater respect for our armed forces and the truth is that most people in this country view our armed forces with great pride, which the four out of five people who are not subject to any form of abuse will recognise. Now, I notice people wearing uniform in the streets much more often, for instance. Once upon a time, that was actively discouraged because one did get abuse, typically from long-haired left-wing students, but that was just when I was young.

[Mr Peter Bone (Wellingborough) (Con)]

On the question of social housing, a problem that has come up in my constituency is what happens when someone who has been in the armed forces returns to an area from which they have been away. They want social housing, but the local council has a regulation that people cannot get such housing unless they have been there in the past year. Is that something we can put right?

[Mr Robathan]

It is, and that is what my right hon. Friend the Minister for Housing and Local Government is talking about. When someone has been away for 10 years —perhaps they have been abroad, serving in Germany with the Army—they should have the opportunity to register for a house and to get precedence in the area where they lived for all their life before joining the armed forces to serve their country.

[Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)]

Birmingham city council was probably the first specifically to ring-fence new social housing provisions for ex-members of the armed forces. Is the Minister aware of any other councils in the west midlands following suit, as, although what Birmingham does is magnificent, it is not sufficient?

[Mr Robathan]

Here I call on the help of my civil servants, because I am not aware of any other councils in the west midlands following suit. I applaud Birmingham city council—under, I think, Conservative administration —for putting this to one side—[Interruption.] Then under Conservative administration. I applaud the council and, as the hon. Lady will know, we are encouraging the community covenants that lead to such activities.

[Mr Speaker]

I am sure that the Minister will write to the hon. Lady with further and better particulars when he has consulted his officials.

[Mr Robathan]

Of course.

[Mr Speaker]

We are grateful to the Minister.

[Rebecca Harris (Castle Point) (Con)]

10. What assessment he has made of the effect on the armed forces of a balanced defence budget.

[Nicky Morgan (Loughborough) (Con)]

16. What assessment he has made of the effect on the armed forces of a balanced defence budget.

[The Secretary of State for Defence (Mr Philip Hammond)]

A balanced budget gives our armed forces confidence that once a project is in the programme, it is real, funded and will be delivered, so that they can plan with certainty. The balanced budget is a firm baseline for the transformation to an armed forces that are smaller, but that will be adaptable, agile, well equipped with the best technology and supported by a Ministry of Defence that is re-focused around their needs.

[Rebecca Harris]

Will the Secretary of State give me a further assurance that in future we will never again return to an unbalanced defence budget, which saw us buying very expensive, high-ticket items while our brave personnel were going without some of the basic equipment they needed in theatre on the ground?

[Mr Hammond]

My hon. Friend has put her finger on the problem: in the past we had an armed forces budget that was out of kilter, and were trying to support armed forces that were not properly resourced. The consequences were inadequate protective equipment and inadequate military equipment to do the job they were being asked to carry out. I believe that we have an absolute moral responsibility, when we ask people to put themselves in harm’s way, to equip them with the kit that they need to be as safe as possible in doing that.

[Nicky Morgan]

My right hon. Friend will be aware that we live in a very uncertain world, in which new threats are evolving—we have already heard mention of cyber-security threats. Is he convinced that now that we have a balanced budget, there is scope to tackle these new threats and to provide the kit that our armed forces need?

[Mr Hammond]

As my hon. Friend says, we live in a very uncertain world and the threats are changing, and technology also is changing very rapidly. Precisely for that reason, we have kept £8 billion-worth of headroom in the equipment programme, rather than allocating every last penny of it, as was the practice in the past. Too often in the past, we have had to cancel or abandon expensive commitments in order to respond to changes in technology or threat. We should not be in that position in future.

[Derek Twigg (Halton) (Lab)]

In terms of the budget and the impact on armed forces personnel, what is the Secretary of State’s policy on service personnel who have lost a limb or have other disabilities staying in the armed forces? Has an across-the-board decision been taken that anyone who has lost a limb will have to leave, or is it down to individual circumstances or commanding officers?

[Mr Hammond]

It is down to individual circumstances. We have given a clear commitment that as long as someone who has suffered injuries on active service is in the process of treatment or rehabilitation, where it is appropriate for them to remain in the Army, they will so remain. Once they have completed the rehabilitation process, we will do our very best to find positions that they can fill in the Army. Many service people who suffer disabilities as a result of their service have been found positions that they can continue to hold down in the Army, but we cannot give a guarantee that nobody will be medically discharged after they have completed the rehabilitation process.

[Mr Kevan Jones (North Durham) (Lab)]

Given that the Secretary of State’s statement about supposedly balancing the defence budget relates only to the 45% of the budget spent on equipment, how will his announcements this week of compulsory redundancies in the armed forces affect the other, unaccounted for, 55% of the budget? When can we expect the details of how he has balanced the rest of the budget?

[Mr Hammond]

I am not sure that the hon. Gentleman was here when I made my statement, but he is completely wrong; my statement related to the whole budget, not simply the equipment plan. As he will know, the announcement of a reduction in the size of our armed forces was made last year. We are now making a series of tranches of redundancy announcements, of which the one due tomorrow will be the last for the Royal Navy and the RAF, to get us eventually to armed forces of the size specified for Future Force 2020 in the strategic defence and security review.

[Mr James Arbuthnot (North East Hampshire) (Con)]

The news that the defence budget is balanced is obviously very welcome, but there will inevitably be a certain amount of scepticism about it. Does my right hon. Friend accept that if he is to dispel that scepticism, the sooner he can provide absolute clarity about exactly how he has balanced the budget, and exactly how the £38 billion black hole that Defence Ministers referred to is calculated, the better?

[Mr Hammond]

I accept that there will be a certain amount of scepticism. In relation to the equipment plan, there are two parts to the answer. First, the armed forces committee has confirmed that the equipment plan that we set out and funded does deliver the capabilities required for Future Force 2020. Secondly, we have submitted the programme to the National Audit Office for review, and we will publish the result of that review in due course. In respect of the 55% of the annual budget that is not taken up by the equipment plan, the proof of the pudding is in the eating, and Members in all parts of the House will look to see a defence budget that comes in within the spending plan total, as they did in 2011-12.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

11. What progress he has made on promoting innovation through his Department’s procurement processes.

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

Innovation ensures that we are able to access and deliver technology into our systems and equipment to provide continuing operational advantage to our armed forces. That is why our recent White Paper, “National Security Through Technology”, highlighted the importance of investment in science and technology. It also recognised the contribution of commercial investment in developing new technologies. Using open competition in defence acquisition ensures that we are able to deliver the best and most innovative capabilities at an affordable price. In addition, the success of the Centre for Defence Enterprise in bringing through suppliers new to defence, particularly small and medium-sized businesses, which are important sources of innovation, led to our decision to broaden the centre’s remit, including the mentoring of smaller companies.

[Chi Onwurah]

During the recess, BAE Systems announced the closure of the historic Scotswood road site in Newcastle, with the loss of more than 300 jobs. This brings to an end a 165-year history of skilled engineering, the longest continuous site of tank manufacture anywhere in the world, as well as bringing great distress and uncertainty to my constituents. Does the Minister agree that refusing to take into account the wider economic implications of defence procurement undermines not only innovation, but jobs and communities across the country? Will he agree to meet me and a delegation from BAE to see what can be done to save the site?

[Peter Luff]

I have enormous respect for the hon. Lady’s expression of concern for her constituents, and I pay tribute to the work that those people have done over many years to support the armed forces. However, it is not true to say that the policy that she describes is the cause of the problem. The problem is that BAE Systems has not won contracts at this site. Meanwhile, the Warrior sustainment programme, the Scout SV programme, the Foxhound programme and the integration of the urgent operational requirements continue around the United Kingdom, generating thousands of highly skilled and important jobs. I very much regret that BAE Systems has been uncompetitive, but it is not the fault of the Government. The company must answer why it could not compete successfully for contracts.

[Chris Ruane (Vale of Clwyd) (Lab)]

12. What budget his Department will require after 2015; and if he will make a statement.

[The Secretary of State for Defence (Mr Philip Hammond)]

The budget after 2015 will be set at the next spending review. Our current planning assumption is for a flat real-terms budget settlement overall, with a 1% real-terms increase per annum in the equipment and support budget, as agreed with the Treasury.

[Chris Ruane]

When will the Secretary of State publish the National Audit Office report on the budget and equipment programme? Such impartial information is needed by us as MPs, the public and the defence industry.

[Mr Hammond]

I completely accept that, and as I said to my right hon. Friend the Member for North East Hampshire (Mr Arbuthnot) a few moments ago, I am aware of the fact that the degree of confidentiality around the defence budget invites scepticism when such announcements are made. As soon as we have the report from the National Audit Office, we will publish it.

[Mr Iain McKenzie (Inverclyde) (Lab)]

13. What assessment he has made of the potential effect of independence for Scotland on Royal Navy construction projects.

[The Minister for the Armed Forces (Nick Harvey)]

The defence industry in Scotland, particularly shipbuilding, plays a key role in equipping and supporting the UK armed forces. Defence contracts sustain thousands of skilled jobs and generate billions of pounds for the economy of Scotland. The Government greatly value the highly skilled work force in Scotland. Although the Government are not making plans for separation, as we are confident that the Scottish people will continue to support the Union in any referendum, it is worth noting that the UK has not had a complex warship built outside the UK since world war two. Were we to do so in the future, companies in a separate Scotland would, of course, be free to compete for those contracts, along with international bidders. However, any exemption from EU rules governing public procurement contracts would apply only to warships ordered from our own national yards.

[Mr McKenzie]

The Minister has made very clear the position of Scottish shipyards, should separation for Scotland take place. Can he clarify the position for suppliers of fixtures and fittings based in Scotland when applying for contracts, if those contracts are given to English shipyards?

[Nick Harvey]

The way the EU rules work is that if a Government declare something to be warlike, they can claim an exemption from the EU competition rules on the basis of national security. In the case that the hon. Gentleman describes, those contracts would be non-warlike and would be subject to normal competitive rules. Scottish companies would have to win against global competition.

[Sir Menzies Campbell (North East Fife) (LD)]

Can the Minister confirm that in the allocation of naval contracts and defence expenditure in general in Scotland, he will give no credence whatsoever to the notion that such expenditure should be governed by something approaching the Barnett formula—an idea which is as naive as it is risible, not least because it ignores strategic objectives, fails to take account of differing geographical levels of threat, and of course, from Scotland’s point of view, ignores the location of industrial capacity?

[Nick Harvey]

I can confirm for my right hon. and learned Friend that the Government would be governed by no such notion. Scotland does well out of defence at the moment; it has one of the UK’s three naval bases, it will have one of the UK’s three RAF operating bases and it has an Army brigade. Those who would seek to change that situation should spell out what it would look like under a separate arrangement.

[Pete Wishart (Perth and North Perthshire) (SNP)]

Scotland also has a disproportionate underspend. The Scottish Government and the Scottish National party are, of course, very much in favour of continuing defence procurement co-operation, regardless of the constitutional situation. We believe that it is good for jobs, for manufacturers and for the taxpayers of both Scotland and England. With so many defence sector jobs in England dependent on Scottish taxpayers’ contributions towards procurement, why do not the UK Government simply concede that it would make perfect sense to continue with procurement co-operation if the Scottish people decide that they want defence decisions to be made in Scotland itself?

[Nick Harvey]

Defence procurement co-operation of the sort the hon. Gentleman describes would completely contravene EU competition rules. We are allowed to procure non-warlike stores only on an open and competitive basis, so the defence industry in Scotland would have to compete with South Korea, or whichever other country it might be, for future defence contracts.

[Mr David Hanson (Delyn) (Lab)]

14. What recent discussions he has had on the structure of regiments in Wales.

[The Minister for the Armed Forces (Nick Harvey)]

My right hon. Friend the Secretary of State has engaged in a number of discussions about the structure of regiments in Wales and, indeed, those elsewhere in the United Kingdom as part of the study into the Army’s future force structure.

[Mr Hanson]

In his speech last Thursday the Secretary of State said that regional identity and recruitment capability were important criteria. Does the Minister accept that 1st The Queen’s Dragoon Guards—the Welsh cavalry—fulfils both criteria and, therefore, every effort should be taken to ensure that the regiment is saved?

[Nick Harvey]

Any decisions made will respect regional and national identities, but they will have to be made on objective criteria, including geographical considerations that link closely to recruitment and the need to get the right balance of capabilities and the maximum operational output.

[Mark Lancaster (Milton Keynes North) (Con)]

We accept that there will be a reduction in the number of regiments, but given that any artificial increase or staying the same of Scottish regiments, some of which were recruited at only 78%, will have a knock-on effect throughout the United Kingdom, does the Minister think that the shadow Secretary of State for Defence consulted his Welsh and English colleagues on the likely effect of keeping an artificial number of Scottish regiments?

[Nick Harvey]

My hon. Friend is quite right; if we are to see a reduction in the regular Army from 102,000 to 82,000, it is inevitable that some units will be disbanded. The criteria by which those units are selected must be objective, as I have described. They must recognise the recruitment strength and the right balance of capabilities. It would not be right for favour to be shown to one part of the country at the expense of another.

[Nia Griffith (Llanelli) (Lab)]

The Minister will be well aware that Wales provides an above-average number of Army recruits, compared with the UK average, and of the tremendous symbolic importance of having a distinctive Welsh identity when the regiments are redrawn, so will he take both factors into consideration when making his decision?

[Nick Harvey]

As I have said, the criteria that will be used will be objective, and certainly the contribution of Welsh members of the armed forces is hugely recognised and respected.

[Priti Patel (Witham) (Con)]

15. How much his Department plans to spend on renewing the nuclear deterrent in the remainder of the spending period.

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

The Ministry of Defence plans to invest around £1.4 billion between now and 2014-15 on the assessment phase of the successor submarine programme, as announced to Parliament in May last year. The total cost of the assessment phase, including long-lead items, will be around £3 billion by the time it is complete in 2016-17. Without that investment, it could not be guaranteed that a successor submarine would be available in time to ensure a continuous at-sea deterrent.

[Priti Patel]

With unfriendly regimes advancing their development of nuclear weaponry, will the Minister give an assurance that the United Kingdom will be defended by the most advanced and effective nuclear deterrent?

[Peter Luff]

I can assure my hon. Friend that we understand the vital importance of keeping the minimum effective nuclear deterrent for precisely the reasons she sets out so eloquently.

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

The decision finally to go ahead is welcomed on the Opposition side of the House, and indeed in my constituency, but the previous Secretary of State put the cost of delaying at between £1.2 billion and £1.4 billion, so is the new Secretary of State’s estimate of the extra cost of delay higher, lower or about the same?

[Peter Luff]

I must be honest and say that I am not sure what delay the hon. Gentleman refers to, so I suggest that we have a conversation about it later.

[Mr Speaker]

That is a refreshing outbreak of splendid candour, on which we congratulate the Minister.

[Graham Evans (Weaver Vale) (Con)]

T1. If he will make a statement on his departmental responsibilities.

[The Secretary of State for Defence (Mr Philip Hammond)]

My departmental responsibilities are to ensure that our country is properly defended now and in the future through the delivery of the military tasks for which the Ministry of Defence is mandated; that our service personnel have the right equipment and training to allow them to succeed in the military tasks; and that we honour our commitments under the armed forces covenant. In order to discharge those duties, I have worked with the chiefs of staff and my senior officials to ensure that the Department has a properly balanced budget and a force generation strategy and a defence equipment programme that are affordable and sustainable in the medium to long term, details of which I have already announced to the House.

[Graham Evans]

Will my right hon. Friend join me in congratulating the members of the armed forces who played such a splendid role in the magnificent diamond jubilee celebrations, remembering that many of those men and women fought bravely in Afghanistan until recently?

[Mr Hammond]

My hon. Friend is absolutely right. The relationship between the monarch and the armed forces is historic and important. Her Majesty the Queen, as head of the armed forces, has maintained and strengthened those links throughout her 60-year reign, and she enjoys the deep loyalty and affection of her armed forces. The diamond jubilee celebrations were a welcome opportunity for the armed forces to demonstrate the affection and esteem that they have for Her Majesty.

[Gemma Doyle (West Dunbartonshire) (Lab/Co-op)]

May I bring to the attention of the Secretary of State the comments of the head of Army manning, who said that the 4,100 soldiers, sailors airmen and women facing redundancy this week should transfer to vacancies in the Army, Navy or Air Force? Does the right hon. Gentleman appreciate how angry this comment has made those who are being rewarded for their years of service with a P45, and can he confirm how many vacancies are currently available?

[The Parliamentary Under-Secretary of State for Defence (Mr Andrew Robathan)]

I have read the article by the head of Army manning, and I am surprised at the newspapers’ interpretation of it. I recommend that the hon. Lady also reads it.

Those people who are being made redundant and who wish to apply for another job are, of course, encouraged so to do, be it in the Army, the Air Force or the Royal Navy. When I served in the Army, there were people from the Air Force and from the Navy who had transferred and joined—and some from the foreign legion as well.

[Mr Marcus Jones (Nuneaton) (Con)]

T2. I welcome the MOD’s recent award of a £350 million contract to maintain the Royal Air Force’s Hercules aircraft, which will sustain 500 UK jobs. Can the Minister say what other steps are being taken to support the UK defence industry?

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

Absolutely I can. I too welcome the award of the Hercules integrated operational support contract, which will save the MOD £170 million by replacing several short-term contracts with one overarching contract. It is another example of the policy that we set out in our recent White Paper, with a list of measures to improve the lot of the British defence industry, including a £160 billion equipment programme, strong support for responsible exports, support for small and medium-sized enterprises in the defence sector and strong support for the previously declining science and technology budget.

[Mrs Mary Glindon (North Tyneside) (Lab)]

T8. When Sir John Holmes reports on his review of the medals system, is the Prime Minister likely to keep his pre-election promise so that after 67 years the surviving Arctic convoy veterans at last receive a British medal in acknowledgement of their brave service?

[Mr Philip Hammond]

Perhaps I should be clear that the remit of the medals review is to look at the process and at the factors that are taken into account when making such decisions. So the review will look at the framework and the basis on which decisions are taken, and it will then be for individual decisions to be reviewed within any new framework that is put in place.

[Mr John Baron (Basildon and Billericay) (Con)]

T3. Defence diplomacy is a key component of Britain’s soft power capability. What steps are the Government taking to ensure that defence diplomacy is therefore at the forefront of our foreign and defence policy, and will the Minister highlight some of the programmes currently being pursued in the MOD?

[The Parliamentary Under-Secretary of State for Defence (Mr Gerald Howarth)]

May I say, with all honesty, that I am most grateful to my hon. Friend for his question? I know that he takes a very keen interest in the issue, and he is absolutely right to emphasise the importance of defence diplomacy as a very cost-effective and vital part of our armoury. It is one of seven military tasks set out in our 2010 defence review, and together with the Foreign and Commonwealth Office we are now finalising a detailed defence engagement strategy. That will set out the contributions made by, for example, defence training, defence attachés, defence advisory teams, de-mining and, as in Pakistan, the help to develop a centre of excellence for counter-IED capability, to which of course I add defence exports and the role played by Ministers and senior military officials in travelling throughout the world in support of defence diplomacy—I having visited no fewer than 23 countries in the past two years.

[Lindsay Roy]

(Glenrothes) (Lab): How will the Minister protect the rich legacy of the Scottish regiments, particularly in respecting the historical identities and cap badges of proud battalions such as the Black Watch, in any military cutbacks?

[The Minister for the Armed Forces (Nick Harvey)]

The Prime Minister, the Defence Secretary and I have all made it clear that the traditions of the Scottish regiments will be respected. There is not, and never has been at any stage, a plan to do away with those identities, which will remain in the long term as part of the Army in Scotland.

[David Mowat (Warrington South) (Con)]

T4. This afternoon we have heard the Minister speak of the objective criteria that will be used to determine how the infantry will be cut. For the avoidance of doubt, will he reassure the House that one of those criteria is not the upcoming Scottish referendum?

[Nick Harvey]

To recap, the criteria that will be used are the geographical footprint for recruitment, the right balance of capabilities, and the maximum operational output, not political considerations between different parts of the UK.

[Mr Ian Davidson (Glasgow South West) (Lab/Co-op)]

Will the relevant Minister tell me what will happen to Fijians and other Commonwealth citizens serving in Scottish regiments, and indeed to the Scottish regiments themselves, in the event of separation?

[Mr Robathan]

The hon. Gentleman asks a very good hypothetical question to which I do not have an answer, but I very much hope that the good people of Scotland will show some sense in a referendum.

[Mr Andrew Turner (Isle of Wight) (Con)]

T6. May I welcome the arrival of the new C-17 aircraft, which plays a vital role in transporting our troops and our equipment, and ask the Secretary of State to add to that?

[Mr Philip Hammond]

Yes. I am happy to say to my hon. Friend that I went to Brize Norton to see the new C-17 aircraft a couple of weeks ago, just a few days after it had been delivered. This aircraft will reinforce the vital, strategically important air bridge with Afghanistan, which is especially important at a time when the ground lines of communication through Pakistan are closed. In the longer term, the C-17 represents a step change in our capability to support operations, including humanitarian operations and disaster relief, and, very importantly, to support the aero-medical evacuation of wounded personnel back to the United Kingdom.

[Nick Smith (Blaenau Gwent) (Lab)]

Given that there is clearly concern on both sides of the House, may I press the Minister on when we will get a full statement to Parliament on the future of our regiments, particularly the well-loved Welsh Cavalry?

[Mr Hammond]

The Chief of the General Staff is in the final stages of an analytical review of recruiting demographics and manning across the Army, looking at the future needs of the Army but also at the very important historical threads that run through the Army. As soon as we have completed that exercise, I will make a statement to the House, and I confidently anticipate that that will be before the summer recess.

[James Morris (Halesowen and Rowley Regis) (Con)]

T7. Encouraging strong leadership in our armed forces is vital to the development of an agile fighting force, so will the Secretary of State join me in welcoming the recent appointments of Commander Sarah West and Commander Sue Moore, both of which are major milestones demonstrating the achievements of women in the armed forces?

[Mr Robathan]

The House will know that Commander West has been appointed as the first woman commander of a major warship, HMS Portland, and that Commander Moore has become the first woman to command 1st Patrol Boat Squadron. Both appointments were made entirely on merit, and they are very well deserved. I think that the whole House would wish to congratulate those two women and all others who come into such positions of authority.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

In response to my earlier question about the closure of BAE Systems on Scotswood road, the Minister seemed to prefer to criticise BAE Systems, and therefore some of my constituents, than to answer my request for a meeting to see whether we could find a way to save these jobs.

[Peter Luff]

It is always a pleasure to meet the hon. Lady. I extended an invitation to her to discuss another subject, but she did not respond. I am always happy to meet her—[Interruption.] On the strictly professional matter of innovation. I intended no criticism of her constituents whatever. They have done a first-rate job. However, the other companies put in lower, better value bids and so won the contracts. That is the problem, and there is no answer to that.

[Jo Swinson (East Dunbartonshire) (LD)]

An effective and trusted Afghan national army is key to a smooth transition. When I visited Afghanistan last year, I heard that although recruitment is going well, attrition remains a challenge. Will the Secretary of State look into the fact that attrition rates are not monitored for the different ethnic groups, so we do not know whether there is more of a problem with the Tajiks, Pashtuns, Hazaras or Uzbeks? That information would surely be useful in addressing the problem.

[Mr Philip Hammond]

I am grateful to the hon. Lady. My understanding, although I will have to check this, is that attrition is measured by ethnic group in the army. I will take the matter up with my Afghan counterpart on my next visit and let the hon. Lady know what I find out.

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

How is the review into the alternatives to Trident going?

[Nick Harvey]

The review is making good progress and is on target to report to the Prime Minister and the Deputy Prime Minister at the end of the year, as was announced by the previous Defence Secretary.

[James Wharton (Stockton South) (Con)]

The cadet forces provide great opportunities for young people to train in teamwork, leadership and discipline. I very much enjoyed being a cadet when I was at school. What is the Department doing to ensure that more young people avail themselves of those wonderful opportunities?

[Mr Robathan]

We are very keen to encourage more cadet forces. Indeed, I had a joint conference with the schools commissioner at the end of April on this matter. We are pushing it forward and will find the resources. I am delighted that my hon. Friend gained from the cadet experience and learned about things such as integrity, teamwork and leadership. I, too, was a cadet, but I will leave it to the House to determine whether my character improved.

[Elizabeth Truss (South West Norfolk) (Con)]

Given that the Government are proceeding with the short take-off and vertical landing variant of the joint strike fighter, will the Secretary of State say when a decision will be made about the basing of that aircraft? Does he agree that RAF Marham would be an ideal location because of its engineering facilities and its proximity to the US base at Lakenheath?

[Mr Philip Hammond]

My hon. Friend is nothing if not diligent in promoting the case for RAF Marham to be the home base of the STOVL JSF aircraft. We are well aware of its engineering capabilities and of its proximity to USAF Lakenheath, where F-35s are likely to be based. The decision does not need to be taken yet, and it will not be taken until it needs to be.

[Stephen Gilbert (St Austell and Newquay) (LD)]

In the United States, the rate of suicides by active military personnel is almost one per day, which is higher than the rate of combat casualties. What are the equivalent figures for the three UK armed services?

[Mr Robathan]

Any suicide is a tragedy. The UK has much lower rates of suicide in the armed forces than the US. Research is being done on the matter as we speak, in particular by Professor Simon Wessely of King’s College hospital. Although we remain concerned, for people over 25, service in the armed forces means, curiously, that one is less likely to commit suicide than others. I am happy to discuss the matter further with the hon. Gentleman.

[Mr Speaker]

Last but not least, Mr Duncan Hames.

[Duncan Hames (Chippenham) (LD)]

Next month, the UK will join other Governments at the United Nations to negotiate and agree an international arms trade treaty. We are often told that Britain’s arms controls are among the strictest that one will find anywhere. Does the Minister recognise the benefit to Britain and the world of reaching a strong agreement with as many countries as possible, even if certain countries opt not to become signatories at this time?

[Nick Harvey]

The UK is strongly committed to an arms trade treaty and is pushing for it to be as broad and effective as possible. We are encouraged by the fact that certain countries that we did not think would be supportive are showing more encouraging signs as we get near to the negotiations.

Changes to the Budget

Monday 11th June 2012 Commons Chamber

15:34

[Rachel Reeves (Leeds West) (Lab)]

(Urgent Question): To ask the Chief Secretary to the Treasury to make a statement on the changes that the Treasury has made to the Budget, which was presented to this House on 21 March 2012.

[Hon. Members]

Where’s the Chancellor?

[Mr Speaker]

Order. The Ministers who appear are chosen by the Government, and it is not for me to explain that choice. Members ask, “Where’s the Chancellor?” The Chancellor is appearing before the Leveson inquiry, as Members know perfectly well. We welcome Minister Gauke.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The Budget supports working families and re-establishes the UK’s reputation as a leading place to do business. It continues to deal with the record peacetime deficit that we inherited, so that the state no longer borrows £1 in £4 it spends, as it did when we came to office.

The Budget contained 282 measures. Having said that we would consult on some of its measures, we have made changes to three. On VAT for hot food, it is right to end anomalies and ensure that VAT is applied fairly between businesses. Where fish and chip shops had to charge VAT, supermarkets selling the same products did not. Having consulted, we have revised the relevant tests to ensure that, for example, bakers cooking hot savoury food that is left to cool are not caught in the changes.

On VAT for static holiday caravans, we have listened to hon. Members, who argued that static caravans should be treated more akin to second homes and not like touring caravans. Given that static holiday vans fall in a grey area between residential properties and temporary holiday accommodation, and given the relevant tax regimes that apply to them, a 5% rate of VAT is a fair compromise.

On tax reliefs, we continue to think that the system we inherited—which allows the wealthiest to pay the least tax, meaning that cleaners can pay a higher rate than their bosses—is unfair. We will therefore move to cap reliefs to ensure that this is addressed. However, having engaged with the sector, we will exclude reliefs relating to charitable giving from the cap.

These changes are small in the context of a Budget that lowered tax by £170 for 24 million people. The amounts concerned are tiny compared with the total tax changes announced in the Budget—in monetary terms, less than 2% of the Budget changes and 0.0002% of total receipts. The Budget continues to have a neutral impact on the public finances, and we remain on track to tackle the unprecedented debt and deficit we inherited. This is a Budget that improves the country’s competitiveness by cutting the top rate of tax, reduces corporation tax to give the UK the most competitive rate in the G20, and rewards and supports hard-working families by helping to take 2 million people out of income tax altogether.

[Rachel Reeves]

I thank the Minister for his answer, but regret the absence of both the Chancellor and the Chief Secretary to explain this series of U-turns.

This statement leaves a number of questions unanswered. On 16 April, the Exchequer Secretary told the House:

“The same approach should apply to mobile caravans as to static, non-residential caravans, and to a hot pie served in a fish and shop and one served in a bakery.”—[Official Report, 16 April 2012; Vol. 543, c. 130.]

On 12 April, in relation to the proposed cap on income tax relief for charitable donations, he said:

“The policy that we’ve announced is a sensible one.”

What new evidence has come to light since then and during the recess that has led the Government to change their mind? The reality is that the facts have not changed. This is a Government who do not like to be held to account for their mistakes. The Minister has tried to make a virtue out of the Government’s abandonment of policies that prove to be unpopular and unworkable by saying that they are listening. However, failing to do the necessary work on a policy before announcing it and then sneaking out a reversal when they hoped no one was looking is not consultation—it is total incompetence. Is it not the truth that this Government were so desperate for money-making measures that they took from whomever they thought they could, hoping to get away with it? The result: a total and utter shambles of a Budget.

The mistakes that are still in the Budget are, however, the worst ones of all: a tax cut for millionaires while asking millions to pay more, and no plan for the jobs and growth that we desperately need to get our economy back on track and our deficit down. As the Minister and his colleagues are making such a virtue of listening and of their readiness to change course and make the occasional U-turn, perhaps now they will listen—to the millions of pensioners hit by the granny tax; to the millions of families hit by cuts to their tax credits; to the 1 million young people out of work; to the businesses struggling to break even; and to everyone in this country suffering from the double-dip recession made in Downing street and crying out—[Interruption.]

[Mr Speaker]

Order. The House needs to calm down, on both sides. I remind the shadow Chief Secretary to the Treasury that the narrow focus of the question covers changes to the announced policy. I know that she will concentrate on that narrow matter, as this is not a Second Reading debate on the Budget.

[Rachel Reeves]

Given the number of U-turns that the Government have made in the past two weeks, it is difficult to know where to start. Will they now change course on the biggest mistakes in the Budget—cutting tax credits for working families, the granny tax and cutting tax for millionaires while asking ordinary people to pay more? The country is crying out for the Government to change course and to get a grip on their policies, which dug us into this hole and this recession.

[Mr Gauke]

The hon. Lady says that the Government were desperate for money-making measures. Why does she think we needed such measures? She might have noticed that her party left the biggest peacetime deficit we have ever faced. The extraordinary thing about the Labour party is that it always believes that there is a magic money tree that we can get money from. I am afraid, however, that we have to take steps to reduce the deficit. Even with these changes, we remain on the course that we set out. This was a fiscally neutral Budget, and we are not taking risks with the public finances, which is the U-turn that the Opposition want us to take.

The hon. Lady asked how a Budget could be changed and why we had departed from what it set out to do. I should like to remind the House what happened four years ago. In 2007, the then Chancellor of the Exchequer announced the doubling of the 10p rate. A year later, his successor had to come to the House—not in a Budget, but weeks later—and set out additional tax cuts of over £3 billion. They had got their policy wrong and they had destroyed their credibility by doubling the income tax rate for the poorest earners in this country. That is an example of a Budget shambles.

[Mr Peter Bone (Wellingborough) (Con)]

The Government should not apologise for making these U-turns. This is parliamentary democracy at work. It is because Members of this House argued strongly for changes in the Budget that such changes have occurred. Let us contrast that with what happened under the last Government. When their own Back Benchers asked for changes, the Government would not agree to them. This Government should be proud of these changes; they should not apologise.

[Mr Gauke]

I am grateful to my hon. Friend for his characteristically helpful intervention.

[Stephen Timms (East Ham) (Lab)]

The Minister is now telling us that the Government do not need the money that would have been raised by the measures that he has scrapped, so why were they announced in the first place?

[Mr Gauke]

Let us put this into context. In the last year of the forecast period, the Budget measures that we announced in March would have resulted in an additional £1.14 billion for the Exchequer. As a consequence of these changes, that figure will now be £1 billion. These are relatively small items, but we have listened to the specific cases that have been made on the three elements. We had already made it clear that we wanted to consult carefully with charities and philanthropists on one of them. We have listened to the arguments and we have made changes. In the overall scope of the public finances, however, they will not make a significant difference.

[Several hon. Members]

rose—

[Mr Speaker]

Accommodating the interests of colleagues will require brevity, to be exemplified by Mr Jacob Rees-Mogg.

[Jacob Rees-Mogg (North East Somerset) (Con)]

Does the Minister agree that the real things that must not be changed are a tight fiscal policy and a loose money policy? There is no alternative.

[Mr Gauke]

My hon. Friend is absolutely right: this Government, in contrast to the Labour party, remain committed to getting the public finances under control.

[Helen Goodman (Bishop Auckland) (Lab)]

The Minister did not mention the reverse on VAT for listed places of worship. My constituency has the oldest Baptist church and the oldest Methodist church, so do the changes announced by the Government on listed places of worship apply only to the Church of England or to all denominations?

[Mr Gauke]

They apply to all denominations, but to provide further clarity we made it clear that we would change the level of grant available under the listed places of worship scheme to reflect the need; after consultation with the Churches, we have increased that number, but there is no change to the tax law relating to VAT for listed places of worship.

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

Let me reassure the Minister that Liberal Democrats welcome the change both to the pasty tax and the caravan tax. [Interruption.] We would also have liked a third change—to keep the top rate of income tax, but we did not win that argument. Will the Minister join me and make sure that all Ministers turn up the volume—[Interruption.]

[Mr Speaker]

Order. This is most discourteous. We must hear the voice of Bermondsey and Old Southwark— Mr Simon Hughes.

[Simon Hughes]

Will the Minister ensure that all Ministers turn up the volume to get over the central message of the Budget, which is that over 20 million pay less tax and millions pay no tax at all? Clearly, some people have not heard it yet.

[Mr Gauke]

This coalition Government are proud of the fact that we are taking 2 million people out of income tax and cutting the tax for 24 million basic rate taxpayers.

[Several hon. Members]

rose—

[Mr Speaker]

Let me remind the House that the urgent question relates to the subject of changes made by the Treasury to the Budget presented to the House on 21 March. Questioning must be focused on that narrow terrain. I know that in that respect we can rely on Mr Stewart Hosie.

[Stewart Hosie (Dundee East) (SNP)]

The Minister said that these U-turns, however welcome, would be neutral in terms of the Budget, so will he confirm that by the time we get to 2016-17 the Government will still take out of the economy £155 billion a year in tax increases and service cuts?

[Mr Dennis Skinner (Bolsover) (Lab)]

Whatever happened to independence?

[Mr Gauke]

The Government remain committed to their deficit reduction programme. As pointed out by the hon. Member for Bolsover (Mr Skinner), the hon. Gentleman presumably thinks that Scotland will pursue a different approach by that time.

[Mel Stride (Central Devon) (Con)]

May I pass on a huge thank you to the Chancellor and to the Minister from Pathfinder Park Homes, a manufacturer of static caravans in my constituency, which is delighted with the reversal on VAT? In its view, it has saved its business.

[Mr Gauke]

I am grateful to my hon. Friend for his comments, and I am sure that his constituents are grateful to him for the work he has done on this matter.

[Simon Danczuk (Rochdale) (Lab)]

What estimate has the Minister made of the damage done to the bakery industry as a result of announcing a policy that has now been reversed?

[Mr Gauke]

Given that the policy does not come into effect until 1 October, we do not think any damage will have been done through the policy. We think that addressing the anomalies is the right thing to do, and we have taken the opportunity to improve the policy we initially announced.

[Harriett Baldwin (West Worcestershire) (Con)]

Evidently, the most urgent question relating to the Budget changes are those to VAT on static caravans and hot pastries, while across the channel we literally have financial Armageddon happening. What would the Minister contrast between the management of this country’s finances and the management of those of Europe?

[Mr Gauke]

This Government are determined to focus on the big issues we face. As a Government, we are showing determination to ensure that the UK remains in a safe place.

[Mr Speaker]

I am grateful for the Minister’s diplomacy, but let me say gently to the hon. Lady that the question was not quite as wide as the channel—but it was not far short of it!

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Will the Minister confirm what extra information came to light during the recess that led to the U-turn on the charity tax?

[Mr Gauke]

In respect of all the measures we are discussing today, this Government have been listening to the arguments. As far as charities are concerned, once we had reached the conclusion that we would not proceed with a cap on relief for charitable giving, we felt it only fair to make the announcement as soon as we could—and we did so.

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

Before I feel tempted to congratulate the Minister on the changes he has made, I should perhaps declare a personal prejudice and a personal interest in the reduction in VAT on pasties.

Welcome as the Minister’s consultation with Back Benchers has been, may I ask him to continue to focus on the main aim of the Budget, which is to ensure that we do not go down the same road as the rest of Europe?

[Mr Gauke]

I am not sure that that particular policy announcement will necessarily do my hon. Friend any good, but he is absolutely right to ask the Government to continue to focus on the big issues that the country faces, and we will do so.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

Given that other applications of VAT are being U-turned, why is its application to sports nutrition products not being U-turned as well?

[Mr Gauke]

We think it right for sports nutrition products to be subject to the standard rate of VAT. VAT should be a broadly based tax, and we believe that our policy addresses an anomaly in the system that needed to be dealt with.

[Tony Baldry (Banbury) (Con)]

We had almost a full day’s debate on these measures, initiated by the Opposition, and the changes made by my hon. Friend are almost exactly the changes for which the Opposition asked. Given that my hon. Friend and his colleagues have listened to Opposition Members, would it not be rather better for them simply to say “Thank you” and sit down—as I say “Thank you” to the Chancellor and his colleagues for the changes in respect of VAT on listed places of worship?

[Mr Gauke]

We could live in hope, but I suppose that that was never going to happen.

[Mr Wayne David (Caerphilly) (Lab)]

There is only one word to describe the Budget, and that is “omnishambles”, but will the Minister tell us what changes have been made to VAT on skips?

[Mr Gauke]

There have been no such changes. HMRC produced operational guidance, which I understand was misinterpreted by the industry. HMRC has clarified its guidance, but there has been no change in the policy or operational position relating to skips.

[Claire Perry (Devizes) (Con)]

Marshall’s Bakery in Pewsey, which is in my constituency, will be delighted by the news, as the Minister will know because he received a large petition from its customers. I am proud to be part of a Government who listen to people, but will the Minister please assure me that he will never, ever listen to any economic advice from the Labour party, whose view is that the way to get out of a borrowing crisis is simply to borrow more?

[Mr Gauke]

I can assure my hon. Friend that we will not be listening to those who think that the best solution to debt is to borrow more.

[Andrew Gwynne (Denton and Reddish) (Lab)]

So much has been changed in this disastrous Budget that one wonders what will be next. Will the Minister now start to rethink his tax cut of £40,000 a year for 14,000 millionaires, which is, quite frankly, outrageous?

[Mr Gauke]

Let me point out to the hon. Gentleman that three changes have been made in the 282 measures announced in the Budget. As for the 50p rate, the problem was that it did not raise any money. The measures that we have announced will raise five times more money from the rich than the policy pursued by the Labour party.

[Stephen Gilbert (St Austell and Newquay) (LD)]

On behalf of the thousands of people who supply, make and sell the £180 million of Cornish pasties produced each year, and the millions of people throughout the country—including my hon. Friend the Member for Elmet and Rothwell (Alec Shelbrooke)—who enjoy eating them, may I say “Thank you” to the Minister? It is great that we finally have a Government who listen and do not plough on regardless.

[Mr Gauke]

I am grateful for the constructive way in which my hon. Friend and other Cornish Members have engaged in this process throughout.

[Helen Jones (Warrington North) (Lab)]

Will the Minister explain why he chose to listen to representations on pasties, caravans and charities, but not to representations on the granny tax? Was it because pensioners do not have loud enough voices, or because he does not care about them?

[Mr Gauke]

No. It was because we found the arguments on the three items that we are discussing today persuasive that we decided to make the concessions we have made.

[Michael Ellis (Northampton North) (Con)]

Will the Minister join me in welcoming the comments of the chief executive officer of Greggs that the Government should be “applauded” for the way in which they have “conducted themselves”, and for listening to the views of the industry? Will he also acknowledge, as Sir Terence Leahy has, that the Government should maintain their course and— unlike the Labour party—keep the British economy sound?

[Mr Gauke]

Again, I am grateful to my hon. Friend for his comments. We have listened to strong arguments and responded accordingly. That is what a sensible Government do—and I really must contrast that with the approach taken by the previous Government, in particular with regard to the 10p rate of income tax.

[Mr David Hanson (Delyn) (Lab)]

Does the Minister agree that business stability is important and that, for example, a caravan tax rate of 0%, 20% and 5% in six weeks is not good for business planning? Has he written to his hon. Friends who voted for those measures to apologise for hanging them out to dry?

[Mr Gauke]

Many Members on the Government Benches engaged with this issue in a constructive and thoughtful way, and helped us reach what I think was the right conclusion.

[Richard Graham (Gloucester) (Con)]

Most of my constituents want their Government, regardless of political hue, to be a Government who listen and appreciate their views. In this case, the changes made by my hon. Friend and the Treasury team have hugely benefited listed places of worship, which are an important part of our regeneration campaign, and an important local company, Janes Pantry, which makes pasties. They have also been much appreciated by all of us who donate to charities. We cannot have it both ways: we cannot have a Government who listen and then criticise them when they do. I am grateful to the Government.

[Mr Gauke]

As the Chancellor recently said, if there is one thing worse than a Government who listen, it is a Government who do not listen.

[Nic Dakin (Scunthorpe) (Lab)]

Unfortunately, the Exchequer Secretary’s attempt to clarify the skip tax appears to have added to the confusion. Will he engage with the industry in the same spirit as he has engaged with others, and consider the eligibility of fines residue from trommel equipment being eligible for the lower rate of duty?

[Mr Gauke]

My understanding is that Her Majesty’s Revenue and Customs is continuing to work with the industry to provide clarity in this area. There have been concerns; I think there was a misinterpretation of earlier advice and I believe that that is in the process of being addressed.

[Jason McCartney (Colne Valley) (Con)]

I greatly welcome the consultations, but will the Minister confirm that the Government will stand firm on the main facets of the Budget, which have resulted in tax cuts for 25 million people, council tax frozen for the second year running and fuel duty being 10p lower than it would have been under the other lot?

[Mr Speaker]

Order. I did not hear a question about changes, but the hon. Member has registered his view with force and alacrity, and it is on the record so his constituents will hear it.

[Sheila Gilmore (Edinburgh East) (Lab)]

The Minister started by saying that this was a Budget for families, so will he now consider another U-turn and restore the tax credits to working couples on low wages and low working hours?

[Mr Gauke]

rose—

[Mr Speaker]

Order. I am sorry if I did not explain the position sufficiently clearly—although I must say I thought I did. Some Members are making speculative bids for extending the U-turns. They may wish to do so, but the terms of the urgent question relate specifically to the announced changes. I am sure that understanding that point will not be beyond the ingenuity of the hon. Member for Wansbeck (Ian Lavery).

[Ian Lavery (Wansbeck) (Lab)]

On the announced changes—the U-turns—on everything from buzzards and skips to caravans and pasties, when will the Government reconsider a U-turn on the granny tax and the cut in the tax on the rich people in society?

[Mr Speaker]

I am disappointed in the hon. Gentleman. He started out as such a good boy, and it is a pity that he spoiled that thereafter. I know that a similar sin will not be committed by the hon. Member for Kingston upon Hull East (Karl Turner), because he is a good listener and a quick learner.

[Karl Turner (Kingston upon Hull East) (Lab)]

I welcome the Government’s U-turn on the caravan tax, which would have adversely affected many thousands of people throughout the country. However, will the Minister take this opportunity to apologise to the 350 employees of Willerby Holiday Homes in my constituency who were told that they would potentially be made redundant as a result of the Government’s barmy idea, and will he describe the effect on the industry of the introduction of the 5% tax on caravans?

[Mr Gauke]

First, let me say that I am grateful to have an opportunity to return to the Dispatch Box. On the point the hon. Gentleman raises, I really do not think that the changes, which in our original proposals would not have come into effect until October and which now will not come in until April, can be the source of some of the current difficulties within the caravan industry. We think we have the right policy now and that a 5% rate is fair.

Syria

Monday 11th June 2012 Commons Chamber

16:00

[The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague)]

With permission, Mr Speaker, I will make a statement on Syria.

The whole House will be united in support for the Syrian people. They have endured 15 months of fear and suffering. Eighty-seven thousand people have fled to neighbouring countries and up to 500,000 are internally displaced. As many as 15,000 people may have died, and thousands of political prisoners are imprisoned and at risk of mistreatment and torture.

Each day, reports emerge of savage crimes. The Syrian military are surrounding and bombarding towns with heavy weaponry, then unleashing militia groups to terrorise and murder civilians in their homes. Those deliberate military tactics are horrifyingly reminiscent of the Balkans in the 1990s. Two weeks ago in al-Houla, 108 civilians died in this manner, including 49 children under the age of 10. A similar atrocity appears to have been committed last week in al-Qubair, where 78 people were killed, including women and children. UN monitors attempting to report on those events have been shot at and obstructed.

These grotesque crimes have illuminated to the world the nature of the events in Syria and the conduct of the Assad regime. It is attempting, with utter inhumanity, to sow terror, to break the spirit of opposition in Syria and to try to reassert control. This is as futile as it is morally reprehensible. By branding their opponents terrorists and using tanks against them, the regime is driving Syrians to take up arms to defend their homes; and by singling out particular communities, it is inflaming sectarian tension. There are credible reports of human rights abuses and sectarian attacks by armed opposition fighters, which we also utterly condemn. We also have reason to believe that terrorist groups affiliated to al-Qaeda have committed attacks designed to exacerbate the violence, with serious implications for international security.

As a result, Syria today is on the edge of civil war. That could lead to thousands more casualties, a humanitarian disaster and human rights violations on an even greater scale, and instability in neighbouring countries. We are working intensively to find a peaceful means of resolving the crisis. Our approach, in close coordination with our European partners is: first, to push for implementation of the Annan plan as the internationally agreed road map to end the violence; secondly, to increase the pressure and isolation felt by the regime; and, thirdly, to ensure justice, accountability and humanitarian assistance for the Syrian people. I will take each of those in turn.

First, the United Nations and Arab League envoy for Syria, Kofi Annan, has set out a six-point plan to end the violence and to start a political process to address the legitimate aspirations of the Syrian people. It is backed by two UN Security Council resolutions, 2042 and 2043. The latter mandated the deployment of the 300 UN monitors who are now on the ground in Syria. I pay tribute to them for their difficult work in dangerous circumstances. As Kofi Annan has made clear on many occasions, the onus is on the regime to call off its military assault, to adhere to a ceasefire and to allow a process of political reform. Political transition must be based on democratic principles and reflect the needs of all Syria's minority communities, including Kurds, Christians and Alawites. On 1 April, the Syrian regime committed itself to implementing the Annan plan, and on 12 April it announced a ceasefire. It has not kept either of those commitments.

Two weeks ago, I discussed the situation with my Russian counterpart, Sergei Lavrov, in Moscow. I made the case for Russia to use its crucial leverage with the Assad regime to ensure the full implementation of the Annan plan, since the collapse of Syria or descent into civil war would be against Russian interests as well as those of the wider world. I also raised the issue of arms sales to the Syrian regime, which we believe should be stopped immediately.

In Istanbul, on 1 June, I held talks with members of the Syrian National Council and other opposition representatives, including Kurds, and I returned there last week for discussions with Secretary Clinton, the Turkish Foreign Minister and the Foreign Ministers of 12 European and Arab nations. I am in regular contact with Kofi Annan, and preparations are in hand for a meeting of the friends of Syria group, which now numbers more than 80 countries, in early July.

Last Thursday, the Russian Government put forward their own proposal for an international conference on Syria. Such a meeting could help generate momentum behind the Annan plan. However, it would have to be a meeting that led to a change on the ground, and did not just buy time for the regime to kill more innocent people. So, in our view, any such meeting would need to be based on a common understanding that it would lead to a political transition; it should include genuine steps to implement the Annan plan; and it should only involve nations that are committed to being part of the solution in Syria. We will discuss with our partners whether it is possible to agree concerted international action on this basis; my right hon. Friend the Prime Minister will take forward these discussions with other Heads of Government when he attends the G20 meeting in Mexico next week.

Making a success of the Annan plan also requires the Syrian National Council and other opposition groups to put aside their differences, to unite around the common goal of a democratic transition and to assure all Syria’s minorities that their rights will be protected in a multi-ethnic and democratic Syrian state. This has been my consistent message in all my discussions with opposition figures. We welcome the meetings with opposition groups that will be held in Istanbul later this week and subsequently in Cairo, which have our active support.

The Annan plan is not an open-ended commitment; it cannot be used indefinitely by the regime to play for time. If it is not implemented, we will argue for a new and robust UN Security Council resolution aimed at compelling the regime to meet its commitments under the plan, and requiring all parties to comply with it. So we have already begun discussions at the Security Council on the elements of a resolution. We do not want to see the Annan plan fail, but if, despite our best efforts, it does not succeed, we would have to consider other options for resolving the crisis and, in our view, all options should then be on the table.

Secondly, we are taking steps to increase the isolation of the regime. On 29 May, we expelled three Syrian diplomats from London, including the chargé d’affaires, in co-ordination with the United States, Canada, Australia, France, Germany, Japan and other countries that took similar steps. We are also in discussions with Arab League and like-minded countries about measures to tighten the stranglehold on the regime’s resources and external sources of support, building on the 15 rounds of EU sanctions that already target 128 individuals and 43 entities.

Thirdly, we are acting to help end impunity for atrocities, and we are supporting the humanitarian needs and legitimate aspirations of the Syrian people. Britain co-sponsored the UN Human Rights Council resolution of 1 June, which was carried by 41 votes to three. It condemned the al-Houla massacre, mandated the UN commission of inquiry to investigate and gather evidence about it, and highlighted the recommendation of the UN high commissioner for human rights that the UN Security Council should refer Syria to the International Criminal Court. We are working on a further UN Human Rights Council resolution to reinforce these objectives.

We also sent a team of British experts to Syria’s borders in February and March to gather testimony from Syrians. The team found evidence of violations of international law and international human rights law, including murder, rape, torture, unlawful imprisonment, enforced disappearance and persecution. This work to document abuses is being continued. The team of Syrians that helped to document the al-Houla massacre was trained by the United Kingdom, and we are working closely with the United States and the UN commission of inquiry to ensure that any evidence is collated and stored for use in a future legal process. We are also increasing UK funding for the Syrian opposition and civil society groups, providing £1.5 million of assistance in this financial year to help provide human rights monitoring and media training for activists, and other non-lethal support, such as communications equipment.

My right hon. Friend the Secretary of State for International Development and his Department are working with the UN and the international community to ensure that urgent humanitarian assistance gets to the 1 million people estimated to be in need. The Syrian regime has now agreed a plan to respond to humanitarian needs. There can be no further delay in its implementation, and humanitarian agencies must be allowed full and unhindered access to all areas in Syria. Britain has helped to provide emergency food supplies for nearly 24,000 families inside Syria, safe drinking water for 30,000 people, blankets for 5,000 people, medical assistance for up to 25,000 people and support to refugees in neighbouring countries.

The coming weeks must see an intensified and urgent international effort to stop the violence and restore hope to Syria, and the British Government remain absolutely focused on this goal. If all the efforts I have described fail, Britain will work with the friends of Syria group to increase further the isolation of the regime and to adopt sweeping new sanctions across the world.

We will not rule out any other option that could at any stage stop the bloodshed, and we will not relent in our efforts to ensure the political transition, justice, accountability and security that the Syrian people need and deserve, and to support greater political and economic freedom in the middle east. This freedom is not only the legitimate right of all the peoples of the region, but the foundation of lasting peace, stability and prosperity.

The time has long passed for the Assad regime to stop the killing and torturing of its people, and it is time now for all nations on the UN Security Council to insist on the cessation of violence and on the political process, which remain the only peaceful way to resolve this mounting crisis.

16:10

[Mr Douglas Alexander (Paisley and Renfrewshire South) (Lab)]

I thank the Foreign Secretary for his statement and for advance sight of it. If anyone was in any doubt as to the seriousness of the situation in Syria, a simple examination of the facts should be enough to convince them of the scale of the horror that we are witnessing. The conflict has been raging for 15 months and the death toll is estimated at more than 15,000. As the Foreign Secretary told the House in the last few minutes, the village of al-Houla was the scene of one of the worst massacres of which there are reports. UN observers on the ground have confirmed that at least 108 people were killed, including 49 children and 34 women. I therefore join the Foreign Secretary in recognising the work of UN monitors who attempt to document such events. They have been repeatedly shot at and obstructed in trying to carry out that important task.

This is not an historical conflict—it is unfolding in real time, documented on television screens and in YouTube footage. I therefore welcome this opportunity for the House to scrutinise the Government’s response. Fifteen months on, in recent weeks the conflict, instead of approaching its end, seems, if anything, to be entering a new and bloodier phase. We should be clear that the responsibility for the crisis lies primarily with the Assad regime, which continues to show utter contempt for the value of human life, perpetrating a violent and brutal crackdown on innocent people across Syria, for which it must ultimately be held to account. However, expressions of revulsion in response to the slaughter are not enough. Let us be candid and admit that the international community is dangerously divided on its response to the conflict. That division is drastically hampering the effort to stop the violence.

The point of consensus for the time being is the Kofi Annan peace plan, but by any honest reckoning that UN-backed plan has so far failed to bring an end to the violence. Does the Foreign Secretary therefore think that increasing the number of monitors and boosting Mr Annan’s resources would improve the prospects of the plan succeeding? To date, the Annan plan has been judged to be the only option on the table, but the Foreign Secretary rightly told the House a few moments ago that the “Annan plan is not an open-ended commitment.” Will he tell the House specifically what the time limit and tests for the Annan plan are? How much slaughter is required before the international community acknowledges the plan’s failure and begins to formulate a more effective alternative means of ending the crisis?

Further diplomacy is of course needed if the divisions in the international community are to be overcome, but the difficulty of the task must not detract from its urgency. What, therefore, is the Foreign Secretary’s assessment of the recent and fairly brutal judgment of Lord Ashdown, the former Liberal Democrat leader and former High Representative for Bosnia, who said of the British Government’s strategy for dealing with the crisis:

“I don’t think that is wise diplomacy”?

As the Annan plan is currently not working, the challenge is to ask what, beyond the Annan plan, can be done, even accounting for the divergence of views in the international community. Several steps short of military intervention should be considered to sharpen the choice facing the Syrian regime. First, on the financing of the regime, without a comprehensive oil embargo Syria can still export oil to countries outside the EU and United States. What discussions has the Foreign Secretary had with the Government of India, who do not have bilateral sanctions and who have allegedly been approached by the Syrians to purchase Syrian oil? The Syrian regime is also still able to import diesel from countries such as Venezuela, which allows it to sustain its military operation, including tanks, through foreign imports. What is the likelihood of a comprehensive oil ban being agreed by the United Nations? Failing that, what realistic pressure have the Government put on countries continuing to trade with Syria in such a way?

Secondly, on the security situation and particularly on support for the opposition, there are steps that could alter the realities on the ground without breaching the arms embargo, such as blocking the communications of Assad’s forces and choking off his remaining finance from neighbours such as Lebanon, which we understand are still not enforcing the Arab League sanctions that they have previously agreed to.

The Syrian military is one of the key pillars still sustaining the political regime in Damascus, and the newly appointed head of the Syrian National Council, Abdulbaset Sayda, was right to call for mass defections from the regime in one of his first statements since taking control of the SNC. What is the Foreign Secretary’s assessment of the current rate of such defections, and what steps can the international community to take to encourage and facilitate them further? Does he agree that more should be done to publish internationally the names of any officers ordering the current atrocities, as a clear signal of intent that they will face the full force of international justice for their crimes?

The Foreign Secretary mentioned in passing that al-Qaeda is operating in Syria. What is the British Government’s view of the scale of its activity within Syria to date?

I welcome wholeheartedly the Foreign Secretary’s recent visit to Russia. Does he believe that the Russian position is likely to shift significantly in the immediate future as the situation deteriorates further? I also welcome his comments about the friends of Syria group and the news that a further meeting of the group is being planned. He said that the Prime Minister intended to raise the issue of Syria at the G20 in Mexico. In the light of statements by a Chinese Minister earlier today that the situation in Syria should not be on the agenda at the G20 meeting, will the Foreign Secretary give us his assurance that he is taking all the necessary steps to ensure that appropriate time is found for a discussion that must take place at that meeting?

The Foreign Secretary said in his statement that if the Annan plan was not implemented, the UK Government would argue for “a new and robust UN Security Council resolution aimed at compelling the regime to meet its commitments under the plan”. How will the British Government endeavour to shift Russia’s view to allow for agreement at the Security Council on the passing of such a resolution? That is surely the real test of whether there is a Security Council route beyond the Annan plan, about which the Foreign Secretary was more circumspect.

The scale of the humanitarian crisis is growing by the day, as the Foreign Secretary acknowledged. This morning, The Times reported that a group called the Union of Free Syrian Doctors had questioned the international community’s commitment and said that help for doctors trying to get medical supplies in through Turkey had come only from a one-off donation by France and by private individuals. Will he use this opportunity to shed some light on that?

[Mr Speaker]

Order. I am listening intently to the shadow Foreign Secretary. He has provided much food for thought for the Secretary of State, who I am sure will be delighted to respond to each of his pertinent inquiries. I feel sure that those pertinent inquiries are coming very shortly to a close.

[Mr Alexander]

Indeed, Mr Speaker.

There is one final question that I should like to pose to the Foreign Secretary in the light of his remarks. What thought has been given to creating large humanitarian enclaves for civilians in neighbouring countries—safe areas in countries such as Turkey—given that the humanitarian crisis is as serious as he suggested?

[Mr Hague]

As the right hon. Gentleman said, the facts about the terrible atrocities that have been committed speak for themselves. He illustrated the fact that support for the work of the UN monitors and abhorrence of the crimes that have been committed are universal across all political parties and all shades of opinion in this country. He agreed, too, that the clear responsibility for the crisis lies with the Assad regime.

The right hon. Gentleman asked about the Annan plan and the possibility of increasing the number of monitors. I have discussed that possibility with Kofi Annan several times. Certainly the United Kingdom would support an increase in the number of monitors if Kofi Annan were to ask for it. I will have a discussion with him again later today, and we will see what his latest assessment is. He points out, and we have to remember, that this is not a peacekeeping force. It was meant to monitor a ceasefire that had been agreed, so it is not a case of just increasing the size of a peacekeeping force. Of course, the monitors are going into very dangerous situations.

The mandate from the existing UN resolution would expire on 20 July, which is pertinent to the right hon. Gentleman’s point about a deadline. I do not think it is wise to set an arbitrary deadline. If we said now that the Annan plan had so many days or weeks and found the day before that deadline expired that it was possible to hold an international conference to push the Annan plan, that would not necessarily be wise. Inevitably, the need to review the work of the monitors before 20 July will focus minds in the UN Security Council well before that on whether it is feasible or right to do so.

The right hon. Gentleman asked about the comments by my noble Friend Lord Ashdown. From my memory of that article, I think his argument was that we should focus on other countries’ responsibility for addressing the situation rather than emphasising our own responsibility. I do not think he was criticising any of the diplomatic moves we have made. A more extended quotation might have been a good idea at that point in the right hon. Gentleman’s questions.

On the question of discouraging oil purchases, of course we do that. We discourage all countries and I have taken the matter up with Foreign Ministers of many countries filling in for the EU sanctions on Syrian oil. The Syrians have found their particular type of heavy grade oil difficult to sell in other markets, so the income of the regime has been substantially reduced by the EU sanctions. In Istanbul last week, I also raised with Arab Ministers the enforcement of Arab League sanctions and the case for Arab nations adopting sanctions similar to those of the European Union.

The right hon. Gentleman asked about defections, which take place from army units and seem to happen on a regular basis. The Assad regime tries to prevent high-level defections, not only by placing people under house arrest but by threatening the families of anyone who manages to defect from the regime. It makes it extremely difficult for them to do so. The right hon. Gentleman also asked about the names of army officers and those responsible for crimes, and of course some have been added to each list of EU sanctions. I will also consider his further point about whether more can be done to publicise those names.

The right hon. Gentleman asked about the G20. The agenda of the formal meetings of the G20 will be for the Mexican presidency to finalise, but whether or not the subject is on the formal agenda there will be many bilateral meetings. It is possible for leaders to discuss whatever they wish, and the Prime Minister will therefore certainly be discussing Syria in and around the G20 meetings.

Our dialogue with Russia on this subject is continuous, and I think it is fair to say that the Russian position has certainly shifted its emphasis and perhaps its substance to some degree, which increasingly emphasises that the Russians are not wedded to Assad and that they want to see stability in Syria. The most persuasive thing for them is not what any of us say but the fact that the situation is clearly deteriorating and that Syria is on the edge of the things we have described—collapse or full civil war. That is a terrible scenario for all the nations of the United Nations Security Council and for all who wish to see international peace and security. Russia can see that deterioration, too, and that is why they have made their proposals, to which we are unable to agree immediately for the reasons I have given, for an international conference. Russian diplomacy is being adjusted as the days go by, and my judgment is that it is worth continuing that dialogue with Russia and continuing to try to move them towards insistence that the regime implement the Annan plan.

Finally, the right hon. Gentleman asked about large humanitarian enclaves. That would require the willingness of neighbouring countries, many of which are doing very good work in looking after the refugees on their soil—26,000 in Turkey, more than 22,000 in Jordan and 17,000 in Lebanon, which are large numbers in any case. People are taking refuge in those countries and we are helping to provide humanitarian assistance through international agencies. People are finding refuge in neighbouring countries, but issues such as safe areas or enclaves in Syria—that is perhaps not what he was suggesting—are a different matter. As I have said, we are not ruling out any option for the future but such safe areas would have to be truly safe and effective. Making them safe and effective raises all the issues about military intervention with which the House is familiar.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

May I suggest to my right hon. Friend that if any British joint military intervention is ever contemplated into the sectarian civil war in Syria—essentially a war between Alawites and Sunnis, each with foreign backers urging them on to greater ferocity—he will reflect on the British experience in Mandated Palestine, which demonstrated that the ultimate folly for an intruder into another country is to be caught between warring and irreconcilable historic forces?

[Mr Hague]

There are many points in history, including the one that my right hon. Friend points out, that show that we should always bring caution to any consideration of military intervention. That is why, despite all the frustrations and the terrible length of this bloody crisis, our efforts are so heavily devoted to, and we continue to work so hard on, the implementation of the Annan plan, and trying to bring Russia to a stronger insistence that the regime implement that plan. Clearly, that is because we think that is the only way to secure a peaceful transition in Syria and a peaceful solution to the crisis. It is impossible to know how the situation will develop, if the plan is not followed and implemented. That is why I say that we should have all options on the table, but cautionary words about military intervention in such a complex situation are entirely well understood by the Government and the whole House.

[Mr Jack Straw (Blackburn) (Lab)]

We all understand the necessary caution regarding going beyond the existing diplomatic measures, but notwithstanding what the Father of the House, the right hon. Member for Louth and Horncastle (Sir Peter Tapsell), said, that was the approach that we took to Bosnia for three years, with catastrophic results. Given the Foreign Secretary’s discussions with Sergei Lavrov and other Russian leaders, does he think that they comprehend the huge damage being done to their international reputation by the fact that it appears to the rest of the world that, whatever they are saying, in practice all they are doing is protecting an abject, brutal regime that has lost the consent of its people?

[Mr Hague]

That is a good point. I do not know what Russia’s private assessment is of that damage, but there is such damage, of course, and not only in the view of leaders in the Arab world, but among the huge populations who now watch the footage of these crimes on satellite TV. Of course, the same people across the whole middle east are familiar with, or were rapidly informed of, the fact that when we had a vote in the UN Human Rights Council 10 days ago, only three countries voted against that resolution: Russia, China and Cuba. That does not help any of those countries’ international standing in the region or, in the wider world, among people who have a passionate concern for human rights. That is one of the factors in their thinking. It may be one of the factors in the increased readiness to look for new solutions in order to bring about the implementation of the Annan plan. As I say, we will continue to work with Russia and try to persuade the Russian leaders on that basis.

[Sir Malcolm Rifkind (Kensington) (Con)]

Over the weekend the Foreign Secretary made the important comparison between Syria today and Bosnia in the 1990s. Will he accept that we are repeating one of the major mistakes of that period by imposing an arms embargo equally on the Syrian regime and the Syrian insurgents, despite the fact that the regime has an overwhelming preponderance of military equipment already? Taking into account the fact that the embargo is not a Security Council embargo—it is one imposed purely by the European Union, and could therefore be changed and modified, regardless of the views of Russia or China—will my right hon. Friend have urgent talks with his fellow Foreign Ministers in other European Union countries on modifying the arms embargo to the degree required to enable appropriate military assistance to be given to Syrian insurgents, so that they can prevent, or at least seek to prevent, the continuing slaughter of the Syrian people?

[Mr Hague]

While not fundamentally disagreeing in all circumstances that might arise with my right hon. and learned Friend, I am not at the same point in the argument. As he well knows, there are serious disadvantages to sending arms to opposition groups, as well as the case that he might make. It is difficult to know in the current situation what those arms would be used for, and whether they could also be used to commit atrocities that we would find appalling. They could contribute to the cycle of violence that is building up and create a further reaction on the other side. We can see some of that now, as there clearly is an increased availability of arms, from whatever source, to opposition groups, and the cycle of violence is increasing. I think it is far preferable to any of the other options—options which may be on the table for the future, but it is far preferable now to put all our effort and to put our diplomatic effort entirely, even at this stage, into trying to secure the Annan plan, because that or something very similar to it is the only hope of a peaceful transition. Until all such efforts have been entirely exhausted, I think it is best to continue to aim for that peaceful solution and not to contribute in any way to the violence in Syria.

[Mr Peter Hain (Neath) (Lab)]

We are all caught between horror at what is going on, and Britain’s and the west’s failure over Bosnia and not wishing to repeat that, but the only hope is to redouble the efforts that the Foreign Secretary has indicated he is pursuing with the Russian Government. Their strategic interests through their Mediterranean port in Syria and their other interests in Syria hold the key. Whether we like it or not, we are not going to achieve any progress by on the one hand encouraging the Russians to think that western intervention is yapping at their heels, and on the other hand thinking that just by berating them we are going to get any progress. The truth is that, whether we like it or not, we have to engage them and make them see that their own strategic interests will be advanced by resolving this problem, which probably only they can do.

[Mr Hague]

That is entirely the case that we are making. Of course we often make some criticism of their position, as they do of ours, in public but we have a good working relationship with the Russian leaders. I have discussed this many times and at great length, as the House can gather, with Sergei Lavrov and will no doubt do so again over the coming days. We will keep making exactly that case because, as we have been discussing over the past few minutes, all the alternatives to bringing about the full implementation of the Annan plan or something very close to it are extremely bloody and have unknowable consequences.

[Sir Menzies Campbell (North East Fife) (LD)]

I do not often disagree with my right hon. and learned Friend the Member for Kensington (Sir Malcolm Rifkind), but may I offer to the Foreign Secretary my belief that he should exercise considerable caution before embarking upon the notion of supplying arms, however well intentioned such a supply might be? There is a common characteristic, unfortunately, between Bosnia and Syria today—that is, the senseless brutality and unbridled barbarism. Is it not the case, and is this not something that he should impress not only upon Russia but upon China, that their apparent tolerance of that behaviour is seriously damaging to the very interests they seek to protect?

[Mr Hague]

In line with my earlier answer, I take my right hon. and learned Friend’s strong note of caution about supplying arms into such a conflict. It has not so far been our policy, in any of the nations affected by the Arab spring, in any of these conflicts, to supply arms to any of the parties involved. Even in Libya, where we were actively involved with the military intervention under a UN resolution, we did not supply arms to any of the participants, so to change that would be a major change in our approach. He is right about the long-term diplomatic cost and the cost in world opinion, not only to Russia but to China, and we certainly encourage other nations throughout the middle east and across the world to make that point very forcefully to their Russian and Chinese ambassadors.

[Chris Bryant (Rhondda) (Lab)]

I just wonder whether the carrot approach works very well with Russia. The United States of America tried to press the reset button and gained absolutely nothing, but the Russians gained a great deal of advantage. The Russians seem to be advancing an entirely cold war attitude to the situation, protecting their military interests in Tartus and saying that the biggest threat in their military doctrine is NATO. Is it not time we were a bit more robust with the Russians?

[Mr Hague]

The whole House has just been discussing how to persuade Russia to change its position. I do not think that it is a question of sticks and carrots, which is the wrong way to analyse this. In any case, the pressure on Russia in this regard is what will happen if there is no implementation of the Annan plan, which would be very destructive of Russian interests as well as the broader interests of international peace and security, so I think that doing our utmost to work with them and asking them to work with us to implement the Annan plan is the best way forward, and we will do that. As the hon. Gentleman may have gathered from my earlier comments, I do not shrink from criticising Russia, but it is also my job as Foreign Secretary to pursue this with Russia in a diplomatic way, which I will continue to do until the possibility of reaching success has been exhausted.

[Richard Ottaway (Croydon South) (Con)]

On that point, the Foreign Secretary is right to continue his support for the Annan plan, but he must recognise that we are very close to having to acknowledge that it is not working and he is quite right to have all options on the table. May I press him a little on the international conference proposed by the Russians? In my view, it is well worth persevering with, but what would his attitude be if an invitation were extended to Iran? Would that deter him from attending, or would he be encouraged by that as something that might lead to a change on the ground of the sort he envisaged?

[Mr Hague]

No, I would not be encouraged by that. As I said in my statement, in any such international conference it would be important that all countries involved are ready to be part of the solution, which of course is a reference to Iran, in particular, which has been part of the problem so far. By sending equipment and technical advice to the Syrian regime—it might have helped in other ways that we are not familiar with—Iran has been assisting with the terrorising and subjugation of the people of Syria, which is not a very good starting point to come to an international conference designed to sort this out. We will see what can be agreed on this. The United States has objected very strongly to any notion of Iran being included in such a conference. I have said that Iran’s inclusion would probably make it unworkable, so it would be far simpler if we agreed that the conference did not include Iran.

[Glenda Jackson (Hampstead and Kilburn) (Lab)]

Several of my constituents have asked why the UN right to protection has not been exercised. Does the possible introduction of that right constitute one of the options to which the Foreign Secretary referred, and would the United Kingdom support its implementation, because with the best will in the world a peaceful solution to what is happening in Syria seems to be drifting further and further away?

[Mr Hague]

Of course, the best way to protect the people of Syria is to arrive at a peaceful solution and have a peaceful transition there. The hon. Lady asks why the United Nations has not done more on that. It is because there has been no unity at the UN Security Council. Twice—on 4 October and 4 February—Russia and China vetoed a UN Security Council resolution that would have applied greater pressure. We expect that if we tried at the moment to pass a resolution either sanctioning any kind of outside intervention in Syria or mandating sanctions from the entire world, it would run up against the same problem. The UN Security Council has therefore not yet mustered the unity to fulfil its responsibilities, despite our repeated efforts over more than a year, so at the moment it is not fulfilling its responsibilities to protect the people of Syria.

[Mr Edward Leigh (Gainsborough) (Con)]

Any western intervention, such as arming the rebels, would make the disasters of Afghanistan and Iraq look like a picnic. The Alawites were a savagely persecuted minority until the French started empowering them; there are only 10 Alawites on the Syrian National Council, which numbers more than 300; and Christians are hugely unrepresented. Instead of constantly criticising the Russians, can we not appreciate that they have a sophisticated understanding of the country, and that we have to work with them to reach a peaceful solution which empowers the minorities?

[Mr Hague]

I hope that the Russians and all of us have a sophisticated understanding of the country, but that sophisticated understanding, when brought up to date, suggests that we are on the edge of a catastrophe for all those people unless we muster the international unity to ensure that the Annan plan, and the road map that arises from it, is put into practice.

My hon. Friend is entirely right to worry about those things, and I have stressed in my meetings with opposition groups from Syria that not only must they come together but that they need the broadest possible representation of all groups in Syria and to increase the representation of Christians, Kurds and Alawites, working with, and in leading roles in, the opposition movement.

[Ann Clwyd (Cynon Valley) (Lab)]

On a day when Homs is yet again being pounded into the ground, it is very difficult to stand back and watch. I commend the Foreign Secretary for the considerable efforts that he has made so far, but how long can we wait? What does the UN doctrine on the responsibility to protect actually mean in practice? At the moment it does not seem to mean very much; it seems to be a menu from which people pick and mix as they choose. But they are all signed up to it, and once again this calls into question the composition of the UN Security Council. My preferred option is safe havens: it worked for the Kurds; it can work for the Syrians. I realise that it also requires some kind of military intervention, but putting that in place is absolutely essential.

[Mr Hague]

It is sadly true that nations have signed up to commitments and to principles under United Nations charters at various stages, but it is then very difficult to achieve international unity on putting them into practice. Of course, there are so many nations that signed the universal declaration on human rights—long before the doctrine on the responsibility to protect—whose human rights records the right hon. Lady and I would be severely critical of, so a signature to a declaration is never the same as putting it into practice when a crisis comes. I accept that she is in favour of the safe havens idea, and although I think that there are the constraints I mentioned earlier, I also stress that, given the nature of the situation and the fact that we do not how it will develop over the coming months, unless we can get a peaceful transition going in Syria we are not taking that option off the table, either.

[Dr Julian Lewis (New Forest East) (Con)]

To what extent do the Government believe that the possession in Syria of major Russian technical intelligence-gathering facilities is a factor in Russia’s determination not to see President Assad fall from power?

[Mr Hague]

Russia has a range of defence and, one has to assume, intelligence interests in Syria, and they will all be factors in Russia’s alliance with the Assad regime and in the way Russia has acted over the past year to protect the regime. It is hard to rank those things, but they will all be factors. However, Russia’s important interests in Syria should also now be factors in Russia using all possible leverage to bring about a peaceful transition in Syria, rather than a continuation of the current situation, which could bring about the collapse of the country and, indeed, a very clear danger to all those same Russian interests.

[Mark Durkan (Foyle) (SDLP)]

Is the Foreign Secretary worried that a failure to agree on an international conference in, for example, the context of the Mexico meetings could be used as a top-up for the diplomatic “excusory” that we have already had from Russia? In the event of a failure to agree on such a conference, what quick, visible and credible alternative does he envisage?

[Mr Hague]

Of course it is possible that if we cannot agree the terms of an international conference, some commentators or other nations will say, “Well done; we tried, but we weren’t able to go forward that way.” However, it is important for us to try to ensure that such an international conference would actually achieve something. Also, we do not want an international conference that simply allows the regime to play for time. It is therefore necessary for us to negotiate on the terms of such a conference, even though that means that there is some risk of its not being able to take place. If we do not succeed in bringing about such a conference, then our recourse will be to the United Nations Security Council. I mentioned in my statement that we are already working on elements of a draft resolution that would greatly strengthen the previous resolutions. That would return us to the same problem of winning Russian and Chinese co-operation, but it would return the matter to that forum.

[Neil Carmichael (Stroud) (Con)]

I certainly welcome the Foreign Secretary’s robust approach in connection with arms sales to Syria, notably from Russia, but what assessment has he made and can he give to the House on the likelihood of a change of mood from the Russian Government?

[Mr Hague]

As I mentioned, there have been changes of emphasis—one can call them changes of language—from Russia over the past couple of weeks. Russia does support the Annan plan, and Russia voted for UN resolutions 2042 and 2043, so we are agreed on the desirability of the Annan plan. What we are talking about is the insistence on its implementation, which I argue to Moscow, as have others, puts a particular responsibility on Russia because of its links with the Assad regime and the leverage that it has over it. As I indicated earlier, there have been some changes. I think there is increased anxiety in Russia about the situation, and I will be discussing this further with the Russians during the course of this week.

[Jeremy Corbyn (Islington North) (Lab)]

Obviously we all condemn the human rights abuses, wherever they are occurring, all over Syria. Will the Foreign Secretary be more specific about which opposition groups the UK Government are supporting either financially or with logistical equipment or training, and about whether there are any British arms or British special forces in the area, which can only exacerbate what is already a very serious set of divisions within the opposition in Syria?

[Mr Hague]

The groups outside Syria that we are supporting—the kind of groups that I have been meeting in Istanbul—include the Syrian National Council, which is the largest of these groups, although some of the minority ethnic communities are not yet affiliated to it, and we want them to come together. All our support is non-lethal. Our assistance takes the form that I described in my statement—communications equipment, training, and human rights monitoring. No armed intervention is being practised or sanctioned by the United Kingdom at the moment.

[Duncan Hames (Chippenham) (LD)]

After meeting Chancellor Merkel recently, Russia’s President Putin sought to claim impartiality, reportedly saying, “We are not for Assad and neither for his opponents.” If this were really so, does the Foreign Secretary consider that future Russian support for a Security Council resolution referring the situation in Syria to the International Criminal Court could help to deter future atrocities in that country?

[Mr Hague]

Certainly that is something that we have wanted to get going, and we have succeeded in doing so in the UN Human Rights Council resolution, which refers to the International Criminal Court. Such are the atrocities and the appalling nature of these crimes that if we could muster the votes to take that through the Security Council itself, we would do so. I hope that at some stage in the future we will be able to do so, and that we will be able to take the Russian leaders at their word on this, but what they have said recently about not being committed to Assad himself or to the Assad regime has not yet translated into a readiness to support such resolutions.

[Caroline Lucas (Brighton, Pavilion) (Green)]

I welcome the Secretary of State’s strong urging of the Russians to halt their arms sales to the Syrian regime, but does he agree that we ourselves should cease to have any dealings with the foreign arms companies that are providing weapons to the Syrian Government, such as the Russian state-owned company Rosoboronexport? If so, will he use his influence to help to prevent that company from fulfilling its plans to take part in a trade exhibition that will be part of the Farnborough air show next month in the UK?

[Mr Hague]

I will certainly look at the point that the hon. Lady has raised and discuss it with my colleagues at the Ministry of Defence. I am not sure that we can do much in our relations with that company that would make a difference to this situation, but I will look at her point.

[Mr Robert Buckland (South Swindon) (Con)]

Does my right hon. Friend share my concern that the time that could be spent in negotiating the terms of reference for an international conference is time that the international community can ill afford to waste, bearing in mind the continuing loss of life? Does he agree that Russia would be better advised enthusiastically to support the enforcement of the objectives of the Annan plan?

[Mr Hague]

Yes, I very much agree with that. In the absence of the implementation of the Annan plan, the absence of a sufficiently strong insistence on its implementation and the absence of the implementation of all the UN resolutions that we have promoted, the virtue of a conference is that it could be the forum in which insistence on the Annan plan or something like it is made by Russia as well as by all the other countries that would be involved. Every day and every week that has gone by has contributed to the huge death toll of perhaps 15,000 people. Every day that goes by adds to that death toll. We are pursuing this option in the absence of the other options, which have so far not worked.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

I welcome the Foreign Secretary’s confidence in the Syrian opposition groups, with the £1.5 million of funding, but let me press him a little on his previous answers. What steps has he taken to reassure himself that those groups are willing to work alongside each other to find a solution in Syria? What reassurance does he have that they are representative of communities in Syria and, perhaps most importantly, that they are supportive of the terms of the Annan plan? Would achieving all those things not be the best way to get Russia involved?

[Mr Hague]

I can give the hon. Gentleman a fair degree of confidence about those things. Certainly in what they say, the groups are committed to a Syria with respect for minorities and with democracy, as I said in my statement. They are supportive of a peaceful solution. It is difficult, however, to assess how representative they would be in a free election in Syria, since there has been no such election. I hope we will discover that in the future.

The groups are not sufficiently united. I have spoken to them clearly and bluntly about the need to be united. When any country faces an existential crisis, the people who believe in its freedom and territorial integrity should stand together, as we have always done in this country. Syria is certainly in an existential crisis, so I have put that point to the groups strongly. They need to remedy that without delay.

[David Rutley (Macclesfield) (Con)]

Given the scale of the atrocities, will my right hon. Friend tell the House what steps are being taken to ensure that all relevant intelligence is being shared between the parties and nations that are opposed to the Assad regime to enable the best possible international response should the situation escalate in the days and weeks ahead?

[Mr Hague]

We are in close touch on a daily basis with all our key partners and allies on this matter, including the United States, leading European nations and leading Arab nations. That is why I went back to Istanbul last Wednesday to meet Secretary Clinton and the Foreign Ministers of 13 other nations from the region and from Europe, including the Foreign Ministers of France, Germany and Italy. We share information all the time. What I have said to the House today could have been said, and probably is being said, by the great majority of those Ministers in their Parliaments, because we have a common understanding of the situation and of the way forward, which I have described.

[Michael Ellis (Northampton North) (Con)]

The Assad regime is a brutal, wicked and barbaric dictatorship that is savagely oppressing its people. May I take this opportunity to applaud the Secretary of State and his Department for the work he is doing on the international stage to assist the Syrian people? I appreciate that the Foreign Office has, over several months, repeatedly warned any UK citizens who might still be in Syria to leave that country, but I understand that there may be some UK citizens still there—in particular, those who may have dual nationality. If that is the case, are there any contingency plans for any British citizens who might still be in Syria?

[Mr Hague]

My hon. Friend is right: it is many months now since we warned all British nationals to leave Syria. We have made that clear for a long time, and I reiterated it when we ceased to be able to operate an embassy safely. We have what is called a protecting power arrangement—that is, an arrangement with another country that looks after our interests, which in this case is Hungary, as it still operates an embassy there. We are grateful to the Hungarians for that assistance. They are able to give assistance, if appropriate and possible, to British nationals. However, I repeat that British nationals should not be in that situation. They should have left Syria long ago, and if there are any remaining, they should leave now.

Family Migration

Monday 11th June 2012 Commons Chamber

16:55

[The Secretary of State for the Home Department (Mrs Theresa May)]

With permission, Mr Speaker, I would like to make a statement on family migration.

The Government are committed to reviewing all the main routes for immigration to the UK as part of our programme to reform the immigration system. As a result, we anticipate that net migration will fall from the hundreds of thousands to the tens of thousands. We have already announced major changes to the immigration rules by introducing a cap on work visas and reforming student visas to cut out widespread abuse. We now turn to reform of the family route.

In 2010, family immigration accounted for approximately 18% of all non-EU immigration to the UK—around 54,000 people out of 300,000. However, like the rest of the immigration system, family immigration has not been regulated effectively for many years. Sham marriages have been widespread, people have been allowed to settle in Britain without being able to speak English, and there have not been rules in place to stop migrants becoming a burden on the taxpayer. We are changing all that. The UK needs a system for family migration that is underpinned by three simple principles: first, that those who come here should do so on the basis of a genuine relationship; secondly, that migrants should be able to pay their way; and thirdly, that they are able to integrate into British society. If people do not meet those requirements, they should not be allowed to come here.

In July last year, the Government published a consultation on precisely how such a family migration system can be developed. Today I am setting out the new measures that we are introducing, and will shortly lay before Parliament the necessary changes to the immigration rules, to come into effect on 9 July. I shall place in the Library copies of the detailed statement of intent, together with a summary of the responses to the consultation. When I lay the changes to the rules, I will also publish the impact assessments of the new measures.

For too long we have had an immigration system that could be easily exploited by sham relationships. We are stepping up our enforcement activity, but it is important that policy reflects the seriousness of the problem as well. We will therefore increase the minimum probationary period for new spouses and partners from two years to five years. We will also publish new guidance to help caseworkers identify sham marriages.

For too long we have had an immigration system that did not take into account whether people coming here could pay their way. The Government’s reforms will mean that anyone who wishes to bring a foreign spouse or partner, or dependants to Britain will have to be able to support them financially. They must not become a burden on the taxpayer. Following advice from the Migration Advisory Committee, we will set a minimum income threshold of £18,600 for sponsoring a partner to settle in the UK. This is the level at which a sponsor can generally support themselves and a partner without accessing income-related benefits. Children involve additional costs for the state. To reflect this, there will be a higher threshold for each child sponsored: a £22,400 threshold for a partner with one child, with an additional £2,400 for each further child.

It has also been too easy for elderly dependent relatives to join their migrant children here and then potentially become a burden on the taxpayer. Therefore, if someone wants to sponsor a dependent relative to come to Britain who requires personal care, they will have to show, first, that they cannot organise care in the relative’s home country and, secondly, that they can look after the relative without recourse to public funds. We will also limit to close family the people who are able to access that route: parents, grandparents, sons, daughters, brothers and sisters. Aunts and uncles will no longer be eligible to come here through the family route. Future applications will also have to be made from overseas, not while the applicant is here as a visitor.

For too long, people have been allowed to settle in Britain without being able to speak English well enough and without having a proper appreciation of our values. So, from October 2013, all those who wish to live here will need to demonstrate that they are able to participate fully in British life. All applicants for settlement will need to pass the “Life in the UK” test and, because a person cannot integrate if they cannot communicate, we are strengthening the language requirement by introducing a separate English language test at intermediate level.

The family migration system will work best if it is able to operate efficiently. That means simplifying processes and removing unnecessary waste. The cost of administering appeals against family visit visa refusals is around £29 million a year. No other category of visit visa attracts a full right of appeal. So the Crime and Courts Bill will remove the full right of appeal for family visitors, bringing the process in line with the rest of the immigration system. In the meantime, we will lay new regulations to restrict the full appeal right to those applying to visit a close family member who has settled, refugee or humanitarian protection status in the UK.

In developing all the measures that I have outlined, the Government have had article 8 of the European convention on human rights—the right to respect for private and family life—very much in mind. But, as the convention itself makes clear, article 8 is not an absolute right. The convention allows the state to interfere in the exercise of article 8 rights when it is in the public interest to do so, and when the interference is proportionate to the public interest being pursued. In an immigration context, it allows necessary and proportionate interference on public safety grounds, or to protect the UK’s economic well-being.

Article 8 is clearly a qualified right, but Parliament has never set out how it should be qualified in practice. So, for too long, the courts have been left to decide cases under article 8 without the view of Parliament, and to develop public policy through case law. It is time to fill the vacuum and put the law back on the side of the British public, so we are changing the immigration rules to establish that if someone is a serious criminal, and if they have not behaved according to the standards that we expect in this country, claiming a right to a family life will not get in the way of their deportation.

If a foreign criminal has received a custodial sentence of 12 months or more, deportation will normally be proportionate. Even if a criminal has received a shorter sentence, deportation will still normally be proportionate if their offending has caused serious harm or if they are a persistent offender who shows particular disregard for the law. For the most serious foreign criminals—those sentenced to four or more years in prison—article 8 rights will prevent deportation only in the most exceptional of circumstances.

I will shortly ask the House to approve a motion recognising the qualified nature of article 8 and agreeing that the new immigration rules should form the basis of whether someone can come to or stay in this country on the basis of their family life. For the first time, the courts will have a clear framework within which to operate, and one that is on the side of the public, not foreign criminals. I commend this statement to the House.

17:02

[Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)]

I thank the Home Secretary for giving us early sight of her statement on family migration, article 8 and foreign criminals. I thank her for giving us early sight of it in The Sunday Times and on “The Andrew Marr Show” as well.

I shall respond first to the Home Secretary’s points about article 8. Foreign citizens who come to Britain should abide by our rules. The Government should be able to deport people who break the law and, as she will know, the number of foreign criminals being deported trebled in the last five years of the Labour Government. However, there continue to be cases in which it is difficult to understand why the courts have allowed the foreign criminals involved to stay in Britain. We therefore agree with the Home Secretary that action is needed.

Article 8 of the European convention on human rights is a qualified right, and the right to respect for family life should be balanced against other issues, including public safety, economic well-being and preventing disorder or crime. Parliament is therefore entitled to set out how those rights should be balanced against those considerations when dealing with foreign criminals, and to provide a framework within which the courts should operate. We should discuss those details, but the way in which Parliament provides that framework must be legally effective.

I am puzzled by the Home Secretary’s decision to use a motion in Parliament that will obviously not change the law or override case law in the way that primary legislation would. Surely that approach will risk creating confusion and legal uncertainty. Would it not be better for her to do this properly, through primary legislation, instead? If that were to happen, we would happily hold discussions with the Government to work on getting that right.

On the measures on family migration, when people travel and trade across borders more than they ever did before, there needs to be a fair framework for those who fall in love and build family relationships across borders, too. We agree that stronger safeguards are needed for the taxpayer on family migration. If people want to make this country their home, they should contribute and not be a burden on public funds, but it is not clear that the best way to protect the taxpayer is to focus solely on the sponsor’s salary. For example, in the current economic climate, someone on £40,000 today could lose their job next month, and then, of course, there is no way to protect the taxpayer. The system does not take account of the foreign partner’s income, which might have a differential impact on women. Will the Home Secretary explain why the Government ruled out consulting on a bond that could have been used to protect the taxpayer if someone needed public funds later on?

There is also a wider problem about the gap between the Government’s rhetoric and reality. The Home Secretary admitted yesterday that these changes to the family visa will not mean “big numbers”, yet she said again today that she anticipates meeting her net migration target of tens of thousands, even though the latest figures show net migration still at around 250,000. Will she tell us when she expects to meet that target? Does she still think it will be met by the end of this Parliament, in line with the Prime Minister’s promise—“No ifs. No buts.”—that it would be met or are she and the Prime Minister making promises that they have no intention of keeping?

There is also a gap between rhetoric and reality on deporting foreign criminals. The number of foreign criminals deported increased every year until the election, but since then it has fallen, year on year. It fell by 18% in the last financial year alone, as nearly 1,000 fewer foreign criminals were deported in 2011-12 compared with the previous year. According to Home Office briefings to the newspapers, the Home Secretary’s measures on article 8 will apply to 185 foreign criminals. Even if every single one of those article 8 cases had been deported, the Government would still have deported hundreds fewer foreign criminals last year compared with the year before, and we would still have more foreign criminals in the community instead.

The truth is that this announcement does not deal with the growing problem under the Home Secretary’s Government. Too many foreign criminals are staying in Britain—not because of article 8, but, in the words of a borders inspector, because of

“difficulty in obtaining travel documentation”

resulting from the Border Agency’s weaknesses in enforcement and administration. This is another example of problems that have got worse for the Border Agency in the last two years.

We will work with the Home Secretary to get the detail right and on some of the sensible points she has made, but statements and parliamentary motions are not enough; she also needs to take action on the practical problems that have got worse on her watch.

[Mrs May]

I thank the shadow Home Secretary for supporting the action the Government are taking in some areas, and I hope she will be able to carry that support through when the motion comes before Parliament, because a strong voice from this Parliament on article 8 and the rules on family migration will be all the more effective in relation to the courts.

The right hon. Lady asked why we have chosen to work through a motion in Parliament and immigration rules. We will change the immigration rules, and this Parliament will have an opportunity to make its voice heard and to give its clear view on where it feels the framework should sit in respect of article 8. I have every expectation that that will have an impact on how article 8 is interpreted in the courts.

The right hon. Lady asked why we had gone down the route of the income threshold. We asked the independent Migration Advisory Committee to advise us on what we should do and on what income level we should adopt. It gave us a range of income levels from £18,600 up to a higher point, and we chose to adopt the lower point, adding in elements for individual children, rather than go down a route that would be available only to those people who had capital and were able to put up a bond in the first place.

Changes in the numbers were also raised. The right hon. Lady was right to refer to the net migration figure shown in the last published set of statistics from the Office for National Statistics, which includes migration numbers up to September 2011. What she may have failed to look at, however, are the figures for student visas thereafter, as we have seen a significant decrease in the number allocated through to March 2012. [Interruption.] The shadow Immigration Minister, the hon. Member for Rhondda (Chris Bryant), says “That is good”, as though getting rid of abuse in the student visa system were not good. I am not surprised, because for too many years Labour allowed too many people to come to this country claiming to be students when they were not students. We are getting on with dealing with that.

The right hon. Lady talked about the need to deal with deportation. We are increasing the enforcement action that is being taken. All Governments have experienced problems in regard to the acceptance of an individual as being from the country concerned and the granting of the recognised travel documents on that basis, but the right hon. Lady’s claim that this Government are somehow failing in relation to immigration sits ill with the record of her Government over too many years. Her Government failed to control immigration; this Government are controlling immigration. Her Government failed to end the abuse of student visas; this Government are ending the abuse of student visas. Her Government failed to deal with article 8; this Government are dealing with article 8.

[Several hon. Members]

rose—

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. I remind the House that in order to ask a question about the statement, a Member must have been in the Chamber to listen to it.

[Mark Reckless (Rochester and Strood) (Con)]

I welcome the series of impressive and, dare I say, Conservative measures that the Home Secretary has announced. Given that thresholds are higher when children are involved, is there not a risk that people entering the country in order to marry will quickly have a number of children, and may therefore need state support although they are above the original threshold?

[Mrs May]

I understand my hon. Friend’s point, but I think that it would be highly unreasonable for the Government to tell people that they could enter the country but could not have any children. When people first enter the country, they will be able to stay for a limited period, and will then have to undergo a renewal process to establish whether they meet the requirements at all stages before they achieve settlement.

[Mr Jack Straw (Blackburn) (Lab)]

While, like my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper), I do not recognise the parody of the last Administration’s immigration policy, I none the less welcome the decision about guidance on article 8. Young Amy Houston, aged nine, was killed in my constituency by a hit-and-run failed asylum seeker who subsequently invented a family life. Despite the very best efforts of the Home Office, my right hon. Friend the Member for Kingston upon Hull West and Hessle (Alan Johnson) and me to pursue appeals, the appeal decisions were, I believe, incomprehensible to most people, and that family have been left bereft.

May I ask the Home Secretary two consequential questions? First, if it transpires that the changes in the immigration rules and the resolution in the House do not work as intended, will she introduce primary legislation? Secondly, will she look at the current practice whereby the courts keep their judgments confidential in cases such as that of Mohammed Ibrahim? It was very difficult even for me, as Justice Secretary and the bereaved father’s Member of Parliament, to get hold of the judgment of that immigration court. Whatever the arguments may be for confidentiality on asylum applications, there can, or should, be no confidentiality in cases such as this.

[Mrs May]

The right hon. Gentleman has made an extremely important point. As he will have noticed, the current Justice Secretary is in the Chamber and will have heard what he has said. I am sure that we can consider the right hon. Gentleman’s point about the confidentiality of judgments.

The right hon. Gentleman referred to the terrible case involving the actions of Mohammed Ibrahim. Obviously, Paul Houston has been campaigning for changes for some time, and we expect the changes that we are introducing to deal with such cases. The House of Lords in 2007, and the Court of Appeal in more recent cases last year and this year, have made clear the need for a statement from Parliament about where the public interest lies. The right hon. Gentleman is right, and I am grateful for his support.

[Mr John Redwood (Wokingham) (Con)]

I urge the Home Secretary to take the advice that if, peradventure, a motion is not sufficient, this House will be very happy to legislate to deal with the foreign prisoner problem, and will she also explore with the Justice Secretary whether there are more foreign criminals in our jails who could serve their term elsewhere, and not at our expense?

[Mrs May]

I thank my right hon. Friend for those questions, and they serve to remind me that I did not answer the point made by the right hon. Member for Blackburn (Mr Straw) about the next steps we might take if what we are doing does not lead to a change in the sorts of decisions coming from the courts. If that is the case, we will, indeed, look at further measures, and they could, of course, include primary legislation. I can assure my right hon. Friend that both the Justice Secretary and I have an interest in trying to ensure that as many foreign national prisoners as possible are removed from this country, including being removed to serve their sentence elsewhere.

[Keith Vaz (Leicester East) (Lab)]

I support what the Government are doing on article 8, which is in keeping with the Select Committee’s recommendations on the removal of foreign national prisoners, but I profoundly disagree with the Home Secretary’s proposals on spousal visas. The effect of that change will be directed against the British Asian community—not against illegal immigrants, but against settled Britons who are here, pay their taxes and contribute to this country. I do not believe that the British Home Secretary should be determining who the spouse of a British citizen should be based on an arbitrary limit—on an arbitrary financial limit. I urge the Secretary of State to look again at these proposals. She should look at the limits and see how this would affect a city like Leicester.

[Mrs May]

What I think is absolutely right is that the British Government should say that if somebody is bringing somebody in here to be their spouse or partner, they should be able to support that individual and the family life they are going to have. That is important, and that is what the Government are saying. The right hon. Gentleman talks about the income threshold being arbitrary, but it is not arbitrary. The Migration Advisory Committee looked at various levels of income and this was the level it said was the point at which people could generally support themselves without having to be reliant on income-related benefits. It suggested a higher level to us as well, but we chose this level. I think it is right that people should be able to support the individual they are bringing in to be their partner or spouse.

[Lorraine Fullbrook (South Ribble) (Con)]

I welcome the fact that an English language requirement has been introduced for foreign spouses coming to the UK. What further measures will be put in place to ensure that those coming here legally can be properly integrated into our communities?

[Mrs May]

My hon. Friend raises an important point. This is not just about numbers; it is also about ensuring that people are able to integrate and participate fully in British society, and speaking the English language is an important part of that. That is why from next year we will raise the required level to intermediate level. We will also require people to take the “Life in the UK” test, to ensure that they have an understanding of life here in the UK, because we want the people who come here to be able to participate fully in British life, and to contribute fully to it, as I am sure they want to do.

[Mr Frank Field (Birkenhead) (Lab)]

I welcome the Home Secretary’s statement, as I have also welcomed her earlier, allied statements on this theme. The polls show that voters of all parties are concerned that our population is growing primarily because of immigration. When all her policies are in place, what impact will they have on that projected growth?

[Mrs May]

As I have made clear on several occasions, we are putting in place a number of policies that we anticipate will lead to reducing net migration to the tens of thousands. I have never been somebody who says I expect the population of the UK to be a certain figure by a certain period of time, but I think it is right that, by taking these actions, the Government will be reducing net migration, and that will have an impact on the matter the right hon. Gentleman raises.

[Michael Ellis (Northampton North) (Con)]

I commend the Home Secretary on this move. Does she agree that some of the judgments by judges hearing cases relevant to this issue have, frankly, been embarrassing and infuriating? Judges must be encouraged to consider the public interest first and foremost. If they are not inclined to consider the public interest first, with this House having passed a motion on the matter, primary legislation must be given a high priority.

[Mrs May]

As I indicated in a previous response, on a number of occasions the judiciary has, in effect, said to Parliament, “You need to set out what is the public interest and where the balance of public interest lies.” That is why I expect that what we are doing in the immigration rules and the debate in Parliament will help judges in saying, “This is where Parliament believes the balance should be between the public interest and the individual’s rights.”

[Pete Wishart (Perth and North Perthshire) (SNP)]

What discussions did the Secretary of State have with the Scottish Government about the proposals? Why was she not open to the suggestion of variance in the minimum income threshold, to match the variance of income across the United Kingdom? We in Scotland do not share her little conservative view of immigration; we prefer to do things a bit differently. Does she not think it is now time that we had our own powers over immigration, so that we can match our community needs in Scotland?

[Mrs May]

A regional variation in the income threshold was looked at by the Migration Advisory Committee and rejected by that committee for a number of reasons. The committee looked at income versus public sector costs in regions and the purely practical point that if we had regional variation, the result could very well be someone initially going to live in a region where the threshold was lower, in order to get into the country, and then moving within the country.

[Tom Brake (Carshalton and Wallington) (LD)]

The coalition Government must be firm but fair on immigration, so I welcome the income threshold that was eventually agreed. What flexibility or discretion will be available for those who, for example, might not be able to pass the intermediate language test—perhaps for medical reasons—or who, for exceptional reasons, might have to apply for family reunion while they are in the UK?

[Mrs May]

Obviously we are conscious that some people will find it difficult to deal with the income threshold—perhaps a sponsor here who is disabled and may not have the same expectations of income as others—so there will be some ability to be flexible on that. The English language test is an important part of the scheme we are putting in place. I acknowledge what my right hon. Friend says about people who, for a medical reason, may have difficulty with that, but overall I think it is right that we have the test in the scheme.

[Stephen Timms (East Ham) (Lab)]

I was contacted by a constituent this morning. He is engaged and he earns £16,000 a year. He says:

“I have never relied on the state…I would like to live a happy life with my wife in my country of birth, why should the amount I earn be a reason not…to”?

How does the Secretary of State answer my constituent?

[Mrs May]

I say to the right hon. Gentleman what I have said previously. When someone wants to bring a partner or spouse to the UK, it is right that we have an expectation that they will be able to do so without relying on benefits. The income threshold set by the Migration Advisory Committee is the level at which people are generally able to support themselves and a dependant, which is the circumstance that pertains when someone brings in a spouse or partner. The figure has not been plucked out of the air by this Government. The Migration Advisory Committee looked at it very carefully and this is the threshold that it proposed.

[Paul Uppal (Wolverhampton South West) (Con)]

Some years ago, a prominent immigration lawyer told me that the two main drivers of immigration are, first, the perception—right or wrong—that we have an overtly generous welfare system in the UK; and secondly, lax human rights legislation. Does my right hon. Friend agree that in this statement and through our welfare reforms, we are tackling those issues head-on?

The shadow Home Secretary talked about a bond. Does my right hon. Friend not find that ironic and perhaps politically opportunistic, given that, when in power, Labour considered such a measure but chose to put it to one side, but in opposition they sing a different tune?

[Mrs May]

My hon. Friend makes an important point, and he is absolutely right: when people look at which country to move to, there are issues to do with their perception of the laxity or otherwise of the regimes operating in that country. What we are doing today on the immigration rules and article 8, our measures on all the other aspects of immigration, and the welfare reform we are putting through, will have an impact.

As for the bond, not only is it ironic that that is something that the previous Government looked at, but of course it would make it even harder for the people to whom the Chairman of the Home Affairs Committee and the right hon. Member for East Ham (Stephen Timms) referred.

[Glenda Jackson (Hampstead and Kilburn) (Lab)]

It is not unusual for individuals to have been brought to this country as small children by their parents from former British colonies and then to have lived for 40, 50 or, as in one instance in my constituency, 60 years in this country under the misapprehension that they had automatic British citizenship. If one of these individuals—someone who has lived all their life in this country, been educated here, created a family here and, as in many instances, created businesses here—commits a crime and has to serve a prison term, should they be deemed to be foreign and therefore be deported?

[Mrs May]

I made clear in my statement the thresholds that we believe should pertain in this instance, and that only in exceptional circumstances should somebody who is committed to prison for four years or more, having committed a crime, be able to claim family rights here in the UK and that deportation is normally proportionate for those who have been imprisoned for 12 months or more. I say to the hon. Lady about the individuals concerned: I am sorry but if they do not want to risk the possibility of being deported as a foreign national offender, they should not commit a crime in the first place.

[Mrs Helen Grant (Maidstone and The Weald) (Con)]

These proposals will help to tackle the scourge of the sham marriage. What other action is my right hon. Friend taking to address such issues?

[Mrs May]

Sham marriage is a problem and it is right that we should look at it. We are examining some further steps that could be taken to deal with it, such as combining some of the powers of the UK Border Agency and the registrars to ensure that they have greater ability to deal with what they consider to be sham marriages, should they appear. We have also stepped up our enforcement activity. As a member of the Church of England, I am sad to have to say that, as my hon. Friend may have seen, there have been cases where Church of England vicars have been undertaking sham marriages. I think that is appalling, but we have been identifying those cases and taking action.

[Jeremy Corbyn (Islington North) (Lab)]

May I ask the Home Secretary to think again about the answers she gave to my right hon. Friends the Members for East Ham (Stephen Timms) and for Leicester East (Keith Vaz) on spousal visas and family reunion? When she carries out this impact assessment, will she examine the impact on communities and on families on modest incomes, who have every right to be together as a family? In her impact assessment, will she also give some credibility to the enormous contribution made to the economic success of this country by 60 years of migration to our society and the great benefits given to us? Could she not say something positive about the role of immigrants in our society, rather than always repeating what the Daily Mail says?

[Mrs May]

If the hon. Gentleman were to look back at the speeches and comments I have made on immigration over the past two years, he would see that I frequently say that immigration has been a positive benefit to this country. But what I think is not good for this country is uncontrolled immigration. That is why this Government are bringing some control into our immigration system. We made it clear two years ago that we would look at every aspect of immigration, and we have done so. We continue to look at issues associated with immigration, and it is absolutely right that we set out clearly what we believe are the parameters within which it is right for someone to be able to bring a spouse or partner here to the UK.

[Chris Heaton-Harris (Daventry) (Con)]

I congratulate the Secretary of State on making one of the most important announcements of this Session in this House today. It is so important that I am here to ask a question about it instead of watching England against France. [Interruption.] I am doing my bit. There is a distinct lack of public confidence in our immigration system. Is not the best way to tackle that by introducing these sorts of measures, which strengthen public confidence as a result of strong, robust immigration measures?

[Mrs May]

I thank my hon. Friend for his commitment to this issue, such that he is in the Chamber now. [Interruption.] I have noticed that there have been one or two leavers since the statement started, which may have something to do with what is happening in Ukraine. He is absolutely right to say that the issue of confidence is important, and I think that members of the public will be pleased to see that the Government have taken yet another step to bring some control into our immigration system.

[Dame Joan Ruddock (Lewisham, Deptford) (Lab)]

Among the two categories of people who come to me most frequently in my constituency are parents seeking to bring often teenage children to this country because the grandparents who are looking after them in Africa have either died or become unwell. Will the right hon. Lady say what the impact of these new measures will be on that kind of family reunion? Am I right in thinking that she has said that very elderly people who may not have had the opportunity to learn English but are dependants of people in this country will have to pass the new intermediate English test?

[Mrs May]

In relation to the right hon. Lady’s first point, we have made it clear that there is an income threshold for people who want to bring a spouse, a partner or a child to the UK. On her second point, which was on dependent relatives, we are tightening up the system, but making it clear that it may be possible to bring in an elderly dependant who requires a degree of care that is not available to them in the country in which they live. In such circumstances, it must be shown that they will not be a burden on the state and that the personal care can be provided by the family.

[Dr Julian Lewis (New Forest East) (Con)]

What will be the effect of the package on asylum seekers who come without their spouse or children? In particular, some asylum seekers fail to get asylum but cannot, for one reason or another, be sent back. There are also genuine asylum seekers to whom we are happy to grant asylum. Will they be able to bring their families to join them?

[Mrs May]

Asylum seekers will have the same rights to apply to be here in the UK as they have currently. The package is for those who want to bring non-EU people as spousal partners; it does not affect people who are here genuinely as asylum seekers and who have been given the protection of this country.

[Fiona Mactaggart (Slough) (Lab)]

Before the election, the Home Secretary said compellingly that she wanted to be part of a family-friendly Government, but the proposals put a means test on family life for many people and mean that some parents cannot be in the same country as their children or their spouse. She will be aware that, currently, if a spouse applies for a visit visa, they are automatically refused, because it is said that they should be able to get a settlement visa. She is ending the appeal against the refusal of visit visas, but will she change the arrangements so that, for example, fathers can at least come and be at their children’s graduation ceremonies as a visitor when families cannot afford to settle here together?

[Mrs May]

The hon. Lady refers to ending family visit visa appeals. It is right that we do that. It is the only immigration route that has a full appeal. It will be quicker for people to put in a separate application for a decision rather than appeal. All too often, appeals cases are lost because further evidence is brought forward when it might have led to a different decision had it been available in the first place.

[Duncan Hames (Chippenham) (LD)]

Young newlyweds in Britain are often supported financially by their parents. Would it not therefore be appropriate to allow the parents of sponsors to demonstrate such financial commitment by contributing to meeting any income thresholds applied under the new rules?

[Mrs May]

I understand the hon. Gentleman’s point. We are giving some allowance within the rules—with qualifications—for individuals’ savings, but we do not think that it is appropriate to include money that somebody just says they can give to the sponsor. The measures are about the sponsor showing that they can support the spousal partner and/or children that they are bringing into the UK.

[Nia Griffith (Llanelli) (Lab)]

Many in my constituency working in both the public and the private sector bring up a family on less than the proposed threshold. What equality impact assessment has the Secretary of State carried out on whether the threshold will have a disproportionate effect on groups such as younger people, British women who want to bring in a foreign husband, or those living in less prosperous regions?

[Mrs May]

The hon. Lady echoes an earlier question about impact assessments. As I said, all the impact assessments will be published when the immigration rules are laid.

[Nick de Bois (Enfield North) (Con)]

The Home Secretary’s proposals are very welcome, and my constituents will welcome them. Can she confirm whether the English language test will be held under test conditions, and whether identities will be checked, to avoid cases such as those in which people have had other people take tests for them?

[Mrs May]

We are conscious of the problems that have existed in relation to some tests in the past, which is why we have already tightened up the rules. We will continue to examine the tests to ensure that they genuinely assess whether an individual—and the right individual—fulfils the language requirements that the Government set out.

[Alison Seabeck (Plymouth, Moor View) (Lab)]

The right hon. Lady may be aware that my constituency has a strong military presence, including overseas servicemen and women. We have a significant number of Fijians serving in the Royal Navy and Royal Marines, for example. What discussions did she have with the Ministry of Defence about the ability of those servicemen, who often sign up for more than 10 years at a time and are obviously on lower incomes, to bring their families here and keep them here?

[Mrs May]

We have indeed discussed the issue with the Ministry of Defence, and the current rules will continue for the time being for both serving UK personnel and foreign and Commonwealth personnel. We are considering how we can revise what are called the part 7 rules, which relate to foreign and Commonwealth personnel serving in Her Majesty’s forces, and in the coming months we will consider very carefully what arrangement should apply in future. At the moment, transitional arrangements mean that the current situation will pertain for those personnel.

[Mr Edward Leigh (Gainsborough) (Con)]

I warmly commend the Home Secretary for her statement today. It shows that we can come up with good, strong, Conservative statements and be popular with the British people. Our Liberal friends, take note.

May I say to the Home Secretary that the reality must match the rhetoric? We gave a solemn promise at the last general election that we would get immigration down to tens of thousands, and there has been far too little progress. Will she recommit herself today to appointing officials of sufficient quality and in sufficient numbers to achieve that aim? Otherwise, there will be a huge democratic deficit.

[Mrs May]

The figure of tens of thousands continues to be the aim that we are working towards. My hon. Friend is right that, as I indicated in response to the shadow Home Secretary, the figures to September 2011 have still not shown a fall. If he looks at the subsequent student visa figures through to March 2012, however, he will see a significant fall in allocations. That should have an impact on net migration figures in due course.

My hon. Friend tempts me down a route that I will not go down, but I make fairly and squarely a point that I should have made in response to an hon. Friend earlier: these proposals have been put forward by the coalition Government.

[Jonathan Ashworth (Leicester South) (Lab)]

I entirely reinforce the point that my parliamentary neighbour, my right hon. Friend the Member for Leicester East (Keith Vaz), put to the Home Secretary. Even if the threshold has been suggested by the Migration Advisory Committee, surely she must recognise that it is entirely arbitrary and that many people in Leicester and other parts of the country are on earnings of nowhere near £18,000. Does she not recognise that many families who settle in cities such as Leicester make a huge contribution to the economy? What economic modelling has she done of the wider economic implications of these restrictions?

[Mrs May]

A question that starts off by referring to the fact that the figure has been produced by the Migration Advisory Committee cannot, in the same breath, say that it is “entirely arbitrary”. It is not arbitrary. The committee considered very carefully the level at which people can normally support themselves and not depend on income-related benefits, and that is the figure we selected.

[Andrew Bridgen (North West Leicestershire) (Con)]

From the Brighton conference reforms to the changes announced today, does my right hon. Friend agree that this Government have done more to address the legal misuse of human rights legislation in the past 13 weeks than the previous Government did in 13 years?

[Mrs May]

I can give my hon. Friend a very simple and easy answer to his question, and that is yes.

[Kate Green (Stretford and Urmston) (Lab)]

What discussions has the Home Secretary had with her colleague the children’s Minister, the Minister of State, Department for Education, the hon. Member for Brent Central (Sarah Teather), about the implications of the announcement on the best interests of children? Will the Home Secretary assure me that when she publishes the draft regulations and the Government’s impact assessment there will be a full analysis of the implications for compliance with the UN convention on the rights of the child?

[Mrs May]

We have considered that aspect of the proposals’ impact and I can assure the hon. Lady that every relevant Department was involved in considering these issues, including the Department that contains the children’s Minister.

[Mr Stewart Jackson (Peterborough) (Con)]

I welcome my right hon. Friend’s announcement and believe that her proposals bear comparison with the robust policies pursued by the Labour party in Australia. She will know that notable human rights lawyers such as Geoffrey Robertson QC have already said that in the absence of primary legislation, an indicative motion in this House would not fetter the discretion of or bind the European Court of Human Rights. Is it not therefore right that we should still keep open the option of reviewing our membership of that body, with a possible option of doing what Sweden did and temporarily suspending our membership?

[Mrs May]

I am aware that there are those who have indicated that they think that the courts will not pay the attention that I expect them to pay to the framework set out by Parliament. We are talking about the decisions that the UK courts will take. On some aspects of the immigration rules—my hon. Friend might not like my saying this—the European Court has taken a tougher view than the courts in the UK. Our intention is that the courts in the UK should now have a clear framework so that they know when and how to operate and how to balance the public interest with individual rights under article 8.

[Mel Stride (Central Devon) (Con)]

Does my right hon. Friend agree that it would be beneficial if, as a result of her statement, we sent a clear message to the judiciary that the right to a family life is a qualified right that must be qualified in the public interest?

[Mrs May]

I entirely agree with my hon. Friend. The European convention is absolutely clear that the right to a family life is a qualified right. What we are doing today and will do in due course when Parliament has its debate—and, I trust, supports the motion the Government will propose—is saying very clearly to the judiciary, “Here is the framework and the balance you should be striking between the public interest and that of the individual.”

[Neil Carmichael (Stroud) (Con)]

I warmly welcome the statement. On the question of sham marriages, is it not conceivable that a forced marriage could fall into that category? What measures does the Home Secretary have to deal with that and what are her thoughts on that subject?

[Mrs May]

As a Government, we are very concerned about forced marriages. We have decided to take the step of criminalising forced marriage, which we believe will send a clear message to people that it is wrong. It is right that the Government send that clear message because forced marriage is wrong, it leads to abuse and we should ensure that it does not take place.

Point of Order

Monday 11th June 2012 Commons Chamber

17:43

[Caroline Flint (Don Valley) (Lab)]

On a point of order, Mr Deputy Speaker. Today, workers protested against the possible closure of Coryton oil refinery, which would result in more than 850 job losses and cost the local economy nearly £100 million. We understand that a deal to keep Coryton open as a fully functioning refinery could still be possible with the provision of state aid, as has happened in France. With just days left until Coryton ceases to function as a refinery, have you had any indication from Ministers at the Department of Energy and Climate Change that they plan to come to the House to make a statement on the steps they plan to take to secure the future of the refinery?

[Mr Deputy Speaker (Mr Nigel Evans)]

I have received absolutely no indication at all that any Minister intends to come to the House today to make a statement. I am sure that if that is the case, the House will be informed in the usual manner.

Enterprise and Regulatory Reform Bill

Monday 11th June 2012 Commons Chamber

Second Reading

[Mr Deputy Speaker (Mr Nigel Evans)]

The amendment on the Order Paper has been selected.

17:44

[The Secretary of State for Business, Innovation and Skills (Vince Cable)]

I beg to move, That the Bill be now read a Second time.

I recognise that we face serious competition this afternoon, but let me begin by putting the Bill in the wider economic context. Our economic strategy has two key elements, one of which is to maintain a credible fiscal policy. That policy has led to this country’s borrowing costs dipping to record lows in recent weeks. If we were without a believable deficit reduction strategy, we would have been forced to adopt one by market panic. Although fiscal credibility is necessary, it is not sufficient. A lasting recovery has to be built on the back of sustainable sources of demand and, above all, exports and stronger business investment. We are seeking to bring that about in extremely difficult international conditions, though some encouragement can be derived from the fact that 630,000 private sector jobs have been created in the past two years—almost twice the number lost in the public sector.

We also need to deal with the persistent imbalances that the previous Government did so little to address. Gross financial imbalances, a bloated banking sector and property speculation are not a basis for a sustainable recovery. A reliance on domestic demand and the neglect of exports has meant that we have been left behind in international markets. Legislation cannot, of itself, remedy those problems and generate economic activity, but the Enterprise and Regulatory Reform Bill is an important building block none the less. This far-reaching package of measures will scrap the unnecessary bureaucracy that is holding back companies, overhaul the competition framework, and boost business and consumer confidence.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

Will the Secretary of State give the House categorical assurances that this House and the other House will not use the Bill to include the recommendations of the Beecroft review, with specific reference to sack-on-the-spot?

[Vince Cable]

I can give a categorical assurance. Of course, as the report has now been published, the hon. Gentleman may be aware that it contains a number of proposals, many of which are admirable, sensible, and being implemented, but on the particular proposal that he mentions, we will most definitely not be proceeding in the way that he outlines.

[Joan Walley (Stoke-on-Trent North) (Lab)]

I am concerned that the Secretary of State could bring forward proposals in the Beecroft report that would make this an even more scrappy Bill. Does he think it important that his Department looks to bring about growth in the context of the green economy? I do not see the background for that in this scrappy Bill that he is bringing to the House of Commons tonight.

[Vince Cable]

We do see that as part of our mandate; indeed, it is the first item that I will discuss in detail. Specifically to support enterprise, we propose legislating for a green investment bank—that, I think, is the issue that is of concern to the hon. Lady. We propose improving the employment tribunal system and promoting resolution of disputes—that, I think, deals with the first intervention. We propose giving shareholders of UK quoted companies binding votes on directors’ pay; promoting competition through a single competition and markets authority; strengthening powers to address anti-competitive behaviour; and encouraging innovation and investment in design by enabling copyright owners to prevent the importation of replica products.

To simplify regulation and strip away unnecessary red tape, we propose extending the primary authority scheme to more businesses, for one-stop advice; repealing unnecessary regulatory requirements on business; and providing greater powers to time-limit new regulations—that is, to apply sunset clauses to new measures.

[Mr John Whittingdale (Maldon) (Con)]

Does the Secretary of State accept that copyright is the legal expression of intellectual property rights, and is not a regulation? Is he aware of the widespread concern among the creative industries about clause 56, which will allow copyright to be amended by statutory instrument without full parliamentary debate? Will he assure the House that the Government will not change copyright in that way without proper parliamentary scrutiny?

[Vince Cable]

Yes, I can give assurances on that. We will deal with this subject later, but I totally accept the hon. Gentleman’s crucial point: intellectual property rights are a key part of a market economy. They are not “regulation” in the pejorative sense in which we normally refer to it—absolutely not; but we have to strike a balance between access to information and copyright protection. We think we are striking the right balance, and we are proceeding to implement the Hargreaves report, which has many of those ideas at its heart. On a personal level, I introduced the private Member’s Bill that strengthened criminal penalties for copyright theft, so I have a long-standing interest in upholding that legislation.

Let me deal with the first issue I mentioned—the green investment bank. The transition to a low-carbon economy is a very big challenge. Some analysis suggests that there will be demand for more than £200 billion of investment in the next decade to develop the innovative technologies and products that will underpin it. The challenge is all the greater, given the novelty of these markets and the long-term nature of returns on green infrastructure investment, which may deter private sector investors. There is a market failure here that the green investment bank will address. The bank will break new ground in the financing of projects, while demonstrating to the market that such investments can deliver commercial returns.

[Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)]

rose—

[John Healey (Wentworth and Dearne) (Lab)]

rose—

[Vince Cable]

Let me finish, and then I will take interventions.

The bank will also demonstrate the Government’s lasting commitment to important green objectives. For these reasons, I am sure the Opposition will welcome and support its objectives, as I am sure the hon. Lady will.

[Luciana Berger]

The Secretary of State may be aware that a number of months ago the Deputy Prime Minister committed money from the green investment bank to capitalise the initial run of loans for the green deal, which is supposed to launch in a few months, yet we heard at the end of last week that a number of companies, including British Gas and Kingfisher, are halting their plans to proceed with the non-profit-making green deal finance company because the money that they are expecting from Government has not been forthcoming. Will the Secretary of State say when they should expect those funds to come forward?

[Vince Cable]

I am aware that the team currently working on this, UK Green Investments, has been looking at the green deal proposal. Of course it must be commercially viable, as well as environmentally sound, and I cannot give the hon. Lady a precise answer as to when the team will have completed its analysis. I think a good deal more information is still required.

[John Healey]

Will the Business Secretary confirm that the green investment bank will be able to raise funds from the capital markets? In other words, will it be a bank that is able to borrow? If not, it cannot be described as a bank, and it is really just a fund.

[Vince Cable]

It has been described as a bank by the Financial Services Authority, which is the relevant regulatory body, and it will be able to borrow after 2015 in capital markets, subject to the overall debt position of the Government at that time. It is a bank.

[Joan Walley]

Is it not the case, though, that without the certainty that it will be possible for the bank to borrow on the open market, the first few years of the green investment bank will be uncertain? We will not know definitely that it will be able to borrow when the time comes.

[Vince Cable]

The bank will have the certainty of knowing that it has £3 billion committed to it from the Government and it is in the process of developing the projects to utilise that efficiently. I shall point out to the House some of the steps that have been taken to provide that concrete certainty about which the hon. Lady asks.

We have formed the bank as a public company, called the UK Green Investment Bank plc. It will be headquartered in Edinburgh. I have appointed Lord Smith of Kelvin as the chair and Sir Adrian Montague as the deputy chair. The bank will be funded with £3 billion to 2015, and the first £200 million of that has already been allocated by UK Green Investments. It will have borrowing powers from 2015, subject to a quite proper test of improving public finances. The Bill specifically provides for complementing this work by ensuring that the bank must have a statement of objectives clause in its articles of association.

The Bill also embeds the bank’s independence, which is crucial for its success. To achieve this, the Bill requires me as Secretary of State to lay an undertaking before Parliament not to interfere with the bank’s operational independence or commercial activities as a condition of designation. I provided this undertaking to the bank on its incorporation. This will ensure that the bank operates on commercial terms, funding these nascent and important environmental markets.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

I welcome the establishment of the green investment bank in Edinburgh. What measures are the Government putting in place to ensure that small and medium-sized businesses can benefit from the green investment bank? Will there be a procurement code, as requested by the Federation of Small Businesses?

[Vince Cable]

I do not think a specific procurement code is required for this institution, though of course Government procurement raises wider questions. If the hon. Lady looks at the first tranche of commitments—the £200 million—she will find that that is for a fund dealing with a substantial number of waste projects, which have small-scale enterprises as part of their supply chain. That is the way that SMEs will benefit.

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

Will the Secretary of State confirm that not only are the Government committed to the green investment bank, which is a very good thing and has long been called for, but that there is a wider strategy in his Department, the Department of Energy and Climate Change and the Department for Communities and Local Government to make sure that we develop the green economy, producing a significant number of extra manufacturing jobs and apprenticeships and growth, and that that is a very significant part of the Government’s policy as a whole? It is not just about a bank and £3 billion being lent over a certain number of years.

[Vince Cable]

My right hon. Friend is right. We have the Green Economy Council, which is an over-arching body representing the key Departments in the Government to make sure that our work in this area is integrated and properly joined up.

[John Healey]

If the referendum on Scottish separation is successful, will the Secretary of State relocate this green investment bank from Edinburgh back to England? May I recommend that he considers Leeds and re-examines the case for locating the bank in Yorkshire?

[Vince Cable]

I have every confidence in the sense of the Scottish people, and I have every confidence that the bank’s headquarters will remain viable and expanding in Edinburgh.

On employment law, the Government are acutely aware of the need to do all they can to support business expansion and job creation. That is why the Bill contains provisions to reform the employment tribunal system and encourage dispute resolution through conciliation. Smaller businesses have consistently told us that the fear of ending up in a tribunal is high up their worry list and is a real disincentive to taking on staff. I have made it absolutely clear that I have no truck with the idea of a free-for-all hire-and-fire culture, and responsible British businesses do not want to go there either.

[Mr David Evennett (Bexleyheath and Crayford) (Con)]

I congratulate my right hon. Friend on his introductory comments on this important Bill. Government Members strongly believe in business, and we do not want to hold it back. On the other hand, we want regulation that is necessary to protect the work force, and we want to help them. We need a change in the law to help businesses grow and flourish.

[Vince Cable]

My hon. Friend makes the point in a fair and balanced way, and he defines exactly what we are trying to achieve.

[Richard Fuller (Bedford) (Con)]

I am grateful to my right hon. Friend for saying that he will have no truck with compensated no-fault dismissal, but with many businesses, through the Institute of Directors and the Federation of Small Businesses, making the case for compensated no-fault dismissal, what representations has he had on that? Why has he been so strenuous in saying that he will have no truck with it?

[Vince Cable]

I am happy to go back and look at the correspondence, but the Federation of Small Businesses, as well as the Engineering Employers Federation, made it absolutely clear that they did not think that was a sensible approach for business.

[Julie Hilling (Bolton West) (Lab)]

When the Secretary of State says that a great number of people have made representations about employment regulation curtailing business growth, does he agree that it is only 6% of employers who stated that employment regulation is an issue that concerns them?

[Vince Cable]

I think the hon. Lady is referring to a survey of small business that my Department did. Indeed, roughly that order of businesses ranked that as their top priority, as opposed to market demand and bank lending. Even though it may not be at the top of everybody’s concerns, for many small companies there is a legitimate fear, as my hon. Friend the Member for Bexleyheath and Crayford (Mr Evennett) pointed out, about the tribunal system and the way it functions.

[Several hon. Members]

rose—

[Vince Cable]

I will take one more intervention, then I will move on.

[Geraint Davies (Swansea West) (Lab/Co-op)]

Does the Secretary of State agree that the Beecroft proposals about no-fault dismissal amount to a charter for intimidation and harassment, including sexual harassment? A boss could say to an employee, “Will you sleep with me?”, and if she said no, she could find herself sacked.

[Vince Cable]

That is going rather further than I would want to go with the argument or the evidence.

[Kate Green (Stretford and Urmston) (Lab)]

The Bill does not contain measures on some of the matters on which the Government are consulting in respect of employment law, following the red tape challenge. Does the Secretary of State intend to bring forward more proposals during the passage of the Bill—in relation, for example, to employer liability for third-party harassment, to the ability of an employment tribunal to make a decision that will then apply to all staff, or to the statutory questionnaire?

[Vince Cable]

I have no such proposals. There is nothing stopping the hon. Lady proposing amendments for us to consider.

[Mr David Ruffley (Bury St Edmunds) (Con)]

In 2004 Germany exempted micro-businesses from unfair dismissal-style protections. Has the Secretary of State looked at the German experience and noted, as I have, that youth unemployment there has halved, from just over 12% to just over 6%, in the seven years since the changes were made?

[Vince Cable]

As it happens, I was in Germany a few weeks ago—I unfortunately had to miss Business, Innovation and Skills questions—and one of the points clearly made by the various employers I met was that their procedure is far more cumbersome than ours, even for small companies. Indeed, small companies are required to adopt the two-tier system, a works consultation, which is very cumbersome indeed. There is no evidence that the German model, although admirable in many ways—I wish we had many of its aspects here—in any way helps to deal with this problem.

[Mr Brian Binley (Northampton South) (Con)]

I had hoped to see in the Bill further measures taken from the German book, particularly the exclusion of micro-businesses from many of the regulations that hamper them right at the start of their life. Is the Secretary of State willing to consider that and perhaps accept an amendment to that effect in Committee or on Report?

[Vince Cable]

We will obviously look at any proposals on their merits, but our current regulatory system does have a micro-business exemption and we test all our proposals against that possibility. My hon. Friend should perhaps look at the FSB’s submission, because one of the problems the small business sector often highlights is that it does not wish to be regarded as a second-rate tier of employment that is colonised by cowboy employers. It makes it very clear that it is small businesses that resist the segmentation of the labour market.

[Mr Sam Gyimah (East Surrey) (Con)]

Does the Secretary of State agree that the current employment tribunal system is not simple, transparent or inexpensive for employers, because for many of them dealing with an individual case or a class action-type case is incredibly expensive and long-winded, and that serves as a barrier to businesses hiring new staff? They know that if things go wrong it is very complicated, so simplifying the system and enabling them to deal with it without resorting to disputes should be the way forward in the Bill.

[Vince Cable]

I totally agree with my hon. Friend, who anticipates many of the things I will say. He is absolutely right that the process is very cumbersome and time-consuming. There is currently an enormous backlog of 430,000 cases and it is very costly, particularly for small companies. The whole thrust of the changes I want to introduce relates specifically to making the tribunal system much simpler and avoidable where possible.

[John Healey]

May I say how welcome the Secretary of State’s balanced view is, in contrast to those of some Members behind and beside him? On the question of changing the tribunal system, what increase in resources will he make available to the Advisory, Conciliation and Arbitration Service if everyone who wants to put a claim to a tribunal must first put it to ACAS?

[Vince Cable]

My experience is that colleagues behind and beside me have a very balanced view of this question—we have no difficulties in this area at all. We will indeed rely heavily on ACAS and it is important that it is properly resourced, so we will obviously have to look at that, but we have had no warnings that it cannot handle the processes that we propose to introduce. If the right hon. Gentleman will let me, I will try to describe what those are.

Our reforms are not about removing individual employment rights; they are designed to ensure that the tribunal system is fair to all parties and supports labour market flexibility. They are meant to improve the prospect of employers and workers sorting out problems through reconciliation—ACAS-based dispute resolution—rather than the adversarial and costly method of going to court, as my hon. Friend the Member for East Surrey (Mr Gyimah) admirably pointed out. Tribunals are a costly and stressful process for everyone involved. Giving all parties a new opportunity to resolve disputes through ACAS will maximise the chances of resolving a problem without going to a tribunal.

We want to do more to encourage parties to reach an agreed solution at an earlier stage. We will therefore introduce an additional clause in Committee to ensure that the offer of a settlement cannot be used against an employer in an unfair dismissal case. That will facilitate the use of settlement agreements, making it easier and quicker for employers and employees to come to an agreed settlement where an employment relationship is not working.

[Julian Smith (Skipton and Ripon) (Con)]

I welcome the decision to move forward with settlements and compensation, which is a really good move, particularly for small businesses, and thank the Secretary of State for listening to many Government Members who have put the case for more clarity for smaller businesses.

[Vince Cable]

I thank my hon. Friend for his positive response. The Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for North Norfolk (Norman Lamb), who will guide the Bill through Committee, will be able to develop that a little more, and any insights that my hon. Friend has for improving that new idea will be warmly received.

[Mr Chuka Umunna (Streatham) (Lab)]

Of course, if an employee and an employer have “without prejudice” discussions that involve an offer to pay off and for the employee to depart on that basis, at present that cannot be adduced at tribunal. The Secretary of State will know that a relationship of trust and confidence is essential to the existence of an employment relationship. How does he see that working if an employer’s offer to pay off has been refused by the employee who feels that there is no reason why they should leave?

[Vince Cable]

If the dispute is then unresolved, which is the implication of the last phrase in the hon. Gentleman’s question, it would of course remain and would have to be resolved either through conciliation or, ultimately, a tribunal, so he is referring to an unresolved dispute rather than a resolved dispute. What we are specifically proposing is that, if there is an agreement and the dispute is resolved, the matter cannot subsequently be raised in a tribunal case—[Interruption.] He shrugs his shoulders, but our understanding, having talked with business groups and trade unions, is that that would be a very helpful step, and I think that that reinforces what we have just heard.

In addition, we are streamlining the tribunal process itself, including providing for the introduction of a rapid resolution scheme, so that straightforward cases can be dealt with more quickly, and reducing the burden of resolution for users of the tribunal system and the taxpayer.

[Mrs Helen Grant (Maidstone and The Weald) (Con)]

Does the Secretary of State agree that the rapid resolution scheme will make it quicker, cheaper, easier and less stressful to deal with those straightforward matters not only for employers, but for employees?

[Vince Cable]

Yes, and I thank my hon. Friend for making that important point. It is not simply employers who have problems with the existing system; often payments are far less than the people who bring the cases expect, the process is stressful and lengthy and the current system simply cannot handle the volume of claims.

In addition, there will be a discretionary power for employment tribunals to levy a financial penalty against an employer where there has been an aggravating breach of an individual’s employment rights, which will also encourage employer compliance. Taken together, these measures will help shift the emphasis from confrontation to conciliation when resolving workplace disputes and give businesses the confidence to expand and take on new staff.

[Steve Baker (Wycombe) (Con)]

On the point about business confidence and taking on new staff, having worked as a freelance software engineer, one thing I see missing from part 2 is anything to resolve the difficulties and ambiguities with the status of freelancers. Will the Secretary of State use the opportunity in Committee to do something about IR35?

[Vince Cable]

I am tempted to engage in a long disquisition on that subject, having been involved in the debates on IR35 10 years ago. It is primarily a tax issue. As some Opposition Members will remember, the IR35 measures were introduced primarily to avoid a particular form of tax avoidance using national insurance, so if we have to do more on IR35 we will look to my colleagues in the Treasury, rather than this Bill.

Let me turn to directors’ pay. Fairness is important, and never more so than when the fiscal situation we inherited has forced upon us difficult decisions that affect everybody in society. That principle extends to executive pay, which for some years has behaved in a way that is unrelated to the rest of the economy or performance.

There is a well-established case for the regulation of directors’ remuneration, given the inherent conflict of interest when directors set their own pay. Moreover, shareholders in a number of companies have shown that they are increasingly angered by soaring pay for top executives that is unrelated to company performance. Their willingness to challenge rewards for failure is admirable, but I want this “shareholder spring” to be more than just a passing, seasonal phenomenon.

In developing our proposals, we have worked intensively with businesses and investors to create a workable package that helps shareholders to hold directors to account, while avoiding unnecessary red tape on business and unrealistic demands for investors to micro-manage pay. Responses to our consultation showed clear support for strengthened shareholder voting rights in order to improve the link between pay and long-term performance, while still allowing boards the flexibility to devise and deliver pay policy.

In the past it has been too easy for companies to ignore a significant adverse vote from their shareholders. That is why the Bill includes a provision to give shareholders binding votes on directors’ pay. We intend to introduce new clauses in Committee, when we have analysed in detail the responses to our consultation and finalised our proposals in that area.

[Jonathan Edwards]

What consideration has the Secretary of State given to creating remuneration bodies that include company employees? Surely such bodies would have a wider remit and far greater buy-in.

[Vince Cable]

That is an issue on which we have frequently exchanged views across the House, and we do indeed want to see employee consultation, but we are not mandating employee representatives on boards, which I know some people have called for, and we have made that very clear in the past.

[Simon Hughes]

This is one of those issues that the Government inherited. It is the scandal, left by the previous Government, of absolutely obscene pay for top executives—uncontrolled by shareholders. I therefore welcome the proposals, but will my right hon. Friend clarify that the Prime Minister and Government still take the view that in the public sector the ratio should be a maximum of 20:1, and that in the private sector, where it is not a matter for Government to determine, all shareholders will have adequate notice of any proposals, so that there is both private and public participation in the debate as well as a binding vote on the remuneration package for the executives at the top of private sector companies?

[Vince Cable]

There are separate developments taking place that do not require primary legislation, and they will improve the quality of information available to shareholders. The Financial Reporting Council has responsibility for that, and I do not have the powers to direct it, even if I wanted to, but the quality of information is intended to improve, and we certainly want to see a range of information made available, including the aggregates that my right hon. Friend describes, as well as simpler and clearer information. That process is taking place in parallel with this Bill.

The Bill will improve the way in which competition is promoted and policed. The UK’s support for a free and open trading system remains fundamental to our economic strategy, and the steady pressure from competitive markets ensures that businesses boost productivity and consumers benefit. Our competition regime has been well regarded, but it can be too slow, and recently there have been some worrying criticisms about how it has managed cartel offences.

The reforms that I propose are designed to improve the effectiveness and efficiency of competition enforcement, operating through a new competition and markets authority, backed by streamlined and strengthened powers. The current division of responsibility for the two phases of the markets and mergers regimes, between the Competition Commission and the Office of Fair Trading, can lead to a duplication of activity and the inefficient use of resources. Further, the time it currently takes to complete mergers, markets and anti-trust cases is often far too long, and that in turn imposes additional costs on business, including on those that pose no threat to competition.

Our reforms to the competition regime are designed to create a single, strong voice for competition and a one-stop shop for business; to create greater certainty for business, thanks to faster, clearer and, indeed, statutory time frames; to provide for more effective action to tackle anti-competitive mergers, including the discretion to suspend them; and to provide for robust action to tackle cartels, which can damage business and consumers alike, by removing, for example, the need to prove dishonesty. In addition, it will be easier for businesses to ask the new competition and markets authority to halt uncompetitive practices while investigations are ongoing. These measures go hand in hand with proposals, on which we are currently consulting, to allow businesses to take private actions to stop anti-competitive practices and to achieve redress.

Another aspect of our reforms relates to intellectual property rights, an issue that the Chair of the Culture, Media and Sport Committee, the hon. Member for Maldon (Mr Whittingdale), raised a few moments ago. The modernisation of copyright is critical to investment in the UK’s creative industries, one of our most successful export sectors. Research by Imperial college and the Intellectual Property Office shows that annual copyright investment in artistic originals in film, TV and radio, books, music and art was about $5 billion, twice the original estimate. Spending on UK design amounts to almost £33.5 billion, and there are about 350,000 people in core design occupations of all kinds.

The sale of unauthorised replicas of classic designs, such as a lamp or a piece of furniture, means that firms that depend on design can lose out, so the Bill ensures that those designs that are also artistic works and, therefore, qualify for copyright protection will be protected for 70 years from the creator’s death, instead of for the current 25 years.

The Bill also creates an order-making power that will allow the Government to make any future changes related to copyright exceptions or exceptions to rights in performances. The practical consequence of that will be to maintain the level of criminal penalties, in which as I said earlier I have a personal interest, given that my private Member’s Bill introduced the current maximum penalty level of 10 years’ imprisonment

In addition, the Government have made a number of proposals in response to the Hargreaves review of intellectual property and growth and subsequent consultation. They are needed to ensure that the copyright system is fit for purpose in the digital age. It has been decades since the intellectual property regime was overhauled, during which time the world has changed beyond recognition. It would be negligent to leave unchanged a system suited to the cassette recorder in an era of iPads and cloud-based music services.

Primary legislation will be required for three of those reforms: the introduction of a scheme to allow extended collective licensing; one to allow the use of orphan works; and, finally, a back-stop power to allow the Government to require a collecting society to implement a statutory code of conduct, should it fail to introduce or adhere to a suitable voluntary code.

The Government’s proposals on extended collective licensing and on the use of orphan works are designed to make it simpler for users to use copyright works legitimately, while protecting the interests of rights holders. At the same time, introducing codes of conduct for collecting societies will provide valuable reassurance to the thousands of small businesses and other organisations, including creators, that deal with them.

The Government are finalising their response to the consultation on those three proposals, and if we decide to proceed we will want to move swiftly. The Bill presents an opportunity to do so, and I shall announce a decision on the matter as soon as possible.

[Geraint Davies]

How does the strength of law on copyright compare with that on patents? I am thinking of the international duplication of a copyright, such as on a chair, as the Secretary of State said, and how the law will be enforced internationally.

[Vince Cable]

I do not think that there is any link between patents and copyrights in this case; they are separate systems of law. The hon. Gentleman will know that in the European Union there is already a unified approach to patents and to copyright, but we are trying to ensure that in the UK context copyright protection is properly enforced. That is the purpose of the changes before us.

[Mr Whittingdale]

The Secretary of State will be aware that in the Hargreaves report a number of the proposals relating to possible extensions of copyright exception are causing real concern in the creative industries. Can he provide an assurance that they will be introduced not by statutory instrument, but in proper, primary legislation?

[Vince Cable]

I am not going to give the hon. Gentleman a very precise answer because I will need to check on the exact legal position. I am aware of the concerns, and he is one of several people who have expressed them. I will endeavour to reply to him in writing to give him the precise answer to his question.

A further set of reforms accelerates the Government’s drive to tear up unnecessary red tape. We inherited over 20,000 separate rules and regulations affecting business in the UK. Cumulatively, this regulation stifles growth and strangles innovation, and in the past two years we have launched a concerted drive to tackle the problem. We introduced the one in, one out rule to stem the flow of regulation to business. The aim of one in, one out is not only to force regulating Departments to deregulate more but to change the Whitehall culture to encourage Departments to use regulation only as a last resort. Under the red tape challenge, 20 regulatory themes have been launched for comment on the website, involving more than 3,700 regulations. Decisions have been announced by Ministers on 1,500 of those, of which well over 50% will be scrapped or improved.

[Kate Green]

How will the provisions of clause 51 on repealing some of the provisions of the Equality Act 2010 in relation to the general duty and the good relations duty have any impact on business whatsoever?

[Vince Cable]

I was going to mention that measure at the end of my speech. We see it essentially as a bit of legislative tidying up; we are not going to argue that it has significant impacts on business. However, we can pursue the detailed implications.

The Bill introduces further measures and makes it possible to include a sunset or review clause in any new secondary legislation to ensure that legislation is fit for purpose and is regularly reviewed. It also extends business eligibility for the highly successful primary authority scheme, which allows firms to get assured advice from one local authority on a particular regulatory issue. Often what businesses find most bewildering is not the regulation itself—they recognise that rules are often necessary—but the inconsistent application of the rules so that they have to adjust their systems depending on the whim of a local official. The primary authority scheme deals with that.

[Mr Gyimah]

On reviewing regulations that have already been passed, one regulation that springs to mind is the agency workers directive, where, on issues such as pay, bonuses and holidays, we have gold-plated what Brussels originally introduced. In so doing, we have made what is supposed to be flexible, temporary work more like permanent work, which it should not be. Would we be able to review that legislation under the sunset clause that the Secretary of State mentioned?

[Vince Cable]

This would not be the context in which to do it, because it is, of course, now part of the law. We have looked at this in considerable detail because a lot of concern has been expressed about it. The UK’s implementation of the agency workers directive came about as the result of a negotiated agreement between employers and employees and their representative bodies. We explored the possibility of easing some of the burdens on business arising from the directive and came to the conclusion that in practice we could not do so. However, I hear the hon. Gentleman’s concerns, which were expressed by many companies.

[Mr Gyimah]

I understand that the TUC and the CBI, as European social partners, were very involved in the negotiations between employees and business, but representatives of small businesses were not, despite the fact that the impact of such legislation on small businesses can be particularly draconian. I urge the Secretary of State to consider a way of reviewing the gold-plating of such legislation, especially where it applies to small businesses.

[Vince Cable]

I have an open mind if the hon. Gentleman has good ideas as to how that can be done. We have committed ourselves to removing the gold-plating of European legislation as it applies to Britain, and if he has good, constructive ideas, we are happy to look at them.

[Julian Smith]

Has the Secretary of State given any further thought to including EU directives and legislation in the quarterly statements that are being produced by his Department? Earlier, he said in answer to a question of mine that he might consider it, and I would be interested to know whether he has done so.

[Vince Cable]

The Minister of State, my hon. Friend the Member for Hertford and Stortford (Mr Prisk), who has done admirable work in progressing this agenda, tells me that we are indeed planning to do that and that it will appear in that form.

[Sheila Gilmore (Edinburgh East) (Lab)]

Following the dialogue that has just taken place, I am left unclear whether the Secretary of State agrees that agency worker regulations are gold-plated. If he thinks that they are gold-plated, in what sense is that the case, and if he does not think so, will he make that statement clearly?

[Vince Cable]

As I said, that case has been strongly made to us by people in the business community. I also said that the directive’s current form in British law was the result of a consensus among the main social partners. Although the CBI has small business membership, it would not consider that area to be its primary function. If there are specific proposals on how some of the gold-plating, if that is what it is, can be alleviated in a sensible and fair way, I am always willing to look at that. I do not have a closed mind on these issues.

[Sheila Gilmore]

I am still left unclear about the meaning of gold-plating, which, in my view, is a phrase that is thrown around this House far too often. In what way does the Secretary of State think that there is gold-plating in this respect?

[Vince Cable]

What small businesses usually mean by gold-plating is that they spend a great deal of time filling in forms, ticking boxes and complying with regulatory measures that impede their business activity. If that is the case in this respect, as in others, we are happy to look at it.

Also in a deregulatory spirit, the heritage measures in the Bill implement commitments to legislation made in the Government’s response to the Penfold review of non-planning consents, which aimed to ensure that non-planning consent regimes operate in the most flexible and simplified way. The measures include bringing greater clarity on what is and what is not protected within listing buildings, and they will enable owners and local planning authorities to enter into voluntary partnership agreements to help them to manage listed buildings more effectively.

The measures that I have outlined are designed to improve the business environment and to help to restore the UK economy to health by laying the foundations for lasting recovery.

[Katy Clark (North Ayrshire and Arran) (Lab)]

rose—

[Vince Cable]

I am coming to the end of my speech.

I have acknowledged that legislation by itself will not solve the economic challenges we face, but these measures will help to create a platform for sustainable recovery. I commend the Bill to the House.

18:19

[Mr Chuka Umunna (Streatham) (Lab)]

I beg to move,

That this House, whilst supporting the principles of the Green Investment Bank and affirming its belief that active government should work in partnership with business to encourage long-term sustainable economic growth, facilitate enterprise, protect the rights of all, particularly low-paid, workers and simplify regulation where necessary, declines to give a Second Reading to the Enterprise and Regulatory Reform Bill because it does not provide a strategy for economic growth; believes that the Bill contains inadequate measures to boost business confidence, enhance this country’s international competitiveness, increase competition in consumer markets or protect consumers from powerful vested interests; further believes that the Bill fails to provide sufficient support to empower shareholders, investors and employees on executive remuneration to bring to an end excessive rewards for corporate failure; and is concerned that the Bill grants the Secretary of State additional powers to alter compensatory awards for unfair dismissal and contains provisions relating to the conciliation process that could dilute the rights of people at work.

I will deal with each element of the Bill in turn and, in so doing, explain our amendment. Given the very varied nature of the Bill, that will take some time, but I will do it as swiftly as possible because many others want to take part in the debate.

First, I want briefly to consider what the Government claim the Bill will achieve overall. In January last year, not long after the Government’s spending review, the Secretary of State told this House:

“economic growth is now strong. It will become stronger as a result of the work that the Government are doing in stabilising finances”.—[Official Report, 13 January 2011; Vol. 521, c. 429.]

Quite the opposite has turned out to be the case. Since the spending review, the economy has shrunk by 0.4%, we have been tipped into a double-dip recession, over 2.6 million people are now out of work, and 50 businesses are going under every single day. That was not the case back in May 2010; it is now, thanks to the policies of this low-growth Government. When my party left office, the World Bank ranked the UK fourth in the world and first in Europe for ease of doing business. This year, we have slumped to seventh place. Businesses face an increasingly difficult operating environment, not least because of the problems that sound and successful firms have found in accessing finance, with net lending to business contracting year on year in every month since this Government came into office.

In fairness to the Secretary of State, he has recognised his and the Government’s failings. He said that they have no “compelling vision” for the country, that they lack

“a confident message on how we will earn our living in the future”,

and that there is

“no connected approach across government”

to driving growth. He suggests that the Bill will change all this. Indeed, on the day of its First Reading he said:

“The measures in the Enterprise and Regulatory Reform Bill will help make Britain one of the most enterprise-friendly countries in the world.”

He said that it would resolve the ongoing issue of no growth. That remains to be seen. I sincerely hope that that will be the case for the sake of our country, but I and many businesses doubt it.

[Julian Smith]

I challenge the hon. Gentleman’s point that Labour left the country in a good regulatory state. The CBI states that 107 of the 152 employment regulations were put on the statute book during Labour’s period in power. Was that leaving the country in a good regulatory state?

[Mr Umunna]

What I cited was the World Bank’s assessment of the state in which we left the environment for businesses to carry out their work. If the hon. Gentleman reads the guidance that has been issued by his Government, he will see that we have been praised for doing things such as introducing the primary authority scheme, which was supposed to, and did, reduce the regulatory burden on businesses.

Perhaps the Secretary of State’s most damning criticism of his and his Government’s actions is that they are “frankly, rather piecemeal”. At first sight, that is precisely what the Bill is. It is a hotch-potch of measures that provides no discernible overall vision or confident message. There is no evidence of a connected approach across Government to drive growth.

Business was straight off the blocks with its criticisms of the Queen’s Speech, the centrepiece of which was this legislation. The director general of the British Chambers of Commerce said what many people have been saying for many months:

“There is a big black hole when it comes to aiding business to create enterprise, generate wealth and grow.”

He is right. Our amendment makes it clear that the Bill, viewed as a whole, does not change that assessment.

I will quickly go through the parts of the Bill and set out our position on each.

[Alok Sharma (Reading West) (Con)]

Will the hon. Gentleman give way?

[Mr Umunna]

I will make a bit of progress, because I want to ensure that there is time for others to get in.

Part 1 will set up the green investment bank. I have stated on many occasions, as has the Leader of the Opposition, that it is crucial to long-term economic growth to have an active Government working in partnership with the private sector. In our view, the Government should work with business to identify the sectors from which future demand will come and to ensure that companies are set up to meet that demand. There is and will continue to be a growing demand for green technologies, so we need an active industrial strategy to support the low-carbon economy, as I and my right hon. Friend the Member for Don Valley (Caroline Flint) have argued.

A critical component of that is the green investment bank. That is why we set up the green investment bank commission in 2009 with a view to establishing such a bank, and why we committed ourselves to establishing such a bank in our 2010 manifesto. We will therefore not oppose the bank—our amendment makes it clear that we support it in principle. Also, I do not want to add further long-term policy uncertainty in this area, after the huge uncertainty that the Government have heaped on the low-carbon sector since coming to office. I note that the deputy leader of the Liberal Democrats, who has left his place, conveniently ignored the decision on feed-in tariffs, which is perhaps the most glaring example of the uncertainty that has been created.

As the Secretary of State said, Lord Smith of Kelvin and Sir Adrian Montague were appointed as the chair and deputy chair of UK Green Investment Bank plc during the Whitsun recess. We welcome their appointment. Having heard what the Secretary of State has said, I suggest that until this entity is given the power to borrow and to lend, allowing it to leverage its initial equity to make more capital available, it will not be a body that most people would recognise as a bank. It is a fund, whereas it is an operational bank that the country needs. The Secretary of State made has made it clear that it will not be allowed to borrow—he repeated this today—unless public sector net debt is falling as a percentage of GDP in 2015. The earliest it is likely to be able to borrow is therefore 2016. That is a delay of four years from now. Ed Matthew, the director of Transform UK, the business alliance campaigning for the bank to be set up, put it well:

“Allowing the bank to borrow is the key to generating growth and rebooting the UK economy. Delaying this power until the economy has recovered is like a doctor waiting for a seriously ill patient to recover before giving him life-saving medicine”.

[David Mowat (Warrington South) (Con)]

I am listening carefully to the shadow Secretary of State’s comments on the green investment bank. He has talked about the importance of low-carbon industries. Does he agree that the scope of the green investment bank should include the nuclear supply chain, which is far and away the biggest low-carbon industry in our country? That would enable us to lend to Sheffield Forgemasters, a company that I have heard him talk about many times.

[Mr Umunna]

We will wait to see the detail that the Government come forward with in Committee. We are clear that the bank needs to step in to fill the funding gap if we are to green our economy. It is with that in mind that we will decide our position, as and when the Secretary of State comes forward with the detail.

[Joan Walley]

To go back one step, what my hon. Friend just read out about the need for borrowing powers was exactly the recommendation of the Environmental Audit Committee. In the Public Bill Committee, will he explore with the Government what progress has been made in respect of state aid rules to ensure that there is no impediment to getting this off the ground?

[Mr Umunna]

I will be happy to do that. My hon. Friend is, of course, the Chair of that Select Committee.

[Ann McKechin (Glasgow North) (Lab)]

Does my hon. Friend agree that the green investment bank must not be a bank of last resort that simply takes the projects that no one else is prepared to take, but must drive investment forward, taking the private sector with it, particularly in areas such as offshore wind, tidal power and carbon capture, which we have plenty of opportunity to develop further?

[Mr Umunna]

I could not agree more. The Government have committed to additionality and we will look to ensure that that occurs.

Part 2 of the Bill relates to employment law, which has attracted much public concern. As I have said before, we are not in a double-dip recession because of the rights that people in this country enjoy at work. No amount of sabre rattling and nonsense from Government Members about the need to allow employers to fire employees at will is going to get us out of recession. That is a simple fact. We are in a double-dip recession because of a lack of demand. Watering down employee rights will not boost demand. In fact, it is highly likely—

[Mr Gyimah]

Will the hon. Gentleman give way?

[Mr Umunna]

I was wondering when a Government Member would seek to intervene. I will give way shortly.

Watering down employee rights will not boost demand but is highly likely to do the opposite. As the Chartered Institute of Personnel and Development said last week, increasing job insecurity is more likely to damage growth and consumer confidence than increase them. I say to the hon. Member for Bedford (Richard Fuller) that the Federation of Small Businesses has been in contact with us today about the Government’s proposals to allow no-fault dismissal, with fewer employment protections for those working in small businesses, for which he has argued. It has said that

“those who do take employment in small firms could be lower skilled, less productive workers willing to accept lower protection, making it even more difficult for these firms to grow”

and that

“there is a question that with weakened rights, employees in small firms would find getting access to credit more difficult. If so, that would make labour recruitment for small firms even harder.”

[Mr Brian Binley (Northampton South) (Con)]

Absolute nonsense!

[Mr Umunna]

I say to the hon. Member for Bedford and to the hon. Member for Northampton South (Mr Binley), who says that that is absolute nonsense, that I have quoted the Federation of Small Businesses word for word. It has made it clear that replacing the need for good management with a hire-and-fire culture does not fit with its views on good employee relations.

[Mr Gyimah]

There is a fundamental misunderstanding here. It is a misrepresentation to say that any conversation about making it easier for both employers and employees to exit a relationship that is not working is an attack on workers’ rights. That is simply not true and it is not what the Bill tries to do. The shadow Secretary of State has mentioned that we need growth. It is important to remove everything that stops investors being confident enough to invest. Access to finance is one such thing, but so is the confidence to hire people. That is why the Bill seeks to simplify the employment tribunals system.

[Madam Deputy Speaker (Dawn Primarolo)]

Order. A lot of Members are waiting to speak, so interventions must be brief.

[Mr Umunna]

I will expand on that point in more detail later, but what I can tell the hon. Gentleman now is that when I ask businesses what is currently holding them back, most say a lack of orders and demand, not the rights that their employees enjoy at work. If we are looking to encourage businesses to hire people, why not give all micro-businesses a national insurance break—I believe he has a seat in the south-east—when they take on extra workers? That would do more to help them grow their businesses.

[Mr Binley]

I know that the shadow Secretary of State admires experience. He knows that I founded two companies that collectively employ 260 people. He knows that we deal with many, many small businesses, and I am involved with them on a weekly basis. I can tell him that many small businesses are frightened to take people on because they are frightened of being blackmailed, should it not work out. That is a real problem, which his party needs to face up to.

[Mr Umunna]

I acknowledge the hon. Gentleman’s great wisdom and experience, but I respectfully disagree with his overall depiction of employees blackmailing their employers willy-nilly. I say that as a former employment law solicitor who has advised business people like him, but employees too.

[Richard Fuller]

May I point out that this is the Secretary of State’s Enterprise and Regulatory Reform Bill, not mine? I am sure that mine would be somewhat different. The shadow Secretary of State talks about job protection, and about the recession and demand, but does he accept that it goes a little deeper than that? Recent experience in the UK and the US shows that when we have recovered from recessions, we have not created jobs as swiftly as we did in the ’50s, ’60s and ’70s. In that context, does he not think it is worth looking at the recommendation made by Beecroft?

[Mr Umunna]

I am not sure exactly which proposal the hon. Gentleman thinks it is worth having a look at. If he is talking about the proposal to allow no-fault dismissal in firms of fewer than 10 employees—which I believe is what he spoke about earlier—the answer is no. I do not agree that it is worth looking at, partly because there is no evidence that having no-fault dismissal encourages or helps firms to grow, as was previously made clear in business questions by the Minister responsible for employment relations, the Under-Secretary of State, the hon. Member for North Norfolk (Norman Lamb).

I do not deny that employment law and regulation more generally are matters of concern for small businesses. It would be absurd of me to make such a claim, and I am not making it. However, it is the state of our economy that has been consistently identified by small and medium-sized enterprises as the main barrier to their success. We know this because that is what they have been telling Ministers. In the Government’s latest “SME Business Barometer”—which I think the Secretary of State mentioned earlier—32% of SME employers said that the state of the economy was the main obstacle to the success of their business, followed by issues such as cash flow, taxation and finance. Just 7% cited regulation as the main obstacle to their success.

Let me be absolutely clear: we on this side of the House will not countenance watering down the rights that every constituent of every Member of this House enjoys in the name of growth. I should also note that Conservative Members—nobody has made this comment today, but they have before—have been keen to present this as solely a union issue. It is not: it affects just about every working person in this country, regardless of whether they are a member of a trade union. While everyone else has been worrying about losing their job—thanks to the Government’s economic incompetence in my view—their rights at work have, frankly, been used as a political football in the Government, among Departments and between the two governing parties. That does nothing to dispel the overall impression of shambles that hangs over the Government. However, Minsters and those who have been briefing the media on their behalf should also reflect on the huge worry that such briefing on employment law is generating among those who work in our businesses, with all the talk of further liberalising our labour market, which is one of the most liberalised labour markets in the western world.

[Sandra Osborne (Ayr, Carrick and Cumnock) (Lab)]

Will my hon. Friend give way?

[Mr Umunna]

I will give way shortly.

The Secretary of State has quite rightly said that it is not the job of the Government to “scare the wits” out of people, but that is what the Government have been doing—

[Julian Smith]

No it isn’t.

[Mr Umunna]

Yes it is: it is precisely what they have been doing with the promotion of the Beecroft report by the Prime Minister and others. I should say that the Secretary of State is no innocent bystander. His little chat with The Sun on Saturday evening generated an article in that paper yesterday carrying the headline “Quick Cash for Sack”. This hardly reassures vulnerable employees who are anxious about their job security.

That article was, of course, the pre-spin for the new measure—which has been mentioned today—to prevent employees from using a pay-off offer as evidence in a tribunal. The measure will presumably be inserted in the provisions in the Bill that deal with the new settlement agreements. We were notified of the proposal only when I read my copy of The Sun yesterday, as it did not appear in the Bill or the explanatory notes, so we have not had proper time to consider it. At first sight, it is questionable whether it would work in practice. As a former employment lawyer like me, the Minister responsible for employment relations will know that essential components of an employment relationship are trust and confidence between the parties. How on earth can trust and confidence continue to exist if a pay-off offer is made out of the blue when the employee has done nothing wrong and decides to reject the offer? What happens then? This needs further clarification. So too do the Government’s intentions in relation to the employment law provisions of the Bill and the Beecroft report, because, further to the questions that Labour Members have asked the Secretary of State, I am no clearer about how many parts of the Beecroft report will potentially be inserted in the Bill.

[Julian Smith]

I assume that the hon. Gentleman, as a former employer lawyer, was involved in negotiating compromise agreements. Surely the proposals that we are discussing this evening are just simplified compromise agreements for smaller companies which will be much easier to administer and will not involve payment of the fees that I am sure he earned advising bigger companies on such agreements.

[Mr Umunna]

No, the hon. Gentleman is wrong. As things stand, the position in law is that if a pay-off offer is made during a “without prejudice” discussion between an employee and an employer—which would take place if there was an ongoing dispute—that cannot be adduced as evidence in court. However, if a pay-off offer was made out of the blue where there was no pre-existing dispute, that could be adduced as evidence. What I discern from what is being proposed is that the Government are seeking to ensure that that situation is covered too, so that such an offer could not be adduced in evidence in court either. [Interruption.] I believe that the Minister responsible for employment relations is agreeing with my interpretation. My issue with that is that if an employee in a firm is quite happy and believes that they have done nothing wrong, but the employer does not like them for some reason, decides that they are going to get rid of them and offers them a set sum, the employee should be able to adduce that as evidence to show that the employer was intent on getting rid of them come what may. That is the point that I am seeking to make.

Further clarification will be needed. However, let me once again ask the Secretary of State—I will give way to him on this point—how many parts of the Beecroft report are going to be inserted in the Bill by way of amendment, if any. He has—I think—been clear with us today that the proposal for a no-fault dismissal measure, on which the consultation has just closed, will not feature in the Bill. How many other parts of Beecroft are likely to feature in the Bill through amendments? I am happy to give way to him if he is willing to answer that question.

[Vince Cable]

As far as I am aware there is none, but the hon. Gentleman will be aware that the Beecroft report covers a wide range of activities, including things such as immigration control, which clearly do not belong in this Bill. However, as far as I am aware, no other provisions are allowed for in this case.

[Mr Umunna]

I am slightly surprised by that answer because of the equivocation. The Secretary of State commissioned the report—it was his report—and this is his Bill, so surely he can provide us all with a categorical assurance now that no elements of Beecroft will feature in the Bill. I am happy to give way again, if he wishes to clarify that point. No? I think that people will note his failure to reply.

With regard to what is in the Bill, our amendment makes it clear that the proposals to grant the Secretary of State new powers to vary the limits for compensatory awards in unfair dismissal cases are totally unacceptable. Clause 12 proposes to give the Secretary of State the power to cap the compensatory award, which is currently capped at £72,300, at a maximum of between median earnings and three times median earnings—that is, between £26,000 and £78,000—or one year’s earnings, or whichever is the lower of the two. No advance warning of this measure was given, and there has been no consultation on it. Why? It is also hard to see the justification for the proposal when we consider that the median award for unfair dismissal came in at just over £6,000 in the past year.

The practical effect of the proposal would be that those on average or above-average earnings—middle income earners in particular—would not be properly compensated if they were treated unfairly by their employers. Let us be clear who we are talking about. This would affect accountants, architects, chartered surveyors, insurance brokers, lawyers and mechanical engineers, as well as many other public service professionals. Those people are all in occupations that attract average or above-average earnings. Lower income earners in this country have already been hit hard by the Chancellor’s Budgets since this Government came to office. It is middle income earners who stand to suffer most from this change. Of course, those earning millions every year—who have just been given a huge tax break by the Government—no doubt have plenty in the bank and will not have to worry about this, but that does not apply to the majority of earners in this country.

[Julian Smith]

Does the shadow Secretary of State think it reasonable that, in 1999, the compensatory award level was £12,000 and that it is now £72,300? Does he think that it has gone up by a reasonable amount over that period?

[Mr Umunna]

I think it is reasonable, when people have been treated in an appalling and unfair fashion by their employers, that they should be properly compensated.

The Bill contains a related measure to give the Secretary of State the power to vary compensatory awards for employers of different descriptions. The Employment Lawyers Association, of which I used to be a member, said last week that having different rules for micro-businesses, for example, would make people think twice about working for small businesses, knowing that they would have less employment protection than if they worked for a large employer.

We have no objection in principle to the proposal to introduce early conciliation by ACAS in advance of the full submission of a claim to the employment tribunal. I understand, however, that the Government intend to spell out more of the detail in secondary legislation. It is therefore essential that any future regulations be subject to the proper scrutiny of the House. Early conciliation will result in a claimant who is seeking redress having to go through two different processes, with different time limits and different forms to fill in, before instituting a claim. It will therefore be important to ensure, particularly in relation to unrepresented claimants or those with poor literacy and numeracy, that the new regime does not act as a barrier to justice for those seeking redress. Above all, it will be important to ensure that ACAS is properly resourced to carry out its proposed new expanded role. We know that its resources have already been reduced. The Secretary of State and his Ministers will need to give proper assurances and guarantees that it will be properly resourced to carry out this work.

The Bill also contains measures relating to the composition and workings of employment tribunals. As I have said before, we are not opposed to reforming the way in which employment tribunals work, given the frequent problems that employees and employers experience while navigating their way through the system. That is why we supported the establishment of the Underhill review. However, that is quite different from tampering with people’s fundamental rights at work, which we oppose.

[Geraint Davies]

Is my hon. Friend aware that, in Wales, 70% of procurement goes to small and medium-sized enterprises, half of which are based in Wales? In England, however, the figure is around 7%. Would it not be a better strategy for rejuvenating small businesses in England if we were to focus the power of procurement—green procurement in particular—on those businesses, rather than slashing the rights of the people who work in them?

[Mr Umunna]

I certainly agree that we should increase the procurement opportunities for our SMEs. When we were in government, we put in place a number of targets, which this Government have sought to build on. We should certainly ensure that those businesses have better access to those opportunities; I speak to many such businesses that tell me that they do not.

[Stephen Pound (Ealing North) (Lab)]

Further to my hon. Friend’s point about the additional costs and duties that will descend upon the shoulders of ACAS, does he agree that this Government have a poor record, particularly in the area of the fitness to work test? What might seem to be a saving often ends up costing them an enormous amount of money. I do not wish to distract him with the good news that has just reached us of the inspirational leadership of Roy Hodgson in Donetsk—I believe that 1-1 is the precise figure—but does he see a need for primary legislation or orders to provide the additional sums that ACAS will inevitably require, or does he think that an amount of money been put to one side for the purpose? ACAS will be facing a heavy demand and will require a great deal of money.

[Mr Umunna]

First, I thank my hon. Friend for that update from the European championship—

[Stephen Pound]

Full time!

[Mr Umunna]

I stand corrected. On my hon. Friend’s point about the resourcing of ACAS, we do not know what its budget will be for the next three years. We shall study that question carefully in the light of the, I think, £12 million reduction in its budget over the recent period.

I shall return to the composition of employment tribunals. The Bill envisages simple or low-value claims being decided by a legal officer without the need for a hearing. That might assist in the rapid resolution of disputes, which would be welcome, but it is important that any decision made by those officers should be able to be reviewed by an employment judge if either party so wished. We are currently considering a four-track system: simple claims covering issues such as amounts of holiday pay could be dealt with outside the tribunal, perhaps by a legal officer; standard unfair dismissal claims would be dealt with by tribunals in the usual way; complicated equal pay claims could be dealt with by a specialist court; and high-value claims could automatically be dealt with by a higher court.

We do not welcome the Government’s proposal that all employment appeal tribunal cases be heard, in the main, by a judge alone, instead of by a panel including lay members. We oppose that—[Interruption.] The Under-Secretary of State for Business, Innovation and Skills, the hon. Member for North Norfolk (Norman Lamb) says, “For goodness’ sake”, but lay members are very much welcomed by employees and employers as they provide balance and perspective to deliberations. That extends to deliberations in the employment appeal tribunal on legal issues.

Before I move on to the competition aspects of the Bill—I am aware that I am going on—I want to mention that there are other employment proposals that we will address in more detail in Committee.

[Mr Binley]

rose—

[Mr Umunna]

I will make some progress, so that the hon. Gentleman will have more time to speak later.

Principally, those proposals include: the provision of financial penalties to be paid by employers where there are aggravating features to their wrongdoing; the introduction of a public interest test to whistleblowing—which we have concerns about—to clear up the uncertainties in that area; and changes to the annual increases to the limits to statutory redundancy pay.

I will now deal as quickly as possible with the competition aspects of the Bill. Healthy, competitive markets reward the innovator, the insurgent, and the risk taker. They keep incumbents on their toes, benefiting consumers, and they create the disciplines at home that drive success abroad. That does not happen by itself, however, because markets are not always efficient. I know that that view is not shared by all Government Members. So even when policy frameworks can correct market failures, markets require active stewardship, constant vigilance against unhealthy concentrations of power—News International —and, above all, the deliberate promotion of competition through a strong, robust competition regime.

The Government said in their consultation paper on options for reform published last year:

“The Government acknowledges that it has inherited a competition regime which has been independently assessed as world class.”

In 2010, the Global Competition Review awarded the Competition Commission its highest rating of five stars, and the Office of Fair Trading was awarded four and a half stars, with both bodies appearing in the top five agencies in the world. We Labour Members are rightly proud of the legacy our Labour Government bequeathed to the current Conservative-led Administration.

In principle, we support the Bill’s proposals to improve our competition regime. There is definitely some sense in combining the OFT and the Competition Commission into one body, removing duplication and concentrating expertise in one place. However, the yardstick against which we will measure these reforms is whether they will improve on the existing regime. The OFT estimated that in ensuring a level playing field, our competition regime benefited businesses and consumers to the tune of £700 million last year. As the Financial Times has pointed out, the expected savings of £1.3 million a year from the merger could be smaller than the cost to consumers and businesses if these reforms change our competition regime for the worse.

In addition, the lack of competition is, sadly, nowhere more stark than in the small and medium-sized enterprises lending market where 85% of SME lending is concentrated in the hands of our four biggest banks. This can be contrasted with Germany, where just 14% of business loans come from its biggest banks and 60% come from its smaller local and co-operative banks, which I met when I was in Germany in February. It is a shame that the Government have shown no interest in pursuing the idea that we have been promoting for some time—of having a British investment bank to help address this issue. It is a concept that enjoys the support of the British Chambers of Commerce, among others. We are also concerned about the withdrawal of consumer competences entirely from this new body. Indeed, we have argued that the Queen’s Speech should have delivered a fair deal for consumers with a consumers Bill that would give new powers to the Financial Conduct Authority and the Competition and Markets Authority to stop rip-off surcharges by banks, low-cost airlines and pension firms.

Let me move on to part 5, which deals with the reduction of regulatory burdens. We should seek to reduce regulatory burdens where we can, but—very importantly—not by compromising the rights of employees or the health and safety of employees and customers. This is an issue not just of the quantity of regulation, but of its quality, too: regulations should be drawn up with the small guy in mind—people who do not have the resources to pay for an army of lawyers, accountants and risk managers to advise on how to ensure compliance. As I said earlier, with that in mind, when in government, we introduced the primary authority scheme so that any business operating in multiple local authorities could, to ease the regulatory burden locally, form a partnership with a single local authority to access advice and support for its regulatory responsibilities. I welcome the fact that the Government seek to extend the scope of the scheme through the Bill.

What are far less welcome in part 5 are the measures touching on the Equality and Human Rights Commission, which the Secretary of State has just referred to as “regulatory tidying-up”. This Bill seeks to amend the Equality Act 2006 by repealing the commission’s general duty to exercise its functions with a view to encouraging and supporting the development of a society in which people’s ability to achieve their potential is not limited by prejudice or discrimination, in which there is respect for and protection of each individual’s human rights and respect for the dignity and worth of each individual, in which each individual has an equal opportunity to participate in society, and in which there is mutual respect between groups based on the understanding and valuing of diversity and on shared respect for equality and human rights.

This Government have an image problem. They are seen as out of touch, and they are seen as implementing policy changes that adversely impact particularly on vulnerable and poor people. Just yesterday, the Prime Minister’s former speech writer said the Government’s latest proposals on immigration policy showed that the Conservatives were a “nasty party” that risked losing votes among ethnic minority communities. In this context, why on earth are this Conservative-led Government seeking to repeal this general duty that seeks to promote fundamental values of humanity and decency in our society? I am at a complete loss to understand why they should seek to do this when that duty enjoyed cross-party support when the Equality Act 2006 progressed through Parliament.

The Government also want to change the commission’s statutory remit, contract out its helpline, stop its grant programme and slash its budget by 60%. This is not regulatory tidying-up; it is undermining the effectiveness and independence of the organisation. If what we are seeing here is the beginning of the end of the commission—and in the light of what I have said, it is entirely reasonable to raise this as a question—for the avoidance of doubt, let me say that this party will fight tooth and nail against any such move.

Finally, I shall deal with part 6, which puts in place additional measures to deal with executive pay. In order to build a more productive and responsible capitalism, it is important to ensure that we bring an end to excessive pay and rewards for failure, which are bad for our economy and for our businesses. The Prime Minister and the Chancellor have sought to insinuate that proponents of reform in this area are being “anti-business”, but the recent wave of shareholder revolts has shown just how out of touch they are with business and investor opinion on these issues. Shareholders at Citigroup, Credit Suisse, Barclays, Mann Group, Aviva and other companies have all either been protesting or voting against remuneration packages over this last couple of months. WPP shareholders will be voting on the remuneration of that company’s senior executives later this week.

In fact, the highly respected business leader, Sir Michael Darrington, the former group managing director of Greggs plc, has founded a pressure group—“Pro-Business, Against Greed”. Its aim is to reduce the excessive and growing difference in net pay between the highest paid and the majority, which he says

“is intended to help promote a happier, healthier and fairer society as well as being better for pensioners and investors.”

We congratulate him on that initiative because change and reform must be led by people like Sir Michael, who is also a shareholder in Aviva and Trinity Mirror, with Government backing.

In government—it is a shame that the right hon. Member for Bermondsey and Old Southwark (Simon Hughes) is not in his place to hear this—we started to improve corporate governance in this area and to empower shareholders. We introduced advisory shareholder votes on remuneration reports, which are creating so many headlines at present. It is not fair to say that we did nothing about this matter in government.

Currently, there is a prohibition in statute on the remuneration of executives of quoted companies whose pay is contingent on the outcome of a shareholder resolutions. This Bill will remove that prohibition, paving the way for further reform. It will enable the Government to build on our reforms by, for example, having an annual binding vote on future remuneration policy, increasing the level of support required on votes on future remuneration policy and so forth. I was glad to hear the Secretary of State confirm that he intends to bring those reforms forward as amendments to the Bill as it passes through this House. That is welcome.

On the annual binding shareholder vote in particular, we agree with the suggestion put forward by asset managers Fidelity Worldwide Investment that a 75% majority should be required in respect of a binding vote on future remuneration policy. I would be interested to hear what the Secretary of State thinks of that, as I must say that it was with great disappointment that we read that he is likely to row back not only from that proposal, but from the one to have these votes on an annual basis. That represents quite a watering down of his initial proposals. If he would like to disabuse me of that, I would be happy to give way to him now.

[Vince Cable]

Current thinking—we are yet to report back to the House formally on the consultation—is that there will be annual votes if pay policy is changed by companies. The investor community made it absolutely clear that it sees that as a much more productive way of progressing its concerns.

[Mr Umunna]

I am glad to hear that, but I wonder where all the briefing in the Sunday newspapers yesterday, including The Sunday Times, The Sunday Telegraph and others, came from. I am sure that the Treasury had absolutely nothing whatever to do with that. We, of course, have already called for the full implementation of the High Pay Commission’s recommendations, including the proposals for employee representatives on remuneration committees, which the Government continue to refuse to implement.

On copyright, the proposals in clause 56 to amend the Copyright, Designs and Patents Act 1988, which I think the Secretary of State mentioned, are broadly drawn and, in our view, need greater clarity, not least to indicate that this power cannot be used to weaken the copyright regime.

Let me conclude. It has admittedly been something of marathon working through this Bill because it is such a hotch-potch of measures. As I have explained, there are parts of the Bill, taken separately, that we support in principle and will seek to improve in the later stages. However, other parts, particularly relating to employment, are, as drafted, simply unacceptable. Yet again, after going through all this, we find ourselves back where we started: in a big black hole when it comes to helping businesses to create enterprise, generate wealth, and grow. There is no compelling vision, no confident message about how we are to pay our way in the world, and no connected approach across Government to drive growth. That is the point that we sought to make in our amendment, which I commend to the House.

[Several hon. Members]

rose—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. Before I call the next speaker, I must inform the House that all Back-Bench speeches will be limited to eight minutes from now on. Many Members wish to contribute, and if we do not make enough progress to enable all of them to do so, it may be necessary for the limit to be reduced further.

19:10

[Mr David Ruffley (Bury St Edmunds) (Con)]

It is always a pleasure to listen to the hon. Member for Streatham (Mr Umunna), who invariably makes his case with courtesy and rationality, but on this occasion I do not agree with the thrust of his speech.

Making the United Kingdom economy much more competitive is vital if we are to weather the storms following the fallout from the eurozone catastrophe while also facing the inexorable rise of far-eastern economies. Deregulation is a key part of that.

All Governments launch initiatives to create bonfires of regulation and to slash red tape. But is it not remarkable that the intended beneficiaries of such anti-regulation drives so rarely tell Members of Parliament that they believe that the regulatory burden has been reduced? After 15 years in the House, I have yet to meet a business constituent who has said that. In each year of the last Parliament—this will be the only instance of my straying into the realm of party-political knockabout—the Labour Government created six new regulations every working day, and as a result the coalition Government have a massive burden of over-regulation to identify and, in my view, eliminate.

The changes relating to employment in part 2 of the Bill are certainly needed. The number of unfair dismissal claims doubled from 100,000 in 2002-03 to 218,100 in 2010-11. That is a staggering increase, and, according to the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for North Norfolk (Norman Lamb), it costs businesses an average of £4,000 to defend each claim. It is hardly surprising that employers say that they are discouraged from taking on new employees at the margin, especially at a time when business confidence is so low.

Let me give a parochial example. Two self-made businessmen, one working in food retail and the other in furniture retail—both started with nothing, and both are very good employers—told me that the chief factor in the decision whether to take on new employees this year was the problem of unfair dismissal claims and vexatious claims. Both had had unfortunate experiences in the last year. I visited their companies, and I do not think that they were telling porkies.

We should not accept the caricature presented by some Opposition Members who have suggested that liberalising the labour market even further is an exclusively right-wing idea. Those who follow these matters carefully rather than jeering in the cheaper seats in the back will know that, according to the distinguished left-of-centre employment law professor Pietro Ichino—he is very much on the left of Italian politics—there is an equality issue between the very well-protected employed and the unemployed who stay unemployed because of over-regulation in the market.

Unfortunately, although the Secretary of State has already raised the qualification threshold for unfair dismissal from one to two years, he has ruled out exempting small businesses—micro-businesses—from various employment laws. Perhaps the Minister will explain why the Government have turned their face against exempting businesses that employ fewer than 10 people from the full panoply of unfair dismissal law when it comes to young workers. The high cost of youth unemployment surely suggests that we should try that, if only for a limited period, to see what the results are. I should have thought that those who are worried about youth unemployment could not disagree with such a proposition for a minute, but if they are not satisfied with my argument, what about the evidence?

In 2004, businesses in Germany with fewer than 10 employees were exempted from the requirement to provide cause when letting an employee go. Before that, the threshold was only five employees. Did unemployment rise as a result? No, it did not. In 2005, overall unemployment in Germany was more than 11.5%; now it is 7.5%. Among those under 25, it has fallen from 12.5% to 6.3%. That is due not only to the slightly more relaxed regime for small businesses in Germany, but to the fact that mini and midi-businesses were subject to much more generous and simpler social security contribution regimes. The hon. Member for Streatham suggested national insurance breaks for small businesses employers, and I am sympathetic to that idea, but the evidence shows that the exemption system worked in Germany.

[Mr Umunna]

Will the hon. Gentleman give way?

[Mr Ruffley]

No, I want to make some progress.

Part 5 deals with legislative burdens more generally. Clause 49 proposes an increase in Ministers’ power to introduce sunset provisions, and I welcome that. We may be one of the first countries to use sunset clauses as a matter of course in all regulatory policy. Some states, such as Germany, use them sporadically, but no EU states use them systematically, and not even the United States uses them across the board. Our Government are leading the way in reducing regulatory levels by providing for their use in all legislation, as far as possible, throughout Whitehall.

Finally, let me say something about one in, one out. There has been some early modest success in that regard, but I should be grateful if Ministers would consider a proposal which the last Government toyed with, but did not proceed with, in 2008. I refer to regulatory budgets, which would set a figure for the value and cost of regulations in any particular Department. That proposal was not included in the 2008 Labour consultation, but many of us have been considering ways in which, if a budget went bust because too many regulations were being imposed on business, the Department would be subject to the sanction of reductions in its public expenditure settlement with the Treasury. That would certainly hold Ministers’ and senior civil servants’ feet to the fire. Perhaps the Minister will tell us whether the Government will consider it.

19:18

[Mr William Bain (Glasgow North East) (Lab)]

Several weeks ago, the Business Secretary revealed publicly to The Guardian something that the country already knew to be true: that the Government have no convincing narrative when it comes to running the country. That is particularly true in relation to the disastrous state of our economy. The Office for Budget Responsibility has downgraded the forecast for the growth in business investment in the wake of this year’s Budget from 7.7% to a pitiful 0.7%, which is well below the forecast for Germany and the United States, while in Scotland, the Bank of Scotland’s purchasing managers index revealed only this morning that private sector growth was at a 17-month low.

The Bill should therefore have presented an opportunity for a radical change of course. It should have started the process of dealing with the crisis of lack of economic demand, as well as the shortage of work in our country, which means that 20 people chase every job advertised in my constituency, and the lack of business investment, particularly in the green economy. With youth unemployment standing at over 1 million, the Bill should have made it easier to hire young people through an employers’ national insurance holiday, and have started to tackle the crisis of underemployment in our country, with 6.3 million people crying out for full-time work but unable to find it, rather than promoting a failed ideology by making it easier to fire people.

The Bill fails to acknowledge that the Government promised they would grow the economy and cut debt, yet since the 2010 spending review they have shrunk the economy and grown national debt. They choked off the economic recovery that was taking root under the previous Government in early 2010, and have instead presided over the slowest emergence from a slump since the long depression of the 1870s.

We were told that, by slashing the public sector quickly and deeply, the invisible hand of the private sector would be free to guide a strong recovery. Who among Members on the Government Benches would credibly make that claim today, when in this financial year, with the cuts in public spending due to start biting hard, the OBR has downgraded its projected growth for the economy from 2.5% to 0.7%, followed by the OECD and the Bank of England?

Our financial system is failing to generate credit to stimulate sufficient private sector activity. Lending to small and medium-sized businesses has fallen for five consecutive quarters, while, even at the height of the recession, in Germany, with its more balanced banking system, bank lending by the Sparkassen, or local savings banks, continued to rise.

The Business Secretary trumpeted Project Merlin and then credit easing as the answers, but the truth is that British businesses face a shortfall in available finance of £190 billion over the next decade, while £700 billion of private sector capital is failing to be put to sufficiently productive use in our economy.

The Bank of England has printed £325 billion through quantitative easing for use in its asset purchase scheme, and that has provided some monetary stimulus for growth, but this money has mainly been used to purchase gilts and to prop up bank balance sheets, instead of finding its way directly to SMEs or into the real economy on our high streets. Only today, Adam Posen, the external member of the Bank of England’s Monetary Policy Committee, has reiterated his call for that money to be used to purchase private sector assets, by emphasising the argument that a lack of economic confidence can feed on itself. That shows the scale of the missed opportunity in this Bill.

In the 1930s, the lost output was restored within 48 months of the beginning of the economic crisis. Now, under the business policies followed by this Government—which are not reversed by this Bill—as the National Institute of Economic and Social Research suggests, it may take 72 months, and counting, to restore the lost output, as the economy has spluttered to a halt in the last two years.

Real wages have fallen every month that this Government have been in office, amidst the biggest squeeze in living standards since the 1920s. This Bill should have marked a turning point away from what even the credit rating agencies have described as an entirely self-defeating policy of austerity.

Some of the Bill’s measures are welcome in so far as they go, but even with the establishment of the green investment bank, the whole is less than the sum of its parts and fails to meet the scale of the challenge in respect of the potential for green growth, as stated by the UN Environment Programme in its report of last autumn. WWF UK has estimated that infrastructure investment on a scale of between £220 billion and £330 billion is needed to create the number of green jobs required over the next decade, yet the bank will have start-up public capital of only £3 billion, which is just 0.2% of GDP, with no likelihood of borrowing powers by 2016. That is a result of the Chancellor’s failure on growth, leading to borrowing being £150 billion higher than he forecast in June 2010.

The Bill presented a real opportunity for the Government to consider the Opposition’s proposal to establish a proper national investment bank and make use of the UK’s current low long-term interest rates. In 2008, business investment in the US, Germany and France was 11.7%, 12.3% and 12.7% respectively, whereas in this country it was only 10.2%. As Gerald Holtham demonstrated in a report for the Institute for Public Policy Research last year, a properly capitalised national investment bank could be achieved, increasing investment in manufacturing and the green economy without breaching even this Government’s fiscal rules.

This Bill should also have marked a shift towards restoring the link between economic growth, living standards and productivity. As the Resolution Foundation showed last year, in the 30 years from 1977 the share of every £1 of GDP going into the wage packets of people in the lower half of the income scale fell from 33p to just 12p. There should have been policies to establish a proper living wage as well, given that the Resolution Foundation has also shown that the costs, even to big business, of such a move would be in the order of less than 1%.

It is especially alarming that the Government are considering watering down their extremely modest proposals to tackle the inequality gap between top pay and the pay received by rest of the country. Given both that and their attitude on rights of work, the Government show in this Bill that they have no plan to stimulate demand. This is the no-change Bill from the no-growth Government.

19:26

[Margot James (Stourbridge) (Con)]

I welcome the many excellent measures in the Bill that lay the foundations for a low-carbon economy, with the green investment bank being established and the proposed changes to the competition regime, which should simplify matters for business and reduce costs.

I want to focus on the employment law reform provisions, however, as that is the one part of the Bill on which I hope the Government will be persuaded in Committee to move. I want them to go a little further in redressing the balance in law between employers and employees. In no way do I seek to establish some sort of “hire and fire” culture; I very much agree that that would be to the detriment of not only employees, but business. However, I welcome the provisions enabling disputes to be resolved at a much earlier stage, without the need to go to an employment tribunal. That will be a help to both employer and employee, and it is anticipated that 25% fewer claims will end up going to a tribunal as a result, which will save public money and company time and resources. We have also heard this afternoon that any employer offer of a settlement earlier in the process will no longer prejudice the company’s position in any subsequent tribunal hearing. That is a welcome development, and I look forward to hearing further details.

Contrary to the fears that some Opposition Members have expressed, nothing in this Bill changes an individual’s statutory employment rights, but that causes a degree of concern to many of us who have been in business and therefore know how far the balance has tilted towards the rights of the employee, especially in unfair dismissal claims. I took some soundings from people with whom I have in the past been in business, and I want to quote the comments of somebody who does not want to be named. She told me:

“Tribunal culture in the UK means the employer is on the back foot. We have agreed to pay off employees (who have appointed no win-no fee lawyers) that have threatened to take us to court, even when they have no real case, as the amount of time/energy it takes us to fight our case at a tribunal is too high, even when we as employers think we are in the right. This area I feel is the most onerous for me as an employer currently. And for someone with a social conscience, I don’t like paying someone off when they are in the wrong, just because it is the most cost effective thing to do for the business.”

Research by the chamber of commerce among firms employing between 10 and 49 people has confirmed what that individual told me. It revealed that 21% of respondents had been threatened with an employment tribunal in the previous three years, and of those 37% had opted to settle out of court. Many employers of fewer than 20 people simply cannot afford the specialist HR resource required to enable them to defend their position in a tribunal. Only 20% of respondents to the survey defended their claim, and although it was heartening to read that, of those, three quarters won their case, some of the comments quoted verbatim in the research are salutary. One HR director said that he

“cannot emphasise enough how burdensome and draining it is to dismiss people who are performing very poorly or are abusing the rules.”

Another said:

“We won our claim, however the stress was off the scale, it cost our company over £20,000 for something that was never our fault.”

I welcome the review of a related matter—health and safety regulations—being undertaken by the Department for Work and Pensions. That has a considerable bearing on employment law. Although it is beyond the scope of the Bill, I hope that Ministers will confer with their DWP counterparts, as 54% of respondents to that chamber of commerce survey cited concerns about the operation of health and safety rules. A company in my constituency employing between 100 and 150 people, even though it is in many ways a model employer, suffers two or three cases a year of vexatious claims by employees, and even ex-employees, who have created a spurious claim based on an accident they had at work. The company is then in the position of having to prove to the court that it created proper conditions that should have prevented the accident—the onus is on the company to prove that it took adequate measures. That is but one example of the many areas beyond unfair dismissal where, I believe, the rights of the employee are now too far out of kilter with the rights of the employer.

[Julian Smith]

I think my hon. Friend gets an extra minute for taking my intervention. Does she agree that there is an impact on growth, because when a small company is having to deal with all these issues in employment tribunals, it is not able to focus on creating more jobs and growth? That is what Opposition Members sometimes appear to fail to understand.

[Margot James]

My hon. Friend makes a good point. The problem is not just the cost of defending claims, but the management time involved. That detracts from the energy that companies need to fight in the market for business. There is no doubt about that.

[Mr Binley]

Will my hon. Friend give way? She will get another minute if she does.

[Margot James]

I will give way once more, but I will not take all the extra time.

[Mr Binley]

I am most grateful. Does my hon. Friend recognise that, for some small businesses, two days and the prior work necessary to attend a tribunal cost £10,000? Many shy away from taking that course, even though they think they are right, because they simply cannot afford that.

[Margot James]

rose—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. It is quite true that the hon. Lady gets extra time for taking interventions, but of course that takes time from Members who are waiting to speak. Mr Binley and Mr Smith, you might remember that.

[Margot James]

Thank you, Madam Deputy Speaker. I am conscious of that and I will not take all the additional time allotted.

My hon. Friend the Member for Northampton South (Mr Binley) made a good point. The cost in time and money of fighting claims is a huge disincentive, especially to very small companies. That is why I believe we should give micro-businesses special consideration and partial exemptions from some of the measures in the Bill. I hope that the Government will take on board the views expressed by my colleagues and I today, and the concerns voiced by the many reasonable employers who try to do the right thing by their work force. The volume, complexity and, I believe, bias of current law, which allows vexatious and sometimes spurious claims to be brought in the first place, is what needs to be changed fundamentally, alongside the very good measures the Government propose in the Bill.

19:35

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I rise to support the reasoned amendment. I consider that the appropriate course, because although there are some bad things in the Bill, it also contains a lot of good measures that should be supported.

What is bad is the fact that, as far as business is concerned, the Bill is about as good as the Government are prepared to offer. At a time of double-dip recession, when consumer spending is squeezed and could well contract further, manufacturing is struggling and private sector investment is almost negative, there was an opportunity for the Government to produce a Bill that would play a major role in reversing those trends. Instead, we got a rag-bag of measures, some quite good in themselves, cobbled together in an omnibus Bill that has no focus and no clear relevance to meeting the challenges facing our economy today. Businesses are crying out for something far more dramatic, such as investment in construction or a business bank—major action by the Government that will help to stimulate private sector investment, increase employment and improve consumer spending—but this Bill is all they have got. Even the Secretary of State admitted that the measures in the Bill would not reverse the current economic problems.

Many of the measures are Labour’s ideas—the green investment bank, the provisions on shareholders and the primary authority scheme. I admit that the present Government have developed those ideas, but given the controversy that some of them have generated within the Government ranks, they cannot avoid the overriding perception that this Government appreciate the logic of what Labour initiated, but do not have the political conviction or passion to implement those ideas in a way that will deliver on their objectives.

I welcome the green investment bank. Originally Labour’s idea, its implementation has taken two years, amidst oft-reported squabbling between the Department and the Treasury. In three years, it will—perhaps—be able to do what banks are expected to do: borrow and recycle the money; however, that is subject to the public accounts being in an appropriate state. That is hardly the sort of approach that will generate the certainty needed to encourage investors to put money into the bank, so funds will be available for redistributing.

[Mike Crockart (Edinburgh West) (LD)]

Will the hon. Gentleman give way?

[Mr Bailey]

All right. I will try not to use my full time.

[Mike Crockart]

The hon. Gentleman is making an interesting point, but surely he must accept that the fact that £750 million is available this year to invest in green projects is a massive step forward.

[Mr Bailey]

I accept that that is better than nothing, but it falls far short of the Ernst and Young assessment of what is needed for the green investment bank to generate a green economy. Other surveys also underpin the original Ernst and Young one. No provision is being made for reviewing and reporting on the bank to obtain some sort of public estimate of just how far it is fulfilling the role it should have. No provision is being made for procurement for small and medium-sized enterprises, although I welcomed the Minister’s comments about the amount of funds that are going in their direction. In addition, there is a real risk that the opportunity to develop a green economy will be lost because the so-called “green investment bank” will just become a niche fund, instead of being what it should be—a driver to develop a green economy, with all the benefits and all the employment that will come with it, as we see in Germany.

A lot has been said about regulation, and I echo the welcome my hon. Friend the Member for Streatham (Mr Umunna) gave for measures to provide for a conciliation service that will obviate the need for some employment tribunals; anything that can make easier the complex and sometimes stressful process—for both employee and employer—is to be welcomed. My concerns centre on the resource and funding issue for ACAS that has been raised by a number of hon. Members. Undoubtedly, the Bill places far greater stress on ACAS, giving it a far greater role and far greater responsibilities, but there is no evidence that the resources will be put in place to enable it to match those responsibilities. I would be interested to know whether the Government have done any research on whether this approach will generate more complaints. Undoubtedly, some employees do not take their employer to a tribunal because they would find doing so too stressful. If the option of a conciliation service that avoids the need to go to tribunal is available, that may actually generate more claims. I do not know whether that will be the case, but the Government should examine the matter, particularly in the context of their funding for ACAS.

The proposal for the competition and markets authority is, in general, good, but I have concern about one particular aspect: the offloading of some of the consumer education role of the Office of Fair Trading to Citizens Advice. I have nothing but praise for Citizens Advice, but I am concerned, given the funding cuts it is enduring at the moment, about whether it will be in a position to carry out that sort of additional responsibility in a way that will benefit the community. The Government need to examine that resourcing issue.

I promised that I would not use up all my time, so I shall conclude by saying that although the Bill is not all bad, it totally fails to address the major challenge that is confronting the Government and which the business community wants it to confront. The Bill is symptomatic of a Government who have few ideas, and I suspect that those they do have are being strangled by Treasury orthodoxy. The Government need growth and the country needs growth, but these measures will not deliver it.

19:39

[Richard Fuller (Bedford) (Con)]

As our national economy searches for growth, we look for direction. As our small businesses, our shopkeepers and our entrepreneurs struggle with unyielding burdens, they look for relief. As many who are unemployed, both short-term and long-term, continue their search for employment, they ask for hope. And so we turn for inspiration to the Enterprise and Regulatory Reform Bill. Here was our chance to send a clear message that we were going to roll back the European regulation that is calcifying the spirit of enterprise. Here was the opportunity to come forward with new ideas and initiatives for new funding sources to assist in dealing with the gap in funding for our small businesses. Here was an opportunity to press for changes in the jobs tax and to look for more tax deductions for people who wish to put their capital at risk in our small businesses. Here was an opportunity indeed to send a clear message to our local bureaucrats, with their pettifogging rules and regulations which are causing more misery to shopkeepers in our town centres, that they should stand back a bit and understand how hard it is in many town centres for small businesses to make progress. This Bill was the opportunity to address all those things, and I look forward to hearing in Committee how we have done on all of them.

I wish to address one part of the Bill, and it relates to what has been termed “hire and fire” and what has been termed “compensated no-fault dismissals”. I do this because I do not feel that Adrian Beecroft’s proposals have been given due consideration. There are strong arguments on both sides as to whether or not we should implement them, but we have not investigated the issues sufficiently carefully and it is wrong to dismiss the proposals with ridicule, with abuse or with fearmongering. Let me explain why that is.

If we look at the issues in developed economies, particularly those of the United Kingdom and the United States, relating to how we recover from recessions, we discover that our economies are finding it tougher to create jobs as we recover. In the period before the 1990s, it took on average about six months from the economy recovering for it to reach full employment. Since the 1990s, the figure has gone from an average of six months’ further delay to one of 15 months or more. The United States is a much better economy at recovering from recessions than the United Kingdom is. In the US, it takes on average four to five years for the economy to bounce back, but in the UK it takes eight to 10 years. There are therefore two strong reasons for examining why the UK is not as good at recovering employment as other countries are and why, even in those countries, it is becoming more difficult to associate growth with employment.

[Mr David Anderson (Blaydon) (Lab)]

Interestingly, the OECD has the UK as the second worst country out of 36 in the developed world for employment rights—only the US is worse—yet the record shows that countries such as Germany, with much better employment rights, have come out of recession faster. Is that not the lesson we should be learning tonight?

[Richard Fuller]

I appreciate the intervention, but I am not as clear as the hon. Gentleman is about those particular statistics and I am not sure that they paint the correct picture for the United Kingdom. The shadow Secretary of State cited the World Bank earlier when he looked at the overall statistics on doing business and said that they had—surprisingly—got better under the previous Government. If we look at the same World Bank statistics and the issues to do with the labour markets, we find that this country declined from 17th to 34th position in the period from 2007 to 2010. In terms of the need for change in the labour markets, it has been shown that we need to get a little better.

[Sandra Osborne]

Will the hon. Gentleman give way?

[Richard Fuller]

Very briefly; I, like others, will not then use up more time.

[Sandra Osborne]

Statistics are extremely interesting, but what is the connection between what the hon. Gentleman is talking about and no-fault dismissal? Where is the evidence for that?

[Richard Fuller]

Many people look at the “dismissal” part of no-fault dismissal, whereas for Government Members and some Opposition Members the other part is how willing employers are to take someone on when they understand what the risks may be of having to hold on to them. That is the connection. My focus is not on the fear of what might happen in firing situations, which has rightly been expressed by Opposition Members, but on dead-weight costs and the number of people who have not been hired because employers are not prepared to take the risk with their businesses. All hon. Members and all businesses are concerned about achieving growth. To achieve growth, businesses need certainty, but equally they need to have certainty that any additional staff they hire will work out well. For a small business of three, four, five or 10 employees, hiring one person is an incredibly big decision. As my hon. Friend the Member for Stourbridge (Margot James) said about a business in her constituency, such costs have a significant impact on cash flow and perhaps viability.

For those reasons, I hope that in Committee we can look again at the issues that Adrian Beecroft has raised, although I think the Secretary of State has dismissed them. I hope we do so by saying, “We aren’t yet sure what the right answer is, but we are not going to be put off by scaremongering tactics.” We need to understand whether such proposals will have an impact.

Those are the main issues. If we are to achieve growth in our country’s economy, it must be founded on a better approach to getting people back to work quickly. We do not have the answers from our recovery from recessions of the recent past. I believe that making it easier for people to understand the risk involved when they hire people will be a major step forward in that regard.

19:51

[Sandra Osborne (Ayr, Carrick and Cumnock) (Lab)]

It is a pleasure to follow the hon. Member for Bedford (Richard Fuller), although I do not agree with him. I do not deny that there could be reform of, for example, the tribunal system, but no-fault dismissal is an attack on workers’ rights. That is not, as some say, a misunderstanding on the part of the public. My constituents know when their rights are under attack, especially when they are already worried about employment stability. The Secretary of State for Business, Innovation and Skills has ruled out proposals on no-fault dismissal in the Bill, and I hope that the Minister reaffirms that in his winding-up speech.

I welcome the green investment bank, particularly as it will be based in Edinburgh. I am sure that my fellow Scots will have the good sense to realise that that and many other aspects are good reasons why we should remain part of the United Kingdom as opposed to being separate.

Having said that, I shall try to keep my speech short and concentrate on clause 51, which is so important to the Secretary of State that he mentioned it only in response to an intervention from my hon. Friend the Member for Streatham (Mr Umunna). I do not agree with the Secretary of State; it is an important measure. It is not, as he said, just a tidying-up exercise.

The clause removes powers from and reduces the duties of the Equality and Human Rights Commission, which was set up by the Equality Act 2006 as an independent statutory body and regulator. It is responsible for enforcing equality legislation on age, disability, gender, race, religion or belief, sexual orientation, or transgender status, and for encouraging compliance with the Human Rights Act 1998. It has a duty to challenge prejudice and disadvantage and promote the importance of human rights. It works to reduce inequality, eliminate discrimination and strengthen good relations between people.

According to the Government, that apparently means that the EHRC is biased, which goes to show how shallow their grasp is of the serious, endemic problem of discrimination in our society, and how little commitment they have to tackling it. Perhaps that is why the Business Secretary did not bother to mention it apart from in response to an intervention.

Undertaking those functions effectively requires proper funding and the retention of the EHRC’s full legal remit. We know that the Government have had it in for the EHRC for some time and have sought to undermine it, but that is not to say that there have not been problems. It is a new and innovative organisation, and to some extent such problems are to be expected. In my Westminster Hall debate only a few weeks ago, I highlighted the EHRC’s 62% budget cut and 72% cut to staffing by 2015 from the original 2007 level. The cuts to its resources and remit almost annihilate the commission, and render it little more than a talking shop.

That is a great pity, because the establishment of the EHRC was groundbreaking. Legislation to outlaw discrimination has existed for more than 40 years, but, typically, new Acts have focused on one area of policy—for example, on pay, equal treatment of women or race discrimination. The body of law was introduced in a piecemeal way over a long period and developed inconsistencies. The 2006 Act harmonised existing law in a more coherent whole and introduced new requirements. It was subject to extensive pre-legislative scrutiny and had support from civil society and had all-party support. Having sat through the proceedings, I can say that the Liberal Democrats continually lectured the then Government on how the measures did not go far enough, and said how keen they were on the public sector equality duty, which is now up for review.

Consensus was achieved on the introduction of the Act, but the Government’s so-called consultation on building a fairer Britain was a bit of a farce. They have ignored the majority of responses which, by their own admission, were against the changes they propose.

The socio-economic duty is not currently in force, but its repeal is a political totem for the Conservative party, which has always opposed it. Everyone knows that socio-economic duties are not the Conservative party’s thing, but the Minister for Equalities, a Liberal Democrat, also took part in proceedings on the 2006 Act. At that time, she thought the socio-economic duty was so important that there should be separate legislation to deal with socio-economic issues. Will the Minister tell us when the Government will introduce such legislation?

The Government want to repeal the general duty in the Act because they say it has no specific legal purpose and does not help to clarify the precise functions that the EHRC is required to carry out. Not surprisingly, many do not agree with that. It is a purpose clause that sets out the broad goals and underlying principles of the legislation. The Government have admitted that the majority of respondents to their consultation were opposed to repeal by nearly six to one, and were concerned about losing the guiding principles and values set out in the general duties as debated in the House during the passage of the Act.

The Joint Committee on Human Rights at that time agreed with those principles, as did other hon. Members, including the then Member for Daventry, now Lord Boswell, who said:

“I have no difficulty at all with the general duty in clause 3 —that is what most of us are in politics for.”—[Official Report, 21 November 2005; Vol. 439, c. 1331.]

I know that to be true of him from the many contributions he made in this House, but it is not true of the coalition.

The purpose clause on the socio-economic duty is about values. Crucially, it illustrates how our society views, and attaches importance to, matters of equality. It is a pity that the French experience will now be superior to ours. The French have adopted the duty in legislation but, unlike us, are not cutting back when it comes to carrying it out.

I sat through proceedings on the 2006 Act. Hon. Members will have realised that I have strong feelings about these issues, so I shall cut my speech short. Clause 51 is not a tidying-up measure; it takes us backwards. It should not be supported and it should not be in the Bill in the first place.

19:59

[Mr Brian Binley (Northampton South) (Con)]

I congratulate the hon. Member for Ayr, Carrick and Cumnock (Sandra Osborne) on a forceful defence of equalities. It was well received, and she should feel that she has done her job very well indeed.

This is an important Bill, and I will concentrate not on equalities but on small and medium-sized businesses. They are where our growth will come from, which is why we have to prioritise them. Over the past decade we have failed to recognise the contribution that new and growing businesses make to our prosperity. It is small businesses that deliver employment growth. Private sector employment increased by 45,000 in the final quarter of last year to 23 million, the bulk of whom are in small businesses. They represent more than half the people employed in this country. As the public sector contracts to sustainable levels the private sector will grow, and small and medium-sized businesses will create the jobs that we need. They need help and impetus, and that is what I want to concentrate on today.

The Secretary of State mentioned the situation in Germany, where very small businesses are well looked after because they are seen as the future oak forests of the German economy. They do not have to be on the trade register, they do not pay turnover tax, they do not specify turnover tax on their bills and they can calculate their profit for income tax purposes on the basis of revenue surplus. Additionally, they are not paid back the turnover tax that they pay to other businesses, and they are subject not to the rigid regulations of the commercial code but to the more protective regulations of the civil code. In other words, the Germans recognise the need to nurture their new and growing businesses. I am disappointed that we have not taken that route in the Bill, and I implore the Minister to consider that very seriously.

Much has been said in the debate about regulatory reform, but small businesses have heard much of it before. Large multinationals have the resources to use expensive consultants and employ compliance departments, unlike almost every small business that I deal with. In commensurate terms, the burden placed upon small businesses is sometimes 30 times greater than that on a plc, yet we expect them to deal with the problems of employment tribunals, health and safety at work and human resources. They simply cannot do that and grow at the same time, and we need a Government who recognise that. I recognise some of the good that the previous Government did in this area, but they did not really understand that point. I fear that we will not understand it either, and I beg the Minister to consider it very seriously indeed.

[Mr Anderson]

Given what the hon. Gentleman has said, would it not be more sensible for the Government, instead of attacking employee rights, to give small business people access to such things as good-quality legal aid, so that they can take people on and exploit the system in the right way?

[Mr Binley]

I consider the hon. Gentleman to be a friend, and our views meet on a number of issues, particularly clean coal. However, they do not meet on this matter, because his suggestion would only add even more bureaucracy to small businesses. We need to lift that bureaucracy, and I ask that that point be appreciated.

[David Simpson (Upper Bann) (DUP)]

I agree with 99.9% of what the hon. Gentleman is saying, especially about small and medium-sized businesses, which are the backbone of this United Kingdom. Does he agree that it is the Government’s role and responsibility to create the environment that will help those businesses to succeed?

[Mr Binley]

I agree entirely, and I am most grateful to the hon. Gentleman for making that point much more succinctly than I did.

The Government recognise that employment regulation needs to be addressed. It is in everybody’s interests that workplace disputes are resolved as speedily as is practical. I share the concern of my colleagues on the Business, Innovation and Skills Committee that we must be assured that introducing a mandatory process will expedite matters. It is conceivable that ACAS will be involved in trying to conciliate more than 200,000 cases a year. Can the Minister provide an assurance that that will speed up the process?

In response to the earlier consultation, the Government recognised the need to increase ACAS’s resources, arguing that that would be paid for by savings from cases that would not proceed to a tribunal. However, ACAS’s report makes it clear that three quarters of claims are already resolved before that phase. What further reduction do the Government envisage under the mandatory system, and will the additional resources be provided up front? Otherwise, if we are not careful there will be as big a road block as there is in the European Court of Human Rights in Strasbourg. I ask the Minister to consider that very carefully. ACAS acknowledges that

“problems at work can be a barrier to growing a business”,

and I support that view, but it has to be properly funded if it is to do the job that the Government will ask it to do. I am not sure that we have been assured that that will be the case.

I welcome the provisions in the Bill to improve competition policy. Small businesses are capable of performing robustly in a competitive market, and we should ask whether we are doing enough to enable them to compete. When market forces fail to deliver a competitive environment, it is proper that authorities should intervene, but we need to make our competitions investigations speedier. Cartel investigations and dominance inquiries in this country take an average of more than 30 months, which is simply not good enough. We can imagine the cost involved for small businesses at the larger end of the scale that are involved in such process—it is enormous. All that we are doing is stopping good people managing their businesses for growth. We are making them defend their position simply because the law says they must. The law needs to be more helpful and understanding to them in that respect, and I ask that that matter be looked into more deeply.

Finally, I welcome the extension of the primary authority scheme in clause 52. It is essential to widen small businesses’ opportunity to participate. The existing arrangements are too prohibitive, so the reform is positive. I pay tribute to the Labour party for introducing the scheme when they were in Government—I always want to recognise value where it exists, because the House is better when it works together than when it works apart.

I repeat that this is an important Bill, and it has been brought forward at a sensitive time in the economic cycle. The voice of business could not be clearer. We need to create a simple, predictable, reliable and agile regulatory environment. We need to encourage entrepreneurs to start businesses and want to grow them here, and we need a competition regime that champions competitiveness and opportunity. Those are tough asks, and it remains to be seen whether the Bill will perform those tasks. It will if Ministers allow it to be amended effectively in Committee and on Report. I want an assurance from the Minister that the Government will be that understanding.

20:10

[Austin Mitchell (Great Grimsby) (Lab)]

It is always a pleasure to follow the hon. Member for Northampton South (Mr Binley), provided that one does not follow him too far down his idiosyncratic paths.

It is difficult to speak about the Bill, as it is very much a rag-bag of a Bill. I would say it was a curate’s egg of a Bill, if we could assume that curates ate pterodactyl eggs that were good in parts but monstrous in others. It is a very mixed bag and it looks to me as though the Secretary of State for Business, Innovation and Skills, who is, I think, the only wise man in Government—certainly in the Cabinet—has had a difficult fight beating off some of the more lunatic proposals that were put to him by Beecroft and others in the Conservative party. He has finished up with not a Bill but a bric-a-brac stall, with several bits that are very broken and others that are very messy.

We were told that the Bill is about growth—that it is about “encouraging long-term growth”—but that is completely crazy. Our economy is not growing because of the way in which the Government are handling it. They are obsessed with debt rather than the real problem with the British economy, which is demand. In an attempt to cut debt, they are cutting spending, firing public servants and reducing public spending, but those actions in turn are reducing demand with the result that we are acquiring more debt and that the burden of debt weighs more heavily on the shrinking economy. The economy was 4% below its GDP in 2008 and if we count the growth it should have had in the interim years, we can see that it is well below what it should be. Ours is the only economy in the world that has fallen that low, yet the Government are compounding the problem by trying to cut debt while widening the deficit, requiring more debt to pay the wages of misery and unemployment. That is an economic folly and what the Bill does to encourage growth is as nothing when set against that.

It is a deceit to pretend that business is hung down with regulations, tribunals and employment regulations, that that is the cause of the problems and that if we get rid of all the regulations and obligations to the workers, we will suddenly have a surge of energy and enterprise. That is absolutely not true. Workers in this country have less protection and fewer rights than those in nearly every other advanced country apart from two. Less protection, fewer rights. We have heard some tear-jerking examples today of small businesses being unable to fire people. I accept that there are some problems, but it is easier for such businesses to fire people than it is in most comparable countries. When multinationals want to reduce their international work force, they notoriously always fire people in this country first because it is easier and less expensive in redundancy payments. No surge in employment will come through concessions to small businesses in the form of regulation. Speakers from the Government Benches have been rather like the captain of the Titanic, locked in his cabin discussing how to reduce the conditions and pay of the stewards while the ships sinks with an iceberg making a great hole in it. That is the level of the debate on those Benches.

Let me look first at what the Bill does not do, because its inadequacies are more glaring than its adequacies. It offers a green investment bank—or, to give it its proper name, a pale green investment bank—that is not a bank and that is certainly too little, too late. It is much like the time when Michael Heseltine used to go around distressed towns in the north in the 1980s offering them a garden festival; the green investment bank is the Liberal party’s wreath from Government. What we really need is not a green investment bank with very little money at its disposal but a national investment bank that will raise money on the markets—it could use some of the proceeds from quantitative easing, too—and invest it in business, in housing projects and in infrastructure projects to get the economy moving.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

Will my hon. Friend give way?

[Austin Mitchell]

No, I want to be very brief.

We are being offered a marginal increase in shareholder rights when what we need is an increase in worker rights and worker representation, particularly representation. Workers are the ones with the interests of the company at heart and they want to see the company maintained, viable and healthy. Workers, as well as shareholders, should be represented on the remuneration committee, on the audit committee, which should have a central role, and on works councils, such as those that they have in Germany. I would move rapidly towards the Mitbestimmung system of co-determination and partnership that they have in Germany. The Bill does not do that, which is a failure. It offers a simplified structure for competition issues when what we need is a British version of the Securities and Exchange Commission in the United States and a business commission to enforce effective corporate governance of British companies and to impose tougher rules on mergers and foreign takeovers.

As Alex Brummer shows in his latest book, we have very few national champions left in this country and a higher proportion of our big firms have been taken over by foreign firms than in any other country. That means that they are dancing to a tune dictated from Zurich, Hamburg, Delaware or wherever else rather than to a British tune when making their investment decisions. We need to check and control foreign takeovers on that stage.

Let me make a brief mention of what the Bill does; it has to be brief, because it does not do all that much. First, the simplification of the tribunal process is okay and acceptable, provided that ACAS gets the extra staffing and money that it will need to take over the conciliation process before industrial tribunal. Secondly, we need a one-track approach, rather than having to go first to ACAS and then to the tribunal. The approach should be integrated down one track.

We need better protection and provision for whistleblowers. In many cases, that is the only way we will find out what is going on inside companies such as A4e—we heard all the revelations about what that company had been doing because they do not have an adequate audit structure or control structure. That means that fraud can be perpetrated at the lower levels, whereas the top management is not concerned and does not want to know what is going on. We need proper control structures and some system of strengthening and protecting whistleblowers to encourage them to come forward and reveal what kind of business practices are going on. If the Bill does not provide that, it will fail. Those are important provisions that must be implemented.

[Mr Sheerman]

Will my hon. Friend give way?

[Austin Mitchell]

No, I am finishing. The Bill is a rag- bag. I agree—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order.

20:10

[Mr David Evennett (Bexleyheath and Crayford) (Con)]

I welcome the Bill and commend my right hon. Friend the Secretary of State for his opening speech. I was rather disappointed by the shadow Secretary of State’s lack of passion and belief in business. He seemed wedded to regulation and control and gave us rather a lawyer’s lecture. However, I enjoyed the passion in the speech made by my hon. Friend the Member for Northampton South (Mr Binley) and I congratulate him on that.

Business, enterprise and enthusiasm are present across our country. Individuals and small and medium-sized businesses are willing and capable to take on the world and to succeed. I am sure that there is a real appetite to develop, promote and sell goods and services, not just to home demand but to Europe and beyond. All enterprises need help, however. They need the right economic conditions, the appropriate regulations, a trained and skilled work force, low taxation, a sympathetic and encouraging Government and, of course, hard work—together, I believe, with luck. We approach the Bill with those requirements and I am pleased that we have a Government who understand and support enterprise.

There are 4.5 million small businesses in the UK, so any improvement we can make to the system of regulation and inspection will have a wide-ranging impact and could be of real benefit to the economy as well as to businesses. The most competitive and successful nations have clear strategies to support business. They have lighter regulation, less interference, competitive tax regimes, banks that support them and employment laws that make it easy to hire people. During the last decade, we have lagged behind in some areas as the previous Government seemed uninterested in business and more interested in the public sector. In the past two years, this Government have made real progress. Corporation tax has been cut and there is a greater number of apprenticeship places and more financial assistance to support work-based learning. The red tape challenge campaign was launched so that we listen to businesses’ concerns about regulation. A national loan guarantee scheme has been introduced so that businesses can get access to the credit that they need either to survive or to grow, and young entrepreneurs are being supported with start-up finance.

Of course, much more needs to be done to help business, and the Bill will help dramatically with that. Regulations are a real problem, and over-regulation is a problem for small businesses particularly. According to research by the Federation of Small Businesses, 27% of businesses say that increased regulation created difficulties in expanding their business, and 33% said that regulation was the biggest potential obstacle to growth.

I regularly visit businesses in my constituency that work in different sectors, including manufacture, retail, child care and education. Since the last election, I have been pleased to meet representatives of companies such as the Kenton Group, an innovative network research and manufacturing firm in Crayford; the Kip McGrath education centre in Bexleyheath, which provides extra learning support for children; and Pulp Friction in Erith, a growing firm of paper recyclers with depots across the country. Those firms are working hard to develop products and services that people want and need, and to generate wealth and prosperity. However, I remain concerned about the number of complaints that I regularly receive about the regulation and unnecessary bureaucracy that firms have to deal with and that take them away from more crucial tasks.

[Mr Sheerman]

The hon. Gentleman and I agree on many things when it comes to promoting enterprise. Does he agree that if he were in my region, he would have a very different perspective on how the economy was doing? Yorkshire and the northern and midland regions have been in recession for three years.

[Mr Evennett]

I appreciate the hon. Gentleman’s comments. We want to get the economy moving across the whole country, and make sure that there are jobs and opportunities. Training, enthusiasm and a determination to help small businesses is fundamental across the country, but I accept that different parts of the country have different problems.

Another excellent firm in my constituency is Texcel Technology, an electronics firm involved in international projects. Its managing director, Peter Shawyer, recently told me:

“The whole gambit of employment law causes us untold stress...Any dealings that affect employees are slow or impossible to implement without the threat of employment tribunals.”

He also said that things are more difficult for smaller organisations that do not have a large human resources department with expertise from which they can benefit.

Steps have already been taken on employment law reform. These include launching an employer’s charter, so that employers know what they can already do to address staff issues in the workplace. However, there is much more to be done, and I welcome the proposals, which will achieve many things.

Small and medium-sized businesses will be able to benefit from reduced costs. Costs are a vital concern to SMEs. If the Government can provide a better way to agree settlements with employees, businesses can save money on administrative costs. More importantly, that will avoid costly employment tribunal processes, which can be a burden to businesses.

[Dr Whiteford]

One of the concerns that the Federation of Small Businesses raised about the conciliation proposals is that they may necessitate employers having to pay for more legal advice, not less.

[Mr Evennett]

I know, but I think and very much hope that the FSB is wrong on this. We need to look after both employers and employees, and get them working together, and I believe that the proposal is the way forward. Quicker resolution of employment disputes will be good for everybody, particularly employees.

New arbitration requirements could prevent the need for tribunals. I welcome the clause that will provide for that, and the fact that ACAS will be involved. However, we need to make sure that both businesses and employees benefit and reach a satisfactory conclusion.

There is another important aspect to this Bill: it will strengthen competitiveness. Effective competition is vital if markets and industries are to flourish. Through competition, research and innovation are enhanced, jobs are created and wealth is generated. It is also of great benefit to the consumer, who gets better choice, quality and price—something we all value. The Government’s plans will help to improve the regime that oversees competition law, ensure that the right cases are taken forward for investigation, and make the system quicker and more predictable for businesses. I support the proposal of merging the Competition Commission with the competition functions of the Office of Fair Trading to create a new body, the competition and markets authority. It will be the principal competition authority, and I hope that it will pursue cases of anti-competitive behaviour rigorously and fairly, so that consumers are protected and businesses are treated fairly. That is a very positive step.

The CMA will have responsibility for introducing time limits on the markets and mergers regimes, speeding up anti-trust enforcement and ensuring good working relationships with other regulators. Overall, the new regime will improve transparency, streamline processes and increase efficiency. The measures will benefit businesses, consumers and the economy in the long term, so that markets are truly competitive.

The regulatory reform aspects of the Bill are probably the most important parts of it, as they repeal regulations and legislation that businesses have said should be abolished. The Government are to be commended for listening to business, taking on board its views, and taking action to help create the conditions that will stimulate growth and bring about the economy that we want across the whole country.

The primary authority scheme has helped to reduce administration for companies by allowing them to form relationships with a single local authority. The scheme makes local regulation more effective, and means that robust and consistent advice is given to other councils when they are carrying out inspections or compliance checks. The scheme has been running since 2009; it is one of the two positive things that the Labour Government did to help business. So far, it has delivered real benefits.

To date, it has been larger businesses that have benefited from the arrangement. At present, a company has to operate in more than one local authority area to be eligible. The Bill will extend the scheme in an innovative and beneficial way, so that it supports more firms. Under the proposals, a business will now be eligible if it shares an approach to compliance with at least one other business and, collectively, those businesses are regulated by at least two different local authorities. That means that trade associations or franchises of the same company could benefit from this simpler and more effective regime.

I applaud the Bill and all that it is trying to achieve. Of course we want to make a real difference for businesses across the country. We want to free small and medium-sized businesses from the burden of excess regulation. Employment rules will be reformed, so that the tribunal process is fair for all parties in any dispute; arbitration will be required first, and hopefully that will reduce costs. Markets will be reformed so that competition is fair and enforcement is effective. Regulations will also be removed where businesses have told us that they should cease, and where they are irrelevant.

Good regulation must play a part in ensuring fairness for consumers, businesses and employees alike, but it is the Government’s duty to take action when those rules inhibit companies from taking on new staff. We desperately need new jobs, particularly for young people, and we want to make sure that firms are not prohibited from taking on young and new employees; that would help firms and individuals. I believe that the Bill will tackle those issues, create the right environment for our firms to grow, and stimulate our economy, which is in all our interests.

20:27

[Julie Hilling (Bolton West) (Lab)]

I want to speak about the proposed changes to employment legislation, an area in which I have many years of experience and in which I get increasingly frustrated by comments made by Government Members who either do not understand the limitations of current employment legislation or deliberately want to take us back to the days when mill and pit owners could treat their employees like slaves, work them till they dropped, and pay no regard to their health and well-being.

The UK does not have wonderful employment rights; of the 36 richest countries, we come 34th. Only Canada and America are worse. That should not say to anyone that employment rights are holding back our growth. Indeed, we know only too well that when international companies want to close factories in Europe, they close a factory in Britain before they close one in France or Germany because of the cheapness and simplicity of making workers here redundant.

[The Minister of State, Department for Business, Innovation and Skills (Mr Mark Prisk)]

On that basis, how come it is a German GM factory, not a British one, that is closing?

[Julie Hilling]

The Minister gives one example, and we could collectively give many examples in which the opposite has happened—many examples over the years when it has been British factories that closed and French and German ones that stayed open.

There is already an inequitable relationship between employer and employee. Before Government Members nod their heads in agreement, let me say that power is still firmly in the hands of the employer. Employers can do as they like as long as they follow simple and fair procedures. If an employer wants to dismiss a worker for misconduct, all they have to do is carry out a proper investigation, allow the employee representation and give them the right of appeal. As long as the employer has a reasonable belief that the employee has done something wrong, they can dismiss them.

[Ian Lavery (Wansbeck) (Lab)]

Does my hon. Friend agree that it was Beecroft who suggested that it was fine to sack someone if the employer just disliked the employee, and that that was fair?

[Julie Hilling]

I agree with my hon. Friend that the Beecroft proposals are appalling as they relate to the rights and defence of individual workers. I shall say a little more about that in a moment.

In order to dismiss somebody, the employer does not have to prove that the employee has done anything wrong. The employer just has to have a reasonable belief that it was them. As long as the employer has followed a simple procedure and carried out a proper investigation, the employee has no case at a tribunal. The tribunal will not re-hear or re-judge the case and can find in favour of the employee only if the employer has not followed a fair process. If an employer wants to fire an employee for capability, all the employer has to do is tell them where they are failing and give them the opportunity to improve—again, a simple, fair process.

The employee is not protected if they are disabled or sick. The courts have already said that the employer does not have to behave like a charity. If the employee is unable to fulfil their contract of employment, they can be dismissed. Yes, they may have a case for discrimination if the worker is singled out and treated differently from non-disabled workers, but if a fair procedure is followed and a reasonable adjustment is made if necessary, the worker can be dismissed.

Let us not forget that an employer has two years to decide if an employee is suitable—two years to decide whether an employee is an asset to the company or not. Unless the employer is discriminating on the grounds of gender, race, sexuality and so on, the employee cannot go to a tribunal at all.

I do not believe that we have thousands of bosses out there who want to dismiss workers with no just cause. Why would they, when it costs so much to recruit and train a new worker? Even if we do have rogue employers, they can already dismiss workers on a whim. All they have to do is pay them what a tribunal would give them—redundancy pay, and not even at the rate of the company scheme if it is better than the statutory scheme, any holiday pay and any notice period. The only extra sum that an employment tribunal will ever give is an award for future losses. That is not normally more than six months’ pay and the average is considerably less. To get that, the employee must prove that they were unfairly dismissed and show that they have been applying for jobs with no success.

It sounds as though I am giving a lesson on how to be a bad boss. I am not; I am simply trying to point out how the employer already has massive power. I have lost count of the number of times I have had to use the trade union mantra, “Unfortunately the law is as it is, not as we would like it to be,” when I have had to give the news that an employee who had been dismissed had no case for a tribunal. Let me give the House some examples. A senior manager in the railways was charged with gross misconduct. We fought the charge and he was found not guilty. A month later the employer paid him off— 30 years of service down the drain, limited chances of another job and no chance of going to a tribunal.

A travel centre worker with 17 years’ experience had no problems until her manager changed and she ended up off work with stress. She could not prove that her manager had bullied her, and because the employer followed proper processes, she was dismissed under capability procedure. A worker who had worked for the same company for 30 years was selected for redundancy on the basis of last in, first out—after 30 years—even though this is not allowed to be the sole criterion. His redundancy payment made it impossible for him to go to a tribunal. I could go on and on with examples.

A great deal has been made of the cost to employers. They can get free legal advice from ACAS on all their policies and procedures. They do not need to employ a solicitor at a tribunal. As long as the employer has been fair and has not discriminated, they have nothing to fear. ACAS already offers mediation and I welcome the extension of that, but I believe that the proposed fees for tribunals are wrong and will act as a barrier to justice for those least able to pay. The judge can already make a deposit order of £1,000 to a claimant if the judge believes that there is no reasonable prospect of success at the tribunal.

Let us imagine ourselves in a situation that far too many people find themselves in. They are sacked. They have no idea how they are going to meet their mortgage payments or put food on the table. Then they have to find money to take their case to court. The Government are just so wrong on this. They seem to have missed the point that many claims to tribunals are for very small sums—unpaid holiday pay, no notice pay, or wrongly calculated or no redundancy pay. Such simple cases are already heard by a judge sitting alone and are often worth less than the proposed fees.

The Government are also wrong to dismantle our successful and admired tripartite industrial jury system of employment tribunals and employment appeals tribunals. As the Law Society has stated:

“Lay members add to the concept of justice and they enhance the fairness of the tribunal by bringing practical experience in employee and employer relations.”

As my hon. Friend the Member for Streatham (Mr Umunna) said, the Federation of Small Businesses is wholly against the proposals for compensated no-fault dismissal. It states that it has seen no evidence from countries where compensated no-fault dismissal is in place to demonstrate that it encourages employers to hire. In fact, it believes that it might lead to more employment tribunal cases on the grounds of discrimination, thereby producing exactly the opposite result to the main policy objective.

The FSB also believes that there is a risk of creating a two-tier labour market and, specifically, that lower protection creates a risk that workers will not be attracted to small companies, making it harder for them to recruit. Those taking employment in small firms could be the lower skilled and less productive workers willing to accept lower protection and those finding it harder to access credit, such as mortgages. The FSB also believes that that would fundamentally change the dynamic relationship between workers and their employers and could deflect attention from the need for good management and replace it with a hire and fire culture. I could not agree more.

The Government have stated that they must make changes to the tribunals system because of the rising number of tribunal cases, but the level of single claims, where individual workers make complaints about their treatment, has remained fairly steady—in fact, it fell by 15% between 2010 and 2011. Around 60,000 individual cases a year, of a work force of 26 million, does not seem all that excessive. Anyone listening to Government Members would believe that tribunals were a real cash cow for the employee, but the average award is £5,400 and the average cost to the employer is £8,500.

I welcome the possibility that tribunals could impose financial penalties on employers who break the law. I have never understood why employers can break employment laws with impunity. The law is the law, it seems to me, and those who break it deliberately, especially if they do so regularly, should be punished. I am also concerned by all the statements we have heard from Government Members about health and safety and ask the Minister to assure us that no amendments will be made that relate to health and safety legislation.

The economy is in recession not because workers have too many rights, but because the Government are cutting expenditure too far and too fast, hitting business confidence and choking off growth. Removing the rights of workers will only increase job insecurity, harm work force morale and productivity, and lower consumer confidence. This is not about making it easier to hire workers, but about making it easier to sack them. It is unwanted by responsible business people, unnecessary and yet another example of a Government who are out of touch and have no idea how to govern in the 21st century. It seems to me that they just want to take us back to the 19th century. With 2.7 million people unemployed and more than a million young people unemployed, the Government should simply get a grip.

20:37

[Eric Ollerenshaw (Lancaster and Fleetwood) (Con)]

It is a pleasure to follow the hon. Member for Bolton West (Julie Hilling), who chairs the all-party group on rail in the north, of which I am a member. I agree with her so much about rail investment but, with regard to the particular points she has made, I do not believe that the Government are leading us back to the 19th century and will say something about that in a minute.

I will begin by talking about the aspects of the Bill on which people agree. I am pleased that most Members agree that the establishment of the green investment bank is a good thing and, like other Members, look forward to a time when it can lever in private sector investment. However, I would have preferred us to open up the location of the bank and suggest that it could have gone to a greener area, perhaps in the north of England, and perhaps to some small, historic town such as Lancaster, but I accept that it was a Government decision and will not be reopened.

I welcome the Bill’s enabling powers giving shareholders greater control over the pay of their company directors. Given recent trends, it is right that those powers should be considered. I also welcome the measures to cut bureaucracy and red tape. For as long as I can remember, Governments have talked about cutting red tape but it rarely happens in practice. In stark contrast, the Government have already introduced a one-in, one-out rule for regulation. The notable exception is my right hon. Friend the Secretary of State for Communities and Local Government, who has gone for twice as much by introducing a rule in his Department whereby two pieces of legislation must be scrapped for every new measure brought in, which I think should be the gold standard we aim for.

The Bill moves forward the cause of smaller government and a freer business environment, with sunset clauses on new regulations, a reduction in various inspection regimes and the repeal of many regulations that have been deemed unnecessary. I am sure that many more will be identified over the coming months and sincerely hope that the battle against regulation continues throughout this Parliament. This Bill is just a start.

I have referred to my disagreements with the hon. Member for Bolton West and others, and what I really want to deal with is employment tribunals, directing my remarks at the clauses that deal with employment and workplace disputes. Other Government Members, such as my hon. Friend the Member for Northampton South (Mr Binley), are passionate about the issue, and we all agree that small businesses and, below them, micro-businesses are the lifeblood of this country and where real growth will come from. Cuts in the rate of corporation tax may help to attract big business to invest in the UK and are welcome, but, if we want more small businesses to start up and to succeed, we need to make it easier for them to employ people and to manage their staff effectively.

Opposition Members do not understand the issue, as was shown by the hon. Member for Bolton West when she talked about paying, because in a micro-business the boss is the HR department, the sales person, the production manager and the health and safety officer.

That issue has been raised with me, and I have one, real example to back up what my hon. Friend the Member for Stourbridge (Margot James) said. An employer wrote to me, saying:

“Employing people is the hardest thing I’ve ever done in my life, by some considerable distance.”

He already had investments in various houses, and he went on to buy a small café, with the hope of establishing it and building it up. He employed two full timers and, for mainly busier days and to cope at weekends, a few more part-time staff, but he was forced to make some redundant when financial circumstances took a downward turn, so he naturally kept on those employees whom he found best at their job, who had a good attitude and who were flexible.

One employee who lost their job threatened to take my constituent to a tribunal, however, on the grounds of age and sex discrimination, later adding religious discrimination, too, unless they were paid £1,200. The hon. Member for Bolton West may think that the employer should have just paid up, but, for the owner of a micro-business—a café—with a couple of employees, £1,200 would have meant his profits gone for a few weeks.

A meeting was therefore convened, but the decision remained the same, in support of the employer, so the ex-employee went to a tribunal, the stage at which my constituent feels the whole system is organised against employers. He had no recourse to free legal advice, but his ex-employee found immediate help from Citizens Advice and, subsequently, a pro bono barrister. My constituent had to defend himself because he could not afford legal assistance.

The ex-employee’s claim went up from £1,200 to £4,500 and, by the time it was heard at the tribunal, had increased by almost tenfold to £10,000, partly because the NHS had advised that legal action be taken against my constituent for injury to feelings.

I find that part of the story strange, because I can fully understand an NHS therapist confirming in writing that someone’s health had suffered as a result of losing their job, but I do not see why or how they should advise people to take their employer to court.

The case went on for 11 months, with my constituent representing himself while trying to run his café and organise it during a downturn. Eventually the tribunal found in his favour, concluding that the employee was sacked for financial and flexibility reasons, as well as for performance and attitude issues.

The case finally came to an end, but my constituent was out of pocket, having had to appear by himself at all tribunal hearings, and I am sorry to say that he has now decided to sell his business. He never wants to go through such a battle again, and he has made it clear that, if people ask him for advice on setting up their own business, he will tell them not to bother as it is not worth the stress, strain and hassle. That is not only sad for him and for other businesses, but bad for the local economy and for local people looking for work, because as business picked up I am sure that my constituent would have ratcheted up his part-time work force.

We need to ensure that such scenarios do not damage businesses. I do not know what Labour Members get in their post, but people from micro and small businesses continually repeat to me their experiences of the problem of employment. As my hon. Friend the Member for Bedford (Richard Fuller) made clear, we are not talking about attempting to allow employers to sack more but giving them the confidence to hire more and take people out of unemployment. I gave the example that I did because of its particular nature. The sad fact is that that business is now lost to my town because of the inflexibility of the tribunal system.

I commend what Front Benchers are trying to do in improving the situation, and I look to further improvements when the Bill goes into Committee. We need to get employment up and give employers the confidence to take people on. At the end of the day, a micro-business owner wants their employees to do well because it is their business; he or she is working alongside them. It is not some great game. Unfortunately, because of current regulations, the situation has become inequitable and costly for employers, who are doing what my constituent has done and refusing to take on more staff, which is bad for all of us.

[Several hon. Members]

rose—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Before I call the next speaker, I am going to drop the time limit to seven minutes. It is only fair that the Members who have been sitting here get a chance to speak. If anybody is upset, please remember that the Front Benchers took up a lot of time at the beginning.

20:45

[Mr David Anderson (Blaydon) (Lab)]

Like everybody else in this Chamber, I represent a diverse community that is not just based on big businesses or the public sector but has very many small businesses. The issues that people from those businesses raise with me are not about employment rights but whether the banks are going to start lending some money so that they can afford to expand and take more people into the workplace.

My problem with the Bill as regards employment rights is that it is not based on evidence or need, or on great demand from the people of this country; rather, it is based on prejudice, opinion, conjecture and bias. It builds on the attacks that the workers of this country have already been suffering under the guise of deficit reduction. We have had mass unemployment, pay freezes, reductions in pension entitlements, and people being made to work longer for fewer benefits. Now, as a result of the Downing street double-dip recession, we are seeing another front opening up in the attacks on workers at home and at work. This is a hugely important matter for the people of this country, because these proposals will be seen by some employers—not all—as a right to exploit their employees.

None of this is new. The Conservatives have never supported positive rights for working people; they have spent the last two centuries attacking and undermining them. Even in the recent past, they were against the national minimum wage and, as we heard earlier, protections for agency workers. They were against the right to paid and increased holidays. Now, most of those rights that have been won for the most vulnerable and the worst-organised sectors of our society are under threat. On the last day before the recess, we saw the disgraceful slipping out of the information that the gangmasters legislation is to be watered down. What an atrocious thing to do; people must have no memory or no respect. These are basic rights in civilised nations, and they should be celebrated, not denigrated.

The Conservatives have shown their true colours with an anti-worker, anti-trade union agenda disguised as a means of promoting growth. I would say that, wouldn’t I? I have been a trade unionist for 44 years, and I admit to being biased, but it is not just me who is saying it. Listen to Mike Emmett of the Chartered Institute of Personnel and Development:

“If the Government is serious about stimulating economic growth, it will look to support employers’ efforts to build an engaged workforce. Taking away employment rights is not the answer.”

There is disagreement even within, although not at the heart of, Government. On 21 May, the Business Secretary said in The Sun:

“Some people think that if labour rights were stripped down to the most basic minimum, employers would start hiring and the economy would soar again. This is complete nonsense. British workers are an asset, not just a cost for company bosses. That is why I am opposed to the ideological zealots who want to encourage British firms to fire at will.”

So who wants it apart from the zealots in No. 10 and No. 11 Downing street? Well, Adrian Beecroft wants it—the man who gave the Tories half a million pounds. Give him his due: at least he is honest. He said:

“Some people would be dismissed simply because their employer did not like them. While this is sad…it is a price worth paying”.

Now where have we heard that before?

[Ian Lavery]

Does my hon. Friend share my experience of never having met an employer who believes that this Bill will be of any benefit to employees or to the economy as a whole?

[Mr Anderson]

It is clear from our discussions that nobody who represents employees believes that the Bill will improve growth. As was said earlier, the OECD has said that even though we have some of the weakest employment rights in the developed world, countries with more stringent rights are performing much better than we are. It is quite clear that it does not work.

Beecroft said that the consequences are a “price worth paying”, which of course is what the Prime Minister’s former boss, Norman Lamont, said in 1992—the last time there were 3 million people on the dole in this country. We have seen the truth. The Conservatives believe that mass unemployment is a tool of public policy. They believe that bosses should be able to fire people just because they do not like them. They believe that it is in the national interest for the work force to have to accept poor pay and insecurity at work, and to be made to work without the right to complain.

The legislation will be used to get rid of union representatives. It will be used to dilute the impact of health and safety representatives. It will be used to get rid of those who question authority. It will protect and promote the blue-eyed boys and girls who put up with anything without complaint and who do exactly what the boss wants, regardless of the consequences.

This is like a rerun of “Back to the Future”. The Secretary of State is Doc Brown, the well-meaning but hapless boffin. The Chancellor is Biff the bully, who will not let anyone get in his way. The workers of this country are playing Marty McFly, the poor guy who has to run to stand still, while all around him everything he has ever done is disappearing before his very eyes. Unfortunately, this is not “Back to the Future”, because that, as people know, had a happy ending.

A happy ending is possible only if one of the following things happens. First, the Government could see the error of their ways and pull back from these callous and calculated attacks on working men and women. Secondly, the yellow human shields of the Liberal Democrats in this House could finally get some bottle and give their Secretary of State the backbone to stand up for what he believes in. Having seen the attendance of the Liberal Democrats tonight, I guess that that is not going to happen. Thirdly, if the Bill goes through and workers’ rights are attacked, those on the Labour Front Bench must commit unequivocally to repeal the legislation at the first opportunity when we return to government. Anything less will be seen as a betrayal of the workers of this country and will not be easily forgiven or forgotten.

We should be focusing in this debate on how we can support businesses to hire more workers, not on how we can legislate to help the rotten ones to fire workers. This pathetic Bill says more about the nature of today’s Government than almost anything else that they have done and it must be resisted both inside and outside this House.

20:52

[Julian Smith (Skipton and Ripon) (Con)]

I will restrict my comments to the regulatory aspects of the Bill.

The Government were left a regulatory nightmare by the Labour Government. The last Government introduced six regulations a day, the CBI estimates that employment law alone has cost British business £100 billion since 1998, and 107 of the 152 employment regulations on the statute book were added under the Labour Government. Better regulation attempts came and went under Labour. Regulation tsars reporting to the Prime Minister were placed at the top table for about 10 minutes and then quickly dropped. In the good years, Labour not only lost control of our budgets, but added piles upon piles of new rules and red tape on British business and the public sector.

Regulation has a vital role to play in a market economy, but it also imposes costs that can stifle innovation, present barriers to market entrants and deter economic activity, as we have heard in numerous examples tonight. I do not understand the evidence given by the shadow Secretary of State. A recent MORI poll for Capital One’s report, “The ties that bind?”, confirmed that regulation tops the list of issues facing very small businesses, with 64% of micro-businesses believing that the regulatory burdens that they face are far too high.

The Government have done a lot on this issue: they have set up the independent advisory committee on regulatory reform; they are publishing quarterly regulatory statements; there has been the red tape challenge, which is now part of the Bill; there is the ongoing employment law review; and the one-in, one-out process is firmly under way and is holding each Department to account. The Government have done much more serious work on regulation over the past two years than Labour did in 13. This Bill is part of that good work.

Since 2010, the Government have introduced a number of measures to simplify the employment environment, raising the qualifying period for unfair dismissal from one year to two, reducing the risk of vexatious tribunal claims, and introducing fees for those wishing to pursue a tribunal claim. As we have heard, being taken to a tribunal is one of the biggest fears of our smallest employers. The main change—introducing mandatory pre-claim conciliation—will help. Indeed, the Forum of Private Business has already said that 70% of its members believe that more conciliation is a positive step in avoiding cases escalating. Such an approach is also good value for money—ACAS has had a 75% success rate in the discretionary conciliation cases it has dealt with—and will save businesses the cost of defending themselves, which comes to £4,000 on average.

However, I have a few observations. If we are to give ACAS this further power, does it have the resources for it? That issue came up in the consultation. Also, do we need to restrict mediation to ACAS? Can we not include private and other providers to help in mediation? I would be interested to hear the Minister’s comments about that. ACAS also has to secure permission from the employee to contact the employer during the conciliation process. We need to give the mediator absolute access to both the employee and the employer, so that it can properly conduct the mediation process. We also need to ensure that the mediation process is as informal as possible, so that the employer does not have to get tooled up with expensive lawyers, which is an issue that the Federation of Small Businesses has raised. I am concerned about the proposals for fines because, as the CBI has argued, tribunals are a form of grievance resolution, not a criminal court. If we are going to have fines, there needs to be some sort of exemption based on company size.

However, let me get back to the positives. The change to unfair dismissal compensation is a good move. It will mean that companies of different sizes should be able to get different awards, which is much fairer for the very smallest businesses in our country. On unfair dismissal, I pay tribute to the Minister, because with these compromise statements he has got the key to exactly what businesses want. I think they will be known as “Lamb statements”, because they will make business much easier for our smallest employees and will make compromise agreements—which have previously been accessible only to very well-off companies—accessible to our smallest firms.

Let me turn to regulation more generally. There have already been some good moves, which I outlined earlier. The sunset clauses in the Bill, the relaxation of inspections, the red tape challenge and the primary authority changes are all good moves too. However, I urge the Government to be a bit more ambitious. May I urge Ministers to look at the one-in, one-out rule sector by sector, and segment of law by segment of law? Can we include European directives as soon as possible? Can we also take a hard look at the infrastructure of our regulatory reform? If we look at what the Americans are doing with OIRA—the office of information and regulatory affairs—we see the disparate construction of our different deregulatory bodies, with the Better Regulation Executive in BIS, the local regulatory offices and various other groups. We should be trying to bring things together, as the Americans are doing, so that we can make a serious attempt at reducing regulation in future.

A lot has been done, but we need even more ambition. I urge Ministers at all times to listen to the voice of business, particularly those not represented by business organisations, which at the moment are crying out for the freedom just to get on with their jobs.

20:58

[Mark Durkan (Foyle) (SDLP)]

As a Member who is due to give evidence to the commission on the West Lothian question later this week, I am particularly conscious of the fact that this Bill is something of a chequerboard in terms of its territorial application. One of the key elements that obviously applies UK-wide is the green investment bank. I welcome the moves to develop the green investment bank, but I regret the fact that, as the amendment states, it is not as well resourced as it might be. The Bill does not give me cause to believe that it will be as active a driver and supporter of the green economy in the long term as it should be.

My more particular concern is to ensure that when the Bill is processed through the House, the provisions relating to the green investment bank are tested to ensure that the references to the green economy in the UK are not inordinately exclusive in regard to Northern Ireland. Many of the projects there that might seek support from the green investment bank could have a cross-border, cross-jurisdictional character. In offshore wind projects, for example, the geography and topography of natural resources and renewable energy point to it being sensible for those projects to cross borders. The present renewables obligation certificates regime discriminates against and excludes cross-border projects, and we need to ensure that that mistake is not repeated with the green investment bank if we are to maximise its opportunities.

Similarly, a large number of the provisions on competition and markets are UK-wide, and I want to see some aspects of them teased out—and possibly ironed out—not least in relation to their possible application in Northern Ireland. Among those measures is the proposal to take the consumer education role of the Office of Fair Trading and give it to Citizens Advice. Given that the citizens advice service in Northern Ireland operates on a different statutory footing from the one in England, we must ensure that there are no oversights and no inadvertent black holes in relation to that key issue.

The provisions on employment law will clearly apply to Great Britain, but the reality is that changes of that nature are likely to become predictive legislation for Northern Ireland. They set the conditions in many ways, which is why I join my hon. Friends in expressing my profound reservations and objections to some of those unnecessary changes. Given that the Prime Minister seems reluctant to dismiss anyone even when there are compelling reasons to do so, I find it strange that he wants to make it his business to ensure that other people can be fired without any compelling reason whatever.

There is one element that I would have liked to see in the Bill. On this, I disagree with my hon. Friend the Member for Great Grimsby (Austin Mitchell). He called it a “ragbag” of a Bill, but I am asking for a further element to be added. I note that part 3 of schedule 17 contains a small amendment to the Insolvency Act 1986 in relation to early discharge from bankruptcy. It refers to section 279 of the Act, but I believe that the Government should use the Bill to reform section 233. I asked the Minister about this at topical questions: on the subject of administration costs, businesses that are in administration are being held to ransom and put out of business by suppliers.

As it stands, the Insolvency Act fails to give businesses here the same kind of protection that is provided by chapter 11 in the United States. Under chapter 11, suppliers have to continue to supply a business under the existing terms. Here, suppliers are asked to continue to provide, but there is nothing to prevent them from changing their terms. Many demand increased tariffs and ransom payments, and many cut off supplies and create a new contract. Businesses in that situation find it very hard to cope. They also find it hard to persuade the banks to support them through their administration, at a time when they are vulnerable to being held to ransom by such predatory action by suppliers.

When the Insolvency Act was passed in 1986, the concept of on-suppliers—people with whom firms have a contract to supply, but who are sourcing the supply from others in areas such as telephony and electricity—was not clearly provided for. Some of the subsequent court decisions seem to be adding to the confusion. The professional trade body dealing with insolvency, R3, believes that this needs to be dealt with, and that up to 2,000 firms a year could be saved if a legal change of this nature could be made, allowing them to be protected and to trade in administration. Jobs would be saved, as well as firms, if we changed the legislation in that way. It would not be a regulatory change getting in the way of good business; it would be a regulatory reform that supported businesses in the difficult circumstances in which they find themselves, and it would allow them to continue. If one part of the Insolvency Act can be amended through the Bill, I see no reason why this even more compelling case for reform should not be included.

The Minister’s predecessor stated last October that the Government had announced that they would consider the case for updating section 233 of the Insolvency Act and the wider issue of termination clauses. I would say that the case is compelling, and it is supported not only by R3, the professional body dealing with insolvency, but by the Federation of Small Businesses, the British Chambers of Commerce, the Association of British Insurers and the British Property Federation. Let us have this much-needed reform, not the specious and unnecessary changes that the Bill provides for elsewhere.

[Several hon. Members]

rose—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

A number of Members wish to contribute, so I shall lower the limit to six minutes.

21:05

[Priti Patel (Witham) (Con)]

I welcome this Bill, particularly the Government’s commitment to cut the cost of regulations in order to support business growth. I say that as someone who spent 30 years growing up literally on top of small businesses, as that is what my family did. There is so much to commend in the Bill. We have heard from right hon. and hon. Members this evening who have focused on regulation. I think that Ministers should be commended for all their efforts, however, as they have demonstrated their desire to keep Britain open for business by keeping tax, particularly corporation tax, low. That applies to small profits rates, too, which were due to increase under Labour. These welcome steps are in complete contrast to what Labour proposed.

I shall focus my remarks on regulation, even though it has been touched on already. I believe that using fiscal levers and taxation policy alone to stimulate private sector economic growth and to encourage entrepreneurship can go only so far. Lower taxes, for example, must be complemented by a significant reduction in the costs and burdens imposed by regulation. That is why this legislation is not only welcome but urgently needed.

Business men and entrepreneurs, particularly small businesses, do not want to spend their time, often late into the night, filling in forms, ticking boxes and dealing with bureaucracy, regulation and red tape. That takes a disproportionate amount of their time when they could be running their businesses. They want to be able to take risks, grow their businesses and create jobs rather than be swamped in bureaucracy and red tape. I think that the proliferation of red tape over recent years is a damning indictment of the last Government’s record in office and their failure to support businesses. The regulatory framework they left behind has been deeply damaging to the growth of our economy.

The Forum of Private Business has estimated the cost of compliance with regulations at something like £16.8 billion, with the average cost per business totalling around £14,000. These are astonishing figures when we think that the annual cost of compliance is equivalent to the amount spent on Crossrail or 11 times the total Government budget for apprenticeships alone. These are deeply alarming figures. If even a modest amount of those costs could be removed, Britain’s 4.5 million small businesses would be more competitive internationally, able to reduce costs for their customers and to expand to create more jobs and growth domestically.

We have heard much this evening about regulations in the sphere of employment law, with 107 new employment regulations added since 1998. The consequences are clear to anyone who has had any experience of small businesses. I hosted the reception for the FSB earlier this evening; it has stressed the disproportionate impact of these regulations, seriously affecting such businesses.

There is no doubt that businesses large and small will welcome clause 49 and the introduction of sunset and review clauses into regulation. Those measures build on “Sunsetting Regulations: Guidance”, published by the Government in December, which recommended that regulations which impose burdens on businesses be reviewed more frequently—within five years—and should expire within seven years. That is important, because the cost of regulations can spiral, and they can have a disproportionate effect. However, I urge the Government to ensure that those regular reviews of regulations not only take place but lead to changes when the burdens imposed on business are too great. Ministers have an opportunity to focus on what is working and what is not. We have already heard about one in, one out. My preference would be for no regulations in and a lot of regulations out, and the same applies to Europe, but at this stage Ministers need to focus more on what needs to be scrapped in order to free up businesses.

In the brief time available to me, I want to touch on the international dimension of enterprise and regulation. Last month I had the privilege of visiting London Gateway, which is an expanding part of the county of Essex. As an Essex MP, I am proud to represent the entrepreneurial spirit that can be seen there. There is a colossal amount of entrepreneurship in Essex, and London Gateway is a very good example of a selling point for UK plc. In the face of many regulatory hurdles, foreign direct investment in the UK has helped to develop the site into an incredible new port and logistics park which will create a great many jobs and boost our economy, just on the cusp of London. I think that Ministers could learn from some of the challenges that have been met there, and could find ways of bringing more foreign direct investment to the UK and showcasing it, and London, internationally. The selling point would be the removal of many of the regulatory burdens that we have seen in the past, but with which the Government are now dealing.

I urge the Government to press ahead with the Bill, and to embark on a radical programme of deregulation and regulatory reform. That would encourage more businesses like DP World, and even Tata and Glaxo, to follow in their investment footsteps, and to create more jobs and economic growth in this country.

21:12

[Kate Green (Stretford and Urmston) (Lab)]

Clause 51 seeks to repeal a number of provisions in the Equality Act 2006. I am puzzled by the clause, because most of the provisions that it seeks to repeal have nothing to do with the regulatory burden on business. As was pointed out by my hon. Friend the Member for Ayr, Carrick and Cumnock (Sandra Osborne), in repealing the good relations and general duty provisions that currently apply to the Commission for Equality and Human Rights, we will make no difference to business directly, but will change the context and undermine the equalities philosophy which I believe is important for a successful economic recovery. I shall say more about that in a moment.

Elsewhere, through changes in regulations, the Government are directly attacking some of the principles that protect employees and guarantee labour market equality. They are consulting on proposals that have resulted from the red tape challenge: proposals to remove employer responsibility for third-party harassment, to ensure that decisions by employment tribunals will no longer apply to all employees, and to remove the use of the statutory questionnaire. When I asked the Secretary of State about those proposals earlier this evening, he seemed to say categorically that none of them would appear in the Bill. We will hold him to that, because watering down equalities legislation is certainly not a recipe for economic growth. On the contrary, labour market justice and fair access for all to employment opportunities are a prerequisite, not a problem, for economic success. An unequal recovery which fails to make the most of everyone’s talents and take steps that encourage and support employee loyalty, and which therefore fails to stimulate productivity, is no recovery at all.

I am sorry that the Government have missed an opportunity to link—proactively, ambitiously and imaginatively—labour market justice with economic success in an explicit way. The Bill could have included measures to improve employment opportunity and labour market justice. Measures that tackle occupational segregation and introduce the anonymising of application processes have been shown to improve access to the labour market, yet there is no sign of any such provisions. The Government also have a social mobility strategy that they are supposed to be promoting, but that, too, is in no way reflected here, or even mentioned.

The Bill presents an opportunity to create the conditions for an equal, not an unequal, recovery—a recovery that promotes, supports and makes use of the talents and contributions of all. I regret that the Secretary of State has thus far failed to take that opportunity, but he still has time to correct the omission. I say to the Government that if Ministers do not bring forward amendments to create the genuine conditions for economic recovery and equal opportunity in the labour market during the passage of the Bill, we most certainly will.

21:16

[Neil Carmichael (Stroud) (Con)]

It is a great honour to be called to speak in this important debate, and I am pleased to follow the hon. Member for Stretford and Urmston (Kate Green).

First, I want to make two general points. If we were relying merely on passing legislation to promote economic growth, we would have had a lot of economic growth already, because the truth of the matter is that legislation is aplenty. What matters, however, is what that legislation actually does, and this Bill will empower businesses to get on and do what they need to do, which is employ people and be innovative. My first general point, therefore, is that we need legislation that trusts business to get on with the job of generating economic growth.

My second general point is that we must not see this Bill in isolation from other Bills, such as the draft energy Bill, which will pave the way for new market developments, new technologies and new ways of providing energy. We need joined-up government. Indeed, economic policy is all about joined-up government, such as linking what this Bill paves the way for with other important pieces of legislation.

Let me illustrate that by talking about the green investment bank. I serve on the Environmental Audit Committee, and we produced a thorough report on the bank. We made three points, which I shall go through now as they are important both in respect of this Bill and for our future prospects of developing an economy that is both CO₂- effective and economically productive.

The Bill must ensure that the green investment bank thinks about small and medium-sized businesses. We must have legislation that salutes SMEs in the technology and energy production sectors and recognises their value. They are the businesses that will come up with the good new ideas that translate into development. That is certainly happening in my constituency, and I expect it to happen in others. This Bill needs to help bring that about. The first point, therefore, is that we must be sure that SMEs can benefit from the green investment bank.

The second point is that it has to be a bank, not a fund. If it were a fund, we would be using the regional development funds and whatever else might be at our disposal. We need a bank that knows what it can do in terms of both attracting other investment and investing itself and levering in additional money. It must have clout in the market. That is essential, because if it is to be a bank, it must look like a bank and feel like a bank, and people must think it is a bank. I acknowledge the constraints imposed by the deficit reduction programme and so on, and I have said several times in the House that we must reduce the deficit, but we must also signal that the green investment bank will be significant—a powerhouse of support for innovation, development and everything else.

[Ian Lavery]

At this point, does the hon. Gentleman believe that the green investment bank is a bank or a fund?

[Neil Carmichael]

It is called a green investment bank and that is what I shall call it, but I accept the need for us to ensure, in the shortest possible time, that it is a real bank and not just a fund. The fund is big, though— £3 billion—and we should bear that in mind.

The third important point about the green investment bank is the quality of its expertise. That will be vital in a bank that is dealing with the sort of technology for which its support will be sought. The Minister must recognise that the green investment bank has to be shaped in such a way that likely investors, borrowers and businesses that approach that bank will feel comfortable with the expertise it has and that, in turn, the bank can deliver that expertise to the firms. If we look at the banking system across the European Union, we can see that where institutions have that expertise—the European Investment Bank is a good example—it works. We have to build those critical elements into the legislation, so that the green investment bank packs a punch in terms of investment, expertise and small businesses.

21:21

[Geraint Davies (Swansea West) (Lab/Co-op)]

I think the Bill is not just a lost opportunity but a thinly veiled attack on workers’ rights. It pretends to be about growth, but contains no real growth strategy. In Britain and across Europe, the big political issue is growth versus cuts to get down the deficit and balance the books, but we are seeing that austerity literally is not working. On Sunday, the Greeks will hold another election, but what are they being offered? Cuts in their pensions, their salaries and their jobs—further poverty. On the plus side, why are they not being offered investment in solar forests across Greece, to provide energy for Europe; in railways, to connect up the tourism business; in universal broadband, to connect them to the world; or in a share of research and innovation? Where is the balance? It is not working.

In south Wales, the area I represent as a Swansea MP, we want electrification of the railway to Swansea, a lowering of the bridge tolls and cities working together in city regions—an initiative I am pushing forward locally. We want a fiscal stimulus like the one seen under Brown and Obama, when what could have been a world depression ended up becoming fragile growth. Now, we have zero growth thanks to the Chancellor suddenly announcing that he was going to sack 500,000 public sector workers—Bob’s your uncle, people stopped spending their money, growth came to a standstill and the deficit is £156 billion higher than previously forecast. Austerity simply is not working.

I welcome the green investment bank and the £3 billion fund, but I think what we really need to do is refocus our procurement on green companies and SMEs generally to generate the jobs and production needed to support public services. As I mentioned earlier, in Wales, 70% of procurement is spent through SMEs, 50% of which are based in Wales, whereas in England the figure is 7%. The Government spend 93% of the taxpayers’ money with great big companies—normally international companies that generate jobs abroad and do not pay tax here. It is completely crazy. We should be using our procurement facilities to generate green jobs, in particular in SMEs, but the Government simply are not doing that.

What about the devolution debate—devolving tax powers to Wales and Scotland? I am highly sceptical about that. At a time when, across Europe, we are seeing a monetary union that increasingly requires fiscal and political union to work, we are being urged to devolve borrowing and tax to the regions and nations of the United Kingdom. Obviously, the political trick here is to say to Wales, “You can borrow. You can tax. If you want some more spending, raise your own money from a weaker tax base.” We can see where that is going and I do not think that people will be fooled.

Beecroft’s proposals are the hidden agenda. The Business Secretary says that they are a load of rubbish, but we can see a diluted version of them coming through. It is basically a charter for intimidation and harassment. As I said earlier, if a female employee says no to a boss who asks, “Will you sleep with me?”, the next thing that is going to happen is that she will lose her job. It may be a bit more subtle than that, but that is the sort of pressure that we are seeing through a re-invention of Dickensian Britain and a forthcoming Dickensian workhouse. This is retrograde, unnecessary and completely contrary to where Britain should be going.

Regional pay is another attempt, certainly in Wales, to reduce pay. It is to be reduced by about 20%, at a time when 40% of workers in my constituency are in the public sector. They are seeing their jobs cut, their pensions cut and their pay frozen, and now the Tories in England are saying, “We’ve got a good idea. We’ll cut your pay by 20% and completely take the base out of the local economy.” This is completely ridiculous. It would mean that a GP from Swansea would be paid more if they were in Bristol. We want to attract inward investment from people who want decent schools, decent health services and all the rest. Are they going to come to a place where the Tories have denuded that in the name of regional pay? At a time when the local authority offers 10 apprenticeships and gets 800 applications, there is no shortage of people wanting to work.

This Bill is a mean-minded, pathetic and unambitious bit of nonsense. Nye Bevan pointed out that, in times of great economic difficulty, there is dynamic struggle between private property, equality and democracy, and ultimately the Tories will attack democracy in order to load the burden of the mistakes of the rich people—the bankers—on to the backs of the poor. What we are seeing in Wales is not only the reduction from 40 to 30 MPs, and not just individuals now not required to register to vote and not just the latest attempt to say to the Welsh Assembly Government, “You will never have a majority Government again, because 30 will be elected by first past the post and 30 by regional list”; this is all part of a carefully choreographed situation where poorer people will have fewer MPs and will vote less, particularly in places such as Wales, in order to keep a Tory Administration nationally. This goes back in time to the orthodox austerity, and making the poor poorer and giving back to the rich on the 50p tax rate. This stinks, and it does nothing for growth. We have a Prime Minister who preaches growth while he is in Europe but practises austerity at home. This is a mean bit of legislation and it is a lost opportunity. At a time when the global spotlight is on Britain with the Olympics, we should be ashamed of ourselves.

21:27

[Katy Clark (North Ayrshire and Arran) (Lab)]

Time restraints mean that I will keep my contribution brief, Mr Deputy Speaker, and address only one aspect of this wide-ranging Bill—the proposals relating to whistleblowing. Of course, the Secretary of State did not address them in his opening contribution, although the Labour Front-Bench team have indicated that they will look at these issues in detail in Committee.

The provisions in this Bill will amend the landmark Public Interest Disclosure Act 1998, which was introduced by the previous Government after many years—decades, in fact—of campaigning by those seeking to have whistleblowing legislation in this country. It put the UK at the forefront of corporate governance legislation at the time of its introduction. The Government’s amendment has the effect of introducing a public interest test into that Act, which I believe will weaken the legislation for anybody wishing to rely on it. I understand that the Government say that they are proposing this amendment in this way in order to overcome a legal loophole, which has resulted in part from the case of Parkins v. Sodexho Ltd. However, those who have been campaigning on this issue, such as Public Concern at Work, are extremely concerned that introducing this proposal in this way will weaken the legislation for everybody. There is no doubt that a loophole needs to be addressed in respect of that legal case, but the concern is that the Government’s amendment will not address it and instead will make it more difficult for anybody wanting to rely on the legislation. There is no doubt that after more than a decade of the Act being relied on in this country we need to look at this area again. There is no doubt that we need to improve the legislation and learn the lessons of experiences over the past decade and more.

We need to look at vicarious liability, which cannot be relied on by people trying to use the 2008 Act. Recently, three nurses in Manchester who were concerned that their colleague had lied about their qualifications were unable to rely on the original legislation because it did not deal with vicarious liability.

Other aspects highlighted by recent employment cases also need to be considered. The Government accept that there are difficulties with certain groups using the legislation, such as students on vocational placements, general practitioners and others. There is no doubt that the scope of the Act needs to be widened. Indeed, we need a separate public interest category, as there is in the United States.

Those who have campaigned on whistleblowing are clear that the Bill is a step backwards. They are calling for a full public consultation—there has been no consultation whatever so far—and a thorough review of the law on whistleblowing. I ask the Government to listen to what those campaigners are saying, initiate that review, look again at the proposal in the Bill, think again, and return with proposals that will strengthen whistleblowing in this country rather than weaken it.

21:31

[Mr Iain Wright (Hartlepool) (Lab)]

This has been an important if somewhat curtailed debate. In the time we have had, 21 hon. Members from all parties made considered and high-quality speeches, with the exception of Lib Dem Back Benchers and Scottish National party Members, who made no speeches, high quality or otherwise.

Since the Secretary of State rose at 5.44 pm to open the debate, 1,368 new companies have been registered in Russia, the country with the largest and fastest-growing number of business start-ups anywhere on earth; 21,394 passenger cars have been manufactured in China; 975 patents have been filed in the US; 338 people have enrolled on engineering degrees in India; and 60,000 iPhones and 20,250 iPads have been manufactured and sold around the world. Any enterprise Bill that the House considers must tackle on behalf of British business that unprecedented level of intense international competition.

That is an urgent task because, as we have heard, we are slipping down the league tables of global competitiveness. As my hon. Friend the Member for Streatham (Mr Umunna) said in his excellent opening speech, according to the World Bank’s global survey of doing business, when the Government took office, Britain was fourth in the world in terms of the ease of doing business; it is now seventh. Across the different categories, our competitiveness is slipping alarmingly. On the ease of starting a business, we have slipped from 16th to 19th; on dealing with construction permits, we have slipped from 16th to 22nd; and on registering property, we have slipped from 23rd to 35th. We are now ranked 60th in the world on companies gaining access to electricity, behind the likes of Chile, Belize, Costa Rica, Guatemala and Iraq.

The task is made even more urgent because the Government’s policies have pushed the British economy into reverse and into recession. As my hon. Friend rightly said, when the Government took office, the British economy was growing. Since the spending review, it has shrunk by 0.4%. We are now in a double-dip recession made in Downing street. Fifty businesses are going under each and every single day.

The Chancellor may wish to blame the weather, even though this country has seen weather before. He may wish to blame, as he did at the weekend, high oil prices, even though oil was trading in London this morning at a 17-month low and the price of Brent crude is 25% of its March peak. He may wish to blame the jubilee, or the eurozone, which he may claim is killing Britain’s prospects for growth, but even now Tory MPs are wising up to the fact that he is looking for excuses or alibis. They are questioning the political genius and economic competence of the man who gave them the pasty tax and raised taxes for pensioners while providing tax cuts for multi-millionaires. It is not business that should stop whinging and work harder, as the Foreign Secretary suggests, it is the part-time Chancellor.

The Bill could have addressed such failures. It has been trailed in the media as the flagship piece of legislation to make enterprise, growth and competitiveness this Administration’s principal policy. It is hardly that. Instead it is a mishmash, an ad hoc rag-bag of measures, as my hon. Friend the Member for West Bromwich West (Mr Bailey), the Chair of the Business, Innovation and Skills Committee, and my hon. Friend the Member for Great Grimsby (Austin Mitchell) said. It reflects a Government who, after only two years in office, have run out of ideas. There is no strategic thread, no compelling vision and nothing that will provide real help for British enterprise, as my hon. Friend the Member for Glasgow North East (Mr Bain) eloquently pointed out in a powerful contribution.

The Bill’s span is wide. For example, clause 50 concerns heritage planning legislation and clause 51 deals with the Equality and Human Rights Commission. Incidentally, my hon. Friends the Members for Ayr, Carrick and Cumnock (Sandra Osborne) and for Stretford and Urmston (Kate Green) made powerful speeches about that clause. I absolutely agree with them, and we will oppose the measure firmly in Committee. There is also clause 56, which deals with copyright. That wide span does not really show an Administration confident in their approach and clear about their aims for the British economy. Instead, it exposes a situation in which Ministers are desperately trailing around Whitehall asking for off-the-shelf proposals to pad out a supposedly flagship Bill. British business deserves better.

Businesses are crying out for a productive partnership with Government. They want to work together on a long-term vision for the British economy in the next few decades and put in place a powerful industrial strategy to allow Britain to thrive. However, there is nothing of substance in the Bill that will allow such a strategy to materialise.

Several hon. Members, such as my hon. Friends the Members for Glasgow North East, for West Bromwich West and for Swansea West (Geraint Davies), mentioned the Bill’s provision for the establishment of the green investment bank. We support the principles of such a bank. Indeed, it was under the previous Labour Government that the decision to establish one was taken. However, this Government’s two-year delay and dither has meant that the UK is slipping ever further behind our global competitors in investment in green growth. We have fallen from third in the world for investment in clean technology when Labour left power to seventh in the world today.

Even though I can see the point that investment rose last year, Pew Research has stated that that was largely because

“investors rushed to initiate projects before policy reforms go into effect that could curtail incentives”—

reforms such as the botched feed-in tariff. From a position in which we could have taken a first-mover premium in the new global manufacturing sector, the Government are losing this country our competitive advantage. Earlier this year the chief executive of Vestas, the world’s largest wind turbine maker, said that his company was postponing investment in the UK, stating:

“The most important issue that our customers have is a long-term policy framework that is required to put in these investments, which are huge.”

However, he said that

“we have not had reassurance from the government.”

As we have heard, the situation has been made worse by the fact that the Government continue to cause uncertainty and delay as a result of the Treasury’s refusal to allow the green investment bank to borrow until 2016 at the earliest. The hon. Members for Lancaster and Fleetwood (Eric Ollerenshaw) and for Stroud (Neil Carmichael)—I do not see the latter in his place—raised that issue. A bank that does not borrow cannot be called a bank, as my right hon. Friend the Member for Wentworth and Dearne (John Healey) and my hon. Friend the Member for Stoke-on-Trent North (Joan Walley) said in powerful interventions. Investment and leverage from the private sector now, while the economy is in a double-dip recession, could help us get into recovery and out of this mess. As my hon. Friend the Member for Foyle (Mark Durkan) said, there is a risk that the green investment bank will not be as active a driver in economic recovery as it should.

A large number of hon. Members, certainly on the Labour Benches, rightly mentioned their concerns about the proposed changes to employment legislation. My hon. Friend the Member for Bolton West (Julie Hilling), for example, brought to bear her considerable experience in the matter. My hon. Friend the Member for Blaydon (Mr Anderson) said that the proposals were based on bias, “Back to the Future”, opinion, anecdote and prejudice. My hon. Friend the Member for North Ayrshire and Arran (Katy Clark) mentioned whistleblowing, and we will certainly be raising and looking closely at that in Committee.

The hon. Member for Stourbridge (Margot James) said that in her opinion health and safety legislation is a burden. I do not know whether she commemorates workers’ memorial day every 28 April, but the people who have been injured and the families who have lost loved ones will not think that health and safety legislation is a burden.

The hon. Member for Bury St Edmunds (Mr Ruffley) cited two cases from his constituency, in the retail sector of all sectors. He said that the biggest burden facing the retail sector was not the lack of demand, the lack of consumer confidence or the rise in VAT imposed by this Government, but unfair dismissal. The idea that business growth is being held back by burdensome employment regulation is simply absurd.

I would say to the hon. Member for Northampton South (Mr Binley)—I have a lot of affection for him and know that he has long decades of experience in business—that, as my hon. Friend the Member for Streatham said, only 6% of businesses said that regulation was the main barrier to growth, with nearly half saying that the biggest obstacle to business success was the dire state of the economy.

[Mr Binley]

rose—

[Mr Wright]

I am sure that the hon. Gentleman will agree with me.

[Mr Binley]

Does the Opposition spokesman, for whom I have equal affection, recognise that those people would have placed it at the very top of the list if the previous Labour Government had not created so many economic problems that of course other matters came before it? None the less, most people named it as one of the problems.

[Mr Wright]

The hon. Gentleman is a wily old bird and he knows that the economy is in recession not because of the UK employment regime or because there is somehow a need to make it easier to fire workers at will, but because, as my hon. Friend the Member for Great Grimsby said, the Government have choked off demand by cutting spending too fast and raising taxes such as VAT too far. As my hon. Friend the Member for Bolton West pointed out, removing the rights of workers will only have the impact of increasing job insecurity, thereby damaging work force morale, productivity and confidence precisely at the time when we need to see more confidence flowing through the economy.

The Government have repeatedly and pointedly failed to rule out the prospect of Beecroft’s recommendations being brought forward as amendments to the Bill. The Secretary of State was somewhat vague on that matter. After penetrating interventions from my hon. Friend the shadow Secretary of State and my hon. Friend the Member for Stretford and Urmston, the Secretary of State said that as far as he was aware—although it is his Bill—he did not see any prospect of that occurring. I hope that the Minister will make the Government’s position crystal clear on the implementation of the Beecroft recommendations during the Bill’s passage through Parliament. I hope he will confirm that none of Beecroft’s recommendations will be in amendments tabled to the Bill and that he will work with us in Committee to ensure that any such amendments from Back Benchers will be rejected. I know that the hon. Member for Bedford (Richard Fuller) wants to table such an amendment and I look forward to working with him—or against him—in Committee.

Hon. Members also raised the proposals on directors’ remuneration in part 6. We have made it clear that although we are generally supportive of what the Government are doing, the proposals do not go nearly far enough. We need greater accountability and transparency, and the recent shareholder spring, which involved many companies, suggests that investors believe that, too.

Reports in the weekend media suggested that the Government will not empower shareholders with an annual binding vote on remuneration for executives, requiring it instead only every three years. Previously, the Secretary of State has rightly stated that an annual binding vote would provide investors with a powerful tool to hold executives to account, particularly as regards failure. He pledged that again today, which is very welcome. We intend to press forward in Committee with amendments to this part of the Bill to ensure that the matter is dealt with comprehensively and fairly and that all the recommendations of the High Pay Commission are implemented, including those that workers sit on remuneration committees.

Parts 3 and 4 will establish the competition and markets authority; the purpose is to improve the speed, quality and robustness of decision making. We Labour Members are keen to ensure that the competition regime in this country is the best in the world, so that innovation and imagination are rewarded; in that respect, I agree with the hon. Member for Bexleyheath and Crayford (Mr Evennett). When the Government came to power, the UK’s competitive environment was seen as one of the best in the world—third behind only the US and Germany—so it is of concern that on this Government’s watch, the Global Competition Review has downgraded the status of the Office of Fair Trading, following what it termed the OFT’s “dismal” enforcement on cartels. In Committee, we will scrutinise closely and challenge the Government’s proposals to ensure that our competition regime remains best in class.

The Government had a great opportunity in this Bill to deal with the consequences of their failed economic policies. The Bill was a chance to put in place legislative measures to enhance this country’s economic competitive position, and to set in train policy certainty for investors, which would allow them to invest for the long term. The Bill could have helped our companies to improve their productivity and decarbonise the economy, while allowing British firms to benefit from the green industrial revolution, which is happening now—not in 2016. It could have made a firm statement in law that failures and poor performance at the top of business would not be tolerated or rewarded with excessive pay, and it could have safeguarded consumers from powerful vested interests. The Bill has made some progress on that, but not nearly enough. It is a missed opportunity. It is a rag-bag that exposes the Government’s lack of a compelling vision and fails to help British business to compete in the global economy of today and tomorrow. On that basis, I commend the reasoned amendment to the House.

21:46

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Norman Lamb)]

I have to say that I did not agree with much that the shadow Minister, the hon. Member for Hartlepool (Mr Wright), said, but I do agree that it has been a good debate, with many reasoned contributions from Members on both sides of the House, which I very much welcome. I will try to address as many of the points made as I can. There will obviously be further opportunities at subsequent stages to discuss detailed points.

Contrary to what the Opposition have argued, the Bill contains important measures that will encourage long-term growth. As my right hon. Friend the Secretary of State explained in opening the debate, part of the Government’s wider strategy is to promote growth, support business and create jobs. The Government inherited a wholly unbalanced economy based very much on consumer debt and a housing bubble. It created six new regulations every working day. Those are not the actions of a business-friendly Government.

I shall deal first with the green investment bank. I am glad that Members support its creation. As my right hon. Friend made clear in his opening speech, the bank’s expertise will break new ground in the financing of green infrastructure projects, while demonstrating to the market that such investments can deliver commercial returns. The Government have made good progress in building the bank, so that it can make investments as soon as state aid approval is received. The establishment of the bank is testimony to the leadership of this Government in rebalancing the economy and putting the green agenda at the heart of that project.

The shadow Secretary of State and the hon. Members for West Bromwich West (Mr Bailey), for Stoke-on-Trent North (Joan Walley), and for Glasgow North East (Mr Bain) raised concerns about the funding, and the borrowing powers, of the bank. The Government have committed to the bank having £3 billion of funding up to 2015. The bank will have borrowing powers thereafter, subject to public sector debt falling—an entirely reasonable proposition. That deferred ability to borrow from 2015 will not affect the success of the green investment bank, as it first needs to focus on consolidating its expertise and developing a credible track record.

UK Green Investments has already made investments in waste infrastructure projects, and is considering major investments in priority sectors such as offshore wind. Private sector investors have responded very positively, and it is already clear that the bank will make a major contribution to the ability and willingness to invest in the green economy.

I turn now to the measures aimed at reforming the employment tribunal system. I welcome the acknowledgement by the hon. Member for Streatham (Mr Umunna) on a previous occasion that improvements can be made to the way in which the system operates, but the shadow Secretary of State today seems set against any reform and fails to recognise that other countries, including a social democrat Government in Germany, have made reforms to make their labour markets more flexible. We cannot afford to be complacent. Labour in government recognised the value of a relatively flexible labour market. Our labour market already performs well, but if we want to remain competitive, it is imperative that we are aware of what other countries are doing.

[Mr Umunna]

rose—

[Norman Lamb]

As my hon. Friend the Member for Bury St Edmunds (Mr Ruffley) said, we must balance the interests of those who are in work with the interests of those who have no job and no prospects. We have to provide a mechanism to ensure that employers have the confidence to take on new employees.

[Mr Umunna]

Will the Minister give way?

[Norman Lamb]

I am afraid I do not have time. I need to get through the responses.

This Government are determined to support parties to resolve their disputes between themselves, rather than relying on a costly and time-consuming employment tribunal. A tribunal is an admission of failure and everything must be done, where practical, to prevent having to resort to it. The mediation of disputes retains employer flexibility while preserving workers’ rights and dignity, and our measures aim to encourage that further.

There has been much discussion today and in the past weeks about the proposal contained in the report prepared by Adrian Beecroft on compensated no-fault dismissal. I have made my views on the proposal very clear. This is not a measure in the Bill and therefore is not a matter on which I propose to dwell in the limited time available to me. Suffice it to say that the call for evidence has closed and my officials will be considering the responses received. I am clear, however, that we need to take action to improve the way in which businesses, especially small businesses, manage and end their relationships with employees. By addressing the fears that small businesses tell us they have about ending up in an employment tribunal, we can help unlock the growth that we so desperately need.

By extending the qualifying period for unfair dismissal from one to two years, we have already taken action to increase the period that employers have to decide whether a new employee is the right one for the job, but we need to provide a solution where problems occur and where the qualifying period has been exhausted.

The shadow Secretary of State asked whether any more elements of the Beecroft report would be implemented through the Bill. We do not intend to table any further amendments prompted by the recommendations in the Beecroft report.

My hon. Friend the Member for Bury St Edmunds raised the question—the case, as it were—of exemptions from employment regulations for small businesses. I am not sure whether he is in the Chamber. The evidence from Germany is that when the reform was introduced to reduce employment protection for companies of up to 10 employees, it had no impact on the number of people employed in small businesses. It therefore seems that the evidence in favour is highly questionable.

On the measures we are proposing on settlement agreements, the all-party group on micro businesses, in its response to the call for evidence on compensated no-fault dismissal, for which I am extremely grateful, supported the idea that employers should have the option of using

“a new simpler route to end employment relationships”.

The all-party group states that in return for compensation employers should

“be able to terminate a contract with an employee without going through a performance review and dismissal process. … this should be an option that is voluntary but which employers are freely able to propose to employees without fear of being taken to court.”

We agree almost entirely with that sentiment. I appreciate the comments of the hon. Member for Skipton and Ripon (Julian Smith) in the debate today. I say “almost entirely” because there is one important difference: we do not think that this option should be available only to micro-businesses. Therefore, we will table a new clause in Committee to ensure that an offer of settlement cannot be used against an employer, any employer, in an unfair dismissal case, which will give businesses the confidence to talk to their employees about bringing the relationship to a swift end through the use of a settlement agreement.

The shadow Secretary of State raised a concern about trust and confidence in the employment relationship, but he will be aware that many businesses, probably including his former clients—big companies that probably paid him substantial hourly rates—regularly use compromise agreements. We want to ensure that all businesses, including small and medium-sizes businesses, can use those agreements. If there is no agreement, the employee’s rights are still protected. They have to work together to ensure that the employment relationship is maintained.

My hon. Friend the Member for Northampton South (Mr Binley) raised concerns about SMEs. We will shortly consult on a suite of proposals to help small businesses use settlement agreements to ensure that they have the confidence to deal with employment problems. I hope that that reassures him.

Reference was made to unfair dismissal compensatory award proposals. There has been debate about the power to amend the limit on unfair dismissal compensatory awards. The Labour party wants to make mischief on the issue, but I should point out that it is a matter of common ground that there should be a limit on the amount of the compensatory award. Having proposed removing the limit back in 1998, the then Government backtracked and elected instead to have a large, one-off increase from £12,000 to £50,000 and introduce a formula for future increases. As a result, the limit has increased rapidly in recent years and now stands at £72,300. That is greatly in excess of the median award for unfair dismissal, which is less than £5,000. Realism about potential awards is clearly important for encouraging the settlement of employment disputes and the greater use of settlement agreements.

I want to say a few words about competition. The Government believe that creating a new competition and markets authority will ensure that resources and specialised competition expertise can be deployed to best effect while reducing the burdens on business, and I was pleased that the shadow Secretary of State supported that principle. This matters for the taxpayer and for businesses and consumers at the wrong end of anti-competitive practices. The Government recognise that a great strength of the current regime is the two-phase approach to markets and merger cases and wish to preserve it. We will therefore retain the separation of decision making; the board will have responsibility for the initial investigation and phase-1 decisions, and groups of independent panellists will continue to make final decisions at phase 2. When making those decisions, the groups will be required to act independently of the board, which will ensure that decisions are robust by giving cases a second look and bringing in the use of experienced business people and other outside experts. There will also be scrutiny by the Competition Appeal Tribunal.

The Bill is pro-growth and pro-business. We have listened to small and large businesses across the country, the businesses on which this country’s recovery depends. They have told us that fair and speedy ways of resolving disputes matter to them. We have listened and are delivering the measures that matter to them. A strong and effective competition regime matters for business. Reducing the excessive burden of regulation, much of which was introduced under the previous Administration, and the cost of compliance with regulation matters for business. The Bill will help businesses to grow and succeed. It will boost consumer and business confidence and help the private sector create jobs. It will promote fairness and support our green economy. I commend it to the House.

Question put, That the amendment be made.

21:59

Division 13

Ayes: 216

---

Labour: 210
Social Democratic & Labour Party: 2
Democratic Unionist Party: 2
Plaid Cymru: 1
Independent: 1
Green Party: 1

Noes: 301

---

Conservative: 256
Liberal Democrat: 43

Question put forthwith (Standing Order No. 62(2)), That the Bill be now read a Second time.

Question agreed to.

Bill accordingly read a Second time.

ENTERPRISE AND REGULATORY REFORM BILL (PROGRAMME)

Motion made, and Question put forthwith, (Standing Order No. 83A(7)),

That the following provisions shall apply to the Enterprise and Regulatory Reform Bill:

Committal

1. The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 17 July 2012.

3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

4. Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

7. Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Angela Watkinson.)

22:16

Division 14

Ayes: 301

---

Conservative: 255
Liberal Democrat: 43
Democratic Unionist Party: 2

Noes: 213

---

Labour: 209
Social Democratic & Labour Party: 2
Plaid Cymru: 1
Green Party: 1
Scottish National Party: 1

Enterprise and Regulatory Reform Bill (Money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Enterprise and Regulatory Reform Bill, it is expedient to authorise—

(1) the payment out of money provided by Parliament of any expenditure incurred under or by virtue of the Act by the Secretary of State or the Competition and Markets Authority;

(2) the payment out of the National Loans Fund of any sums payable out of the Fund by virtue of the Act;

(3) any increase attributable to the Act in the sums payable under any other Act out of money provided by Parliament.—(Angela Watkinson.)

Enterprise and Regulatory Reform Bill (Ways and Means)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Enterprise and Regulatory Reform Bill, it is expedient to authorise the payment of sums into the Consolidated Fund. —(Angela Watkinson.)

Business without Debate

Monday 11th June 2012 Commons Chamber

Delegated Legislation

Motion made, and Question put forthwith (Standing Order No. 118(6)),

Pensions

That the draft Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2012, which was laid before this House on 26 March 2012, in the previous Session of Parliament, be approved.—(Angela Watkinson.)

Question agreed to.

Motion made, and Question put forthwith (Standing Order No. 118(6)),

National Health Service

That the draft Health and Social Care Act 2008 (Regulated Activities) (Amendment) Regulations 2012, which were laid before this House on 27 March 2012, in the previous Session of Parliament, be approved.—(Angela Watkinson.)

Question agreed to.

Motion made, and Question put forthwith (Standing Order No. 118(6)),

London Government

That the draft Greater London Authority Act 1999 (Amendment) Order 2012, which was laid before this House on 19 March 2012, in the previous Session of Parliament, be approved.—(Angela Watkinson.)

Question agreed to.

Backbench Business Committee

Motion made,

That Mr David Amess, Mr David Anderson, Bob Blackman, Jane Ellison, John Hemming, Mr Marcus Jones and Ian Mearns be members of the Backbench Business Committee.—(Geoffrey Clifton-Brown, on behalf of the Committee of Selection.)

[Hon. Members]

Object.

[Mr Speaker]

We are all struck by the speed with which the hon. Member for Christchurch (Mr Chope) has registered his objection.

Education

Ordered,

That Tessa Munt be discharged from the Education Committee and Mr David Ward be added.—(Geoffrey Clifton-Brown, on behalf of the Committee of Selection.)

Science and Technology

Ordered,

That Jonathan Reynolds be discharged from the Science and Technology Committee and Jim Dowd be added..—(Geoffrey Clifton-Brown, on behalf of the Committee of Selection.)

Dementia Services (South-West)

Monday 11th June 2012 Commons Chamber

Motion made, and Question proposed, That this House do now adjourn.—(Angela Watkinson.)

[Mr Speaker]

Before I call the right hon. Member for Exeter (Mr Bradshaw), perhaps I could appeal to Members who are leaving the Chamber—unaccountably not wishing to remain to hear the right hon. Gentleman’s speech—to do so quickly and quietly, affording the same courtesy to the right hon. Gentleman that they would want to be extended to them.

22:33

[Mr Ben Bradshaw (Exeter) (Lab)]

Thank you very much, Mr Speaker—and thank you very much for granting a debate on a subject that is of great concern to my constituents in Exeter, to people throughout the south-west, and, indeed, to people throughout the country. My own mother suffered from dementia, and died very young when I was just 18. That was in the days when Alzheimer’s and other dementias were only just beginning to be recognised. Since then we have made great strides in terms of our knowledge and understanding, and the treatment that is available to sufferers and their families. I pay particular tribute to the Alzheimer’s Society for its campaigning work and the support that it provides for people.

There are currently 800,000 people with dementia in the United Kingdom, and one in three of us will have it by the end of our lives, so this is an issue that touches, or will touch, virtually every household and every family in our country. Although progress has been made, there are still big gaps and unacceptable variations in levels of service and support, and I shall focus on three issues that cause particular concern: the rates of diagnosis; the availability of drugs for sufferers; and the overall resilience of the care system, on which many dementia sufferers and their families depend.

Everybody—including, I am pleased to say, the Government—accepts that early diagnosis is absolutely vital in ensuring that people with dementia and their families receive the information, treatment and support they need. At present, however, fewer than half—43%—of dementia sufferers have a formal diagnosis, and in the south-west that rate is even lower; in fact, my region has the lowest diagnosis rate of anywhere in England at just 35.4%, with my own county, Devon, having barely a third of sufferers diagnosed and Dorset having the lowest rate in the country at just 27%. As the south-west of England has a higher than average proportion of elderly people, and therefore more dementia sufferers, that is extremely worrying. Indeed, according to the Minister’s own figures, in Devon alone there are almost 9,000 people with dementia who have not been diagnosed. In contrast, average diagnosis rates across Northern Ireland are above 60%, and in Belfast the rate is almost 70%. What is the Minister’s explanation for this huge variation in diagnosis rates across the country, and what are his Government doing to address that?

Many fear that the Government’s upheaval of the NHS might make this situation even worse, not better. Putting GPs in the driving seat means that the level of awareness and understanding of the problem among GPs will be more important than ever. GP training is therefore vital, and I welcome the progress that is being made, such as in Devon, where an education programme for GPs has reached 374 practices across our county, and there are already signs of increased diagnosis rates. But education alone is not enough. GPs need to have access to help and support, but the key to improving diagnosis rates in the south-west will be to ensure that GPs can refer patients to memory services for diagnosis. I have heard reports of people waiting over a year for an appointment at a memory clinic, however.

As the Minister will be aware, the Alzheimer’s Society recently wrote to all MPs asking us to write to our local primary care trusts in order to establish waiting times at memory services in their areas. I commend this initiative. Will the Minister say whether the Department of Health collects data on waiting times at memory services in the south-west—as well as in other regions? If not, will he arrange for NHS South of England to provide Members with this information?

The Royal College of Psychiatrists has established the memory services national accreditation programme, to ensure that services at memory clinics meet national standards. Does the Minister agree that all memory services should seek such national accreditation and that that should be a priority for local NHS managers?

As the Minister will also be aware, next month the all-party group on dementia will report on its inquiry into improving diagnosis rates. I understand that he has been invited to the launch of the report, and I hope he can confirm tonight that he will be able to attend.

The second issue I want to highlight is the variation in the availability of medicines for dementia sufferers. These medicines can make an enormous difference both to the progression of the illness and the quality of life enjoyed by the sufferer and their carers. The Minister will be aware of the massive—some reports have suggested as much as 50-fold—variation in the level of drug prescribing among PCTs in England. Again, the south-west does very poorly. We are not the lowest region in England in respect of prescribing, but we rank as the second lowest region after the west midlands. It is very worrying that our region, with its high proportion of elderly people and therefore of dementia sufferers, has the second lowest level of availability of medicines that could help them. Will the Minister explain the reasons for that, what the Government are doing about it, and how he can guarantee that this problem will not get worse under the Government’s reorganisation of the health service?

The third and final concern I wish to raise tonight is the financial hardship faced by dementia sufferers and their families because of the cost of long-term care. We know that, in some cases, that can run into hundreds of thousands of pounds; it can lead to families losing their homes or their inheritance because of the lottery of getting dementia. Many people rightly feel that that is deeply unfair. In my view, the long-awaited report by Andrew Dilnot on the future of long-term care provides a sustainable and equitable solution to that deep unfairness that some families face and to the general challenge of providing long-term care.

[Alison Seabeck (Plymouth, Moor View) (Lab)]

This is an incredibly important debate and my right hon. Friend has touched on a number of issues that affect my constituents. In a recent case, the mother of Lee Finn was in Derriford hospital with dementia; the family came in and read her chart—they had power of attorney— and saw that it said “Do not resuscitate”. The family had not been asked or consulted in any way. Does my right hon. Friend share my concern that, although there is some fantastic work going on in the field of dementia, crass errors continue to be made that cause families deep unhappiness? It is clearly not good for the dementia sufferers if the whole family is destabilised because of poor decision making.

[Mr Bradshaw]

I agree absolutely. As I said, and as I hope the Minister will endorse, training and awareness of dementia are vital not only in primary care settings but in secondary care settings, as in the case my hon. Friend raises. Some people who may seem to be extremely ill with dementia and who are in the situation she describes may in fact be physically perfectly fit and able to carry on living for some time. I hope that her local hospital will take up the case and provide a satisfactory response.

As I was saying, there is a strong feeling on both sides of the House that we need a sustainable and fair solution to the challenge of long-term care. That challenge particularly, but not solely, affects families with members who suffer from dementia because of the enormous costs imposed on them by having to pay for long-term care. I do not think it an exaggeration to say that there was great disappointment when the Queen’s Speech again failed to include a Bill to implement the Dilnot proposals. As far as it goes, the Government’s commitment to a draft Bill was welcome, but it would be helpful if the Minister told us when that draft is likely to be published and guaranteed that a Bill will be passed in this Parliament. May I boldly suggest that that would be a real legacy and worth working for?

[Julie Hilling (Bolton West) (Lab)]

Does my right hon. Friend agree that part of the reason people are not diagnosed is the great fear of what dementia means? In fact, if we provided good care in their own homes, they could stay there longer before needing to go into residential care. We should look not only at the cost of residential care, but at the cost of home care and reach a settlement on that, too.

[Mr Bradshaw]

My hon. Friend is absolutely right and makes an important point.

I would be grateful if the Minister also gave a commitment that the Bill, when it comes to the House, will address the postcode lottery in the availability and quality of services. Tower Hamlets in London, for example, spends five times as much on dementia services as Cornwall in the south-west, which is the lowest spending authority in the country. That simply cannot be right.

The urgency of meeting the challenge of long-term care is all the greater as figures uncovered by my hon. Friend the Member for Leicester West (Liz Kendall) show that pressure on local authority budgets is already leading councils to increase their charges and tighten their eligibility criteria, so that many people are losing the assistance they previously received. The situation is getting worse and will continue to do so until the Government grasp the nettle of long-term care and implement the Dilnot report.

At any one time, one in four hospital beds is taken up by people with dementia. Delayed discharges from hospital and unnecessary admissions to hospital cost every hospital in the south-west hundreds of thousands of pounds a year. As my hon. Friend the Member for Bolton West (Julie Hilling) has just said, all the evidence shows that early intervention with community services is cost-effective, it keeps people out of hospital, it is what people with dementia and their families want, and, in particular, it is what the people who have the main responsibility for caring for those sufferers want.

However, the tightening of the eligibility criteria and the cutting of local services are having the opposite effect: they are increasing the costs for the NHS. I do not know whether the Minister has any figures with him. If he does not, perhaps he could write to me, as I would be interested to know whether he has made an assessment of the impact on the NHS in the south-west of the tightening of eligibility criteria by local authorities in the area for people with dementia.

By 2021, more than a million people will be living with dementia in the UK, and this year dementia is set to cost us £23 billion. In the next 10 years, the number of people in Devon with dementia is set to increase by a third. It has been said before, but I will say it again: we face a dementia time bomb. Addressing it will require leadership and more public investment in the short term, but a successful dementia strategy will be much cheaper and equitable in the long run, and it will also reduce the strain on and suffering of patients and their families. Surely it cannot be too much to expect that someone with dementia can receive a decent level of care wherever they live in the country and that their families should no longer to be subjected to the ruinous costs of long-term care simply because they happened to have a relative who suffered from this illness.

22:46

[The Minister of State, Department of Health (Paul Burstow)]

I congratulate the right hon. Member for Exeter (Mr Bradshaw) on securing this debate. He is absolutely right to highlight the importance of the issue of dementia. It is, without doubt, one of the biggest health and personal issues affecting our society today, and it will touch the lives of many families in this country. He rightly rehearses the statistics, and dementia is a priority for this Government. We know that in England there are 670,000 people living with dementia, that the figure is set to double over the next 30 years and that in England the cost of dementia to society as a whole is about £19 billion. However, the true costs of dementia are incalculable. I am talking about the cost in terms of the impact on people’s lives, the lost opportunities and the consequences of taking on a caring responsibility within the family, and the costs and consequences for the individual. As has been said in this debate, we know that cancer has been replaced by dementia as the disease that people in their 50s now fear the most, and the right hon. Gentleman has highlighted a number of reasons for that.

That is why, on 26 March, the Prime Minister, on behalf of this coalition Government, set out this Government’s dementia challenge: to go further and faster in implementing the previous Government’s dementia strategy; to focus, in particular, on the issue of diagnosis rates; to raise awareness and ensure that we prepare our society to be adapted and adaptable to the needs of people with dementia; and to double the research funding available in the area of neurosciences and dementia by 2015.

The dementia challenge builds on the previous Government’s work on the national dementia strategy. We kept and built on that strategy, rather than losing any of the momentum that it put in place. I pay tribute to the Alzheimer’s Society for the work it does, and we are working closely with it. We have brought together three champion groups that are taking forward the work on raising the need to improve diagnosis and the treatment and care of people so diagnosed. We are also focusing on issues associated with how we raise awareness, both within the social care and health care work forces and in wider public services. Finally, we are working with the research community to improve capacity significantly and make sure that we have more good quality bids for funding for dementia research in this country.

On the recognition of dementia, we need to ensure that the challenge is not just for the national health service or social services departments, but for our whole society. Work is being led by the Alzheimer’s Society and one of its key champions and ambassadors, Angela Rippon, on how we create dementia-friendly cities, towns and villages. The county of Devon is taking a lead working with schools so that young people better understand dementia and get involved in services supporting people with dementia in the community.

The Government have laid the foundations for dementia research, investing heavily in biomedical research centres and seeding the necessary interest among the research community through themed calls. Something in the region of £17 million of new money is now going into research.

The right hon. Gentleman is right on diagnosis: there is still inexplicable and unacceptable variation within his own region, let alone across the whole of England. In 2011, 30,000 people had been diagnosed and were living with dementia in the south-west, which is among the lowest rates in England. However, we know from the figures that the movement is in the right direction. It is not as fast as he would like, nor as fast as I want it to be in future, but in 2010, the diagnosis rate was 35.4%; by 2011, it had risen to 37.3%.

The Government are ensuring through our dementia challenge that general practitioners and other health professionals are referring more people for assessment. We are making people aware of the availability of memory services and targeting hospitals to ensure that they receive extra resources to undertake dementia risk assessments of people over the age of 75. There will be additional resources to support that activity. We are confident that it will lead to a significant increase in the numbers of people being both diagnosed and referred for diagnosis.

The right hon. Gentleman referred to the Royal College of Psychiatrists accreditation programme. I endorse what he said. It is important that more memory services seek that accreditation, and many in his region are doing just that.

I can tell the right hon. Gentleman that there has been a further acceleration in progress on diagnosis. Devon commissioners tell me that, in the past year, Exeter has been among the strongest performers in Devon in improving its rate of diagnosis. Indeed, there was an 11.6% increase in the number of people receiving a diagnosis in the county. The local NHS is building into its commissioning plans for the coming year an improving diagnosis trajectory. I hope that he and other hon. Members continue to hold local commissioners to account for their commissioning decisions on dementia.

The right hon. Gentleman referred to Northern Ireland and the reasons for its success. One reason Northern Ireland has been successful is that it has invested heavily in its community and voluntary sector services, which has played a part in raising community awareness. More people have in turn asked whether they need to be referred to a memory service. That is one reason why the Government have sponsored an advertising campaign. We want to raise awareness and get families to talk about dementia, and not to put it off or believe that it is just a consequence of ageing.

[Alison Seabeck]

What the Minister says about Northern Ireland and the figures for Devon is interesting. Does he believe there is a connection between dementia diagnosis and support and the relative stability of a population, such as that of Belfast? Devon has a more transient population, and people move there to see out their old age, perhaps away from their families. How important is proximity to family and close friends in terms of diagnosis and support?

[Paul Burstow]

That is part of the Government’s approach to raising awareness. We recognise that getting families to have conversations when they see the first signs of memory loss, or other behaviours that might indicate dementia, is an essential part of getting people to have a conversation with their GP about referral to a memory service. Whether that is to do with more stable communities is an interesting question to consider further. We are working with the research community because we want to encourage more applications for social research as well as research into the underlying causes of the disease.

The right hon. Member for Exeter asked about waiting times. Although there have not historically been routine central collections of waiting times, we will have to consider the matter closely. The Government are keen to drive improvements, and it is no good somebody getting a referral if they and their family are then left hanging for too long. He made an important challenge on that matter.

The right hon. Gentleman rightly talked about support for families. In the operating framework for the NHS, which we published last December and which covers this year, we were absolutely explicit that NHS organisations must work with local authorities and carers’ organisations to get their sign-off for their plans for carers. We stated that they must be explicit about the number of carers’ breaks they will provide and the budget that they allocate for carers in their area. We need to ensure that carers get vital breaks, rather than having to have a breakdown before the NHS picks up the pieces.

From next year, we will also expect NHS organisations to demonstrate that they are supporting carers of people with dementia in line with the guidance that the National Institute for Health and Clinical Excellence issues. Early diagnosis is important because families and the individual themselves need to be able to plan, but also because NICE’s guidance on medication states that people need access to drugs at an early stage. I will write to the right hon. Gentleman about the variations that exist.

[Julie Hilling]

What are the Minister’s views on the funding of dementia groups and carers’ groups? I visited my local group a fortnight ago, and it is struggling for money because of cuts in its local authority grants and health grants. Will there be money behind the new strategy for carers, and more money to support dementia groups in the community?

[Paul Burstow]

I say two things in response to that question. First, the picture is actually quite varied, and I will come on to the investment that is being made in the support network of voluntary and community organisations in Devon. Secondly, the Government have provided £400 million, through the NHS, to support carers through carers’ breaks and other arrangements. We have specifically said that local plans will have to be signed off by carers’ organisations to ensure that the voice of carers is heard when decisions are made.

The right hon. Gentleman asked me about the costs facing families. I understand that concern, which the House has been debating for at least the past 15 years, and it is important that we reach conclusions. We will shortly publish a White Paper and a progress report on our deliberations on funding reform. Dilnot produced a clear set of recommendations, which the Government welcomed when they were published last year.

It is also important to stress that funding reform, important though it is, is only one of a number of issues to consider in improving social care in England. Others include variability of quality, a lack of focus on prevention and early intervention, services that do not join up well for families and do not always integrate well with the NHS, and a lack of personalisation. We expect to address all those issues in the White Paper that we will publish shortly.

When it comes to legislation, we will publish a draft Bill before the summer recess, which will set out the details of a comprehensive reform of social care. We will address the fact that for 60 years, social care legislation in this country has evolved in a piecemeal fashion and as a consequence, in my view, constitutes something of a dog’s breakfast. It is hard for people to navigate their way around the system and identify when they are entitled to support from their local authority and when they are not.

Innovation is important in driving improvements in quality for people with dementia. That is one reason why, as part of the dementia challenge, we identified an innovation prize of £1 million for NHS organisations developing ideas for the transformation of dementia care services. In the south-west and south of England, the NHS has specifically identified and made available a further £10 million for such innovations.

I said that I wanted to mention briefly some of the other actions in the south-west. The Royal Devon and Exeter NHS Foundation Trust has piloted patient passports in a very good piloting exercise. It has alighted on a scheme proposed by the Alzheimer’s Society called “This is me” passports, which are very useful for people with out-patient appointments and those who are being discharged from hospital. The trust is also running an “An hour to remember” training programme to raise the awareness of staff about both the people who have dementia and the people who are with them—that is, their family members and carers—and that is ever so critical. Every fortnight, there is a day’s training in dementia care for clinical and ancillary staff. The trust has also recently strengthened its mental health liaison services and is reaching out into its communities to pilot a virtual ward scheme, which is a very important way of avoiding unnecessary admissions into hospital. Beyond the hospital, there are networks of support and there are 37 memory cafés around the county—I believe that there is one in Exeter itself—and more than 200 volunteers have been trained in dementia awareness to help support those areas.

The right hon. Gentleman also mentioned the role of GPs. I am not certain that we have the same figures, but my understanding is that 67 of the 107 GP practices across Devon have already undergone GP-led dementia training, which has already led to a significant increase in the number of referrals going through.

There is much to be done and much that the Government are doing already. There are significant signs of progress up and down the country. The dementia challenge set out by the Prime Minister in March is real and it is about ensuring that we mobilise not just the national health service and our local authorities but our whole community to engage with one of the biggest challenges faced by our society. I would certainly say that the evidence points towards a lot of hard work being done by NHS and social care professionals across Devon and the south-west that is beginning to lead to a significant increase in the diagnosis rates. As a consequence, many more people are getting the treatment and care that they need and that their loved ones deserve. I thank the right hon. Gentleman for securing this debate.

Question put and agreed to.

23:01

House adjourned.

Petition

Monday 11th June 2012 Petitions

Monday 11 June 2012

Olympic Transport Arrangements

Monday 11th June 2012 Petitions

The Petition of Michael Spinks of Essex Flour and Grain Co. Ltd.,

Declares that the Petitioner is concerned that during the period of local road closures for the Olympic Games, local businesses (including Essex Flour & Grain Co. Ltd) may be forced into liquidation as a result of an inability to receive and dispatch goods and that this may result in job losses.

The Petitioners therefore request that the House of Commons urges the Government to encourage the London Organising Committee of the Olympic Games to take all possible steps to ensure freedom of access for private and commercial vehicles to businesses in Lee Conservancy Road, Hackney Wick and the immediate neighbourhood during the period of the Olympic and Paralympic Games.

And the Petitioner remains, etc.—[Presented by Meg Hillier, Official Report, 17 April 2012; Vol. 543, c. 292.]

[P001018]

Observations from the Secretary of State for Transport:

Keeping London moving and minimising the impact of the London 2012 games on business are a key part of the Government’s transport objectives for the games. The London Organising Committee for the Olympic and Paralympic Games (LOCOG) and Transport for London (TfL) are the Olympic Delivery Authority’s key delivery partners in ensuring the effective management of the road network in the vicinity of the Petitioner. Both are continuing to engage with businesses in the area to ensure that the adverse impacts of the temporary games measures are minimised as far as possible.

Through the programme of travel advice to business workshops, LOCOG and TfL have engaged with businesses across London and have identified ways of minimising disruption, for example by removing or relaxing the restrictions around night time lorry movements during the period of the games.

Over the last year both TfL working on the proposed Olympic Route Network measures, and LOCOG on the Olympic Park Local Area Traffic Management and Parking Plan (LATM&P) measures, have undertaken extensive public engagement exercises in this area and acted on feedback received as far as possible. This has included, in addition to formal statutory requirements, engaging residents and businesses located around the venue and the ORN who are affected by our plans. LOCOG and TfL activities included:

drop-in sessions;

public community/business meetings;

leaflet and letter drops;

posters/adverts;

information provided on the London 2012 website; and

utilising local authority communication channels.

LOCOG has also been supporting business and freight programme workshops and have provided the appropriate LATM&P information at the relevant sessions. These sessions have been attended by other local businesses and Essex Flour and Grain were also invited. I understand from LOCOG that that feedback from businesses has been generally good.

LOCOG is also organising briefing sessions aimed at business intermediaries and umbrella organisations. This will be an opportunity to raise further awareness of the plans with the business community and to allow them to distil the message further to their members.

These steps will ensure that access to and from premises is maintained and businesses are able to continue their normal activities, albeit in some cases using alternative routes or potentially at different times of day to current operations.

In relation to the specific case referred to in this petition, officials in the Department for Transport understand that LOCOG has recently provided Essex Flour and Grain Ltd with documentation demonstrating the transport routes available to allow them to continue their business activities.

The Department for Transport has also been in correspondence with Mr Spinks and other representatives from the Essex Flour and Grain Ltd. In our responses we have urged them to continue to engage with their contacts at LOCOG to get their issues resolved.

I recognise that the proximity of the Olympic Park will mean that businesses in the Hackney Wick area, including the Essex Flour and Grain Company, will encounter temporary disruption. However we encourage all businesses in this position to continue to engage with LOCOG and TfL to find ways of minimising the impact on their businesses.

Written Ministerial Statements

Monday 11th June 2012 Written Statements

Monday 11 June 2012

Higher Education Update

Monday 11th June 2012 Written Statements

[The Minister for Universities and Science (Mr David Willetts)]

On 28 June 2011, the Government published a higher education White Paper, “Students at the Heart of the System”. This was followed on 4 August 2011 by a technical consultation, “A new fit-for-purpose Regulatory Framework for the Higher Education Sector”. Over 200 responses to the White Paper were received, and over 150 responses to the technical consultation.

We are today publishing the Government response to both consultations. This provides a summary of respondents’ views, and describes the progress Government are making to deliver a strong, financially sustainable and high quality HE sector; promote a better student experience; foster social mobility and widen participation; and create a more responsive higher education sector in which funding follows the decisions of learners and successful institutions are freed to thrive. The response includes an announcement that we will reduce the “numbers” criterion for university title from 4,000 higher education students to 1,000. This will widen access to university title for smaller, high quality providers, and is expected principally to benefit many of the long-established colleges represented by GuildHE.

The White Paper set out proposals for primary legislation to create a new regulatory framework. Many responses to the White Paper stressed that we do not yet know the full effect of the new funding arrangements, which will come into effect for academic year 2012-13. Hence, it cannot be clear what form of regulatory framework will be appropriate. We will therefore not at this stage be introducing changes to primary legislation, but will move our reform agenda forward primarily through non-legislative means.

The Government response also announces that we will arrange for alternative providers, and those FE colleges that do not receive HEFCE funding, to be treated alongside other providers of higher education in being covered by limits on their numbers of publicly-funded students. We will consult later this year on the process for applying these changes. We will also review how existing quality assurance arrangement affect alternative providers, including FE colleges offering HE. We strongly support both existing HE providers and the entry of alternative providers and FE colleges into the HE market, and these measures will create a more level playing field.

Post-EU Competitiveness Council

Monday 11th June 2012 Written Statements

[The Minister for Universities and Science (Mr David Willetts)]

The EU Competitiveness Council took place in Brussels on 30 and 31 May 2012. I represented the UK on research issues on 31 May, and the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for North Norfolk (Norman Lamb) who is responsible for employment relations, consumer and postal affairs, represented the UK on the internal market and industry issues on 30 May. A summary of those discussions follows.

The main internal market and industry issues discussed on 30 May were: the competitiveness of enterprises and small and medium-sized enterprises (COSME) programme, mutual recognition of professional qualifications (MRPQ), digital single market and governance of the single market, the public procurement directive, online and alternative dispute resolution, and the unified patent court.

A partial general approach was agreed on the COSME proposals. Agreement covered everything except the budget figures, which will be inserted when the overall 2014-20 EU budget is agreed. The UK argued against the suggestion to remove provisions in article 19(2), which is a key provision to strengthen governance arrangements, and also argued against strengthening the tourism provisions.

An orientation debate was held on MRPQ. The UK intervened to call for more transparency and mutual evaluation of regulated professions to be carried out sooner rather than later, and to note a concern about any move to six years and 5,500 hours’, training for doctors. We were supported by several member states on the transparency point, and the Commission agreed to carry out a pilot transparency exercise.

Over lunch, there was a discussion on Single Market Act I and Single Market Act II. The presidency focused discussions on two questions regarding the challenges facing Europe relating to growth, and what actions should be included in the new Single Market Act. The UK intervened to state that we needed to create the right conditions for private sector growth by, for example, putting into place a proportionate and enabling regulatory framework, inspiring confidence in businesses and consumers to invest and spend, and by removing the low level barriers and frustrations that take time and energy to overcome.

On priorities for the forthcoming Single Market Act II, we stated the need to fully implement the services directive, see a programme of single market governance enforcement measures, the need for prioritisation of the digital single market and for an ambitious package of better regulation measures.

The Council agreed conclusions on the digital single market and governance of the single market without discussion.

A second orientation debate focused on two aspects of the public procurement dossier—e-procurement and governance. The presidency opened the debate by outlining its proposal to remove the governance structures from the proposals (focusing on tasks to be carried out by member states instead) and recalling the need to be ambitious and move to e-procurement by 2016. On e-procurement the UK, along with nine other member states, argued for a more gradual transition, noting that there are still some technological issues to overcome. Other member states called for a shorter deadline, whereas others supported the 2016 deadline. The presidency concluded that given the variation in views a 2016 deadline may appear to be appropriate. On governance, most member states supported the presidency approach, and we specifically noted our opposition to the reciprocity instrument.

Ministers agreed a general approach on online and alternative dispute resolution (ODR and ADR). The presidency had tabled an amendment that excluded Government-funded further and higher education from the scope of the directive, which was an important UK objective. The UK intervened to support the text, and to explain why the exclusion was needed and why it would not affect other member states.

The final substantive point concerned the unified patent court, which was scheduled for political agreement. No new proposals or amendments regarding the draft agreement were put forward in advance of the Competitiveness Council and, while there was a brief discussion on the location of the central court with the UK setting out the case for London, there was no change in member state positions, nor was there any discussion on substantive policy issues. We expect this issue to be discussed again at the European Council in June.

There were three AOB points on internal market and industry. The first concerned state aid modernisation. The Commission set out its aims for reform of the state aid regime over the next 18 months. Debate was not anticipated, but several member states intervened to support the thrust of the initiative. The UK intervened to emphasise the need to protect the single market and focusing efforts on limiting distortive aid.

The other AOB points covered the work programme of the forthcoming Cypriot presidency, and an intervention from the Lithuanian delegation regarding the like-minded paper on the single market.

The main research and space items discussed on 31 May were: proposals for a regulation establishing Horizon 2020; progress reports on the proposed regulation laying down the rules for participation and dissemination in Horizon 2020, the Council decision establishing the specific programme implementing Horizon 2020 and the Council regulation on the research and training programme of the European Atomic Energy Community complementing Horizon 2020; progress reports on the proposed decision on the strategic innovation agenda for the European Institute of Innovation and Technology and amending regulation establishing the European Institute of Innovation and Technology; and adoption of Council conclusions on European innovation partnerships.

Council agreed a partial general approach on the Horizon 2020 core regulation. Agreement did not cover the budget figures, which will be inserted when the overall 2014-20 EU budget is agreed. I intervened to support retention of excellence as the primary funding criterion, the provisions in relation to funding of embryonic stem cell research and maintaining an appropriate balance between funding different sizes of project. I urged the Commission to bring the International Thermonuclear Experimental Reactor (ITER) back within the multi-annual financial framework. I argued for participants to have the option of being funded on the basis of actual indirect costs.

Ministers took note of presidency progress reports on the remaining Horizon 2020 legislation (the regulation laying down the rules for participation, the decision establishing the specific programme for implementing Horizon 2020, the regulation on the research and training programme of Euratom and the decision and regulation relating to the European Institute of Innovation and Technology (EIT)).

The Council endorsed conclusions on European innovation partnerships (EIPs) restating the importance of engaging member states in the process at an early stage and ensuring that EIP steering boards included balanced representation.

Under the AOB items, the Cypriot Minister set out his plans to make further progress on the Horizon 2020 legislative package during their presidency.

The Council also received an update from the Commission on the development of the innovation headline indicator, and a report on the work of the Strategic Forum for International Science and Technology Co-operation (SFIC) in 2011-12.

During lunch Ministers discussed the results achieved by the EIT since its establishment in 2008, and mechanisms for improving the links between higher education, research and innovation (the so-called “knowledge triangle”). I intervened in support of delegations calling for a more realistic budget than proposed by the Commission in view of the fact that the EIT was still a relatively unproven instrument.

Departmental Business Plans

Monday 11th June 2012 Written Statements

[The Minister of State, Cabinet Office (Mr Oliver Letwin)]

On 31 May the Government published an updated set of departmental business plans.

Each Department’s business plan sets out:

its departmental priorities;

the actions it will undertake to fulfil its priorities and when it will take these actions;

Its expenditure for each year of the spending review; and

the indicators and other data it will publish on the cost and impact of the public services for which it is responsible.

The form and structure of the business plans has been improved from the previous versions in the following ways:

a new annex has been added showing each Department’s contributions to cross-cutting agendas including growth, social mobility, sustainable development, efficiency, open public services, the red tape challenge and the civil society compact;

the structural reform plan sections are more focused on actions that contribute to the Government’s reform agenda; activity representing “business as usual” has been moved to an annex; and

the information strategy section has been replaced by a summary of each Department’s open data strategy, which will be published in full later this summer.

We are also improving the way that progress against the plans is reported. We have updated the business plans website, available at: http://transparency.number10. gov.uk/, so that it is clearer, more informative and easier to use. The information will also be published in open formats, so that users will be able to analyse the data more easily.

A full list of the changes to each of the departmental structural reform plans and input and impact indicators contained in the business plans can be found at:

http://www.number10.gov.uk/news/department-business-plans-updated-2012/

Bilateral Loan to Ireland (Revised Interest Rate)

Monday 11th June 2012 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I would like to update Parliament on the loan to Ireland.

Parliament will be aware that in July 2011 the Chancellor committed in principle to lower the interest rate on the bilateral loan to Ireland.

Following the agreement last year, the Treasury have now in principle agreed the new, lower interest rate on the bilateral loan to Ireland. The new rate will represent the UK’s cost of funds plus a small service fee of 0.18%. The UK’s cost of funding is defined as the average yield on gilt issuance in the six months prior to the disbursement of a tranche. This is subject to the loan agreement being revised to reflect the new rate.

I will update Parliament once the revised loan agreement has been finalised and signed.

HM Treasury has provided a further report to Parliament in relation to Irish loans as required under the Loans to Ireland Act 2010 alongside this statement.

Departmental Business (Whitsun Recess)

Monday 11th June 2012 Written Statements

[The Secretary of State for Communities and Local Government (Mr Eric Pickles)]

I would like to update hon. Members on the main items of business undertaken by my Department since the House rose on 24 May 2012.

Diamond Jubilee Celebrations

2012 is a year of celebration and it was heartening to see how communities across the country came together to celebrate Her Majesty the Queen’s diamond jubilee. Across the country thousands of street parties were held and I praise local councils for showing the spirit of celebration and taking a flexible approach to local residents’ party plans.

On 29 May, I endorsed and attended the launch of the Jubilee Hour campaign. Jubilee Hour calls on people across the UK to donate 60 minutes of their time to help their local community, to honour the Queen’s 60 years of service.

Supporting the High Street

We are determined to see the nation’s high streets thrive and enable them to fulfil their potential as economic hubs that will help drive growth across the country.

On 26 May, my Department announced the first 12 Portas pilot towns. The pilots will receive a share of £1.2 million; a dedicated contact point in Government to provide advice and support to help identify and overcome challenges to local business growth; have access to free support from retail industry leaders and opportunities to meet and discuss with fellow pilots to enable them to secure the future of their town centres.

Over 370 applications to become Portas pilots were submitted from across the country and in response to clear appetite my Department has opened up a second round competition for a further 15 Portas pilots. Each will receive the same funding as round one winners. The deadline for applications is 30 June.

In addition to supporting our high streets my Department wants to help ensure that local shopping parades, crucial to local neighbourhood economies, are not left lagging behind from lack of investment, antisocial behaviour and competition from online shopping and mega-store discounts. On 6 June, my Department published a new guide that builds on the Portas support, giving hands-on practical advice and insights on how to restore local shops into vibrant business areas, highlighting the range of Government support on offer to enable them to succeed.

Helping families with their council tax bills

This Government are determined to ensure that local residents get a fair deal on council tax that helps them with their cost of living.

On 28 May, my Department confirmed plans to amend some technical council tax rules to give elected local councils greater flexibility to help residents through fairer approaches to billing, second homes, empty homes and solar panels. These reforms could allow councils to make up to a £20 reduction in the bill for a typical band D property in England, or hold bills down by the same amount.

These reforms will give local residents a new legal right to choose to pay their council tax bills in 12 monthly payments rather than 10 months; support the take-up of voluntary electronic billing; give councils greater local flexibility to choose to waive special tax relief on second homes and empty homes and allow councils to use the monies to keep the overall rate of council tax down. Reforms will allow councils to tackle long-term empty homes through an empty homes premium. Reforms will also prevent a “sun tax” supplement on bills for homes with solar panels or the need for intrusive inspections where panels are installed by a third party under the “rent a roof” scheme.

The Government’s response to the technical consultation paper on council tax also outlined our plans to consider the issue of family annexes. My Department is keen to remove more of the tax and regulatory obstacles to families having a live-in annex for immediate relatives—such as those for teenagers or their elderly grandparents—more commonly known as “granny flats”. While self-contained annexes occupied by those over 65 benefit from a council tax exemption, no form of relief is available for those under that age, and some families unreasonably face two separate council tax bills for one effective property.

We will be undertaking further work through a broader review of how annexes for family homes can be supported with the aim of augmenting housing supply and supporting extended families.

Getting empty homes back into use

While the levels of long-term empty homes are at the lowest levels since 2004, tackling the 720,000 empty properties and bringing thousands of homes back into use is a top priority.

On 29 May, my Department announced the 20 successful bids from local authorities that will receive a share of the £60 million clusters of empty homes fund. Empty homes can often attract antisocial behaviour and associated crimes such as vandalism and fly-tipping. By returning empty homes back into use we can provide families with much needed homes, kickstart local training and employment opportunities and help to improve local communities.

In addition voluntary and community groups across the country will receive over £25 million to tackle individual empty properties in their area, to ensure that another 5,600 empty homes are occupied once again. In total, the coalition Government are providing £155 million of central funding, rising to £215 million including matched funding, to bring empty properties back into productive use.

Supporting the Community Right to Build

We are giving communities the power to decide on future development in their local area and putting planning permission powers firmly back into the hands of local people.

Under the new community right to build, communities will be able to approve new local developments without the need to go through the normal planning application process, as long as the proposals meet certain criteria and there is the backing of more than 50% of voters in a local referendum. On 29 May, my Department made £17 million available to support communities to deliver building and development projects that the local area needs.

In addition my Department has pledged a £2,000 “early bird bonus” to those communities that move quickly and submit their plans in by the end of March next year.

To support communities, the charity locality is providing expert advice and detailed one-to-one mentoring for those looking to exercise their right to build.

Tackling waiting lists and improving standards

Tackling social housing waiting lists and getting families and vulnerable people into homes is a top priority.

The Localism Act 2011 will give local authorities the flexibility to end the main homelessness duty by arranging and offer of suitable accommodation in the private rented sector, without requiring the applicant’s consent. These changes to the homelessness legislation will give local authorities freedom to make better use of good-quality private rented sector accommodation. They are part of reforms to social housing to ensure that the system is fair; that good, affordable housing is available for those who genuinely need it; and that we get the best from our 4 million social rented homes.

On 31 May, my Department published new safeguards to protect families housed in the private rented sector and ensure that safety standards and assurances are in place. This will provide extra legislative protection by preventing local authorities from using poor quality private rented accommodation for households owed the main homelessness duty. The consultation also sets out how homeless families should face the least possible disruption when being offered new accommodation and avoid the upheaval of long-distance moves.

Protecting homeowners from cowboy builders

People take pride in their homes, investing in their improvement and repair yet around 85,000 complaints are made about building work in homes each year according to the Office of Fair Trading.

On 6 June, my Department strengthened the requirements under competent persons schemes that allow traders to self-check their own work. Organisations that run competent persons schemes now need to be accredited to an international quality standard in order to operate; have to assess that their members’ competence levels and actual work are up to national standards; and be required to promote the membership and use of their schemes.

Theses measures also ensure that householders have a financial safety net in place such as a guarantee or insurance, to catch them if self-check installers fail to finish work properly or if they cannot be chased through the courts.

Copies of the accompanying press notices and associated documents have been placed in the Library of the House.

Renewable Heat Incentive

Monday 11th June 2012 Written Statements

[The Minister of State, Department of Energy and Climate Change (Gregory Barker)]

The renewable heat incentive (RHI) is the first of its kind in the world and provides long-term support for renewable heat technologies such as heat pumps, biomass boilers and solar thermal panels.

On 26 March 2012, I reaffirmed the Government’s commitment to growing the UK market for renewable heat technologies by announcing further support for the domestic sector under a second phase of the renewable heat premium payment scheme (RHPP). At the same time I set out our delivery timetable for providing longer-term support for households, expanding the non-domestic scheme and transparent plans for staying within our budget for this year.

I am pleased to report that we are on track to meet the RHI delivery timetable and have met our first milestone.

In March we consulted on a mechanism for more effectively managing the RHI budget in the short term. Today, I am pleased to publish our response which will ensure we have a stand-by budget management mechanism in place this summer, enabling the sustainability of the scheme by allowing us to keep within the budgetary limits set by the comprehensive spending review (CSR). Further, I can confirm that we are on track to consult on longer-term proposals in July 2012 as planned.

To ensure the supply chain can be maintained with the available funds in this spending review period, we have set an upper limit of £70 million for 2012-13. However, it is important to note that the funding amounts announced in the spending review for 2013-14 and 2014-15 are unchanged.

The upper limit of £70 million ensures that the 2013-14 budget of £251 million would be enough to pay for existing installations and new installations, were the 2012-13 limit to be reached. A higher limit for 2012-13 would leave insufficient funds available in the following year for new installations and therefore could be very damaging to the renewable heat industry.

In the event of having to use the stand-by mechanism, a notice period of one week would allow for a much higher trigger point for suspension of the scheme (£67.9 million, 97% of the £70 million limit) compared with one months’ notice (£56 million, 80% of the £70 million limit) and would also reduce the chances of scheme suspension being triggered unnecessarily.

We recognise the need to provide comprehensive information on current and forecast scheme expenditure and to make it publically available. To do this we will provide a weekly information update on our website, tracking our committed expenditure. If required we will also provide an estimated date of suspension prior to the formal notice period, in the event of an unexpected surge in uptake such that suspension is likely to be triggered.

I would like to thank all those people who helped us develop these plans. I can confirm that after careful consideration, should we need to use the stand-by mechanism, this will be done when the spend in 2012-13 is forecast to reach £67.9 million with a formal notification period of one week. Given current uptake figures, we do not currently envisage having to use this mechanism. However, we have learnt from our previous experiences and want to provide assurances to the market and the public that we are spending money on the RHI in a sustainable way.

Government remain committed to the deployment of renewable heat and as such we are continuously looking at innovative ways of supporting it across all sectors.

Green Deal and Energy Company Obligation

Monday 11th June 2012 Written Statements

[The Secretary of State for Energy and Climate Change (Mr Edward Davey)]

Today my Department is publishing the Government response to the green deal and ECO consultation ahead of the introduction of the green deal this autumn.

Having considered over 600 written responses from a variety of organisations and individuals, I would like to thank all those who submitted a formal response or participated through the various activities held during the consultation. Feedback from the consultation directed our focus towards four key policy areas: strengthening consumer protection, reducing industry burdens, improving behind-the-scenes operations and revising ECO. I have acted on these areas, and full details of the final policy are set out in the Government response.

Following consultation, this week I am laying before Parliament the key statutory instruments which establish the market framework of the green deal and ECO, subject to the affirmative procedure. I am laying these instruments alongside the final impact assessment, which evaluates the net present value of the policies. My Department has simultaneously published associated research, which informed our final conclusions. Later in June, I will lay before Parliament a second tranche of more minor green deal statutory instruments subject to the negative procedure. I will also be bringing forward the green deal code of practice and modifications to energy licences and codes.

Having taken over this programme four months ago, I have spent this time talking to stakeholders and understanding how to ensure successful delivery. Mindful that we are creating the foundations for a market that will run through to 2030, and in light of representations I have received, the regulations I am laying today provide for a carefully managed introduction of the green deal starting this autumn.

Subject to parliamentary approval of the green deal legislation, accredited certification bodies will be able to submit applications to register with the green deal registration and oversight body from August. The certification bodies will then be able to register those assessors and installers they have certified. Similarly, potential green deal providers will be able to apply for their approval. This will allow participants time to seek formal authorisation ahead of the introduction of the green deal framework in the autumn. It is important that the market will be able to test systems properly during the first weeks following the introduction of the green deal framework and ahead of the first fully completed green deal plans in early 2013. In the meantime, the energy company obligation (ECO) legislation I have put before Parliament today will ensure that a new ECO is established from October this year. This will mean that an estimated £1.3 billion-worth per year of energy efficiency and heating measures can be delivered across Great Britain. This will be directed to vulnerable and lower-income households, and carbon saving measures. The Government remain absolutely committed to tackling fuel poverty.

An important aspect of preparations is training the work force, and I took an obligation in the Energy Act 2011 to report to Parliament on what steps I have taken to encourage green deal installation apprenticeships. On 8 March 2012, in co-operation with asset skills and construction skills, I announced £3.5 million to train up to 1,000 green deal insulation installers, and 1,000 green deal assessors to our new national occupational standard for green deal assessment. This training will also include the validation of existing installer training courses to meet the new green deal PAS 2030 requirements and the training of trainers to ensure quality training courses are available. I welcome the wide support from industry for this initiative and the huge level of interest reported by the sector skills councils. We believe the green deal has the potential to support up to 60,000 jobs in the insulation sector alone, more than doubling the number of jobs in the sector, and making a real contribution to green growth.

We will work with the insulation sector to explore the value of a second tranche of funding for training later in the year to help those moving from the carbon emissions reduction target (CERT) and the community energy saving programme (CESP) and into related green deal installations. In addition to this, my Department will continue to work with employers and the sector skills councils to ensure that the Government’s wider apprenticeship frameworks support not only the green deal, but also green and sustainable construction more generally.

We have created a robust legal framework, which enables a market in energy efficiency to flourish. We are committed to ensuring that the interests of green deal providers and financiers remain protected to maintain the security of green deal asset and thus secure the lowest possible cost finance for consumers.

It is only sensible to keep regulations under review and, for the sake of transparency, I will commit now to review these regulations, in consultation with appropriate stakeholders, before 31 January 2018 and to publish the conclusions in a report. The report will set out the objectives of these regulations and assess the extent to which they were achieved, whether they remain appropriate and, if so, the extent to which they could be achieved with a system that imposes less regulation.

Family Migration

Monday 11th June 2012 Written Statements

[The Secretary of State for the Home Department (Mrs Theresa May)]

I will later today be making an oral statement to the House on family migration.

Workplace Pension Reform

Monday 11th June 2012 Written Statements

[The Minister of State, Department for Work and Pensions (Steve Webb)]

Later today the Government will publish a response to the consultation document “Automatic Enrolment and European Employers”.

The Pensions Act 2008 introduces a duty on employers to automatically enrol jobholders into a workplace pension scheme. A jobholder is defined in the Act to include an individual,

“who is working or ordinarily works in Great Britain under the worker’s contract”.

A minority of workers may be “qualifying persons”—that is individuals employed under a contract of service and whose place of work under that contract is sufficiently located in another European economic area state so that their relationship with their employer is subject to the social and labour law relevant to the field of occupational pension schemes of that EEA state.

It is possible that a small number of individuals will have “dual-status”—being both a qualifying person and a jobholder simultaneously. This overlap means that there is a potential conflict between the employers’ duties to automatically enrol eligible jobholders and pension providers being able to offer a suitable product for this purpose.

It is my intention to lay regulations exempting European employers from automatically enrolling “dual-status” workers and ensure that employers are able to comply with the employers’ duties required by the Pensions Act 2008.

I would like to thank all those people and organisations who have offered their views and advice in response to the consultation. A copy of the Government’s response and the associated impact assessment will be placed in the Libraries of both Houses and will be available later today on the Department’s website: http://www.dwp.gov.uk/ consultations/2012/.

House of Lords

Monday 11th June 2012 Lords Chamber

Monday, 11 June 2012.

14:30

Prayers—read by the Lord Bishop of Chester.

Death of a Member: Lord Maples

Monday 11th June 2012 Lords Chamber

Announcement

14:36

[The Lord Speaker (Baroness D'Souza)]

My Lords, I regret to inform the House of the death of the noble Lord, Lord Maples, on 9 June. On behalf of the House I extend our sincere condolences to the noble Lord’s family and friends.

Social Care: Legislation

Monday 11th June 2012 Lords Chamber

Question

14:37

Asked By

[Baroness Wheeler]

To ask Her Majesty’s Government what is the timetable for the draft Bill to modernise adult care and support in England announced in the Queen’s Speech and to what extent the proposals in the Bill follow the recommendations of the Dilnot commission.

[The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)]

My Lords, the Government have committed to publishing a draft Bill for pre-legislative scrutiny this Session, and will outline plans for transforming care and support in the forthcoming White Paper. The Dilnot commission’s recommendations are hugely valuable. However, implementing them would have significant costs, which must be considered in light of the growing demand for social care, and of other priorities. We will set out the way forward in the progress report alongside the White Paper.

[Baroness Wheeler]

I thank the Minister for his response. However, with local authorities having to cut £1 billion from current social care budgets, does he not agree that there must be a package of reforms that will embrace current and long-term funding solutions, as well as the legal framework proposals expected in the White Paper and Bill? Will he reassure the House that the progress report accompanying the White Paper will contain a clear timetable for consultation on funding issues? Will he also reassure us that the Government intend to honour the Prime Minister’s pledge to deal with social care funding in this Parliament?

[Earl Howe]

My Lords, this is the first reform of social care law in more than 60 years. It is a unique opportunity to get the legal framework right. That is why we have deliberately taken time to engage fully with those who have experience and expertise in care and support. Many people in the sector have called explicitly for scrutiny on a draft Bill, so publishing a Bill in this way demonstrates our commitment to working in partnership. We remain absolutely committed to introducing legislation at the earliest opportunity in this Parliament to establish a sustainable legal framework for adult social care. The draft Bill will be the critical next step in delivering the reform agenda.

[Baroness Finlay of Llandaff]

Will the Government reassure us that in considering adult social care they will also take into account the transitional needs of children with very complex needs as they grow older and transition to adult care, because many of them are in the last phase of their illness and will die in early adulthood?

[Earl Howe]

The noble Baroness raises the key issue of transition, which will be covered in the forthcoming White Paper.

[Baroness Barker]

My Lords, the Government will be aware of the report, Reforming Social Care: Options for Funding, published by the Nuffield Foundation in May. What is their response to the proposal that some universal benefits that currently go to wealthy pensioners should be restricted to enable the implementation of the Dilnot report?

[Earl Howe]

My Lords, my noble friend raises an issue that has been very much in our sights as we have prepared the progress report on funding. I can only ask her to be patient a little longer until the report is published.

[Baroness Pitkeathley]

My Lords, the Minister will know that many older people are concerned not only about how they will fund residential care, should they need it, but also about its quality. How will the White Paper ensure adequate and indeed satisfactory quality for the delivery of residential care, and also the competence of those who deliver it?

[Earl Howe]

As the noble Baroness will know, one of the main reasons that we wanted to engage widely in recent months with the sector was the very issue that she raised. The quality of social care, the training of those in the workforce and the supply of carers, both paid and unpaid, are concerns going into the future. As the noble Baroness will find out, this will be a major focus of the White Paper.

[Baroness Greengross]

My Lords, will the Minister reassure some of us who have worked closely with the Dilnot recommendations that the Government will take into account the huge savings to the NHS which, following the initial costs, will result from implementing the proposals? The cost of implementation is very limited compared with the huge annual costs of such care to the NHS. Adequate social care will remove much of that from the NHS.

[Earl Howe]

I take the noble Baroness’s point. Nevertheless, she will recognise that Ministers in government cannot ignore cost pressures arising from proposals such as those of Dilnot. We have calculated those costs at £2.2 billion. This is not money that can be drummed up easily. Nevertheless, we are looking at ways in which to address that particular issue.

[Baroness Gardner of Parkes]

My Lords, is the noble Earl telling us that the Bill will be only about funding? Following the point raised by the noble Baroness, Lady Pitkeathley, can he assure us that there will be some sort of new training for those who will be doing a job that is half-way between that of a carer and that of a nurse? By losing the SENs we have lost a very powerful and useful facility that can operate in the middle. Surely there is a need for someone to bridge the gap between health and social care.

[Earl Howe]

My Lords, my noble friend raises an important issue, and I am sure that there will be an opportunity during the Bill’s passage to debate the subjects to which she referred. The draft Bill will be published after the Government publish their White Paper and the progress report on funding, and the Bill will set out the legislative framework for adult social care in the future. I have no doubt that noble Lords will wish to raise issues pertinent to that.

[Baroness Hollis of Heigham]

My Lords, the Minister has referred to drumming up finance for long-term care for older people. He will be aware that higher rate tax relief on pensions—as part of the total of £30 billion of tax relief—amounts to £7 billion a year. Were that money ring-fenced and redistributed within the same age group it could pay for Dilnot three times over. Will he consider looking at that as a source of funding for Dilnot?

[Earl Howe]

I shall make sure that the noble Baroness’s suggestion is fed in to the discussions currently in train on that subject.

[Lord Skelmersdale]

My Lords, recent press reports—in fact, they are not that recent—have concerned the quality of care, not least the care given by care assistants. In their consideration of this matter will my noble friend and his department consider the registration and suitability of care assistants?

[Earl Howe]

My Lords, as my noble friend will recall, we debated this subject extensively during the passage of the Health and Social Care Act. The Government’s position is that voluntary assured registration is the way forward for the time being. However, we have not closed our minds to statutory regulation in this area.

Health: Local Healthwatch Organisations

Monday 11th June 2012 Lords Chamber

Question

14:44

Asked By

[Lord Collins of Highbury]

To ask Her Majesty’s Government what progress is being made on establishing local Healthwatch organisations and what steps they will take to ensure that their commissioning and administrative costs are kept to a minimum.

[The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)]

My Lords, 75 local Healthwatch pathfinders have generated learning for all local authorities to use. The Local Government Association is working with all local authorities, including holding a series of master classes, and the Government are undertaking targeted engagement on local Healthwatch regulations until mid-June. The Government have made £3.2 million available for start-up costs and information is being made available on commissioning and procurement options.

[Lord Collins of Highbury]

I thank the Minister for that response. Only one local Healthwatch organisation will be contracted in an individual local authority, but the body itself will be permitted to subcontract most if not all of its activities. What are the department’s estimates for the overall cost of multiple contracts, solicitors’ fees and all the other on-costs of commissioning? Can the Minister also explain how fragmenting local Healthwatch organisations in this way will provide the strong and co-ordinated voice for patients and their carers that we need for real local scrutiny and accountability?

[Earl Howe]

My Lords, the noble Lord is absolutely right to raise the question of the cost-effective commissioning of Healthwatch and I have no doubt, from the Local Government Association, that both the efficient and effective functioning of Healthwatch is something that is well within its sights. The noble Lord has raised a series of hypotheses which I think are somewhat extreme, of local Healthwatch organisations parcelling out their functions all over the place. Our aim is to have as locally inclusive a body as possible in each local Healthwatch area to enable Healthwatch to perform its functions as much by itself as with the aid of others. Indeed, the pathfinder events to which I have referred have been clear that there is a local appetite to do that.

[Lord Kakkar]

My Lords, how do Her Majesty’s Government propose to mobilise interest, enthusiasm and participation in local Healthwatch organisations by patients and members of the public?

[Earl Howe]

We are working with the Local Government Association and the Care Quality Commission to provide support for the implementation of local Healthwatch organisations. As I mentioned, the LGA is running a series of master classes for local authority commissioners. It has published 15 case studies taken from the 75 Healthwatch pathfinders, and a small number of Healthwatch experts will be available to help spread learning. As regards making the public aware, it will be very much for local authorities to decide what is appropriate in their particular areas in order to ensure that patients and the public are engaged in the important work of Healthwatch and understand what the statutory remit of local Healthwatch consists of, because that is the only way in which local Healthwatch will make its voice truly heard.

[Baroness Masham of Ilton]

My Lords, will local Healthwatch members be able to support members of the public if they go to a tribunal?

[Earl Howe]

One of the potential functions of local Healthwatch is to act as a support in terms of advocacy for local people and to signpost patients and the public to appropriate services. It is too early to say which local authorities will commission what services from local Healthwatch in an area, but the resources available to local Healthwatch have to be borne in mind in that context.

[Baroness Cumberlege]

My Lords, does my noble friend agree that in the light of the comparative studies that have been made between different health systems in developing countries, it is very disappointing that the National Health Service comes last out of seven when it comes to patient and public involvement? It does well on other factors but not on this one. Does my noble friend agree that although taxpayers’ money must always be very well spent, really strong patient and public involvement will ensure that healthcare is improved?

[Earl Howe]

My Lords, I firmly believe that, and that is why the NHS outcomes framework specifically includes a domain relating to patient experience. As we go forward, I think patients will come to realise that their voice really counts. It is about a culture change—I do not wish to wriggle out of that. This is not going to happen overnight, but it is very important that commissioners and providers in the health service are fully engaged with patients, and vice versa, to ensure that the patient’s voice—and indeed the patient’s needs—are right at the centre of commissioning and provision.

[Lord Brooke of Alverthorpe]

My Lords, on the same theme, if patients are to be at the centre of the new arrangements, and the Government are handing this over, at least for the time being, to local authorities to ensure that they are participating in the new structure, is the Minister content that this arrangement will truly ensure full patient involvement right across the whole country? When will there be a review of the arrangements if they are not working?

[Earl Howe]

My Lords, of course we want to see the system working properly. It will be part of the role of Healthwatch England to provide information and best practice advice to local Healthwatch to make sure that local authorities are commissioning both effectively and efficiently. In that sense, there will be national oversight of what happens. Inherently, with the reports that local Healthwatch organisations will have to produce annually on the way that they fulfil their role, there will be transparency on how effective they are being, not just in delivering services but in involving all sections of the community in what they do.

Justice: Sentencing of Young Offenders

Monday 11th June 2012 Lords Chamber

Question

14:52

Asked By

[Lord Sheldon]

To ask Her Majesty’s Government what action they are taking to avoid the unnecessary sentencing of young offenders.

[The Minister of State, Ministry of Justice (Lord McNally)]

My Lords, the Government are introducing reforms to give professionals greater flexibility to resolve offences without the need for prosecution, if this is in the public interest. However, robust community sentences, and where necessary custodial sentences, will continue to be used for the most serious and prolific young offenders.

[Lord Sheldon]

My Lords, I thank the noble Lord for that reply, because it is rather useful. However, there is one problem in avoiding any unnecessary sentencing of young offenders: the age of criminal responsibility, which is 10 years in England but 15 years in Nordic countries, so there is a big difference there. There has also been a United Kingdom-wide financial programme to help young people to fulfil their potential. Will this programme be used to help the young offenders?

[Lord McNally]

My Lords, first, on the question of the age of criminal responsibility, the argument that has been put forward by successive Governments is that keeping it at 10 allows the support services to intervene early and positively with young offenders who have committed serious offences. I think the Scots have already moved or are about to move to 12, and, as the noble Lord rightly said, other parts of Europe have higher ages. All I can say is that at the moment, as with our predecessors, Her Majesty’s Government have no plans to review that minimum age—for that reason of intervention.

On the question of help for young offenders, again, following on from the progress made by our predecessors, we are trying early intervention to help to identify the problems behind some of the offences, and that will certainly continue.

[Lord Dholakia]

My Lords, does my noble friend agree that there has been a significant reduction in youth crime that is mainly attributable to the work of the Youth Justice Board, which deals with offenders up to the age of 18? Will he consider extending the remit of the Youth Justice Board to deal with young adult offenders up to the age of 21 to see whether this pattern can be repeated?

[Lord McNally]

Like the age of criminal responsibility, this matter is kept under review. There are certainly indications that more holistic intervention by youth offending teams has led to a significant fall-off in youth offending, and there are lessons to be learnt from that. As always with these matters, the question is how much further up the age group one can carry interventions such as that without severe resource implications. However, my noble friend is right to draw attention to the 18 to 25 group, where a lot of criminality that lasts for a lifetime starts becoming embedded.

[The Lord Bishop of Chester]

My Lords, I speak with experience of the restorative justice programme at Thorn Cross young offender prison in my diocese, which has demonstrably effective results. Where in government policy will the support be for creative and effective restorative justice programmes that help young offenders to come to see the consequences of their actions?

[Lord McNally]

My Lords, the Government hope to publish in the near future a White Paper on the criminal justice system. Having seen some early drafts, I know that we will bring forward some positive proposals on restorative justice, because, as has been said, there is every indication that restorative justice has a significant and beneficial impact on reoffending.

[The Earl of Listowel]

My Lords, I welcome what the Government are doing. However, given that half of children in the juvenile estate have experience of being looked after by their local authority and a quarter of adults have similar experience, and given the particular worry about young people leaving the care of their local authority and moving into bed-and-breakfast accommodation, will the Minister discuss with his colleagues the possibility of a review of services for looked-after children, including children in children’s homes, and care leavers? Will he also discuss with colleagues the example of the Scottish Institute for Residential Child Care, which provides a centre of excellence in a university to train staff in children’s homes, to research looked-after children’s services and to influence policy, which we do not have in this country?

[Lord McNally]

My Lords, as so often, the noble Earl puts forward some very sensible suggestions, which I will follow up. Anyone who has been involved with our criminal justice system must be slightly shamed by the fact that a large number of young people who find their way into it as adults have been in our care as children.

[Baroness Royall of Blaisdon]

My Lords, the Minister rightly spoke warmly of the work of the Youth Justice Board in answer to the question from his noble friend. Does he recognise now that it was wrong for the Government to propose the abolition of the Youth Justice Board in the Public Bodies Bill and to have fought so tenaciously for it?

[Lord McNally]

As always, the Government listen extremely carefully to this House. In this case, the House was wise, and the Government were wise to listen to it.

[Lord Roberts of Llandudno]

My Lords, do those who have offended and have been penalised in one way or another have greater difficulty in finding jobs when their sentence ends? We know that 23% of young people between 16 and 25 are out of work. How much more difficult is it for those who have offended?

[Lord McNally]

I would have thought that it would be difficult. If you get a criminal record, it becomes a problem in employment. That is why part of the thrust of the Government’s policy on young people offending is to try to keep them out of the criminal justice system and to give those with responsibility in this area greater flexibility in their treatment. As my noble friend has said, it is also a question of making sure that young people are kept in the education system. Where full-time education is not the most appropriate route, apprenticeships and other forms of training should be there.

[Baroness Sherlock]

My Lords, is the Minister aware that about a half of those convicted for riot-related offences, certainly at the time the Riots Communities and Victims Panel published its report, were 18 to 24 year-olds? If he does not feel that he can give additional resources at the moment to enable the Youth Justice Board to take over, how else can he address the problems of that age group? After all, if we have another set of riots, that may be money well spent.

[Lord McNally]

What I can say is that there is a White Paper in the offing on these areas. It does not take a great deal of homework to identify that age group as perhaps the next best group on which to focus the intensity of care that has been shown in the youth justice system. If we could get anywhere near that success in the 18 to 25 group, we would have a real chance of cutting reoffending, which is the real problem in our prison population and in general levels of crime.

Education: 16-19 Bursary Fund

Monday 11th June 2012 Lords Chamber

Question

15:00

Asked by

[Baroness Benjamin]

To ask Her Majesty’s Government how they are planning to measure the impact of the 16-19 bursary fund on young people’s participation in education.

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

My Lords, the Government publish annual and quarterly statistics on young people's participation, and we monitor the take-up of the bursary by 16 to 19 year-olds. In addition, we have commissioned an independent evaluation to examine both the process and the impact of the new bursary fund. In order to provide a valid comparison with the impact of the EMA, the study will run until July 2014 and be completed by the end of 2014.

[Baroness Benjamin]

I thank my noble friend for that reply. I am sure that he is aware of the Government’s post-16 transport guidance, which clearly states that local authorities should ensure that accessible and affordable transport is available for all young learners. Research done by the children's charity Barnardo’s—I declare an interest—suggests that many local authorities are not complying with the guidance. Young people mainly use the bursary fund to pay for their transport, and have to pay the full adult fare to colleges and schools. By providing affordable transport, local authorities will reduce the financial pressure on disadvantaged young learners, which is causing many of them to consider leaving their courses. What measures are the Government taking to remind all local authorities of their duty and obligation to provide subsidised travel for young learners?

[Lord Hill of Oareford]

As my noble friend says, local authorities are under a statutory duty to ensure that they make reasonable arrangements for young people post-16 for transport. The Government are monitoring the provision made. We will continue to remind them of that duty. As my noble friend also says, one of the purposes to which the 16-19 bursary fund can be put is to pay for transport costs. Particularly for providers in rural areas, that is an important use.

[Baroness Howarth of Breckland]

My Lords, the parents of young people with severe disabilities are extremely anxious since funding has transferred to local authorities. There is uncertainty that funding will remain not only for travel, through bursaries, but for places. Can the Minister assure me that local authorities will be required to ensure that those young people—some of the most vulnerable—are given the opportunities of their peers?

[Lord Hill of Oareford]

I very much agree with the noble Baroness about the importance of making sure that the group she talks about has those opportunities. The bursary fund has a specific sum, £1,200 a year, which is available to such groups to help with costs. As she knows, our proposals for reforming special educational needs generally, with the Bill to come, cover how we can try to increase such provision. Obviously, local authorities have an important part to play in that as well.

[Baroness Jones of Whitchurch]

My Lords, is the Minister aware that since the very popular education and maintenance allowance was replaced with a discretionary fund allocated by individual colleges, huge discrepancies are arising in the grants available, with young people in some of the poorest parts of London, for example, receiving the least? How can that be fair, and what are the Government doing to protect young people from the postcode lottery funding under the new scheme?

[Lord Hill of Oareford]

As we have previously debated, the Government decided that we had to change the EMA because it was going to 45% of all 16 to 19 year-olds and we did not feel that was a targeted measure of support. I recognise the purpose that lay behind it, but we felt that in a difficult time we had to make some savings. We have managed to reduce the costs by £380 million. There is the element that goes to the neediest children; that £1,200 a year is a fraction more than they would have received under the old system. However, we have taken the view, which I know is different from that of the previous Government, that local institutions such as schools and colleges should decide how to allocate the funds. We have put enough in there—£180 million—to pay the equivalent of the old EMA to 15% of that age group, which is about the proportion who were in receipt of free school meals.

[Baroness Brinton]

My Lords, given that three times the number of students who study in further education colleges come from backgrounds which would entitle them to free dinners, can the Minister explain why these young people are denied access to free lunches unlike their counterparts who remain in school and academy sixth forms? When will the Government end this unfair and discriminatory practice, which affects over 100,000 students?

[Lord Hill of Oareford]

I understand the point and the anomaly to which my noble friend refers. It is true that, unfortunately, there are a number of anomalies in education where decisions on different cut-offs, age ranges and so on have been taken over the years. As regards when we will be able to put it right, I am afraid that, in the circumstances and with the current limited budgets, the honest answer is that I am not able to give her any date. It is the case that the bursary fund can be used to help defray some of those costs and I know that colleges are using it for that purpose.

Hereditary Peerages (Succession) Bill [HL]

Monday 11th June 2012 Lords Chamber

First Reading

15:06

A Bill to enable the succession of female heirs to hereditary peerages, and for connected purposes.

The Bill was introduced by Lord Lucas, read a first time and ordered to be printed.

Membership of the House of Lords (Elections) Bill [HL]

Monday 11th June 2012 Lords Chamber

First Reading

15:07

A Bill to provide for the Standing Orders of the House of Lords to designate certain Members of the House of Lords as elected Peers.

The Bill was introduced by Lord Selsdon, read a first time and ordered to be printed.

European Parliamentary Elections Bill [HL]

Monday 11th June 2012 Lords Chamber

First Reading

15:07

A Bill to amend the European Parliamentary Elections Act 2002 so as to alter the method used in Great Britain and Gibraltar for electing Members of the European Parliament.

The Bill was introduced by Lord Teverson, read a first time and ordered to be printed.

Business of the House

Monday 11th June 2012 Lords Chamber

Motion on Standing Orders

15:07

Moved By

[Lord Strathclyde]

That Standing Order 40 (Arrangement of the Order Paper) be dispensed with on Thursday 14 June to enable the motion standing in the name of Lord Adonis to be taken before the motion standing in the name of Baroness Jones of Whitchurch.

Motion agreed.

Electoral Registration Data Schemes Order 2012

Monday 11th June 2012 Lords Chamber

Motion to Refer to Grand Committee

15:08

Moved By

[Lord Wallace of Saltaire]

That the draft order be referred to a Grand Committee.

Motion agreed.

Infrastructure Planning (Waste Water Transfer and Storage) Order 2012

Monday 11th June 2012 Lords Chamber

Advisory Committee on Hazardous Substances (Abolition) Order 2012

Motions to Approve

15:08

Tabled By

[Lord Taylor of Holbeach]

That the draft orders laid before the House on 27 February and 26 March be approved.

Relevant documents: 56th Report from the Merits Committee, Session 2010-12; 42nd and 44th Report from the Joint Committee on Statutory Instruments, Session 2010-12; considered in Grand Committee on 28 May.

[Lord De Mauley]

My Lords, with the leave of the House, I beg to move the first two Motions standing in the name of my noble friend Lord Taylor on the Order Paper en bloc.

Motions agreed.

British Waterways Board (Transfer of Functions) Order 2012

Monday 11th June 2012 Lords Chamber

Inland Waterways Advisory Council (Abolition) Order 2012

Motions to Refer to Grand Committee

15:09

Tabled By

[Lord Taylor of Holbeach]

That the draft orders be referred to a Grand Committee.

[Lord De Mauley]

My Lords, with the leave of the House, I beg to move the second two Motions standing in the name of my noble friend Lord Taylor on the Order Paper en bloc.

Motions agreed.

Trusts (Capital and Income) Bill [HL]

Monday 11th June 2012 Lords Chamber

Committed to a Special Public Bill Committee

15:09

Moved By

[Lord McNally]

That the Bill be committed to a Special Public Bill Committee.

Motion agreed.

Arrangement of Business

Monday 11th June 2012 Lords Chamber

Announcement

15:10

[Baroness Anelay of St Johns]

My Lords, 37 speakers are signed up for today’s Second Reading of the Financial Services Bill. If Back-Bench contributions on the Bill were to be kept to around eight minutes, the House should be able to rise this evening at around our normal target rising time of 10 o’clock. As ever, that guidance excludes speeches from the Minister and the opposition Front Bench. There is one Statement to be repeated today by my noble friend Lord Howell of Guildford on the matter of Syria. That will be taken as close as possible to 5.30 pm. For those taking part in the debate, that means that when a contribution from a Peer ends after 5.30 pm, my noble friend will stand up to make the Statement at that point.

Financial Services Bill

Monday 11th June 2012 Lords Chamber

Second Reading

15:11

Moved by

[Lord Sassoon]

That the Bill be read a second time.

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

My Lords, I am pleased to have the opportunity to debate the Government’s proposals for financial services regulation. We have an impressive list of speakers today, including former Chancellors, government Ministers and Cabinet Secretaries, so I am sure that it is going to be a lively and interesting afternoon and evening. I am sure that, like me, noble Lords will be particularly looking forward to hearing from the noble Lord, Lord O’Donnell, my esteemed former boss, who will be giving his maiden speech today.

A thriving financial services sector is vital to the prosperity of the United Kingdom, and we can be justifiably proud of the country’s position as a world leader in financial services. As your Lordships are well aware, though, the UK financial system is emerging from the most serious financial crisis in more than 100 years. The Government are determined to learn the lessons from that crisis, which is why we have initiated a fundamental and wide-ranging reform of the financial services sector. That reform will be delivered not only through important changes to the regulatory system contained in the Bill; on Thursday the Government will publish a White Paper setting out how we plan to implement the recommendations of the Independent Commission on Banking. We are also shaping the international response to the crisis with our counterparts in Europe and elsewhere.

The causes of the financial crisis were many and diverse. Certainly it is clear that financial institutions took on risks that they did not understand or effectively manage. As a result our banks became among the most heavily leveraged in the world. Northern Rock was offering 120% mortgages, with an excessive reliance on wholesale funding, and the Royal Bank of Scotland’s acquisition of ABN AMRO was plainly very risky. It was a deal described by the next RBS chairman as,

“the wrong price, the wrong way to pay, at the wrong time and the wrong deal”.

However, the regulators also failed to act on the risks that were building up, both in individual institutions and across the system as a whole.

Let me be clear: the UK’s financial regulatory system was not fit for purpose. The tripartite system, made up of the Financial Services Authority, the Bank of England and the Treasury, failed. This was because no one had the single responsibility to monitor the financial system and address the causes of financial instability.

I was part of the system, as a Treasury official, from the end of 2002 to the end of 2005 and even then, in benign markets, some of the deficiencies of the tripartite were clear. The private sector was already asking who would be in charge in a crisis. When the financial crisis hit, this lack of clarity in responsibility initially meant that there was an inadequately orchestrated response. The FSA, the UK’s monolithic financial service regulator, was asked to do too much. On the one hand, it was required to assess the prudential viability of financial services firms; on the other, it was required to police the conduct of those firms. Because of the wide remit of the FSA, process too often became valued above judgment and box-ticking above informed regulation and supervision. This is why the changes contained in this Bill are vital. We are creating a framework based on clarity of responsibility for regulators. This Bill puts the judgment of expert supervisors at the heart of the new system. Instead of dividing responsibility for financial stability, we are putting the Bank of England clearly in charge.

I will now briefly outline several key themes of the Bill. First, the Bill addresses the widely acknowledged shortcomings of the arrangements in times of financial crisis. This Bill will give the Bank primary operational responsibility for financial crisis management, but the Chancellor of the Exchequer will retain responsibility for any decisions that require the use of public funds. In cases where there is a serious threat to financial stability which puts public funds at risk, the Chancellor will have the power to direct the Bank.

In order to oversee and address systemic risk throughout the entire financial sector, the Bill creates a powerful new macroprudential body in the Bank of England, the Financial Policy Committee or FPC. The Bill gives Parliament the power to bestow important new macroprudential tools on the FPC so that it can act to address the risks it identifies. The FPC will promote a healthy financial system, but not a zero-risk system. It will be a system that can both thrive on and withstand appropriately managed risk. As my right honourable friend the Chancellor of the Exchequer has said, the FPC should not seek to achieve the “stability of the graveyard”, so the Bill recognises that in pursuing a stable financial system, the FPC must not impact on the ability of the financial sector to contribute to sustainable growth in the medium or long term. I know, of course, that the way this is dealt with in the Bill was the subject of some debate in another place.

Since the Bank of England will be taking on a more powerful role, it is right to consider the robustness of its accountability mechanisms. I want to take this opportunity to highlight the work of the Treasury Committee, which engaged constructively with this Bill in a range of areas, not least the governance of the Bank. We welcome the commitment of the Court of the Bank of England to enhance the Bank’s governance arrangements in line with the recommendations of the Treasury Select Committee. As my honourable friend the Financial Secretary to the Treasury set out in another place, the Government will seek to amend the Bill in your Lordships’ House to put these enhanced arrangements on to a statutory footing. I will be listening carefully to your Lordships’ views on Bank governance as we finalise our thoughts on the appropriate amendments to put forward.

The Bill also provides for two focused financial regulatory bodies: the Prudential Regulation Authority and the Financial Conduct Authority. I will take each one in turn. This Bill will establish the Prudential Regulation Authority—the PRA—as a subsidiary of the Bank of England bringing together macroprudential policy and microprudential regulation under the Bank. In its role as a microprudential regulator, the PRA will regulate and supervise firms that manage significant risks on their balance sheets. This includes not only banks but insurers and the more significant investment banks. Crucially, the PRA will be required to take a strong, judgment-led approach. Indeed, it will have a specific duty to supervise to ensure that it actively engages with businesses, scrutinises their business models and carries out forward-looking risk assessments.

The Bill will also establish the Financial Conduct Authority as a focused conduct-of-business regulator. The Bill is good news for consumers of financial services. The FCA will be proactive in securing better outcomes for consumers, with a new competition objective and a new power to ban or impose requirements on products that could cause consumer detriment, enabling the FCA to intervene earlier, before there is evidence of widespread harm. This means that the FCA will be better equipped than the FSA to deal with mis-selling scandals, such as that of payment protection insurance. This morning the Government announced the appointment of John Griffith-Jones as the chair-designate of the FCA. Mr Griffith-Jones is currently UK chairman of KPMG and a professional with many years’ experience of the financial sector. His appointment marks an important step forward in the continuing establishment of the FCA.

The Bill enables responsibility for consumer credit regulation to be transferred from the Office of Fair Trading to the FCA. This transfer will ensure that the consumer credit market also benefits from the FCA’s focused remit, proactive approach and wider powers. However, we are clear that securing effective competition in financial services markets will lead to better outcomes for consumers. That is why the FCA will have an objective to promote effective competition in the interests of consumers. It will also have a duty to seek competition-led solutions to conduct issues when pursuing its other operational objectives. For example, the FCA will consider barriers to entry, encouraging switching, increasing transparency and focusing more on the requirements for information of different consumers, including those who are vulnerable or marginalised.

We are confident that these reforms will make the UK a more attractive place in which to do business. They will help maintain the UK’s position as the leading global financial services centre. A more stable and sustainable financial sector will undoubtedly be a more competitive one. However, markets in financial services are not contained by national boundaries. That is why the Bill contains extensive arrangements to ensure that the new regulators co-operate fully with each other in their dealings with international regulatory bodies.

The Bill’s introduction to Parliament was preceded by an intensive process of policy development. It included three separate public consultation exercises, all of which served to improve the legislation now before the House. I take this opportunity to pay tribute to the valuable work of the Joint Committee on the draft Bill, which included a number of noble Lords who will contribute to today’s debate. They made valuable contributions during pre-legislative scrutiny and I look forward to hearing them share their expertise today. I look forward to working closely with your Lordships during the Bill’s consideration in this House and I welcome the informed scrutiny and expertise that will no doubt be offered.

The Bill comprehensively addresses the failings of the current financial regulatory system. It makes it clear that the Bank will be responsible for monitoring and ensuring the financial stability of the system as a whole. It makes it clear who leads in the event of a financial crisis. Never again will people ask, “Who is in charge?”. It creates two new focused regulators, placing judgment at the heart of microprudential and conduct-regulation. The PRA will be empowered to use its judgment to challenge the excessive and inappropriate risk-taking that led to a run on Northern Rock and the government interventions in RBS and Lloyds TSB. The FCA will be empowered to take proactive steps to regulate conduct in financial markets, preventing detriment to consumers of financial services. I am pleased to present the Bill for noble Lords’ consideration. I beg to move.

15:24

[Lord Eatwell]

My Lords, I am grateful to the noble Lord for introducing this important Bill. Its importance can hardly be in doubt, given the core dilemma presented by the place of financial services in the British economy. On the one hand, Britain is a world leader in financial services and a considerable measure of our future prosperity depends on that industry. On the other hand, as we have seen, it is the industry that has greater potential than any other to inflict severe damage on Britain’s economy. The goal of regulation is to secure the benefits while minimising the costs and to achieve that in a manner that passes the tests of accountability, clarity, efficiency and transparency. Regrettably, the Bill fails all those four tests.

It certainly fails the test of clarity, being both complex and incomplete. The Bill is unnecessarily complicated because, instead of drafting a new template for the financial services industry, superseding all past relevant Acts and incorporating the new banking Bill that is yet to be published enacting the Vickers proposals, the Government have constructed a dog’s breakfast of amendments to earlier legislation.

Last week, noble Lords were no doubt surprised to receive a passionate entreaty from the Treasury Committee of the other place insisting that the Bill had been cobbled together with undue haste and had not received adequate consideration—in the case of some clauses, no consideration at all—and providing a checklist of serious failings in the legislation as currently drafted. From these Benches, I can assure the Treasury Committee that its despairing plea will not go unanswered. We intend to devote just as long as it takes to sort out this flawed Bill and thank goodness that the procedures of this House will allow us to do so. I am sure that all sides of the House will support this commitment, since this is essentially a non-partisan Bill. We all have a strong vested interest in getting it right. I hope that the Government will approach our deliberations in that spirit, although their negative performance in the other place was not encouraging.

The noble Lord, Lord Sassoon, referred to the regulatory failures that have been all too evident in the financial crisis. That there were serious failures is beyond doubt—most notably in the operation of the tripartite memorandum of understanding. But these were less failures of structure and more failures of the then conventional wisdom with respect to regulatory theory and practice. As the Joint Committee on the Bill noted:

“Successful regulation depends more on the regulatory culture, focus and philosophy than on structure”.

That point was made even more forcefully by Mr. Alan Greenspan in his evidence to the US House of Representatives in October 2008. Referring to the intellectual framework that guided the regulatory stance of the Federal Reserve System, Mr. Greenspan said:

“This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year”.

That was as true of the thinking of British institutions as it was of the United States.

In this context it is worth remembering why the tripartite system was created in the first place. One of the key reasons was that the Bank of England had proved to be such a fallible regulator. The cases of Johnson Matthey, BCCI and Barings come to mind. In the latter instance, the Bank’s performance was so bad that the Board of Banking Supervision was moved to comment that it would be a good idea if the Bank of England understood the products that it was supposed to be regulating.

Nonetheless, on the basis of what we have all learnt over the past four years, the fundamental thinking behind the reforms set out in this Bill is clearly well-founded, even if the execution falls a little short. The key thing that we learnt was that focusing on the stability of individual institutions, however large—so-called microprudential regulation—is not enough. The whole is bigger than the sum of the parts; systemic risk is all pervasive and by its very nature cannot be managed by individual firms. Hence the need for macroprudential regulation, spelt out so clearly in the FSA’s Turner review. But macroprudential regulation poses major new challenges to economic and financial policy-making. It will necessarily involve measures that cross what has previously been deemed to be the boundary between actions that might reasonably be left to unelected officials and actions that are necessarily the province of politically accountable decision-makers.

The essence of the macroprudential structures as set out in this Bill is that the Treasury cannot be trusted. Just as it was feared that the Treasury might approach the setting of interest rates with an inappropriate eye to political advantage, and hence the Bank of England was given control over interest rates, so now it is feared that the Treasury will fail to take away the punch bowl of loose credit in order to reap the short-term political benefits of a debt-fuelled boom. Accordingly, the Bank of England is given, via the new Financial Policy Committee, virtually autonomous control over a variety of instruments to manage the supply of, and perhaps later the demand for, credit. In addition, microprudential regulation is also taken into the Bank, in the form of the Prudential Regulation Authority.

This agglomeration of powers in the Bank of England poses two vital questions. Is the governance of the Bank of England such as to result in accountable, clear, efficient and transparent utilisation of these extraordinary powers? Equally, does the relationship between the Bank of England and the Treasury, as set out in the Bill, meet the test of these four principles? The answer given by the Treasury Committee to both of these questions is a resounding no. We on this side broadly agree with the Treasury Committee, though we differ in some details. We certainly agree that the governance of the Bank should not be a matter for the Bank itself. Our major disagreement with the Treasury Committee’s proposals is that they do not go far enough.

First, with respect to the governance of the Bank, the Government have responded to the evident lack of co-ordination in the crisis by designing a model of perfect co-ordination; namely, that one person should be responsible for everything. The Governor of the Bank of England will chair the Monetary Policy Committee, the Financial Policy Committee and the Prudential Regulation Authority, as well as being in overall charge of the Bank of England’s special resolution unit and its payment and clearing and settlement systems oversight department. When he or she has some spare time, this individual will also chair a number of important international committees. Even if it is possible to find the exceptional individual who can effectively take on all these tasks simultaneously, that person will be driven mad, for many of these activities will demand contradictory policies. Moreover, if ever there were a structure likely to result in the dangers of group think, this is it, since the group is a group of one.

Side by side with the inefficient, unaccountable and untransparent role of the governor is the now anomalous position of the court of the Bank. The Financial Policy Committee is to be a committee of the court. It is envisaged that primary responsibility for determining and keeping under review the strategy for achieving the financial stability objective will sit with the court, although the court will be required to consult the FPC and Treasury, and the FPC may at any time make recommendations to the court. On a moment’s reflection, it is clear that the court’s composition and powers are simply not up to the job.

In Grand Committee we will propose wide-ranging reform to the governance of the Bank of England to ensure that it has a structure of decision-making appropriate to the first half of the 21st century, rather than to 1694. In particular, we will require a more collegiate form of decision-making and propose measures to improve the accountability of what is, after all, a public institution. I was delighted to hear from the Minister that the Government are searching for good ideas in that area. I think that we have some.

Given that the governance of the Bank, as the Treasury Committee puts it, falls,

“well short of what would be expected in a modern institution, whether public or commercial”,

and that this is,

“especially important given that vitally important decisions made by the Bank’s executives, especially during times of financial instability, may not reasonably be made public and therefore be immediately available for scrutiny”,

the next question obviously arises. Are the powers of autonomous action endowed on the Financial Policy Committee and, accordingly, the Bank, appropriately balanced with the need for political oversight by the Treasury of the overall conduct of economic and financial policy? Does the Bill provide for sufficient parliamentary scrutiny to endow the FPC and the Bank with an appropriate level of legitimacy? Again, we believe that the Treasury Committee does not go far enough. The FPC is described by the Government as,

“a powerful new authority sitting at the apex of the regulatory architecture”.

The mechanisms to ensure democratic accountability of the FPC need to be commensurate with the strength of its powers.

The most important aspect of the relationship between the Bank and the Treasury is what should be done in a crisis. After all, it was in a crisis that the system failed. This is spelt out in Part 4 of the Bill and in the draft memorandum of understanding on crisis management. The draft memorandum of understanding, which, by the way, is in general far less clear than the old tripartite memorandum, at least makes clear that the Bank is the gatekeeper, defining when the Treasury may play a crisis management role. It is worth quoting the MoU. It states:

“The Bank has primary operational responsibility for financial crisis management. The Chancellor and the Treasury have sole responsibility for any decision involving public funds. When the Bank has formally notified the Treasury of a material risk to public funds, and either there is a serious threat to financial stability, or public funds are already committed by the Treasury to resolve or reduce such a serious threat and it would be in the public interest to do so, the Chancellor may use powers to direct the Bank. … Where the Bank is able to manage a financial crisis without public funds being put at risk, it will have autonomy in exercising its responsibilities”.

This is the most extraordinary nonsense, a fetishisation of the use of public funds. First, whatever is happening, the Treasury must wait for notification by the Bank of England before it can act. Given the Bank’s record on Northern Rock, that notification will come far too late. But secondly, and more seriously, households may be losing their savings, businesses may be collapsing, and economic activity may be in precipitate decline as the result of financial instability, but if there is no threat to public funds the Treasury is shut out of any active financial stability role until the governor invites it in.

This betrays a lack of understanding of the mutually reinforcing co-operative role that the Bank and the Treasury need to adopt to tackle macro-risk. This was put very clearly by Jacques De Larosière to the Economic Affairs Committee of your Lordships’ House three years ago. He said:

“Let us not hide ourselves from reality. Often ... fiscal policies can be part of systemic risk”.

The only sensible solution seems to be for a fundamental rewriting of Part 4 of the Bill to allow the Treasury to act when severe financial problems arise without the Bank acting as a gatekeeper. In 2008, the problem was not that the Treasury was too strong but that it was too weak. To ensure that the roles of the Bank and the Treasury are clear beyond all reasonable doubt and given that the MoU will evolve in the light of operational experience, the MoU itself must be the subject of enhanced parliamentary scrutiny. By the way, the definition in the Bill of the objectives of the Financial Policy Committee, with its peculiar emphasis on leverage, debt and credit growth in the UK, also betrays a worrying lack of understanding of the nature of systemic risk in a global financial system.

Many other aspects of the Bill require substantial revision by your Lordships’ House, ranging from procedures for consultation at all levels, the role of the tribunal in disciplinary cases, to the duty of care that retail financial institutions should exercise towards their customers, and the range of access to financial services and to the procedures for parliamentary scrutiny of the avalanche of secondary legislation that the Bill will stimulate. My noble friends and I are committed to playing a constructive part in that revision. However, at the core of the Bill—the core that we must get right—are the new procedures for macroprudential regulation. If an open and successful financial services industry is to be sustained, it is imperative that an accountable, clear, efficient and transparent mechanism for the management of systemic risk is established. Moreover, that mechanism must have as its ultimate objective the promotion of employment and growth in this country.

[Lord Forsyth of Drumlean]

The noble Lord has made a passionate and powerful speech about the importance of the Bill. Why have the Opposition agreed that it be referred to Grand Committee for its Committee stage?

[Lord Eatwell]

Our experience from the Bill establishing the Office for Budget Responsibility, given that everyone was trying to get it right, was that we managed to have a very constructive debate. The noble Lord, Lord Sassoon, was constructive in accepting numerous amendments from the Opposition and we felt that detailed debates on complex matters could be conducted more effectively in that less formal arena.

15:40

[Baroness Kramer]

My Lords, I am trying to do this for the first time by reading from an iPad, in order to become more technically capable.

We are all agreed in this House that the Bill is in need of significant work and study. It has had a review in the other place but, as always, such a review was reasonably limited. However, we have the advantage of a range of committees that have contributed knowledge, expertise and a great deal of evidence for us to use as we address the Bill. I do not share the gloom of the noble Lord, Lord Eatwell, but I agree that substantial changes can improve the Bill and achieve the goal that we all hope for.

Perhaps I may make some general comments. The Bill essentially looks back, as do all Bills that deal with regulation—in this case to the crisis of 2007 and 2008. It is therefore framed around risk avoidance—both systemic risk and micro risk. All such legislation tends to be backward looking and, as a consequence, the emphasis throughout the Bill is on financial stability. I would argue—as I suspect others in this House would—that the regulator, who will presumably be in place for many years, and the underpinning regulation that will exist for many years, must encompass issues of economic growth. One can make a tortuous argument that if growth is not achieved, financial stability becomes at risk, but the Bill and the role of the FPC in particular have to recognise the economic growth objective. I very much hope that as we proceed with the Bill we find ways in which to do that. The Chancellor has, in a sense, set the challenge with his phrase of wanting to avoid the “stability of the graveyard”.

There are a number of areas on which I suspect our discussions in Grand Committee will focus. The first is accountability and transparency—what might be called the “sun king” issue. The noble Lord, Lord Eatwell, has described that in some detail, but we can say without disparaging any individual who is the Governor of the Bank of England, either now or in the future, that putting so much power and responsibility on to one individual is a matter that requires extremely serious scrutiny and one that we must in many ways question. The danger of group think, which the noble Lord mentioned, is one of the key problems we have seen. Challenge somehow has to be built into this system so that we do not constantly look backwards to the risks that we are aware of and fail to see those that are coming towards us, because it is always the unexpected that causes trouble the next time around.

I am glad that the Government have said that they will look at the role of the court. Many people in this House are supportive of the proposals put forward by the Treasury Select Committee and the Joint Committee, which did such excellent work in pre-scrutiny of the Bill. Issues of transparency again fall into this arena. We will have to study carefully what goes into the Bill and what sits in secondary legislation, and how that balance is to be handled. I suspect that some of us will question the slow pace that the Bank of England has adopted as regards engaging in a proper review of the lessons to be learnt from its behaviour and performance during the financial crisis, and the narrow remit that has been given to such reviews. That stresses the importance of the court.

The second set of issues that we will certainly address in great detail is generally known as the “twin peaks” strategy. I am not entirely convinced about this but I am very much open to persuasion. However, coming at it very much from the outside, this looks more like a small mountain range than twin peaks, with the Treasury, the Bank of England, the MPC, the FPC, the FCA and the PRA—frankly one can keep adding to the list. There is a tendency in British government to operate in silos. This is obviously partly down to culture but I believe that the direction that we give in this legislation can help to challenge that. Culturally, it is going to be extremely difficult to cope with regulation as we move forward because the kind of culture that needs to be inherent in the FCA is very different from the one that will be present in the PRA. One can see the PRA adopting the notion that it is the hard man with the FCA being in some ways the soft man throughout all this. I suspect that maintaining real exchange, communication and proper challenge throughout all this complexity is going to be exceedingly difficult and we have a pattern to set here.

This regulator, in its various forms, will be looking out at the European Union, which, after all, is the source of much financial regulation. I recognise that there will be a co-ordinating committee but I think we are all going to need some convincing that communication will work appropriately. It is a case not just of making sure that in conversations with the EU all UK regulators talk from the same page but of making it clear to those within the EU and beyond whom they must communicate with and how. It strikes me as an exceedingly difficult programme to put together. Although it is a real challenge, again I am willing to accept that it is a question of culture as much as of language within the Bill, and that we can discuss and establish some kind of framework.

The question of competition concerns me. We talk about competition and the kind of context that the FCA will use, but the barriers to entry into the banking sector are very much impacted by the way in which the regulator behaves and has behaved. There has been one new bank in the past century. When it still takes individuals who are reasonable and well financed two and a half years and costs between £25 million and £35 million to get through the regulatory process, I would argue that that is failure, and I do not think that the regulator has taken that crucial point on board.

When we talk about competition and diversity, we should also mention mutuals, co-operatives and social enterprises. I have often talked about the need for local and community banks, and my noble friend Lord Phillips is very involved in these same issues. We have to get the regulator to understand that it is looking not at one homogenous sector but at a sector with different facets which may need very different kinds of regulation. It is often argued that legislation should not favour one sector over another but, frankly, by reinforcing the status quo one could argue that the regulator is in effect engaged in some of that process.

Many of the other issues that we will want to raise within the context of the Bill, such as consumer protection, peer-to-peer lending and the new financial alternatives, will be dealt with in this debate by my noble friend Lord Sharkey, so I shall resist covering them to make sure that I finish within my allotted eight minutes. However, I specifically want to raise clearing houses—a matter on which I gave the Minister a slight heads up. It sounds like a minute issue but it is the kind of thing that we are going to have to watch for as we go through the Bill. As the House will be aware, European directives mean that derivatives contracts will be clearing on the exchanges and those exchanges will be taking counterparty risk. They are regulated by the Bank of England, not the PRA. Mostly they are not capitalised but are owned by the banks, and one can see a potential crisis coming down that line. We need to have a discussion around issues such as that to make sure that the Bill has the width and breadth that it absolutely needs.

Going into this legislation, I am very hopeful. It seems to me that this is a challenge that the country has given us. If we run into economic difficulties in the future, at the very least the financial and regulatory framework should be right. It should be transparent and accountable and should respond to the needs of our broader economy. I think that this Bill gives us the opportunity to put that in place and I am glad that the Government have brought it forward.

15:50

[Lord Turnbull]

My Lords, this Bill illustrates much of what is wrong with our legislative process. It has arrived with many major issues unresolved. Worse still, large areas of the Bill have not yet even been considered. It reminds me of those French paperbacks that we used to buy where the pages had not yet been cut.

I agree with the noble Lord, Lord Eatwell, that there is a problem with the way in which the Bill has been presented as amending legislation to three other major Bills. That is totally illogical. If the Government were to argue that they were refining the status quo, that would have been appropriate but they are, of course, claiming precisely the opposite. One of the drawbacks of the amending approach, for example, is that it is very difficult to make comparisons between how the MPC and the FPC operate.

The first question that we face is whether the Bill provides the right solution; it does not in my view. If something fails, one is always faced with the choice of whether to mend it or buy a new one. Of course, the latter is politically expedient as it enables the Government to say that they are sweeping away the faulty structure created by their predecessor. However, that is not necessarily the right answer.

In my view the existing system could have been improved by a number of changes. The first is the creation of a separate macroprudential responsibility located in the Bank, which would allow it to identify when the economy, the financial system or particular markets were running too hot—or even too cold. That would be a natural extension of its monetary policy expertise. It would enable the Bank to bring to bear certain controls or require the FSA to tighten capital requirements of the organisations it regulates. It was not necessary in my view to transfer the detailed prudential regulation of all financial institutions, large and small, insurance as well as banks, to the Bank of England—something for which it has little experience and which will overload it.

Secondly, it is curious that the Chancellor and the Treasury appear so little in the Bill, moving under a kind of invisibility cloak. However, the Chancellor, not the governor of the Bank, is ultimately the most powerful player, partly by his ability to co-ordinate policy at the highest level, partly by being the real lender of last resort and partly by providing the key link of public accountability. A judgment has to be made on when it is appropriate to delegate powers to a non-elected body and when the impact on citizens and organisations is such that a degree of democratic accountability needs to be introduced. In my view the extension of the powers of the Bank and the widening of those subject to its actions means that we have gone beyond what was appropriate for it when it was simply a monetary authority.

Thirdly, the demerger of prudential and conduct of business regulation was unnecessary. It has created a lot of overlap which will produce confusion. A number of processes are effectively shared: business model analysis, enforcement and vetting of key board appointments. My concern, though I need to declare my interest as a director of a regulated insurance company, is that regulated companies will find themselves having to deal with two shops rather than one. So, I would have retained a single FSA but with an enhanced macroprudential function in the Bank, overseen by a Chancellor-chaired council, rather like the US Financial Stability Oversight Council. However, we are where we are and we face the dilemma of the sat-nav lady. Does she tell you to turn round or recalculate your route? Reluctantly, we have to work with what we have and try to improve it.

I would start with the function of the FPC, which has oversight of the macroprudential function. Currently its terms of reference are rather narrowly drawn, emphasising very strongly the avoidance of risk. Alastair Clark, a member of the FPC, in a recent speech noted that there is a need,

“to strike the right balance between encouraging banks to strengthen their position and avoiding any undue constraint on the availability of credit”.

This is important because much of the public debate in this country on the current situation is in terms of an antithesis between the tightening of fiscal policy and the loosening of monetary policy. What this misses is that there is a third point of the triangle—the decision of the FPC about the liquidity and capital requirements of the banks. Clearly one of the lessons of the financial crisis is that the banks were undercapitalised for the risks they were taking. There is international agreement that their capital should be built up, but there is no consensus about the speed at which this should happen. There are many who think that the FPC is pushing this too fast and requiring the liquidity to satisfy highly demanding stress tests, thereby nullifying the expansionary effect of the Bank’s monetary operations.

A mechanism will be needed to ensure that we get the best combination of the different policy instruments, which brings us to the question of how we should design organisations to achieve that. One approach might be called synthesis. We should bring interlocking problems under one roof to allow those at the top to produce the optimal trade-off between them. The danger is that if those at the top have a particular bias, one view may be subordinated to another without full debate.

The opposite approach is the separation of powers or of focus. Organisations will pursue their objectives with a mechanism created above them to resolve differences. The old tripartite system followed this principle but the new arrangements are in the synthesis mould. This means that if the Bank overemphasises the financial stability objective and imposes costs on other functions, there will be nothing to correct it. The cross-membership of the governor and his immediate colleagues on the two committees will be an inadequate substitute and may even exacerbate the problem.

The Bill includes a number of checks and balances, but they could go further. For example, we could create a secondary objective to support the Government’s economic objectives, along the lines of those already provided for the MPC. The latter will have to maintain price stability but, importantly,

“subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment”.

The objectives of the two committees should be made symmetrical.

As with the MPC, the Treasury should be able to set out how the FPC should interpret its remit. We should consider whether the balance of the FPC is correct and perhaps add an additional external member.

I do not have time to go into the provisions relating to the FCA in any detail. I will simply say that I share the concerns that were expressed about how we can ensure that it operates in a way that is proportionate, fair and reasonable. I particularly commend the analysis provided in a paper published jointly by Herbert Smith LLP and the LSE.

It is clear that there is a lot of work to be done on the Bill. I hope that we can create something that will last longer than its predecessors.

15:56

[The Lord Bishop of Durham]

My Lords, the Bill emerged from the financial crisis of 2008. Therefore, a lot of the attention of the debate is likely to focus on the prudential issues that have already been mentioned at some length. We look forward to the speech of the noble Lord, Lord O’Donnell, whose great expertise and extraordinary experience over the past few years give us much to hope for.

However, in looking at the macroprudential issues, we should remember that the complexity of the Bill grew through an extensive period of consultation and debate so that it now covers the whole range of financial services, from things that happen on the streets of Sunderland in my diocese to international loans and bond issues, and the use of derivative instruments that have been behind much of the exacerbation of risk in the system since I first traded them 25 years ago, to the point today where their volume is many scores of times that of the underlying cash transactions. It is no wonder the Bill has become something of a complex monster.

Given the Bill’s complexity it is easy to overlook its impact on the consumer, and particularly the role of the FCA, which is warmly to be welcomed in many ways. At the retail level we are all aware that we have the most concentrated financial services sector in Europe, with decisions taken far from local communities, and that the lack of penetration of mutuals, credit unions and friendly societies—I was very glad to hear the noble Baroness, Lady Kramer, mention this—is unrivalled in the rest of Europe, where there is far greater and more extensive mutual work at local level than in this country. Our societies have diminished very significantly since the 1980s and the period of catastrophic demutualisation that we should all regret so much. The result is that access to financial services in many of the more deprived areas of our society is now very limited, and we come back to the old problem of loan sharking and payday loans. Payday loans, of course, are legal and proper. It is a great relief that they will move from being watched over by the OFT to being supervised by the FCA, with its responsibilities for integrity, consumer affairs and competition under its three main objectives. However, as has already been alluded to, the danger is that these regulatory organisations essentially operate in a negative and protective manner rather than having, as the FCA has, an obligation to introduce more competition.

The Bill does not seem to provide for accountability and for a measure of what more competition would look like. This must be a serious concern. Contrary to much of what has been said, for example, in Scotland recently by the General Assembly of the Church of Scotland, the answer to the payday lenders is not to limit interest rates as this will simply drive matters back into the hands of the illegal loan sharks. At the moment, if you go outside the Darlington Building Society when the benefit payments come in, you will find a queue of people who will withdraw from their accounts everything but one penny in order to pay it straight into the hands of the loan sharks who are standing by their doors threatening to break up their furniture. Payday lenders do not, of course, operate in this way, but I have numerous examples in my diocese of the serious impact that their high costs have had on people who find themselves caught up in an ever growing cycle of higher interest rates.

The answer to this is not in limiting interest rates but in providing effective competition from local savings at a mutual level and recreating the system that worked so well from the early 19th century until the 1980s. I fail to see this in the Bill and that gives me great concern. I hope the Minister will explain how the competition obligation will not only reduce the problems of access for banks and for other large organisations—as we have already seen with the co-operatives’ problems in taking on the branches of Lloyds Bank—but increase the opportunity for much smaller and more locally based organisations to contribute to their local communities. This will affect a large number of people on the most marginal points of society.

The other point I wish to raise concerns the governance of the Bank of England, which has already been mentioned. It is an old rule of organisations that robust checks and balances within them are much more effective than external legal constraint. A severe challenge to management from the court will be much quicker in enabling group-think to be destroyed and a creative approach to the problems to be seen than any kind of legalistic approach from a regulator subsequent to the event. I shall not waste the time of the House in expanding on this, save to say that I agree with the views that have been expressed already. I look forward to the Minister’s response in explaining how the governance can be strengthened and widened.

16:03

[Lord Lawson of Blaby]

My Lords, the House will have listened with great attention to what the right reverend Prelate has just said with a mixture of expertise and eloquence. It was certainly unusual in one respect; he must be the first speaker from the Bishops’ Bench, certainly in my time in the House, who has come out as a former derivatives trader. This adds great weight to everything he said.

I hope the Minister will pay particular attention to the area on which the right reverend Prelate has focused, as he has on a number of occasions outside this House, of the arrangements and problems associated with payday lending and the people who require and use it. However, I will not follow him further down that route because other things need to be said about this long, highly complex and important Bill, which I warmly welcome.

Before I turn to the measures in the Bill, there is one thing of fundamental importance that cannot be put into it: the relationship between the Chancellor of the Exchequer of the day and the Governor of the Bank of England. Again, this is of fundamental importance. While it cannot be put into a clause of the Bill, that does not mean that it cannot be institutionalised, and I hope that my noble friend the Minister can reassure me that something will be put in place along the lines of what used to happen in the United States, although I do not know whether it still does. There were regular breakfast meetings between the Secretary of the Treasury and the Chairman of the Federal Reserve. The relationship needs to be institutionalised. Just because they get on well is not good enough. In my judgment, that needs to be done.

I approve of the broad lines of the Bill. The regulatory architecture that it introduces is a big improvement on what it replaces. As my noble friend Lord Sassoon has already pointed out, the so-called tripartite system introduced by Mr Gordon Brown in 1997 proved to be a dysfunctional disaster and did not cause, but certainly contributed to, the severity of the UK banking meltdown in 2008. What was particularly perverse about the Brown structure was that it destroyed and replaced the greatly strengthened system of prudential supervision that as Chancellor I put in place in the Banking Act 1987, with the indispensable assistance of the then Economic Secretary to the Treasury, my noble friend Lord Stewartby. I am glad to see that he is in his place and I hope that he will speak later today. I should like to refer to two specific aspects of the 1987 Act later in my remarks. While the new architecture is a great improvement, it may not be right in every respect. It will need to be monitored carefully to see how it works out in practice, and I trust that the Government will be prepared to modify it in the light of experience. That will almost certainly be necessary.

The most fundamental flaw in the tripartite system was not the removal of responsibility for the prudential supervision of the banks from the Bank of England. There is a valid case for that, as I spelt out in my memoirs some 20 years ago. The most fundamental flaw was yoking together in the FSA prudential supervision of the banking system and the conduct of business regulation, in particular consumer protection. Perhaps I may say that I disagree with the noble Lord, Lord Turnbull, on this point, although I agree with some of the other remarks he made. These are two completely separate activities requiring completely different skills, people, cultures and approach. While the intensely detailed, bureaucratic, box-ticking approach may have been appropriate for consumer protection, it was wholly inappropriate for the task of prudential supervision of the banks.

It was also a serious mistake, in my judgment, to separate responsibility for the stability of the banking system as a whole, which was left with the Bank of England, from responsibility for supervising individual banks, which was given to the FSA. While it is true that there is a distinction between the regulatory system as a whole and the day-to-day supervision of individual financial institutions, at the end of the day the system is the sum of the institutions that comprise it, and regulation and supervision need to be intimately linked. Moreover, the grossest excesses of banking imprudence, although economically devastating when they occur, happen probably at most only once in a generation, while consumer abuses such as mis-selling are ever present and politically sensitive. As we saw, they inevitably became the FSA’s principal focus of attention, at the cost of its disastrous neglect of prudential supervision.

The new architecture proposed in this Bill rightly separates these two activities completely, making consumer protection the remit of the new Financial Conduct Authority. However, it is a mistake to give the Bank of England, through the Financial Policy Committee, responsibility for the oversight of the Financial Conduct Authority. It has enough on its plate as it is.

I am also unconvinced by the wisdom of having two separate bodies—the Financial Policy Committee and the new Prudential Regulation Authority—to supervise the system and the individual banks respectively. It is quite true that both these bodies will be within the Bank of England, so there is likely to be constant cross-fertilisation, but the practical effect of having two bodies rather than one will need to be carefully monitored.

The decision to give the Bank of England full responsibility for financial regulation and supervision on top of its responsibility for monetary policy, which may on occasion conflict, places a heavy burden on the Bank in general and the governor in particular. The Government plan to recognise this by having a strong Financial Policy Committee with former practitioners on it and by beefing up the Court of the Bank of England, but I am far from sure that that is enough.

The Banking Act 1987 created inter alia the Board of Banking Supervision, which has already been referred to by the spokesman for the Opposition in this debate. This was charged with supervising the Bank’s conduct of its supervisory responsibilities and was chaired by the governor, but with as part-time members the most effective recently retired bankers that I could find. Moreover, and importantly, if these poachers turned gamekeepers had any concerns about the way in which the Bank was conducting any part of its supervisory responsibilities, they had the power under the Act to insist on a private meeting with the Chancellor, at which they could voice their concerns—a powerful sanction. I urge the Government, even at this late stage, to put in place a body that is more narrowly and expertly focused than the FPC, along the lines of the former Board of Banking Supervision, to supervise the work of the PRA.

Another innovation introduced by the 1987 Act was dialogue between bank supervisors and bank auditors. Until that time, it was illegal for there to be a dialogue between the auditors and the supervisors, as that would have constituted a breach of the auditors’ commitment to client confidentiality. The 1987 Act not only changed that but stated that there had to be a dialogue. Given the extreme and understandable reluctance of auditors publicly to qualify a bank’s accounts as they might qualify the accounts of any ordinary company when they discover something amiss, for fear of causing a run on the bank, it is particularly important that they should privately tip off the supervisory authority. Equally, if the Bank of England has a concern, it is important that it should share it, privately, with the auditors of the bank or banks involved, and ask them to look into it more closely. Regrettably, with the Brown changes, the dialogue demanded by the 1987 Act fell into desuetude.

I am pleased that the Bank of England and the Government have decided to do something about this, and to introduce a code of practice designed to reinstate the dialogue. The Economic Affairs Committee of your Lordships’ House, under the excellent chairmanship of my noble friend Lord MacGregor, looked into this in its report on auditors of March last year. I declare an interest as a member of that committee, which unanimously concluded that in the light of experience a code of practice was not good enough and there should be a statutory requirement for the dialogue to take place. That must be right, and I urge the Government to look at it again.

I will raise two other matters before I leave the subject of bank auditing, which is so important to the task of bank supervision. First, I mentioned the reluctance of auditors to use the nuclear weapon of qualifying a bank’s accounts, which may be one reason why they did nothing at all about major banks, which, in the event, turned out to be insolvent and had to be bailed out at great expense to the taxpayer and at massive economic cost. It might be worth considering a system in which, instead of the present all or nothing system, bank accounts are graded in the way in which the ratings agencies grade financial instruments.

Secondly, it is clear that the change in accounting standards from UK GAAP, which I admit was not perfect, to IFRS is a change from prudence to box-ticking, which has been particularly malign in the case of the banks. This is true not least when it comes to provisioning. Linked with that, IFRS has also enabled banks to this very day to conceal substantial bad debts, the failure to face up to which is a significant cause of their reluctance to lend to small businesses, which badly need it at present. To accept IFRS blindly, with all its faults, simply because other countries do, is not good enough.

The Bill before us today is not, of course, the only Bill this Session to implement the lessons of the disastrous banking meltdown of 2008. As my noble friend Lord Sassoon has reminded us, we have also been promised a banking reform bill to implement the recommendations of the Vickers commission and in particular to enforce the separation of investment banking from retail banking by the so-called ring-fence. I welcome this, which I have long called for.

However, one reason why we need this split has not perhaps been sufficiently recognised: that is, that bank supervision is an extremely difficult and complex task, given the unprecedented complexity of modem banking. A system in which the failure of an investment bank does not threaten the core banking system means that the regulators and supervisors can concentrate on the health of the core banking system, a less complex and more practical task. My fear, however, is that the ring-fence will not prove impermeable or wholly effective. Bankers, despite the greed and folly that many of them evinced during the Goodwin-Brown era, are clever people, and they will find ways round it. Moreover, what we are talking about here is, at bottom, a matter of banking culture.

Earlier this year, the FSA published a report on HBOS—Halifax Bank of Scotland—which has not received the attention that it merited. Finding that the bank was “guilty of serious misconduct”, it ascribes this to a culture,

“of optimism at the expense of prudence”.

That is a nice euphemism for reckless gambling.

Culture matters and the plain fact is that the prudent culture of retail bankers and the adventurous culture of investment bankers are diametrically opposed. With the best will in the world, it is hard to see how two quite different and opposed cultures can co-exist within the same corporate entity. There needs to be complete structural separation, not just a ring-fence.

Finally, I turn briefly from the structure to the content of bank regulation and supervision. Progress is being made on the subject of capital ratios and capital adequacy—indeed, with the economy in its present condition, there is an overwhelming case for allowing the banks to go more slowly towards achieving the desired higher capital ratios. Here, I entirely agree with the noble Lord, Lord Turnbull.

However, there has been no comparable progress in dealing with the problem, which is at least as important, of bank leverage.

[Baroness Garden of Frognal]

My Lords, I apologise for intervening on my noble friend—

[Lord Lucas]

My Lords, this is a Second Reading. We are a self-regulating House. Whips have no business telling us what to do. We are listening to my noble friend with great fascination and I hope that he takes another 10 minutes.

[Lord Lawson of Blaby]

My Lords, I am grateful for that. This is a very important and complex Bill, and we should be able to speak if we are not waffling—and I hope that I have not been waffling—at adequate length. However, I assure the House that I shall not take another 10 minutes.

No banking system is likely to be stable if it is financed by a mountain of loan capital on an exiguous equity base. Yet that is what we now have. I suspect that this is unlikely to change unless there are two supporting changes.

First, the bank regulators and supervisors should at least strongly discourage if not actually forbid the remuneration of bankers on the basis of the rate of return on bank equity. Secondly, there needs to be a fundamental change in the tax system as it applies to banks, or at least banks that conduct ring-fenced activities, à la Vickers. At present, a bank that finances itself by raising loan capital finds that the interest paid on that capital is tax-deductible, whereas the dividends paid on equity capital are not, so there is a clear tax incentive in the system for the banks to capitalise themselves on the smallest possible sliver of equity—the very reverse of what is needed in the interests of stability. That should be changed. Interest on the bank’s loan capital should no longer be tax-deductible. The quid pro quo might well be the abolition of the blunt instrument of the bank levy.

In conclusion, I warmly welcome the Bill, but there is much still to be done.

16:20

[Lord Myners]

My Lords, it is an honour to speak in this debate after the noble Lord, Lord Lawson of Blaby, and to express my appreciation for the intervention from the noble Lord, Lord Lucas, which was properly respectful of the rights and procedures of the House on Second Reading.

I speak with the experience of having been an independent member of the court from 2005 until 2008 and then a Treasury Minister dealing with the Bank of England, and I will focus primarily on the Bank. I agree that this is not a Bill where partisan issues will be found but one where the House should come together to find good solutions. I share the regret that I think lay behind the question of the noble Lord, Lord Forsyth of Drumlean, about why the Bill is being taken in Grand Committee rather than in the full House. This is a Bill that should be taken through the House rather than Grand Committee, but I understand that that decision has been taken through the usual channels.

Clearly, we must learn the lessons of the past. The tripartite arrangement did not work as well as had been expected in anticipating the crisis, although it is only fair to say that it worked very well during the crisis. In fact, it worked rather better during the crisis than some of the crisis management arrangements that we currently see within the European Union, where they continue to grapple with the problems of the European banks.

Of course, the tripartite arrangement was not the only regulatory architecture to fail to contain the risks to financial stability. Regulatory architectures failed in numerous forms and in various geographies as part of the global crisis. In my belief and experience, no one architecture is assuredly superior to all others. There can be no certainties brought by architecture alone. Failure of architecture tends to be due to a shortcoming of skills, behaviour or culture. That is where the tripartite arrangement fell short of expectation, rather than architecture. Architectural solutions, as proposed by the Bill, involve simply the movement of organisational boxes. The proposals in the Bill might well work, but whether they work or not will be less to do with the architecture of regulation and more to do with the culture and conduct of those who work within regulation. In practice, there is little that the Bill can do to prescribe or guarantee that the right culture and behaviours are promoted, but it is incumbent on us to make the best efforts to secure such outcomes, or be alert to any shortcomings that might exist in the constitutional architecture of the Bill.

That brings me to the issues relating to the powers and responsibilities of the office of governor and the role of the Bank of England’s court. I am sure that we will spend much time on them when the Bill goes into Grand Committee. Your Lordships’ House will need to ensure that adequate internal checks and balances exist on the powers of the Bank and on its officers. My experience of being a member of court from 2005 until 2008 raises considerable concerns about the proposed concentration of power envisaged under the Bill for the governor. There is a very real risk that we might constitutionally perpetuate the current situation in the Bank where there is room for only one point of view—and that has to be the governor’s view. Significant steps to reduce this risk would include: having the deputy governors chair the FPC, the MPC and the PRA rather than having those bodies chaired by the governor; requiring the FPC and the MPC to meet at least twice a year in joint session—a meeting in which the Bank’s internal appointments would be in a minority, and which should be appropriately minuted; and the giving of a power to the Treasury Committee of a statutory right of veto over the appointment and dismissal of the governor, the three deputy governors and the CEO of the PRA, as is already the case for the chair of the Office for Budget Responsibility.

A further area requiring close scrutiny will be the membership and role of the court of the Bank. My own experience of being a member of the court was unsatisfactory. Indeed, in 2007 and 2008 more than one member of the court sought private meetings with Treasury Ministers and the Permanent Secretary to express their anxieties about the Bank’s detachment from and disinterest in issues of financial stability. Much good work was being done in this area by Bank officials, including Sir Andrew Large, Sir John Gieve, Mr Paul Tucker, Mr Nigel Jenkinson and Mr Alastair Clark, but the governor made clear that the primary focus for the Bank was monetary policy. Financial stability was a tertiary issue, de-emphasised in resource allocation and generally given little focus at court. Indeed, at court we tended to spend more time hearing about the governor’s tennis matches with the heads of various other regulatory agencies than about issues of financial stability. In that connection, if my memory serves me right, we were told that one of the governor’s partners was the noble Lord, Lord O’Donnell, whose maiden speech we look forward to hearing later in the debate.

The need for the court to be seriously strengthened and better equipped to engage in constructive challenge of the executive leadership of the Bank must have been very apparent to anybody who read the transcript of the evidence given by the chairman of the court and a number of independent directors to the Treasury Committee last year, in which it was clear that members of the court had a very poor understanding of the resource allocation and budgeting of the bank—and, indeed, of the constitutional differences between the Monetary Policy Committee and the proposed Financial Policy Committee.

Your Lordships’ House will need to give very careful consideration to the membership, statutory powers and responsibilities of the court, to consider whether the Bill should require that the chairman of the court should have experience of financial and prudential issues in order to ensure that debate at court is informed, and to the court also being appropriately resourced. Court minutes should be published and the court should be clearly accountable to the Treasury and the Treasury Committee. The court should also conduct and publish ex-post reviews of the Bank’s performance in the prudential and monetary policy sectors and address these reports to both the Treasury and the Treasury Committee. Her Majesty’s Treasury should also commission and publish annual reviews of the effectiveness of the court.

The extent of the change required by the Bank to bring its performance up to the standard required by this Bill should not be underestimated. I have already spoken of the need to devolve more power from the office of the governor to the deputy governors and the need for a move to a more assertive and accountable court. The bank will also need to review its skills and culture. In respect of the latter, it needs to be more open and less elitist—open both internally, being respectful and welcoming to the views of others even when they differ from the prevailing consensus, and externally, being more willing to engage with those involved in business and public policy. In terms of skills in issues of financial stability, the extent of the challenge is clear if you look at the Bank’s Financial Stability Report published in April 2007. This was the last Financial Stability Report published before the collapse of Northern Rock. In that report, the Bank stated:

“The UK financial system remains highly resilient”.

It also stated:

“Conditions are likely to remain favourable”,

and,

“Financial innovation and the growing use of credit risk transfer markets have increased the risk-bearing capacity of the system”.

This was after the emergence of the sub-prime problems in the United States.

The governor’s Mansion House speech on 20 June 2007 focused on increasing the number of £5 notes in circulation and the need for the Bank to have greater control over the payments system. It said absolutely nothing of any significance about financial stability. This is the body to which we are proposing to give responsibility for financial stability oversight.

In Committee, we are going to have to look carefully at the skills, competencies and culture of the Bank and ask ourselves whether it really makes sense to give as much authority and responsibility to an institution that has exhibited its own shortcomings in the past, and in particular to put quite as much power into the hands of the governor as currently envisioned in the Bill.

16:30

[Lord Sharkey]

My Lords, I shall speak about two aspects of the Bill regarding two areas that it needs to cover but does not. I think that it is commonly accepted on all sides that a significant problem facing the economy is the question of lending to small and medium-sized businesses. It is generally accepted that we have been unsuccessful in getting sufficient lending to take place. The Bank of England confirms that the UK’s biggest banks failed to meet last year’s lending targets. The five banks that signed up to Project Merlin lent £1 billion less to SMEs than their 2011 target—and the Merlin deal has of course not been renewed. The Bank’s trends and lending report for April this year reports that in the three months to February 2012 the stock of lending to small and medium-sized enterprises continued to contract, and had in fact been negative since late 2009. In January this year, BIS published a report on SME access to external finance. Among its findings, the report states that 21% of SME employers that sought finance from any source did not achieve success, which was a significant increase on the 8% seen in 2007-08.

These figures are bad enough, but they conceal areas where there are more significant problems. The effects of the financial crisis are being most keenly felt in those areas of the country that have long been the most deprived. Workless households are concentrated in the old industrial areas of the north of England, the Midlands, Scotland and Wales, as well as in a number of seaside towns and inner-city urban areas. We urgently need to stimulate demand for SMEs in our deprived areas and to make finance available to help them develop. At the moment, according to a 2012 report by the Centre for Responsible Credit, just 4% of all lending to SMEs goes to businesses in the most deprived areas.

The only data provided by the six largest banks concerning their lending to SMEs are produced on an aggregate basis. This means that there is no information available to allow local economic development agencies, including local enterprise partnerships and community development finance initiatives, to enter into effective dialogue with the banks with a view to assessing and improving performance, nor any way of knowing which banks are performing better than others. Similarly, the current dataset provided by the banks tells us nothing about the terms on which credit is being made available to SMEs. There are other indications that the shift by banks from term lending to overdraft lending will probably lead to a significant increase in financing costs, but we do not know how much or where. We also do not know to what extent, if at all, the banks are supporting the third sector to take advantage of the new rights under the Localism Act. The Act provides for local communities to take over the running of local authority services to build new homes, businesses, shops, playgrounds and meeting halls.

All this requires planning and funding. That means the active involvement of the banks. We need access to information to show us what the banks are doing, area by area, bank by bank, to support this agenda. All this can be achieved by making a couple of simple amendments to the Bill. I believe that we should consider adding a fourth operational objective to the three set out for the FCA. This new objective could be called something like “the sustainable economic growth objective” and could be defined as ensuring an appropriate level of financial services provision in disadvantaged areas by having regard to the needs of SMEs and third-sector organisations in deprived communities for affordable loans, savings and insurance products.

[Lord Forsyth of Drumlean]

How are the banks expected to provided more lending at the same time that they are being required to make greater provision for capital and liquidity purposes? Surely that is asking them to do two contradictory things.

[Lord Sharkey]

I had a more minimalist objective: to make it plain that that is the case with the banks at the moment. We need to make sure that we know that they have an obligation to support SMEs and third-sector organisations in deprived communities. I add in passing that the need for some growth objective is evident not only in this part of the Bill, but in the objective set out for the FPC itself. Stability is a necessary objective, but stability without growth is, at best, a recipe for stagnation.

The existing objectives for the FCA include a competition objective. This competition objective includes the statement that the FCA may have regard to,

“how far competition is encouraging innovation”.

Apart from noting that the word “may” should read “must” if the paragraph is to have any real meaning, I also want to note that this is the only time that the word “innovation” appears in the 330 pages of the Bill.

That brings me to the second area that I want to address. Innovation in the provision of traditional retail financial services is obviously important. The Breedon report, commissioned by BIS and delivered in March this year, estimates that by 2016 there will be a shortfall of between £26 billion and £59 billion in finance needed by SMEs for working capital and growth. In their response, the Government acknowledged the problem and said,

“The Government welcomes the development of new and innovative forms of finance such as peer-to-peer lending and recognises the potential of these models to have a positive impact on the SME lending market”.

Currently, the total amount of peer-to-peer lending in the UK is small, but growing rapidly, and even more rapid growth is projected. The Government are encouraging growth in this area with a £100 million investment. Earlier this year, Andy Haldane, head of policy at the Bank of England, even suggested that these non-traditional lenders could eventually replace banks, but if these new models are to succeed in providing real and substantial competition for the banks, they need more help from the Government than £100 million in pump priming. At the moment, the non-traditional peer-to-peer lending sector is unregulated. As the Daily Telegraph said two weeks ago,

“if it is serious about encouraging the growth of a genuine long-term alternative to bank lending for SMEs, the Government also needs to address the thorny question of regulation. At present, alternative funding providers are not regulated by existing financial services legislation, leaving both borrowers and lenders vulnerable to rogue players entering the market”.

Alternative funders are in favour of regulation. They recognise the dangers to their business model of a scandal generated by some rogue entrant to their market. This is not a theoretical danger or a distant prospect and is certainly not a trivial problem. There is nothing to stop such an event occurring and permanently destroying confidence in the peer-to-peer model. As the Daily Telegraph also said:

“SMEs desperately need a genuine alternative to borrowing from banks and those using alternative funders must be protected so that both they and the market can flourish”.

The Government need to take action now, and this Bill provides the perfect opportunity.

16:39

[Lord Lamont of Lerwick]

My Lords, it is a great pleasure to follow my noble friend Lord Sharkey. He made extremely important points about the availability of finance to the economy, which is crucial. We look forward to seeing how he pursues the issue in Committee, as he said he will.

I speak on the Bill with some hesitation because I have not taken part in the extensive consultation process and nor was I a member of the Joint Committee. Many people who are present today have done sterling work in that respect. I welcome the Bill, which is necessary and sweeps away the discredited, fractured, tripartite system that failed its very first crisis. Instead, we are to have two new arms of the Bank, which will handle both macro and microprudential supervision, so that a single institution is in charge of keeping the system safe. At the same time, we will have a free-standing, independent consumer body, the Financial Conduct Authority.

My main point this afternoon relates to what several noble Lords have said and the relationship of the macroprudential side to the current regime of inflation targeting. As Chancellor of the Exchequer, I introduced the inflation objective for the Bank of England in 1992. That was broadly the same framework that was carried forward when the Bank became independent, although two changes were made at that time. Originally, the inflation target was defined in terms of the retail prices index. Thus, it gave greater weight to housing—rather an important difference. Secondly, the inflation target that I set up was accompanied by a requirement for the Bank to monitor different definitions of the growth in the money supply. This was later removed and the inflation target was much more narrowly defined to give less weight to housing and asset prices.

Inflation targeting received quite a good press in general, although I took trouble to say that I did not believe that it was the end of monetary history. Indeed, before 2008 I went out of my way to say in various speeches that we were not paying enough attention to asset prices and the growth of credit, and that the Bank was concentrating on too narrow a definition of inflation. Therefore, in light of that and what subsequently happened, it is right that the Bank should be given a specific and enhanced stability objective. Of course, writing it down is one thing. As the noble Lord, Lord Myners, reminded us, Gordon Brown, as Chancellor of the Exchequer, talked a lot about stability and each year we saw a huge, glossy tome called the Financial Stability Report. Having stability as an objective is one thing; making it happen is another.

I am not entirely convinced that the new, separate Financial Policy Committee is the best way to achieve financial stability. It might be better if macroprudential responsibility was handed to the existing MPC, which would then have a broader remit to stabilise the economy, not just consumer prices. After all, interest rates are an important tool for stabilising the economy. They are important for controlling leverage and the growth of credit. Other tools, such as how far the banks could use their buffers of capital and liquidity, could go to the MPC rather than the FPC. Other duties of the FPC, such as making the financial network safer, could be carried out by the Prudential Regulation Authority.

Views on stability will often have implications for interest rates. Having two committees whose views might go in completely divergent directions does not seem the most obvious way to achieve stability. The fact that the governor sits on both committees, as has been referred to by several noble Lords, underlines the point. Only one committee can ultimately take the interest rate decision and some body at some point—not just the governor but the MPC—has to measure the trade-off and balance stability and the inflation objective. My noble friend Lord Lawson said that perhaps the three committees should become two. I would say a similar thing, although I would choose a different two from the two that he chose.

I hope the fact that we are to have a separate Financial Policy Committee does not mean—this is one reason why I chose to go in the direction that I did—that we are going all the way back to the 1950s with more emphasis being laid on quantitative controls of credit. That would be a step backwards. Interest rates are the most flexible and the best way to control credit and leverage.

In some ways, the Bill recognises the problem by laying down some extremely detailed provisions about how one regulator must consult another. Acres and acres of the Bill are about the PRA consulting the FPC, the FPC liaising with the PRA and one giving orders to the other. One could be forgiven for forgetting that they are meant to be parts of the same organisation. These provisions remind one of Burke’s dictum that,

“laws reach but a very little way”.

As the noble Lord, Lord Eatwell, said, regulation is not just about structure; it is about culture and judgment.

Many noble Lords will remember that a previous deputy governor responsible for stability said in front of a Select Committee of the House of Commons that it was not his job to look at the accounts of financial institutions. I am not making a criticism of him. Of course, he was quite right. That was how the system was set up. But it shows how the macroprudential and the microprudential sides are intertwined.

As several noble Lords have said, the Bill has great implications for the Court of Directors of the Bank of England, which will have to change. At the moment, the Court of Directors is what Bagehot would have called the dignified rather than the efficient part of the constitution. The directors are to be more involved in the stability objective than they are in the current inflation objective. Perhaps I may remind the House that the Bank of England’s website currently says that the court’s,

“functions are to manage the Bank’s affairs other than the formulation of monetary policy, which is the responsibility of the Monetary Policy Committee”.

We will now have quite a different stability objective relationship for the court. Clause 3, which will insert new Clause 9A into the Bank of England Act, states:

“The court of directors must … determine the Bank’s strategy in relation to the Financial Stability Objective”.

As the noble Lord, Lord Turner, said, there is no symmetry between the relationship of the court to the inflation objective and the relationship of the court to the stability objective.

It must be remembered that the Financial Policy Committee is exactly what its name suggests. It is a policy committee and not a regulatory committee. That has implications for where it should be accountable and to whom it should be responsible. Undoubtedly, the Bill requires the direct involvement of the Court of Directors, which will be in a way that has not been the case in the past. That will require very different sorts of persons to be directors of the Bank. If the Bill comes out as presently structured, it will require real banking and financial experts.

The Joint Committee suggested that the court should be replaced with a supervisory board, which I am sure we will consider in Committee. The Bank needs to be accountable but it seems to me that it should be accountable in a different way for its regulatory activities. There must be an appeals procedure and it must be subject to regular scrutiny. Its policy work needs to be done by an independent bank, but to be accountable in a retrospective and periodic way to the House of Commons.

One important aspect of the Bank’s role will be representation in Europe, where the regulatory regime seems likely to alter very quickly. I assume that the PRA will represent the Bank at the European Union’s banking and insurance authorities. Perhaps the Minister will confirm that the FCA will deal with the European Securities and Markets Authority. It is vitally important at this of all times that the Bank has heavyweight representation in the European Union. Many people outside are calling for the PRA to set up practitioner panels in the same way as the FCA will be required to do. That is a sensible recommendation, which I am sure will be discussed further in Committee.

I support this Bill, subject to two qualifications. First, it must be emphasised that the Bill must have regard to international competitiveness. I know that the chief executive of the London Stock Exchange has suggested that that should be written into the Bill. Secondly, we must pay due and careful regard to the overall cost, because as well as the new twin peak system adding to costs, costs on financial institutions are already going up very quickly, not least due to contributing to the Financial Services Compensation Scheme. No one organisation has responsibility under the Bill for reviewing the cumulative impact of these costs.

Subject to those provisions, I support the Bill and hope that we will never again see the paralysis and confusion that did so much harm in 2008.

16:51

[Lord O'Donnell]

My Lords, as this is my maiden speech, I would like to take the opportunity to thank all the Members of your Lordships’ House, and all its officers and staff, for making me so welcome. I have had the privilege to serve and collaborate with many noble Lords on all sides of the House, not least our previous speakers, and I look forward to working with them again. As an ex-Cabinet Secretary and Permanent Secretary to the Treasury, I want to pay particular homage to my predecessors. Their advice has always been wise, their criticisms constructive and, thankfully, private. It was a particular privilege to work with the Prime Minister and Deputy Prime Minister as they took on the challenges of making the coalition work effectively, and I have been privileged to serve with other Prime Ministers. The strength of purpose of Sir John Major and Tony Blair over Northern Ireland; the decisive action of Gordon Brown at the London G20 summit during the financial crisis; and the coalition’s actions to help the people of Libya—all these examples demonstrate one clear principle. Strong leadership can transform situations that look almost impossible. This is a message that I would like to get across to the leaders of the eurozone.

I have been blessed with a highly supportive family. The O’Donnells have had an interesting journey from Roscommon in Ireland via the coal mines of Durham to the south-east of England, which explains my passion for improving social mobility. There are many other areas where I hope to contribute in this House, but today it is right to concentrate on economic and financial issues.

As someone who was heavily involved in the five tests analysis on UK membership of the euro, published nine years ago, I will be observing very closely how the euro crisis unfolds. The nature of the resolution will have profound effects on our economy, and particularly our financial sector. No one can be sure what will emerge, which is why the changes proposed in the Bill need to be robust across a range of outcomes.

Before I turn to my specific comments on the Bill, I need to register two interests, one actual and one potential. Having obtained the approval of the business appointments committee, I will be working as a strategic adviser to Ed Clark, the chief executive of Toronto-Dominion Bank in Canada. Mr Clark is one of the most respected bankers in the world, and the regulatory regime in Canada has enabled its banks to weather the financial storms remarkably well. Mr Carney is, interestingly, both governor and chair of its Financial Stability Board.

There has also been press speculation that I may be a candidate to take over from Sir Mervyn King as Governor of the Bank of England. As I have already made clear, I will decide whether to compete for the job when it is advertised. However, I have already noted two issues from today’s debate. First, the noble Lord, Lord Eatwell, has made it clear that whoever takes this job will be driven mad within a few short weeks. Secondly, I have realised that whatever experience I may have, the right reverend Prelate the Bishop of Durham has far more financial experience in trading.

Coming back to the banks, Sir Mervyn has been a governor during a very stormy time for the world economy. He worked successfully with the Government to limit the damage of the global financial crisis and established the Monetary Policy Committee, which is envied in many parts of the world. His intellectual leadership has proved invaluable. In short, he will be a very hard act to follow. I have to plead guilty to the suggestion of the noble Lord, Lord Myners, that the governor and I had been collaborating on the tennis court. This is certainly true but it was very important from a policy point of view that we demonstrated to our US counterparts that fiscal/monetary co-ordination in the UK exceeded that in the US—and we won.

It is fair to say that the financial crisis has inevitably exposed some weaknesses in our current structures, as it has for a very large number of countries around the world. I believe that it is right to give the Bank control over macroprudential regulation, but this is not without severe dangers for the Bank, the governor and the economy. The new arrangements concentrate a lot of power in the Bank. With power goes the need for accountability. The Treasury Select Committee, under Andrew Tyrie, has done an excellent job of holding the Bank to account. The Joint Committee has also done a good job of pre-legislative scrutiny. As a result, the Bill overall contains much that I strongly support. However, I believe that we should make one further change to the accountability structure. We should set up a new standing joint committee, under the chair of the Treasury Committee, to assess the effectiveness of the new arrangements once they are established. The new committee would combine the advantages of the democratic legitimacy of the Commons with the undoubted expertise that lies in this House, as we have already heard. In particular, it would look at how well the Bank’s proposed oversight committee was operating. I agree very much with the right reverend Prelate the Bishop of Durham on that point.

As a number of speakers have said, it is important not to lose sight of the overall objective, which is to enhance the well-being of the country by having a financial system that is both stable and supportive of the whole economy. This will inevitably involve judgments on how to balance the need to have enough capital to withstand shocks with the need to support British industry. As the noble Lord, Lord Turnbull, said, the Bank of England Act calls on the Bank to hit an inflation target but, subject to that, to support the Government’s economic policy,

“including its objectives for growth and employment”.

Similarly, I believe that the Financial Policy Committee should have the objective of financial stability but, subject to achieving that, it should be required to support sustainable growth and employment. A healthy financial sector that makes a fair contribution to the tax base, supports all sectors of the economy and has a sensible, more symmetric remuneration system would be a real asset to this country—we have a comparative advantage in this area—but never again should taxpayers pay for the consequences of failure when the rewards of success are concentrated in the hands of so few.

There is one important imbalance that the Bill cannot correct: that is, the imbalance between the resources available to the financial sector, the Bank and the Treasury respectively. The Treasury is a brilliant department and I was proud to be its Permanent Secretary, but it is in danger of being swamped by the pressures placed upon it. As Sharon White’s excellent report makes clear, the Treasury’s turnover rate is far too high and its pay levels too low.

It is in the interests of all of us that the Treasury is able to continue attracting the best and retaining their skills and experience. To avoid this being at the expense of the taxpayer, perhaps the part of the Treasury dealing with financial services and stability should be funded in the same way as the Bank and the FSA, namely by the financial industry which benefits from their work. Otherwise, the Treasury is in danger of cutting off its arms as well as its nose to make its hair shirt fit.

Finally, can I urge the Government and all Members of this House to try to write legislation that will endure for the long term? We should not be fixated by today’s problems, important as they are. We need a principles-based system that is not overprescriptive. It must allow the accountable individuals to have the freedom to tackle crises in what might be a very different and fast-changing environment. That is why we should concentrate on getting the objectives right and sorting out the accountabilities for those whose job it is to handle whatever this dynamic and volatile world throws at them. This Bill will have a profound impact on the well-being of our nation, and it has been an honour to be able to contribute to what has so far been an excellent debate.

17:00

[Lord Bilimoria]

My Lords, it is a privilege to follow noble Lord, Lord O’Donnell, and I am sure that I speak for all your Lordships in congratulating him on the most superb maiden speech. I have known Gus O’Donnell from the time he was Permanent Secretary to the Treasury, going back 10 years. I can honestly say that not only did I always like him as an individual but I never ceased to be impressed by him. After the Treasury, he was at No. 10 Downing Street, Cabinet Secretary, Head of the Home Civil Service, and Secretary to the Cabinet Office. In fact, he followed exactly in the same footsteps as our noble friend, the noble Lord, Lord Turnbull, who also went from being Permanent Secretary to the Treasury to holding those three positions at Downing Street. Now the jobs of the noble Lord, Lord O’Donnell, are being performed by three individuals. Let me emphasise that I am not saying that any of his successors are one-third the man that the noble Lord, Lord O’Donnell, is. He also had the distinction of serving three Prime Ministers—Tony Blair, Gordon Brown and David Cameron—in his six years at No. 10. Talk about high-flyers—you do not fly any higher than the noble Lord, Lord O’Donnell. No wonder people call him “GOD”—not just because of his initials but because of the huge respect that we all have for him. He has achieved all this as a youngster—he is still in his fifties; he has not even hit middle age yet. That will start when he turns 60 in October.

The noble Lord was an Oxford Blue in football, and I think that by now he must be realising—football being a game of two halves—that our Chamber, unlike the other place, is not just about the Government and the Opposition; we have the added dimension of the Lords spiritual and the Cross-Benchers. We, the Cross-Benchers, are so proud and happy to have the noble Lord in our fold. He has already said that he could be in the running for the position of the next Governor of the Bank of England. Watch this space. We look forward to many more fabulous expert contributions from the noble Lord in the years to come.

I have always said that one of the best things that Gordon Brown ever did was create the independent Monetary Policy Committee when he took over as Chancellor in 1997. It was able every month to set interest rates on an independent basis, proactively and reactively—and transparently. However, one of the worst things he did was create the tripartite arrangement of the Treasury, the Bank of England and the FSA. In the good times—the boom times—until 2007, this tripartite system was a happy merry-go-round. When we hit the crisis, this happy merry-go-round became a hopeless blame-go-round, and we realised that the tripartite system was not fit for purpose, as the Minister said. It was disastrous, and I am so happy to see that with this Bill, the buck will now stop firmly and squarely with the Governor of the Bank of England.

We know that the Governor of the Bank of England, Eddie George, was extremely concerned when the tripartite system was set up, and he voiced his concern that the Bank of England was having its powers taken away and transferred to the FSA. We now know that this was the most foolish thing to have done. The FSA has the joint remit of financial services in the consumer market, protecting consumers and promoting competition, and was so focused on that consumer-facing aspect that its role of supervising and regulating the banks was ignored and neglected. Frankly, the FSA was out of its depth and ignored the most crucial aspect of its job. I could say that the FSA stood for “fairly sleepy agency”. I remember taking part in debates in the House in the run-up to the Northern Rock nationalisation in 2008, four and a half years ago. I remember finding out at that point that the FSA had researched Northern Rock and in 2006 had marked it as “high impact” and as requiring close supervision. It also marked it for a review in three years’ time. That was an organisation that was on top of things and wanted to act quickly, but of course it was all too late. By September 2007, Northern Rock was bust and £26 billion was required to bail it out—the largest amount required for any company in the world at that time. Of course, following the sub-prime crisis that led to the credit crunch, which led to the financial crisis, which led to the great recession, which led to the sovereign debt crisis, which has now led to the eurozone crisis, we now know that £26 billion is pocket money.

I welcome many of the Bill’s provisions but I am concerned that there is too much focus on the new bodies being created and on the theme of stability. No one would dispute the need for these bodies—and I congratulate the Government on introducing them—but I worry about the implication of leaving the Monetary Policy Committee pretty much as it is. No one could dispute the requirement for stability and prudence but, as many noble Lords have said, these must go hand in hand with growth in the economy.

In the spring of 2008, when Northern Rock and Bear Stearns had already gone to the wall, seeing the writing on the wall the MPC sat idle. It was so obsessed with its inflation targeting and so afraid of having to write to the Chancellor that it kept interest rates at 5% for six months after the collapse of Bear Stearns. Instead of bringing them down straight away, it waited too long and then had to bring them down sharply from October 2008 onwards. We must change the myopic, blinkered approach that the MPC has been forced to take, focusing solely on inflation and not, as in America, and as the noble Lord, Lord Lamont, suggested, on maximising employment and, as my noble friend Lord O’Donnell said, looking at the overall state of the economy. Through this Bill, the Government must consider revising the MPC’s mandate to ensure that it plays its part in securing recovery for the long term.

Talking about new bodies, the FPC’s mandate is seemingly pulled from the Hippocratic oath. Its mandate is to do no harm to the economy. It seems to have left out the rest of the oath, as there is no real mandate to cure the economy of the ills from which it may be suffering. I ask the Minister whether the mandate of the FPC—as well as the general system of financial and monetary regulation, including the MPC, which does not really seem to fall under the Bill at the moment—can be expanded to target growth and full employment and not just stability.

The acid test of the Bill is: if this new structure had been in place five years ago, would it have prevented the scale and effect of the crisis that we had? Would it have been able to anticipate things—to hear the warning bells and react to them in time? Would it have been able proactively to see things coming? That is the test, and I should be interested to hear whether the Government have assessed that, even in a simulation exercise.

When I chaired the UK India Business Council, of which I am president, I would boast to our counterparts in India about the wonderful light-touch regulation that we had in Britain. Of course, we now know that it was flawed. It is not about light touch; it is about the right touch. Do the Government really think that this new system strikes the right balance of regulation that this country so desperately needs?

What about the structure of the Bank of England? Much power has been given to the Bank but, as has been said, cannot the court be restructured to have a more supervisory role, reporting directly to Parliament? Not enough non-executive directors are proposed. Can the Government say that they have the balance right on all the boards—the FPC, the PRA and the Court of the Bank of England—with enough non-executive directors? Are they going to be properly resourced in terms of access to information in order to perform their roles properly? Also, the MPC publishes information every single month and is very transparent. Will the FPC, the FCA and the PRA also publish regular reports in a transparent manner?

I go back to the point that the MPC is neglected in the Bill. The only crossover seems to be the governor himself. I do not have too much of a problem with the buck stopping with the governor and with the governor having all these roles. However, I am worried about whether there is a mechanism for co-ordinating all these, which the noble Lord, Lord Myners, who is not in his place, spoke about. There could be conflict between boards. There are dual roles and there could be duplication. If there is a problem, things will fall between the cracks and we will go back to the old blame-go-round. This clarity of co-ordination where the cultures are concerned is not clear and we need to work on that in Committee.

What about the powers of the PRA? It is important to get this figured out. It is focused too much on large institutions; but the Australian Prudential Regulation Authority implemented the whole of Basel II through guidance alone and shows how general guidance can sometimes be given. This whole area of guidance is completely missing in the Bill.

To conclude, this Bill is wonderful news. We are actually putting power back into the hands of the Bank of England and I welcome that very much. However, I think that we are missing a key aspect—the role of the MPC and the co-ordination between the MPC and the FPC in making sure that the new structure is focused on achieving stability, preventing crises, generating maximum employment, generating low inflation and moderate interest rates, and, most importantly, on generating and sustaining growth in the economy.

17:11

[Baroness Wheatcroft]

My Lords, I shall begin, if I may, by congratulating my noble friend Lord O’Donnell on his masterful maiden speech. I hope that it is not the prospect of speedy abolition of this House that is making him contemplate another full-time job so quickly when he could be such a great asset to the work of this House.

No one can doubt the need for change in the way in which we regulate financial services. Even if the euro had not imploded, the huge build-up of debt in the UK in recent times would have ensured that a messy denouement was inevitable. Regulation that was supposed to be light touch had become not only light touch but blind. The Bill should improve the way in which we regulate although we should never lose sight of the fact that regulation is only ever as effective as those who apply it. The regulatory structure, whether it be twin peaked, three peaked or, as my noble friend Lady Kramer suggested, an entire mountain range, is not as important as the quality and attitude of the regulators themselves.

The structure of regulation set down in the Bill is already being implemented. The crucial point is that we are moving from a rules-based system to a judgment-based system of regulation. That has to be right. Judgment should have told any regulator that to allow a bank to lend 120% of value on a property to an individual on the basis of self-certified earnings would be potentially catastrophic, and so it proved. I applaud the general direction of the Bill and as a member of the pre-legislative scrutiny committee, which made many recommendations for amending the legislation, I am pleased that the Government accepted many of our suggestions. However, there are still areas where I believe there is scope for further improvement.

I should declare that I am on the board of a regulated entity and hold a small—very small—shareholding in another.

Much has been said about the governance of the Bank of England. The governor’s role is no sinecure at the best of times but now with his—or perhaps, at some stage, her—powers and duties significantly enhanced under this legislation, it is indeed an onerous role. It has not always seemed that the court at the Bank provided any foil to that power and we have heard much along those lines today, not least from the noble Lord, Lord Myners, whose recollections of his time on the court do nothing to allay one’s qualms. I must say that his recollection of the Mansion House dinner in 2007 leads me to believe that I must have been at a different Mansion House dinner in 2007 because, at the dinner I attended, the governor voiced great qualms about what was going on in the debt markets, particularly on the CDO front, and he talked of a real threat to global financial stability.

Those qualms over the governance of the Bank exist. It has responded to some extent by establishing an oversight committee to review the work of the Bank and its committees and to summon outside assessment and advice. This is progress. While I am not overly concerned about whether the non-executive directors of the Bank are called a court or a statutory body, I feel that there is scope for them having increased accountability. Clearly, this is something that will be discussed at some length in Grand Committee. If the court is to have sufficient clout, there should be provision for the Government to consult the chairman of the court or the statutory board on the identity of the next governor.

This brings me to the make-up of the Financial Policy Committee—a committee of the Bank. The Bill lays down that there will be only four truly external members on this vital committee. However, there is a strong case for having a majority of non-executives—and not just people with experience of the financial services sector. We want people there who know what is going on in the real world of manufacturing and construction. This is a crucial committee; we must get the membership right.

The remit of the committee is, and has to be, very clearly to protect and enhance the stability of the financial system of the UK. Nothing should be allowed to detract from that. As the Minister pointed out, we do not want the stability of the morgue, and many noble Lords talked about the need for a growth objective. The Bill requires the FPC to have an eye on growth, but the wording is strangely negative. The FPC’s responsibilities,

“do not require or authorise the Committee to exercise its functions in a way that would in its opinion be likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term”.

I suggest that we might be able to improve on that triumph of drafting. A secondary growth objective seems a logical thing to impose in the Bill. While never jeopardising the primary objective of the Financial Policy Committee, we must have regard to growth.

We must look also at relationships between the Treasury and the Bank, which have been the focus of much attention. The Bill makes it clear that when the Bank tells the Chancellor that there is a financial crisis, the latter is in charge. However, as my noble friend Lord Lawson pointed out, there must be regular communication between the Chancellor and the governor. This should happen naturally in the course of events, but occasionally there might come a time when the odd psychological flaw gets in the way and communication will not work as effectively as we would like. This is another thing that the Grand Committee should look at.

I turn to the quality of information. Noble Lords will recall that banks were decreed by auditors to be perfectly healthy—until it became apparent that they were not. The Joint Committee recommended that the PRA and the FCA should meet regularly with auditors to ensure that the dialogue would continue. We need to go further, and the Bill gives us the opportunity. My noble friend Lord Lawson of Blaby pointed out the need to recognise the flaws in bank accountability and accounts. The executive director of the Bank of England, Andrew Haldane, pointed to the problems with bank accounts and described getting an accurate view of them as like trying,

“to pin the tail on a boisterous donkey”.

As we have seen, bank accounts are full of numbers that tell us nothing. It should be incumbent on auditors to spell out the risks that lie behind the numbers. This would enable regulators to monitor and limit risk-taking even more than they will do by their own efforts. Auditors need to shine a light on the risks that banks are taking rather than to obscure them.

Finally, we must acknowledge, for the time being at least, that Europe will shape much of our financial regulation. We need to be clear that we have the right structures to properly liaise and influence such regulation. In particular, we need to hold on to the right to set our own minimum requirements on capital ratios rather than be put in a straitjacket by European minima.

17:18

[Lord McFall of Alcluith]

My Lords, I am delighted to participate in this debate and to welcome the noble Lord, Lord O’Donnell, to this Chamber. He is an individual with whom I have had many formal and informal dealings. He is a person of the highest integrity, respectful of every individual he meets, irrespective of status, and an exemplary model of a civil servant. It is a model that the Government should ensure they get more of in the years to come as the complexity of the financial services dawns on us. So I welcome the noble Lord, Lord O’Donnell, to this Chamber.

I bring to your Lordships’ attention my entry in the Register of Members’ Interests. Like the noble Baroness, Lady Wheatcroft, I was delighted to be a member of the Joint Committee on the draft Financial Services Bill. A number of areas arose during that committee: first, architecture; secondly, complexity; thirdly, accountability; fourthly, ring-fencing; and, fifthly, and most importantly—a phrase to which we all signed up—that to be successful the reforms will have to change the regulatory culture and philosophy. Those should be the guiding principles.

We all agreed that architecture is of secondary importance. The issues that matter are culture, conduct and communication. These issues were key to what went wrong with the tripartite authority. Alastair Darling’s devastating evidence to the Joint Committee brought that out.

On the issue of complexity, we should note that we are moving from a tripartite to a quadripartite system involving Her Majesty’s Treasury, the Monetary Policy Committee, the Financial Policy Committee and the Prudential Regulation Authority, not to mention the Financial Conduct Authority. We have more interfaces, and therefore a higher degree of complexity. It was the interfaces and the information that fell down between them on the last occasion that caused the problem.

The question that bedevilled the tripartite authority when it came before the then Treasury Committee in the House of Commons was very simple: who is in charge? Everyone said that they did their job properly. However, we had to face one of our biggest crises with a vacuum in the making and no clarity for the Chancellor. The Minister rather boldly said at the Dispatch Box that never again would we ask who was in charge. I suggest that those words could come back to haunt him in years to come if the Government do not get the correct legislation.

As other noble Lords have said, at present we have opaque decision-making structures and still require clarity and explicit guidance and information, either through memorandums of understanding or whatever, on the view of the governor and his key deputies. We should remember that on many occasions the governor and his deputies will have contradictory views as a result of the responsibilities they are given and that the Chancellor must have clarity from them. There has to be no hiding place so that we can answer the question about who is in charge, but at present we cannot do that.

I mentioned the issue of regulated culture and philosophy. Business models are the key to understanding the issues within a company, from the policies followed to the individual behaviour of the executives. Auditors are the key to this. A number of years ago I asked auditors what the point of an audit was. It is presently a backward look at accounts. Auditors are doing everything that is required but not much of what is expected. This was illustrated by Northern Rock. In the first six months of 2007, this small building society was responsible for 20 per cent of all new mortgages in the United Kingdom. The chair of the Audit Committee, and not least the auditors, should have asked why the company was doing so well compared to others. However, that question was not asked.

Auditors therefore need to give a realistic view of the state of a company, taking into consideration the present and the possible future risks. I suggest that auditors should report to the Financial Policy Committee so that it understands both the microeconomic and the company landscape environments in an area of no more sensitivity than risk.

At the moment, risk is a black box. This was illustrated in the comments made by Professor John Kay and Professor Charles Goodhart to the Treasury Committee a number of years ago. When asked whether we could evaluate risk, Professor Goodhart said very clearly, “No”. Professor John Kay said, “I have been teaching at Oxford University for 25 years and I have ripped up my notes on risk”. So risk is a black box, and more regulations and rules alone are not the way forward.

We have to recognise that no regulator in the world spotted the problem. The Governor of the Bank of England said that the regulators were like locusts in Citibank. JPMorgan Chase is the latest example in the City, with the “London Whale” and a loss of £2 billion. Ten regulators were sitting in JPMorgan Chase when it happened. The question that arises out of that is: why did Jamie Dimon, someone supposedly alert and cute, need a call from Bloomberg to tell him that there was a £2 billion loss to his company? Jamie Dimon retorted by saying that it was a “tempest in a tea pot”, but if you put your arm right next to a tea pot, you can get a really bad burn. Maybe he did not realise that.

The situation of JPMorgan Chase and others reflects a systemic breakdown in management and risk control systems. Incidentally, the chief risk officer receives $14 million a year before foreign excises, so I would have thought that the risk officer could take quite a bit of a risk if $14 million is going into a current account as a result. I suggest that the Treasury Committee or other committees of the House should invite Jamie Dimon to explore the concept of risk and ask this question: are the largest banks still too big and complex to be managed safely? Are we now seeing “too big to fail” being followed by “too big to behave” in companies such as this one?

The way forward lies in good corporate governance to tackle these deep-seated problems, not only changing the way people behave but the way they think. We need to promote values and a culture that drives people to do the right thing even when no one—that is, the regulator—is looking. Culture is behaviour and ethics is resolving conflicts of interest. That is what the Government should be promoting. The motto of the City of London is, “My word is my bond”. In a recent survey, over 80% of people working in the City did not realise that. In other words, there is a big repair job to be done in order to restore trust.

I am delighted to see that the departing chief executive of the Financial Services Authority devoted his last speech to culture. That is a small but positive step. If we focus more on these issues, we can hope eventually to realise a market system that is fair to both consumers and businesses, where risk is rewarded, failure punished, and growth and employment are paramount.

17:27

[Baroness Noakes]

My Lords, our rules say that, on behalf of the whole House, the noble Lord, Lord Bilimoria, should welcome the maiden speech of the noble Lord, Lord O’Donnell, but I hope that I may be permitted to add my congratulations on his forthright and interesting speech. I hope in particular that eurozone Ministers heeded his wise words on leadership. I should declare my interests as set out in the register of interests. I am a non-executive director of RBS and a shareholder in a number of financial services companies.

My first point on this Bill is that it misses opportunities to ensure that UK plc is at the heart of financial services legislation. Bodies such as the CBI have pointed out that none of the new regulatory bodies is due to inherit the FSA’s current requirement to,

“have regard to the international character of capital markets and the desirability of maintaining the competitive position of the UK”.

The misguided reason given in another place is that this was associated with light-touch regulation and its disastrous consequences, but that is not good enough. Just as important, as other noble Lords have pointed out, is that the FPC’s remit does not have an explicit requirement to have regard to growth in the UK. When I read the attempt made by my honourable friend the Financial Secretary to the Treasury to justify this in another place, I nearly lost the will to live.

The financial services sector is a crucial part of the UK economy both directly in its contribution to GDP and tax yields and indirectly in its underpinning of the rest of the economy. It would be truly disastrous if the new bodies created by this Bill were merely technocratic and divorced from the needs of the wider economy. I hope that the UK’s economic success will be hard-wired into this Bill and that we will avoid the stability of the graveyard.

I cannot pretend to be enthusiastic about everything in this Bill. In particular, I believe that the twin-peaks approach may well create as many problems as it seeks to solve. That the FSA failed as a part of the tripartite arrangement is beyond doubt, but it is less than clear that the Bank of England would have made a better fist of prudential supervision before the financial crisis or that separating out conduct will be net positive.

The FSA was expensively created in the late 1990s and now we are even more expensively creating new arrangements that will have different gaps and overlaps. I can sense the law of unintended consequences waiting to spring into action. My noble friend will be relieved to hear that I am not going to fight a rearguard action, and shall instead concentrate on other areas of the Bill where I believe improvements are required.

I support the creation of the Financial Policy Committee to give focus to the Bank’s financial stability objective, but the Bank and the Financial Policy Committee must operate in an accountable and transparent way. My noble friend has helpfully confirmed that the Government will make changes in the Bill as it goes through your Lordships’ House, and I hope that this will go beyond the Bank’s own suggestions. I hope that my noble friend will heed the wise words of several noble Lords on this topic, including the noble Lord, Lord Myners, and my noble friend Lord Lamont.

I am sure that creating new macroprudential tools that will be available to the FPC can make a significant contribution to financial stability, but they are much too important to be created and operated in an accountability vacuum. As a minimum, the super-affirmative procedure will be necessary to give parliamentary oversight to their creation.

If we are to have the twin peaks of the PRA and the FCA, they must be made to work together. I am concerned that the solution in Clause 5 rests on a memorandum of understanding, the very mechanism that demonstrably failed the tripartite authorities. My noble friend may already be aware that there is concern about the practical impact on regulated firms of the separation of the FSA into the two arms that will shadow the PRA and the FCA.

There is no requirement in the Bill for the PRA and the FCA to consult on the creation of the memorandum of understanding; nor is there any parliamentary approval of the arrangements or provision for independent review of the effectiveness of co-ordination. This area of the Bill seems decidedly weak, and we need to strengthen it.

The Government have usefully set out in the Bill the regulatory principles to be applied by the PRA and the FCA, including the rather elusive concept of proportionality. This is described in terms of burdens being proportionate to benefits—which sounds okay—but is then qualified by “in general terms”, which of course begs a lot of questions. The London Stock Exchange believes that this needs to be explained in much more detail and that it should be calibrated both internationally and by reference to specific sectors. We need to look at the detail of this in Committee.

The PRA will be charged with operating judgment-based supervision, which of course marks a radical departure from the last decade or so under the FSA. It is important that the PRA gets this right. I do not understand why the FCA will have a practitioner panel that it must consult but the PRA does not. The Joint Committee thought that this might lead to regulatory capture but wanted to see the PRA’s approach to consultation laid out. We have now seen that approach and it has been described as “dismissive” by the British Bankers’ Association and “insufficient” by London First. I am sure that we will need to look again at the way in which the Bill mandates consultation.

I know that the FCA has a number of supporters, who see it as a consumer champion. But we must not forget that the FCA also has responsibility for wholesale markets and as the listing authority. It is the FCA that will have the UK’s seat on the European Securities and Markets Authority. We will need to look carefully at the proposed membership of the FCA and its objectives to ensure that it will be properly focused on its whole range of responsibilities.

The FCA will have many powers and responsibilities in relation to consumer protection, including product banning powers. We will need to scrutinise these carefully to ensure that they are proportionate and balanced and that they do not stifle product innovation, which could very easily happen.

I would like to mention three final areas before concluding. First, I welcome the Treasury’s new powers of direction. However, like the noble Lord, Lord Eatwell, and the chairman of the Treasury Select Committee in another place, I believe that those powers should be very considerably extended.

The consumer credit responsibilities of the OFT are to be transferred to the FCA, which is a good idea in principle, but a number of practical issues have been raised by market participants, in particular the Finance and Leasing Association, and I hope that we will be able to deal with those in Committee.

Finally, important clauses in Part 5 of this Bill lay the ground for independent inquiries. My test for these clauses is whether or not they would have made the Bank of England set up reviews of its own role in the financial crisis earlier and more comprehensively. I suspect that we need to amend Part 5 so that duties rather than powers are created.

In conclusion, I hope that my noble friend will be receptive to the many improvements to this Bill that our debate today is showing to be necessary.

Syria

Monday 11th June 2012 Lords Chamber

Statement

17:36

[The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford)]

My Lords, with the leave of the House, I will repeat a Statement made earlier in the other place:

“Mr Speaker, with permission I will make a statement on Syria. The whole House will be united in support for the Syrian people, who have endured 15 months of fear and suffering. Eighty-seven thousand people have fled to neighbouring countries and up to 500,000 are internally displaced. As many as 15,000 people may have died and thousands of political prisoners are imprisoned and at risk of mistreatment and torture.

Each day reports emerge of savage crimes. The Syrian military is surrounding and bombarding towns with heavy weaponry, and then unleashing militia groups to terrorise and murder civilians in their homes. These deliberate military tactics are horrifyingly reminiscent of the Balkans in the 1990s.

Two weeks ago in Houla, 108 civilians died in this manner, including 49 children under the age of 10. A similar atrocity appears to have been committed last week in al-Qubair, where 78 people were killed, including women and children. UN monitors attempting to report on these events have been shot at and obstructed.

These grotesque crimes have illuminated to the world the nature of the events in Syria and the conduct of the Assad regime, which is attempting with utter inhumanity to sow terror, break the spirit of opposition in Syria and try to reassert control. This is as futile as it is morally reprehensible. By branding its opponents terrorists and using tanks against them, the regime is driving Syrians to take up arms to defend their homes; by singling out particular communities, it is inflaming sectarian tension.

There are credible reports of human rights abuses and sectarian attacks by armed opposition fighters, which we also utterly condemn. We also have reason to believe that terrorist groups affiliated to al-Qaeda have committed attacks designed to exacerbate the violence, with serious implications for international security.

As a result, today Syria is on the edge of civil war. This could lead to thousands more casualties, a humanitarian disaster, human rights violations on an even greater scale and instability in neighbouring countries.

We are working intensively to find a peaceful means of resolving the crisis. Our approach, in close co-ordination with our European partners is, first, to push for implementation of the Annan plan as the internationally agreed road map to end the violence; secondly, to increase the pressure and isolation felt by the regime; and, thirdly, to ensure justice, accountability and humanitarian assistance for the Syrian people. I will take each of these in turn.

First, the UN and Arab League envoy for Syria, Kofi Annan, has set out a six-point plan to end the violence and to start a political process to address the legitimate aspirations of the Syrian people. It is backed by two UN Security Council resolutions, 2042 and 2043. The latter mandated the deployment of the 300 UN monitors who are now on the ground in Syria. I pay tribute to them for their difficult work in dangerous circumstances.

As Kofi Annan has made clear on many occasions, the onus is on the regime to call off its military assault, to adhere to a ceasefire and to allow a process of political reform. Political transition must be based on democratic principles and reflect the needs of all Syria’s minority communities, including the Kurds, Christians and Alawites.

On 1 April, the Syrian regime committed itself to implementing the Annan plan and on 12 April announced a ceasefire. It has not kept to either of these commitments. Two weeks ago, I discussed the situation with my Russian counterpart, Sergei Lavrov, in Moscow. I made the case for Russia using its crucial leverage with the Assad regime to ensure the full implementation of the Annan plan, since the collapse of Syria or descent into civil war would be against Russian interests as well as those of the wider world. I also raised the issue of arms sales to the Syrian regime, which we believe should be stopped immediately.

In Istanbul on 1 June, I held talks with members of the Syrian National Council and other opposition representatives including Kurds, and I returned there last week for discussions with Secretary Clinton, the Turkish Foreign Minister and the Foreign Ministers of 12 European and Arab nations. I am in regular contact with Kofi Annan, and preparations are in hand for a meeting of the Friends of Syria group, which now numbers more than 80 countries, in early July.

Last Thursday, the Russian Government put forward their own proposal for an international conference on Syria. Such a meeting could help generate momentum behind the Annan plan. However, it would have to be a meeting that led to a change on the ground and did not just buy time for the regime to kill more innocent people. In our view, any such meeting would need to be based on a common understanding that it would lead to a political transition; it should include genuine steps to implement the Annan plan; and it should involve only nations that are committed to being part of the solution in Syria. We will discuss with our partners whether it is possible to agree concerted international action on this basis, discussions which my right honourable friend the Prime Minister will take forward with other Heads of Government when he attends the G20 meeting in Mexico next week.

Making a success of the Annan plan also requires the Syrian National Council and other opposition groups to put aside their differences, to unite around the common goal of a democratic transition and to assure all Syria’s minorities that their rights will be protected in a multiethnic and democratic Syrian state. This has been my consistent message in all my discussions with opposition figures. We welcome the meetings with opposition groups that will be held in Istanbul later this week and subsequently in Cairo, which have our active support.

The Annan plan is not an open-ended commitment. It cannot be used indefinitely by the regime to play for time. If the Annan plan is not implemented, we will argue for a new and robust UN Security Council resolution aimed at compelling the regime to meet its commitments under the plan, and requiring all parties to comply with it. We have already begun discussions at the Security Council on the elements of a resolution. We do not want to see the Annan plan fail but, if despite our best efforts it does not succeed, we would have to consider other options for resolving the crisis and, in our view, all options should then be on the table.

Secondly, we are taking steps to increase the isolation of the Syrian regime. On 29 May we expelled three Syrian diplomats from London, including the chargé d’affaires, in co-ordination with the US, Canada, Australia, France, Germany and Japan and other countries that took similar steps. We are in discussions with Arab League and like-minded countries about measures to tighten the stranglehold on the regime’s resources and external sources of support, building on the 15 rounds of EU sanctions that already target 128 individuals and 43 entities.

Thirdly, we are acting to help end impunity for atrocities, and we are supporting the humanitarian needs and legitimate aspirations of the Syrian people. Britain co-sponsored the UN Human Rights Council resolution of 1 June, which was carried by 41 votes to three. It condemned the al-Houlah massacre, mandated the UN commission of inquiry to investigate and gather evidence about it, and highlighted the UN High Commissioner for Human Rights’s recommendation that the UN Security Council refer Syria to the International Criminal Court. We are working on a further UN Human Rights Council resolution to reinforce these objectives.

We also sent a team of British experts to Syria’s borders in February and March to gather testimony from Syrians. The team found evidence of violations of international law and international human rights law, including murder, rape, torture, unlawful imprisonment, enforced disappearance and persecution. This work to document abuses is being continued. The team of Syrians which has helped document the al-Houlah massacre was trained by the United Kingdom, and we are working closely with the United States and the UN commission of inquiry to ensure that any evidence is collated and stored for use in a future legal process. We are increasing UK funding for the Syrian opposition and civil society groups, including £1.5 million of assistance in this financial year to help provide human rights monitoring and media training for activists, and other non-lethal support such as communications equipment.

My right honourable friend the International Development Secretary and his department are working with the UN and international community to ensure that urgent humanitarian assistance gets to the 1 million people estimated to be in need. The Syrian regime has now agreed a plan to respond to humanitarian needs. There can be no further delay in its implementation, and humanitarian agencies must be allowed full and unhindered access to all areas in Syria. Britain has helped provide emergency food supplies for nearly 24,000 families inside Syria, safe drinking water for 30,000 people, blankets for 5,000 people, medical assistance for up to 25,000 people and support to refugees in neighbouring countries.

The coming weeks must see an intensified and urgent international effort to stop the violence and restore hope to Syria. The British Government remain absolutely focused on this goal. If all the efforts that I have described fail, then Britain will work with the Friends of Syria group to increase the isolation of the regime and to adopt sweeping new sanctions across the world.

We will not rule out any other option which could at any stage stop the bloodshed, We will not relent in our efforts to ensure the political transition, justice, accountability and security that the Syrian people need and deserve, and to support greater political and economic freedom in the Middle East. This freedom is not only the legitimate right of all the peoples of the region; it is the foundation of lasting peace, stability and prosperity.

The time has long passed for the Assad regime to stop the killing and torturing of its people, and it is time now for all nations on the UN Security Council to insist on the cessation of violence and political process which remain the only peaceful way to resolve this mounting crisis”.

My Lords, that concludes the Statement.

17:48

[Baroness Royall of Blaisdon]

My Lords, I am grateful to the noble Lord, Lord Howell of Guildford, for repeating the Statement on Syria made earlier in the other place by the Foreign Secretary.

If anyone was in doubt as to the seriousness of the situation in Syria, a simple examination of the facts should be enough to convince them of the scale of the horror that we are witnessing. The conflict in Syria has been raging for 15 months. The death toll is now estimated at more than 15,000. As the Minister has today told the House, two weeks ago, the village of al-Houlah was the scene of one of the worst reported massacres. United Nations observers on the ground have confirmed that at least 108 people were killed, including 49 children and 34 women. I join the Minister in praising the work of UN monitors in attempting to document those events. They have been repeatedly shot at and obstructed in trying to carry out that important task.

This is not some historical conflict; it is unfolding in real time, documented on television screens and YouTube footage, so I welcome this opportunity to scrutinise the Government’s response. Fifteen months on, instead of approaching its end, if anything, in recent weeks, the conflict seems to be entering a new and bloodier phase. The Assad regime continues to show utter contempt for the value of human life, perpetrating a violent and brutal crackdown on innocent people across Syria, for which the regime must ultimately be held to account

However, expression of revulsion in response to that slaughter is not enough. Let us be candid and admit that the international community is dangerously divided in its response to the conflict and that division is drastically hampering the effort to stop the violence. The point of consensus for the time being is the Kofi Annan peace plan, but by any reckoning, the UN-backed plan has so far failed to bring an end to the violence. Do the Government think that increasing the number of monitors and boosting Mr Annan’s resources would improve the prospects of that plan succeeding?

To date, the Annan plan has been judged to be the only option on the table, but, as the Minister rightly said:

“The Annan plan is not an open-ended commitment”.

What are the time limits and tests for the Annan plan? How much slaughter is required before the international community acknowledges that the plan has failed and begins to formulate an alternative means of ending the crisis? Of course, further diplomacy is needed if the divisions in the international community are to be overcome, but the difficulty of the task must not detract from its urgency. What is the Government’s assessment of the recent judgment of the noble Lord, Lord Ashdown, who is in his place, our former high representative in Bosnia, who said of the Government’s strategy for dealing with the crisis:

“I don’t think that is wise diplomacy”?

As the Annan plan is currently not working, the challenge is to ask what beyond the Annan plan can be done, even accounting for the divergence of views in the international community. There are several steps short of military intervention that should be considered to sharpen the choice facing the Syrian regime.

First, on the financing of the regime, without a comprehensive oil embargo in place, Syria is still able, in principle, to export oil to countries outside of the EU and US. What discussion has the Foreign Secretary had with the Government of India, who do not have bilateral sanctions in place and who have allegedly recently been approached by Syria to purchase Syrian oil? The Syrian regime is also still able to import diesel from countries such as Venezuela, which allows the regime to sustain its military operation, including tanks, through such foreign imports. What is the likelihood of a comprehensive oil ban being agreed at the UN and, failing that, what pressure have the Government put on countries considering trading with Syria in that way?

Secondly, there is the security situation and support for the opposition. There are steps that, without breaching the arms embargo, could alter the realities on the ground, such as blocking the communications of Assad’s forces and choking off his remaining finance by neighbours such as Lebanon enforcing the Arab League sanctions which they have previously agreed.

The Syrian military is one of the key pillars still sustaining the political regime in Syria and the newly appointed head of the SNC, Abdel Basset Sayda, was right to call for mass defections from the regime in one of his first statements since taking control. What is the Government’s assessment of the present rate of such defections, and what steps can be taken by the international community to encourage and facilitate them further? Does the Minister agree that more should be done to publish internationally the names of any officers ordering atrocities as a clear signal of intent that they will face the full force of international justice for their crimes? The Minister mentioned al-Qaeda as operating in Syria. What is the British Government’s view of the scale of that activity?

I welcome the Foreign Secretary’s recent visit to Russia. Can the Minister tell your Lordships’ House whether he believes that the Russian position is likely to shift significantly in the immediate future as the situation deteriorates further? I welcome, too, the Government's comments on the Friends of Syria group and news that a further meeting of the group is planned. Alongside that group, how effective does the Minister think that an international conference on Syria—as has been suggested by Russia—would be, and does he share our concern that it may simply allow the regime to play for time?

The Minister said that the Prime Minister intends to raise the issue of Syria at the G20 in Mexico. In the light of statements from a Chinese Minister earlier today that the situation in Syria should not be on the agenda at the G20, can the Minister give us the Government’s assurance that they are taking all the necessary steps to ensure that appropriate time is found to discuss it?

The Minister says in the Statement that if the Annan plan is not implemented, the UK Government will argue for a new and robust UN Security Council resolution aimed at compelling the regime to meet its commitments under the plan. How will the British Government endeavour to shift the view of Russia, in particular, to allow for agreement in the Security Council for the passing of such a resolution?

The scale of the humanitarian crisis is growing by the day. The Foreign Secretary talked at the weekend of the British Government having committed £8.5 million to help alleviate the humanitarian situation. This morning, the Times newspaper reports that a group called the Union of Free Syrian Doctors is questioning that commitment and says that help for doctors trying to get medical supplies in through Turkey has come only from a one-off donation by France and from private individuals. Can the Minister use this opportunity to clarify that case? Finally, what thoughts have been given to creating large humanitarian enclaves for civilians—safe areas in countries such as Turkey or Jordan?

All of us in the House have the same objective. We want the violence ended and the Syrian people free to decide their own future. In the 1990s, the world failed to act to prevent a genocide in Rwanda. The Foreign Secretary warned at the weekend that the bloodshed resembles that of Bosnia in the 1990s. Within weeks of the conflict starting in Bosnia, thousands of refugees were herded into concentration camps and suffered appallingly at the hands of the Bosnian Serbs. Those crimes were broadcast around the world at the time, just as the slaughter in Syria is being relayed on our screens today.

In Bosnia, it took three years and the massacre of 8,000 people at Srebrenica before a bombing campaign led to a peace settlement. Despite the best efforts of Kofi Annan, no effective diplomatic response to this crisis has yet been agreed by the international community. After Rwanda and Bosnia, we said never again. The coming weeks and months will determine whether the international community meant it.

17:56

[Lord Howell of Guildford]

My Lords, I thank the noble Baroness for her support for the work of the UN and the broad thrust of what the nations, including this nation, are seeking to do, and for her candid and telling analysis of the grimness of the situation, on which she fully concurs with the Government.

A great many of her questions touch on the position of Russia—I counted four or five—so I shall deal with those first and then her other questions. First, the key matter is: what can we do to reinforce or reassert the momentum of the Annan plan, which has clearly been ignored—disavowed, indeed—by various parties in Syria? The answer begins and ends with the question of Russia and, to some extent, China. It is the Russian position in, apparently, continuing to supply arms and the Russian and Chinese reluctance to see a UN Security Council resolution of the kind we wanted to go forward that prevents the council from bringing forward any such resolution and, no doubt, gives licence and encouragement to other countries such as Venezuela to carry on supplying and trading with Syria.

As the noble Baroness knows, my right honourable friend went to Moscow. He talked to Sergei Lavrov. The idea now from the Russians is that there should be an international conference. The Statement which I read indicates that that might work, that might be worth taking forward, but we would have to have a very firm agenda and make sure that it was not just an excuse for a lot more talking and no further action while people continue to be murdered in hideous and evil ways.

That is the assessment we have to put before our Russian friends and the Chinese. They are great and responsible nations in the community of nations and in the world civil order, and we believe that they should be brought to see that if there is a combined front, there is the possibility for much tougher action to close down the loopholes and routes by which arms and equipment are procured and oil is traded out and the stranglehold made increasingly effective. That is the broad answer to the whole question of what we should now do to invigorate the aims and aspirations of the Annan plan and the ideals behind it. It had six very clear aspirations, all of which in general terms are agreed, but they must be made to work and that requires action of the kind which many countries want but, apparently, not yet the Russians and the Chinese. That is where we have to work. The oil embargo could then be tightened up and there could be tougher moves on international communication.

The noble Baroness asked about defections. There could be more encouragement there. It is obviously reassuring that senior people are moving across, abandoning the Assad operations, and we want to encourage more of that. Whether we could make the names of targeted individuals more widely known is something that we certainly would consider as we try to work out with our EU colleagues how tougher sanctions can be developed.

The assessment of al-Qaeda involvement is difficult. Basically, one has to understand that al-Qaeda is interested in more violence and stirring up everything, regardless of size, causes, suffering or anything else. These are unrestrainedly evil people and they no doubt take some delight in the bottomless evil of the outrages of those human beings who can destroy and murder children in cold blood. We have no illusions about that. They may well be swarming around—swarming is too strong a word, but they may be present in numbers to involve themselves in and promote and exacerbate the position. We have no doubts that that is their motivation.

I have mentioned the Russian position and the international conference. We will certainly seek to have Syria kept on the G20 agenda and the Prime Minister intends to raise it. Like the noble Baroness, I read the report this morning on the union of doctors. We were a bit surprised by it. It did not really tally with what we are seeking to do, both through the international agencies and global humanitarian aid, where we have made a substantial contribution, and through direct efforts.

If I can be associated with the matter of enclaves, although the noble Baroness did not ask about them—she talked of humanitarian corridors—for them to work it requires organised force, troops and a political will that they should be allowed to operate. That political will is not there in Syria at the moment. The stage where we would have to talk about troops has not been reached. As my right honourable friend says, all options are on the table. However, as the noble Baroness recognises, there are steps that can now be taken to toughen up the sanctions, increase the stranglehold and, we hope, bring Russia and China into stronger co-operative action. That should be tried first and is what we are now working on. We hope—indeed, we insist—that more should now be done to put the pressure on the Assad regime and on all those who are in the killing business to halt their hideous destruction and pave the way for a better Syria.

18:02

[Baroness Falkner of Margravine]

My Lords, does my noble friend accept that while the Statement is extremely detailed and sets out where the Government believe they are, it is nevertheless a sign of the impotence of the international community that we have found ourselves in a position where the Russian Government have been able to propose an international conference in Syria which will undoubtedly push the situation into the long grass? That is not least because, as my noble friend repeated, the Statement says,

“it should only involve nations that are committed to being part of the solution in Syria”.

When we have Russia, Saudi Arabia and Qatar, which have all been on different sides of the argument, arming combatants in the regions, it is hardly likely that they would be able to achieve a consensus behind the Annan plan or, particularly, to protect the rights of minorities in the region. Will my noble friend tell the House what we will do when that open-ended commitment to the Annan plan is dropped and what steps might we take? Would we then look to our own duties under the norms of responsibility to protect?

[Lord Howell of Guildford]

I understand my noble friend’s feelings, which are largely mine, that the Annan plan is not working and has to be reinforced. We think that is the pathway forward and that the principles behind it are right, but clearly the killing and the horror continue on a totally unacceptable, impossible and outrageous scale, so something more must now be tried. When my noble friend talks about nations not being committed, she should bear in mind that the one uncommitted nation actively promoting the arming of the Syrian regime is Iran. The Iranians are the ones who should not be included in any further conference, although it has been suggested by some that they are clearly actively opposed to any kind of path towards peace and settlement. That is what that phrase is really aimed at; that Iran is on the side of violence, and more violence.

I do not necessarily share my noble friend’s view that the talks with Russia and with the Chinese are never going to work and that there will never be some understanding that this cannot go on and that there must be a united effort to close up the loopholes and stop the arms supplies by the really big powers, such as Russia and so on. I do not share her view that this is an impossible aim. I do not say that we have got there but this has to be worked on, combined with all the other sanctions and proposals that we are now committed to, to end the violence and repression.

[The Lord Bishop of London]

My Lords, everyone will recognise that Her Majesty’s Government are dealing with a tragic and complex situation. Again and again in the Statement that the Minister repeated, the rights of minorities were drawn attention to. Have Her Majesty’s Government been able to make direct contact with the substantial Christian minority, who are 10% of the population of Syria and whose influence on the Russian Government is not inconsiderable? There is certainly direct contact between the Christian minority and the Russians. If there is, as the Minister underlined, an absolute commitment to defusing the fears of the minority communities in Syria, which must be part of any kind of moving forward, have Her Majesty’s Government been able to use the channels of communication that exist with the various Christian communities that make up that 10% minority in Syria?

[Lord Howell of Guildford]

The right reverend Prelate is absolutely right that the Christian position is important. All along, we have heard suggestions that while the Christians may find repulsive what the Assad regime is doing, they also fear alternative regimes. Instability might jeopardise their position even further, so they are definitely an important part in the jigsaw of possible pressures in the future. I think that is as much as I can say.

As far as direct contact is concerned, I am not in a position to say exactly what contacts HMG have had with the Christian minorities. We have encouraged all of the Syrian opposition groups to reach out to minority communities and maintain a clear commitment to a peaceful, non-sectarian approach. We have insisted that they reassure all Syrians that they are working towards a Syrian state which is inclusive, representative and respectful of the ethnic and religious minorities. That is the line we have consistently taken but I cannot really promise that it will be an absolutely guaranteed condition in a situation where bloodshed, hatred and violence are prevailing on all sides. However, it is a matter very much in our minds. Another part of the jigsaw, which the right reverend Prelate rightly raises, is that the Christians in turn could have some kind of contact and dialogue with the Russians to persuade them that the situation requires a more unified approach. That is a possibility but I do not think I can put any more flesh on these ideas at the moment.

[Lord Gilbert]

While I agree entirely with the Minister that Iran forms an important part of this problem, I disagree with him entirely that that is a reason for it not to be at a conference. I thought there was every reason for the Iranians to be at a conference to let them hear what other people think of their attitude and behaviour, and to make it clear to them that it is in their best interests to get the situation solved and to stop supplying arms to the Syrian Government if they are doing so. It seems to me that the Government’s logic is upside down on this.

[Lord Howell of Guildford]

Well, my Lords, I am not sure that I agree with the noble Lord. His views are usually very challenging and make one see things a different way, but in this case he is asking for the inclusion of a power that is actively concerned to delay and screw up—if I may use the vernacular—conferences and talks and to promote violence and is continuing to supply arms direct to the Syrian regime. It does not seem as if that would be a very good voice to have at the table at a time when we are trying to persuade other nations, such as our Russian friends, to realise the vital need for a unified approach to close off the loopholes. I understand the psychology of what he is saying—that perhaps it could work the other way around—but the best guess for the moment must be that to have the Iranians at the table and welcomed at any new conference would be a guarantee that it would produce nothing whatever.

[Lord Wright of Richmond]

My Lords, in the debate in this House on 16 March, I asked the Minister if he could give us the Government’s assessment of the assistance in terms of finance, arms and “foreign fighters” being given to the opposition in Syria. I do not know whether he is able to answer that question now, but I note that the frequent reports of assistance being given to the opposition in this area in terms of finance, men and other assistance have not been denied in the Gulf. I think that it is now accepted, certainly in the Middle East, that Saudi Arabia and Qatar have arranged between them for a massive supply of military assistance to the opposition in Syria, not with the aim of, to quote the Statement, stopping the violence and restoring hope to Syria but rather in order to replace the Shia secular regime in Damascus with an extremist Sunni regime enjoying the support, ironically, of al-Qaeda. Coincidentally, the “Today” programme this morning reported that the casualties of the regime’s forces in the past few days have outnumbered those of the opposition—a reminder, surely, that we should not immediately put all the blame for the terrible things happening in Syria on the Syrian regime.

Syria is being plunged into a secular war, with potentially disastrous consequences for the security of the Middle East and, incidentally, for the future of the Christian community to which the right reverend Prelate referred. I hope that the Minister can assure the House that the Government will not only resist the understandable pressure to intervene ourselves but will do all in our power to discourage any further military intervention by our friends and allies and will continue to do everything we can to support Kofi Annan’s mission, however unpromising its prospects.

[Lord Howell of Guildford]

The noble Lord’s presentation of, if not the immediacy then certainly the possibility of, this being a religious regional civil war between Sunni and Shia is perfectly valid. That is what it could become and perhaps in some aspects, although the situation is very complicated, is becoming already. That may well be part of the picture that he also describes of arms going to the Syrian opposition forces, though whether in massive quantities or not I do not know—I cannot give him precise figures. We do not know to what extent Saudi Arabia and Qatar, whose leaders have talked about the need for arms, are actually supplying them and whether they are doing so officially or whether it is being done by various other channels. We simply have not the means to know. We know that some arms are getting through, though whether they could be described as massive I could not corroborate. That is how the situation is developing.

My right honourable friend’s Statement made clear that not all the grim violence has been on one side. He rightly condemns any manifestations of similar horrors and outrages by the opposition. Whether or not this is a civil war between the religions in the region, this is rapidly becoming, as my right honourable friend has said, a civil war within Syria, and I am afraid that it is a matter of history that it is sometimes in civil wars that the worst atrocities of man against man and man against woman are exercised. That, I am afraid, is unfolding before our eyes. So it is correct that not all the blame is on one side. That it could become a gigantic Sunni and Shia war within Islam is a possibility; it is one of the concerns underlying our attempts to put out this monstrous consuming fire before it devours many other people in neighbouring regions.

As for the details of what arms are being passed, it is very hard to track down how many arms are going from Russia to Syria, and there was mention of Venezuela possibly supplying arms as well. Then there is what Iran is doing; we know that it is pouring arms in on the regime’s side. On the other side, there are arms going to the opposition. These are difficult things to pin down in a very confused situation.

[Lord Inglewood]

Do the Government believe that the militias that are carrying out these murderous activities are under the ostensible control of those under whose metaphorical banner they are marching?

[Lord Howell of Guildford]

My right honourable friend made a comparison with the horrors in Bosnia at the end of the previous century, when militias claiming to be acting in the name of one side or another may or may not have been condoned or even have been instructed by the authorities. To answer my noble friend’s question, that comparison reflects on the assessment that we have to make of the present situation. It is hard to tell how much these murderous attacks—village against village, region against region—are, at the very lowest level, simply the settling of old scores or, at a higher level, people who are inspired by one side or another to think that they can put a label on themselves and go and murder everyone in sight. Perhaps, at the highest level of all, they are actively receiving orders and encouragement from the Syrian regime. Those are all possible, and there is evidence that at all levels there are those sorts of motivations. However, you cannot distinguish and draw lines in all these cases; you cannot say that all these horrors and the revolting, outrageous and evil killing of children are ordered from the centre. If they were, that would reinforce everything that we fear about the nature of the regime, but I do not think that that is the case in every instance; there are probably other evil motives at work as well.

[Lord Anderson of Swansea]

My Lords, at a time of the cooling of the right to protect and humanitarian intervention, I was puzzled by one word in the Statement. It was the word “compelling” in this passage:

“we will argue for a new and robust UN Security Council resolution aimed at compelling the regime”.

Given the Russian and Chinese position, surely there is no prospect of such a resolution. If these are not just empty words, that could mean only military intervention outside the UN framework, which is most unlikely to happen. Who would lead that? There was talk this morning about drones targeting or showing the way for the targeting of opposition areas. Do the Government know who provides and controls these drones?

Amid all the horror, there is increasing concern about the way in which a likely Sunni-dominated successor regime would deal with minorities. Do the Government share this concern, especially with regard to, as the right reverend Prelate has mentioned, the Christian minority within Syria and the many refugees from Iraq who are there? If so, what are the Government doing to ensure that as far as possible there will not be a regime that persecutes minorities, as other Sunni-led regimes in the area do?

[Lord Howell of Guildford]

On the last point, I addressed that very point when it was raised by the right reverend Prelate. The position of the Christian minorities is of great concern. To answer the question about what the Government are doing, as I said earlier, my right honourable friend, officials and representatives of HMG have constantly urged the Syrian opposition to extend tolerance and a full place to ethnic and religious minorities, and that embraces Christian minorities. That is what we are doing.

As to the word “compelling”, the noble Lord is very skilled and active in these areas, but I think he is slightly misreading its meaning. I go back to my earlier point that with the full co-operation of the Russians and the Chinese—if we could get it, which at present does not look very promising, but great efforts are being made—there would be a compelling and effective stranglehold. It is possible to switch off a society and to close down a regime altogether and make further governance impossible by cutting off basic utilities, power and all ingoing and outgoing supplies, but that is impossible as long as these two great nations, Russia and China, and a few others, are carrying on with trade and supplying equipment and arms. It is not realistic to imagine that without Russia and China we would resort to arms. That is pointless. It is a dead end. Russian and Chinese co-operation are essential for the stranglehold to work, and that has got to be the path of compulsion that we go to before we come to even grimmer possibilities. However, as my right honourable friend repeated, all options are on the table. There are steps ahead that we can take and which we will take, and we will work night and day to hold dialogue with Moscow and Beijing because they have a vital role in this process.

I cannot comment on drones. I will not comment on intelligence aspects, but if I have any more knowledge, I will gladly write to the noble Lord; at the moment, I have none.

[Lord Ashdown of Norton-sub-Hamdon]

Following my noble friend’s answer, surely the difference between this and Bosnia is that in Bosnia we could act but chose not to, whereas in Syria we would like to act but cannot because we cannot get agreement from the Security Council. Surely the lessons that we should have learnt from Libya are that getting agreement from the Security Council and, above all, making sure that the Russians and the Chinese do not exercise their veto are far better served by letting the coalition of local voices lead the call for action and that we should concentrate on humanitarian action, not regime change. So why have we abandoned them? Why have we reverted to the prospect that the West leads the charge and is seeking the removal of the one person, the one friend, Russia has by seeking regime change up front? Has that not made it easier for the Russians and the Chinese to cast their veto? Is the consequence of that not that we now find ourselves in an impasse which is in part because of rather unwise diplomacy, which will not only lead to greater bloodshed in Syria but to the even more baleful prospect of a widening Sunni-Shia conflict throughout the whole of the Middle East?

[Lord Howell of Guildford]

I listened very closely to the noble Lord who has enormous expertise, certainly on the Bosnian scene, but I do not think we have abandoned the idea that the regional powers—the Arab League and Turkey and other responsible powers in the region—should be right up in the front and leading the pressure. This is not just a western story; this is a story where the global order is looking with horror at what is happening. Responsible nations are actively helping. We are arguing with Russia and China, which we hope will become fully responsible nations—they should act as responsible nations, as they are great powers—in the same vein and on the same path. That is what we are trying to do. I do not think there is another path of diplomacy that somehow would magically put certain regional powers in a forward position, and I do not think this is seen just as a western show. That was last century stuff; today, no one moves in international affairs, as my noble friend knows perfectly well, without full consultation with the African Union and the Arab League and increasingly with Beijing and Moscow, which play crucial parts, and with many other countries as well. This is not the century of the West; this is the century of Asia and Africa and the new international and multinational organisations which are reinforcing the ones we inherited from the 20th century. So I do not accept my noble friend’s analysis, but the wisdom behind his thought is correct.

Financial Services Bill

Monday 11th June 2012 Lords Chamber

Second Reading (Continued)

18:24

[Lord Whitty]

My Lords, I want to approach this Bill in a slightly different way. Although I no longer have any formal role in the consumer world, I want to look at the Bill from the point of the view of the average consumer of banking and other financial services and of the microbusinesses that have to deal with our financial institutions. They are faced with a very powerful and often quite incomprehensible financial system and a fairly incomprehensible system of regulation. I am not sure that this Bill will help them or, indeed, many practitioners in this field. The Bill is not only, as my noble friend Lord Eatwell said, slightly messy in its presentation, for all the pre-legislative efforts, but the way that it is drafted makes it difficult to follow, and it also excludes substantial parts of the jigsaw. The Minister referred to the Vickers report, the forthcoming White Paper and a separate banking Bill, and in another part of the jungle we have a change in the competition regime and changes in EU financial regulation, all which need to be taken into account before anybody can form an overall position about whether this new regime replaces the old regime in a way that is beneficial to the consumer.

It is clear that there were serious failures in the 1997 tripartite structure. It is also pretty clear that there were serious failures in the pre-1997 structure that concentrated powers in the Bank of England and the Governor of the Bank of England. We need to look to see whether this third attempt is any better. Many of us would conclude that the problem was not so much the institutional structure as the nature of the regulation. I would say it was too light touch—the noble Lord, Lord Bilimoria, would say it was too wrong touch—and I am not sure that the current structure makes it much better.

I, slightly surprisingly, find myself on the same page as the noble Baroness, Lady Noakes, on this one. The separation of the FSA into two distinct parts does not necessarily commend itself to me. Of course, there are those like the noble Lord, Lord Lawson, who will say that consumer protection got in the way of proper prudential supervision; there are also some on the consumer side who would say that the FSA was overburdened and failed in its consumer protection, partly because it had multiple functions. Total separation, which this Bill appears to create, seems unfortunate. After all, if you look at Northern Rock, it failed on its own corporate microprudential side and, indeed, made a major contribution to the failure on the macroprudential side because it was selling inappropriate products to the wrong consumers. In other words, in that case the consumer interface was important in the prudential sense in the total running of the monetary system, as it was in the United States with those who advanced subprime loans and so forth. Separating them totally is dubious. However, like the noble Baroness, I think I will be flogging a dead horse on this one if I pursue that in Committee. After all, the previous Government also proposed separating them, and I think I had better concentrate on what I would regard as a slightly second-best solution; namely, that the Bank of England and the PRA should also have some regard to consumer considerations and that there should be more effective co-operation between the PRA and the FCA and between the Bank of England and the FCA in relation to consumer issues and consumer issues implications through the broader supervisory role. That could be in a memorandum of understanding, but since the previous memorandum of understanding did not really work, as several noble Lords who have great experience of these matters have said, I would prefer to see it in primary legislation. It is certainly something that we should return to in Committee.

Turning to other consumer issues, why are we not writing a consumer mandate throughout the Bill? Where are the enhanced consumer powers? I welcome the additional powers for the regulator with regard to such things as products—I recognise that there are restraints on those—but where are the powers for the consumers themselves? Under Alistair Darling, the previous Government proposed, for example, at least a limited form of collective redress in financial matters. That would greatly simplify the current mess over PPI. Whether such a system of collective redress would be opt-in or opt-out is a secondary consideration. However, that additional direct power for consumers or consumer organisations appears nowhere in the Bill.

I have other concerns. One consumer concern in particular relates to privacy. The nature of the banking sector is changing. Organisations that are not banking organisations are setting up banks or quasi-banks. We heard about Marks & Spencer just this morning. There is protection for the privacy of data for the consumer of one subsidiary of a bank; the parent company cannot use that information in a different context. However, no such provision seems to apply to supermarkets. They already have a huge amount of data on their customers, which they could use to customers’ detriment were they to pass them to their financial wing—Tesco bank or M & S bank, or whatever we will call it. That is a loophole that we need to address.

There are also issues in relation to the competition structure. When, under the previous Government in 2008, this House approved the takeover of HBOS by Lloyds TSB and the nationalisation of RBS, I argued that we had to agree to it, given the emergency, but that in 18 months’ time there should be a full Competition Commission investigation into the structure of retail banking. However, if anything, the situation has got worse since then. I hope that the fact that the OFT has powers in relation to CCA issues does not mean that we end up with yet another sectoral regulator of everything in financial services that has competition well down its list of considerations. After all, some other sectoral regulators, such as those for energy and water, are adamantly opposed to any reference to the Competition Commission because they see it as a failure on their part. We need to avoid that.

I make a brief point on governance—not so much governance of the Bank of England as of all banks. Banks are unique companies. The rules that apply to joint-stock companies and other bodies generally are not really appropriate for banks. We must all recognise that if we do not change the responsibilities of the boards of banks and those who sit on them, we will go through a similar crisis again. At some point, in the course of either this Bill or the banking Bill, we should address that issue.

Finally, I agree wholeheartedly with the right reverend Prelate the Bishop of Durham, who made a very effective speech. We have a two-tier financial market in this country. Around 20% of our population do not have access to banking facilities, credit or insurance in the way that most of us do. On the credit side, many are driven to those who offer loans at a rate of around 1,000% APR and often, as the right reverend Prelate said, into the arms of criminals. Unless we not only intervene in that market under the new regulatory structure but impose on the mainstream banks and credit creators some responsibility for universal provision, I am afraid that the two-tier financial market, financial exclusion and the whole system—of which payday loans are but one example—of division within our society will persist. I hope that somewhere within the Bill and this structure we can address that issue as well.

18:33

[Lord Mawson]

My Lords, I will focus my remarks in this Second Reading debate on the opportunities for growth and investment in the East End of London, particularly in the Lower Lea Valley, where there is a real investment opportunity. When I first arrived in the East End, nearly 30 years ago, the Isle of Dogs was a wasteland. The local joke was that there were two buses a day to the island. At that time the financial centre at Canary Wharf did not exist. The culture of the public and voluntary sectors was anti-business, a dependency culture was rife, and it is fair to say that the councils running the surrounding London boroughs of Newham, Tower Hamlets and Hackney were mostly basket cases.

Over the past 30 years, major changes have taken place and east London has been transformed. Because of the focused leadership of the noble Lord, Lord Heseltine, and others, a phoenix is rising from the ashes. East London is once again becoming a global destination and a centre of enterprise, innovation, finance and business. It is increasingly recognised as a powerful engine of the British economy, as it was for several hundred years previously, before the demise of the docks. Many years ago, after the closure of the docks, the noble Lord, Lord Heseltine, began what many of us working on the ground have come to understand as a 50-year regeneration journey. As we prepare for the Olympics in six weeks’ time, we are half way through that journey. The opportunity to present the scale of business investment in the valley to the world, through this global event, is great.

However, do central and London government truly understand the importance and scale of this wider investment narrative around the Olympic site? Recent meetings that I have had with the key people responsible for articulating this story to more than 20,000 journalists, who are soon to arrive, have not filled me with confidence. They are not familiar with east London or its history and are struggling to develop a clear and concise story. We get one shot at selling east London to the world and we must not miss this investment opportunity. This matter is urgent.

Nearly 16 years ago, three of us met just a few hundred yards from the Olympic stadium. We began to dream about the Olympics coming to east London and to explore its potential added value. The instigator of the meeting was the indefatigable champion of a London Olympics bid, Richard Sumray. At that first meeting, we realised that if the Olympics were ever to come to London, the only place with enough land was the Lower Lea Valley—a forgotten corner of the city on our doorstep. Historically, this was the home of some of the country’s greatest innovators and entrepreneurs. Michael Faraday carried out his electrical experiments at Trinity Buoy Wharf, opposite the Dome. Isambard Brunel built his ship SS “Great Britain” there. The world’s first biotechnology process was developed at the Clock Mill in Bromley-by-Bow.

The Games provided us with a fantastic opportunity to give the world a new perspective on the Lower Lea Valley—a story of business, investment and the growth of an enterprise culture. The Olympics would be a catalyst that allowed us to reach out to investors across the world. They would connect the financial centre then emerging at Canary Wharf with other key development nodes in Greenwich, Canning Town and Stratford in the north. At that time, I reminded my colleagues that the late Reg Ward, who was the life force behind the Canary Wharf development, had always described east London as a water city. Fly into City Airport, look down, and you will see exactly what he meant. East London is surrounded by many miles of docks and waterways. We reminded ourselves that water had driven the economy in east London for 200 years. If the Olympics ever arrived, we needed a vision with integrity that we could communicate. We needed a simple story to draw in potential investment partners from across the world.

After this initial meeting, two of us went to see the noble Lord, Lord Rogers of Riverside, just to check that we were not coming off our trolleys. Within minutes, he agreed that water was the key to both the Games and future investment in the valley. Together, we wrote what must be one of the first documents to position the site for the Games at the heart of the valley and link it to the investment and development nodes that we saw emerging there. This document shows an emerging city in east London, growing around the waterways, ripe for investment and growth, and with the necessary infrastructure coming into place. It also champions new ways of growing enterprising communities with local residents by connecting them to this emerging business and enterprise culture. I still have the booklet today and the present buildings on the Olympic park are not far from what we imagined then.

We sit here 16 years on and we have seen a variety of people and organisations join the Olympic bandwagon. My colleagues and I do not claim all the credit for starting it moving, but we played an important small role as a catalyst beginning to connect the financial service industry at Canary Wharf to the growth potential that now surrounds it.

As chairman of the All-Party Parliamentary Group on Urban Regeneration, Sport and Culture, it has been a privilege in recent years to take many colleagues from your Lordships’ House and the other place by boat up the waterways of the Lower Lea Valley so that they might see the bigger picture around the Olympic site. The Olympics, although important, is not the biggest show in town in east London but it is a fantastic catalyst that can drive investment in the area and join the dots of development. Development nodes are well advanced in Greenwich around the O₂, at the expanding City Airport, the growing international conference centre at ExCel, the global business district at Canary Wharf, the £3.7 billion of investment taking place in Canning Town and the £1 billion housing and regeneration scheme further north in Poplar that my colleagues and I are involved with. Here, I must declare an interest.

At the new Westfield shopping centre across the River Lea, we witnessed 1 million shoppers in the first week of opening and a new international station waiting for Eurostar to stop at its prepared platform. Today, with UCL relocating to Stratford, a life sciences-focused enterprise zone in the Royal Docks, the European Medicines Agency at Canary Wharf, and the Tech City concept at Old Street, the area is rapidly developing as a UK science and technology hub. As well as that, right there, there is also the Queen Elizabeth Olympic Park that will hold five new villages and a commercial district. Here, I must declare another interest as a director of what is now called the London Legacy Development Corporation.

Noble Lords are probably asking what all this has to do with the Financial Services Bill. I am no expert on the intricacies of financial regulation. I will judge the legislation by effect. But I know that all the above would not have been possible without individual entrepreneurs being able to take a calculated risk and back a promising idea. It was risk that made the docks the trading capital that they once were and that turned around the fortunes of the Lower Lea Valley once more. While not encouraging bankers to raise their heads recklessly above the parapets, I would remind them that the financial story of our nation would have been somewhat different if the Faradays, Brunels and Heseltines had not dared to take appropriate risk. We did not build significant trading links across the world from east London by battening down the hatches and lowering the anchor.

While a stable, better regulated financial sector is an obvious benefit for all those involved in business and enterprise, my concern is whether an excessive focus on financial stability will prohibit banks and others taking calculated risks and backing potential growth. Over the coming years, in east London and across our country, I look forward to seeing small and large businesses being able to raise the capital that they need, local families taking out mortgages that they can repay, and entrepreneurs opening bank accounts with ease. At the moment, the bureaucracy surrounding these processes makes me think that it is easier to return to keeping the money under the bed.

It seems to me that the new Financial Policy Committee will set the tone for the financial sector. Although the FPC has a financial stability objective, the Bill prohibits it from doing anything to seriously prevent growth. But in the interests of long-term, sustainable growth, should there not be a strengthening of this provision? I believe that a secondary objective for the FPC should be created so that it can support the Government’s economic objectives and support growth positively.

Secondly, where is the human dimension to this legislation? My experience in other fields causes me to worry that the macro financial deals made in the lofty towers of Canary Wharf and the City may not be well connected with the micro realities on the ground at the foot of the towers or with the small businesses and practical day-to-day realities of earning a crust. I would remind the House that the City, whose wealth came through the docks in east London, started with coffee houses where people met each other and did deals. This world was about relationships and integrity—“my word is my bond”. You can create endless regulation and legislation but if people do not act with integrity and relate to each other it will not work.

Much has been done to encourage Canary Wharf and the City to deepen their ties with local and surrounding businesses. The Queen Elizabeth Olympic Park and the companies based at Canary Wharf are beginning to realise the long-term advantages of deepening relationships with local business and enterprise. While large organisations cannot be expected to connect with individual entrepreneurs, it is important for them to find a middle ground and to support successful businesses and enterprises which, in turn, will positively impact upon and attract individual entrepreneurs.

My experience is that being in a strong relationship with the world around you, rather than being isolated in ivory towers, is what keeps you safe and honest. If banks had focused on maintaining closer working relationships with their communities, many of our current difficulties could have been prevented. With this in mind, might it not be sensible to have a fifth external member join the FPC who positively engages with small business and has hands-on practical experience in the field? The micro and the macro need to be connected to generate success.

The questions we have to ask today are: will this legislation add to the isolation of the financial services industry or will it help further relationships with enterprise and business? The Bank of England needs to be concerned with more than financial stability. It needs to be concerned with issues central to business and enterprise growth, to have practical and pragmatic objectives, and to have a desire to provide assistance where needed. Theory is one thing but practice is quite another.

18:46

[Lord Tugendhat]

My Lords, I will not follow the noble Lord, Lord Mawson, down the Lea Valley but I should like to revert to the causes of the troubles in 2008, for which I think there were two main reasons. First, by far the most important was the belief in light-touch regulation, to which both main parties, the financial community, most economists and commentators, and I at that time subscribed. To this was linked the near universal view in this country that the lighter the touch, the greater London’s competitive advantage.

The second reason was that in the build-up to the crisis, and after it had struck, the FSA and the Bank of England performed badly as institutions but also in terms of their co-ordination. The story is well known and I will not rehearse it here but I would point to one big difference between those two institutions. The FSA admitted error ages ago and instituted an inquiry while the Bank of England refused to do either until very recently, and then it was very grudgingly.

Clearly, Governor Montagu Norman’s maxim that the Bank should “never explain, never excuse” lives on. Against that background, I find it strange that the Government should feel that the Bank of England’s record before and during the crisis, and indeed since, is such as to warrant it receiving the vast increase in powers that are being lavished on it. I also recall from personal experience as well as anything else that the Bank’s record of financial regulation in the 1990s and the early part of this century was far from ideal. Johnson Matthey, Barings and, of course, the secondary banking crisis all come to mind.

I am glad that the Government have agreed that the Chancellor should have the power of direction over the Bank of England for use in a crisis where public funds are at risk and that they have put the Bank of England and the Treasury under a statutory duty to co-ordinate when managing threats to financial stability. But that does not alter the fact that in normal times during which the conduct of policy will either avoid or provoke possible crises, the Bank of England will wield enormous powers for which it must be held accountable. I will revert to that point in a moment but I want first to deal with another.

Instead of seeking to improve on the institutional structures that they inherited by adapting them and the way they interact in the light of experience, the Government have opted for root and branch organisational change. That is the same choice that they have made on the National Health Service. It is a strategy that always involves very great dangers, because it creates the classic conditions, during the process in which the changes are taking place, of uncertainty, in which risk management, the reconciliation of diverse objectives and keeping reporting lines open can go awry.

I have other worries, too. The burden on the governor will be immense, as other noble Lords have pointed out. He or she will be the master of monetary policy and both micro and macroprudential regulation in the world’s fifth or sixth largest economy and its second largest and most complex financial centre. That is quite simply too much for one person.

In addition to these responsibilities, as again has been pointed out, the governor will have to function effectively at the European and international levels and will have a constant responsibility to justify his or her actions to Parliament and the general public. Finding somebody to fulfil all those roles is going to be very difficult indeed and, however good the person who is chosen, they will bear an immense burden, which I think it is very unwise to create.

I also fear that problems in one area of the Bank of England’s activities will contaminate its reputation and abilities in others. In particular, I fear that any controversy, let alone any errors, in its handling of regulatory matters will contaminate its reputation and render more difficult its handling of monetary policy. Regulation is always a subject of crises and controversy—that is the nature of the beast. So I do not see how this form of contamination can be avoided.

My final fear under this head is of group think, to which a number of noble Lords have referred. Under the tripartite system, co-ordination could and did go wrong. Under the new one, there is the danger that there will not be enough debate, exchange of ideas, free expression and thinking outside the box about issues, dangers and what might be coming down the track. This is not an unfounded fear. If ever there was an institution prone to group think and institutional orthodoxy, it is the Bank of England—and I have already referred to Montagu Norman’s dictum, “never excuse, never explain”. The Bank of England has been going for more than 300 years. It is a very fine institution but, like any great institution, it has faults and other characteristics, which are very difficult to eliminate and are likely to endure. That is why it is very dangerous to put it in such an overwhelming position.

This brings me to the admirable report of the Commons Treasury Select Committee. The Government have chosen the wrong way to reform but, given the route that they have decided to go down, the Treasury Select Committee’s recommendations are absolutely essential to guard against the inherent dangers of the new system and enable it to work properly. I will not enumerate the recommendations in detail, because others have referred to them and we are time-limited. But I attach particular importance to the recommendations relating to the role, powers and composition of its proposed supervisory board. I also think that the role, powers and character of its chairman are a matter of great importance, as are the manner and terms of appointment of the governor and the need for published indicators of financial stability by which the Bank of England’s performance in that field can be assessed. Finally, under that heading, what the report has to say about the role of external members, both of the supervisory board and of the various committees, is very important indeed. I urge the Government to look very closely at this report and accept most of its recommendations.

With this Bill, the Government are creating an overmighty subject, whose decisions will impinge directly on households and businesses. The Treasury Select Committee’s proposals will go a long way to ensuring that it is subject to proper internal control and parliamentary accountability. They will also help it to function better than would otherwise be the case and, perhaps, to overcome some of the fears and doubts that I have expressed.

18:54

[Baroness Cohen of Pimlico]

I declare an interest as a non-executive director for many years of the London Stock Exchange and a veteran, like many of us here, of the financial crisis. There is much to welcome in this Bill, but that does not include the format, which involves the amendment of a couple of other Acts and is painful and confusing—and above all not at all user-friendly. It adds to the conviction that regulations are confusing, arcane and accessible only to experts.

I had the honour of sitting on a committee of this House chaired with patience and clarity by the late, lamented Lord Newton, called the Tax Law Rewrite Committee. It did not, of course, rewrite tax law, because we could not, but it codified it so that anybody who wanted for example to get a grip on capital gains tax had only one Act to refer to rather than juggling several Acts at once. If it was worth doing for capital gains tax, how can it not have been worth doing for a major Act to govern for many years the vital regulation of financial activity? The Bill is of course for the long term, but could we not have started with a self-contained document?

However, as my noble friend Lord Turnbull observed, we are where we are—and there is much to welcome in this Bill. It is particularly pleasing to feel that your Lordships’ House is in agreement that we must all get the best Bill that we can, however difficult the format. The effective regulation of our financial services industry is vital to stability, for consumers to save and businesses to invest, and getting the balance right is vital for any Government, especially as so many jobs depend on it.

As someone who has spent the past 11 years concerned with the working of capital markets, I welcome particularly that those markets, including the London Stock Exchange, will be regulated by the Financial Conduct Authority. I welcome the announcement this morning of its chairman, John Griffith-Jones, and expect that he and his CEO, Martin Wheatley, will make a strong team. It is also greatly welcome that the Government have listened to representations on the appropriate home for market regulation and have confirmed that the UKLA will be located in the FCA. It is of course true that effective regulation does not depend on structure, but it is a very good start to have the working parts of successful capital markets regulated in the same place.

The Financial Policy Committee will have the power to move markets and affect consumers, as the Monetary Policy Committee now does. In designing the body, the Government have taken powers to contain the use of those very powerful tools to prevent a negative effect on the real economy. However, the Bill is not consistent or clear about how to meet that objective, and we need to clarify it. After all, the Financial Conduct Authority is going to regulate capital markets, which are estimated to support over 7 million jobs in UK companies, and in the financial sector will regulate 27,000 firms, which contribute £63 billion in tax revenues and provide over 2 million jobs—two-thirds of them not in London. Furthermore, the authority will be a global ambassador and the first point of contact with the UK for international businesses. It needs and deserves a consistent view, which will continue under a Government of whatever character, on markets and the desirability of maintaining the competitive position of the UK.

The original FSA statute provides that the FSA must have regard to,

“the international character of capital markets and the desirability of maintaining the competitive position of the United Kingdom”.

As it stands, the Financial Conduct Authority will not inherit that requirement, despite the FCA regulatory approach document published last year stating that,

“the regulation of markets for capital-raising and trading has worked well”.

If that phrasing is to be discarded, the proportionality principle needs to be clarified in the Bill. The current definition is too vague to be useful. For example, it speaks of benefits and burdens “considered in general terms”, whereas a reference to the impact on the growth of the economy, as the Bill already has in relation to the FPC, would be more tangible.

Proportionality is supported by a requirement to carry out cost-benefit analysis, but again the Bill provides no explicit direction as to what costs should be considered. For example, a direction to consider the impact of actions on the attractiveness of the UK as a business location would be more specific. In their response to the Treasury Select Committee, the Government stated that they see the proportionality principle operating to,

“help to ensure that the UK remains a competitive place to carry on business in the financial sector”.

The Government’s intention in this respect should be reflected explicitly in the Bill. A wide coalition of business groups backs the need to keep regulators focused on the attractiveness of the UK for international business, including the CBI.

The Government have shown real willingness to act in the national interest in the international market. I cite the less well known current action against the European Central Bank, which sought to provide that euro-denominated transactions can be cleared only in eurozone countries. The Government have gone to court to prevent this. The Government’s support for trading on the renminbi is also thoroughly welcome.

However, in a highly competitive market we cannot take for granted the capital markets’ manifest advantages such as location in a time zone handily placed between the major markets of the USA and the Far East; deep liquidity; and skilled and experienced market participants and financial services people. We can afford to ignore the odd petulant threat from individuals to take off for the Cayman Islands or worse, but in dealing with large, foreign-based companies it is always vital to remember that they do not have to come here. The welcoming arms of Hong Kong or New York beckon them and we should always be conscious of this.

Therefore, I submit that we need a constructive debate about what proportionality means in order to ensure that the Bill effectively delivers the Government’s vision of regulation that supports, not undermines, the competitiveness of the UK and the impact on growth and jobs. This is not about light-touch regulation—the FCA does not regulate the banks, and will not—but about the 7 million jobs in UK companies supported by markets which are subject to FCA regulation, and the £161 billion which has been raised by companies on UK markets since the start of the financial crisis. There is a real balance here that the Government need to acknowledge in linking the actions of the FPC to the growth of the economy, and in their statement of intent for proportionate regulation to support the competitiveness of the UK. This is about a system which will endure and continue to deliver an effective balance.

The Joint Committee that scrutinised the draft Bill stated:

“To be successful the reforms will have to change the regulatory culture and philosophy … A change in culture is not something that legislation can guarantee but legislation can influence the culture of a regulator by: … setting objectives; … allocating and aligning powers and responsibilities … establishing appropriate systems of accountability”.

The culture of regard to regulatory impact on the real economy, jobs and the UK’s competitiveness is alive and well, but if it is to endure for the future, the legislation needs to be more precise in stating this. The proportionality principle is the right place to start. I look forward to discussing this in Grand Committee.

19:03

[Lord Hunt of Wirral]

My Lords, I declare my interests, set out in the register, as chair of the Lending Standards Board and the Press Complaints Commission, as well as being a practising solicitor and partner in the global commercial law firm DAC Beachcroft for nearly 45 years.

The Bill establishes a new framework for financial regulation in the United Kingdom. I share the determination of colleagues to improve the Bill, including that of the noble Baroness, Lady Cohen of Pimlico, whose expertise and experience in this matter I greatly respect. I warmly welcome her emphasis on proportionality. However, I would like to concentrate my remarks on the regulation of consumer credit. I support the move from the OFT to the Financial Conduct Authority. This will result in all retail banking products becoming the responsibility of one statutory regulator, bringing benefits for consumers and firms and avoiding the problems of split regulation. I am, however, concerned that there is still no decision about what type of statutory regime is appropriate for consumer credit—the regime which existed under the Financial Services and Markets Act or the Consumer Credit Act or, as is now proposed, a combination of the two.

I want to make it clear to the House that I strongly believe in self-regulation, particularly effective self-regulation. It has concerned me that to date little consideration appears to have been given to what role self-regulation through industry codes might play in the new regime. I do not believe that it should be a choice between statutory regulation or self-regulation; they both have a place. I strongly believe that the best outcome would be for them to continue to co-exist. We should take the best of what each has to offer to achieve an appropriate and proportionate balance between consumer protection and the commercial needs of a properly functioning competitive market. The new regime has to be demonstrably better than the sum of the current constituent parts; otherwise, why on earth are we incurring the considerable transitional costs and risks? Therefore, in my view, self-regulation remains important and relevant. In consumer credit, The Lending Code sponsored by the British Bankers’ Association, the Building Societies Association and UK Cards Association, and enforced by the independent Lending Standards Board, which I have the honour to chair, has an excellent track record and I believe is seen by consumer bodies and other stakeholders as efficient and effective. Of course, industry can and should take a lead in rebuilding the trust and confidence of its customers, but this will not be achieved overnight and I support action on a number of fronts. However, one of these must be effective self-regulation.

There are five principles of good regulation and, for me, the most important is proportionality. Regulation should be proportionate to the risks posed and costs should be identified and minimised. Vast tomes of very prescriptive statutory rules will usually add little to consumer protection. There is increasing concern about the potential costs of moving to and complying with the proposed new regime—costs that will, of course, ultimately have to be borne by the consumer. I strongly agree with the noble Baroness that at the moment the Bill is not user friendly. However, I was very pleased to see reference to the principle of proportionality in Clause 5 in new Section 3B(1)(b) at the bottom of page 28 of the Bill.

I would like to see self-regulation in the following form. I want there to be strong codes of practice with effective independent monitoring and enforcement that would not only be proportionate to the perceived problem or risk but score highly against the other four principles of good regulation—consistency, accountability, transparency and targeting. What do I mean? Self-regulation can set higher standards than statutory rules. One such example is the latest set of provisions introduced into The Lending Code whereby banks must retain responsibility for the fair treatment of customers after a debt has been sold to a third party. Voluntary codes can also avoid super-equivalence problems where they set standards that go beyond European regulations such as the EC consumer credit directive.

I could give many examples. Codes offer a vehicle to embody industry best practice and can cover areas that are not appropriate for inclusion in statutory rules. Self-regulation is more flexible and responsive to change and emerging issues. Codes provide a level of conduct of business detail that supports high-level statutory rules and can help industry better to interpret and apply the statutory requirements. It is better to have one externally visible code than myriad different lender-specific internal codes. Codes can also be market-focused or product-focused, as compared with the broad generic approach that is symptomatic of statutory regulation. That would produce much better consumer outcomes.

Improvements to self-regulation must be part and parcel of this approach. A number of codes of practice currently operate in the consumer credit market. Not all have standards that are as robust as those contained in The Lending Code or the FLA code to which my noble friend Lady Noakes referred. These codes are followed by the major banks, building societies and credit card providers. In promoting the case for self-regulation as a component of the future regulatory regime for consumer credit, Governments should encourage the sponsors of these codes to look at strengthening their rules, as has recently happened in the payday lending market. Most importantly, they should ensure that the codes are independently monitored and enforced.

The new regime would benefit from a close working relationship between those enforcing such codes. Ideally, there should be some provision for recognition or endorsement of codes by the FSA. Endorsement could provide a degree of protection for firms if they were to follow the codes’ provisions. That would encourage commitment on the part of the industry. I do not think that the statutory regulator would be abrogating ultimate responsibility; it could work along the lines of the OFT’s compliance partnership approach.

In conclusion, self-regulation is the right way forward—complementary self-regulation policed by an independent regulatory body that would protect the consumer without destroying the creativity and competitiveness of the market. Unfortunately, statutory regulation tends to be very heavy-handed, whereas self-regulation can supply not a light hand but a firm hand—and sometimes even a helping hand.

19:13

[Lord Barnett]

My Lords, we are debating the Second Reading of a large Bill that is split into two parts to make it look smaller, I suppose—one containing the clauses and the other the schedules. When I first saw the Bill, I was reminded of days long gone when I took Finance Bills through both Houses. I was in opposition on Finance Bills to the noble Lord, Lord Lawson, and we debated them at great length over many years. We considered two Bills a year in my time—the second amending the first. I fear that that will happen again because Oppositions of all parties tend to choose the sexier points of a Bill to debate and leave the main parts undebated and unscrutinised. The situation is a bit better these days, in the sense that the House of Lords—although Finance Bills are money Bills, and this Bill is not—examines clauses in Select Committees, of which I have been a member. They do a good job, but it is very limited. The Commons does nothing at all about these matters.

The situation is not much improved these days, although I hope that this Bill will be a lot better because it has had a great deal of pre-legislative scrutiny. We have had Select Committees, Joint Committees, Command Papers and White Papers. In fact, there is so much paperwork attached to the Bill that I confess I have not read it all. I am sure that every other Member of the House who has spoken will have done so. I hope that the pre-legislative scrutiny will help, but despite all that, I hope I will be forgiven for believing—as with Finance Bills—that we might see in years to come a lot more Financial Services Bills that amend this one.

The Bill amends a number of Acts, not least the Bank of England Act that the right honourable Gordon Brown, as Chancellor, introduced to the House of Commons. At the time, I thought that it was not a bad Bill, apart from in one or two major areas. However, in practice, I had reservations. In an article in today’s Financial Times, John Gieve, a former senior Deputy Governor of the Bank of England, said:

“The debate so far has revolved around one fixed point: the assumption that no change is required in any respect to the … Monetary Policy Committee”.

He had obviously not read or heard my speeches over many years because, together with the noble Lord, Lord Peston, who is my noble friend and professional tutor, I tried to persuade the Chancellor at the Second Reading of that Bill—we also did so privately—that he needed to make a major change that has been referred to by a number of noble Lords, I think even in the excellent maiden speech of the noble Lord, Lord O’Donnell. There were three words in that Bill which should not have been there. The words were “subject to that”. They meant that the Monetary Policy Committee must look at the problem of inflation and only then—I repeat, only then—look at the major economic and financial problems that the country faced. I give notice to the noble Lord, Lord Sassoon, that we will try again—given that the Bank of England Act is referred to in the Bill—to remove those three small words.

The real question before us is whether the Bill will deal with the kind of crisis we had in 2008. A number of noble Lords have expressed doubts. The noble Lord, Lord Tugendhat, with whom I very much agreed, asked why on earth the Bank of England, of all places, should have huge powers such as those given to it by the Bill. After all, its past record would not normally justify giving it greater powers, yet that is what the Bill does in a big way. We are now going to have deputy governors of the Bank. All we are told is that the Bill is to avoid a repeat of the financial crises that we have had in the past. Perhaps I may express the hope that it will do that—but I doubt that it will because the plain fact is that part of the reason for the crisis, as the noble Lord, Lord Sassoon, mentioned, was what happened when Northern Rock was lending 120% mortgages. Auditors have been blamed. In my long-lost past when I was a junior auditor and before I became a senior partner, I often wondered how I would deal with an audit of major banks lending at this rate. Under their present terms, auditors could not deny them a certificate, and of course this Bill will not do anything about that.

I have a feeling that we have this the wrong way round in that this Bill should have come after the banking Bill. I ask myself whether all the new prudential regulations and new committees—the new Financial Policy Committee and the new Financial Conduct Authority—should have come up for discussion after the introduction of a banking Bill, which we are now going to have. Perhaps the Government will tell us when we will have that Bill and when it is likely to become an Act. It is urgently needed. I would not like to say that without such a Bill all the banks are going to be unable to cope with the sort of crisis that we met in 2008, and ultimately it may well be that without sufficient scrutiny, as I mentioned, that Bill will not achieve any kind of objective. Perhaps after nearly 48 years in one House or the other I have become overly cynical. Perhaps I have taken through too many Finance Bills and have debated finance and economics too often. I hope that I am not cynical but I fear that I am. It is very difficult to be confident that the great new structure brought in by this Bill is going to solve the problems that we are facing and meet the objectives clearly set out in the Bill.

I do not agree with noble Lords who said that they regret that the Bill is to be taken in Grand Committee. I find that Grand Committees provide closer and more detailed scrutiny of Bills. This is not the kind of Bill that is helped by being debated on the Floor of the House. Our House is a bit like the House of Commons in that only the sexier parts are debated at length, whereas in Grand Committee you can look at Bills more closely.

I look forward to the amendments that will be moved by me, my noble friend and many others. I hope that ultimately my worst hopes and excessive pessimism will not be met and that the Bill will emerge in a better form than it is in today.

19:22

[Baroness Valentine]

I declare that I am chief executive of London First, a not-for-profit business membership organisation, whose members are drawn from a wide range of business sectors, including banking, insurance and professional services firms, and their customers

Over centuries and through several crises, the UK has built a global reputation as a safe and honest place in which to do business. Its financial sector is seen to offer a deep pool of knowledge and expertise that is, arguably, unrivalled. Businesses value this expertise and the ability to harness it to their own requirements. These can be as diverse as raising capital, structuring and financing mergers and acquisitions, or hedging against price fluctuations in their raw materials. These are essential services for businesses. Therefore, in developing the framework for regulating the financial sector, we must take into account the likely impact on not only the financial institutions themselves but, perhaps more importantly, their clients.

For business, the price, range and availability of financial products and services will be contributory factors in achieving economic recovery and maintaining international competitiveness. With this in mind, I join other noble Lords in expressing concern that the proposed objective of the Financial Policy Committee is solely to focus on ensuring financial stability. This objective should, I believe, be complemented with a duty to foster an environment in which the financial sector can continue to support economic development—for example, by helping to ensure a stable supply of credit.

When we look at other national regulators or central banks, we see that they are often given similarly balanced objectives. For example, in the US the Federal Reserve maintains the goals of maximum employment, stable prices and “moderate” long-term interest rates. The Reserve Bank of Australia has both its social and its economic purposes clearly defined in law. Its job is to ensure that its monetary and banking policy contributes to,

“the economic prosperity and welfare of the people of Australia”.

Closer to home, as other noble Lords have noted, the Bank of England’s own Monetary Policy Committee includes in its objectives the aim of supporting the Government’s,

“objectives for growth and employment”,

albeit, as the noble Lord, Lord Barnett, notes, as a subsidiary objective.

Financial stability must, of course, be a core objective of the regulatory system—it is a precondition of economic well-being—but it should not be the only criterion against which we measure success and, indeed, we should not be seeking financial stability at the cost of economic development. If we do so, we risk hard-wiring a bias towards conservatism into the new regulatory architecture. We have to recognise that innovation is part of what will keep us at the cutting edge of global markets. Without it, the economy will continue to be stifled.

At a time when our economy is in a double-dip recession with an anticipated slow and bumpy road to recovery ahead, all aspects of the regulatory framework, including financial regulation, should be designed and implemented in support of growth. I cannot see why this approach is not relevant for the Financial Policy Committee and, in his closing remarks today, I would welcome some explanation from the Minister of the rationale for adopting such a narrow brief.

I further note that the Government have established a Regulatory Policy Committee to ensure that any new regulation meets the principles of good regulation. There is a strong argument for bringing the FPC and its sister bodies within its scope.

My second concern relates to the approach that the UK is taking towards integration with the new European regulatory framework and the need for those working with the new European bodies, on the UK’s behalf, to have relevant market experience and expertise.

Increasingly, the regulation and supervision of financial services is driven by decisions taken outside our Parliament at a European or G20 level. This is right if we are to ensure a consistent approach to supervising global institutions, but it seems strange that the proposed UK framework does not correspond to the recently established European framework. We appear to be developing a new imperial system while the rest of Europe consolidates a metric one.

The UK already punches below its weight in voting terms. Despite having more than 35% of the European wholesale financial markets, under qualified majority voting we have fewer than 15% of the votes on decisions governing those markets. British nationals occupy only 5% of the posts in the Commission, even though we make up 12% of the population, and that proportion is falling. At a time when the so-called Anglo-Saxon model of financial services faces considerable suspicion from some quarters, for the UK to be so under-represented is worrying. My fear is compounded by the general lack of experience of truly international financial markets among those responsible for regulation and supervision in the new European regulators. It is essential that Britain’s regulators offer a coherent voice that can provide these new institutions with the expert guidance and insight they will need to fulfil their functions without damaging the very markets they have been established to protect.

[Lord Lea of Crondall]

I am most interested in the point that the noble Baroness has just made about whether we have the right number of people in Brussels, Frankfurt or wherever. Is that the view of her constituency in the City of London and, if so, what are the members of that constituency doing about it?

[Baroness Valentine]

I could give a long answer to that. I do not believe that industrial representatives from the City are necessarily welcome in the European supervisory bodies, and that creates a complication in dealing with that particular issue. I think that they would be happy to put forward people but you have to be clear that the Chinese walls are there. I am not sure whether that answers the noble Lord’s point.

I welcome the Government’s creation of an international co-ordinating committee to present issues and concerns from the UK regulatory bodies. However, I believe that its effectiveness and credibility would be enhanced by mandating a secretariat made up of individuals who have experience of the international markets and have worked in international organisations. This would be a significant step towards ensuring that the UK’s contribution to EU financial regulation was proportionate to the importance of the financial sector to our economy, and would send a clear signal that the Government recognised that contribution.

Last week the chairman of the Treasury Select Committee commented that this Bill was,

“the most important overhaul of financial regulation ever undertaken in this country … It is crucial that we get it right”.

I could not agree more.

Despite laying claim to be the birthplace of modern football, it is many years since any of our national teams have been dominant on the field—as I fear the French may well be demonstrating this evening. I do not know the score.

[Noble Lords]

A draw.

[Baroness Valentine]

A draw. However, we have long been pre-eminent in financial services and we should aim to remain so. I therefore urge the Government seriously to consider the suggestions I have made this evening.

19:31

[Lord Lucas]

My Lords, it is very important that when we come to the Report stage of this Bill and the arguments that we will doubtless still be having with our Front Bench, we vote according to our expertise and not our politics. We are holding ourselves out in this House to be a source of expertise. The debate, at least until now, has demonstrated that to excess. If we allow ourselves, when it comes to votes, to be pushed around by our Whips, we become a mere House of politics, which is what Mr Clegg wishes to make us. If we are to be a House of politics let us be elected and get it done with. If we are going to be a House of expertise, it is important that when an argument has been won in this House and the Government still resist it, our views make their way down to the other end. I very much hope that when my noble friends and I come to discuss such important points as the duties and responsibilities on regulators, and we have reached a settled conclusion in this House, we vote that way and do not let ourselves be put off by spurious political considerations. We are a House of expertise. We should be proud of it and we should live up to it.

It seems to me that many of those who have spoken have focused on the way in which duties are placed on the various regulators. This is crucial; things obviously have to be divided between ministries and responsibilities are given out to one or another. The same happens with bits of ministries, but if you do not allow some overlap, you get situations like the current spat between the UK Border Agency and BIS where the UK Border Agency regards university students as some kind of poisonous plague and BIS, quite rightly, wants to encourage as many as possible. We need the UK Border Agency to have regard to the effect of its policies on the economy as a whole rather than just on immigration. You need to blur the boundaries from time to time and to place responsibilities on agencies that go beyond the powers that they actually have, so that they take into account the wider effects of what they do. The case has been very well made today that we must have regard to that consideration in this Bill.

I will focus mostly on minutiae. The big picture has been well covered by people who know it better than I do. I reassure my noble friend the Minister that during the Committee stage I will not try to insert any of these peculiar particular considerations into the Bill, other than making sure that the regulators, when they are created, have the power to deal with these things without having to come back for primary legislation. The three things that concern me particularly are high-frequency trading, consumer regulation and disintermediation. High-frequency trading has got to the point where stock exchanges—I do not know whether this is true of the London Stock Exchange, but it certainly is for some of the American exchanges—are allowing privileged access to data streams to high- frequency traders. These people with their computers are sitting co-located with the Stock Exchange. They are getting the data before anyone else, so the common experience of a pension fund manager trying to shift a block of a few million shares is that the market moves ahead of them because the high-frequency trader can see what is happening. This is licensed insider trading. The only people who benefit are the few running these specialist computer installations. The people who suffer from it are all of us through lower returns on pension funds. It is a thoroughly undesirable activity.

I am no friend of the Tobin tax; I can understand why people want to impose it but I do not think that it would work. However, we have to find a way, either through looking at the definition of insider trading which, it seems to me, high-frequency trading is well over the boundary of in some instances, or by looking at things like instant registration of share ownership. Why not update that so that companies have much more control of who is on their register rather than having a sea of unregistered deals out there? Why not bring company registers up to date and see what benefits that might give? I want the regulatory authorities to be able to explore those sorts of questions. It will take time but I do not want them to find that they are limited in what they can do in the way they are at the moment with consumer regulation.

There is a boundary between what the FSA can look at and what it cannot when it comes to collective investments. You would think when you read the pages of the Guardian or similar newspapers with their whole-page spreads for tropical forestry investments that they were collective investments. They are in the sense that a lot of people are piling into them all together. But because the investment at the end of the day is in individual named trees, the FSA cannot touch it. These are the most monstrous scams and people will suffer because of them. There was a supplement in the Guardian that must have had five or six whole pages of advertisements for these things. Why the Guardian deserts its responsibility to its readers to that extent I do not understand, but at some point these things get big enough so that the FSA should take an interest. I do not want it to be hobbled by provisions saying that there are artificial boundaries that the FSA cannot cross. It must be able to look at the effects that these products have on consumers, the likelihood of disaster and misbehaviour, the way in which they are sold to unsophisticated customers rather than sophisticated customers and say, “This looks like an area that we should investigate and therefore we can”, rather than being obstructed by technicalities.

The same appears to be true of some wine investments. This is not something that is without its extensions. The noble Lord, Lord Whitty, raised the interesting question of customer data and how Tesco Bank would be able to combine my liking for baked beans with my banking records. I can see why that would be useful. You say a lot about yourself in your pattern of purchases. Doubtless it could use that in judging my creditworthiness. Perhaps it is a good idea that it should, but we jolly well ought to debate it. Whatever financial regulator we create ought to be able to deal with that sort of emerging problem as it comes along.

Lastly, I come to disintermediation. I shall not take long because Andrew Haldane of the Bank has said such wise things about it. We have to make sure that the regulators we produce can unblock the road. At the moment they are in a totally ridiculous situation. The Treasury says people like Zopa and Funding Circle, which are disintermediating between members and borrowers, cannot have tax offset. If you make a capital loss because some of your loans go bad, you cannot offset that against the interest you have earned. So, this restricts these operations to only the finest possible lending. It also says that they cannot put their products into ISAs or similar things. It says they cannot do these things because they are not regulated and they are not regulated because the Treasury will not let them be regulated. We invented this disintermediation. I think that I am right in saying that Zopa was the first in the world. It is as if we had invented Google and then prevented it doing business. There are now hundreds of these things all around the world, but we have a block on the development of our own industry, which could be a fundamentally good thing that would offer new opportunities.

When the right reverend Prelate the Bishop of Durham comes to look at community lending, he will see that we will be able to produce the sort of disintermediation structures that work at a local level. When the sector becomes sizeable it will start to reduce the burden on the Treasury of the £85,000 guarantee, because the direct system will not qualify for that. We will start to attack the whole problem of lending short and borrowing long, because if we do it through the likes of Zopa or Funding Circle we will take the time risk but we will have a tradable asset. Therefore, we will get rid of the systemic risk that caused such great problems in the banking sector. We ought to encourage these things, but the Treasury has put a total block on their development and as a result the rate of growth in this country of that kind of business is terribly slow.

We must make sure that in producing new structures we are conscious of the fact that there will be people who will want to innovate in disintermediation. It is not only mechanised lending that is capable of disintermediation; investment management is also capable of it. We are conscious that investment managers as a class earn very large rewards. We are beginning to see disintermediation at the seed capital end of things. I am associated with one such firm. It would be nice to see that in mainstream investment management. We ought to be able to disintermediate annuities. Old people want income, young people want capital. That is a classic disintermediation opportunity, but it will be possible only if we write the regulations correctly. Otherwise, we will put young firms at a total disadvantage compared with the established, regulated operations against which they are trying to compete. The Bill ought to be on the side of innovation and dispersing rather than concentrating risk, but at the moment it may not be.

19:41

[Lord Borrie]

My Lords, a short while ago the noble Baroness, Lady Valentine, quoted the excellent chairman of the House of Commons Treasury Committee, Mr Andrew Tyrie, who described the Bill as,

“the most important overhaul of financial regulation ever undertaken in this country”.

She will know that, at the conclusion of the Bill’s discussion in the other place, the committee considered that it left there still defective in a number of significant respects.

I will concentrate my remarks this evening on the consumer protection aspects of the Bill, and on the role it gives to the Financial Conduct Authority. I appreciate the valuable role of the other regulatory body created by the Bill, the Prudential Regulatory Authority. It will be just as important to consumers as to big and small businesses, and to the economy generally. We all benefit from financial stability; we all need a firmer base for avoiding financial crises in future.

The Bill makes it clear that a key objective of the Financial Conduct Authority is to promote effective—I emphasise “effective”—competition. At present it is evident from a number of matters, including the existence and persistence of many expensive short-term, quick-fix payday loans, that competition is not working. If it were working properly, the detriments that these loans often have of imposing not only high charges but high default charges would disappear from the marketplace.

Among the essential requirements for effective competition is clear information that is understood by the people who see it. It has been commonly thought by the intelligentsia, consumer groups, the Civil Service and successive Governments that the annual percentage rate is the best way of enabling consumers to compare different offers of credit. If we were all sophisticated, the APR would have a lot to recommend it. However, a percentage sign with whatever number is in front of it is not as readily understood by the great mass of people as a pound sign: how much they will have to pay in interest. What is often needed—not as a substitute for APR, which is perfectly good for all sorts of obvious reasons, but in addition—is a clear statement in cash terms of the total cost of credit. If that were explained to people, many loans that were objectively undesirable would not be taken out.

I am happy to note that among the supporters of this proposition is the Trading Standards Institute, of which I have the honour to be a vice-president. However, it also wants a legal cap on charges. I have never been sure about the case for a legal cap, on the grounds that other noble Lords expressed today: namely, that many borrowers would be worse off if they were pushed into the arms of unregulated and unlicensed moneylenders whose debt collection methods would be likely to involve threatened or actual violence. I am sorry that the right reverend Prelate the Bishop of Durham is not in his place. He said many important things about the value of mutuals and credit unions, and about the serious disadvantage of unlicensed moneylenders purveying credit to members of the public.

The relevant trade associations have agreed to improve their codes of practice. I agree with the noble Lord, Lord Hunt of Wirral, that improving codes of practice may be a substantial help. However, it would be a pity not to take up the opportunity of putting into the Bill certain legal requirements to make it clear that we are not just urging people—codes of practice usually “urge” people—to think carefully before taking out a short-term loan, but are making it much clearer that these loans are expensive.

I referred to the need for the consumer to get clear information in order for effective competition to take place. There is also room for discussion of improvements to the Bill proposed by Which? to require the Financial Conduct Authority to ensure that information provided to consumers is “accurate and intelligible”. This wording would be more helpful than that in Clause 5, which uses the currently popular phrase “fit for purpose”, which is far vaguer. I am fond of the phrase “fit for purpose”—as is anyone who has studied the Sale of Goods Act in its original form. However, people have borrowed it to refer to all sorts of unrelated matters and it is not terribly clear.

One of the most useful and imaginative consumer protection provisions of consumer credit legislation was the creation of joint liability in law of finance companies and traders who provide goods or services. Section 75 of the old Consumer Credit Act 1974 indicates that when goods are bought with credit provided by a finance company or card company, the finance company is deemed to be engaged in a joint enterprise, and usually it is the finance company which has the greater resources to meet any claim for breach of contract the consumer may want to bring.

In the course of the Bill’s progress in another place, the Government stated their wish to replicate that provision in the Financial Conduct Authority consumer rule book. However, they seem to have found that that would not be strong enough and that it may be necessary instead to keep the provision in the Consumer Credit Act, to which I have already referred. The noble Baroness, Lady Noakes, referred to this problem and the Finance and Leasing Association, in its briefing to noble Lords, also referred to the matter.

It is not very clear from government statements in the other place what is to happen. We know that the licensing powers of the Office of Fair Trading are to be transferred to the new body by secondary legislation but, as the FLA fairly asked the question, what about the transitional arrangements? What will happen in between time? We know that other legislation is being brought forward by the Government to merge the Office of Fair Trading and the Competition Commission, so what will happen to the current licensing powers that the Office of Fair Trading has under the Consumer Credit Act? It is important to have clarity on these matters, otherwise things will not go clearly and smoothly. At the moment, the Government seem to have left us all—not only people such as myself but also the FLA—uncertain as to what the outcome will be.

19:52

[Lord Naseby]

My Lords, before I begin my speech I wish to offer an apology to the House in general and in particular to my noble friend on the Front Bench. Regretfully, due to the vagaries of public transport, I was not in my place as I should have been at the start of the debate. However, I have heard most of the speeches subsequently.

I wanted to take part in this debate because, as we all know, the financial sector is absolutely vital to the success of this country. It does not matter whether you are a small shopkeeper, a SME or any other form of business, a major or minor saver, the success of our country stems from the success of the financial sector. The Bill, huge as it is, has the potential to create the right conditions providing not only that the structure is there but that we can find the men and women to use, work with competence and understand the culture behind it.

I do not have the skills or the competence to make a judgment on the major financial dimensions and controls of the Bill. Others who do have such competence have spoken today and I hope that my noble friend on the Front Bench will listen to and take on board what they have said today and what will arise in discussion in Committee.

However, there is a certain area where I can claim some competence and skill. It straddles the area that my noble friend—I do treat him as a friend—Lord Borrie has half discussed this evening and I would like to add to that. He and the House will know that I have asked a number of questions about the Office of Fair Trading. Much of the work that it does is good, but there have been a number of examples, particularly in the recent past, where extensive inquiries have been undertaken over months and, indeed, years, costing millions of pounds to both the public sector and the companies or organisations that were under investigation and where it has been subsequently found that there was no wrongdoing.

It has been mentioned by a couple of noble Lords that we are now in a transition period. It is very important in a transition period, if I may use a cricket metaphor, that the ball is not dropped in the slips. One of the areas that deeply concerns me at the moment is that of payday lenders. I asked Citizens Advice whether there was a current short example that I could quote to your Lordships. In November 2011, a citizens advice bureau in the West Midlands saw a woman who was earning £880 a month. This did not prevent her taking out 19 payday loans. She was granted these short-term loans. By the time she came to the citizens advice bureau her entire wages were being taken up in debt repayments. As a result, she was having to use payday loans to replace her income, not to supplement it for short periods as payday lenders suggest in their advertisements.

I was in the world of advertising and I listen to the advertisements and it has come over in the past few days that there are a number of companies in this area. The new authority which is to take over has to have a competence not only to license particular companies in the payday loan area—there is a function there that is required—but has to have an ability to take action early before matters escalate out of control. We are in a transition period and I say to my noble friend on the Front Bench that I hope we will not allow this problem to escalate out of control.

There is a second area in which I have some competence. In the past I had the privilege of being chairman of a friendly society. I took through the House the Building Societies (Amendment) Bill, which was started in another place by a former Member of Parliament, John Butterfill. The provisions of that Bill, which came into effect just before the financial crisis in 2008, gave some flexibility to building societies in what they could or could not do and allowed them to develop as good mutuals. Yes, I am one of those who regrets the demutualisation of so much of what was the mutual movement.

When I was chairman of a friendly society we tried very hard to extend niche areas. We were a small operation with assets of only £1 billion at the time. We looked at the niche markets we could provide that were not available or on offer from the banks. Every time we tried the FSA put the claw of scrutiny upon us—which was fair enough—and it was very difficult to find new markets to move into and develop. The same applied to the credit unions. The child trust fund came forward and the friendly society movement received 25 per cent of that market. Indeed, without the drive and enthusiasm of the friendly society movement, the child trust fund would not have developed as it did. Sadly, the knife went in from the Liberal Benches. Whoever was to blame, the scheme could have been modified and need not have cost the Exchequer the money it was costing. The point I wish to make today is that the regulator has to look at the extent of the risk to smaller operations, which often tend to be community based, and not decide that just because they are small they are ultra risky.

There needs to be a change in attitude in a number of other areas. One in particular is the alleged pension mis-selling situation. There is no doubt that there was some pensions mis-selling in the late 1990s. Equally, though, by the time we had gone through the FSA’s requirements, we and many other small pension providers soon found out that, on a generous estimate, up to 25% of pensions might have been mis-sold. There is a requirement in life for a bit of caveat emptor, but the early claims companies got on the back of this and made it into a business of its own, almost regardless of the validity of the claims. Basically, the providers would say, “It is easier to settle than it is to contest this”.

The banks have also had to face challenges in relation to the selling of PPI and some other products. While a person who has genuinely been mis-sold a product should be properly compensated, with the new regulator we must not allow a situation to arise where it is far more troublesome to deal with a tidal wave of claims from the claims houses. They have very persistent people working in them, and it is cheaper to settle than to look at the validity of the claim.

I shall finish by saying that my noble friend Lord Lawson, who has been in his place for almost the whole debate, mentioned the word “cost”. Cost is a crucial feature in relation to anything in financial services, and particularly in relation to the controls and requirements being put on the industry. The new FCA will need to keep abreast of the comparative costs between what is proposed for the UK and what is happening in other major financial centres around the world. We need to remain cost competitive as well as control competitive.

20:01

[Lord Desai]

My Lords, this has been an excellent debate, especially the maiden speech of the noble Lord, Lord O’Donnell. I am reminded of a debate we had when we considered the Financial Services and Markets Bill. At the time we were sure that the self-regulation of various bodies in the City had failed—the noble Lord, Lord Hunt of Wirral, mentioned self-regulation—and that we needed cross-border co-ordination and an overarching authority. We thought we had that in the Financial Services Authority, because at the time the problem lay in the interconnections between different parts of the financial sector that were not well understood. I recall that we were proud of a special provision in the Bill to ensure that the chairman and chief executive of the authority would be the same person. Sir Howard Davies was chosen. We thought that the centralisation of authority in one person was key to the success of the authority.

We have moved on, and now we have the Financial Services Bill “Act Two”. I have absolutely no practical experience of anything, but I want to emphasise that these Bills are always based on an underlying concept. The conceptual basis of the FSA proved to be wrong. It was not just that it was based on light-touch regulation—we all believed in that—but that the kind of world we thought we were regulating was no longer the world that was out there. My main worry is whether, when these bodies have been set up, they will be able to deal with the problems they have to face. I shall take a line from my noble friend Lord McFall, who said that risk is a black box. Our main problem recently in the cases of MF Global, JPMorgan Chase and others has been that the people who are professional workers in the field can no longer grasp the kind of risk they are undertaking.

What is also happening in the literature is that what was once the standard, basic concept, that of a financial analysis of value and risk, is now in doubt in that people wonder whether it is a robust enough concept to guide them through operations in the financial market. As it turned out in the case of JPMorgan Chase, the product it was engaged in putting money into was so complex that the top management, which is among the best management there is, did not actually understand the nature of the risk that its people were taking. Surprisingly, however, when the so-called London Whale was taking a position in the sovereign debt euro market, someone called the New York Monster sitting in New York knew precisely what was going on and spotted the anomaly in the big bet that JPMorgan Chase was taking. He decided that the bet had to fail. He took a counterposition and cleaned up. The market worked, but the institution has completely failed because the people in charge did not understand the nature of the risks that some of their subordinates were taking.

That is exactly the story of Barings Bank. When it failed, it was because the top management at the bank did not understand why they were making so much money in the Far East. They were making money in the Far East because a man called Nick Leeson was taking unhedged bets on the yen. Those bets were publicly known to anyone who looked at what was happening in the Yokohama market. I remember discussing it here at the time. Not only did the top management at Barings not understand what had happened, the top men in the Bank of England did not understand it either. A report was later produced which we debated in your Lordships’ House. These regulatory people face a problem: can they keep up with the nature of the reality, which is very fast-changing, complex and mathematical, so much so that even those operating in the field do not understand it? It is almost like playing rugby without knowing the rules, and even then the rules keep on changing while you are trying to play.

There has been some coverage in the Financial Times of the failure of MF Global. It was run by Jon Corzine, a very accomplished man who had been with Goldman Sachs. When that large fund failed—the investigations are still going on—what clearly emerged was the fact that the firm had not set up sufficient internal supervisory and regulatory procedures in order to understand what it was doing. It is the long-term capital management story all over again. The company had taken a position believing that if differences in interest rates are very wide, they will converge. It is one of the basic propositions of Economics 101, except when it does not work. It does not work when things do not come together: when, in fact, they diverge. That is what happened in 2008 and it has happened again and again. Somewhere in the intestines of the FPC or whatever it is, I suggest that there ought to be a research capability that can tell those who are regulating how the reality is continuously changing.

A piece by Gillian Tett in the FT last Friday mentioned an article by someone who worked for the SEC, which said that the thing is now so complex that although there is a reporting requirement on firms operating in the financial market in the United States, the firms themselves cannot describe what they are doing to the satisfaction of the SEC because they do not understand the nature of some of the things they are doing. One of the propositions in this article was that it is no longer that the firms are too big to fail; it is too complex to describe and depict what the firms are doing. This comes out of the fact that the people who do these things are in their 20s and 30s and the people who rule over them are in their 50s and 60s and have absolutely no clue what is going on. That problem will have to be dealt with at some stage. I do not know whether the Court of the Bank of England—of which one hears very little normally; it does not do anything at all, and is made up of the great and the good—is a functional part of the organisation. Someone said that it was the decorous part of the structure.

The FPC will need seriously competent people who are able not only to understand how the market works but to keep up with the rate at which the market is changing. This is hard work. I once suggested in your Lordships’ House—I will do it again—that it would be a very good idea periodically to examine people at the top of banks and financial institutions to see whether they understand the changing nature of the market they are in. We really have to license them and have an examination every three years; if you cannot pass the exam you are not competent to be at the top of a bank. This is exactly what happened at Barings. I do not make this suggestion facetiously; I think it would be a very important thing to do.

If we have a world in which the products are so complex that the management of the company does not understand the nature of the business, it is time to think about breaking companies up or doing something so that they are a biteable, good size and people can grasp what they are up to. This would relate to the nature of the competition, and to the banking Bill that we are going to get in the future. Banks themselves have become very complex because they combine not just retail but investment banking and other things. Banks have failed because they were too complex. One of the tasks of the FPC should be to keep on doing research at a sufficiently high level so that it understands the complexity. The noble Lord, Lord O’Donnell, mentioned a joint parliamentary committee to which the FPC, the PRA and the FCA would all answer. We need political oversight so that these bodies are accountable.

Finally, I cannot see how the FPC and the MPC can be two separate bodies with no communication between them. Someone has already mentioned that if the interest rate is the instrument with which you control inflation and things like that, it is also a very important instrument for financial stability. If you are going to do things like that, you have to be careful. It is a fallacy to think that macro and microprudential conduct are separate things. There are large micro units and their misbehaviour can have serious macro implications. That is another overlap between the FPC and the PRA that we ought to look at very carefully and not build Chinese walls that will be big obstacles to serious regulation.

20:13

[Lord Flight]

My Lords, I declare my interests as set out in the register. In particular, I am the senior non-executive director of Metro Bank, the new retail bank, and a commissioner of the Guernsey Financial Services Commission and thus myself a regulator. I also led for the Conservative Opposition 13 years ago in Committee in the other place for FiSMA, and even before that, back in 1974 I was briefly seconded to the Bank of England lifeboat, which did a pretty reasonable job in sorting out a lesser but very serious banking run at that time.

On FiSMA, I was fiercely of the opinion that the central bank should retain responsibility for supervising the banking sector. It seemed natural that a central bank would be more likely to know what is going on. I spoke out equally strongly against the tripartite committee because when a crisis comes someone needs to be in charge. Both these issues were demonstrated most unfortunately in the 2007-10 crisis. I accept that the Bank of England has not acquitted itself that well recently. Indeed, in 2007-08, the Bank was still relying on its economic model, which told it that everything in the garden was dandy, and failed to spot a major banking run gathering momentum right outside its back door, where there was a Northern Rock office with queues of people lined up. The Bank of England needs some re-equipping and some intelligence restored in order to do the job that is going to be put on it and on the PRA.

I would like to stress concerns voiced by others about the costs. I see it from the other side of the coin. In various investment management businesses, I see piles of paper that do no one any good, when really all that is wanted is integrity and, if you breach integrity, serious punishment. Everyone seems to forget that it is the consumer who pays. When interest rates are artificially low and equity markets have done nothing for a decade, no wonder no one wants to save when there are now enormously substantial regulatory costs as well. The noble Lord, Lord Hunt, was quite right: what is wanted is proportionality; regulation generally needs slimming down and looking at more effectively on a cost-benefit analysis. I also make this point to many of the consumer lobbies, who want more and more—allegedly in the interests of consumers—and forget that it is their consumers who are going to have to pay for it.

It is dangerous to bury “buyer beware” completely. People need to understand what they are investing in and buying. Telling them, “Oh, it doesn’t matter, the Government will look after you. If anything goes wrong, you will get refunded”, is an extremely unwise mentality in the marketplace. Neither the FSA nor the new body should be expected to educate mature adults, which is a waste of time anyway, but much more should be done in schools. Financial literacy should be part of the core curriculum. It is gradually gaining momentum in terms of some tuition, but it is still pretty thin and most schoolteachers regard it as something with which they do not want to get their hands dirty, so more requirement should be made in that area.

Another noble Lord made the point that the Bill does nothing at least to look at how the accuracy of data in reporting to regulators should be checked; nor has it done anything about FRSA, which contributed greatly to the banking crisis by hugely overstating bank profits in good years and vice versa in bad years and led to bank accounts that no one can understand. The accounting profession has some blame to bear and needs some reform as well.

I hope that the Government will accept that the Bill needs quite a bit of tidying-up before it becomes law. I pick on one or two particular areas in the PRA. Life companies and their balance sheets are very different from banks. They need fair representation and need to be handled very differently from banks. The transfer of consumer credit arrangements, which I argued for 15 years ago, is something of a halfway house and needs looking at before this legislation is passed.

The new fashion in transparency is fine up to a point, but excessive transparency can have dangerous, contrarian effects. Banks will write minutes as they think the regulator wants to see them and decisions will be taken outside the board meeting. Let us not have excessive transparency. In the area of publishing warnings, I know of situations in which the FSA got a major warning of a company completely wrong. If that had been published, the business might have been irrevocably damaged quite unjustly.

The main innovation in the Bill is obviously the FPC, to provide macroeconomic and market oversight. I agree with my noble friend Lord Lamont and the noble Lord, Lord Desai, that the MPC and the FPC have to be one; if they are not, not only will there be conflict between the two but both bodies will overlap in the tasks that they are there to perform.

The PRA and the merged FPC and MPC need pro-growth as well as stability mandates. As many others have pointed out, the financial services are a major employer and the biggest industry in this country. I am sure the Minister will say that they are not anti-growth, but, as with the Fed, there should be a balance.

There is the question of accountability. Should those committees be ultimately accountable to the Treasury Select Committee? There is a star chamber element to the powers proposed for the FPC, and again there is room for at least some consultation with the industry.

My two main points are about competition and governance. We have competition as a major objective for the FCA only in relation to the consumer. It seems blindingly obvious that a big part of our problems has been oligopoly in the banking sector. I remember arguing in about 2000 with Sir Eddie George that, post-Barings, it was very unwise that lender-of-last-resort powers were limited to banks that were too big to fail—a lot of the smaller banks, such as Hambros, closed down and one had the very moral hazard problem that I thought the situation would lead to. Although competition will not solve anything, the more competition and the more providers you have the better. As we see in America, it is much easier to let banks fail if you have a wide range of providers. We should face the fact that one of the major problems in the banking sector is oligopoly.

Perhaps not intentionally but because regulators are frightened of making mistakes, the FSA is a major anti-competitive force against new banks and new banking licences. We in Metro Bank had to spend about £15 million before we were even led to hope that we might get a banking licence. The FSA changed its mind on several key factors several times and took a year and a half to decide. I certainly understand that we do not want a repeat of 1970 to 1974, when banks were given licences too easily, but we have gone a long way in the other direction. Even at a more humdrum level, all the anti-money laundering legislation requirements make it a nightmare to change your bank account. The transferability of bank accounts is now perfectly possible technically, so I should like the Bill to include a requirement for the banking system to put bank account transferability in place, which would do a lot for competition. It is expensive for new banks to access the payment systems cartel. That needs opening up and the PRA should be thus empowered.

Secondly, the PRA should be required to protect the competitiveness of this country in the financial services industry. One of my main concerns with both the Bill and the Vickers report is that we will end up making this country uncompetitive. Our banking industry is already the second most unprofitable in the world, so that will not be good news for jobs.

On the issue of accountability and governance, I cannot see why the court should not be a proper board. The Guernsey Financial Services Commission is a proper board: we have to meet to take decisions about everything; we can sack the head of the commission if he is no good; and we are held accountable in turn. The days of the court being an ornament are gone. It should be a proper board with, bluntly, the power to sack a governor if he turns out to be no use, and the governor should certainly be properly accountable to that board.

I conclude by saying that I give great credit and acknowledgement to my noble friend Lord Sassoon for the work he did in opposition in planning the reorganisation of our supervisory and regulatory arrangements, which was clearly needed. The gist of what is before us is very much in the right direction. I hope—and I think—that the Government realise that there are quite a few items to be thought about further and tidied up, that sufficient time will be left and that the deliberations in Grand Committee will be such that we end up with good legislation.

20:25

[Viscount Hanworth]

My Lords, we have waited a long time for the legislative response to the financial crisis that began in 2007. The legislative response in the USA to the great crash of 1929, occasioned by rampant speculation in the stock market, was far more rapid. Already, by 1933, the Securities Act and the Glass-Steagall Act were in place. The powerful Securities Exchange Commission was in operation by 1934. The primary purpose of the Securities Act of 1933 was to ensure that buyers of securities received complete and accurate information before making their investments. The purpose of the Glass-Steagall Act was to enforce a separation of investment banks from retail banks and to limit the risks to which the latter were exposed.

A measure of the tardiness of the present legislative response in the UK is the fact that the recommendations of the independent commission on banking are unlikely to be enacted before 2019, by which time the financial environment in which the banks are operating may have changed considerably. We may learn something more about the Government’s intentions on Thursday, when the Chancellor is due to give a speech in the Mansion House. We fear that he will have succumbed to the pressures of some intense lobbying by the banks.

The independent commission might have been expected to recommend a clear separation of investment banking and retail banking to create a regime comparable to that of the Glass-Steagall Act. Instead, the commission has proposed that these activities should remain within the same institutions, provided that they are separated by a firewall. This will allow banks to transfer capital between their investment and their retail branches, thereby enabling them to continue to gamble with depositors’ money.

The Bill we are discussing today deals with none of the aforementioned issues. It deals instead with the minutiae of the formal relationships between the statutory authorities that are intended to constitute a new financial supervisory framework. It proposes to replace the Monetary Policy Committee with a Financial Policy Committee and to replace the Financial Services Authority with two new bodies, the Prudential Regulation Authority and the Financial Conduct Authority.

Those new bodies are to be clustered under the umbrella of the Bank of England. They are to pass their recommendations to the Governor of the Bank of England, who will be responsible for conveying them to the Treasury and to the Chancellor of the Exchequer. The Bill will confer greatly increased powers on the governor; and a major point of contention between the Chancellor and the shadow Chancellor, which was debated in the House of Commons during Second Reading, is whether the various authorities should be allowed independent access to the Chancellor.

Together with its Explanatory Notes, the Bill comprises 330 pages. Notwithstanding its length, it is devoid of genuine substantive content. It is extraordinary—at least to my mind—that neither the Bill nor its Explanatory Notes contain any mention of the principal leitmotifs of the financial crisis. There is no mention of credit default swaps, which allow players to place bets on the creditworthiness of assets that they do not own. There is no mention of collateralised debt obligations, which were implicated in the demise of Northern Rock. For the rules on short selling, which allows speculators to profit from tumbling asset prices, one is referred to the Financial Services and Markets Act 2000; and there is nothing much to be found there.

There is nothing in the Bill to address the urgent need to bring the trading of financial derivatives under the auspices of an exchange, where they would be recorded and rendered transparent. In the absence of such arrangements, the preponderance of trades in derivatives will continue to be conducted over the counter; and these trades will continue be a dangerous and imponderable aspect of financial activity. There is no mention in the Bill of the Basel accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision, or of the manner in which British banks made extensive use of special purpose entities to evade these rules. These have the deceitful purpose of removing liabilities from the balance sheets and converting them into seeming assets. Doubtless it will be argued that these matters do not fall within the remit of the Bill but they do not appear to lie within the remit of any other Act, existing or proposed. If they are to be left to the discretion of the new regulatory bodies or authorities, we might ask why those authorities have not been given clear cues or promptings in this regard.

The Government’s approach in proposing this legislation has been remarkable for its conciliatory and consultative nature. There have been inputs to the draft legislation from the Treasury Select Committee of the House of Commons, from a Joint Committee of both Houses, from the European Union Committee of the House of Lords and from many other bodies besides. There has also been an indication from the Financial Secretary to the Treasury that the Government will be seeking further to amend the Bill in your Lordships’ House to strengthen and refine it. All of this seems to speak of a decent diffidence in the face of highly complex and imponderable matters and of a desire to spread the responsibility for getting things right among many of the interested parties. However, this interpretation is belied by the fact that the Government have forced the Bill through the Commons at an indecent pace.

It might seem surly to question the seeming good faith of the Government’s approach. However, one’s suspicions are readily alerted when one hears from senior Conservatives that a basic intention of the legislation is to avoid damaging the financial services industry. There is therefore a strong suspicion that the dilatory and protracted nature of this legislative process is a consequence of a desire to avoid interference with the profitable workings of the financial sector. If so, we are witnessing the promotion of a factional interest that has been greatly unfavourable to the rest of us.

The legislative response of the Government to the global financial crisis is also remarkable for its insularity. In drafting the Bill, there has been little attempt to adapt the framework for UK financial regulation to the supervisory framework of the European Union. The matter of how the two should fit together is to be dealt with in a memorandum of understanding and the details are to be left to the discretion of a regulator. Nevertheless, there seems to be a belated recognition in government circles that the UK ought to play a more active role in influencing European Union policy. This is in contrast to the attitudes evinced by the Prime Minister, who is keen to veto any provisions of the European Union that might inhibit the City of London. Thus, he has declared his unyielding opposition to a financial transactions tax, despite the fact that the European Parliament has recently voted in favour of such a tax by a substantial majority. A transactions tax would represent a much needed sedative to be administered to the financial markets and its proceeds could be used to stimulate the economy.

Conservative politicians are aware that the British financial sector accounts for 75% of the financial activities of the European Union. No doubt they feel that this justifies the UK asserting its priority and independence in these matters. However, this figure gives a false measure of the importance of the UK’s financial sector to the rest of Europe. The appropriate measure is a comparison of the size of the UK’s overall economic activities with those of the rest of the European Union. Surely, if the UK proves to be intractable, the rest of Europe may agree to sideline us. The regulatory authorities of the UK have been likened to a caged canary placed in a gold mine for the purpose of giving warnings of impending explosions. However, the toxic gases of financial obfuscation are liable to overcome the bird long before it is able to sing a warning note. We have a right to expect the Government to protect us from the financial services industry. However, it seems that their legislation will not even serve to protect the industry from itself.

20:33

[Lord Burns]

My Lords, I begin by drawing attention to my entry in the list of Members’ interests: in particular, that I am chairman of a regulated bank, Santander UK, and a shareholder in Santander Group. As we have heard from the noble Lord, Lord Sassoon, the Bill seeks to respond to the lessons of the present crisis. However, I agree with a number of speakers in this debate that we cannot lay the blame for the financial crisis entirely, or even largely, on the architecture of financial regulation. The banking crisis has been a worldwide phenomenon and, as the noble Lord, Lord Eatwell, has pointed out, at its heart was an intellectual flaw—the belief that developments in financial management techniques and globalisation gave us the opportunity to expand lending while spreading risk. This mistake was made by banks, regulators and Governments. At the same time, though, it is also widely accepted that in a number of respects the existing architecture, particularly the tripartite arrangements, did not function as well as we would have liked, and this legislation seeks to address some of those weaknesses.

I agree with many noble Lords that the most important aspect of the Bill is the responsibility being given to the Bank of England for what has become known as macroprudential policy. However, while supporting this change, I think that we must be aware of the difficulty of the task. Like all forecasting, identifying financial bubbles is always difficult—indeed, it is almost impossible. After all, the MPC did not foresee the extent of potential effects of the bubble, and it is not clear to me why we should be confident that the FPC would have done so much better in dealing with those problems, unless it had managed to identify some automatic stabilisation mechanisms.

We must also guard against concentrating too heavily on avoiding the pitfalls of the previous crisis. Looking back at the design of the previous legislation at the end of the 1990s, in which I had some involvement, I recall two outcomes that the Treasury sought to avoid. One was that we might end up with an unnecessary overlap of work on financial stability, with both the Bank of England and the FSA competing for influence in this area. In the event, neither organisation was doing as much as we now think appropriate. The Treasury also worried that the Bank of England was too inclined to rescue banks and wanted to build in safeguards for appropriate consultation with the Treasury as the provider of funds. The possibility set out in Alistair Darling’s book that the Chancellor would be pressing the Bank without success to provide more liquidity to banks was not on the list of concerns 15 years ago. So, as well as dealing with the lessons from the most recent crisis, it is important that we also prepare for a wider set of challenges, behaviours and events. As the noble Lord, Lord O’Donnell, said in his excellent maiden speech earlier today, we need a robust framework and should not simply seek to deal with the issues that we have experienced over the past five years.

Personally, I support the ambitions of the Bill. However, there are three areas where I see room for improvement. First, I add my support to those looking to ensure that the framework of the macroprudential policy provides sufficient safeguards to ensure that the proposed FPC adopts a symmetrical approach to macroprudential supervision—that is, it should be equally as aware of the problems of a policy being over-restrictive as it is of over-exuberance.

The Bill has some checks and balances, requiring the FPC to avoid an adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term, but I question whether this is enough. That is not to say that this is not a difficult problem; we can see the difficulties in maintaining symmetry in the present situation. After all, if macroprudential policy means anything, we should now be going through a period where it is directed at supporting economic activity. However, we also have to have sympathy with the instinct of the supervisors of individual banks who want to secure the safety of the banks that they supervise by requiring increased amounts of capital and liquidity in those banks. That is, after all, one of the crucial lessons from the crisis.

The problems in the euro area also point to strengthening the liquidity and the capital defences of the banks. My point, though, is that the systemic effect of these individual decisions has to be monitored closely and carefully so that the requirement for the safety of individual banks is balanced with a view about what is needed to support growth in the economy. For me, that would be best achieved by having a clear requirement for symmetry in the conduct of macroprudential policy. How that should be done is not an issue for today but, as a minimum and in line with the MPC’s remit, the MPC needs instructions that make clear that over-rapid reductions in leverage, debt and credit growth should be judged as being just as bad as unsustainably high levels. That is very much the framework for the MPC in terms of inflation, and I do not see why it cannot be carried over into this aspect of policy as well.

My second issue relates to the Chancellor’s power of direction over the Bank of England. There seems to be general acceptance that where there is a material risk to public funds, the Chancellor should have the power of direction. I have two points to make. First, I agree with the Treasury Select Committee that in these circumstances it would be better for the Chancellor to have a general power to direct rather than the complex, circumscribed descriptions that are provided in the Bill. I understand the concerns about giving the Treasury authority to intervene in matters that have been delegated to the Bank of England, but I would rather they were dealt with by reporting and scrutiny arrangements with respect to Parliament rather than by trying to be specific about the instruments of crisis management, which stand no chance whatever of being the most appropriate ones when the time comes.

I also have some misgivings about limiting this power of direction to when the Bank of England has determined that there is a material risk to public funds and not including occasions when the Chancellor takes the view that we are facing a material risk to the macroeconomy. Again, this is an issue of symmetry. It is not difficult to imagine circumstances in a crisis when the Chancellor feels he needs the power of direction to use public funds to support the financial system from a general macroeconomic perspective and there is a disagreement with the Bank. At times of crisis and dislocation when rapid action is needed, the Chancellor has to be clearly in the lead, and this needs to be made clear in this legislation.

My third topic is the governance of the Bank of England. There is general acceptance that the new responsibilities of the Bank of England come with a need for new accountability mechanisms. It appears that there have been improvements in recent years in the court’s oversight of the Bank of England from a perspective of the Bank’s financial and resource planning, although the noble Lord, Lord Myners, questioned that earlier this afternoon. The big issue now is whether there should be an enhanced role for the court in the oversight of the policy process. I shall make a few observations. First, I agree with the Treasury Select Committee and the noble Lord, Lord Eatwell, that governance cannot be a matter for the Bank itself. The broad structures and responsibilities of the court and the main committees must be a matter for Parliament. Secondly, I agree with other noble Lords that within this framework success will depend heavily on the behaviour of the people involved and that being overprescriptive about governance is a potential trap because the prescription so often does not suit the different circumstances at the time.

My third observation is related to this. It is that we should avoid making this too complicated. In this Bill, there is a real danger of creating multiple committees with inconsistent memberships and oversight procedures along with overlapping and overprescriptive responsibilities. I see this in a large number of cases. The Minister has indicated that the Government are looking at this, and I hope that during this legislative process some simplification can be achieved. That may involve looking at the membership, structure and oversight arrangements of the MPC as well as of the FPC, but I find it quite alarming that there is so much difference between the approaches to these two committees. It is not clear why the structure of the MPC and the FPC should not be consistent in terms of numbers, the balance between executives and external members, the principle of an annual remit from the Treasury and the oversight arrangements. Indeed, as argued by Sir John Gieve in the Financial Times today—the noble Lord, Lord Desai, has mentioned this tonight—in the fullness of time I could easily see the two committees becoming a single committee. In the mean time, I suggest that the members of the FPC who are not on the MPC should have the right to attend, but not to vote, at the MPC and vice versa for members of the MPC who would like to attend the FPC so that they get a much broader view of the concerns of both committees.

I also agree with the Treasury Select Committee and the noble Lord, Lord Flight, that the court should act as far as possible in the style of a unitary company board. Given what has happened to so many other organisations in the public sector, it is not clear why it should not also go down this route. Under this arrangement, much is down to creating a successful working environment between the executives and the non-executives. That has to be both challenging and supportive. One important component is that there should be an appropriate and open method of reviewing decisions and the decision-making process after the event. I notice that there has been some disagreement between the court of the Bank of England and the Treasury Select Committee about the nature of reviews of policy decisions and the decision-making process and about whether policy decisions should be included or whether reviews should be only about the process.

My clear preference is for the court to have oversight of both the process and the outcome of policy decisions. Very often this can be done internally in a way from which organisations can learn for themselves. One sees this happening in many organisations, although sometimes the issues are complex and the differences of interpretation are so sharp that an external review is the only way to do it. However, whether reviews are internal or external, they should happen and they should be allowed for in this legislation. My view is that the non-executives should commission such policy reviews. They should not conduct them, which the Treasury Select Committee suggested. In that case, one would run the risk of serious breakdown of trust within the court. However, the whole principle of reviewing policies and processes—of trying to learn what one can from past mistakes, or even successes—is a crucial part of how an organisation can improve its performance over time.

20:46

[Lord Northbrook]

My Lords, when the banking crisis hit the UK in 2007 and 2008, no one knew who was in charge. The tripartite authorities took a minimalist view of their respective responsibilities and necessary action fell between three stools. Thus, they failed to maintain financial stability. The tripartite system tried to segregate the regulation of banks from the management of the economy as a whole. I believe we must treat them as one part of a whole system.

The decision to turn the Bank of England into a monetary authority was good, but it was wrong to separate out regulation into the FSA as a micro-regulator. This was likely to fail because no one was in charge of the size of banks’ balance sheets—not only in the bust, as we well know, but in the boom as well. The Bill reunites the banks and other financial institutions as part of one system and I strongly recommend this.

I will not oppose the structure of the new financial regulators, but will concentrate on possible amendments to the legislation. I emphasise, as have many other noble Lords, that a major part of the remit of either the MPC or the FPC—I am not quite sure which—should be to encourage economic growth, and that the words “reasonable” and “fair” should be added to “proportionate” in new Clause 3B on page 28. Also, the PRA should appoint practitioner and consumer panels, as well as hold a public meeting to discuss its annual report, as the FSA does.

I also approve of the amount of consultation undertaken by the Government on these proposals. The changes made to the Bill as a result are most welcome. However, it is very important that the proposed supervisory bodies co-ordinate to represent effectively our national interest at European and international levels, including with European supervisory authorities. The financial services industry, the Government and the UK regulatory authorities all have important roles to play in representing the UK in international discussions on financial regulation. However, I draw attention to paragraph 366 of the Select Committee report, which, as many noble Lords have said, states:

“Successful regulation depends more on the regulatory culture, focus and philosophy than on structure”.

As the noble Lord, Lord Desai, said, if regulators cannot understand the risks, no regulatory system will be sound. If the company management cannot understand them, that is even worse.

As usual these days, the other place was given far too little time to scrutinise the Bill. In the rest of my remarks, I will focus on areas of MPs’ concern that are still outstanding, especially those noted by the head of the Treasury Select Committee, Andrew Tyrie. The first concern, as many noble Lords have mentioned, is over the Court of the Bank of England. On Report in another place, a new clause was proposed to make the court more transparent and to require it to act more like a proper board. In my view, the Bank must have a board that is capable of assessing the institution’s performance, but it is explicitly prohibited from doing so at present. The Minister in the other place responded favourably to this idea. Perhaps I may ask the Minister what amendments he might be tabling here.

The second concern was that the appointment and dismissal of the governor would benefit from a parliamentary veto. I can see the attraction of this as, for instance, it might have prevented the appointment of rather weak governors as took place in the 1980s. A fixed term of eight years might be appropriate.

Thirdly, the Financial Policy Committee and the court should publish full minutes. Currently, the Government have said that a so-called record should be published. This has not satisfied the Treasury Select Committee and I agree. Fourthly, as the noble Lord, Lord Burns, has just said, the Chancellor needs a general power to direct the Bank of England in a crisis where public funds are at stake, and not the rather strictly circumscribed powers that the Bill contains.

Fifthly, there needs to be enhanced scrutiny of the secondary legislation that will accompany the Bank of England’s macroprudential tools. The Treasury Select Committee wants a super-affirmative procedure, as mentioned by my noble friend Lady Noakes. I agree that we must have something which provides for full debate and time to consider the proposals except in emergencies.

Sixthly, the MPC and the FPC should have a majority of external members. The Treasury Select Committee feels that it is vital in the long term to guard against “group-think” on these committees, with which I agree. Seventhly, we need to look at the Financial Conduct Authority’s objectives. The FCA would work better if it focused on a simple set of objectives. The Government in the other place added to the proposals what they describe as overarching strategic objectives. But the Treasury Select Committee feels that they add nothing to the operational objectives in the Bill and might take something away by creating confusion.

Eighthly, the FCA’s accountability mechanisms need strengthening. The FCA should publish its own minutes, its chief executive should be subject to pre-appointment scrutiny and it should review its own performance without the need of the Treasury Select Committee to force it to do so. The committee managed to get the FSA to review the collapse of RBS but, apparently, it was hard work getting it to do so.

Finally, I should like to turn to the four specific issues on which I should like the FSA and its successors to focus. The first is to avoid a repeat of the MF Global saga—the derivative trader which collapsed in October 2010. Amazingly, the organisation was considered to be outside the scope of the regulatory authority, yet its balance sheet was more than £40 billion. The capital flows between the UK and the USA were huge and there now appears to be issues of insider trading. Unless there is more co-ordination between national regulators there will be more of these crises.

Secondly, we have the Arch Cru type of problem. Arch Cru was established in 2006 and was sold as a vehicle to provide low-risk cautious management funds. It is reminiscent of Bernie Madoff’s venture. Like all investment funds, it was regulated by the FSA. Needless to say, it invested in high-risk property, shipping and ferries. Clause 64(5) states that events occurring prior to December 2001 will not be subject to the power of inquiry. As I understand it, the Government still have the power to institute an inquiry under Section 14 of the Financial Services and Markets Act 2000. I hope that they will still make use of that power and that the FCA will pay particular attention to these types of “low-risk” organisations.

Thirdly, there is the problem of payday loans. While this may be a good and necessary route for very short-term loans, they can become a very dangerous process if allowed to continue for too long. Legislation may be difficult in this area, particularly when borrowers may not get loan finance anywhere else. I hope that the OFT investigation announced in February will produce positive results to allow reputable payday loan companies to continue but, as the right reverend Prelate the Bishop of Durham said, to ban loan sharks. Fourthly, like many others I am sure, I seem to be continually pestered by the PPI ambulance chasers. Even though I am ex-directory I get two or three calls a day. Cannot this cold calling practice be outlawed?

Overall, this legislation is a big step forward from the legislative framework that was in place at the time of the crash and I hope that my suggestions will help to improve the Bill further.

20:54

[Lord Mitchell]

My Lords, I suppose this late in the debate it is stating the obvious to say that this Financial Services Bill is probably the most important Bill that is to go through in this Parliament. The stakes are high—it goes to the heart of our economy and our well-being, and we have to get it absolutely right.

I stand in wonder at the depth of expertise of Members who have spoken in this debate, including ex-Chancellors, Treasury Ministers, civil servants and economists. I cannot help but wonder whether an elected House of Lords would be able to bring the same degree of heavyweight knowledge and practical expertise—but I guess that is a debate for another time. Now we are joined by another heavyweight, the noble Lord, Lord O’Donnell, who made a superb maiden speech. We get a very strong hint of some amazing debates with contributions that he will make in future.

This Second Reading is, correctly, about structure, governance and regulation. We got it wrong; it needs to be restructured, making sure that power and responsibility reside where they are most effective. But enough people have spoken about that today, and I am not going to do so. I am going to talk about an issue about which I feel most passionately, and which I have spoken about before in your Lordships’ House—the issue of payday loans, which was also mentioned by the noble Lords, Lord Naseby and Lord Northbrook.

My background for 40 years was in equipment leasing. I understand compound interest—it runs through my blood—and I understand about rolling over compound interest commitments. I understand how you use public relations and advertising. My experience was in industrial not consumer finance; my customers were corporations, not desperate borrowers. But the calculations are the same, and I cannot be fooled by the hype that you see all the time on this issue.

I have to declare an interest. I formed an equipment-leasing company in 1992 called Syscap, in which I had a majority shareholding. I have sold most of that shareholding but still retain 8%.

In the other place there was an amendment to cap the level of interest charged by payday loan companies. In Clause 22, it was suggested that the Financial Conduct Authority should be able to make rules and apply sanctions or rules when credit is offered that the FCA judges causes consumer detriment. Consumer financing at 4,200% is detrimental to consumers, any way you look at it. We believe that that amendment, which was defeated in the other place, should be introduced.

We have a terrible economy, with many people unemployed and people and their families in terrible situations. It is not surprising that loan sharking is back on the agenda. At its most extreme, it is about monstrous interest rates and baseball bats if payment is not made. The other week I watched “Godfather II” again and, believe me, it is very pertinent. But of course now it has gone respectable, and people talk about payday loans instead of loan sharking. Many high streets in this country have shops offering nothing but payday loans. They have become even more respectable recently; they do not even call themselves payday loans but talk about “short-term financial availability”. Well, they can call it what they like, but it is loan sharking dressed in silk.

It used to be shameful to borrow money in this way. People had to do it, but they kept it quiet. Now it is encouraged; you see it advertised on buses, TV and in sports sponsorship—it is everywhere, and it is very slick. The advertising is amazing, and they have managed to introduce an almost blokey image. “Short of a few quid, need £300? Don’t worry about it—go on the website and it’s in your account in 15 minutes”. These companies have cutesy names such as Uncle Buck, KwikCash and, of course, Wonga.

In 2011, payday loans equalling £1.7 billion were taken out, 4 million people in this country used them and interest rates varied from 440% to 16,500%—the mind boggles. It is rumoured that Wonga made £160 million profit and is going for an IPO of over £1 billion. You have to talk about Wonga as it is the market leader. I take my hat off to Wonga; it is a brilliant business. Its website is phenomenal—my background also lies in IT—and I have gone on to it and attempted to take out a loan. I assure your Lordships that I stopped at the final moment although I went through the process. A clock appears on the website telling you how many minutes it will take for the money to reach your bank account. The process is so easy; it is an availability issue. If you borrow £300, 21 days later you will have to repay £360. The company absolutely hates the fact that it has to display the APR rate on its website. It does so but says that it is not an interest charge and has nothing whatever to do with interest. However, for me, there is a clear definition of “interest”. If you take out a loan for £100 and repay £110 in a year’s time, the £10 difference is interest. That is very clear. That is the case whether you borrow for a day or 50 years—on a pro rata basis and an annualised basis, that is what an interest rate is. However, this company does everything it can to say that this is not an interest rate.

Payday loan operators say that 95% of their customers are happy. I suppose that if you were starving hungry and somebody came along with a really sexy website, you would feel happy if it enabled you to get some food. However, it is not like that. Payplan says that 47% of people who take out payday loans have six or more facilities at the same time and that 86% of these people use them to pay for basics such as food and transport and not for luxuries or short-term loans for Christmas presents. Three organisations—Consumer Focus, Citizens Advice and the financial services panel—all want the FCA to have specific powers to control these loans. Ministers have said that this is all being reviewed, perhaps by the OFT. However, I have the feeling that this issue has been kicked into the long grass. I suspect that nothing will happen in this regard unless we up the ante.

These payday loan companies can say what they like but the fact is this is gross usury, which affects people who are in dire financial straits, juggling credit cards, payday loans and anything else they can in order to survive from month to month. It is true that this is a vital service and that some people depend on it. Nobody can say that we have to get rid of it. The loan shark alternative is absolutely horrible. However, these companies have to be capped and need to be controlled. We plan to introduce an amendment to that effect.

21:03

[Lord Teverson]

My Lords, I was always rather in favour of the old FSMA system with the FSA as the one regulator. As the chief executive of a very minor fund management company, I knew where I was and where to refer to. When I rang up the FSA and asked it a question about how to operate my business, the fact that it felt unable to tell me in case that prejudiced the principles of regulation was not particularly useful, but the system was there and it was understandable. Nevertheless, it failed. That failure was not necessarily attributable to the fact that there was a single authority. Failure also occurred in the United States, which has multi-regulators comprising the Federal Reserve, the SEC and a number of others. It was quite clear that there was failure, particularly in macro-strategic risk, which was the one area missing—and it cost UK taxpayers £85 billion in bailing out the two banks. The National Audit Office put total UK taxpayer liabilities at £850 billion, or some £2,600 per taxpayer, in terms of exposure. That is truly a failure and it is why the system had to change.

There are four areas of importance. One is a stable financial sector. Because that sector in the UK is important and because, if things go wrong, there are such large gearing and multiplier effects in terms of bailing out, we also need a stable economic system in this country. It is also important, however, that we have a successful financial sector. Although I would agree as much as anyone else that we need to make sure that other sectors of our economy are equally successful, the financial services economy accounts for some 10% or 11% of GDP and employs 1 million people. That is not just in London; even in my own region of the south-west the sector is important, and we need to ensure that it remains competitive.

An area on which I wish to concentrate is the need to make sure that there is full competition in the sector. That is not the case in the retail banking sector—an issue mentioned strongly by my noble friend Lord Flight, and to which I shall return. The fourth important issue is the international area, not just regarding competitiveness but, given everything that is going on in the eurozone at the moment, including European banking and financial regulation. We need to make sure that our interests there are protected and that we work together with Europe to our mutual benefit.

In terms of stability, we have moved from twin peak to triple peak or, as my noble friend Lady Kramer said, there may be a small range of mountains in terms of the different regulatory bodies. However, I very much welcome the Financial Policy Committee, which has become part of this architecture. It nevertheless has one of the most difficult tasks in terms of what it needs to achieve and in recognising the problems as they come along. I am a member of a pension committee for Cornwall as a local authority or collection of public bodies. There I was shown on a slide a definitive picture of Sweden, or possibly the whole of Scandinavia, and its debt cycle split between personal debt, corporate sector debt and public debt. It demonstrated how those matters needed to be, and were, managed. However, frankly, even as an economist, I saw very little of those issues in relation to the financial crisis. We heard about numbers but did not understand such things. The tools that are used in that area will be important.

The degree of independence that can be operated by the Financial Policy Committee will be difficult and, as the noble Lord, Lord Burns, said, there will be a lot of challenges regarding who has what responsibilities and the way that the tools will be used. Will we go back to the rationing of mortgages and other financial instruments that I remember in my younger days, or can we control this through interest rates? Either of those will have political costs.

Primarily, I wish to talk about competition in the retail banking sector, where there is an estimated concentration of 85% in terms of individuals and the banking market. We have the top five banks, and it was interesting to see in the Financial Times that Marks and Spencer is moving into this area, but if you look at the full picture, its banking operation is completely owned by one of the five, HSBC. That represents no more diversification than there is at the moment. We had promises from Tesco and Sainsbury’s, the multiple retailers and Virgin Money of operating fully in this sector, yet we are not able to walk into any of those organisations and obtain a current account. These accounts are all promised but they do not yet exist. As has been mentioned, we have Metro Bank and internet lending through a company called Zopa, and of course we have the mutual credit organisations that have been in existence for some time. They are not mentioned specifically in the Bill but perhaps we could use them a great deal more. We need to make sure that we are able to take down the barriers, whether they be the payment system or, to some degree, the prudential requirements, but the problem is that the competition objective is very much in the area of the Financial Conduct Authority. The Bill does not talk about market concentration but it does say that the ease with which new entrants can enter the market is part of that objective. However, it will be the PRA and not the Financial Conduct Authority that will look after retail banking.

The international aspect is important. I think that we are better at dealing with the G8 and G7 than with the EU but it is very important that we have one unified voice.

One group that I do not see mentioned at all in the Bill is the rating agencies. Personally, I think that they have a lot to answer for in terms of the grief that we have gone through as a national and international economy, and I should be interested in understanding how any future regulation there will take place, particularly within a European context. Also, the Government have not really been able to move forward on the Financial Services Compensation Scheme, where there have been a number of problems. At the moment it is seen as a rather unfair system, particularly given Keydata and other such instances. I think that we are stalling there because of European recommendations or legislation that is coming forward, but I have a question for the Minister. At what point do we say, “Okay, we can’t wait any longer. Let’s change the way that the scheme works.”?

One thing is for certain: financial regulation, like democracy, is far from perfect. There is no perfect model. I was reading the magazine of the Chartered Institute for Securities and Investment, of which I am a member. It contained an article on this Bill called “Another New Dawn”. At the end, it said that whatever system comes out of this Bill and however good it is, at some point in the future it will be perceived as a failure. Our challenge is to make sure that it is not at a cost of £850 billion, as was the case under FSMA.

21:12

[Lord Stewartby]

My Lords, this has been a remarkable debate, full of interesting and useful comments on the proposed new scheme of regulation. Having read a few pages of the Bill when it first became available, I felt a bit dizzy because it is very difficult and complex. I think that there is more than enough to keep us happy—if that is the right word—in Committee.

Many points at issue have been discussed. I do not want to rehearse all those that have been mentioned by other noble Lords but I have some personal experience of certain areas. First, I was a member of the FSA board in the 1990s and I subsequently became chairman of the audit committees of an international bank and an insurance company. I was able to observe the changes that took place in the functioning of the internal committees within those companies and to draw some rather hesitant conclusions from them. Therefore, I should like to go back to the 1987 Act for a moment. My noble friend Lord Lawson spoke about some of the most important aspects of that at that time and I should like to pick up two of them.

The first is that the Board of Banking Supervision was an innovative and very interesting move which unfortunately was not given the longer life that it deserved. It was an attempt to bring into consideration the practical experience of people who had been in the banking world, so that those with a lot of experience could be more conscious perhaps of the sort of qualities and experience needed to be able to do a thorough job and to spot the problem areas. That, unfortunately, as my noble friend has said, was abolished by the subsequent Chancellor, but it had shown up that a different cast of mind was needed for that role. I hope that the new regulatory system will be able to follow up that idea, and if not actually recreating the BoBS, nevertheless be very conscious of the sort of qualities and experience that are actually needed.

It has been said by a number of noble Lords today that architecture is not the system by which you can get all these things functioning properly together. It is the people who make the difference. If people come in with a lot of practical experience, they are much more likely to spot the things that are either going wrong or which are possible problem areas that will eventually cause difficulties. That is where another point comes in. The dialogue between auditors and supervisors should for years have been a means of spreading knowledge, understanding and experience in the bodies concerned. Until 1987 conversations between the auditors and supervisors were not allowed because of the problems of preserving confidentiality between auditors and others. That restriction was removed in 1987 and it certainly needs to be a legal and obligatory part of any structure of this kind. If something were to go wrong, or if there was some suspicion that it might, auditors could report to their supervisor, which is something that from here onwards should be built into everybody’s processes.

That takes me to another area of difficulty about the valuation of derivatives and how liabilities were assessed for balance sheet purposes. I have asked a lot of people over the years how much sampling they knew about when “dodgy assets” were under consideration. The supervisory process appears to have been somewhat deficient. It did not throw up for a while the scale of misbehaviour—I suppose I could call it that; at the very least it was incompetence. Very little testing took place of these risky asset areas. I do not know why it happened, but there was a collective suspension of the critical faculties of auditors and others who dealt with these strange animals that caused so much concern. The situation is all the more curious because there were so many layers of consideration that one had to go through before one could take a relaxed view of the valuations, involving the management of the company, the company’s internal audit department, the external auditors and the supervisors.

Much also depends on the individuals involved. The role of the audit committee has been enlarged to an enormous degree over the past few years. That is necessary; the people dealing with this must be well informed. However, the audit committee must not try to second guess management. What is needed is a combination of knowledge and experience. The only thing about the Financial Policy Committee that gives me concern is that it may be too big for safety. It is a multifarious body. I am not sure how the interface between the FPC and the PRA will work. That will be critical. Purely on the grounds of the FPC’s size and complexity, this is an area where I feel a degree of discomfort. However, in general I am glad that we are legislating in this way. I have no doubt that we will make many changes as we go through the Bill in detail, and I wish it well.

21:21

[Baroness Drake]

My Lords, the Bill replaces the tripartite system with a twin-peak model, but the witnesses to the Joint Committee of which I was a member were overwhelmingly of the view that the structure of financial regulation was not the determining factor in how successful a country was in handling a crisis. The chairman of the European Banking Authority said that,

“during the crisis there were different types of construction that equally succeeded or failed in the face of the crisis”.

In many other countries the philosophy was a presumption that markets act rationally. The IMF Global Financial Stability Report stated in April 2006 that,

“the dispersion of credit risk by banks to a broader and more diverse group of investors, rather than warehousing such risk on their balance sheets, has helped make the banking system and overall financial system more resilient”.

To repeat Her Majesty the Queen’s question: why did no one see it coming? Clearly in 2006 the IMF did not appreciate the underlying fragility and interdependence of the financial system.

As other noble Lords said, successful regulation depends less on the structural route taken and more on the regulatory culture, focus and philosophy. Controlling inflation and excesses in the financial system will require informed decisions that from time to time will be unpopular. That is a powerful argument for granting greater independence to the regulator to make informed rational decisions. Under the Bill, the Bank and the governor will acquire unprecedented new power. The granting of independence must be proportionate to the democratic authority vested in both the Government and Parliament. As Sir Mervyn King conceded in his 2012 “Today” programme lecture, when referring to the new powers:

“Independence is … not the discretion to do as you wish, but the exercise of specific powers delegated to us by Parliament to meet a remit set by Parliament”.

With independence come the responsibilities of transparency and accountability. My concern is that the Bill does not yet sufficiently address those responsibilities. For example, it provides for the Bank to notify the Chancellor when there is a material risk to public funds, and for the Chancellor to be responsible for decisions in a crisis involving such funds. It is important that the Bill gives a high level of confidence that this requirement for the Bank to notify the Treasury is set at a sufficiently low level that there should be no surprises, and there must be no ambiguity as to how and when authority transfers from the governor to the Chancellor.

The memorandum of understanding between the Treasury and the Bank details the process by which the judgment of materiality will be made, not the definition. The Government argue that giving a strict definition of material risk runs counter to the emphasis on judgment. While this argument has some merit, memorandums of understanding are easy to change and lack authority. Similarly, this House should satisfy itself that there is a high level of confidence which will not be thwarted by disputes between the Treasury and the Bank and that the Chancellor has sufficient powers to direct the Bank in a crisis—for there will certainly be future crises—but we know that the chair of the Treasury Select Committee has expressed his concern that the Bill currently grants powers to the Chancellor that are too circumscribed.

To fulfil its responsibilities, the Financial Policy Committee will have an armoury of powerful macroprudential tools, which Parliament should scrutinise through an enhanced affirmative procedure, to allow for consideration by Select Committees and for the Treasury to consider their recommendations. The Financial Secretary resisted such an enhanced procedure on the ground that,

“one must ensure that the degree of scrutiny is proportionate to the powers that are being engaged in”.

Macroprudential policy enters uncharted waters and gives the FPC significant powers. I struggle to understand how the enhanced procedure is disproportionate in those circumstances.

The draft Bill enshrined the principle of consumer responsibility but did not place an equivalent responsibility on firms. The Joint Committee recommended that the Bill,

“place a clear responsibility on firms to act honestly, fairly and professionally in the best interests of their customers”.

The Government subsequently inserted a new principle, to which the FCA must have regard, that,

“those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate”.

However, that does not provide a sufficient level of protection for consumers. It leaves too open the key question of what is an appropriate level of care.

The case for complementing the principle of caveat emptor with a duty on firms is compelling. We currently have systemic inequalities of knowledge and understanding and misaligned interests between consumer and provider, with the consumer consistently the loser. Confidence in financial products has been worn down by mistrust. Professor Kay recently observed that better performing companies are ultimately the only thing that generates long-term value for savers. However, this alignment is getting lost in an ocean of intermediation, where conflicts of interest and complex and high charges exist. The chain of intermediaries in the savings and investment market is increasing.

While there are new features in the Bill to be welcomed, the current framework still limits the ability to address such problems. Perhaps I may illustrate by reference to pensions. The asymmetries of information are well understood, as are the reasons to believe that financial education, however worth while, will never get us to a position where most consumers are capable of making rational decisions about long-term savings. Indeed, auto-enrolment, which will put millions of ordinary people saving in capital markets, is based precisely on that behavioural insight: it takes key decisions out of the hands of the saver altogether. Employers, as now, will make the big decision about which provider to choose. Consumers will save not because they have carefully weighed the costs and benefits, but out of simple inertia. A model of the consumer making active choices is inappropriate.

The obvious next question is: does it matter in practice? I have only limited time in which to answer that question, but research by Fair Pensions suggests that it does. For example, in its survey of the top 10 commercial pension providers, oversight of external managers’ investment governance appeared to be virtually non-existent. The new philosophy of judgment-led supervision includes being forward-looking in anticipating the risks that threaten market integrity. The solution to the governance gaps among those with the discretion to manage other people’s money does not lie in prescribing even more boxes to tick. The Bill should create a framework in which consumers can have trust. The basic principle is simple. If you are looking after someone else’s money, whether as an asset manager, an insurance company, a trustee, a consultant or any other licensed agent, the starting point should be that you must act in that person’s best interests. It is changed behaviour that we need, not simply compliance.

Finally, this Bill is not an easy read because it contains many amendments to the Financial Services and Markets Act 2000, although not to Section 348, which restricts the publication of confidential information by regulators. Consumer groups are concerned about this section. The Joint Committee shared this concern. It recommended that:

“Neither Regulator should be unnecessarily restricted from disclosing information. Section 348 should be amended to make it as unrestrictive as is possible within the confines of EU law”.

The Treasury review commissioned by the Financial Secretary found that even with Section 348 in place, the regulator could be far more open, and as a result the FSA has committed to a fundamental review of transparency. A letter from the Financial Secretary to the right honourable Peter Lilley on 21 May 2012 states that,

“the Government and FSA senior management are absolutely committed to embedding transparency and disclosure as a regulatory tool”.

I ask the Minister to confirm that the Government will amend legislation accordingly should the FSA conclude that that is required to achieve the commitment that the Government have made.

21:32

[Viscount Trenchard]

My Lords, I am grateful to my noble friend the Minister for introducing this important debate. I must first declare my interests in that I am employed by Mizuho International plc and am a non-executive director of two other financial services companies. I also wish to pay tribute to the excellent maiden speech of the noble Lord, Lord O’Donnell. If he becomes the next Governor of the Bank of England, I believe that we can easily dispense with all three deputy governor positions. In common with other noble Lords, I thank all those who served on the Joint Committee for their hard work and great contributions.

I believe that the financial regulatory arrangements that existed during the initial stages of the financial crisis were deficient in three principal ways. However, the crisis was not caused principally because the tripartite system in itself was deficient. As other noble Lords have commented, a regulator’s culture and judgment are more important than its architecture. First, there was no bank resolution mechanism in place. If the Banking Act 2009, which enabled the swift resolution of the Dunfermline Building Society insolvency, had been in place, it is likely that the Northern Rock situation would have been quickly and relatively painlessly resolved.

Secondly, the deposit protection scheme that applied was inadequate, because it was not a 100% scheme. If today’s scheme had been in place, there would not have been a bank run of such severity. Thirdly, although the Bank of England was charged with responsibility for financial stability, nobody was looking at the system as a whole. The Bank should have been given a power of direction over the FSA. Although I wholly accept my noble friend Lord Tugendhat’s observations on the Bank’s record as a regulator, I nevertheless believe that the body charged with financial stability should also have ultimate responsibility for regulating financial markets and their major participants.

In 2006, I was working in Brussels as the director-general of the European Fund and Asset Management Association. It is my recollection that at that time the FSA did not consider itself an activist, firm-specific regulator, even though most of its 300 bank supervision staff had come from the Bank of England. I felt that the FSA was more interested in attending conferences and engaging with other European regulators to discuss harmonisation of regulation than actively supervising the banks. It is also clear now that the levels of capital and liquidity required under the Basel I accord were completely inadequate.

I was privileged to serve on the Joint Committee on Financial Services and Markets under the inspired chairmanship of the noble Lord, Lord Burns, which scrutinised this Bill’s predecessor before its introduction to Parliament in 1999. Some of us believed that competition and the competitiveness of our financial markets should have been made an objective of the FSA rather than merely one of the principles to which it had to have regard. I welcome the fact that the FCA is given a competition objective in the Bill, but it is inadequate in that it falls short of a responsibility to maintain or enhance the competitiveness of the UK’s financial markets.

I am not persuaded that it was necessary to dismember the FSA in order to make our regulatory system fit for purpose. Besides, the Government are trying to reduce the number of public sector bodies with all their associated costs, boards of directors, et cetera. Some 2,000 firms will now have to report to two financial regulators, the PRA and the FCA, which will demand the provision of information—in part common to both, in part different—which will require an increase for all dual-regulated companies in compliance staff and commensurate costs.

It is interesting that we consider it appropriate to redesign our regulatory framework in this country at a time when the EU has just established a different regulatory framework based not on the twin-peaks system that we have adopted but divided between banks, securities markets and insurers, including pension providers. The matrix of reporting lines between the UK and the European regulators certainly raises the question of whether the Bank, the FCA or the PRA will have the necessary influence on any of the European regulators commensurate with the UK’s status as the world’s pre-eminent financial market.

I appreciate that a lead regulator system will be adopted and that a memorandum of understanding to be drawn up by the PRA and FCA will establish arrangements for co-ordination with each other and with the three European regulators. However, I worry that the complicated matrix of communication channels that will be established as a result not only increases the risk that some vital piece of information will not be passed correctly but also makes it more likely that there will be a great deal of duplication, which is expensive for the taxpayer and for the regulated firms, which will have to satisfy the myriad of regulators’ increasing hunger for ever more detailed and overlapping information on their businesses.

The draft MoU states that the FCA and the PRA will co-ordinate with each other on rule and policy-making, although my understanding is that very little scope remains for national regulators to make rules following the establishment of the three European sectoral regulators. As far as the 2,000 firms that will be dual-regulated are concerned, the draft MoU clearly anticipates a considerable amount of duplication. It provides for the establishment of supervisory colleges for individual firms and groups comprising members of both regulatory bodies. It is important that the Treasury should monitor the escalating costs and complexity of the regulatory system, having due regard to proportionality. The fastest growing departments in many financial institutions are compliance and IT, which certainly does not help the London markets maintain their international competitiveness. RSA Insurance has incurred a dramatic increase in regulatory fees, from less than £500,000 in 2007 to more than £9 million in 2011. As the CBI has urged, the new regulatory authorities should have as a specific objective the supporting of economic growth. There must be a joined-up approach between the FPC, PRA and FCA, and between them and the three European-level regulators.

However, as my noble friend the Minister has said, there is no best or perfect structure. If I recall correctly, he also said that the structure of the industry is at least as important as the regulatory structure. Today is not the day to debate the implementation of Sir John Vickers’ recommendations, but I should like to say that the current extremely difficult economic environment should lead the Government to do what they can to provide a stable and benevolent framework for our financial services industry, which directly employs more than 2 million people and accounts for some 20% of national income. The financial sector contributes more than £60 billion in tax revenue and its markets support more than 7 million jobs in UK-incorporated companies.

It is true that the existing single-regulator structure was not perfect either, so I do not advocate going back to it. There were difficulties in focusing clearly on prudential regulation, and pressure from consumer organisations inevitably tended to push consumer protection to the fore. Even if those difficulties could have been resolved without dismembering the FSA, we have moved on. What will be interesting is the extent to which the consumer agenda dominates the policies and strategy of the new European regulators which, as I mentioned, have not adopted the twin-peaks structure.

The European regulators and many in Europe believe that there will eventually be no need for national regulators except as local enforcement agencies and branch supervisors. In that case, all this complicated legislation may seem redundant in 10 years’ time. However, if the rapid fiscal integration now sought by the eurozone is realised, the European regulators may eventually become the regulators purely for the eurozone and our own regulators will be restored to an independent and equal status among the world's leading financial regulators.

The new architecture is fiendishly complicated. It will no doubt be reformed again before many years have passed, as national and global markets are evolving at an accelerating pace. However, some parts of the Bill need to be improved. In certain areas, the powers of the FCA are too restricted for it to live up to the expectations placed on it. For example, the provision that it must consult before issuing warning notices should perhaps be limited. Otherwise it may effectively be prevented from doing so. The measures on greater regulatory transparency and misleading promotions are to be welcomed. The FCA should be given a power to prevent hidden charges. The objective to promote competition should be extended to maintain the competitiveness of the United Kingdom’s markets, because this is surely as much in the interests of consumers as of taxpayers. The BBA has correctly stated that such a commitment would not conflict with the objective of ensuring that UK regulation is suitably robust and that it would send a strong signal that Britain was open for business if we were to commit to a competitive regulatory regime.

Why does the Minister consider it inappropriate to give the PRA a competition objective? At least the competition principle which exists in FSMA should be retained. After all, the FSA has recently stated that the regulation of capital markets has worked well. How will the FCA, the FPC and the PRA relate to the newly created Competition and Markets Authority?

I do not really like the name Prudential Regulation Authority because it does not make it clear that it is a regulator of financial institutions. It is surely sensible when something is reformed to give it a new name, but surely every regulator in the land is bound to exercise its functions in a prudential manner. However, I suspect that, increasingly, the PRA will be referred to as the Bank of England, of which it is indeed to be a part.

The FCA, in fulfilling its important consumer protection role, should also have regard to its impact on the real economy, as the FPC is required to do. As my noble friend Lady Wheatcroft has already commented on that, I ask the Minister to clarify the meaning of the regulatory principle to be applied by both regulators,

“that a burden or restriction which is imposed on a person, or on the carrying on of an activity, should be proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction”.

That principle is very subjective and can be interpreted in many different ways: proportionate to the benefits—for whom? Considered in general terms, which are expected to result—by whom?

Another question identified by my noble friend Lady Noakes which needs to be closely considered is the diminished importance of the practitioner panel established under the FSMA, in particular the absence of any requirement on the PRA to establish a regular consultation mechanism such as the practitioner panel currently provides. I agree with the CBI that the FPC needs a more proactive focus on supporting economic growth. Clause 3(1) explains the financial stability strategy to be adopted by the Bank and the role of the FPC. Section 9C of the amended Bank of England Act 1998 lists the objectives of the FPC in subsections (1) to (7), but actually only subsections (1) and (2) are objectives. Subsections (3) to (7) contain parameters and principles to be followed by the committee in carrying out its two objectives. If a third objective, to promote growth, was included, the rather negative subsection (4) could be dispensed with.

The Bank of England’s new structure with three deputy governors is certainly rather complicated and the Treasury Select Committee has correctly identified the need to strengthen the Bank’s governance and accountability. I hope that your Lordships’ House will be able to improve the Bill to mitigate the difficulties in putting this complicated structure into practice and ensuring that the United Kingdom has a financial regulatory system which is fit for purpose and a degree of security through the unseen storms that lie ahead.

21:47

[Lord Stevenson of Balmacara]

My Lords, I declare an interest as chair of the Consumer Credit Counselling Service, a debt advice charity. We have been helping more than 1.3 million people in the past four years to deal with their unmanageable debts, and it is the impact of the Bill on consumers of credit on which I focus tonight. As my noble friend Lord Mitchell said recently, there should be no doubt that personal debt is still a serious problem today. Over one-third of the people counselled by the CCCS had contractual payments for unsecured consumer credit that totalled more than 50% of their income, and almost one-quarter had total outstanding debts that exceeded their monthly incomes by a factor of 20 or more.

Of course, this is not an issue new to your Lordships’ House. Enhanced consumer credit legislation was introduced in 2006 to deal with the irresponsible lending practices present then and gave the Office of Fair Trading strengthened powers to stamp out bad conduct and get rogue firms out of the market. That has been successful. It has helped to support an ongoing dialogue between government, industry and consumer groups that has got to grips with some of the problems of credit cards that have characterised personal debt through much of the previous decade, and has also allowed the OFT to tackle some of the worst conduct in the market, bringing to book many rogue firms which have badly mistreated far too many consumers.

For this, we should commend the hard work and diligence of the OFT consumer credit team. A key challenge in transferring responsibility for consumer credit to the Financial Conduct Authority when the proposed new framework is in place will be ensuring that that expertise and experience is not lost and that there is no hiatus as the FCA takes on that role.

However, we must also recognise, as pointed out by my noble friend Lady Drake, that the current consumer credit rating has proved to be insufficiently powerful or agile to guarantee the fair and responsible consumer credit markets that consumers need. Consumers are still being harmed by long-standing unfair practices. We have also seen problems emerging in consumer credit sectors that have grown up since the 2006 Act changes. Several noble Lords have expressed concerns about payday lending practices. We recently analysed our clients with payday loans and discovered that about one in 10 had five or more such loans at the same time and that the average amount owed on those loans was about 95% of the net monthly income of their borrowers. The 2006 Act was supposed to stop unaffordable and unsustainable use of multiple credit products as a driver of debt problems. Yet here it is, back again, albeit in a new guise.

It is not hard to see where the weaknesses in the current regime are. The process for licensing action under the Consumer Credit Act can be very slow. Even when the OFT determines that a firm is unfit to hold a consumer credit licence, the legislation allows the firm to continue to trade and to cause consumer detriment throughout an appeals process that can take up to two years to complete. The threshold for getting a consumer credit licence is very low, even after the reforms, so it is both too easy for rogues to get into the market and too difficult for the regulator to get them out. The current regime also provides only minimal deterrence against bad practice. While the OFT indeed has a power to fine firms in respect of misconduct, it is capped at £50,000—surely far too low to deter many firms. The current legislation also forbids the OFT ordering firms directly to compensate customers who have been wronged, so firms can profit from unfair practices with little fear of being held to account.

The credit regime is still at heart a licensing regime with neither the focus nor the reach actively to ensure that consumer credit markets work well for consumers. It needs to be refocused and reformed—and here I part company with the noble Lord, Lord Hunt of Wirral. Self-regulation undoubtedly has a part to play here but, to my mind, moving responsibility for consumer credit to the Financial Conduct Authority represents a huge opportunity to introduce greater statutory consumer protection, which is now urgently needed.

The Financial Services and Markets Act 2000, as it will be amended by the Bill, has the power to clean up existing problems and prevent new consumer problems occurring. However, we should take this opportunity to ensure that the FCA has a formal responsibility for tough but targeted threshold conditions, effective enforcement and redress, rule-making powers to set standards for practices as well as products and a regulatory approach based on prevention and market supervision. These tools, and a Financial Conduct Authority with the appetite and mandate to use them, should be able to introduce a step change for the benefit of consumers. However, that depends on getting the implementation right, and there are still several key questions to be resolved here which we need to come back to in Committee.

First, we need to ensure that the important substantive consumer protection measures in the Consumer Credit Act are retained, particularly those that cannot readily be replicated in an FCA rulebook. The intention is there but the detail needs to be fleshed out. Secondly, the FCA needs to develop both a rulebook and a regulatory strategy for consumer credit that are robust where they need to be but sufficiently flexible to take account of the wide variety of products and sectors in the consumer credit market. As the noble Lord, Lord O’Donnell, said in his excellent maiden speech, what we need is a robust architecture with a principled approach but with sufficient flexibility to allow for a judgmental approach to regulation.

Other issues come into play here, several of which have been mentioned by other noble Lords. There is the balance between a proportionate rulebook and a light-touch regulatory strategy, because proportionate must also mean effective. In the past the regulator has often failed to move quickly enough to deal with consumer detriment when it saw it, let alone prevent it happening in the first place, so it will be vital for the new structure to start with a clear mindset as to what outcomes the regime needs to deliver for consumers. If we are to have a proportionate regime—and we should—it must be based on a robust assessment of the risks that consumers actually face, based on accumulated past evidence of detriment arising from unfair practices and products.

Finally, there is a timing issue. Consumer detriment is happening now and financially vulnerable consumers cannot wait until 2014 for better protection against unfair practices and rogue firms, so I urge the Government to consider what can be done in the mean time to give the OFT, and then the FCA, more teeth to help consumers. There are some options here but I note that in the debate on this Bill in another place, the Government suggested the possibility of amending the current Consumer Credit Act to allow the OFT to prevent a firm trading new business while an appeal is pending against the regulator’s determination to revoke or suspend a consumer credit licence. This could make a real difference for consumers while we wait for the new regime to come into effect. I very much hope that this approach will commend itself to the Minister when we come to the Committee stage.

21:53

[Lord Hodgson of Astley Abbotts]

My Lords, when one is the 36th and last speaker in a debate of this length and quality, inevitably most of one’s foxes have been shot—in many cases, in fact, not so much shot as riddled. I do not want to trespass on the kindness of the House, especially at this late hour, by repeating familiar arguments.

I declare an interest: I am chairman of two firms that are regulated by the FSA, and until recently I was chair of a third. I want to make three points about the Bill: my gloss on the architecture; something about the philosophy and culture that are currently around in the Financial Services Authority and which I fear may be transmitted to the new bodies; and an area that has been less well covered today—the question of social impact investment, which is important for the future.

I first became involved in City regulation some 12 years ago. I was one of the first directors appointed by the Bank of England to the then new Securities and Investments Board. Experience has taught me since then, and I have served on regulatory boards since, that every crisis is always followed by cries to move the architecture around and change the bodies. Indeed, the SIB itself was the result of a crisis—a rather minor one by today’s standards—in that the Bank of England suddenly became enthusiastic when it found that, rather unpleasantly, its own pension fund had been adversely affected by the activities of a firm called Barlow Clowes. The Bank immediately agreed that there needed to be one central regulator, with subsidiary regulators that could carry on more specifically focused activities. In the end, there were three such: the Securities and Futures Authority, the Investment Management Regulatory Organisation and the Personal Investment Authority. In fact, this was a triple-peak regulatory system as opposed to a double-peak one.

Why did that system not prove successful? In a word, to follow what the noble Lord, Lord Desai, said: Barings. The overnight collapse of one of Britain’s most historic merchant banks caused ripples of concern. The need for reform was given further impetus by the view that the subordinate regulators were too introverted—my noble friend Baroness Noakes referred earlier to regulatory capture—and not sufficiently accountable. We have had echoes of that today, and no doubt we will continue to in our discussions about the Bill. It was felt that a unitary approach should overcome these problems, and the FSA was the result. Now, with the events of 2008, that in turn has proved to be found wanting, and we are now going back to a more diversified structure.

The danger of changing a structure in response to a specific crisis is that you create one that is too backward-looking. In essence, generals tend to fight the battles of the previous war. The three issues that I hope that we can explore in Committee are whether the structure permits or encourages peering into the fog of the future and taking preventive action; how the relationships between the FPC, the PRA and the SCA will be integrated and managed in a way that does not place a double or triple regulatory burden on the regulated firms; and, as many noble Lords have said, whether the system contains a sufficient element of accountability.

So much for structure. I turn to the second issue, regulatory focus and culture, which the noble Lord, Lord Eatwell, referred to in his opening remarks, and many other noble Lords have referred to subsequently. In my view, the relationship between the Financial Services Authority and regulated firms has deteriorated in recent years. At root, the authority has given undue weight to just one of its regulatory objectives—protecting consumers. That is a perfectly respectable objective but one to which the authority has given huge weight, and in consequence it has placed insufficient weight on its other objectives, especially the need to weigh the cost of regulation, encourage innovation and consider London’s competitive position. In short, the FSA has become process-driven and risk-averse.

That focus on process has led to a number of undesirable consequences. First, there has been an increasing reluctance by firms to maintain an open relationship with their regulator. Any admission of weakness, however slight, is seized upon by the regulator, and no credit is given to the firms for having identified the weakness in the first place. That is an unproductive way to behave.

Secondly, there has been a dramatic increase in Section 116 investigations. Section 166 of FiSMA permits the FSA to require a skilled person investigation. It is clear from debates at the FiSMA proceedings that this idea should be used sparingly, but investigations are increasingly being thrown around like confetti. It is not just the cost of the investigation or the diversion of management time; it is the feeling abroad in the City that Section 166 achieved very little other than providing the regulator with cover, so that if something subsequently goes wrong he can say, “We had a Section 166 investigation. What more could we do?”.

Thirdly, and finally, there is an abuse of power—and I use this phrase carefully—by the SIF committee. Where a person has a particularly influential position in the company, he or she requires specific approval by the FSA via the SIF committee. The SIF committee is a star chamber. It is as simple as that. Individuals can be left in regulatory limbo for months. I know of one man who has been in regulatory limbo for 11 months without recourse or redress and without being able to find out what he has been accused of because confidentiality is required by the FSA while the procedure investigation is going forward.

This is the philosophy that is prevalent in the regulator at present, and it is one that may be transmitted to the new organisations. Therefore I agree with my noble friends Lord Hunt and Lord Flight when they call for proportionality. Looking through the Bill, I see Clause 5 and the references there, but we will really need to bottom out the practical implications of the statement of intent and what they are going to mean on the ground in the operation of the City of London.

I now turn briefly to my third topic: social impact investment. It is something that the Government are very keen to encourage but about which the Bill is almost entirely silent. The social investment process poses particular challenges for all trustees, as well as for grant-giving foundations, especially those with a permanent endowment, but the real regulatory crunch and challenge that is relevant to this debate lies at the interface between the charity and its individual supporter or investor. The missing piece in the jigsaw at present is the ability to approach individuals about social impact investments without the need for a full Companies Act prospectus, the cost of which renders almost any scheme uneconomic. We are therefore in the counterproductive and counterintuitive position that an individual can give his or her money to a project and be certain that he or she will not get it back, but he or she cannot lend or invest it if there is any prospect of any return at all. That cannot be a sensible way of proceeding to try to encourage our fellow citizens to put money behind social impact projects that this country badly needs.

I hope that in Committee we can discuss how we can help the social impact butterfly out of its chrysalis. We will need to create an appropriate position for the regulator and perhaps establish a class of individual supporters or investors, perhaps by creating a self-certified social investor along the existing lines of the self-certified sophisticated investor. To be fair to my noble friend on the Front Bench, it is not up to the Treasury alone. Contributions will be required from other government departments—BIS, the Ministry of Justice and the Cabinet Office—as well as, as we have covered this evening, from the professions: actuaries, investment managers and accountants. In my view, it will probably take a generation for the social impact investment movement to reach its full potential, but we need to plan now, and financial regulation, more than any other sector, holds the key, so I hope my noble friend will be able to help us during the passage of the Bill to speed this process on its way.

I do not doubt that the events of 2008 showed weaknesses in the regulatory structure and that we will need to give the Bill very careful consideration and examination in Committee if we are to manage to create the delicate balances between risk and reward and in doing so avoid hamstringing the dynamism of the City of London.

22:03

[Baroness Hayter of Kentish Town]

My Lords, I start by thanking the Joint Committee for its work in scrutinising this legislation. Three of its members spoke in the debate. I join others in welcoming the maiden speech of the noble Lord, Lord O’Donnell. When we come here, we all think that we have joined the most exclusive club in London but there is a more select one—that of former Cabinet Secretaries. In his notable speech today, the noble Lord showed himself a great initiate to that club, and he can now wear the tie.

I also particularly note the speech of my noble friend Lord Barnett, who referred to the “sexy bits” of the Bill. I have to say that I have not yet found these but I will now go back and look a little harder. I particularly thank the right reverend Prelate the Bishop of Durham, the noble Lord, Lord Sharkey, and my noble friend Lord Whitty for reminding us of those people who are denied access to financial services and of the areas where they are not available. We need to remember them.

The aim behind the Bill is laudable. It is to reform the regulatory system to avoid a repeat of the financial crisis. Amen to that, not least because the impact of failures is borne by the taxpayer and the consumer, as the noble Lord, Lord Flight, noted. We need to reduce the risk of failure without stamping out innovation, and to have effective mechanisms for dealing with any crisis or failure. However, the delivery of the Bill is poor. Unless it is amended, it will fail to achieve that end. There are problems with both the architecture and consumer protection.

On the architecture, Europe was noted by the noble Baroness, Lady Valentine, and the noble Viscount, Lord Trenchard. Despite the increasing importance of the new European Systemic Risk Board and the three ESAs having the powers to override our regulators on occasion, our new regulation does not map with theirs. While Europe cuts by area, with one for banking, one for securities and markets, and one for insurance and occupational pensions, the Bill cuts between prudential and conduct. This means that the FCA will sit on one body—that for securities and markets—with the PRA sitting on those for banking and insurance and pensions. No doubt some agenda items will cut across FCA and PRA responsibilities, with different officials sliding into the hot seat at different times.

As AXA has warned:

“There is a significant danger that the new structure will diminish the UK’s capacity to influence European regulators as”,

our,

“new … bodies will be organised along different lines to the European Supervisory Authorities”.

Our European Union Committee warned about this last July but the Government’s response was simply an MoU between the Treasury, the Bank, the PRA and the FCA. There was no recognition of any problem by the Government, despite their commitment to,

“ensuring that the UK authorities … take a leadership role in the ESAs”,

over the problems outlined by the committee.

I turn to the Financial Reporting Council, which gets no mention at all in the Bill, despite its role in the corporate governance of banks, the stewardship code and the setting of standards across much of the financial industry, including on issues that affect the work of accountants, actuaries and auditors, as has been mentioned today. Therefore, we should like to see a requirement for an MoU from the FCA and the PRA to the Financial Reporting Council. The PRA, in particular, will lead in the ESAs on the rulebooks, including binding technical standards.

I turn briefly to the Bank as it has been well covered today. Professor Julia Black has described it as,

“about to become the most powerful central bank in the world”.

The noble Baroness, Lady Kramer, referred to the “sun king” and the noble Lord, Lord Tugendhat, to the lavish powers that it will have. In another place, David Ruffley said:

“Not since the creation of the Bank of England … has its senior management and Governor had so much power … one cannot have enough scrutiny of this big beast that the Bank will become as a result of the Bill”.—[Official Report, Commons, 23/4/12; col. 746.]

The Institute of Chartered Accountants has also called for the greater accountability of the Bank to Parliament and the public. Therefore, we will need the amendments suggested by noble friend Lord Eatwell and foreshadowed by the chair of the Treasury Select Committee in the other place, Andrew Tyrie. That deals with architecture.

Turning to consumers, there are undoubtedly things in the Bill that we welcome, not least the power to ban toxic products; the exposure of misleading financial promotions; the publication of warning notices; the supercomplaints regime; and the move of consumer credit to the FCA. I thank the Government for those. However, there are some problems, one of which is in the architecture of the FCA. To quote the words of Andrew Tyrie again, it will be the poor relation—not least because of the PRA’s power of veto over it.

Secondly, there is insufficient transparency of the FCA. We all want to see its minutes published and its chief executive subject to pre-appointment scrutiny, as was mentioned by the noble Lord, Lord Northbrook, and the Treasury Select Committee. We also need to see retained the FiSMA’s current Section 11 requirement for the FCA to give reasons when it rejects the advice of the consumer panel.

The Prudential Regulation Authority will deal with some issues that will have serious consumer implications, yet there will be no consumer input to it. It will be responsible for with-profits policy and the reattribution of orphan estates; perhaps for reserving for mis-selling with all the implications that that would have for the readiness to make redress; possibly for decisions affecting loan-to-value mortgage rates; and even, possibly, free banking rules in so far as its putative head, Andrew Bailey, has proposed outlawing these. Yet there is no consumer input to the PRA. Why is there no right for the views of the consumer panel to be heard on relevant PRA remit, along the lines suggested by my noble friend Lord Whitty, or even a consumer panel, as recommended by the noble Lord, Lord Northbrook, this evening?

On the content as it affects consumers, the competition objective for the FCA is very welcome but it does not solve all this industry’s shortcomings, because this is a failing market. There is ongoing reliability in the Bill, which was mentioned unfortunately by the noble Lord, Lord Flight, on consumer responsibility, on buyer beware—caveat emptor—and the general principle that consumers should take responsibility for their decisions.

However, there are serious flaws to that. First, if consumers or their representatives have no say in, and cannot know about, the prudential security of a firm, how can consumers take responsibility for their choice of provider and not just of product? Secondly, how can consumers exercise caution over products, given the nature of this market? Recently, in an extraordinary statement, Philip Hammond of the Cabinet said he believes that consumers who borrowed too much during the economic boom must “accept responsibility” for their part in the financial crisis. He said that banks were not the only ones responsible but that those who took out loans, spent on credit cards or accepted large mortgages were “consenting adults”.

Perhaps he needs reminding of those daily, very attractive approaches that we as consumers were getting all the time to extend our credit. Every time our credit card debt got anywhere near the limit, it was automatically revised upwards without our knowledge. Banks sent out credit card cheques and mortgage companies approached borrowers to increase their loans. Now, we learn, bonuses depended on that.

The Financial Services Consumer Panel warned repeatedly about self-cert mortgages. We knew that they were being given to people whose income, encouraged by the lenders, was exaggerated on the application form. These lenders were giving unsustainable loan-to-income, unsustainable loan-to-value and interest-only advances, despite the protests that we were making—I was on the Financial Services Consumer Panel—to the FSA and the culprits. The idea of consumer responsibility taking the blame seems a little wide of the mark.

The other problem about caveat emptor is that it works in a properly functioning market where the informed consumer can make choices. It is not like that in this market where we have vulnerable consumers and new entrants. These are not repeat purchases, so it is very hard for us as consumers to learn about them. There is often long-term outcomes, so we cannot work out which are good products. There is an inability to shop around. We simply do not know enough about prices, risk, assumptions behind the products and the likely outcomes to make informed choices. There is also a real asymmetry of information.

We must make, along the lines mentioned by my noble friend Lord Borrie, real changes to the information supplied to consumers. To make it fair, clear and not misleading is not a bad start, but information is not enough. There are so many imperfections in the market that we simply have to step in. Warm words about treating the customer fairly will not suffice without a fiduciary duty along the lines set out by my noble friend Lady Drake, which would require anyone dealing with a customer to exercise that fiduciary duty—not to be in a situation where personal interest and duty of care to the client conflict, not to profit at the expense of the client, and generally to give undivided loyalty. That has to be accepted and enforced and must enter the culture, training and rules, and it should apply as much to pension investment funds as to the retail market. Indeed, the ICAEW wants the FCA to give as much attention to the conduct of the wholesale markets as it does to consumer protection. So perhaps fiduciary duty should extend far and wide.

On culture, we need regulation focused on consumers and their long-term interests, but that needs a culture change to put consumers centre stage and for them not to be seen as a means of generating high earnings for others. Consumers pay for regulation and compliance, but they also pay for failures—but somehow they never seem to walk away with golden handshakes when all has gone wrong. We need a regulatory regime designed to protect middle and lower-middle income people, because the opportunity for them to get ripped off is so high. We need regulators with the right nose for what is going on—people to interrogate data, listen to the warning and have the right feel for what the risk dashboard is highlighting. The Chartered Insurance Institute said:

“It will be the judgements undertaken by supervisors, and the conduct of firms, that will make the difference between regulatory success or failure”.

The noble Lord, Lord Sassoon, said that the judgments of expert supervisors will be at the heart of the new system. Amen to that—but we need to supervise those supervisors.

That brings me to the questions of transparency and accountability. We need greater accountability and parliamentary scrutiny than is envisaged in this Bill. The proposed macroprudential tools must be via superaffirmative orders, as suggested by the noble Baroness, Lady Noakes, and the noble Lord, Lord Northbrook, and there must be proper input from the Treasury Select Committee and our own House.

We need a successful financial industry. We need it to stimulate innovation and help to create jobs and growth; we need it to facilitate borrowing and to help people to change savings into investment and hence income for their future. That needs confidence as well as good regulation—the latter depending on the culture of an organisation and its participants as well as on the numerical results. A continuation of bankers’ bonuses; excess profit-taking; no care for the clients whose savings drive all this; irresponsible risk-taking; and rewards for failure have surely had their day. We look forward to enabling this Bill, as it aims to do, to make regulation work for the whole country.

22:18

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

My Lords, this debate has been every bit as rigorous and illuminating as I expected and I thank your Lordships for approaching the Bill in a thoroughly constructive and thoughtful manner. We have had many useful contributions during the afternoon and evening. Some I would characterise as sighting shots, and we had a few opening barrages. I thank in particular the noble Lord, Lord O’Donnell, for his characteristically clear, focused and constructive maiden speech, which certainly contained a number of well aimed rifle shots.

I was delighted that my noble friends who are former Chancellors welcomed the Bill. I was also pleased that at the start of the debate the noble Lord, Lord Eatwell, said that the fundamental thinking behind the Bill was well founded. Noble Lords who have direct experience of operating within the current structure, including the noble Lords, Lord Myners and Lord Burns, recognised that the tripartite system had not lived up to expectations, to use their measured terms. We have a major piece of legislation in front of us, the importance of which is widely recognised.

Before I get into the detail of some of the points that have been made, I wish to say a few words about the form of the Bill, as speakers, including the noble Lord, Lord Turnbull, and the noble Baroness, Lady Cohen of Pimlico, questioned the way in which it had been written as amending legislation as opposed to a wholesale rewrite of FSMA and other legislation. We thought about this approach very carefully. I appreciate that the Bill in its present form is not easy for any of us, but it is an approach that has been widely supported by consultation respondents and will minimise the extent to which regulated firms and other users of FSMA have to deal with legislative change. It should also allow for more focused scrutiny in this House and by stakeholders of the key changes in the regulatory regime. However, as I am sure noble Lords are aware, the Government have published a consolidated version of FSMA to help to show explicitly what the legislation will look like once it is amended by this Bill. That is available on the Treasury website.

I wish to make one other preliminary remark before we get into the content of the Bill. I noted the very interesting suggestion made by the noble Lord, Lord O’Donnell, of having a standing Joint Committee to assess the new framework. It is an interesting idea but it is for Parliament and not the Government to decide how best to organise its scrutiny activities. However, I repeat that the quality of the Joint Committee’s work in scrutinising the new arrangements underlines the noble Lord’s point. It was good to hear from members of that committee in the debate, such as my noble friend Lady Wheatcroft, the noble Baroness, Lady Drake, and the noble Lord, Lord McFall of Alcluith. However, I am very sorry, as I am sure is the whole House, that we have been robbed of the wisdom of my former noble friend Lord Maples, who would have very much enriched today’s debate.

The hour is late. I will not take this opportunity to read a fully formed speech highlighting again why the Bill is so important to protect the UK financial services sector and the wider economy. I could reiterate the arguments, but I will use the time to answer as many of the points that have been brought up as I can. I will have to leave many others on the table for future discussion or letters as appropriate.

I have tried to group together the points. First, I shall pick up some of the issues on the overall architecture and the cross-cutting issues. Then I will address some of the points on the Bank of England, the FPC objectives and bank governance, and another area where many important points were raised concerning access to financial services, as well as one or two of the international issues that were raised.

On the overall architecture and some of the cross-cutting issues in the Bill, a point that was very clearly made by a number of noble Lords, including my noble friends Lord Lawson of Blaby and Lord Lamont of Lerwick, is the question of judgment and culture—architecture versus institutions. Many speakers have made the point that the culture of regulators is more important than institutional architecture. I agree of course that culture is vital but, as the noble Baroness, Lady Cohen of Pimlico, noted, architecture also matters. That is precisely why we are implementing these reforms to put in place an institutional framework that will allow a culture of focused expertise and judgment to flourish separately and distinctively within the new PRA and the FCA. That is reinforced in the Bill by, for example, imposing the legal duty to supervise firms, which will require the two bodies to develop and promote a culture of supervisory judgment.

There were questions about what is characterised as twin-peaks regulation. I do not like that tag but let me now use it for simplicity. The importance of co-ordination between the PRA and the FCA has been stressed by my noble friend Lady Kramer and others. We agree that this is important. That is why we have proposed cross-membership of the boards of the PRA and the FCA, and it is why there is a statutory duty to co-ordinate the requirement to prepare a memorandum of understanding. These issues have been thought about.

Let us be clear on another issue of co-ordination, which relates to crisis management and particularly the involvement of the Treasury. That issue was raised by the noble Lords, Lord Eatwell and Lord Burns, my noble friend Lady Noakes, and others. The Bill places the Bank under a hard legal duty to notify the Treasury of a risk to public funds. It is a duty that applies regardless of the amount at risk or the Bank’s opinion on what should be done. That is at odds with what I heard from some noble Lords who addressed this point. The MoU also makes it clear that, if there is any doubt, the Bank must notify. The MoU also allows the Treasury to require the Bank to consider making a notification in response to a specific risk or situation.

On one or two other cross-cutting issues, the importance of cost control and proportionality was raised by a significant number of speakers, including my noble friends Lord Flight and Lord Naseby, and the noble Lord, Lord Bilimoria. The Government agree that cost control and proportionality are fundamental. The PRA and the FCA are required to have regard to proportionality. Both regulators are of course required to carry out cost-benefit analyses and to consult on their rules, as one would expect, but there are a number of areas in which the Bill goes further than previous practice. For example, for the first time, the financial services regulators are subject to National Audit Office audit, and the NAO is able to conduct value-for-money studies. That is something new in the structure to be introduced.

There were one or two specific questions on the scope of regulation. My noble friend Lord Flight asked about life companies and observed that they are very different from banks. I certainly agree with my noble friend on that, and it is precisely why we have a different insurance objective for the PRA and explicit provision covering the PRA’s duties in the regulation of with-profits policies. My noble friend Lord Teverson raised a question on rating agencies. The reason why they are not addressed directly in the Bill is that they are now a European competence, and the lead is taken by one of the three European bodies—ESMA—with the Commission.

Two other important areas concerning scope were raised. A number of speakers, including the noble Lord, Lord McFall of Alcluith, my noble friends Lord Lawson of Blaby and Lady Wheatcroft, and others, talked about bank auditors. As with other topics, I cannot do this justice this evening. I simply remind the House that responsibility for looking after auditors and their regulation remains with the Financial Reporting Council, and so it is not part of the Bill. The FRC is doing a significant amount of work around the scope of audit. I was pleased that my noble friend recognised that we had picked up one important issue, going back to his legislation. The practice of dialogue between auditors and regulators, which needs to be addressed, is now in the code of practice, although I heard the suggestion that it might be embodied in the legislation.

Lastly in this area, the question of central counterparty clearing houses—another important issue—was raised by my noble friend Lady Kramer. I remind the House that there is an important European directive coming in this area—the so-called EMIR, the European Market Infrastructure Regulation—which aims to reduce systemic risk in the OTC derivatives space. We want to make sure that what we are doing in the UK fits with the architecture of EMIR, which will itself be directly applicable in the UK. I suggest that we do not want to fall into the trap of super-equivalence. On the other hand, there are provisions in the Bill for rules to be made that fit within the developing architecture of EMIR.

I turn to some of the issues concerning the Bank of England’s FPC bank governance. First, on the question of the FPC and its objective, the Government recognise that the pursuit of financial stability needs to be balanced against the wider contribution of the financial system to economic growth. As I explained at the outset, the Bill seeks to provide this balance by requiring the FPC to have regard to the proportionality of its actions and by preventing it taking any action that would have a significant adverse impact on sustainable economic growth. Having said that, I listened very carefully to the significant number of noble Lords who pointed out that there should be more recognition of growth in the FPC objective. I have already mentioned many of the speakers who addressed that point but the others included the noble Lord, Lord Mawson, who did so in his characteristic way. I cannot promise any amendments in this area. I listened very carefully but I certainly cannot promise one that directs the FPC to have specific regard to the interests of the Lower Lea Valley, although I think that the House heard very clearly all the great things that are going on there. However, I listened to the points that were made.

Points were also raised concerning co-ordination. On the one hand, the Bill is solving the co-ordination problems by making the Bank and the governor responsible for what some characterised as everything; on the other hand, that presents challenges not only for the person of the governor but for bankers and institutions—something that my noble friend Lord Tugendhat and others brought up. Of course, I certainly accept that monetary policy, financial stability policy and prudential regulation are intimately connected. That is why having these responsibilities under one roof is the best way to ensure that co-ordination. Within that framework, in each role the governor does not act alone but is supported by external and non-executive members and others.

There were other points made by the right reverend Prelate the Bishop of Durham and others on Bank of England governance. I said again at the outset that this is an area in which the Government recognise the need to go further, and I have listened to what has been said tonight. I was grateful to my noble friend Lord Stewartby for pointing out some of the lessons from the Board of Banking Supervision and for recognising that we cannot expect to pick up exactly what it was. However, I believe that the lessons from that experience have been picked up in the design of the PRA board. On the power of direction, I heard speakers say that they believed it to be too constrained. I do not believe that that is the case in relation to the scope that it has in special support operations and the provision of emergency liquidity in relation to the special resolution regime, but I am sure that this is something that we will come back to.

Let me turn to a few remarks about issues on access to financial services. I will be unable to do them full justice, but there were issues around diversity of provision—specifically on mutuals. The coalition agreement makes clear the Government’s commitment on mutuals. The Bill requires regulators to analyse the effect of their rules on mutuals, which is a new measure that will help to ensure the fair treatment that we want. The noble Lord, Lord Whitty, and the right reverend Prelate raised questions about the inclusion and universal provision of financial services. They are very important questions but they are essentially questions of social policy, so are for the Government and not directly for the regulatory structure. On SME lending and questions asked by my noble friend Lord Sharkey and others, the Government are taking significant action, which we have discussed before, outside the framework of this legislation to ensure the flow of lending to SMEs. That work will continue.

In another related area, my noble friend Lord Hodgson of Astley Abbotts talked about the importance of social impact investors. I agree with that but I question the role of the legislation that we are talking about in that area. On consumer credit regulation—important points were made again from my noble friend Lord Hunt of Wirral and others—the Government are committed to designing a proportionate model of FCA regulation for the sector. The Government will consult on this and detailed proposals will come forward early in 2013. My noble friend raised the question of self-regulation. I agree with him that self-regulation which is credible, transparent and effective is an important complement to statutory regulation. The FSA is at the moment looking at different industry codes in the credit industry considering whether, and if so, how they can be incorporated into the new FCA regime.

On payday loans, which was addressed by the noble Lord, Lord Mitchell, the right reverend Prelate, and others, we are awaiting the research being done by Bristol University’s Personal Finance Research Centre at the impact on consumers and business of introducing a cap on the total cost of credit—not an easy topic. The final report is on course to be published this summer.

Finally in this area, I will address briefly the question of peer-to-peer lending raised by my noble friend Lord Lucas and others. The Government do not think that statutory regulation is appropriate at this point. The sector is very small and such regulation would be a barrier to new entrants and innovation. However, this is a matter that we will keep under review, and I am grateful to my noble friend for raising it.

On confidential information and its disclosure, I was asked by the noble Baroness, Lady Drake, about the FSA review. If the FSA concludes as a result of the review that changes to primary legislation are needed, we will consider the proposals very carefully and bring forward legislation as appropriate. It is an important issue.

A couple of points were made on the international front, which clearly is highly relevant. The first concerned the mismatch between the architecture in the UK and the developing architecture in Europe. I say to the noble Baroness, Lady Valentine, that this House probably would not want to abolish imperial measures. Certainly I do not want to abolish them. On financial supervisory architecture, we must design something that is appropriate to the UK. I draw the attention of the noble Baroness, Lady Hayter of Kentish Town, to the broad consensus in the evidence given to the Joint Committee that having a different regulatory structure to that of the European supervisory authorities would not present any issues for the UK authorities either in representing UK interests or in the way that firms in the UK are regulated.

I am sure that we will come back at length to the question of international competitiveness that was raised by my noble friend Lord Trenchard and others. The Government’s position is that it is what the regulators—the FCA and the PRA—do that will make the difference in determining whether the UK is or is not a competitive place in which to do business, not having a statement about competitiveness. It will be the high regulatory standards and the stability of the financial sector to which these will contribute—the reliability, fairness and consistency of regulation—that will be important in maintaining and driving forward the attractiveness and competitiveness of London. It is those issues that will address the substance of the point.

A challenge was thrown down at a number of points in the debate. The noble Lords, Lord Bilimoria, Lord Barnett and Lord Burns, asked whether this structure would have prevented the recent crisis. In my opening remarks I did not mean to say—and did not say—that the structure was the direct cause of the crisis. Of course the principal cause was the behaviour of firms. However, I was in the structure between 2003 and 2005, and I know that that behaviour contributed to the severity of the impact of the crisis in the UK. No one had the responsibility, the authority or the tools to monitor the system as a whole in the way that will be provided for in the FPC. I sat in the monthly meetings of the tripartite deputies at which the stability side of the Bank, which was being significantly reduced, nevertheless came forward with very good analyses of some of the problems that were welling up.

This was in 2005; I did not have the benefit of seeing what happened in 2006 or 2007. However, the analysis was brought forward but the Bank did not take it upon itself to do anything with it, and the FSA did not take away the lessons from the analysis. The deputy governor of the Bank and his team were doing very good work but it went nowhere. The FSA had insufficient focus on its roles as the microprudential regulator and the conduct regulator. This is why the Bill creates two new focused regulators. There was also a lack of clarity in the run-up to the crisis and the way in which it hit.

This has been a wide-ranging debate, for which I am very grateful. The provisions in the Bill have already undergone a great deal of scrutiny—three rounds of public consultation, pre-legislative scrutiny, the attention of the Treasury Committee and its passage through another place. The Government have already shown that they are flexible and committed to making the Bill as good as it can be by amending it in response. It is already strong legislation, but I look forward to the further informed challenge that I know I will get from your Lordships in Committee and to the opportunity to improve the Bill still further. However, for now, I ask the House to give the Bill a Second Reading.

[Lord Northbrook]

Will the Minister write to me and the other Members who asked about strengthening the powers of the Court of the Bank of England and of non-executive members on the regulatory bodies?

[Lord Sassoon]

I have already said that we will go through the whole debate and respond on a range of issues that have not been picked up in my response.

Bill read a second time.

Motion

Moved by

[Lord Sassoon]

That the Bill be committed to a Grand Committee.

[Lord Sassoon]

My Lords, I beg to move that this Bill be committed to a Grand Committee.

[Lord Hamilton of Epsom]

My Lords, this Bill is of major importance—this is not my idea; it comes from the Minister—and is very significant indeed. However, for some reason the Minister wants to shuffle it off into the Grand Committee Room. The Bill needs close scrutiny and will bring forth the exquisite qualities of your Lordships’ House. There is a massive amount of expertise here that can make positive comment on the Bill and make it better than it is today. It would be quite wrong if we were to vote for the Bill to go into the Grand Committee Room. It should be debated in Committee on the Floor of the House and I hope that the committal Motion will be negatived by the House.

[Lord Foulkes of Cumnock]

My Lords, it is seldom that the noble Lord, Lord Hamilton, and I agree. We were introduced into the House on the same day and I found it a privilege to be introduced on that day. However, I fully agree with him on this issue. I returned from the Recess to find this Motion on the Order Paper. I was not aware of it before and, as far as I know, there was no consultation about it. Members did not know that it was going to be remitted to a Grand Committee. I may have shown a lack of acuity in picking this up but I have discussed today the fact that many Members were not aware that it was going to be suggested that this important Bill should be committed to a Grand Committee.

As the noble Lord, Lord Hamilton, said, this is an important issue. It may not be politically contentious but it is vital. As the Minister said, it arises to some extent from a major financial crisis that hit the headlines. He described the Bill as major legislation and, after talking with Members who have been in the House much longer than me, I believe it is very unusual for such major legislation to be remitted to a Grand Committee for discussion. As the noble Lord, Lord Hamilton, said, it would be normal for it to be taken on the Floor of the House.

There may be other reasons—far be it from me to suggest them—why the Government want to remit the Bill to a Grand Committee, but our decisions as Members of the House should be on the merits of the Bill and not on any secondary reasons beyond the basis of the Bill.

It would be unfortunate if we had to divide on this, so I urge the Minister to withdraw his Motion on the basis that there will be further discussion and consultation with all parties and all sides of the House. I hope he will see fit to do so.

[Baroness Noakes]

My Lords, it is a great pleasure to be in complete agreement with the noble Lord, Lord Foulkes, which is not an occasion I find often to celebrate.

Having been in his position for many years, I understand completely the noble Lord, Lord Eatwell, who expressed earlier his view that we could have a more intimate discussion about issues with the Minister in Grand Committee. Equally, when I was in his position, I always took the view that Bills of major significance, which this one is, should be considered in the Chamber.

There is a particular reason for that. When a lot of issues have to be debated and decided, the only time you can divide in Committee is when a Bill is considered by the whole House, not in Grand Committee. In Grand Committee you have one fundamental opportunity to test the opinion of the House, which is on Report because there is a restricted ability to test matters at Third Reading. So for a Bill like this, with quite a lot of issues, it would be much better for the whole House to consider them so that we can settle them in Committee. Otherwise we will have one of those invidious things where we have to consider how many issues we can deal with by 7.30 in the evening before people go away. You have to take things over from Grand Committee to the whole House on Report.

This Bill is very significant and covers many issues. That has been reflected in our debate over the past seven hours or so. It is our responsibility as a revising Chamber to do this in the proper way by considering it not in Grand Committee but by the whole House.

[Lord Myners]

My Lords, I rise briefly to add my support to the views expressed by the previous speakers. There are significant issues in this Bill which require attention. They are not issues that divide on party political lines, and it is clear from today’s debate that there is a wealth of information and understanding in the House. Having previously taken legislation through Committee both in the House when I was a Minister and in Grand Committee, I have no doubt that this Bill should be appropriately considered by the whole House in order to be able fully to draw upon the knowledge and expertise of your Lordships. I would enjoin the Minister to withdraw the Motion that the Bill be taken in Grand Committee in order to allow further time for discussions through the usual channels—taking into account the views which have been expressed this evening from all sides of the House.

[Lord Bilimoria]

My Lords, perhaps I may add that this came to a head with the Welfare Reform Bill, which was committed to a Grand Committee. I remember what a stand-off there was between the Opposition and the Government. That was a sad day for this House. In the end a compromise was reached so that much of the Bill was debated on the Floor of the House. We must be careful about the signal we send out to the country about the priority of something as major as this crisis, which has brought the country to its knees. We must be careful of the message we send out before we make this decision.

[Lord Lucas]

My Lords, we have to face the fact that we do not do as good a job in Grand Committee as we do in a Committee of the Whole House. There is no opportunity for Peers widely to participate in Grand Committee in the way that there is in the Chamber. Given the importance of the Bill and the depth of interest in it, I hope very much that the Government will listen to what has been said.

[Lord McFall of Alcluith]

My Lords, perhaps I may remind the House that Finance Bills in the other place are accorded the greatest status by being debated on the Floor of the House. If we are going to have equal status in terms of the scrutiny and examination of this Bill, the least we can do is send a message to the other place that we take this seriously, and that it has to be done on the Floor of the House.

[Baroness Liddell of Coatdyke]

My Lords, this should not go into Grand Committee, not least because of the historic significance of the past four years and what has happened to financial services—against the background of financial services as a major industry for this country—but also because this is a classic opportunity to showcase the wide range of expertise that is available in your Lordships’ House. This is not a Bill to be put into a corner and forgotten about. It deserves—and the public deserve to see us give—the kind of detailed scrutiny that legislation of this importance merits.

[Lord Sassoon]

My Lords, I am a little surprised by this discussion, not because I do not think it is an important debate but there have been one or two interventions from noble Lords who unfortunately were not here to hear this point addressed during the debate.

First, this was not a decision of mine. I will do whatever the House wants. I was not asked whether I wanted to do it one way or another and I see arguments for doing it either in Grand Committee or on the Floor of the House. This was discussed through the usual channels. I have not seen this sort of discussion in anything I have been involved in. I believe that the usual channels go through these things very carefully, and they came up with an agreement on this that I certainly am prepared to accept.

I also heard the noble Lord, Lord Eatwell, and the noble Lord, Lord Barnett, who is not in his place at the moment, arguing during the debate that the Grand Committee was a better place to take this legislation. I think the noble Lord, Lord Eatwell, referred to the detailed scrutiny of the Bill establishing the Office for Budget Responsibility, on which I had the pleasure and the responsibility of leading. Indeed, that Bill was given very thorough, detailed scrutiny. It was a Bill of great importance—not as big as this Bill but it showed in a related area how effective the Grand Committee can be.

The Welfare Reform Bill can hardly be said to have been an unimportant Bill. What Bill of greater importance has this House considered in the past two years? Everything I have heard suggests that the scrutiny it got in Grand Committee actually worked extremely well, notwithstanding the understandable doubts there were about it.

I do not want to withdraw the Motion. It has been agreed by the usual channels, in which all these matters will have been debated, and I believe that we should stick with what the usual channels have agreed.

[Lord Lamont of Lerwick]

My Lords, I ask my noble friend to think again about this. This may have been agreed by the usual channels but it is not the usual channels that should entirely count on this; it is the will of the House. Almost all the people who have spoken in the debate are present now and a large number of them have expressed the view that this would be an unsatisfactory way of proceeding. The view has been put that this is comparable to the OBR. With great respect, I suggest that this is a much, much more important measure than the OBR.

Secondly, the Grand Committee is a much more restricted form of scrutiny in that you cannot actually vote on amendments; you cannot have a Division. I know that it is the practice of the House that we do not have too many Divisions in Committee on the Floor of the House. None the less, the pressure on Ministers to give a clear explanation to pointed amendments when there is a threat of a Division is much greater and it makes for a much sharper and more lucid Committee when there is the possibility of a Division. Just to have debates in which there are no Divisions and there are many more Divisions on Report does not seem the best and the most satisfactory way of proceeding. I strongly urge the Minister to reconsider.

[Lord Foulkes of Cumnock]

The Minister has said that he personally does not mind whether the Bill is dealt with on the Floor of the House or in Grand Committee, which is very helpful. He founds his argument principally on an agreement through the usual channels—and I have great respect for the usual channels. However, I fear that, because of the recess, the usual channels may not have worked as efficiently and effectively as otherwise. If the Minister were to agree to withdraw the Motion, which would be preferable to a Division, we could have a few days to have further discussion and consultation. By that time, the groups will have met; the Cross-Benchers will have had an opportunity to meet; and we can consider this matter again. All we are doing is suggesting that this matter be postponed for three or four days.

[Lord Sassoon]

My Lords, I have every faith in the ability of the usual channels to work these things out very thoroughly, recess or no recess. We should do what is customary and stick with what the usual channels have agreed.

[Baroness Kramer]

I have relatively little experience in this area, but it is my understanding that one of the advantages of Grand Committee is the easy access to officials. If the Government are seriously considering a range of amendments, as the Minister has indicated in the debate today, I presume that the ability to discuss and negotiate those and to make sure that government amendments come forward that meet the required standard will be easier within the Grand Committee context. I am something of a novice on this, so I would take the guidance of the House.

[Baroness Noakes]

Perhaps I may challenge the suggestion made by the noble Baroness, Lady Kramer. While officials sit rather nearer to the Ministers in Grand Committee, I think that they take no active part. All we have is that the same number of officials sit rather closer to the Minister, so it makes very little difference in terms of determining government policy. In practice, because no decisions are made in Grand Committee, or at least they are made very rarely there, the proximity of officials is of no account whatever.

[Lord Sassoon]

My Lords, I hear the opposition to this Motion loud and clear. Rather than put ourselves through the agony of going through the Division Lobbies at this late hour, let me withdraw the Motion and let some more discussions go ahead.

Motion withdrawn.

House adjourned at 11.02 pm.