Grand Committee

Tuesday 26th February 2013 Grand Committee

Tuesday, 26 February 2013.

15:30

[The Deputy Chairman of Committees (Viscount Simon)]

My Lords, if there is a Division in the House, the Committee will adjourn for 10 minutes.

Police and Fire Reform (Scotland) Act 2012 (Consequential Provisions and Modifications) Order 2013

Tuesday 26th February 2013 Grand Committee

Considered in Grand Committee

15:30

Moved By

[Lord Wallace of Tankerness]

That the Grand Committee do report to the House that it has considered the Police and Fire Reform (Scotland) Act 2012 (Consequential Provisions and Modifications) Order 2013.

Relevant documents: 17th Report from the Joint Committee on Statutory Instruments, 27th Report from the Secondary Legislation Scrutiny Committee.

[The Advocate-General for Scotland (Lord Wallace of Tankerness)]

My Lords, I will provide the Committee with a brief summary of what the order seeks to achieve. It is made under Section 104 of the Scotland Act 1998, which allows for necessary or expedient changes to legislation in consequence of an Act of the Scottish Parliament. The order is made in consequence of the Police and Fire Reform (Scotland) Act 2012, which received Royal Assent on 7 August 2012. I shall refer to this as the 2012 Act.

The 2012 Act creates a single Police Service of Scotland, which will be maintained by the Scottish Police Authority. This service will replace the eight existing police forces maintained by local police authorities and the two central bodies which currently provide national policing services in Scotland. The 2012 Act, together with this order, repeals the Police (Scotland) Act 1967 and replaces it with a new statutory framework for policing.

The 2012 Act also creates a single Scottish Fire and Rescue Service. This newly created service replaces the two unitary fire and rescue authorities and six joint fire and rescue boards which are currently in place. The 2012 Act amends the Fire (Scotland) Act 2005 to establish this single fire service.

Additionally, the 2012 Act provides for the Police Complaints Commissioner for Scotland to be renamed the Police Investigations and Review Commissioner, with expanded powers to carry out investigations into serious incidents and other matters relating to the police. The 2012 Act also places independent custody visiting in Scotland on a statutory footing, ensuring compliance with the Optional Protocol to the Convention Against Torture.

As will be seen, it is a very substantial order in terms of size, but I can assure the Committee that it is entirely consequential in content. Its intention is not to make any new policy but simply to ensure the continuity of current arrangements when the 2012 Act comes fully into force on 1 April by updating existing legislation to refer to the newly created Scottish Police Authority, Police Service of Scotland and Scottish Fire and Rescue Service.

The order makes provision for mutual aid and collaboration agreements between the new Scottish services and other forces and services in the United Kingdom. For police, this replaces provision in the Police (Scotland) Act 1967 and, for fire, it provides a clear statutory footing to ensure that the current relationships continue to work effectively. The order will also make certain transitional and savings provisions, again for the purpose of guaranteeing continuity of services.

Following its scrutiny of the order, the Secondary Legislation Scrutiny Committee drew the attention of this House to the instrument on the grounds that it gives rise to issues of public policy which may be of interest to it. I take this opportunity to thank the committee for its consideration of the order and address the issue that it raised.

Article 9 of the order makes it an offence to cause disaffection among members of the Police Service of Scotland, the British Transport Police or the Civil Nuclear Constabulary. It also makes it an offence to induce a member of any of those forces to withhold services.

With regard to the scope of the offence, I assure your Lordships that it is not the intention that an individual would be charged under the offence set out in Article 9 for merely expressing an opinion or legitimate concerns. The UK Government would expect a prosecution to follow only where there was a real and serious attempt to cause disaffection. Such action could lead to a breakdown in the ability of the police to maintain public order and to protect society. Any attempt to undermine the role of the police in this way is a serious matter and must be addressed. That is why we consider this offence to be necessary.

Offences parallel to that proposed in Article 9 already exist in relation to all UK police forces and the specialist forces; namely, the British Transport Police, Civil Nuclear Constabulary and Ministry of Defence Police. The Home Office has confirmed that there is no intention to remove the offence in England and Wales, and it is my understanding that its repeal is not being contemplated in Northern Ireland either. These offences are considered to be essential to the proper operation of policing. The intention of the order is to ensure that the new Police Service of Scotland can continue to work effectively with the other police forces within the UK. Not to include this offence would cause a discrepancy between constables of the Police Service of Scotland and those of other UK forces. It would also cause a discrepancy, for example, between members of the British Transport Police operating in Scotland and their colleagues in England and Wales.

It may well be the case that your Lordships’ House will wish to consider the terms of this offence in a wider context. I would submit that the purpose of this order is simply to maintain continuity and consistency between the new Police Service of Scotland and other forces across the UK. It would not be appropriate if the Scottish Government had proposed removing the offence for forces operating in Scotland as this would leave a significant gap for effective policing throughout the United Kingdom. Moreover, if your Lordships’ House continues to have concerns about the general policy surrounding the offence of disaffection, it would not be appropriate to use this technical piece of subordinate legislation to address such wider concern here as this order is concerned with maintaining effective policing in Scotland and ensuring continuity of current policing arrangements.

With regard to the instrument as a whole, it is worth noting that this order is part of a much wider legislative programme to provide a smooth transition to the new police and fire services in Scotland. Indeed, 15 other instruments have been laid to date in the Scottish Parliament, and I understand that 10 more are planned, while a related order, the Scottish Administration (Offices) Order 2012 (SI 2012/3073) was considered by Her Majesty in Council and subsequently laid before this Parliament on 19 December 2012.

Work on this consequential order has been undertaken by more than 20 departments within the United Kingdom Government, the Scottish Government, the Northern Ireland Executive and the Welsh Assembly Government, who have agreed that the provisions in this order are necessary to ensure the effective operation of the new police and fire services in Scotland and the continuation of effective relationships with their partners throughout the UK. With the 2012 Act completing its passage through the Scottish Parliament only in June last year, agreement on the policy and the drafting of the instrument has been concluded at an excellent pace, with great credit to all those involved across the different Governments.

It is also fair to point out that neither coalition party in the Government here at Westminster was supportive of the measure when it went through the Scottish Parliament. Indeed, my party opposed it and the Conservative Party abstained. Nevertheless, I believe that it is consistent with the spirit and mutual respect that we give effect to an Act properly passed by the Scottish Parliament. Indeed, it was passed by 101 votes to six with 14 abstentions. I believe that it demonstrates the United Kingdom Government’s commitment to working with the Scottish Government to make the devolution settlement work. I hope that this Committee will agree that this order is a sensible use of the powers in the Scotland Act and that the practical result is an example of how we can make devolution work. I commend the order to the Committee. I beg to move.

[The Earl of Mar and Kellie]

My Lords, I am perfectly happy with what the Scottish Parliament has legislated for and I am happy with the order. I should like to record my surprise at the strategy of going for a national police force in Scotland. It certainly has been the tradition in Scotland and across the whole of Britain as an island that policing should be organised locally. At home, I have maps which point out where the Alloa borough police force was: it had a chief constable, a sergeant and 10 constables. The tradition in Britain has been one of local policing.

I also acknowledge that in another part of English-speaking Europe, in Ireland, that it always has had national policing. After 1922, the Royal Irish Constabulary was replaced by two national forces—the RUC and the Garda Siochana. I want to record the fact that I am surprised by the strategy which apparently we want to have in Scotland, while I am very happy about us having a strategy in Scotland.

[Lord McAvoy]

My Lords, the Opposition support the measure, which as yet is another example of continuing devolution. I will not pay tribute to the Minister’s staff today because the last time I praised one of them, she mysteriously vanished and we have never seen her again. I do not know quite what he has done to her but I hope that she survives and makes a further appearance. The noble Earl, Lord Mar and Kellie, has mentioned the Scottish tradition of policing but we all have to recognise devolution and its implications. There was a consultation process that was very supportive and there did not seem to be any dissenting voices to the proposal. As the Minister rightly says, this is necessary after the 2012 Act. I cannot quite remember the context in which he mentioned torture, but I do not think that that has relevance on this.

There are comparisons with other nations and regions of the United Kingdom—we all understand the Northern Ireland one—but the Scottish Government have considerable powers and I can understand why there are reservations about having a national police force against a background of the police always being regionally organised. I was on the police and fire committee of Strathclyde regional council, which has a very good operation. The Minister mentioned that there were 14 abstentions in the Scottish Parliament—I presume that that was his own party, or did the Liberal Democrats vote against? I welcome the conversion and hope that we can have further co-operation like that.

Although the report is rightly subject to scrutiny and questioning, I want to develop a wee bit further the principle of disaffection. As a trade unionist, the word “disaffection” towards anything raises questions. It has been mentioned that some of the clarification that the Minister’s staff was able to pass on was on questions asked by the committee regarding who could be charged with disaffection. The initial reply seemed to indicate that only certain police could be charged with disaffection, but further clarification suggested that it could apply to a member of the public as well. Although I totally accept the Minister’s point that the Government do not envisage anyone being charged with this wrongly, unfairly, or whatever, he will know better than I do that legal history is full of people who have been prosecuted for offences for which at the time it was indicated they would not be prosecuted. So, I would like further clarification on disaffection because the police are different. It is acknowledged that they are not allowed to join trade unions. We have to have law and order and a legal system, so it is right that in case anybody tries to suborn or undermine the police in carrying out their duties, the defence should stay in.

I press the Minister to go a bit further in giving us assurances that no “innocent bystanders” who have had a pint too much on a Saturday night and preach treason—I have certainly done that myself a few times with pints of soda water and lime, I hasten to add—will be prosecuted. I seek assurances that ordinary members of the public, letting off steam—to use one of the expressions mentioned—will not be liberally prosecuted. I will leave it at that and hope that the Minister can give us some of those answers. That will reassure me.

[Lord Wallace of Tankerness]

My Lords, I thank both my noble friend Lord Mar and Kellie and the noble Lord, Lord McAvoy, for their contributions to the debate. I note the concerns of my noble friend with regard to the establishment of a national police force. He will be aware, as I indicated in opening, that our Scottish Liberal Democrat colleagues in the Scottish Parliament voted against this. At one point the noble Lord, Lord McAvoy, suggested that the 14 were Liberal Democrats—if only we had 14 Members in the Scottish Parliament. It was five Liberal Democrats and one Green who voted against and 14 Conservatives who abstained. The point is not about whether we support this policy intent, but that the Act was properly passed by the Scottish Parliament, and by a large majority. It is very consistent and in the spirit of the devolution settlement that this Parliament, through the use of a Section 104 order, should give effect to the intentions of the Scottish Parliament in areas where, because of its competence, it was not able to do so. It is in that spirit of making the devolution settlement work that we bring forward this order.

15:45

The noble Lord, Lord McAvoy, asked particularly about Article 9 and the issue that was raised by the Secondary Legislation Scrutiny Committee. He is right on disaffection inasmuch as it is not just members of the police force who could possibly commit such an offence. Anyone attempting to persuade a member of the police force not to serve could expose themselves to a possible prosecution but, as I indicated and the noble Lord accepted, this is not about expressing an opinion or engaging in debate. We said in response to questions from the Secondary Legislation Scrutiny Committee—I think it had been in one of the earlier responses about the chat in the pub—that we presumed that the committee meant a chat in the pub between police officers. That was why the context of the reply was framed as it was, in an attempt to give a directed answer to the committee’s concern. However, it is possible for the offence to be committed by persons who are not members of police forces in the first instance. I hope this clarifies it. The first sentence contained a general statement to set the scene before focusing on the perceived aspect about which the committee was concerned.

I hope I can give some assurance to the noble Lord, Lord McAvoy, in that we are not aware of any prosecution having been raised in relation to the provisions which are currently in Section 42 of the Police (Scotland) Act 1967. They have been on the statute book for more than 45 years and there is no reported case; nor indeed does there appear to be any reported case involving equivalent offences in other legislation which applies to other police forces within the United Kingdom. The lack of any cases implies that the sort of conduct which appears to be the cause for concern has not hitherto given rise to a criminal prosecution since 1967 but that does not mean, as I hope I explained in my opening remarks, that it is not relevant in 2013. The offence has a powerful impact in deterring behaviour which could otherwise undermine the effectiveness of the police forces.

As I think the noble Lord also recognised, if there is to be a debate on changing this provision, it would be better if that took place in a wider debate and not simply through the mechanism of this order. With that response to the questions that the noble Lord asked and the point raised by my noble friend, I urge the Committee to support the Motion.

Motion agreed.

Damages-Based Agreements Regulations 2013

Tuesday 26th February 2013 Grand Committee

Considered in Grand Committee

15:48

Moved By

[Lord McNally]

That the Grand Committee do report to the House that it has considered the Damages-Based Agreements Regulations 2013.

Relevant documents: 17th Report from the Joint Committee on Statutory Instruments.

[The Minister of State, Ministry of Justice (Lord McNally)]

My Lords, as regards the draft Conditional Fee Agreements Order 2013 and the draft Damages-Based Agreements Regulations 2013, perhaps I may remind noble Lords that conditional fee agreements, or CFAs, are means of funding litigation that are usually entered into by claimants where the lawyer agrees not to take a fee if the claim fails. If the claim is successful, the lawyer may charge an uplift known as a success fee, in addition to their fee. Under the existing regime, the success fee is recovered from the losing defendant, in addition to the base fee.

The statutory power under which the draft Conditional Fee Agreements Order 2013 is made governs the regulation of CFAs and the recoverability of success fees payable under a CFA. Under Section 44 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012—the LASPO Act—the success fee payable under a CFA is no longer recoverable from the losing party, but will be payable by the successful client subject to a prescribed cap.

Lord Justice Jackson, in his report, Review of Civil Litigation Costs, argued that the current regime had led to excessive costs in civil litigation, with risk-free litigation for claimants and additional costs being paid by defendants. He therefore recommended that recoverability from the losing side should be abolished in all cases, and this has been reflected in the provisions of Section 44 of the LASPO Act.

Lord Justice Jackson also recommended that CFA success fees in personal injury cases should be limited to 25% of damages, excluding damages awarded for future care and loss. The Government accepted this recommendation and agreed that claimants who have been compensated for personal injury should have their damages protected from having too much deducted by their lawyer as a success fee.

The draft order revokes the 2000 CFA order, but replicates its provisions in Articles 2 and 3. Subject to the cap in personal injury cases, the maximum success fee that can be charged remains 100% of the solicitor’s base costs.

Article 4 makes provision for a cap on success fees in personal injury cases only. The aim of the cap is to protect claimants’ damages, specifically those relating to future care and loss, which can run into many thousands of pounds in the most catastrophic injury cases. This cap will apply similarly, although not identically, to lawyers’ fees under damages-based agreements—or DBAs—under the draft Damages-Based Agreements Regulations 2013, to which I will come later.

Article 5 sets the cap. This means that in personal injury claims, the CFA must not provide for a success fee which is greater than 25% of the damages awarded to the claimant, excluding those for future care and loss. In effect, this means that the success fee can be taken only from general damages for pain, suffering and loss of amenity, and damages for past loss.

I know that there has been concern about the 25% cap and some representatives argue that this should be against all heads of damages. However, the Government have said consistently—including on many occasions during the passage of the LASPO Act through Parliament—that there will be a cap on the amount of damages that may be taken as a success fee of 25% of the damages, excluding damages for future care and loss. This follows Lord Justice Jackson’s recommendation and, as I said, is intended to protect claimants’ damages, and specifically those relating to future care and loss.

Article 6 contains a transitional and a saving provision. Essentially, this means that the order will not apply to any CFA entered into before Section 44 of the LASPO Act comes into force on 1 April 2013.

Furthermore, the order will not apply in respect of those proceedings for which implementation of Part 2 is delayed. Those proceedings are personal injury claims in respect of diffuse mesothelioma, privacy and defamation proceedings and proceedings in respect of and relating to insolvency.

I now turn to the draft Damages-Based Agreements Regulations 2013. A damages-based agreement or DBA is a privately funded arrangement between a representative and a client whereby the representative’s agreed fee is contingent on the success of the case, and is determined as a percentage of the compensation received by the client. Until now, DBAs have not been permitted in litigation before the courts, but their use has developed in non-contentious business—that is, work that falls outside the courts, including employment matters. However, Lord Justice Jackson recommended that DBAs should be extended to all areas of civil litigation. He argued that this would provide litigants with a choice of funding methods and the freedom to choose the one that they considered most appropriate for their case.

Section 45 of the LASPO Act therefore permits the use of DBAs in all areas of civil litigation. This section enables the Lord Chancellor to regulate their use and, in particular, to specify the maximum payment that may be made from damages under a DBA in particular proceedings. The draft regulations revoke the 2010 DBA regulations but replicate their provisions in respect of employment matters. The draft regulations prescribe the requirements with which an agreement between a client and a representative must comply in order for it to be an enforceable DBA in both civil proceedings and employment matters.

Under the existing regulations governing DBAs in employment matters, the maximum percentage of damages that a representative may take as a fee is 35%, and that continues. Lord Justice Jackson recommended that the lawyer’s fee under a DBA in personal injury proceedings should not exceed 25% of the claimant’s damages, excluding damages for future care and loss. The Government agree that claimants should have their damages protected from excessive legal fees.

As I mentioned earlier, a similar, although not identical, approach has been taken for CFAs. The Government believe that there should be a cap of 50% of the damages that may be taken as the lawyer’s fee in all cases outside of personal injury and employment matters. This is to protect claimants’ damages, and is based in part on a recommendation by the Civil Justice Council.

In order to be enforceable, a DBA in civil proceedings must meet the requirements specified in these regulations. Regulation 3 requires the DBA to specify the circumstances in which the payment from the claimant’s damages will be payable. It will be for the representative in civil proceedings to consider his likely costs before reaching agreement as regards the payment to be made from the claimant’s damages. The definition of payment excludes expenses—for example, medical reports—but specifically includes counsel’s fees, which would be paid for as a disbursement by the representative.

Regulation 4 sets the cap as I have outlined. Regulations 5, 6, 7 and 8 replicate the provisions from the 2010 regulations for employment matters. These detailed provisions in relation to information and other matters are necessary because employment matters may be undertaken by non-lawyers such as claims managers. On the other hand, civil litigation can be undertaken only by qualified legal representatives, who are subject to regulation by their professional bodies and whose conduct may be subject to challenge through those bodies. It is therefore considered that further regulation at this stage is not required.

In drafting these regulations we have borne in mind the indemnity principle. Put simply, the indemnity principle means that the losing party cannot be ordered to pay more in costs than the successful party has already agreed to pay his representative. The Civil Procedure Rules have been amended to provide that the court may not order the losing defendant to pay a claimant any costs that exceed the agreed payment, and thus breach the indemnity principle.

The claimant will need to pay his lawyer only if the costs recovered are less than the agreed payment. This means that, as well as possibly paying a sum directly from their damages, claimants might also be required to pay an additional sum to their representative to meet these expenses.

Both these instruments are important elements of our reforms.

[The Deputy Chairman of Committees]

My Lords, there is a Division in the Chamber. We will adjourn for 10 minutes.

15:59

Sitting suspended for a Division in the House.

00:00

[Lord McNally]

My Lords, both these instruments, which are important elements of our reform, come into effect on 1 April 2013. The reforms overall are intended to make civil costs more proportionate. They also include particular provisions to protect claimants and damages, as I have set out. These instruments have been subject to consultation, and we have improved the drafting as a result. I believe they are proportionate and appropriate. I therefore commend the draft instruments to the Committee.

[Lord Phillips of Sudbury]

I have only one simple point to make. It is a question to the Minister regarding the Conditional Fee Agreements Order, particularly the 25% cap, which does not apply to any future losses. In proposing this legislation, the Minister rested his case heavily on proposals made by Lord Justice Jackson in his review. Is the Minister aware of a lecture Lord Justice Jackson gave on 29 February last year? In this lecture, he made a point, which appears in the footnote, stating:

“The Personal Injuries Bar Association (PIBA) and the Bar Council have recently sent to me forceful submissions that the 25% cap should apply to ALL damages, as it did before April 2000. I can see the sense of allowing that dispensation in appropriate cases provided that the success fee is only payable by the client as it was pre-April 2000”.

That seems reasonable and it seems doubly reasonable given that the author of these proposals, Lord Justice Jackson, himself had second thoughts which he expressed in public last year. I am wondering, therefore, why the limitation to past losses survives into this statutory instrument and whether the Minister could take this away and follow the latest thinking of Lord Justice Jackson, which is supported by the Bar Council and, I suspect, the Law Society.

[Lord Beecham]

My Lords, I always like to be consistent and it certainly would be inconsistent of me not to begin with a complaint about the process here. These regulations come to us some five weeks before they are to take effect. The Bar Council has drawn attention to this, rightly stressing that a major change in the law, particularly in relation to DBAs, is being introduced with very little time before they come into effect for people to work out how they are going to be applied.

As the Minister has said, it has always been permissible for damages-based agreements to be implemented in non-contentious matters in tribunals. As he has also said, these were extended by regulations to employment cases. That opened the way to the revival of what used to be called “champerty” in previous times, which of course was unlawful. We are now legalising it under the new nomenclature of damages-based agreements and I can see that there is a case for doing that. Nevertheless, significant issues and questions arise from the Government’s proposal.

Reverting to the timescale, it should be pointed out that other changes affecting contentious litigation are in hand. These include changes to the Road Traffic Act portal and small claims limits in cases, including, potentially, personal injury cases. With all that happening, one might have thought that it would be sensible to bring all the changes together and to do it at a time which allows the parties and the professions to prepare adequately. I hope that the Minister will look again at the timetabling with a view to deferring implementation of whatever regulations finally emerge for six months until October of this year. I am particularly indebted to those who have briefed me, and no doubt other Members of your Lordships’ House and perhaps of this Committee, in relation to these matters, including the Association of Personal Injury Lawyers, the Bar Council, the Law Society and, especially, Professor Rachael Mulheron.

A number of issues arise and I hope that the Minister will be patient while I list them. If he is not able to reply to them all today—he may well not be—I hope that he will take these matters back and consider them. I was going to raise the question of the cap, which was raised by the noble Lord, Lord Phillips. I, too, identified the change of mind by Lord Justice Jackson, to which the noble Lord referred. It is notable of course that the 25% cap in terms of damages-based agreements applies only to personal injury cases. It is a 35% cap in employment cases, which can equally be quite substantial, although not, I guess, running into the millions of pounds of the exceptional cases of clinical evidence and the like to which the Minister referred. Nevertheless, it certainly can be comparable with many ordinary personal injury cases. In those cases, the cap is 35% including future loss, so there is a serious question about the composition of the figure against which the percentage is to be calculated.

16:16

There is also a perverse situation, which the Minister explained by reference to the indemnity principle, where if recoverable costs—that is to say, costs which would normally be payable by the defendant—exceed the cap, the claimant and his advocate, the solicitor, cannot recover them from the defendant. That is a perverse consequence of the way the regulations are drafted. That makes damages-based agreements less attractive to the professionals who will undertake that work.

There is similarly a problem about including VAT in the cap. Of course, rates of VAT can change. The Government increased VAT by 2.5% 18 months ago. If agreements had been in place at that time, the cap would effectively have been lower because of the increased VAT that would then have been levied on the fees above what had been originally envisaged. Rates can change and with them, in effect, the agreement will change automatically, whether or not the parties wish it to do so.

There is a similar issue—except in employment cases, interestingly—for counsel’s fees. Counsel’s fees are included in the cap for the ordinary PI case but not in employment cases. Why should that be the case? There is another issue about after-the-event insurance. It is not clear from the regulations whether the cost of after-the-event insurance is to be contained within the cap or not. The Civil Justice Council working party recommended that that matter be clarified. Perhaps the Minister could do so—again, if not today, subsequently.

In commercial cases, the question is whether the percentage recovered includes party and party costs, or is that also to be on a non-recoverable basis? In connection with personal injury cases, again there is the issue of the inclusion of general damages and past loss. I still do not see the justification for that. As the noble Lord, Lord Phillips, and I have mentioned, Lord Justice Jackson took a different view. There is also a question about how you deal with where a global offer is made. Offers are not always split under particular headings; a composite offer can be made. How will that be dealt with for the purpose of calculating the success fee?

In terms of process, the regulations and the scheme do not set out any system of regulation or, indeed, for the termination of such agreements. The Civil Justice Council working party suggested that should be embodied in the regulations; it does not appear. The Government seem content to rely on the professional codes of conduct of the Law Society and the Bar Council. Indeed, in answer to a recent parliamentary Written Question, the Minister replied that it was not the Government’s intention to regulate the industry, which leaves claims management companies outside the scope of regulation—except, as it happens, in the case of employment. That is another inconsistency between the approaches to employment cases and other cases.

Why are the Government content to rely on claims management companies, which might well get involved in these agreements, to regulate themselves? It is one thing for a profession to do that—although even that might be regarded as inadequate in certain quarters—but it is certainly another for claims management companies to do so, especially given the reputation that they have acquired over the past few years. There is not even any provision in the regulations on the information that is to be provided for clients by the providers except, again, in the case of employment law. Why is there a distinction between employment law and other cases in that respect? In short, as the Civil Justice Council effectively inquired, why is there not one set of regulations for all kinds of case? Why are there differences between the different categories?

There is also the question of potential liability for the payment of the defendant’s costs and whether these could be covered by after-the-event insurance. Another issue relates to defendants. The regulations are cast on the basis that we are concerned only with damages-based agreements for claimants, but of course, defendants have a financial interest in these matters as well. The regulations speak only about a percentage success fee in relation to the money recovered but not to money saved. If a defendant is successful and saves money, how will the fee be calculated? Is there a basis for a damages-based agreement, as it were, when a successful defendant saves money under such an agreement? It is unclear what will then happen.

It is instructive to look at some of the experience of other jurisdictions—particularly the American experience. A whole industry has grown up in this arena and I had the benefit of meeting representatives in America who are dealing with these issues. They expressed some interesting views about how the system works. Going back to the lawyer/client relationship, in practice it is not the lawyer who has control of the case in the American system with the professional disciplines that might apply. Effectively, it is the commercial organisation that is engaged in putting up the money for these cases—a kind of hedge fund for legal claims. I used that phrase when the Bill was going through. That is in marked contrast to the position of professionals with their ethical obligations, to which the Minister referred. I understand that 25 funders are already established in the UK for damages-based agreements, of which only nine have signed up to their own self-regulated Association of Litigation Funders. They are not even joining their own association, let alone being responsible to any independent and impartial organisation to oversee their work. Again, I invite the Minister to reconsider whether there should be such a system of regulation. There is apparently around £1 billion already held by organisations in the UK to fund these arrangements. Some of them, interestingly, are apparently based offshore—a sort of Starbucks of the damages-based agreement world. One can only imagine where any profits will ultimately go.

There are also questions about class actions. The organisation I met from America was essentially very concerned about the potential growth of class actions from the point of view of potential defendants. Nevertheless, there is an issue as to whether the scheme should apply to class actions. I understand that the Department for Business, Innovation and Skills is looking into this. I wonder whether the Minister can advise us on the current state of thinking in those cases.

With regard to damages-based agreements, there are, as will be seen, a great many questions that are raised by the regulations but not answered by them. Again having regard to the timescale, I urge the Minister to consider whether it would be sensible to look into all these, and other points that might be raised by other noble Lords today or in the House of Commons when the matter is debated there, and, if necessary, to defer implementation until these issues are clarified. A few months’ delay does not seem to be too much to ask in order to get things right from the beginning.

Some of the same arguments apply to conditional fee agreements—again, the issue of damages for the purposes of the calculation of a success fee, not including future loss, the question of VAT and the like. In my submission, it would also be sensible to look at these two sets of regulations together to see whether they can be improved in order to fill the quite evident gaps that exist, which cannot help the new system to bed in. The risk is that if there are problems of this kind, the Government’s purpose in promoting DBAs, or indeed the new regime of CFAs, as an alternative to legal aid will not succeed because the professions will not undertake the risks or, alternatively, it will not be the professions that run the show but commercial organisations with very little regard necessarily to the proprieties with which litigation has been, and should be, conducted in this country. I urge the Government to think again, look again at the Civil Justice Council’s recommendations and see whether changes can be made at this stage before implementation to make what is a pretty defective-looking set of regulations workable.

[Lord Phillips of Sudbury]

Before the noble Lord, Lord Beecham, sits down, does he agree that in his own extremely eloquent exposition on these two statutory instruments, and indeed in my own offering, there was a notable absence of reference to the basis upon which I suspect he, and certainly I, put forward our points—that is, access to justice? The majority sitting in this Grand Committee are lawyers, and we take it so much for granted that what we are seeking to amend in these regulations is exclusively for the benefit of improving access to justice. I invite him to concur with me that anyone reading Hansard who saw no reference to that in the course of our two offerings should know that this underpins everything that we have said.

[Lord Beecham]

I am grateful to the noble Lord for making explicit what was certainly implicit in what he and I were saying. Access to justice is certainly the core argument here. I should perhaps also have declared an interest in that from time to time as we have discussed these matters I have put in time as a now unpaid consultant with the firm of solicitors in which I was formerly a partner.

[Lord McNally]

My Lords, as a non-lawyer—perhaps the only one in the Room—I fully appreciate that the noble Lords’ interventions were about access to justice. As I have told the noble Lord, Lord Beecham, on earlier occasions, my legal qualifications rest on one of nine papers that I did for part one of my degree on English legal institutions. I remember champerty and maintenance from that paper. It came as quite a shock to me to find, in the process of the Bill, that not only was champerty not outlawed, it was now to become legal. But there we are—such is the passage of time.

16:30

The noble Lord, Lord Beecham, set me a formidable exam paper, and I will try to answer the questions he raised. If I miss any out or do not answer with sufficient clarity for those who will read our deliberations, I will write to him and put a copy in the Library of the House so that noble Lords and interested parties can be fully informed. It is of course always a dilemma for government, because if they move at one speed they are accused of moving too fast, yet at another speed they are accused of dragging their feet. I would say that there is nothing in these regulations that has not been well aired over the two-and-a-half years that I have been in this job, and they have been well discussed in the House.

I am pleased to see my old adversary, the noble Lord, Lord Bach, in his place. I hope he thinks that the young man who succeeded him is doing a—

[Lord Beecham]

He is actually an older man.

[Lord McNally]

Actually, I knew that. As Harold Wilson said when he retired and Jim Callaghan succeeded him, “I have made way for an older man”.

I take the point made by the noble Lord, Lord Phillips, but let me be blunt. I am always suspicious of Ministers who at any time rest too much on a report, no matter how learned. I do not rest the case for the 25% cap on that being Lord Justice Jackson’s original recommendation, although indeed it was. A sharp-eyed lawyer would say that the noble Lord’s quote about Lord Justice Jackson did not endorse the counterview but simply said that it had merit, which is not the same as advocating that the Government change their policy. Even if it were, this is the Government’s policy. It is the right policy because it protects the future earnings and the future cover for victims in these cases. It remains our policy on that merit, and we are willing to defend it on that basis.

I understand the point made by the noble Lord, Lord Beecham, about speed. I pointed out that very little of what we are doing is entirely new. We fully recognise that at this time there is a need for ability, nimbleness and fleetness of foot in all parts of the legal profession, if we are to take advantage of the changes that are going through. We are not persuaded that the timescales we have set are unreasonable, and we will not be deferred from the course that we have set. We have taken account of reasons for delay regarding mesothelioma and privacy, which I quoted. However, these orders will go through to take account of the fact that LASPO comes into effect on 1 April 2013.

Perhaps I might deal with a number of the specific questions that the noble Lord, Lord Beecham, raised. He was very correct to raise the issue of the American experience in DBAs. I also met the organisation that came over to present its case. I left that meeting with some of his concerns about what this might bring into our legal system. The noble Lord’s description of hedge funds for legal claims is something that we are very conscious of. What we have decided so far is to keep the matter under review. That phrase can often hide weasel words and weasel intent, but we want to see just how much this is going to become a factor in our legal system, while making sure that some of the warning signs that the noble Lord has quite legitimately raised are on the radar of Ministers as well. We will keep this matter closely under review.

The noble Lord raised the issue of VAT on the 25% cap. The 25% cap on success fees is as recommended by Lord Justice Jackson. Including VAT on the success fee on lawyers’ fees within the cap will provide further protection for the claimant’s damages and add certainty for the claimant as to the likely deduction from their damages. This approach is also consistent with the existing cap of 35%, inclusive of VAT, on payments to be made from damages in respect of DBAs in employment matters. The noble Lord also asked about the indemnity principle. DBAs are an alternative method of funding and it would be for solicitors to advise their clients on the most appropriate method of funding according to the circumstances of each case. He also mentioned there being one set of regulations. There is one set of regulations covering both civil litigation and employment cases, as recommended by the Civil Justice Council. We have listened to the concerns of the Law Society and others that there should not be too much regulation in respect of civil litigation in these instruments. This is because failure to comply with the provisions in the instruments would make the agreements unenforceable. As I have said, lawyers are properly regulated in any event.

The noble Lord asked whether the cost of ATE insurance is within or outside the 25% cap. This is an expense and is therefore outside the cap. On why DBA regulations do not contain requirements on termination for civil litigation, as in employment cases, the DBA regulations of 2010 made provisions for employment cases which can be taken forward by non-lawyers. Detailed safeguards need to be built in as a result. Civil litigation can be conducted only by lawyers, who are subject to their own professional regulations.

I think that that covers most of the issues. If not, perhaps I might say to the noble Lord that I welcome the thoroughness with which he has examined these regulations and, as I say, if I have not covered the questions in precisely the detail that I should have done I will make sure that a suitable letter is lodged in the Library of the House. I nevertheless think that the timetable that we have set, the consultation that we have undertaken and the changes that we have made after that consultation, with our having listened to the Bar Council, the Law Society and other interested parties, make the regulations fit for purpose. I therefore recommend them to the Committee.

[Lord Marks of Henley-on-Thames]

My Lords, before my noble friend the Minister sits down, I have one question on the point made by the noble Lord, Lord Beecham, about damage-based agreements for defendants. It is my understanding of the regulations that DBAs are not appropriate for defendants, whereas conditional fee agreements are and always can be available to defendants. DBAs depend upon the damages awarded to the client or monies paid by another party to the party entering into the DBA. Clarification on that from my noble friend may be helpful, but it is certainly my understanding.

[Lord McNally]

I am grateful to my noble friend for that question. I am informed that neither the Act nor the regulations enable defendants to use DBAs, not least because a DBA is enforceable only where the agreement makes provision for the payment of the fee from damages awarded. My noble friend asks an extremely pertinent question and I hope that I have given a clear answer.

[Lord Beecham]

It is a clear answer, but there does not seem to be a particular rationale for excluding defendants from this process. If they secure the retention of a sum of money claimed under the agreement, why should the DBA not be available to them? To confine it to claimants seems too narrow a concept. If the intention of the Government, as it clearly is, is to use the DBA as an alternative method of financing, it should be available to both sides because nobody is being compelled to undertake a DBA. That still requires some further thought.

[Lord McNally]

I will certainly give it further thought, but the question was whether the regulations as presently set out debar the use of DBAs by defendants. The answer is yes. I will reflect and put those further reflections in the letter.

Motion agreed.

Conditional Fee Agreements Order 2013

Tuesday 26th February 2013 Grand Committee

Considered in Grand Committee

16:42

Moved By

[Lord McNally]

That the Grand Committee do report to the House that it has considered the Conditional Fee Agreements Order 2013.

Relevant documents: 17th Report from the Joint Committee on Statutory Instruments.

Motion agreed.

Criminal Legal Aid (Determinations by a Court and Choice of Representative) Regulations 2013

Tuesday 26th February 2013 Grand Committee

Considered in Grand Committee

16:43

Moved By

[Lord McNally]

That the Grand Committee do report to the House that it has considered the Criminal Legal Aid (Determinations by a Court and Choice of Representative) Regulations 2013.

Relevant documents: 16th Report from the Joint Committee on Statutory Instruments.

[The Minister of State, Ministry of Justice (Lord McNally)]

My Lords, I shall speak also to the draft Legal Aid (Information about Financial Resources) Regulations 2013 and the draft Civil Legal Aid (Costs) Regulations 2013.

The draft Criminal Legal Aid (Determinations by a Court and Choice of Representative) Regulations 2013, which are being made under the Legal Aid, Sentencing and Punishment of Offenders Act 2012, replace relevant regulations in the Criminal Defence Service (General) (No.2) Regulations 2001, made under the Access to Justice Act 1999.

The regulations mirror the Access to Justice Act regulations in effect, although there are differences in terminology and structure. For example, the regulations refer to making a determination that an individual qualifies for legal aid, rather than to granting a representation order following a decision that an individual qualifies. This change of terminology is made only to reflect amended wording in the Legal Aid, Sentencing and Punishment of Offenders Act 2012, which I will refer to from here on as LASPO.

Operational practices will not need to be altered in any way as a result of the regulations. The key change is that under the Access to Justice Act 1999, the default position is that a court makes a decision that an individual qualifies for legal aid, unless specified otherwise in regulations. However, due to the rollout of means testing in the magistrates’ court and subsequently the Crown Court, the circumstances in which a court may grant legal aid have been gradually reduced. LASPO reflects this shift, and the default position is that it is for the director of legal aid casework to make a decision that an individual qualifies for legal aid, unless otherwise stated in regulations. The regulations set out the limited circumstances in which a court can make a decision that an individual qualifies for legal aid. That merely codifies current practice.

The regulations also limit the circumstances in which an individual can select a representative of their choice in criminal proceedings, and set out the specified circumstances in which a court can permit an individual to select enhanced representation. The regulations specify the circumstances where the court may permit an individual to select a different provider to the provider selected by a co-defendant.

In relation to advocates, the regulations generally provide that individuals may not select an advocate in proceedings before a magistrates’ court, and set out circumstances where the court may permit an individual to select an advocate in the magistrates’ court. The regulations also provide that individuals may select only a provider and a single junior advocate in proceedings in the Crown Court and above, and set out circumstances where the court may permit an individual to select a Queen’s Counsel or more than one advocate. The provisions have the same effect as the current provisions in relation to choice of representative under the Access to Justice Act.

The draft Legal Aid (Information about Financial Resources) Regulations 2013 make provision in relation to requests for information by the director of legal aid casework to the Department for Work and Pensions, Her Majesty’s Revenue and Customs and relevant Northern Ireland departments to facilitate decisions about an individual’s financial resources for the purpose of legal aid available under Part 1 of LASPO. This could include, for example, a determination that an individual is financially eligible for legal aid, or is liable to make a contribution toward the cost of their representation when in receipt of legal aid.

The draft regulations replace regulations in relation to criminal legal aid under the Access to Justice Act 1999 but they will also extend to civil legal aid, so that information-sharing in relation to both criminal and civil legal aid are on the same statutory basis. This will allow the director, as the authority responsible for granting legal aid, to properly verify information provided by an applicant for legal aid about their financial status.

The regulations provide an information gateway so that a person making a decision on the financial eligibility of someone who is applying for legal aid or is in receipt of it can request certain information to confirm their benefit status with the Department for Work and Pensions or to confirm details of an individual’s employment or whether they are carrying on a business, trade or profession with Her Majesty’s Revenue and Customs or the equivalent departments in Northern Ireland.

Efficient and secure data-sharing between the DWP, HMRC, the relevant Northern Ireland department and the Legal Aid Agency will safeguard taxpayers’ money by limiting the opportunity for fraud and dishonesty and improving the administrative efficiency of the financial eligibility tests for legal aid.

I stress that these arrangements will make no substantial difference to defendants, solicitors or courts in terms of forms or process. There is therefore no risk of any delay to existing court proceedings or any additional burden on defendants or solicitors. Nothing within the new legislative framework dilutes the Government’s obligation to protect an individual’s personal information and maintain confidentiality. Indeed, the primary legislation specifically makes it a criminal offence to disclose the information for any purpose other than to facilitate decisions about an individual’s financial resources for the purposes of legal aid.

Lastly, the draft Civil Legal Aid (Costs) Regulations 2013 make provision about costs orders in civil proceedings in favour of or against a legally aided party and, in certain circumstances, against the Lord Chancellor. They substantially reproduce provisions that currently exist in regulations made under Section 11 of the Access to Justice Act 1999.

These draft regulations bring together the rules on costs into a single set of regulations. The existing rules on costs appear in both the Community Legal Service (Cost Protection) Regulations 2000 and the Community Legal Service (Costs) Regulations 2000. Provisions relating to the statutory charge, which currently appear in the Community Legal Service (Costs) Regulations 2000, will be brought forward separately.

Section 26(1) of LASPO sets out the general principle that costs ordered against a legally aided party to civil proceedings must be reasonable, having regard to all the circumstances including the financial resources and conduct of the parties to the proceedings. This is known as “cost protection” and is a feature of the existing civil legal aid system. It caps the amount of money that a legally aided party may be ordered to pay if they lose their case. The intention of this is to ensure that they are not deterred from resolving their issues through legal action for fear of being personally liable for unaffordably high costs.

The definition of family proceedings in these regulations has been amended to reflect the treatment of family proceedings in the LASPO Act. Under these regulations more types of family cases are subject to the exclusion from cost protection, although those that have been added are very similar to the existing list. We have maintained the position in the current regulations whereby cost protection applies to applications for domestic violence protection orders and public law children cases.

Part 2 of the draft regulations provides that cost protection does not apply to lower forms of civil legal services. Cost protection applies in relation to forms of service that permit the legally aided party to be represented in court proceedings because such a party will have satisfied a more stringent merits test than for lower forms of assistance.

Part 3 of the draft regulations sets out the rules governing costs orders against a legally aided party as well as the grounds on which a costs order might also be made against the Lord Chancellor where he has provided civil legal aid to a party to proceedings.

The draft regulations provide that in limited circumstances a court can order the Lord Chancellor to pay to the non-legally aided party the whole or part of the costs incurred by that party in the proceedings, other than the costs which the legally aided party is required to pay. The draft regulations also make provision about the assessment of resources and procedures in relation to costs orders against the legally aided party and the Lord Chancellor. The final part of the draft regulations sets out the principles to be applied when a costs order or a costs agreement is made in favour of a legally aided party.

Subject to the changes that I have just outlined and some amendments to structure and terminology, these draft regulations substantially replicate the effect of the existing regulations made under the Access to Justice Act 1999. I therefore commend these draft regulations to the Committee and beg to move.

16:54

Sitting suspended for a Division in the House.

17:00

[Lord Beecham]

I will deal first with the Criminal Legal Aid (Determinations by a Court and Choice of Representative) Regulations 2013. Again, I have a series of questions that arise partly from the drafting and partly from my ignorance. Again, I trust that the Minister will be generous enough to reply, if not today then subsequently.

I begin with Regulation 9, which deals with the withdrawal of determinations by the court and prescribes that the court before which criminal proceedings are listed may withdraw determinations in certain circumstances. I draw attention in particular to Regulation 9(c), where a reason would be that the provider named in the representation order that recorded the original determination declines to continue to represent the individual. The previous two conditions I can quite understand; first, the individual declines to accept the determination terms that he was offered—arguably, that is not unreasonable—and, secondly, the individual requests that the determination is withdrawn, which is also reasonable. However, I do not understand why, if the provider named in the representation order declines to continue to represent the individual, the determination should be withdrawn unless that determination relates specifically to that advocate. If that is the intention, it should perhaps be clearer, but if it is broader than that it would presumably leave the party unrepresented. Perhaps that needs some clarification.

Regulation 11 says:

“The … court may make a determination … only if it has considered an application made in accordance with”,

the subsequent paragraph. To comply with that, the application must,

“be made by the individual seeking the determination”—

that is obviously straightforward—

“be in writing; and … specify what the relevant court is being asked to determine and the grounds upon which it is being asked to do so”.

My question relates to whether that process is covered by legal aid or advice, or whether the individual is simply left to make his own representations. For some defendants, that could potentially be a matter of considerable difficulty. What is the process to facilitate the making of an application by an individual in those circumstances?

Regulation 12 identifies the right to select a provider, except for a number of categories—or, rather, the other way round; it limits the choice except for a number of categories. The first one is that,

“the provider … is employed by the Lord Chancellor to provide criminal legal aid”.

I find it a curious word to use, that the Lord Chancellor purports to “employ” advocates on behalf of a defendant. To me, that has connotations that might be a little invidious, bearing in mind the recent decision of the courts that recorders and part-time judges are deemed to be employed by the Lord Chancellor and therefore are required to be included in the pension scheme. If employment is to be used in this context, might that not also lead to some potential complications in relation to the status of people “employed” by the Lord Chancellor and possibly even lead to them being included in some sort of governmental pension scheme? The wording needs some explanation.

Regulation 13 deals with the position where there are co-defendants. Under these circumstances, the regulations prescribe that,

“the right of an individual … does not include the right to select a provider who is not also instructed by the individual’s co-defendant”—

in other words, to have two advocates as opposed to one—

“unless the … court or the Director determines that … there is a conflict of interest between the individual and that co-defendant; or … there is likely to be a conflict of interest”.

Again, I ask whether there is any process of appeal against such a decision. After all, the question of whether a conflict of interest might exist would not necessarily be straightforward. What is the process for determining in these circumstances whether there is likely to be a conflict?

Curiously, the regulation then goes on to provide that Regulation 13(1), the basic provision about instructing co-defendants,

“does not apply where the provider selected by the individual is an advocate”.

I simply do not understand what that means. This may be a failing on my part, but I do not understand the purpose of that provision.

Finally, I come to Regulation 16 which deals with criminal proceedings before a magistrates’ court. With a limitation to which I will refer in a moment, on proceedings before a magistrates’ court,

“the Act does not include a right to select an advocate”.

I do not know why that should be the case—I do not know whether it is a new or an existing provision—but it would seem to require some explanation. Why should a defendant not have the right to select an advocate?

The proviso in the regulation says:

“The relevant court may determine that the individual can select an advocate”,

on two conditions. The first is that,

“the proceedings relate to an extradition hearing … or an indictable offence”;

and the second that the,

“court determines that because there are circumstances which make the proceedings unusually grave or difficult, representation by an advocate would be desirable”.

One would have thought that in any extradition proceedings, and on most indictable offences, it would be almost a matter of course that the appointment of an advocate would be desirable. What are the circumstances in which it is thought that it would be inappropriate for an advocate to be selected by the defendant? By definition, these look to be significant matters. Again, what is the procedure to appeal any such decision? Supposing the court was to find that, in its view, these proceedings were not,

“unusually grave or difficult”.

That is very largely a subjective judgment. What is the purpose of this and why are the Government going to these lengths to put barriers in the way of a defendant selecting an advocate?

Happily, I have much less to say about the other two sets of regulations. Indeed, I have nothing to say on one set at all. However, in respect of the Civil Legal Aid (Costs) Regulations, there is a point to question. First, I noticed that there was no consultation on these regulations, which is a slight surprise—although it is fair to say that I think no specific question was asked in response to the original consultation. Nevertheless, I would have thought it sensible to have invited comment on the draft regulations.

Finally, we come back to the matter of timing. Paragraph 9 of the Explanatory Memorandum says that guidance is,

“not being prepared specifically on this instrument”,

but that:

“A programme of training and guidance is being prepared by the Legal Services Commission to support the transition to the new arrangements. This will be … available to legal aid providers ahead of the commencement of the Act on 1 April 2013”.

What exactly has happened about this? To what extent has training taken place and has it been in conjunction with the Bar Council and the Law Society? Will the profession—and, for that matter, the courts—be ready as of 1 April 2013 to deal with these matters? What training and support has been given to the courts, especially the magistrates’ courts, to deal with the new regime?

[Lord McNally]

My Lords, again, I am extremely grateful to the noble Lord, Lord Beecham, for what he quite rightly termed a cross-examination. I will try my best to cover the points he raised, along with the same health warning that I gave last time, which is that if I find on reflection that I have not fully covered the point he raised, I will write to him and make that letter available in the Library of the House and to interested parties.

On the withdrawal of a determination under Regulation 9(c), the relationship between a defendant and a solicitor could break down, for example, so legal aid might be withdrawn but that would not leave the party unrepresented. They could apply for transfer to a new firm. Regulation 11(2)(c) applies, for example, where an individual seeks a QC or two advocates, so would already have legal aid for solicitors and a junior advocate to assist. The noble Lord also asked about determinations by a court under Section 16 of the Act and pointed out that there seem to be very limited circumstances in which the court may grant representation.

The framework laid out in the Access to Justice Act 1999 is different from that laid out in the Legal Aid, Sentencing and Punishment of Offenders Act 2012. Under the Access to Justice Act, the default position is that the court can grant representation. However, with the rollout of means tests to magistrates’ courts and later to Crown Court, the circumstances in which the court can grant representation have gradually reduced. The responsibility for granting representation has therefore gradually passed to the Legal Services Commission—although, in practice, Her Majesty’s Courts and Tribunals Service staff make the decision. The Criminal Defence Services (General) (No. 2) Regulations 2001 reflect that position. LASPO reflects that shift, and the default position is that it is for the Director of Legal Aid Casework to decide whether to grant representation. The court may do so only when expressly authorised by regulations. The regulations set out the limited circumstances in which a court may do so—for example, where an urgent determination is required in a case of contempt of court.

The noble Lord, Lord Beecham, queried the use of the term “employed”—people being employed by the Lord Chancellor. That is the same language as in the current regulation, and covers the staff of the Public Defender Service, currently operated by the LSC, who will be employed by the Lord Chancellor under LASPO. Is there a process of appeal for conflicts of interests under the regulations? No, there are no provisions for appeal, but the person concerned could renew the application. As to why there has been no consultation on costs of regulation, as the draft regulations substantially replicate existing cost regulations, there is no need for consultation on the precise terms. The principles are well known, used and understood.

We are confident that the programme of training and guidelines will be rolled out in advance of implementation. On the question of representation in magistrates’ courts, I explained the situation under Regulation 16. The only challenge will be via judicial review. Our experience over the past 10 years is that existing provisions work well. Both LASPO and the current thinking of the Secretary of State and Lord Chancellor indicate a move on representation via legal aid.

The Secretary of State for Justice has asked whether access to criminal legal aid is being given in a way that provides the right balance between the needs of justice and the needs of the public purse. The Ministry of Justice has begun work on how we might find a better balance between costs and the needs of justice, and we will bring forward proposals and changes in due course. In the mean time, though, as I say, these regulations very much reflect present position, with the minor shifts that were involved in LASPO. In those circumstances, I commend them to the Committee.

Motion agreed.

Legal Aid (Information about Financial Resources) Regulations 2013

Tuesday 26th February 2013 Grand Committee

Considered in Grand Committee

17:20

Moved By

[Lord McNally]

That the Grand Committee do report to the House that it has considered the Legal Aid (Information about Financial Resources) Regulations 2013.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments.

Motion agreed.

Civil Legal Aid (Costs) Regulations 2013

Tuesday 26th February 2013 Grand Committee

Considered in Grand Committee

17:20

Moved by

[Lord McNally]

That the Grand Committee do report to the House that it has considered the Civil Legal Aid (Costs) Regulations 2013.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments.

Motion agreed.

Bank of England Act 1998 (Macro-prudential Measures) Order 2013

Tuesday 26th February 2013 Grand Committee

Considered in Grand Committee

17:22

Moved by

[Lord Newby]

That the Grand Committee do report to the House that it has considered the Bank of England Act 1998 (Macro-prudential Measures) Order 2013.

Relevant documents: 18th Report from the Joint Committee on Statutory Instruments, 26th Report from the Secondary Legislation Scrutiny Committee.

[Lord Newby]

My Lords, the background to these regulations is the failure of the previous system for regulating financial services to provide clear responsibility for financial stability, which was shared in an opaque way between the Treasury, the Bank of England and the FSA. This meant that it has been all too easy for the identification and management of risks to financial stability to fall between the cracks in what those organisations believed were their respective roles in protecting and promoting stability in the financial sector. That confusion was a key contributing factor to the emergence of the financial crisis in 2007. None of those three institutions was effectively horizon-scanning to identify macroprudential risks to stability across the system as a whole.

In the light of those failings, the Financial Services Act gives the Bank of England clear responsibility for financial stability. The Bank will no longer,

“contribute to protecting and enhancing”

financial stability; it will “protect and enhance” it. To support this objective, the Act creates a new committee of the Bank, the Financial Policy Committee, with a role of identifying, monitoring and managing systemic risks to the UK financial system. In order to carry out this role, the FPC will need macroprudential measures to mitigate the risks to stability that it identifies.

The FPC will act through the regulators that work directly with financial institutions. The FPC will do this in two ways: primarily through recommendations, which can be made to the regulators, to industry, to the Treasury, within the Bank and to other persons—and, where appropriate, through directions to the PRA and FCA. The FPC’s direction power will be limited to the measures set out in this order. The regulators must comply with a direction but they will have discretion over the timing and implementation method of the direction.

Before discussing the measures that will be granted to the FPC, it is worth noting that there is international consensus on the need for macroprudential regulation. International regulations such as Basel III and CRD4 go some way towards establishing minimum standards while retaining room for national discretion, although areas such as the leverage ratio remain under discussion. The UK strongly supports the ability of national supervisors to exercise discretion where appropriate.

In February 2011, the Government and the Bank established an interim FPC to undertake, as far as possible, the work of the statutory FPC ahead of the passing of the relevant legislation. One of the tasks set for the interim FPC was to analyse and recommend macroprudential measures for which the statutory FPC should have direction-making powers. Following the interim FPC’s recommendations in March 2012 on the tools that the committee should have, the Government consulted on these tools, seeking comments on our intention to: make the FPC responsible for setting the level of the UK’s countercyclical capital buffer; provide the FPC with a direction-making power to impose sectoral capital requirements; and provide the FPC with a time-varying leverage ratio direction-making tool, but no earlier than 2018 and subject to a review in 2017 to assess progress on international standards.

The statutory instrument relates to the ability to set the sectoral capital requirements, or SCRs. I will deal with this tool first, then briefly cover the others. The interim FPC recommended that the statutory FPC should have a power of direction to vary financial institutions’ capital requirements against exposures to specific sectors over time, arguing that often the overexuberance that precedes crises begins in specific sectors before spreading further. The Government agree that this targeted approach would allow these risks to be managed in a more effective and proportionate manner than raising capital requirements more generally.

There are, of course, risks associated with the use of these tools. Although the majority of respondents to the Government’s consultation supported the introduction of SCRs, some noted that the FPC risked being perceived as applying an industrial policy via the application of sectoral capital requirements. The FPC has stated that it would wish to avoid an “overly activist, fine-tuning approach”, which should limit this risk. However, there may be times when using the tools in a granular way would be necessary. The Government will keep the use of this tool under review to ensure that it is being used in an effective, proportionate way. There is also a risk that imposing sectorally specific requirements would merely displace excessive risk-taking in other sectors. The FPC will need to monitor carefully the impact of any policy interventions using this tool and may need to consider adjusting more general capital requirements if displacement is a significant problem. I should take the opportunity to highlight one change that the Government have made to the order since the version that was published for consultation. The current order excludes investment firms that are not regulated by the PRA from the FPC’s SCR power. This will ensure that systemically important firms are captured, while smaller firms are not subject to additional requirements.

I now move on to discuss briefly the other macroprudential tools that the Government intend to give the FPC: the role of setting the UK’s countercyclical capital buffer—the CCB—and from 2018, the power to intervene to limit leverage ratios. These are not covered by the draft order, but give useful context to the debate. The CCB is part of the Basel III agreement and will be implemented in Europe by the capital requirements directive, known as CRD4. It aims to ensure that banking sector capital requirements take account of the macrofinancial environment in which banks operate. It will be deployed by national jurisdictions when excess aggregate credit growth is judged to be associated with a build up of system-wide risk to ensure that the banking system has a buffer of capital to protect it against future potential losses. Requiring banks, building societies and larger investment firms to build up capital during periods of overexuberance should help to increase the resilience of the financial system and might also dampen the credit cycle. Unwinding these requirements in the downturn once the particular threat has passed might help to mitigate contractions in the supply of lending. It is clear that with its macroprudential focus, the FPC will be the body best placed to determine the level of the CCB. This was supported by the results of the Government’s consultation.

As the CCB is expected to be provided for in the CRD4, the simplest way to incorporate it into UK law is via regulations made under Section 2(2) of the European Communities Act 1972 to transpose into UK law the provisions of the CRD4 which relate to the CCB. It is vital that the FPC’s decisions in relation to the CCB should be subject to comparable procedural and reporting requirements to the FPC’s other tools. Therefore, in addition to the requirements imposed by the EU legislation, the Government intend to ensure that the CCB will be subject to the same transparency requirements as other FPC decisions, with a summary of the FPC’s discussions when taking decisions on the CCB set out in the FPC’s meeting record and the FPC’s use of the CCB covered in the biannual FSR. The Government will make any necessary changes to achieve this in the regulations which incorporate CRD4 into UK law.

17:30

As with the SCRs, small investment firms will be excluded from CCB requirements, although the exact terms of the exclusion have yet to be determined. The interim FPC also recommended that the statutory FPC should have a power of direction to set and vary a minimum leverage ratio. A leverage ratio could indeed potentially be a useful macroprudential tool for the FPC. The unweighted nature of this measure would guard against risk weights underestimating the true riskiness of assets in firms and provide a directly comparable figure across firms. The leverage ratios of firms were a useful indicator of failure during the last crisis, and the period immediately preceding the crisis was characterised by sharp increases in leverage.

The Government strongly support the inclusion of a backstop leverage ratio in the EU prudential toolkit and consider it an essential measure to ensure that leverage remains at sustainable levels. It is also important to maintain consistency with international and European standards, and it is clear that a leverage ratio will not be implemented across the EU until 2018. The Government intend to provide the FPC with a time-varying leverage ratio direction-making tool, but no earlier than 2018 and subject to a review in 2017 to assess progress on international standards. The precise design of the tool will depend on the provisions of the relevant European legislation and will be set out in secondary legislation at the time.

Finally, the Government will, of course, be able to add to this suite of macroprudential tools in future by further orders subject to the approval of this House and the other place. At the moment, however, we believe that the measures I have just described are an appropriate and sufficient starting point for the FPC. The Government expect the FPC’s toolkit to adapt and evolve as the international debate and academic literature on this subject develops and empirical experience becomes more widely available. We expect the FPC to make recommendations to the Treasury if its macroprudential measures require amendment or new measures are required. I hope that that explanation has been helpful. I beg to move.

[Lord Eatwell]

My Lords, that was interesting introduction to this order as it spent most of its time discussing measures that are not included. It also began with a preamble that was an extraordinary rewrite of history, referring to a failure to identify macroprudential risks prior to 2008. Will the Minister specify any Government or regulatory document that includes a reference to macroprudential risk before 2008 and before publication of the Turner review? He will be hard put to find it. There are some academic articles on systemic risk but the whole issue of macroprudential risk was simply not on the horizon at that time.

I was also somewhat distressed to find that the Government still believe that following the Basel III approach of using capital related to risk-weighted assets is still at the centre of the approach to the determination of stability, particularly in the banking sector. This is using weapons with which we fought the last war to try to deal with the new war. It is an excessive emphasis on the asset side of the balance sheet to the detriment of the liability side, and indeed has been criticised very strongly recently by the IMF. I hope that the Government will rethink their approach and not continue to rely on this outdated measure.

I want to talk about some of the measures before us rather than some that might appear in the future, although the Minister has tempted me to ask what is happening with the leverage ratio. Leverage collars, which after all apply to the liability side of the balance sheet, have been demonstrated to be far more effective than risk-weighted capital requirements. Do the Government still plan to weaken the Vickers proposal of a leverage ratio of 25:1 and to fix the requirements simply on the Basel minimum of 33:1? When thinking about the leverage ratio, is the FPC planning any distinction between deposits and wholesale funding in the specification of a leverage cap?

In its earlier consideration of these measures, the FPC rejected the adoption of a loan-to-value ratio in mortgage finance, arguing that this was a political decision. In this instrument, though, we find the requirement on financial institutions to maintain additional own funds with respect to exposure to residential property. Will that not have the same effect? Is it not a back-door method of introducing loan-to-value restrictions by the requirement to hold additional capital against residential exposures?

Turning to the sectors specified in this instrument, it is striking that the measures are confined to financial instruments issued by financial sector firms. Why is that? If there were a bubble in the stock market, it could involve predominantly financial instruments issued by non-financial firms. Why is this legislation restricted only to instruments issued by financial institutions?

Another peculiarity of the drafting of this instrument is that it refers only to an increase in requirements of holding of own funds. It refers to “additional funds required” and that the PRA may require additional own funds both by banks and by other financial institutions. How will the PRA reduce the amount of funds required since the instrument only allows it to require additional funds? How will that happen?

I also regret the exclusion of smaller firms, to which the noble Lord referred in his introductory remarks. The Treasury seems to have totally failed to understand that a significant amount of the financial crisis was due to the aggregation of a large number of small firms doing the same thing at the same time, which had the same consequence as a large firm doing the similar thing in terms of the development of systemic risk.

The measures also refer to the requirement to ask or require that banks treat particular exposures as if they give rise to an increased level of risk, which is true not just of banks but also of investment firms. How is this level of risk to be specified by the FPC? Is it as a risk weight or as a modification of the stochastic distribution model used in the calculation of the firm’s value at risk? How is it to be done? If it is with respect to the modelling, does that now mean that the ability of firms to use their own risk models is to be modified and that there is to be a standardisation of risk models used by firms in the calculation of capital requirements?

The noble Lord referred to the use of these measures in what he called a granular way and what in the instrument is referred to as a solo basis. What will the relationship be between the FPC’s requirements of measures and competition policy, in the sense that imposing measures on a single firm would have competition implications? Will the views of the competition authorities be taken into account?

I assume that this is the first of a series of instruments that will implement the various proposals aired in the consultation papers issued by the interim FPC. Perhaps it would be helpful if the Minister gave us some timetable as to when those other instruments will be laid before the House.

[Lord Newby]

I am grateful to the noble Lord for those extremely thoughtful questions, and I will do my best to answer them. He said that systemic risk was not on the horizon before the crisis. I think that the phrase was first used in academic literature in 1979. Although the phrase was not in common parlance, it was well understood, at least by some people, that a bubble was building up that was capable of creating systemic risk. The first problem was that it took a long time for the authorities and the Government to accept that there was a bubble. The second was that when they realised that there was a problem, and indeed when there was a crisis, it was far too late to forestall it. It was then necessary to deal with a crisis rather than dealing with a problem at an early stage.

The noble Lord said that we rely far too much on Basel III and that it is a weapon of the last war. We are part of an international discussion on Basel III. Although Basel III is part of the armoury that we use, it is only one part. Indeed, the measure that we are looking at today is not a Basel III measure. Even if the noble Lord was correct that Basel III does not deal with every issue that we will be grappling with, it is not the only tool that we are looking at.

The noble Lord asked me about the leverage ratio, and whether we still plan to weaken the Vickers ratio. I do not believe that the Government’s view on this has changed.

[Lord Eatwell]

Why not?

[Lord Newby]

The Government said in response to Vickers that they believed he was going too far, and I do not believe that that view has changed. The noble Lord asked about the loan-to-value ratio and whether that tool would not have the same effect as introducing a loan-to-value ratio. In an aggregate sense, in many ways it does so. However, the advantage of this approach over adopting a loan-to-value limit is that it places an overall requirement on an institution in terms of its lending to the property sector, but still gives that institution the flexibility to provide loans at a high loan-to-value ratio. This might take place, for example, in a minority of cases in which the circumstances of the person to whom the loan is being given makes that loan prudent. In many ways it could have the same overall effect on the sector, but it gives institutions greater flexibility than a prescriptive loan-to-value ratio.

The noble Lord asked why the stock market was not included and why we were not including firms in that sector. The answer is that at this point the FPC believes that the definition of which firms are covered includes those firms that are most likely to cause a problem. The FPC has taken the view that firms in the stock market are not creating an equivalent risk to those elsewhere and those already covered. That is its judgement, which one can take a view on. The noble Lord disagrees, but that is the answer to the question.

The noble Lord asked about the order using the word “increase” and how it is envisaged that any increase might be unwound. When the FPC considers that any increase is no longer required, it will revoke the direction.

17:45

[Lord Eatwell]

Let us suppose that we are in the situation that we are in today, that there is no direction in place and that we wish to reduce the own funds. How do we do that?

[Lord Newby]

My Lords, I do think that that is an eventuality that the order caters for because, as the noble Lord says, it uses “increase”. If I am wrong on that, I shall let him know but, as he has said, the order is relatively straightforward. It will be for the PRA to decide whether it wants to do that, and it may do so, but obviously I will correct the record if I am wrong. It may require an amendment to the order for it to do that.

The noble Lord asked about the aggregation of a large number of small firms. This issue formed part of the consultation. The strong view came back that the effect that was being sought could be achieved by limiting the order at this point to larger firms. If any evidence built up that a large number of small firms could cause a risk beyond that currently envisaged, it would be for the FPC at that point to make appropriate provision.

The noble Lord asked how the FPC would specify risk. It will be for the PRA to determine capital models allowed by firms within the overall levels set by the FPC.

The noble Lord asked me about the timetable—whether there would be more orders and when they were going to be. There may be more orders, but none is envisaged at the moment. There is not a conveyor belt of other orders that are half-thought of. The view is that these measures are adequate for the time being. It is always open for further orders to be brought forward, but there is no perceived need for any further orders at this point.

There is one issue that I have not dealt with concerning the relationship between the FPC and the competition authorities. I hope that the noble Lord will forgive me if I write to him on that subject.

[Lord Eatwell]

Before the Minister sits down, perhaps we could go back to how an increased level of risk is to be specified by the FPC. Is that to be specified as a change in risk weights in old-fashioned Basel I structures, or is it to be specified as a modification of the value at risk models used by the financial institutions? If it is the latter, are we moving away from the ability of institutions to use their own value at risk modelling towards a standardised model?

[Lord Newby]

My Lords, as I said earlier, the PRA will set overall levels; the capital models allowed by firms will, I believe be determined by the PRA.

[Lord Eatwell]

I am sorry, but the noble Lord contradicts the instrument before us. It states clearly,

“if they gave rise to an increased level of risk specified by the FPC”.

It is not the PRA, it is the FPC that has to specify this increased level of risk.

[Lord Newby]

My Lords, I am told that the FPC has the discretion to do either or both of those things, but the PRA will scrutinise how the FPC’s levels are implemented by individual firms.

Motion agreed.

Financial Services and Markets Act 2000 (PRA-regulated Activities) Order 2013

Tuesday 26th February 2013 Grand Committee

Considered in Grand Committee

17:51

Moved by

[Lord Newby]

That the Grand Committee do report to the House that it has considered the Financial Services and Markets Act 2000 (PRA-regulated Activities) Order 2013.

Relevant documents: 18th Report from the Joint Committee on Statutory Instruments, 26th Report from the Secondary Legislation Scrutiny Committee.

[Lord Newby]

My Lords, I shall speak also to the other three orders made under the Act. As I said in respect of the previous order, the Financial Services Act establishes a system based on clarity of responsibility and focus for the new regulatory bodies, avoiding the confused and ineffective tripartite system that it replaces.

The new system will make the Bank of England clearly responsible for financial stability and will provide for two focused regulators with clear remits. The Prudential Regulation Authority, or PRA, will be responsible for the prudential regulation of firms that manage complex risks on their balance sheets. The Financial Conduct Authority, or FCA, will be a focused conduct of business regulator. This group of statutory instruments relates to the scope of the responsibilities and powers of the PRA and FCA. The Government’s guiding principle in all these orders is that there should be clarity of responsibility and effective co-ordination mechanisms where necessary.

First, I turn to the draft order made under Section 22A of the 2000 Act, which establishes which activities will be prudentially regulated by the PRA. The draft order provides that deposit-taking, effecting and carrying on contracts of insurance, and certain other activities in relation to the Lloyd’s market will all be PRA-regulated activities. All firms that carry them out will be regulated by the PRA. That reflects the complex nature of the risks borne by firms that engage in such activities and the need for specialist prudential regulation. Additionally, the activities of some investment firms are of such scale and complexity or are interconnected with other firms to such an extent that they may pose risks to the entire financial system or to other PRA-authorised firms. The PRA will be able to designate such investment firms to be prudentially regulated by the PRA.

The draft order sets out the criteria which the PRA will apply when considering whether an investment firm should be designated. First, the firm must hold, or be seeking to hold, permission to deal in investments as principal. In other words, it must be an investment firm or be applying to be an investment firm. Secondly, the firm must be of a type and size that is required to have initial capital of €730,000 under the capital adequacy directive. This means that it must be relatively large and complex. Finally, the PRA must conclude that designation is desirable, having regard to its objectives.

When deciding on the designation, the PRA must also give consideration to certain other factors. It must consider the assets of the firm in question. If the firm is part of a financial group, the PRA must also look at the size and complexity of other investment firms in the group, and at whether the activities of the firm in question could affect their safety and soundness. The draft order was first published more than a year ago and it has the overwhelming support of consultation respondents. I hope that it will be equally acceptable to the Committee.

Next, I turn to the threshold conditions order. The threshold conditions are the minimum requirements that firms need to meet to become authorised. They are a key supervisory tool and provide the basis for triggering certain of the regulators’ powers to intervene. On the recommendation of the Joint Committee on the draft Financial Services Bill, which carried out pre-legislative scrutiny on the Bill, the Government reviewed the threshold conditions to ensure that they support judgment-led and forward-looking regulation.

The revised conditions set out in the draft order will provide clarity about which aspects of a firm’s business are of interest to each regulator. They will also deliver clear, relevant and unambiguous standards which firms are required to meet and which will be used by the PRA and FCA in exercising their judgment. Lastly, they are aligned with the priorities of the FCA and the PRA—for example, including a reference to whether firms are “resolvable”, which will be a key consideration for the PRA in understanding the risks posed by individual firms to the financial system as a whole.

I turn next to the Financial Services Compensation Scheme order. The FSCS plays a crucial role in the financial services sector, supporting consumer protection and confidence in financial services while serving to protect and enhance financial stability. The Government are committed to retaining a single Financial Services Compensation Scheme, so that there is a single point of contact on compensation for consumers. However, given the important role that the FSCS plays in the financial system, both regulators will interact with the FSCS, and the Government have legislated that in the new regulatory system the FCA and PRA will have joint oversight responsibility for the FSCS and split rule-making responsibility.

As the scope of prudential regulation by the PRA is set out in secondary legislation, it is also necessary to specify the claims that each regulator may or may not make compensation rules for by statutory instrument. Broadly reflecting the division in regulatory responsibilities between the PRA and the FCA, the order makes the PRA responsible for making compensation rules in relation to claims for deposits and claims under a contract of insurance.

The order also provides that the PRA may make compensation rules relating to the activities of managing the underwriting capacity of a managing agent at Lloyd’s, or arranging contracts of insurance written at Lloyd’s. The inclusion of these activities in the order reflects the PRA’s regulatory responsibility in these areas but does not mean that the PRA will be expected to make compensation rules for them. To be clear, the FSA does not currently make compensation rules for these activities and it is not expected that the PRA will do so. Conversely, the FCA will be responsible for making rules to deal with claims for all other matters. This will include claims for mis-selling.

Finally, I turn to the mutuals order. The FSA’s most important regulatory functions and powers were established in the Financial Services and Markets Act 2000. However, the FSA also has a range of functions under the legislation that governs the establishment and operation of mutuals. This order does two things. First, it replaces references to the FSA in the various pieces of mutuals legislation with references to the FCA, the PRA or, in some cases, both. Secondly, it inserts mechanisms similar to those in the Financial Services Act requiring the two regulators to consult each other and co-ordinate their actions in certain cases.

The division of the responsibilities under mutuals legislation follows the general division of responsibilities between the PRA and the FCA under FiSMA. The PRA is given all of the FSA’s mutuals functions that are relevant to the safety and soundness of PRA-authorised mutuals. The FCA will take over the other functions of the FSA, including those related to registration, the register and the public file, the enforcement of offences and the majority of the functions related to administering mutuals in general.

I draw to the Committee’s attention that the order applies the PRA’s objectives to its functions under mutuals legislation but not the FCA’s. Applying the PRA’s objectives means that when carrying out a function under mutuals legislation, such as directing the merger of two building societies, the PRA will be held to account for whether its actions promote its objectives. However, the FCA’s tasks under mutuals legislation are mostly administrative in nature. It will have little discretion as to how it goes about them, so it would not really be possible to hold the FCA to account for whether it was approaching its tasks in a way that advanced its objectives. In the legal sense, there is little to which the FCA objectives could apply. The FCA’s objectives of course apply to all its regulatory activity in relation to mutuals that is carried out under FiSMA, such as making rules and imposing requirements.

With that explanation, I commend these orders to the Committee and I beg to move.

18:00

[Lord Eatwell]

My Lords, I am grateful to the noble Lord for introducing these orders. Like him, I will deal with them altogether. Before doing so, I declare an interest as a non-executive director of a financial services firm as set out in the Register of Lords’ Interests. Turning first to the PRA-regulated activities order, I still am somewhat puzzled as regards the whole definition of the large investment firm. Are we simply relying on the CRD definition expressed as €730,000-odd or is there some broader definition of what is meant by a “large investment firm” which the PRA has in mind?

Also with respect to that, under Article 6.5, what is the procedure if the FCA disagrees with the PRA’s decision to withdraw a designation? The consultation process should form a check on the PRA and not just act as a rubber-stamping on behalf of other bodies. There should be some scrutiny of important decisions that the PRA wishes to undertake, although of course without undermining its powers. What will be the dynamic when there is some form of disagreement and how are those disagreements to be mediated?

The threshold conditions are entirely appropriate but I want to focus on Article 2A about suitability. I found the discussion of suitability as a threshold condition—a very important threshold condition in any regulatory system—to be rather more vague than I would have expected. For example, under Article 2E(e) those who manage the affairs in investment firms have to have “adequate skills and experience”. Who defines adequate? What is meant by adequate? Does adequacy refer to a particular examination standard or standards of experience which might be expected?

In addition, the PRA might be expected to act with probity. Do we need a more precise definition of probity or will we simply regard it as having not yet been caught? How will we determine the conditions of suitability? Should they not be more precise, as individuals who wish to work in the financial services industry surely should have precise conditions and not be turned down on the basis of those rather general statements?

I have rather more questions on the Financial Services Compensation Scheme. Again, I will start with the problem of consultation between the PRA and the FCA. It seems to me that the PRA and the FCA are required to develop rules for access to the FSCS. How will they disclose that? What is the rule-making procedure referred to in this instrument? What will the procedure look like? Will they review the FSCS’s current rules? Presumably, they will. When we have had that review, will there be a transparent report to Parliament of the substance of that review?

There is a relationship between the discussion of mutuals and the FSCS. As the noble Lord will be aware, there has been considerable disquiet, to put it mildly, among mutuals with respect to the contributions that they make to the FSCS relative to those made by banks. I may have missed it, and if I have I apologise, but has there been any development on the levies made on mutuals in their contributions to the FSCS?

Turning specifically to the order before us, are there any substantial changes to the functions of the regulator in relation to mutuals contained in this order, or is it purely a transfer activity? Let us take one example which attracted my attention as I read through the order and raised this question. Paragraph 5 of Schedule 1 states that the FCA has an obligation to,

“maintain arrangements … to determine whether persons are complying with requirements”.

That is pretty vague. What sort of arrangements do we mean? Could there be some clarity as to what is to be implemented here?

Given the Government’s determination to make five regulators where there was once just one, what will happen with respect to consultation between the PRA and the FCA when action is required rapidly; for example, in criminal proceedings? How can we ensure that the consultation procedure will be prompt?

Overall, we are broadly content with the orders. We are concerned specifically about a lack of clarity at various points, to which I have referred, and about the introduction of additional complexity because of the requirement for consultation at various stages between the PRA and the FCA. I would like some reassurance on those points.

[Lord Newby]

My Lords, if there is a leitmotif running through the noble Lord’s questions, it has to be about how the two bodies work together. This theme ran also through previous debates in your Lordships’ House and gets to the core of arguments about whether the Government were right to split the FSA at all. The view that we took is that we needed to give greater focus to the two elements of regulation. It was very important, having done that, we then set in place ways in which the two regulators would work together. As the noble Lord knows, there are a number of points in the Act where the two bodies are required to establish memoranda of understanding explaining exactly how they are going to work together. The success of the new structure will depend to a very large extent on that working. I know that the bodies as they are establishing themselves are absolutely aware of that and are putting co-ordination and consultation procedures in place.

Perhaps I may deal with some of the specific points that the noble Lord raised. He asked whether the designation of a larger firm was simply the €730,000 capital requirement. The order takes a number of criteria into account, not all of them from the CRD. I read some of them out. The PRA, for example, has to conclude that designation is desirable, having regard to its objectives—this is part of the regulator exercising judgment. That is an additional criterion beyond the €730,000; it is not automatic.

The noble Lord asked what would happen if the FCA disagreed with the PRA’s decision to withdraw designation. This is a decision for the PRA. We expect it to give considerable weight to the views of the FCA, but it is ultimately a matter for the PRA.

The noble Lord asked whether the definitions should be more precise, in particular the definition of “probity”. The Government do not consider that the concept of probity is significantly more subjective than other criteria against which the regulator must make regulatory judgments. Recent conduct and mis-selling scandals have shown more than ever how important it is that firms conduct themselves with probity, and it is right that the regulators can make an assessment on whether this is the case and take action where it is needed. A general question for legislation is how far it attempts to define terms which are in common parlance and have a common understanding. Our view is that in this respect the legislation goes as far as it should do.

The noble Lord asked about mutuals and whether there had been a change in class. This has been a long-standing beef of the mutuals; they feel that they have to bear the burden of the incompetence, folly and recklessness of others. That is a question for the authorities to decide, but for the time being they remain in the same levy class that they have already stayed in.

I shall try to deal with one or two other points. The noble Lord asked about the procedure for FSCS rules. The same procedure applies as for other rules; there is a duty to consult but no duty to carry out a cost-benefit analysis. There are no plans to change the rules as part of the transition. Once the transition has taken place, it will obviously be for the new regulators to decide whether they are happy with them, but we are not planning to do that at the same time.

On the question of consultation between the FCA and the PRA on mutuals functions, the order makes express provision for consultation where it is needed. The general provisions relating to the FCA/PRA MoU, which I referred to earlier and which are set out in Section 6 of the Act, will apply in this area as they will in many others.

I hope that I have answered the majority, if not all, of the questions posed by the noble Lord, and I commend the regulations to the Committee.

Motion agreed.

Financial Services and Markets Act 2000 (Threshold Conditions) Order 2013

Tuesday 26th February 2013 Grand Committee

Considered in Grand Committee

18:13

Moved By

[Lord Newby]

That the Grand Committee do report to the House that it has considered the Financial Services and Markets Act 2000 (Threshold Conditions) Order 2013.

Relevant documents: 18th Report from the Joint Committee on Statutory Instruments.

Motion agreed.

Financial Services and Markets Act 2000 (Financial Services Compensation Scheme) Order 2013

Tuesday 26th February 2013 Grand Committee

Considered in Grand Committee

18:13

Moved By

[Lord Newby]

That the Grand Committee do report to the House that it has considered the Financial Services and Markets Act 2000 (Financial Services Compensation Scheme) Order 2013.

Relevant documents: 18th Report from the Joint Committee on Statutory Instruments, 26th Report from the Secondary Legislation Scrutiny Committee.

Motion agreed.

Financial Services Act 2012 (Mutual Societies) Order 2013

Tuesday 26th February 2013 Grand Committee

Considered in Grand Committee

18:13

Moved By

[Lord Newby]

That the Grand Committee do report to the House that it has considered the Financial Services Act 2012 (Mutual Societies) Order 2013.

Relevant documents: 19th Report from the Joint Committee on Statutory Instruments.

Motion agreed.

Committee adjourned at 6.13 pm.

House of Lords

Tuesday 26th February 2013 Lords Chamber

Tuesday, 26 February 2013.

14:30

Prayers—read by the Lord Bishop of Liverpool.

Introduction: The Lord Archbishop of Canterbury

Tuesday 26th February 2013 Lords Chamber

14:37

Justin Portal, Lord Archbishop of Canterbury, was introduced and took the oath, supported by the Archbishop of York and the Bishop of London, and signed an undertaking to abide by the Code of Conduct.

Tibet

Tuesday 26th February 2013 Lords Chamber

Question

14:41

Asked By

[Lord Alton of Liverpool]

To ask Her Majesty’s Government what discussions they have held with the Government of China about self-immolations in Tibet and China’s approach to human rights in that region.

[The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi)]

My Lords, I am sure the whole House will join me in welcoming the most reverend Primate to the House in his new role. We all look forward to working with him on some extremely important issues, on which he has great expertise.

We are deeply concerned about the large number of self-immolations in Tibet. We regularly raise our concerns with the Chinese authorities. My right honourable friend Hugo Swire issued a statement on 17 December. Tibet was discussed at the last round of the annual UK-China human rights dialogue in January 2012. We encourage all parties to work for a resumption of substantive dialogue as a means to address Tibetan concerns and to relieve tensions. We believe that long-term solutions depend on respect for human rights and genuine autonomy for Tibetans within the framework of the Chinese constitution. Our position on Tibet is clear and long-standing. We regard Tibet as part of the People’s Republic of China.

[Lord Alton of Liverpool]

My Lords, with 105 self-immolations and 88 deaths, including three more in the past two days, many of them young people, the Dalai Lama has said that this futile waste of people’s lives brings tears to his eyes. As the noble Baroness considers how best to respond to these events, would she undertake to read the report Tibet: Breaking the Deadlock, which the noble Lord, Lord Steel, and I published following our visit to Tibet, and which focused on the need to create dialogue, to end attempts to discredit the Dalai Lama, to examine human rights issues and constitutional arrangements, and to address the reasons why these extreme actions are occurring, leading to this heartbreaking and tragic waste of people’s lives?

[Baroness Warsi]

I know that the noble Lord has a long-standing interest in this matter. Indeed, I have had an opportunity to look at the recommendations of the report that he mentions. I am sure he will be heartened by the fact that we agree, at least in part, with some of its recommendations about the People’s Republic of China and the Dalai Lama returning to dialogue to take these matters forward bilaterally. Of course, I have real concern about the tragic cases of self-immolation. I have had an opportunity to read the casework on some of them. Tragically, those who die do so at great loss to their communities and families, but those who survive end up suffering for many years with very little treatment. It is a matter that we continue to raise.

[Lord Anderson of Swansea]

My Lords, China is building better rail and road links to Tibet, which help the Han Chinese colonise that region. Of course, in spite of all these bilateral and multilateral meetings, China ignores any pleas for human rights in China itself, internationally or in Tibet. Does the Minister have any evidence that China is altering its stance in response to human rights in Tibet or internationally, commensurate with its new economic power?

[Baroness Warsi]

My Lords, we are concerned about the lack of meaningful dialogue to address the underlying grievances against a clearly worsening situation. We continue to encourage all parties to work for a resumption of substantive dialogue as a means to address the Tibetan concerns and to relieve tensions. Of course, we continue to make the case to China that any economic progress can be sustained only if there is social progress as well.

[Lord Steel of Aikwood]

Does the Minister, having read the report to which she has kindly referred, recognise that in the three years since, two important things have happened? One is that there was a change of leadership in China; the second is that the Dalai Lama has given up his political role as head of the Tibetan Government in exile. Therefore, would she and her colleagues try to encourage the Chinese authorities to enter into dialogue with the Dalai Lama as a religious leader in order to stop these immolations and try to improve relations between the Tibetan people and the Chinese?

[Baroness Warsi]

Many of us around the world recognise the Dalai Lama as a spiritual leader, but my noble friend will be aware of the position of the Chinese Government. That is not the way he is seen within the People’s Republic of China. The noble Lord will also be aware of the UK-China annual human rights dialogue, and we continue to raise these concerns at that point.

[The Archbishop of York]

My Lords, I thank the Minister for her answer to the question asked by the noble Lord, Lord Steel. I still want to probe a bit further. He is certainly exiled, but the Dalai Lama is not only a spiritual and religious leader of the people of Tibet; he is also recognised throughout the world. Will the Government nevertheless impress upon the Chinese Government that they should recognise and respect the Dalai Lama as a religious leader and not as a political leader? If they did that, it is possible that they would then have a dialogue.

[Baroness Warsi]

The most reverend Primate raises an important wider issue: the freedom of religion within China and the recognition of religious groups and therefore of religious leaders. It is a matter that we raise in generic terms, although I cannot categorically say whether the specific issue of recognising the Dalai Lama as a spiritual leader has been raised.

[Lord Wills]

What representations have the Government made about the fate of Gedhun Choekyi Nyima, the young boy identified in 1995 by the Dalai Lama as the new Panchen Lama, the second highest office in Tibetan Buddhism? The Minister will recall that shortly after that identification, that young boy was taken into what the Chinese Government called “protective custody” and has never been seen since. What assurances have the Government sought about his fate and well-being, and if they have not made any representations, will they do so?

[Baroness Warsi]

Representations were made about the young boy. Indeed, I think his name appeared on a specific list that was handed over during one of the UK-China human rights dialogues. We have also put forward the idea of him being allowed access to an independent organisation that could assess his current health and whereabouts.

[Lord Triesman]

My Lords, I associate these Benches with the welcome that has been given to the most reverend Primate. We all wish him every success in the contribution he will make in this House. The last major dialogue that the Minister has reported to us was in January 2012. Obviously, there has been a change in the leadership of the Chinese state and Communist Party in the period since. I wonder whether other channels are available that might be used. I am thinking particularly of the business group, the 48 Group Club, which has managed to establish decent relationships with the Chinese Government and is not always associated with the past that this country has had with China, which has not been held in great esteem in many respects by the Chinese people historically. Is there a dialogue going on with those groups? Can we improve it and can we achieve the objectives to which the noble Lord, Lord Steel, referred just a few moments ago?

[Baroness Warsi]

The noble Lord makes an important point. I cannot answer it directly. I am not sure whether other groups are being used as alternative avenues to make our views clear. I can, however, inform him that the annual dialogue is now overdue and that officials have been in contact with each other with a view to try to fix a date for further discussions.

Citizenship Test

Tuesday 26th February 2013 Lords Chamber

Question

14:49

Asked By

[Lord Roberts of Llandudno]

To ask Her Majesty’s Government whether they have received representations about the new UK Citizenship test.

[The Parliamentary Under-Secretary of State, Home Office (Lord Taylor of Holbeach)]

My Lords, the new Life in the UK Test, which is taken for settlement and citizenship purposes, will begin on Monday 25 March and will have British history and culture at its heart. We have not as yet received any direct representations, although public comment on the new handbook has been broadly positive.

[Lord Roberts of Llandudno]

I thank the Minister for his reply. However, does he not consider that the new handbook is impractical and irrelevant and does not deal with the problems that people need to tackle when they come to Britain? The book contains 3,000 hard facts to be mastered. For instance, does he think it appropriate that every person who sits this test should know when the Emperor Claudius invaded Britain?

[Noble Lords]

Oh!

[Lord Roberts of Llandudno]

I am sure that somebody will know. I can go back to Wales; other people can go back to other places. It was AD 43. However, given that there is some discontent regarding the questions asked, would the Minister be prepared to meet some of us who share that concern to discuss a more practical handbook on life in the United Kingdom?

[Lord Taylor of Holbeach]

My Lords, I am always very happy to learn and would be delighted to meet my noble friend. However, I do not agree with his summary of the new handbook. I think that it contains relevant British history and culture, which is the whole purpose of the exercise: that is, to provide facts on which people can base a life of settlement and, indeed, citizenship in this country. Therefore, I disagree with the premise of my noble friend’s supplementary question but I am very happy to meet him.

[Lord Foulkes of Cumnock]

My Lords, has the Minister tried to take the test himself and, if so, did he pass?

[Lord Taylor of Holbeach]

I have a sample test here and it is very fortunate that the correct answers are given in bold type.

[Lord Elystan-Morgan]

My Lords, does the handbook contain any reference to the invasion of these islands by the Anglo-Saxons?

[Lord Taylor of Holbeach]

I am sure that it does.

[Baroness Smith of Basildon]

My Lords, we introduced the citizenship test in 2005 and remain committed to it, but clearly a significant amount of time, effort and money has gone into these changes and the questions mentioned by the noble Lord, Lord Roberts. It has to be said that when the Prime Minister failed the test on live television in America, one has to doubt whether we have all the right questions. Given that 20% fewer foreign criminals have been deported and given the lengthy delays in the processing of visas, far exceeding what is reasonable or should be expected, as Her Majesty’s Inspector has pointed out, should the priority be changes to the citizenship test or should the key focus be on sorting out the problems connected with immigration and visas?

[Lord Taylor of Holbeach]

I do not think that it is necessary to tackle just one task at a time. Making this test relevant was an important task. Noble Lords will know that the current handbook has been in use for six years. It was time to have an update and to make it more relevant. The noble Baroness referred to serious issues on the part of UKBA, particularly its ability to cope with appeals. We are well aware of this and I am absolutely certain that the chairman of UKBA has this matter at the top of his agenda.

[Lord Lloyd of Berwick]

Is the noble Lord aware that those people who have been resident in this country for many years apparently cannot apply to take the new test if they are over 65? Is 65 really too old to become a citizen of the United Kingdom?

[Lord Taylor of Holbeach]

I was not aware of that fact and, being over 65 myself, I would like to think that I am still in command of all my facilities.

[Noble Lords]

Oh!

[Lord Taylor of Holbeach]

Perhaps I should rephrase that. More than 93,000 people have taken an online test, the sample test hosted by the Home Office, and the outcome was that the average score was 86%.

[Baroness Trumpington]

My Lords, may I just reassure the Minister that I was not the Emperor Claudius’s land girl?

[Lord Taylor of Holbeach]

I am sure that the House is very reassured by that.

[Baroness Gardner of Parkes]

My Lords, I have been in this country for almost 60 years. I could not possibly pass that test, although I thought I had assimilated a bit of Britishness while I have been here. My accent remains unchanged, of course. I am concerned about more serious situations in immigration, raised by the Front Bench opposite. With the help of the noble and learned Lord, Lord Woolf, a former Lord Chief Justice, we have managed to obtain a right to be here for someone who has been here now for three years. She was here legally for five years, having come here as an au pair, then illegally for about 20 years. Now she has to wait, and after five years she can apply for citizenship. During that investigation, I discovered that the problem is that when you arrive, you are told that you have to have been here for six years. When you get to five and a half years, they change it to eight years. When you get to seven and a half years, they change it to add another two years. Is it not time that we looked at the prospect of relating the number of years you have to wait to what was in force at that time of your arrival?

[Lord Taylor of Holbeach]

My noble friend has illustrated that the rules on these matters are complex, but we do keep them under review. We really want to facilitate the opportunity for people who want to make a life in this country to settle and to achieve citizenship. That is the purpose of the test.

Death Penalty

Tuesday 26th February 2013 Lords Chamber

Question

14:57

Asked By

[Lord Sheldon]

To ask Her Majesty’s Government what steps they are taking to end the use of the death penalty worldwide.

[The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi)]

My Lords, we continue to work towards global abolition in line with the FCO strategy for abolition of the death penalty. We regularly raise this issue in bilateral discussions with countries of concern and fund projects in support of abolition. In December last year we worked intensively to help ensure that the UN General Assembly resolution against the death penalty was supported by more countries than before.

[Lord Sheldon]

My Lords, we need to limit the death penalty, which is much used in China. It is more limited in other countries, and it still exists in parts of the United States. Generally, there has been a reduction in the death penalty, but further limitations must be pressed.

[Baroness Warsi]

I agree with the sentiments of the noble Lord. That is why we work with countries on a two-pronged approach—those countries which wish to retain the death penalty on their books but want, effectively, to impose a moratorium and then move towards abolition.

[Baroness Hollins]

My Lords, Mr Warren Hill, a man with intellectual disability, was due to be executed in Atlanta, Georgia just a week ago today. Due to the very welcome intervention of the Foreign and Commonwealth Office and other advocates, there was a stay of execution. I understand that the state of Georgia is still hoping to execute Mr Hill before 1 March, when its licensed medication runs out. Could the Minister advise the House what other steps the Foreign and Commonwealth Office is taking to try to ensure that Mr Hill’s mental disability is properly assessed, that the method of execution is considered and that this man is granted a reprieve?

[Baroness Warsi]

I cannot answer the specific questions that the noble Baroness raises, but I will write to her with details of that very specific case. I can assure her that we have done casework on individual cases with individual states. Our consular section has intervened and expressed its interest in matters such as this, but we have also worked with organisations such as Reprieve, in which Clive Stafford Smith and his colleagues have worked quite closely with lawyers in assisting and supporting people on death row. However, I will write to the noble Baroness about the specific case she raised.

[Lord Dholakia]

My Lords, I declare an interest as a member of the All-Party Parliamentary Group for the Abolition of the Death Penalty. In that capacity last week, I visited South Sudan and Tanzania. What is being done, first, through the Commonwealth Secretariat and, secondly, through bodies such as CHOGM to impress upon Commonwealth countries to sign Resolution 44/128 of the 1989 United Nations resolution on abolition? More importantly, can we encourage more countries to have a moratorium on carrying out death sentences, as Tanzania has done?

[Baroness Warsi]

The Commonwealth is an important institution within which to have these discussions and, of course, the signing of the Commonwealth charter in December only last year is a way to further strengthen the underpinning of the values of the Commonwealth family. However, individual countries within the Commonwealth take different views in relation to the use of the death penalty. We continue to work with them on a bilateral level, as well as through multilateral organisations, to try and move them to a position of abolition.

[Lord Faulkner of Worcester]

Can the Minister give an assurance that no European state is exporting to the United States pentobarbital or any other drug that is used in execution?

[Baroness Warsi]

My Lords, I read about that somewhere in my brief, but I am not sure exactly where it was. Rather than give the noble Lord an answer that is not entirely correct, I will write to him with a very specific answer.

[Lord Low of Dalston]

My Lords, as the Minister will be aware, Afzal Guru was hanged in India on 9 February this year—the second execution in that country in three months—following an eight-year hiatus in executions. Reports suggest that four more prisoners, after their mercy petitions were rejected, are due to be executed imminently. What efforts are the Government making to encourage the Indian Government to stop this regressive move? Was this one of the issues that the Prime Minister raised with the Indian Government when he recently visited India?

[Baroness Warsi]

The matter was raised during the recent visit. We made representations via my right honourable friend the Minister of State, Hugo Swire, who has responsibility for India. He raised that matter when he visited Delhi with a large delegation on 21 February. We have separately made representations through the EU, and will continue to raise through the EU-India human rights dialogue India’s use of the death penalty. Of course, the matter is extremely concerning, because there was effectively a moratorium, as the noble Lord said, between 2004 and 2012. We would like it to move back to that position, with a view to formal abolition.

[Baroness O'Cathain]

My Lords, the noble Baroness, Lady Hollins, told us about the dreadful situation facing Mr Hill, and my noble friend agreed that she would “write” about this issue. However, today is 26 February and the execution is, I understand, due to take place on 1 March. Can we do something a bit more than write? Can she not make a positive statement that she is going to do something about it today?

[Baroness Warsi]

I was intending to do exactly that. My noble friend makes an important point in terms of the timing. I can assure her and the noble Baroness, Lady Hollins, that I will deal with this matter when I return to my office in about half an hour’s time.

[Lord Clarke of Hampstead]

My Lords, would the Minister care to comment on the recent wave of executions in Iran, which have been stepped up to number many dozens in the past few months? Does she agree with me that the inhuman and barbaric treatment of the people of Iran underlines once again the fact that the people who decide on these executions are inhuman and disregard the wishes of their own people?

[Baroness Warsi]

The noble Lord is right. Tragically, Iran executes more people per capita than anywhere else in the world—at least 352 people in 2012 of whom we have records. Tragically again, the death penalty is regularly used for non-serious crimes. In doing so, Iran fails to meet even the most basic minimum standards under international law and, also tragically, consistently refuses to engage with the international community on this issue.

Energy: Electricity Generation

Tuesday 26th February 2013 Lords Chamber

Question

15:04

Asked By

[Lord Ezra]

To ask Her Majesty’s Government whether they consider that there will be adequate reserves of electricity-generating capacity after the expected closures of a number of coal and nuclear plants.

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

My Lords, I begin by wishing my noble friend a very happy 94th birthday, which I know he celebrated a couple of days ago. The Government are taking decisive steps to secure our supplies. We are reforming the electricity market to drive the investment we need to ensure that we have a diverse range of energy supplies, and through the Green Deal and ECO, we are looking to reduce our usage of energy. I am also pleased to announce that we have had investment from Carrington gas, which will come on stream in 2016, and Hitachi’s investment of £700 million in purchasing Horizon demonstrates that the Government’s approach is right, and that the UK remains an attractive place to invest.

[Lord Ezra]

My Lords, I thank my noble friend for her kind remarks. In spite of advancing years, I continue to take a keen interest in energy matters. Does the Minister agree that, while in the medium and long term, shale gas, new nuclear and other installations may help to meet increased electricity demands, there is a serious short-term problem, to which she referred? In that connection, will she indicate what steps the Government will take, in addition to those that she mentioned, to avoid a possible shortage of electricity-generating capacity within the next two to three years, bearing in mind the early closure of existing coal and some nuclear plants, and the warning from Ofgem that, as a result, reserve electricity capacity will fall well below normal levels?

[Baroness Verma]

My Lords, the Government are taking action to ensure that the UK economy continues to enjoy high levels of electricity supply security in the short, medium and long term. Our proposals for electricity market reform will drive investment, ensuring that we have a diverse mix of energy sources. Those proposals also include legislating for a capacity market to ensure that we have sufficiently reliable capacity on the system in the long term. The legislation, which will come to your Lordships’ House for consideration shortly, will enable a capacity market. With regard to the short term, we expect to see some reduction in margins as we move towards the middle of the decade; we saw similar reductions in the previous decade.

[Lord Tomlinson]

Does the Minister agree that we are falling further and further behind the necessary timetable for getting new nuclear power on stream? Without that new nuclear power, we will see the proportion of our energy that is generated from nuclear rapidly declining as we close the existing stations, and we will become more and more dependent on imported energy. At the same time, we will of course fail to meet our Kyoto targets. In those circumstances of an increase in imported energy, will the Minister answer the question I asked her yesterday, and which she failed to answer: what is the effect on imported energy requirements of the devaluation of sterling, which is further exacerbated by the loss of our AAA status?

[Baroness Verma]

My Lords, new nuclear is one of the country’s options. As I have said many times at the Dispatch Box, it is part of an energy mix. However, like all things, it goes through the proper procedures, as the noble Lord would expect. We have a lot of interest in investment in the UK from outside; I just mentioned Hitachi’s purchase of Horizon. The noble Lord needs to be reassured that we are going through processes that need to be properly done through planning and all the other necessary requirements of new nuclear. On yesterday’s question, if the noble Lord had been here, he would have heard my noble friend’s response.

[Lord Lawson of Blaby]

Following the very pertinent Question of the noble Lord, Lord Ezra, will my noble friend assure the House that if the need arises, our coal-fired power stations will be kept open for as long as necessary, regardless of the European large combustion plants directive? Looking further ahead, will she agree that the Government need to give every encouragement they can to the fastest possible development of our indigenous supplies of shale gas, which is clearly the fuel of choice for power stations in the foreseeable future?

[Baroness Verma]

My Lords, my noble friend raises a number of important and key points. Of course we are looking at ensuring that we do not have a dip in our secure energy supply. We are also making sure that our new energies will take over when the old gas and coal-powered stations come off stream. We cannot meet our carbon emission reduction targets if we have unabated coal continuing to come out of our power stations. However, we are looking at increasing our gas supplies as well as all our other alternative energy supplies.

[Baroness Worthington]

My Lords, as the Minister mentioned, the most effective way to combat potential insecurity of supply is to invest in demand management and reduction. I was very pleased to hear mention of the capacity mechanism that we expect to be part of the Energy Bill. I understand that officials have been working on proposals for this. Will the Minister confirm what state of readiness the proposals are in, and when we might expect to see them, since they are the best way of combating security of supply problems?

[Baroness Verma]

The noble Baroness is absolutely right. We need to ensure that we reduce our usage of electricity and of other energies. We have had a consultation. We are now looking at the responses to it. I hope to come back to the Dispatch Box with our response later in the year.

Parliamentary Commission on Banking Standards

Tuesday 26th February 2013 Lords Chamber

Membership Motion

15:11

Moved By

[The Chairman of Committees]

That the Lord Archbishop of Canterbury be appointed a member of the committee to join with the Commons as the Parliamentary Commission on Banking Standards.

Motion agreed, and a message was sent to the Commons.

Presumption of Death Bill

Tuesday 26th February 2013 Lords Chamber

Order of Commitment Discharged

15:11

Moved By

[Baroness Kramer]

That the order of commitment be discharged.

[Baroness Kramer]

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

Motion agreed.

Mobile Homes Bill

Tuesday 26th February 2013 Lords Chamber

Order of Commitment Discharged

15:12

Moved By

[Lord Best]

That the order of commitment be discharged.

[Lord Best]

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

Motion agreed.

Public Service Pensions Bill

Tuesday 26th February 2013 Lords Chamber

Third Reading

15:12

Clause 3 : Scheme regulations

Amendment 1

Moved by

[Lord Newby]

1: Clause 3, page 2, line 9, at end insert “in relation to the scheme or any provision of this Act”

[Lord Newby]

My Lords, this group contains a large number of technical amendments. Amendment 1 reflects the fact that some of the obligations in the Bill are set in the main clauses and not in scheme regulations. This means that the drafting of Clause 3, which allows only for consequential, supplementary, incidental or transitional changes as a result of provisions in scheme regulations, leaves a theoretical gap in powers that we would like to plug. If such changes were required solely as a result of provisions in the Bill rather than in scheme regulations, we might not be able to do so without making new primary legislation. We do not believe that that would be appropriate, so the amendments in this group seek to address the slight gap in the current drafting.

Of course, this extends the powers to cover only consequential, supplementary, incidental or transitional changes that result from clauses that have been debated at length in both Houses. Parliament is already aware of the desired effects of the Bill. These powers ensure that the effects can be realised. As we discussed on Report, any use of these powers to amend primary legislation could only be for consequential purposes and to Acts that have already been passed. I therefore hope that noble Lords can support this small but sensible amendment.

Amendments 4 and 5 are minor technical amendments. They are simply to provide consistency throughout the Bill in the form of cross-references to Schedule 4 to the Pensions Act 1995. They ensure that the same format is used in Clauses 34 and 35 as is used in Clause 10.

Amendments 8 and 9 are again minor amendments intended to clarify the wording, in this case of amendments I brought forward on Report. Noble Lords will recall that those amendments give schemes flexibility to define pensionable earnings for the purpose of the final salary link, and also safeguard the value of members’ final salary benefits. The safeguard is that the amount of earnings in the new scheme that are pensionable earnings for the purpose of the final salary link must not be materially less than the amount that would have applied had the person been in the old scheme until the point they eventually left service. The amendments simply clarify the safeguard. They make it clear that it applies to what would have been the person’s pensionable earnings had that person been in active service in the old scheme or deemed transfer scheme, rather than the new scheme. They would, of course, not have been in actual active service in those schemes after 2015, since they would have been in active service in the new scheme instead. The amendments do not change the substance of the meaning of the previous amendments in any way, but are just clarificatory.

Amendment 10 is concerned with circumstances where a pension that is calculated in accordance with the final salary link has been put into payment and the person subsequently returns to public service employment. It is designed to allow flexibility for schemes to continue their current treatment of a final salary pension in payment in such circumstances. Our intention is for the final salary link to accord with the rules on final salary benefits in each scheme that are currently in force. Some schemes currently allow the final salary benefits to be recalculated after a period of re-employment. The provisions in Schedule 7 allow this approach to continue where there is continuity of service, as provided for in paragraph 3. However, many schemes currently treat final salary benefits that have already been put into payment as fully crystallised, and consequently unaffected by any future period of employment in scheme service. Our amendment would allow for scheme regulations to provide that this continues to be the case too, if desired. Rules of existing schemes can also continue to provide for some limited aggregation of periods of employment, as some do at the moment. This amendment assists schemes in the implementation of the recommendation of the noble Lord, Lord Hutton, to honour the benefits built up under the current final salary schemes.

Amendment 11 consists of a series of minor, consequential amendments to the Pensions (Increase) Act 1971. It clarifies how the uprating provisions of that Act apply to those with service in both an existing scheme and a new one. The 1971 Act provides for the uprating of pension benefits for deferred and pensioner members of the public service schemes. The intention is that while a person is a member of a new scheme after 2015, and they have also old scheme benefits, those old scheme benefits should be treated for uprating purposes as though they remained an active member. This should remain the case until the member takes the old scheme pension or leaves the new scheme. This means that for those persons whose existing scheme is a final salary scheme, their benefits in that scheme will be uprated through the final salary link provisions in Schedule 7 to the Bill. For those persons whose existing scheme is a career average scheme, their benefits should continue to be revalued as if they remained an active member. This amendment clarifies how the provisions in the Pensions (Increase) Act apply in the circumstances I have just described.

Where people continue in service, the old scheme benefits should not be treated as deferred from 2015. To do so would mean that those benefits would be uprated in line with prices from 2015, which would run counter to the treatment of old scheme benefits recommended by the noble Lord, Lord Hutton.

The final amendment in this group relates to an amendment I introduced on Report to paragraph 30 of Schedule 8. This paragraph amends Schedule 4 to the Legal Aid, Sentencing and Punishment of Offenders Act 2012 to enable those active members of the Legal Services Commission pension schemes to transfer into the Civil Service scheme on 1 April 2014 to have full access to the transitional provisions contained in Clause 18. This subsequent amendment is a minor tweak to paragraph 30 to ensure that, in addition to those active members, deferred members of the LSC pension schemes who rejoin within a five-year period will also benefit from the transition provisions. This is entirely consistent with wider government policy on the treatment of deferred members of public service pension schemes. It will ensure that employees of the LSC are not unfairly disadvantaged by the changes to their pension provision. I beg to move.

[Lord Eatwell]

My Lords, I am grateful to the noble Lord for explaining the content of these essentially technical amendments. I particularly welcome the approach, which is in accord with the recommendation of my noble friend Lord Hutton.

I have but one question of the noble Lord, and that is why his remarks were not prefaced by an apology to the House for having put down these amendments as late as 5 pm yesterday afternoon.

[Lord Newby]

My Lords, I have my apology prepared and I will now give it. I thought it was the next group of amendments about which the noble Lord was particularly concerned.

I apologise to the House for the late tabling of these amendments. There is nothing sinister about it. As noble Lords will have understood, I hope, from my explanation of them, they were extremely minor technical amendments. The reason for the delay was simply to ensure that all legal issues had been adequately addressed in the final drafting. I had hoped we could have done it sooner, but that was the sole reason for the delay in the amendments being submitted. I repeat, I am sorry that we did not do it earlier.

Amendment 1 agreed.

Clause 9 : Revaluation

Amendment 2

Moved by

[Lord Newby]

2: Clause 9, page 5, line 39, leave out “the negative Commons procedure” and insert “—
(a) the affirmative Commons procedure, if the order specifies a percentage decrease for the purposes of subsection (2), and(b) the negative Commons procedure, in any other case.”

[Lord Newby]

My Lords, on Report, I asked the noble Lords, Lord Whitty and Lord Eatwell, to withdraw their amendments on the revaluation order because of my intention to return with an amendment of my own. I said that I would consider the parliamentary procedure for the revaluation order where it specifies a negative figure, and the amendments that I have tabled, albeit at the last minute, are in line with that commitment.

As I have made clear on several occasions before, it would be wrong to rule out revaluations that set out negative figures on the very rare occasions where either the CPI or earnings were in negative territory. This would be unfair to the taxpayer and represent an asymmetric sharing of risk, which was specifically referenced by the noble Lord, Lord Hutton, in his report.

The amendments that I have brought forward do not affect the ability to track growth directly. I do not wish to rehearse at length the strong arguments I have deployed in the past. However, these amendments increase the level of parliamentary scrutiny in the highly unlikely event that we see negative growth. Where the Treasury order sets a negative figure, which I remind the House it can determine only on reasonable and justifiable terms by reference to the general level of prices or earnings, the order will be subject to the affirmative procedure. This will ensure that Parliament has an opportunity to debate the measure. Given the uniqueness of a situation in which the revaluation of benefits could lead to a decrease in entitlement, the Government believe that this is an appropriate and sensible additional safeguard of members’ interests.

However, I should point out that the vast majority of the revaluations will involve run of the mill legislation that simply sets out the relevant increases in line with announced government policy. For example, if the new schemes are already in place, the order for this year would simply set out the positive change in prices in line with the CPI and the positive change in earnings in line with the average weekly earnings measure. Both of these have been in the public domain for quite some time.

When we are not experiencing something extraordinarily unusual such as negative growth, it would go too far to provide for the affirmative procedure for every order as provided for in the amendment of the noble Lord, Lord Eatwell. Therefore, I hope that the noble Lord will understand why I am not able to accept his amendment. The Government’s amendments strike the appropriate balance between parliamentary scrutiny and sensible regulation-making. I hope they will provide some comfort and that noble Lords will be able to support them. I beg to move.

[The Lord Speaker (Baroness D'Souza)]

I should advise your Lordships that if this amendment is agreed to I cannot call Amendment 3 for reason of pre-emption.

[Lord Eatwell]

My Lords, I am grateful to the noble Lord for introducing these amendments, and for reacting as he promised on Report to the issues raised there by me and my noble friend Lord Whitty. His speech was slightly imperfectly drafted as it referred on several occasions to the unlikelihood of negative growth. In fact under this coalition Government negative growth has become an all too common characteristic of our economy. He was, of course, referring to the negative growth of prices and earnings. In that dimension, he may hopefully be more accurate.

Our amendment was put down at 4.30 pm yesterday afternoon because of the absence of any government amendment at that time dealing with this issue. The government amendment appeared half an hour later. In the circumstances we are pleased that the Government have understood some of the important issues raised, particularly by my noble friend Lord Whitty, and have brought forward appropriate amendments to take into account the arguments that he made both in Committee and on Report. I will therefore not move Amendment 3, and will be quite happy to see government Amendment 2 nodded through.

Amendment 2 agreed.

Amendment 3 not moved.

Clause 34 : Parliamentary and other pension schemes: pension age

Amendment 4

Moved by

[Lord Newby]

4: Clause 34, page 18, line 13, at end insert “Part 1 of”

Amendment 4 agreed.

Clause 35 : Members of the European Parliament

Amendment 5

Moved by

[Lord Newby]

5: Clause 35, page 18, line 44, after “in” insert “Part 1 of”

Amendment 5 agreed.

Clause 36 : General interpretation

Amendment 6

Moved by

[Lord Newby]

6: Clause 36, page 19, line 13, leave out “has the meaning” and insert “and “the affirmative Commons procedure” have the meanings”.

Amendment 6 agreed.

Clause 37 : Regulations, orders and directions

Amendment 7

Moved by

[Lord Newby]

7: Clause 37, page 21, line 46, at end insert—
“( ) In this Act, the “affirmative Commons procedure”, in relation to a Treasury order, means that the order may not be made unless a draft of the instrument containing it has been laid before, and approved by resolution of, the House of Commons.”

Amendment 7 agreed.

Schedule 7 : Final salary link

Amendments 8 to 10

Moved by

[Lord Newby]

8: Schedule 7, page 37, line 29, leave out from “service” to end and insert “had the new scheme service been old scheme service”

9: Schedule 7, page 38, line 16, leave out from “service” to end and insert “had the new scheme service been deemed transfer scheme service”

10: Schedule 7, page 38, line 38, at end insert—
“Final salary link not to apply again to a pension in payment5 (1) Scheme regulations may provide that where a pension in payment under a scheme to which section 18(1) or 31(2) applies has been calculated by reference to this Schedule, the pension cannot be recalculated by reference to this Schedule where there is a subsequent period of pensionable public service (within the meaning of paragraph 3).
(2) Provision made under sub-paragraph (1) may in particular be made by amending the scheme under which the pension is in payment.”

Amendments 8 to 10 agreed.

Schedule 8 : Consequential and minor amendments

Amendments 11 and 12

Moved by

[Lord Newby]

11: Schedule 8, page 39, line 18, at end insert—
“3A After section 8 of the Pensions (Increase) Act 1971 there is inserted—
“8A Section 8(2): references to “service”
(1) In a case where—
(a) paragraph 1 or 2 of Schedule 7 to the 2013 Act (final salary link for persons who remain in old scheme for past service) applies in relation to a person, and(b) the person’s final salary falls to be determined by reference to that paragraph,references in section 8(2) above to the service in respect of which a pension is payable include the person’s new scheme service (within the meaning of Schedule 7 to the 2013 Act).(2) In a case where—
(a) a person is a member of a relevant old scheme by virtue of pensionable service for that scheme (“the relevant old scheme service”),(b) the person is also a member of a scheme under section 1 of the 2013 Act or a new public body pension scheme (“the new scheme”) by virtue of pensionable service for that scheme (“the new scheme service”),(c) the relevant old scheme service and the new scheme service are continuous, and (d) the person’s employer in relation to the relevant old scheme service is the person’s employer in relation to the new scheme service (or any other employer in relation to the new scheme),references in section 8(2) above to the service in respect of which a pension is payable include the person’s new scheme service.(3) In this section—
(a) “relevant old scheme” means a career average revalued earnings scheme (within the meaning of the 2013 Act) to which section 18(1) or 31(2) of that Act applies (restriction of benefits under existing schemes);(b) “employer”, “new public body pension scheme” and “pensionable service” have the same meanings as in that Act.(4) For the purposes of subsection (2)—
(a) paragraphs 3 and 4 of Schedule 7 to the 2013 Act (continuity of employment etc) apply as they apply for the purposes of paragraphs 1(2) and 2(2) of that Schedule;(b) regulations under section 1 of the 2013 Act (in the case of a new scheme under that section) or rules (in the case of a new public body pension scheme) may provide that where a pension is in payment under a relevant old scheme, references in section 8(2) above to the service in respect of which a pension is payable do not include any subsequent period of pensionable service in relation to a scheme under section 1 of the 2013 Act or a new public body pension scheme.(5) Provision made under subsection (4)(b) may in particular be made by amending the relevant old scheme.
(6) In this section, “the 2013 Act” means the Public Service Pensions Act 2013.””

12: Schedule 8, page 44, line 27, leave out from “after” to end of line 39 and insert “sub-paragraph (11) there is inserted—
“(11A) Where an individual—
(a) was a member of a relevant LSC scheme immediately before the transfer day,(b) had been a member of that scheme immediately before 1 April 2012, and(c) becomes, on or after the transfer day, a member of a civil service scheme by virtue of employment in the civil service of the State,the individual is to be regarded, for the purposes of section 18(5) of the Public Service Pensions Act 2013, as having been a member of the civil service scheme immediately before 1 April 2012.(11B) In sub-paragraph (11A)—”.”

Amendments 11 and 12 agreed.

Bill passed and returned to the Commons with amendments.

Enterprise and Regulatory Reform Bill

Tuesday 26th February 2013 Lords Chamber

Report (1st Day)

15:27

Relevant documents: 9th, 10th, 11th, 12th and 14th Reports from the Delegated Powers Committee.

Amendment 1

Moved by

[Lord Teverson]

1: After Clause 1, insert the following new Clause—
“Interpretation of the green purposes: duty to assess impact on the Climate Change Act 2008
(1) In interpreting the purposes set out in section 1(1), it is the duty of the Board of the UK Green Investment Bank to assess whether the implementation of its investment strategy, or similar document outlining or amending the proposed investment portfolio, will as a whole, increase the likelihood of achieving carbon budgets and greenhouse reduction targets under the Climate Change Act 2008.
(2) In subsection (1), whether or not an investment strategy will increase the likelihood of achieving carbon budgets and greenhouse gas reduction targets shall be assessed compared to a scenario where the identified investments or investment categories did not proceed.
(3) In undertaking the assessment required under subsection (1), it is the duty of the Board of the UK Green Investment Bank to have regard to the advice and reports of the Committee on Climate Change as required under sections 34, 36 and 38 of the Climate Change Act 2008.
(4) The Board must not make a decision to adopt or amend its investment strategy or similar document as described in subsection (1), unless it is satisfied, as a result of the assessment conducted under that subsection, that the proposed investment portfolio will, as a whole, increase the likelihood of achieving carbon budgets and greenhouse gas reduction targets under the Climate Change Act 2008.”

[Lord Teverson]

My Lords, the purpose of my amendment, which I tabled early in the process, before any government amendments, was really to make sure that the Green Investment Bank does what it says on the tin. It should invest not only in the individual areas that are listed so comprehensively in Clause 1, the first of which is,

“the reduction of greenhouse gas emissions”,

which I shall pursue in a moment. It goes on to list,

“efficiency in the use of natural resources … natural environment … biodiversity … environmental sustainability”.

We could not have a better list of good things for this bank to invest in.

However, the difficulty is, as the Bill goes on to say, that any investment has to meet only one of those excellent purposes, but there can be conflict environmentally in certain areas over certain actions. For instance, an important coastal reclamation project to ensure biodiversity might produce a negative carbon outcome over the medium to longer term. It is a possibility, although clearly it will not happen all the time. My amendment seeks to ensure that the bank, looking at the position overall rather than at individual investment decisions, has to make sure that we bring down carbon emissions overall and that this is put within the context of the Climate Change Act. I see that as being absolutely essential and I am delighted that the Government have put down their own amendments with a similar requirement, so I look forward to the Minister explaining them in more detail. At this point, I beg to move.

00:00

[Baroness Worthington]

My Lords, we also welcome the fact that the Government have listened to our debate in Committee and have tabled amendments to make more explicit the green purposes of the Green Investment Bank. As has been said many times, with no ability to borrow, the bank can scarcely be described as a bank, and with unclear purposes it might also cease to be green. We welcome the Government’s amendments, but there is a remaining concern. When we discussed this in Committee, we were looking for specific references to the meeting of the UK’s carbon budget under the Climate Change Act 2008. The amendments tabled for consideration today do not contain that explicit reference, which is a great shame, and we hope to reinstate it. References to “global greenhouse gas emissions” may be welcome, but which country, let alone which bank, can truly be expected to make a contribution to such an outcome? The factors influencing global emissions are complex and manifold, and where the UK could make a difference to global emissions is by showing leadership on policy and instruments to tackle climate change. The Climate Change Act was drafted not only with a view to contributing to solving the global problem but to demonstrating leadership at home. The Green Investment Bank has been created to contribute to the latter part as much as the former and therefore the legislation which shapes this decision should refer to our existing, world-leading climate change mitigation legislation. I hope that the Minister will accept these amendments, which seek to achieve this.

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)]

My Lords, I welcome the contributions from my noble friend Lord Teverson and the noble Baroness, Lady Worthington, to this debate, and indeed the cross-party support that there is for the UK Green Investment Bank. The bank will be a key driver of the transition to a green economy and is already making investments in green infrastructure projects. The bank has already committed more than £400 million to projects across a range of sectors, including waste, non-domestic energy efficiency and offshore wind. These investments are illustrative of the impact we expect the bank to have in the coming years.

In turning to the first amendment, I emphasise the large measure of agreement between the Government and noble Lords who have tabled this amendment. We agree that the reduction of greenhouse gas emissions is a key objective for the bank and accept that it would be right to give this objective statutory recognition. However, we want to do this in a way that best reflects the bank’s corporate governance framework and its position as a Companies Act company. Clause 1 sets out five statutory green purposes which, read together, set the parameters of the bank’s activity to ensure that it must always remain green. These green purposes provide an overarching framework for the bank’s green activity while preserving the necessary breadth to adapt to evolving green priorities over the long term. The Government consider that this breadth is essential as there are important activities which are clearly “green”, but may not reduce greenhouse gas emissions, including recycling and improving water quality. We would not want the Bill to be amended in such a way that put doubt on the bank’s ability to invest in these areas, and I welcome noble Lords’ support for this approach.

As I have said, the Government agree that the reduction of greenhouse gas emissions is an important objective for the bank. That is why we have included a statutory green purpose explicitly to this effect, and why we have tabled our own amendments, to which I will turn shortly. However, it is important that we focus on the key objectives for the bank and do not introduce additional requirements that might complicate its decision-making process. We need to ensure that under its constitution, the Bank can operate as a commercial company. This is important because the bank’s impact may be diluted if the board is concerned that the Government or the courts may seek to second-guess its commercial judgments. That is why the Secretary of State has given an operational independence undertaking to the board.

It is equally important that the legislation provides sufficient clarity for the board and does not expose its investment decisions to increased risk of challenge by bringing a clear public element to the Bank’s functions. Furthermore, by adding another test on which the board will have to be satisfied when making investment decisions, this amendment raises the prospect of the legislative framework conflicting with the bank’s own constitution, something we believe is avoided through the Government’s proposed amendments to the Bill.

At the same time, we do not believe that our ambition in this area is any less than that of noble Lords. The Government’s amendments do not refer to a significant reduction in greenhouse gas emissions because we do not believe that it would be possible to give sufficient clarity to the bank’s directors if we were to introduce such imprecise wording. Indeed Amendment 1 would not require the board to make a significant reduction to greenhouse gas emissions. The Government’s preferred approach of making the new obligation part of the company’s objects would, however, give the bank’s directors strong encouragement to maximise the reduction of greenhouse gas emissions, as that would be the most likely way to maximise the success of the company.

The noble Lord, Lord Smith of Kelvin, who is chairman of the UK Green Investment Bank, has said that he supports this approach, and I welcome his letter, which I received a couple of days ago. The noble Lord has been very clear that he welcomes a statutory obligation on the bank in respect of the reduction of greenhouse gas emissions, but has said that it is important that this is achieved in a way that is consistent with the bank’s internal constitution and with the directors’ general duties to the company.

We also agree with noble Lords that it is important that the bank contributes to a reduction in UK greenhouse gas emissions. As this Bill must make provision for the long-term future of the bank, we believe that the best approach would be to achieve this through an amendment to the company’s objects and we intend to make such an amendment shortly. Amendment of the objects after designation will of course require the affirmative resolution of both Houses of Parliament.

Finally, I will comment on two further aspects of this amendment. Amendment 1 would require the board to have regard to the advice and reports of the Committee on Climate Change. I am happy to give a commitment on behalf of the noble Lord, Lord Smith of Kelvin, and the other members of the bank’s board that they will do so. We would, however, much prefer not to impose a specific statutory obligation on the board which might cast doubt on the breadth of the general duty on all directors—under Section 172 of the Companies Act 2006—to have regard to the impact of the company’s operations on the environment.

Secondly this amendment, unlike the Government’s amendments, does not impose a corresponding disclosure requirement on the board. We believe it is important that there is a tailored disclosure obligation on the board in respect of this new requirement to ensure full transparency and accountability. This approach is of course in keeping with the best standards of corporate governance.

I will now turn in more detail to the Government’s own amendments in this area. Amendment 3 requires the Secretary of State to be satisfied that the bank’s objects are such that, in acting consistently with them, the bank’s investment activities—taken as a whole—would be such as the bank considers likely to contribute to a reduction of global greenhouse gas emissions. The new obligation on the board is therefore imposed through the company’s statement of objects in its articles of association. This reflects the approach we have taken in respect of the green purposes and ensures that the new obligation forms part of the directors’ general duties to the company, including the duty to promote the success of the company in line with its objects. We believe that this will be the most effective approach. It also eliminates the possibility of inconsistency with the company’s corporate governance framework and reduces the risk of legal challenge to the board’s investment decisions.

The new provision goes significantly beyond the assurances we have already given in this area and ensures that the bank will continue to focus its investments in areas that will deliver such reductions. As I have said, the noble Lord, Lord Smith of Kelvin, has indicated his support for the Government’s approach.

Amendment 8 would prevent any alteration to the bank’s objects which is not consistent with the requirement for the bank’s investment activities as a whole to deliver a reduction in greenhouse gas emissions. This will ensure that this new obligation will continue to apply even if there were to be a change in the company’s ownership.

The third substantive element is the imposition of a bespoke reporting requirement in respect of the new obligation on the directors to ensure that the bank’s overall investment portfolio reduces greenhouse gas emissions. Previous debates have touched on the bank’s commitment to transparency, and the bank’s board has already agreed that the bank will voluntarily report on the greenhouse gas impacts of its investments. This new reporting requirement will complement that commitment by requiring the bank’s directors to include in their directors’ report an explanation of the steps that they have taken to ensure that the bank’s investment activities would be likely to contribute to a reduction of global greenhouse gas emissions, together with a statement of their views on the likely effect of the bank’s activities on global greenhouse gas emissions. In addition, the bank will be required to report on the greenhouse gas emissions associated with its own activities under the forthcoming changes to the narrative reporting requirements on quoted companies.

Finally, turning to Amendments 4, 9 and 12, the Government strongly believe that any new obligations in this area should be imposed through the company’s constitution rather than through a separate public law requirement, which might not be wholly consistent with the directors’ duties under the company’s constitution. The amendments tabled by the noble Baroness, Lady Worthington, seek to combine the two approaches by imposing an obligation in respect of an Act of Parliament through the company’s constitution. The Government consider that this approach will not deliver the degree of clarity that is needed.

The Climate Change Act 2008 imposes obligations on the Government, not on the UK Green Investment Bank—there is a difference. Reference to this Act in the company’s constitution cannot therefore provide the clarity that the bank’s directors need for effective decision-making. At the same time, I do not believe that these amendments show greater ambition than the Government’s approach.

The Government are proposing that, under the bank’s constitution, the directors will have a general duty to ensure that the bank’s investment activities, taken as a whole, contribute to a reduction of greenhouse gas emissions, both globally and in the United Kingdom. This is not a stand-alone duty but must be read alongside the directors’ general duty to act in the way that they consider would be most likely to promote the success of the company, using the definition of success set out in the company’s objects. The directors would fail in this duty if they were to aim for a very small net reduction in greenhouse gas emissions even if, acting consistently with their other duties, they could achieve a much more significant reduction. We therefore do not believe that an additional obligation linked to Climate Change Act targets would in practice affect the board’s decision-making or the scope of its ambitions in this area.

In conclusion, we agree that the reduction of greenhouse gases will be a key objective for the bank but we wish to ensure that statutory intervention on this point reflects the bank’s position as a Companies Act company and its corporate governance framework. We believe that the Government’s amendments, which will create a requirement through the objects for the bank’s investment portfolio to deliver a carbon reduction and set out in statute the reporting mechanisms that sit behind this requirement, will address noble Lords’ concerns in the way that best reflects the bank’s corporate governance. I therefore ask my noble friend Lord Teverson to withdraw his amendment.

[Lord Teverson]

My Lords, I thank my noble friend the Minister for his explanation of the government amendments and how they relate to the others. I have to admit that bits of them are certainly better than my own amendment. I welcome very strongly the undertaking from the Dispatch Box that there will be regular reports from the board to the Committee on Climate Change. I also welcome the extra disclosures and the fact that alterations to the company’s objectives have to comply with reducing carbon emissions as well, which is an important point.

I have been trying to understand what difference would be made by the addition of the reference to the Climate Change Act proposed by the noble Baroness, Lady Worthington. I like the reference to the Climate Change Act but it is difficult to see, if you are reducing carbon emissions—which is part of the overall objective of the Green Investment Bank—how you would then not be closer to complying with carbon budgets and those requirements.

I am happy with the Government’s response. I thank the Minister for having responded in that way and for making those commitments at the Dispatch Box. I beg leave to withdraw my amendment.

Amendment 1 withdrawn.

Clause 2 : Designation of the UK Green Investment Bank

Amendment 2

Moved by

[Viscount Younger of Leckie]

2: Clause 2, page 2, line 2, leave out “two” and insert “three”

Amendment 2 agreed.

Amendment 4 (to Amendment 3) not moved.

Amendment 3

Moved by

[Viscount Younger of Leckie]

3: Clause 2, page 2, line 9, at end insert—
“(2A) The second condition is that the Secretary of State is satisfied that the Bank’s objects in its articles of association are such that, acting consistently with them, its activities in making, facilitating or encouraging investments in each relevant period would (taken as a whole) be such as the Bank considers likely to contribute to a reduction of global greenhouse gas emissions.
(2B) In subsection (2A), “relevant period” means each financial year of the Bank taken together with all of its preceding financial years.”

Amendment 3 agreed.

Amendment 5

Moved by

[Viscount Younger of Leckie]

5: Clause 35, page 18, line 44, after “in” insert “Part 1 of”

Amendment 5 agreed.

Clause 3 : Alteration of the objects of the UK Green Investment Bank

Amendments 6 and 7

Moved by

[Viscount Younger of Leckie]

6: Clause 3, page 2, line 33, leave out “condition in subsection (3) is met” and insert “following two conditions are met”

7: Clause 3, page 2, line 34, after first “The” insert “first”

Amendments 6 and 7 agreed.

Amendment 9 (to Amendment 8) not moved.

Amendment 8

Moved by

[Viscount Younger of Leckie]

8: Clause 3, page 2, line 39, at end insert—
“( ) The second condition is that the Secretary of State is satisfied that, if the alteration were made, the Bank’s objects in its articles of association would remain such that, acting consistently with them, its activities in making, facilitating or encouraging investments in each relevant period (within the meaning of section 2) would (taken as a whole) be such as the Bank considers likely to contribute to a reduction of global greenhouse gas emissions.”

Amendment 8 agreed.

15:45

Clause 4 : Financial Assistance

Amendment 10

Moved by

[Lord Teverson]

10: Clause 4, page 3, line 24, at end insert—
“(7) It is the duty of the Secretary of State to provide the European Commission with State aid notification concerning the intention to allow the Bank to borrow, including borrowing from the capital markets.
(8) The duty in subsection (7) must be fulfilled no later than 31 December 2013.
(9) In the event the European Commission approves the State aid notification concerning borrowing, it is the duty of the Treasury and of the Secretary of State to permit the Green Investment Bank to begin borrowing from the capital markets no later than 30 June 2015, or, if State aid approval has not been received by that date, no later than one month from the date of approval.”

[Lord Teverson]

My Lords, this is perhaps a weightier issue. When I was looking at the background to this amendment, which is really about the Green Investment Bank’s financial muscle, I was looking for some inspiration on climate change and carbon emissions, and I came across this statement:

“We need to cut our carbon emissions to tackle the challenge of climate change. But the low carbon economy also provides exciting opportunities for British businesses. We will encourage private sector investment to put Britain at the forefront of the green technology revolution, creating jobs and new businesses across the country”.

More important is the next sentence, which says,

“we will create Britain’s first Green Investment Bank—which will draw together money currently divided across existing government initiatives, leveraging private sector capital to finance new green technology start-ups”.

Hallelujah. These statements are from the 2010 Conservative Party manifesto, which is intriguingly entitled Invitation to Join the Government of Britain. As Liberal Democrats, we actually did, so in many ways it was a successful manifesto. The serious point that comes from this is exactly the one that is in those manifesto statements. For a Green Investment Bank to be able to do what it says that it will do, it must be able to lever, not just now but into the future, sufficient funds to meet the vast requirement for green investment that this country needs. As we know, in the energy sector alone that is some £200 billion in generating capacity and in networks over the next 10 years, though we will hope to reduce that through demand-side reduction. But there is a great task to do.

I fully welcome the Government’s commitment to £3 billion of real money at a time when the national accounts are finding it difficult to find spare cash. I strongly welcome, as I have in the past, the availability of this £3 billion. I agree with the chairman of the Green Investment Bank, who said in this Chamber at Second Reading that this was sufficient money for them to get on with, and to start to create a track record for, the bank. It is very important that the Green Investment Bank starts to build up this track record. For a major financial institution, that will take considerable time and very careful investment. I also probably agree that the £3 billion will last until 2015 in terms of commitments, if not actual investment that will go beyond that.

The Government have still not responded to the fact that money is starting to be invested now—and we will arrive at 2015, or maybe 2016, when these commitments are used up, with an investment track record created on the way—but you cannot build up a reputation of trust in a bank, which, as we all know, is essential, unless you know that the doors are going to remain open for business, apart from just collecting the money that has been lent or the investments that have been made on the dividends, beyond three years from now. For anybody who wants to take the Green Investment Bank seriously as a long-term instrument for green regeneration in this country, as was so eloquently described in the Conservative Party manifesto, surely we need to have some reassurance, some positive sign, and some certainty that there will be resources to invest after that period. So far, the sounds that have come out of the Treasury, if not BIS, which sponsors this Bill, is that it is pretty reluctant to make that commitment. That undermines the chairman and the chief executive of the bank, whom I have met. Their appointments are excellent, and I congratulate the Government on them, but we pull the rug from under their feet if we do not assure them that there is a financial future, an investment future and a lending future beyond 2015.

Another area that I shall briefly bring up is that it concerns me to some degree that the £3 billion is going to be available to the Green Investment Bank beyond 2015-16, if that period is needed. To build up a track record in terms of investment, it has to make the right choices. I was very pleased that the Minister underlined the investment independence of the bank. That was a very strong and important message, not just to us but to investors and future users of this fund. It would be a tragedy if the board of the Green Investment Bank felt under pressure to spend that money because otherwise it would lose it. Those pressures will be much less if there is a route to further finance for the future. All this amendment does is to put in a simple way a simple mechanism by which that process starts now. In the finance sector, with extremely long gestation periods for investment in green industries, we need certainty now for the time when this £3 billion runs out. I will be very interested to hear the Minister’s assurances on those areas. I beg to move.

[Baroness Worthington]

My Lords, during the debate in this House much has already been said about the absurdity of creating a bank and then effectively tying its hands behind its back by not allowing it to borrow. The Government’s statistics show that green industries in the UK are bucking the overall trend, showing healthy growth and contributing to the reduction in our balance of trade deficit. The bank could and should be helping to increase this welcome outcome but, apparently in ignorance of this fact, the Government have provided it with only a relatively limited amount of starting capital and have explicitly stated that it cannot borrow until an economy-wide criterion is met. Its ability to plan for the future and to help further strengthen growth in these particular green sectors is therefore severely limited, and it cannot contribute to getting the wider UK economy back on its feet at precisely the time when we need just that. This amendment seeks to ensure that there is a plan in place for the bank’s future development by setting a deadline by which borrowing will be allowed and creating a defined timeline that removes the uncertainty that currently hangs over the bank’s future, allowing it to plan for the future. Doing so helps to ensure that green growth can help to bring the UK’s economy back to good health even as it helps to restore the health of our environment. Denial of borrowing powers or setting a date for borrowing powers shows a lack of commitment, and the bank will be weakened and undermined as a result.

The arguments presented here and in previous discussions have been very persuasive. I hope the Government will accept this amendment. In the event that the noble Lord, Lord Teverson, does not feel able to test the opinion of the House, we will press the issue to a vote.

[Viscount Younger of Leckie]

My Lords, the Government are fully committed to providing the UK Green Investment Bank with the funding it needs to become a successful and enduring green financial institution. In Budget 2011, the Government committed to providing the bank with £3 billion until 2015, and I appreciate the endorsement by my noble friend Lord Teverson of the sufficiency of the initial funding of the bank. This is a significant injection of capital, which would allow the bank to build market confidence and begin mobilising investment in green infrastructure projects. As the noble Lord, Lord Smith of Kelvin, explained in his excellent speech at Second Reading, the bank’s initial priority must be to show the Government and private capital markets that it is a well-run organisation with a good track record, worthy of the injection of more capital or borrowing money from capital markets. The noble Lord, Lord Smith, also made clear that, as chairman of the UK Green Investment Bank, he will approach the Government as a shareholder well before 2015 if he believes that it would be in the company’s long-term interests to borrow, either from Government or from the capital markets, from April 2015.

I believe this is the right approach. The bank will, of course, require additional funding in due course, but it is too early to make commitments about the level and type of funding for the bank from 2015-16 or the precise timing of an application to the Commission in respect of borrowing. We should instead take the necessary steps to ensure that the bank has the confidence of investors and other market players by 2015 and put in place a proper process by which the board can discuss its future funding needs, and how these can best be addressed with its shareholder.

As part of this process we have given a commitment that the Government will seek state aid approval in respect of borrowing from the European Commission before the end of this Parliament. Amendment 10 would go further by setting a statutory timetable for a notification to the European Commission and, subject to this, for permission for the bank to borrow from the capital markets. We do not believe that this is either warranted or wise. The Government should not be committed by statute to making a premature or ill-thought-through application, particularly as this would have cost and resource implications both for the Government and indeed the European Commission.

We should also be clear that the level of bank borrowing will need to be agreed by the Government as part of their future spending plans. We should not be apologetic about this. Any borrowing by the bank would score against the national debt targets and it is essential for sustained growth that the Government maintain tight fiscal discipline. I want to emphasise again, in response to the comments made by my noble friend Lord Teverson, that the Government will consider the full range of funding options for the bank from April 2015, but it is important that we do not run before we can walk. In the light of these points, I hope the noble Lord will agree to withdraw this amendment.

[Lord Oxburgh]

Can I draw the Minister’s attention to the fact that this is not a commitment to borrow? As he is well aware, perception is almost as important as reality in the matter of fundraising. This amendment would send a very clear message to the investment community that the Government are serious about backing this bank.

[Viscount Younger of Leckie]

I thank the noble Lord for his intervention. However, it would put the opportunity to borrow in the Bill, and we do not believe that this is the right thing to do at this stage given that the Green Investment Bank is just starting up. As I said, it needs to be able to walk before it can run.

[Lord Teverson]

My Lords, I thank the Minister for going through that. I understand entirely the issues around public sector borrowing, commitments and national debt and all the areas that are key parts of the coalition’s programme for government. I understand what the Minister is saying about there being a way forward after this time, and welcome the fact that the Government will keep this under review and that it will start to be looked at in some of the future budget forecasting. On that basis, I will give him the benefit of the doubt. It is not an especially strong response to something that is genuinely needed, but I accept the good will of the Government and I beg leave to withdraw the amendment.

15:59

Division 1

Ayes: 186

---

Labour: 145
Crossbench: 31
Independent: 2
Liberal Democrat: 1
Plaid Cymru: 1

Noes: 204

---

Conservative: 117
Liberal Democrat: 55
Crossbench: 23
Ulster Unionist Party: 3
Democratic Unionist Party: 1
Labour: 1

16:12

Clause 5 : Accounts, reports and payments to directors

Amendment 11

Moved by

[Viscount Younger of Leckie]

11: Clause 5, page 3, line 30, at end insert—
“( ) Where an order has been made under section 2, each report prepared by the directors of the Bank for a financial year under section 415 of the Companies Act 2006 must include—
(a) an explanation of the steps that the Bank took in that year to ensure that its activities in making, facilitating or encouraging investments in that year and in any previous financial years would (taken as a whole) be likely to contribute to a reduction of global greenhouse gas emissions, and(b) a statement of the directors’ views on the likely effect of its activities in those years on global greenhouse gas emissions.”

Amendment 12 (to Amendment 11) not moved.

Amendment 11 agreed.

Clause 7 : Conciliation before institution of proceedings

Amendment 13

Moved by

[Baroness Turner of Camden]

13: Clause 7, page 4, line 33, at end insert—
“( ) In the case of alleged unfair dismissal, should the conciliation officer fail to secure a settlement, the claimant may proceed forthwith to an employment tribunal.”

[Baroness Turner of Camden]

My Lords, at Second Reading I expressed concern about the provisions of Clause 7 and subsequent clauses. They seemed to me to be designed to make it as difficult as possible for employees to access employment rights. Indeed, the Government made it clear that they wished to decrease the number of tribunal cases. I accept that many issues arising in the course of employment could be better dealt with through conciliation, such as alleged failure to pay a bonus or holiday pay, but alleged unfair dismissal is not one of those cases.

Loss of a job can be completely destructive to the individual concerned and to the employee’s family as well. It is already necessary for an employee to have at least two years in the employment concerned before being able to claim unfair dismissal. In many cases, the length of time in the employment can be much longer. Dismissal can result in illness, mental breakdown and marriage problems, particularly if alternative employment is hard to find, as it is at present. Many people who lose their jobs at the age of 50 or over are still unemployed a year later. I have known of cases where an individual who loses his job does not immediately tell his family but pretends to go to work at the usual time, spending time in the local library, if there is one, and then returning home at the normal time, pretending that the job still exists.

The loss of a job is life-destroying. For these reasons, the drawn-out procedures recommended in the Bill are quite inappropriate. The individual concerned should have easy access to a tribunal. Even if it does not result in a return to the job, if the individual wins the case there will at least be some compensation. Even if the case is not won, the individual will have had the opportunity to put his or her case to an independent body—a tribunal including lay people with knowledge of working procedures.

This is a human rights issue as well as an employment issue. Therefore I hope that the Government will consider my amendment and agree to adopt it, or something very similar. I beg to move.

16:15

[Lord Young of Norwood Green]

My Lords, I have great respect for my noble friend Lady Turner because she brings not only sincerity but a wealth of experience to these issues. I will be interested to hear the Minister’s response to the amendment.

I want to raise with the Minister the question of funding for ACAS, on which we had an exchange prior to his inauguration in his current role. The noble Lord, Lord Marland, in his response in Committee in relation to funding for ACAS to support the work of the conciliation, said:

“We will produce in the new year a further impact assessment on how this process will work and whether the funding should be upfront, which the noble Baroness asked for. We are working to determine the extent of the funding and how best it is to be provided. I hope that by the time we get to the Report stage in the Chamber, quite a lot of the questions will have been answered”.—[Official Report, 5/12/12; col. GC 198.]

I do not know whether the Minister is in a position to respond, but I look forward to his response.

[Viscount Younger of Leckie]

I thank the noble Lord, Lord Young of Norwood Green, for that question, which I will address in due course.

I recognise that the amendment tabled by the noble Baroness, Lady Turner, is prompted by her concerns that the purpose of this clause is to prevent those who feel that their employment rights have been breached from reaching an employment tribunal. I reassure her that it is not. While it is and will remain the case that those who wish to bring a claim to an employment tribunal should be able to do so, we recognise that, for many, this can be a costly and stressful process. We are therefore committed to providing parties with the opportunity to resolve their disputes without the need for judicial determination, and early conciliation will do just that. However, while it will be mandatory in most cases for prospective claimants to present the details of their case to ACAS in the first instance, the decision to engage in early conciliation will be entirely voluntary.

Where the claimant or, indeed, the respondent declines the offer of conciliation, or where conciliation has failed, there will be no alternative but for the conciliation officer to conclude that settlement is not possible. A certificate will be issued as soon as that point is reached, either within a few days or after one or two weeks, and the prospective claimant will then be able to proceed to tribunal should they wish. Those prospective claimants for whom determination at tribunal is the preferred or only solution will be able to lodge their claim once the certificate has been received. This will be the case for all prospective claimants, not just those with an unfair dismissal claim.

The second amendment proposed by the noble Baroness would have the effect of removing the requirement for the conciliation officer to try to promote the reinstatement or re-engagement of a prospective claimant by the employer or, if that is not what the prospective claimant wants or it is not practicable, to seek to agree an appropriate sum by way of compensation. This is the same requirement that currently rests on conciliation officers in fulfilling their post-claim functions. While I accept that reinstatement or re-engagement may not be an attractive solution to many prospective claimants, that will not be the case for all. It is right, therefore, that the conciliation officer should endeavour to promote such an outcome where it is right to do so, and, where it is not, then seeking to reach an agreed sum by way of compensation could mean that the dispute will not need to come before an employment tribunal.

I turn to the first of the government amendments in this group. Schedule 2 amends various pieces of primary legislation so that the relevant time limits for bringing a tribunal claim will be extended where necessary in order to provide sufficient time for early conciliation to take place so that the claimant is not disadvantaged. Currently, other than in a small number of jurisdictions, claimants have three months from the date of the matter giving rise to the claim in which to lodge the claim with the employment tribunal. The amendments made by Schedule 2 address concerns that the early conciliation process will disadvantage prospective claimants by consuming some of the limitation period and therefore the time in which they have to prepare any claim that they want to lodge with an employment tribunal, and thereby dissuade them from engaging fully with the conciliation offered by ACAS.

Schedule 2 effectively stops the clock for those jurisdictions where early conciliation applies so that the time during which a claim is subject to the early conciliation process will not count for the purposes of calculating the passage of the limitation period for that claim. In addition, where the limitation period would expire during the prescribed period for early conciliation, or within a month after the day on which the ACAS certificate is deemed to have been received, Schedule 2 automatically extends the limitation period for that claim so that the claimant has one calendar month from the deemed date of receipt of the certificate in which to lodge that claim at an employment tribunal.

This amendment changes none of that. It is no more than a technical amendment to correct one of the references in the schedule. Section 18 of the Employment Tribunals Act 1996 lists the claims for which ACAS conciliation is available and, as conciliation is not available for claims in respect of breaches of Section 188A of the Trade Union and Labour Relations (Consolidation) Act 1992, it is therefore inappropriate for the changes to the limitation period made by Schedule 2 to apply to such claims. It is, however, the Government’s intention to amend the list of proceedings in Section 18 by secondary legislation in due course. We will add Section 188A to that list and, when we do so, will ensure that the extension to the limitation period applies in such cases too. Amendment 15 will therefore ensure that the changes made to limitation periods by Schedule 2 apply to the right claims.

I now turn to Amendments 22, 36 and 91, which is our second set of government amendments. As many noble Lords will be aware, a recent judgment of the European Court of Human Rights in the case of Redfearn v UK found that the UK has an obligation to ensure that individuals who have been dismissed on the grounds of political opinion or affiliation are able to bring a claim before an employment tribunal in order that the tribunal can decide whether the dismissal was fair.

Mr Redfearn was dismissed from his job as a bus driver following his election as a British National Party councillor. His work involved transporting passengers, the majority of whom were Asian. There were no complaints about his performance. None the less, his employers took the decision to dismiss him on the grounds that his political affiliation would give rise to considerable anxiety among passengers and their carers, and jeopardise the reputation of his employer.

The European Court of Human Rights considered that it was both reasonable and appropriate for the UK to have a requirement for a qualifying period of service before an employee can bring an unfair dismissal claim. However, the court held that where the reason for the dismissal was the employee’s political opinion or affiliation, the qualifying period, which prevented employees such as Mr Redfearn who had not acquired the qualifying period of service from bringing claims for unfair dismissal, breached the Article 11 right to freedom of association. The court said that where the reason for dismissal was the employee’s political opinion or affiliation, the state should at least allow for an independent evaluation of the proportionality of such a dismissal in the light of all of the circumstances of the case.

Like the majority of people in this country, we in this House do not share Mr Redfearn’s political views, but the protections provided for in Article 11 also extend to those whose views offend, shock or, indeed, disturb. The Government have therefore decided to bring forward this amendment, which will mean that the two-year qualification period will not apply to claims where the dismissal was on the grounds of political opinion or affiliation. Importantly, employers will still be permitted to argue that they had a fair reason for dismissal and that it was reasonable to dismiss for that reason. Dismissals for political reasons will not be automatic unfair dismissals.

Amendment 36 provides that the provision will apply only to claims where the effective date of termination is after the date on which this section comes into force, while Amendment 91 provides that the clause will come into effect two months after the date of Royal Assent of this Bill.

I now turn to government Amendments 16, 35, and 87—the third set of government amendments. The purpose of Amendment 16 is simple: to ensure that the information held by ACAS in the course of performing its duties is properly protected. As noble Lords will know, particularly many of those on the Benches opposite, ACAS undertakes a range of functions in the course of pursuing its general duty of improving industrial relations, including not only the provision of conciliation in individual and collective disputes, but also advice and guidance via its helpline as well as mediation and training. As a consequence, ACAS holds large amounts of information about individuals and organisations that should not, quite rightly, be a matter of public record. The introduction of early conciliation will add further to this pool of information. While ACAS is able to rely on the provisions of the Data Protection Act 1998 and the Freedom of Information Act 2000 to ensure that certain sensitive information is not released, these provisions are not comprehensive enough to safeguard all the records held as part of the operation of early conciliation.

This and previous Governments have taken the view that information relating to respondents in employment tribunal claims should not be made publicly available until the matter is due to come before the tribunal—both to protect employers from unfounded claims that are subsequently struck out and to allow the parties the space to resolve the matter without the need for a hearing. To this end, the register of claims was closed in 2004, a decision that has been reviewed and affirmed by this Government following lobbying for it to be reopened.

There have been a number of requests to ACAS for the release of information relating to claims made to the employment tribunal since the register closed, but these have been refused on the grounds that the information held is a court record. Such a justification will not apply to records held as part of early conciliation and it is therefore necessary to provide ACAS with the protection to allow it to carry out its role with the confidence of those with whom it has contact. The amendment will introduce a prohibition preventing ACAS from releasing specified information, and this will cover information not otherwise protected. While breaching the prohibition carries a criminal penalty, the decision about whether or not to press charges will be a matter for the Director of Public Prosecutions.

Amendment 35 provides that the prohibition will apply only in respect of requests made after the clause comes into force, which, as provided for in Amendment 87, will be immediately on Royal Assent. I hope that noble Lords will agree that this is a necessary step to ensure that ACAS continues to have the trust and respect of all those it serves.

The final amendment in the group, Amendment 38, removes an unnecessary provision from the Bill. The amendment deletes a transitional provision relating to Clause 17 which is no longer required.

I turn to the question raised by the noble Lord, Lord Young of Norwood Green, about whether we can provide further information on additional resourcing required by ACAS. I promised to come back to him. The consultation on implementing early conciliation closed on 15 February and my officials are now considering the responses. The decisions which flow from this will inform the additional resourcing necessary. I can reassure the noble Lord that ACAS will be properly resourced to deliver early conciliation.

I hope that the noble Baroness, Lady Turner, is reassured by what I have said and will therefore withdraw her amendment.

16:30

[Baroness Turner of Camden]

I thank the Minister for that response. The issue is very complicated and one will need to look at the record in some detail. In particular, I noted that in response to my amendment he stated specifically that after certification by the conciliation officer it will be possible for a dismissed employee to make a direct appeal to a tribunal. That is a very thoughtful response to what I said and I am very pleased to have it on the record.

The Minister also seemed to be prepared to make certain other concessions to make it easier for an employee in a dismissal situation—which he seemed to appreciate is a pretty desperate one for many people— to have access to conciliation and to a way of sorting out their problems without necessarily having to sit and wait for a very long time for their case to come before a tribunal. That is all very useful and in those circumstances I am very willing to withdraw the amendment. I will look very carefully at what the Minister said today as I think there are some concessions that I very much welcome. I beg leave to withdraw the amendment.

Amendment 13 withdrawn.

Amendment 14 not moved.

Schedule 2 : Extension of limitation periods to allow for conciliation

Amendments 15 and 16

Moved by

[Viscount Younger of Leckie]

15: Schedule 2, page 85, line 33, leave out “Section” and insert “Where the complaint concerns a failure to comply with a requirement of section 188, section”

16: After Clause 9, insert the following new Clause—
“ACAS: prohibition on disclosure of information
In Part 6 of the Trade Union and Labour Relations (Consolidation) Act 1992 (ACAS etc), after section 251A insert—“251B Prohibition on disclosure of information
(1) Information held by ACAS shall not be disclosed if the information—
(a) relates to a worker, an employer of a worker or a trade union (a “relevant person”), and(b) is held by ACAS in connection with the provision of a service by ACAS or its officers.This is subject to subsection (2).(2) Subsection (1) does not prohibit the disclosure of information if—
(a) the disclosure is made for the purpose of enabling or assisting ACAS to carry out any of its functions under this Act,(b) the disclosure is made for the purpose of enabling or assisting an officer of ACAS to carry out the functions of a conciliation officer under any enactment,(c) the disclosure is made for the purpose of enabling or assisting—(i) a person appointed by ACAS under section 210(2), or(ii) an arbitrator or arbiter appointed by ACAS under any enactment,to carry out functions specified in the appointment,(d) the disclosure is made for the purposes of a criminal investigation or criminal proceedings (whether or not within the United Kingdom),(e) the disclosure is made in order to comply with a court order,(f) the disclosure is made in a manner that ensures that no relevant person to whom the information relates can be identified, or(g) the disclosure is made with the consent of each relevant person to whom the information relates.(3) Subsection (2) does not authorise the making of a disclosure which contravenes the Data Protection Act 1998.
(4) A person who discloses information in contravention of this section commits an offence and is liable on summary conviction to a fine not exceeding level 5 on the standard scale.
(5) Proceedings in England and Wales for an offence under this section may be instituted only with the consent of the Director of Public Prosecutions.
(6) For the purposes of this section information held by—
(a) a person appointed by ACAS under section 210(2) in connection with functions specified in the appointment, or(b) an arbitrator or arbiter appointed by ACAS under any enactment in connection with functions specified in the appointment, is information that is held by ACAS in connection with the provision of a service by ACAS.””

Amendments 15 and 16 agreed.

Clause 10 : Decisions by legal officers

Amendment 17 not moved.

Clause 11 : Composition of Employment Appeal Tribunal

Amendment 18

Moved by

[Viscount Younger of Leckie]

18: Clause 11, page 7, leave out lines 35 to 38

[Viscount Younger of Leckie]

My Lords, Clause 11 attracted a great deal of debate in Grand Committee. Much of it was concerned with the proposal that judges should sit alone in the Employment Appeal Tribunal as a matter of course, where there is a divergence of opinion between the Government and noble Lords opposite. The concerns expressed by noble Lords then were similar to those raised when the Government brought forward measures last year to allow judges to sit alone to hear unfair dismissal cases in the employment tribunal. Those concerns centred on the loss of the contribution that lay members would make to determining what was fair and reasonable conduct by parties, based on their knowledge of social relationships in the workplace.

This clause relates not to employment tribunals but to the Employment Appeal Tribunal. As noble Lords will know, the EAT differs from the employment tribunal in that, unlike the tribunal, where cases will often involve matters of fact and require an assessment of reasonableness, appeals before the EAT are taken solely on points of law. The current practice is for the EAT panel that is hearing proceedings to be constituted such that it mirrors the composition of the tribunal from which the appeal arises—so, if the matter is heard by a judge sitting with two lay members in the employment tribunal, the EAT will sit with a judge and two members.

It is the narrower focus of the EAT on points of law that persuades us that lay members have a much less valuable role to play here than in the employment tribunal itself. As the noble Lord, Lord Young of Norwood Green, said in the debate on changing the composition of the employment tribunals for unfair dismissal, lay members,

“bring real knowledge and understanding of industrial situations … real experience in a wide range of industries and occupations”.—[Official Report, 28/3/12; cols. 1449-50.]

However, this is not a function or a requirement of the EAT.

I am sure that noble Lords will agree that it is incumbent on government to ensure that we use our resources—both judicial and lay member—wisely. The Government are committed to creating a tribunal system that not only is efficient for users but offers value for money for the taxpayer. Indeed, I remind noble Lords that the Equality Act covers a range of sectors, including service provision, property rights and education, and only one of these—work—is dealt with in the employment tribunal system. The remaining equality sectors are dealt with in the civil courts, where judges sit, and have always sat, alone.

There is, however, an issue on which we can agree, and that is in relation to the exercise of the Lord Chancellor’s order-making power. That will allow the Lord Chancellor to order that specified proceedings should be heard by a panel, rather than by a judge alone. However, as the noble Lord, Lord Young of Norwood Green, rightly observed in Grand Committee, the drafting of the Lord Chancellor’s power could allow an order to be made specifying the number zero. For example, the Lord Chancellor could by order provide that appeals in discrimination cases should be heard by a judge and zero employer-representative and zero worker-representative members. Such an order would therefore remove the judicial discretion that exists in the clause to direct that a panel should hear an appeal. While the Government currently have no plans to use the order-making power, we had never intended that any Lord Chancellor should be able to use the power in this way. Amendment 19 inserts into the clause a requirement for the Lord Chancellor to specify in any order whether the panel should consist of two or four appointed members.

The noble Lord, Lord Young of Norwood Green, also raised the further concern that the power as drafted does not specify that the panel should comprise an equal number of employer and worker representatives. Again, the Government have never intended that any Lord Chancellor should be able to constitute uneven panels. My noble friend Lord Marland recognised the genuine concerns raised by noble Lords and agreed to look again at the wording. Amendment 20 honours this commitment and amends Clause 11 to restrict the power so that any order made by the Lord Chancellor must provide for an equal number of employer-representative and worker-representative members. The provision in Amendment 20 would also apply where a judge gives a direction for a panel; the judge will need to direct an equal number of employer-representative and worker-representative members. As a result, lines 35 to 38 on page 7 of the Bill are no longer needed and Amendment 18 deletes that duplication. I beg to move.

[Baroness Turner of Camden]

My Lords, I listened with interest to the Minister; I was very much opposed to Clause 11 at Second Reading and I am still not at all happy about it. I have always believed that the involvement in procedures of lay members is a matter of much interest to us all. The workers who appear before tribunals have always been concerned that they should include lay members with some knowledge of working practices, particularly at appeal stage. The value of the involvement of lay members with knowledge of workplace procedures and conditions is widely respected. The individual claimant knows that the appeals tribunal contains people with a knowledge of employment relations and this gives the claimant confidence in the proceedings.

I do not know why the Government are proceeding along these lines, except that there is apparently an estimated saving. However, the saving is only between £120,000 and £130,000 a year, which is not all that much if it results in a loss of confidence in the proceedings. The value of lay members has been specifically recognised by the Court of Appeal. I have been approached by lay members who are very concerned that their services may be dispensed with. They referred me to the case of Balfour Beatty and Wilcox, where the contribution made by lay people has been directly acknowledged and congratulated.

As it stands, Clause 11 should not be part of the Bill; there is no real good reason to depart from present practice. I accept that the Minister has already offered some modification, but I still believe it is necessary to involve lay people. They make a contribution to the procedures and are widely respected, by employees appearing before them and by employer organisations. I can see no reason for dispensing with them in the present procedures. I do not think that the savings involved are worth what may result in a total abandonment of the existing procedures which have served us well and which have the respect of the people who appear before them. We need more concessions from the Minister about what Clause 11 actually means and how it will operate.

[Baroness Brinton]

My Lords, I support many of the points made by the noble Baroness, Lady Turner. Indeed, I made some of them in Committee. One of my particular concerns was the issue of diversity and ensuring that lay members were able to inform a judge of their experience of employment practice and diversity than may be apparent to a judge sitting on his or her own.

I welcome the government amendments. In particular, it is extremely helpful to have spelt out the equality of employer and employee representatives, whether it is two or four. I am grateful for that.

I have a question based partly on the noble Viscount’s comments and on the concern of the noble Baroness, Lady Turner, about what the government guidelines will be for when a judge may not sit on their own. I reiterate my support for the government amendments—they go some way—but we still need some clarification.

[Lord Young of Norwood Green]

My Lords, I thank the Minister for addressing the specific concerns that we raised in Committee. I wish to put that on record. Obviously, I share some of the concerns of my noble friend Lady Turner, which were echoed in part by the noble Baroness, Lady Brinton, who, in her usual forensic way, rightly drew to our attention not only the question of diversity but the guidance that should be issued. I, too, will be interested to hear the Minister’s response on those aspects.

[Viscount Younger of Leckie]

I thank the noble Baroness, Lady Turner, supported by my noble friend Lady Brinton, for setting out some of her concerns about this clause. I have certainly listened very carefully to the noble Baroness, Lady Turner, who spoke so eloquently.

The Government have also listened to noble Lords’ concerns about the Lord Chancellor’s order-making powers. I have already spoken about the amendments that we have brought forward to address the points that noble Lords made in Grand Committee. In answer to the question raised by my noble friend Lady Brinton, we have no plans to steer the Lord Chancellor on the necessity to have a panel and to prescribe proceedings as such. However, we are working on that important point that she made and on the diversity point, which I also want to pick up on.

I should also make the point that there is no evidence to suggest that judges sitting alone—this is implicit in the noble Baroness’s question—will have a negative impact on the determination of discrimination appeals, which can be brought only on a point of law. This might address the question that was raised by the noble Lord, Lord Young. The Equality Act also covers a range of sectors, including service provision, property rights and education. Only one of these, work, is dealt with in the employment tribunal system. The remaining equality sectors are dealt with in the civil courts where judges sit, and have always sat, alone.

I hope that I have been able to reassure the noble Baroness, Lady Turner, to some extent—I am not sure that I have—and other noble Lords that this measure, which is a proposal that was supported by 60% of those responding to the Resolving Workplace Disputes consultation, is not intended to undermine the value that lay members bring to the tribunal system as a whole. Nor will it have the adverse consequences that they fear.

[Baroness Brinton]

My Lords, I wonder whether the noble Viscount might write to those who have spoken in this debate to give us some inkling of where a judge would be expected not to sit on their own. I am struggling to see where the dividing line is. I apologise for raising this again, as I raised it in Committee. It just feels too far in the future to be able to be confident on the issue.

16:44

[Baroness Turner of Camden]

My Lords, I support what the noble Baroness has just said. It is very important that we should know what area of diversity, if we can call it that, or what issues would mean that it would be appropriate for a judge not to sit on his own but to have the support of lay people. I can think of a whole range of issues that it would be appropriate in such circumstances for lay people sitting on the appeal tribunal to deal with. Perhaps the Minister could indicate what those issues would be.

[Viscount Younger of Leckie]

It may be helpful, in answering the question for my noble friend Lady Brinton, to say that the guidance for employment judges to consider when deciding to sit alone, which I agree is important, is set out in the Employment Tribunals Act 1996. That is unchanged. It requires them to consider the likelihood of a dispute arising on the facts that suggests lay member involvement could be beneficial. It is for them to decide. Indeed, the likelihood of issues of law arising that would suggest that a judge sitting alone is sensible is another factor. He would need to take account of the views of the parties and what other proceedings might be heard concurrently. However, to answer the noble Baroness’s question in depth, I think it is best that I write to her and other noble Lords concerned over this particular issue on guidance.

[Baroness Brinton]

I thank the noble Viscount for that response. It was helpful. I look forward to receiving the letter.

Amendment 18 agreed.

Amendments 19 and 20

Moved by

[Viscount Younger of Leckie]

19: Clause 11, page 8, line 2, leave out “a specified number of appointed members” and insert “either two or four appointed members”

20: Clause 11, page 8, leave out lines 4 to 6 and insert—
“(7) In proceedings heard by a judge and two or four appointed members, there shall be an equal number of—
(a) employer-representative members, and(b) worker-representative members.”

Amendments 19 and 20 agreed.

Amendment 21 not moved.

Amendment 22

Moved by

[Viscount Younger of Leckie]

22: Before Clause 12, insert the following new Clause—
“Dismissal for political opinions: no qualifying period of employment
In section 108 of the Employment Rights Act 1996 (qualifying period of employment), after subsection (3) insert—“(4) Subsection (1) does not apply if the reason (or, if more than one, the principal reason) for the dismissal is, or relates to, the employee’s political opinions or affiliation.””

Amendment 22 agreed.

Clause 12 : Confidentiality of negotiations before termination of employment

Amendment 23

Moved by

[Lord Young of Norwood Green]

23: Clause 12, leave out Clause 12

[Lord Young of Norwood Green]

My Lords, in Committee a number of noble Lords expressed our concern about confidentiality in settlement agreements and the inability of these agreements to be raised at an employment tribunal in the future. We felt that this was a totally wrong direction for the Government to proceed in. The worst aspect of this would amount to what we consider to be a charter for bullies. As the legislation currently stands, despite the attempts to introduce a number of amendments, which were rejected by the Government, there is no protection. We believe that this is a thoroughly unsatisfactory approach that will be detrimental to basic employment rights in relation to potentially unfair dismissal. It is on those grounds that we seek to test the opinion of the House.

[Baroness Turner of Camden]

My Lords, I support my noble friend’s amendment to Clause 12. It would make it easier for employers to end employment by offering the individual a sum of money in return for a compromise agreement. The clause extends the “without prejudice” rule, which exists where a compromise agreement is offered as a means of ending an existing dispute. Any negotiations cannot then be considered by an employment tribunal. Clause 12 enables an employer to offer a sum of money and a compromise agreement in return for leaving employment when there is no pre-existing dispute. These negotiations will remain confidential and cannot be admitted as evidence before an industrial tribunal.

The TUC opposes these provisions as it believes that they will send a clear signal to employers that it is acceptable to sack employees without following a fair dismissal procedure. The provisions are also complex and can lead to legal wrangles, particularly where an employer has not acted properly in the negotiations and could be accused of discrimination. For these reasons, I support my noble friend.

[Viscount Younger of Leckie]

My Lords, this clause has been the subject of substantial debate in both Houses, and the noble Lord, Lord Young, has given notice of his intention to oppose it. I hope that I will be able to answer the concerns that have been raised. The clause forms part of a package of measures to facilitate the appropriate use of settlement agreements, encouraging the resolution of workplace disputes outside tribunals. Settlement agreements, or compromise agreements as they are currently known, offer a consensual and mutually beneficial outcome for both parties as distinct from the “no fault dismissal” idea, which we have been clear the Government are not taking forward. The clause does not affect an individual’s right to bring an unfair dismissal claim using other evidence or to bring other types of claim.

This legislative change builds on an existing system that has been successfully used for many years by many employers. It aims to provide additional certainty to enable a wider range of employers, particularly smaller businesses without in-house HR functions, to use settlement agreements with more confidence and in an appropriate way. We are clear about the importance of guidance for employers and individuals, an issue that has been the subject of substantive debate in both Houses. We have recently published our response to the Ending the Employment Relationship consultation on the principles to underpin the use of settlement agreements, and this will inform the development of substantive guidance that we will publish in support of the clause.

In response to concerns raised by all groups, we will include in a new statutory code an explanation of “improper behaviour” to ensure that employees understand the protection and employers are confident that they are acting appropriately when negotiating settlement. A draft statutory code is currently out for public consultation and the Government are working closely with businesses, ACAS and other stakeholders to ensure that the system is understood and can be easily and successfully used by employers and employees. This clause is part of a package of measures to better enable employers and employees to understand and use the existing system of settlement agreements as a mutually beneficial way of resolving workplace issues without resorting to a costly and distressing tribunal process. I therefore commend this clause to the House.

[Lord Young of Norwood Green]

My Lords, I have listened carefully to the Minister, but I have found little in his words to alter my opinion. He talked about small firms that do not have HR departments. That is part of the problem. This provision is somehow meant to be a remedy for that situation. It does not matter what size a company is. Small firms often fall down because they think that HR is something that they do not have to have any expertise in. I would submit that no matter what the size of the company, if it does not understand its obligations to an employee, eventually the situation is going to end in tears. I do not believe that what the Government are proposing is fair and balanced, and we do not believe that it will encourage employers to be more professional in the way they treat their employees. For these and the reasons we expressed at length in Committee, I wish to test the opinion of the House.

16:54

Division 2

Ayes: 194

---

Labour: 157
Crossbench: 27
Independent: 3
Plaid Cymru: 1

Noes: 227

---

Conservative: 137
Liberal Democrat: 62
Crossbench: 23
Democratic Unionist Party: 1
Ulster Unionist Party: 1

17:07

Clause 14 : Power of employment tribunal to impose financial penalty on employers etc

Amendment 24

Moved by

[Viscount Younger of Leckie]

24: Clause 14, page 10, line 16, at end insert—
“( ) The tribunal shall have regard to an employer’s ability to pay—
(a) in deciding whether to order the employer to pay a penalty under this section;(b) (subject to subsections (2) to (4A)) in deciding the amount of a penalty.”

[Viscount Younger of Leckie]

My Lords, I shall speak also to Amendments 25 to 28. I turn to these amendments as the provision for the employment tribunals to impose financial penalties on employers. This is a response to points raised in Grand Committee. Much of the debate on this clause related to amendments tabled by noble Lords opposite in Grand Committee, which were intended to probe the practical application of the new regime, including the reasons for setting the level of penalty at 50% of the value of the award, and to seek that failure to follow grievance or disciplinary procedures be prescribed as an aggravating feature for the purpose of attracting a penalty. Further amendments sought to address concerns, which we share, about the non-payment of tribunal awards.

As my noble friend Lord Marland explained at the time, the decision to make the penalty 50% of the value of the award was informed by the national minimum wage penalty regime introduced by the previous Government, where the level of the penalty is also set at 50%. While we sympathise with the intent behind the amendment to specify that a failure to follow grievance and disciplinary procedures should constitute an aggravating feature, the Government are clear that it should be for the tribunal to determine what constitutes aggravating features, based on the facts of the case before it.

We are at one, however, with the desire to improve the position on the non-payment of tribunal awards. Proposals put forward by noble Lords opposite in Committee attempted to use the financial penalty regime to address non-payment. While the intent was clear, the effect would have been limited, in that penalties would be imposed in fewer cases than those in which awards go unpaid. While non-payment is not a matter for this Bill, I can reassure noble Lords that we are taking action to address this through research into the root causes of the problem and changes to employment tribunal process.

These government amendments are a further area where we share a common view. The noble Baroness, Lady Hayter, set out in Grand Committee her concerns about the unintended consequences that might arise in the event that a financial penalty was imposed on an insolvent business. She argued that for companies in insolvency the objective of the financial penalty regime, which is to encourage employers to have greater regard to their employment obligations, was not relevant and that there was a risk, without a specific exemption, that the tribunal may choose to levy a penalty. If that were the case, the Exchequer would then have a claim on the assets of the company, leaving less available for distribution to other creditors. The potential liability might also threaten a company rescue, as the penalty may rank as an expense of an administration.

As we have made clear, the Government do not want to fetter judicial discretion in the exercise of this power by tribunals. We agree with the noble Baroness that there may be no merit in imposing a penalty where the respondent is insolvent, but we do not believe that it is necessary to carve out an exemption in statute. Instead, Amendment 24 inserts a provision in the clause to require tribunals to have regard to the ability of the respondent to pay when deciding whether a penalty is appropriate.

Such a power, which already exists with regard to cost and deposit orders, will allow the tribunal to have regard to the circumstances of the business and the wider impacts of a decision to impose a penalty. It will also apply more widely than to just insolvent companies and so could be relevant to those on the brink of insolvency, for which the imposition of a penalty might well be the final straw.

My noble friend Lady Brinton also raised concerns in Grand Committee about the effect of the £100 floor where there is a multiple claim against a large employer, particularly in the event that the employer goes bust. We agree that there are real concerns here which the previous amendment does not wholly address in so far as it does not provide the flexibility for tribunals to impose any penalty when, in fact, one may be both appropriate and affordable. Amendment 25 therefore effectively removes the floor of £100 in respect of multiple cases only, and tribunals will be able to use their discretion both as to whether a penalty is appropriate and as to the level of that penalty, subject, of course, to the upper limit of £5,000. So, if a group of 400 employees brought a multiple equal pay claim against their employer and the tribunal found that there had been a breach, with aggravating features, the tribunal could decide impose a financial penalty. The change we are making through this amendment will mean that instead of the requirement to impose, in those circumstances, a penalty of at least £40,000, based on the original provision that set a minimum of £100 per claimant, the tribunal will have discretion to determine what level of penalty is appropriate. The upper limit of £5,000 per claimant will continue to apply.

Amendments 26, 27 and 28 make drafting and consequential changes to the clause, but they do not alter its effect. The principles of a minimum and maximum amount of financial penalty continue to apply, with penalties levied at 50% of the value of the award in single claims and up to 50% of the value of each award in multiple claims. I believe these amendments constitute a real improvement to the drafting and effect of the clause, and I beg to move Amendment 24.

[Baroness Brinton]

My Lords, I rise briefly to thank the noble Viscount for the amendments that he has laid before the House today. I think they go a considerable way to allaying the concerns and fears I had.

[Baroness Hayter of Kentish Town]

My Lords, if it will not embarrass the Minister too much, this side must also add our thanks for these amendments which, to a certain extent, take account of the issues I raised about companies in formal insolvency which risked a penalty being made by a tribunal, given that companies in insolvency clearly have financial difficulties. This is partially dealt with by Amendment 24, and we are grateful for that.

However, there are two other issues on which I would like the Minister to respond because the amendment does not prevent a tribunal levying a penalty on a company in formal insolvency. One is that in formal insolvency, the old management is no longer there. It is not in charge; it is a new, quite separate, professional insolvency practitioner, who has been brought in to sort things out. Therefore, any penalty would not be levied on the people who had done wrong, if you like, and had caused the tribunal’s award. Nor could it act as a deterrent to repeating the breach because the company would now be in someone else’s hands. The only effect would be to deplete the assets available for the creditors, including the employees, as suggested by the Minister.

17:15

The other point concerns the need for certainty for any prospective purchaser of the business. Even the possibility of a penalty, of some indeterminate size, being outstanding against a company for the actions of the former directors makes it that bit harder for an administrator to sell on the business, when the whole point of the insolvency process is to retain companies and maintain employment. Any additional liability could lead an insolvency practitioner to conclude that trading in administration is too risky.

We assume that the Government consider tribunal chairs best placed to make a decision on the facts in each case. However, with businesses in formal insolvency the impact of the penalty is not dependent on the circumstances of the case because the cost will never be borne by the perpetrators but by the creditors. The new clause, which we welcome, ensures that the tribunal must consider the company’s finances, but it does not lift the threat of a penalty against the wrong target and does not bring certainty to a potential buyer.

I therefore have two questions for the Minister. First, can he confirm that the Government intend to ensure that businesses in the formal insolvency process, where there is, by definition, an inability to pay, should not have to have these penalties applied to them? Secondly, given the professional time costs involved in attending and presenting evidence to a tribunal—again indicated in the Minister’s response—will the Minister confirm that written evidence that a business is in a formal insolvency process will be sufficient to demonstrate an inability to pay?

[Viscount Younger of Leckie]

My Lords, I do not think that I am too easily embarrassed but I am pleased indeed that these amendments largely address the issues raised by noble Lords, particularly those opposite, in Grand Committee. I am pleased that we all, as a House, feel that there is an improvement to the provisions on the financial penalties, and I commend these to the House.

I would like to address, where I can, a number of questions raised by the noble Baroness, Lady Hayter. Where I cannot address the questions—some were a little technical—I will of course write to her and copy in other Peers who are involved. First, the noble Baroness raised the issue of the amendment failing to address the question of companies in formal insolvency. I think the gist of the question was that the levy would not be imposed on the persons who did wrong. The tribunals are well used to hearing arguments around the ability to pay and it is they, we believe, who are best placed to take a view on whether the imposition of a financial penalty is appropriate in a particular set of circumstances. It will not always be the case that a penalty should not be imposed on an insolvent business—for example, a company that has been trading in administration for many months and yet has still failed to comply with its obligations. I also take the point that there needs to be certainty for purchasers, which was a further point the noble Baroness raised. I think it is best to reply to that very specific question in writing. On that note, I commend these amendments to the House.

Amendment 24 agreed.

Amendments 25 to 28

Moved by

[Viscount Younger of Leckie]

25: Clause 14, page 10, leave out lines 20 to 34 and insert—
“This section does not apply where subsection (3) or (4A) applies.
(2A) Subsection (3) applies where an employment tribunal—
(a) makes a financial award against an employer on a claim, and(b) also orders the employer to pay a penalty under this section in respect of the claim.(3) In such a case, the amount of the penalty under this section shall be 50% of the amount of the award, except that—
(a) if the amount of the financial award is less than £200, the amount of the penalty shall be £100;(b) if the amount of the financial award is more than £10,000, the amount of the penalty shall be £5,000. (4) Subsection (4A) applies, instead of subsection (3), where an employment tribunal—
(a) considers together two or more claims involving different workers but the same employer, and(b) orders the employer to pay a penalty under this section in respect of any of those claims.(4A) In such a case—
(a) the amount of the penalties in total shall be at least £100;(b) the amount of a penalty in respect of a particular claim shall be—(i) no more than £5,000, and(ii) where the tribunal makes a financial award against the employer on the claim, no more than 50% of the amount of the award.But where the tribunal makes a financial award on any of the claims and the amount awarded is less than £200 in total, the amount of the penalties in total shall be £100 (and paragraphs (a) and (b) shall not apply).”

26: Clause 14, page 10, line 37, leave out “(4)” and insert “(4A)”

27: Clause 14, page 11, line 45, leave out from “(2)” to end of line 46 and insert “, (3) or (4A) by substituting a different amount”

28: Clause 14, page 11, line 47, leave out “(4)” and insert “(4A)”

Amendments 25 to 28 agreed.

Amendment 29

Moved by

[Lord Low of Dalston]

29: Before Clause 15, insert the following new Clause—
“Personal liability for victimisation on the ground that a worker has made a protected disclosure
After 47B of the Employment Rights Act 1996 (protected disclosure) insert—“47BA Liability of employees and agents
(1) A worker has the right not to be subjected to any detriment by any act by an employee or agent of his employer, done on the ground that the worker has made a protected disclosure.
(2) It does not matter whether in any proceedings the employer is found not to have contravened this Act by virtue of section 47BB(4).
(3) A does not contravene this section if—
(a) A relies on a statement by the employer or principal that doing that thing is not a contravention of this Act, and(b) it is reasonable for A to do so.47BB Liability of employers and principals
(1) Anything done by person A in the course of A’s employment must be treated as also done by the employer.
(2) Anything done by an agent for a principal, with the authority of the principal, must be treated as also done by the principal.
(3) It does not matter whether that thing is done with the employer’s or principal’s knowledge or approval.
(4) In proceedings against A’s employer B in respect of anything alleged to have been done by A in the course of A’s employment, it is a defence for B to show that B took all reasonable steps to prevent A—
(a) from doing that thing, or(b) from doing anything of that description.””

[Lord Low of Dalston]

My Lords, Amendment 29 would add to the protection given to whistleblowers, or those who raise concerns about malpractice or wrongdoing at work by inserting into the Employment Rights Act 1996 provisions which make it clear that a worker has a right not to be subjected to a detriment by a co-worker for making a protected disclosure. It would create vicarious liability on the employer by providing that anything done by a co-worker in the course of his employment, or by an agent for a principal with a principal’s authority,

“must be treated as also done by the”,

employer or principal. The amendment also provides that it does not matter,

“whether that thing is done with the employer’s or principal’s knowledge or approval”.

However, it is a defence for the employer to show that he took all reasonable steps to prevent the co-worker behaving in that way.

It is not difficult to see the need for such provisions, which are modelled on provisions in the Equality Act 2010, given all that we had heard recently about the pressure brought to bear on whistleblowers in the NHS. I do not intend to beat the arguments to death, especially because I am delighted to be able to say that there have been constructive discussions since Committee stage, in which the Government have decided to accept the general thrust of my amendment and come forward with their Amendment 34, which we will no doubt hear about in a moment. This is very much to be welcomed. The Government having brought forward their own amendment, I am happy to withdraw my amendment in due course, provided that the Minister can give me some clarification on the following point.

A concern has been raised by some trade unions regarding the personal liability of workers as set out in proposed new subsection (1E) in government Amendment 34. This allows a defence to personal liability where the employer asked the worker to do a detrimental act against a co-worker—that is to say, where the co-worker relies on the statements of the employer and it is reasonable for them to do so. This, it is feared, impliedly creates personal liability in a way that no other part of the section does. There are some concerns that this will lead to individual workers being sued.

Perhaps it would be helpful to the House if the Minister were now to outline the purpose and scope of his amendment. I beg to move.

[Viscount Younger of Leckie]

I thank the noble Lord, Lord Low, for suggesting that I intervene at this early stage in the debate and set out the effect of government Amendment 34. It would introduce the principle of vicarious liability into the whistleblowing protections. It has exactly the same purpose and effect as the noble Lord’s amendment. However, we feel that the drafting of the government amendment better achieves our shared objective and mirrors the provisions in the Equality Act on vicarious liability for discrimination. I look forward to further comments that the noble Lord, Lord Low, may make. I have noted some questions that he has raised, which I will attempt to address later in this debate.

[Baroness Turner of Camden]

My Lords, briefly, I have tabled Amendment 30 in this group because the TUC wrote to me and pointed out, among other things, that if you left the Bill as it stood, with the protected disclosure being limited to something in the public interest, that could well be construed to mean that a worker would not be protected if he or she made a disclosure affecting the provisions on health and safety at work. The TUC wanted to make sure that a worker would be protected if he made a disclosure in regard to the health and safety and general interests of the workforce; that is the intention of my amendment. However, when I looked at the amendment moved by the noble Lord, Lord Low, it seemed to me that it covered practically everything, including that which I was intending to cover in my amendment. Therefore, it had been my intention not to move my amendment and to say that, instead, I supported Amendment 29 absolutely and completely. That is still my position.

[Lord Touhig]

My Lords, I warmly welcome the Government’s approach on the prevention of detriment from co-workers as set out in Amendment 34. This seems to well support the amendment tabled in the names of the noble Lords, Lord Low of Dalston and Lord Young of Norwood Green, and myself. It is good that there has been some agreement that there should be protection from bullying and harassment by co-workers, and that our concerns have been listened to. Right at the beginning, I thank the Minister, the noble Viscount, Lord Younger of Leckie, his predecessor, the noble Lord, Lord Marland, and their officials, who have actually engaged in discussions with a number of people. We have made good progress as a result.

In Grand Committee, I referred to the evidence of staff nurse Helene Donnelly at the Mid Staffordshire NHS inquiry. She was a whistleblowing nurse who told the Francis inquiry of how she was physically threatened by colleagues after raising concerns about the standards in the accident and emergency department. Robert Francis, in his report, drew upon her case and said that Mrs Donnelly was offered no adequate support. She had to endure harassment from colleagues and eventually left for other employment. Clearly, such treatment was likely to deter others from following her example; she was aware of colleagues on whom her experience had this effect.

I do not intend to detain the House, but this lady suffered all sorts of threats; she was told by colleagues, “We know where you live”, and she became so nervous that her parents or husband had to meet her in the car park when she left the hospital at night so that she would not have to walk across the car park alone in the dark. On one occasion, another nurse followed her into the toilet in their locker room, locked the door, demanded to know if she had any problems with her and began threatening her if she did. I fear that this is an example that could be repeated in many parts of the country. It is important that we make sure that people are protected when they act in the public interest and blow the whistle.

This has come up again recently. Despite the progress that we have made over the years in supporting and protecting whistleblowers, the recent case of Gary Walker, a former National Health Service chief executive, highlights another area of the law that needs to be examined, and that is gagging clauses. Mr Walker was a former chief executive of the United Lincolnshire Hospitals NHS Trust who raised a concern about patient safety, namely the pursuit of targets for non-urgent cases within the hospital to the detriment of urgent cases. The facts were similar to those of Mid Staffordshire, and following the publication of the Francis report, an inquiry was ordered into the United Lincolnshire Hospitals NHS Trust.

I am concerned about the use of public money, because I understand that Stephen Barclay MP, a member of the Public Accounts Committee in the other place, has received confirmation that £15 million of public money has been used to gag whistleblowers. I urge the Government to do more on this issue. An amendment on gagging clauses was laid in Committee, and I invite the Minister to look at it because, in my view—and I am sure that many in the House would agree—gagging people who work in the public service and have issues they need to bring to public attention, and using public funding to stop them from doing that, is quite improper. We should do everything we can to put a stop to it. This is not just a waste of public money: it is an abuse and a threat to our liberties.

17:29

[Lord Young of Norwood Green]

My Lords, I, too, welcome government Amendment 34, which implements protections that we called for in Committee. The amendment took us a bit by surprise considering that in Committee the Government were so adamant that the amendment was not necessary and when we met the Minister just a fortnight ago, we had no indication that they had changed their mind. However, no matter when the epiphany occurred, we are delighted that the Government have now conceded that specific protection is needed. I was going to say that we should not look a gift horse in the mouth, but given the problem with horses and food standards perhaps that is not an appropriate metaphor.

As the noble Lord, Lord Low, has explained, Amendment 29 would place vicarious liability on employers for the actions of their employees where bullying or harassment of whistleblowers by their co-workers occurs. My noble friend Lord Touhig gave the details of the case involving nurse Helene Donnelly, so I will not reiterate them. However, one of the key findings of the Robert Francis inquiry into the Mid Staffordshire NHS Foundation Trust was around the culture of intimidation and lack of transparency which prevented more individuals speaking out and blowing the whistle on bad practice, which ultimately led to patient safety being put at risk.

Throughout the passage of this Bill, we have argued that the thrust of Clause 15 is to increase the barriers to protected disclosures just at the time when events from the Savile case to Mid Staffs show us that we should be making it easier, not harder, for individuals to feel able to blow the whistle on serious misconduct. We welcome the fact that on this area, as with the Government’s later amendment around good faith, and on blacklisting, the Government have listened to concerns raised across this House and in another place and have brought forward amendments to change the direction of travel. Nevertheless, as has been mentioned by other noble Lords during this debate, there is a need for the Government to clarify the extent to which liability attaches to the worker who perpetrated the harm. The judgment of Lord Justice Elias in the case of NHS Manchester v Fecitt makes apparent the need for clarity on this point, as the case turned on the fact that protection afforded under PIDA for whistleblowers was against retributive action by the employer and not co-workers. I would be grateful if the Minister would confirm that the lack of liability attached to the worker will in no way impact on the extent of the liability now placed on the employer for the actions of their employees.

[Viscount Younger of Leckie]

My Lords, as I said earlier, we agree with the aims of this amendment and think that noble Lords are right to seek to mirror the equivalent provisions in the Equality Act 2010. However, the first part of the amendment does not entirely reflect the relevant provision in the Equality Act and, as drafted, that part of the amendment would not enable a whistleblower to bring a claim against a co-worker if they cause them a detriment. The equivalent provision in the Equality Act does allow for claims against co-workers and we think that it is right that the legislation is the same here.

Before I conclude, let me explain this thinking, particularly in view of the comments made by the noble Lord, Lord Low of Dalston. Individuals have a personal responsibility to make sure that they act in the right way towards people with whom they interact. The law recognises this in many different ways. For example, the law of negligence makes you personally liable if you crash your car into someone and contract law makes you liable if you misrepresent an item that you are selling to somebody. If you are a taxi driver and you crash your car into someone, or a salesman and you misrepresent an item you are selling, the principle of vicarious liability means that your employer will be liable, too. We think that the same should be true in whistleblowing. If you cause a co-worker a detriment after they blow the whistle, perhaps by bullying them, you should be liable for that conduct and your employer should be liable, too. This amendment therefore will encourage workers to behave appropriately to each other and will encourage employers to have the right processes in place to protect whistleblowers. I hope that noble Lords will agree with this approach and I ask the noble Lord, Lord Low, to withdraw his amendment.

Amendment 30 relates to the Government’s introduction of a public interest test to the whistleblowing protections. As noble Lords will be aware, the Government have introduced the test to rectify the loophole which has occurred as a result of the decision in the Parkins v Sodexho case. This decision widened the scope of the protection to include disclosures concerning breaches of personal contracts rather then being restricted to matters of public interest. This amendment would amend the test the Government have introduced. It would mean that a qualifying disclosure would have to be in the health, safety and general interest of the workforce, and this is somewhat narrower than the test which currently exists in Section 43B of the Employment Rights Act 1996. This would impose a stricter qualifying criteria than the test which will exist in Section 43B after the Government’s amendment introducing a public interest test comes into effect. The result would be less protection for whistleblowers and this means that many may choose not to make disclosures, despite the fact that the disclosures would be in the public interest. The Government’s introduction of a public interest test is simply to amend the legislation in light of the Parkins v Sodexho ruling and return it to operating within its original remit.

Before I conclude, I want to respond to some comments that the noble Lord, Lord Touhig, made relating to the Mid Staffordshire fiasco. The Government had intended to call for evidence on vicarious liability and other whistleblowing areas following the completion of the Bill. However, the Mid Staffs inquiry has provided evidence which was previously lacking in relation to vicarious liability. It is therefore prudent to make a change now through the Enterprise and Regulatory Reform Bill to introduce protections into the whistle- blowing framework. I hope that that answers the point about the timing of our amendment alluded to by the noble Lord, Lord Young of Norwood Green.

The noble Lord, Lord Touhig, also raised the use of taxpayers’ money to gag whistleblowers. I think that he mentioned the sum of £15 million. As I am sure he is aware, the use of settlement agreements to resolve a dispute is a common practice in both the public and the private sectors as a means of avoiding the cost and stress of employment tribunals. They often involve a sum of money. However, in the cases to which he refers, they cannot buy silence as such clauses are null and void in the whistleblowing context. Therefore, I hope that the noble Lord will not press the amendment.

[Lord Low of Dalston]

Will the Minister respond to the point I raised about proposed new subsection (1E) and personal liability? Does he have anything to say about that?

[Viscount Younger of Leckie]

I thank the noble Lord for that reminder. Although I do not have anything to say about it, I will most certainly write to him to clarify the points that he raised.

[Lord Low of Dalston]

That would be extremely helpful. I am very grateful for the Minister’s suggestion in that regard. I echo the words of the noble Lord, Lord Touhig, in thanking the Minister and his officials for the constructive approach that they have adopted to these amendments. I am sure that the Francis report and the revelations about bullying and intimidation and a culture hostile to disclosure in the NHS have weighed with the Government. I am glad that they have taken what I think is a wise political decision to recognise the force of the arguments for importing the vicarious liability provisions of the Equality Act into the whistleblowing legislation. Indeed, I think the Minister has made the point that the Government’s amendment is a little stronger than mine. On that basis, I am very happy to withdraw the amendment.

Amendment 29 withdrawn.

Clause 15 : Protected disclosures

Amendment 30 not moved.

Amendment 31

Moved by

[Lord Young of Norwood Green]

31: Clause 15, page 12, line 28, at end insert—
“(4A) The Secretary of State shall make amendments to this section under the powers of subsection (4) to provide for the definition of “workers” to include applicants.”

[Lord Young of Norwood Green]

Opposition Amendment 31 would use the new power introduced in Committee by the Government to amend the definition of “worker” in Section 43K of the Employment Rights Act in order to extend protections to job applicants.

The purpose of this amendment is to make clear within the Public Interest Disclosure Act, the legislation which establishes specific protection for whistleblowers, that individuals should not face discrimination from consideration for future employment because they have made a protected disclosure in the past. The blacklisting of so-called troublemakers by companies is an issue that is particularly important at the moment. Evidence of blacklisting on a vast scale, including allegations in relation to major public projects such as Crossrail and the Olympic Park, is incredibly serious. We now know of the existence of secret files on thousands of workers in the construction sector, including by the construction firm Balfour Beatty, which has confirmed that it conducted blacklisting checks on individuals seeking work on the construction of Olympic venues. Many of those affected still have no idea that they were included on the secret construction blacklist, only uncovered by the Information Commissioner’s Office in a raid in 2009. This action will have resulted in many people—possibly thousands—being denied employment and their livelihoods, many of them on the basis that they have raised concerns over issues of misconduct or health and safety in previous workplaces, where it is absolutely in the public interest and the interest of the surrounding workforce that these concerns be raised. This is a national scandal and the Government must do everything in their power now to ensure that, first, if blacklisting is proven, adequate sanctions are taken against the perpetrators and, secondly, the law is strengthened to provide greater protection for workers in the future.

The amendment would use the new power that the Government have introduced to extend protection to job applicants from discrimination by an employer on the ground that they have been a whistleblower in the past. At present, if a prospective employer accesses a blacklist or becomes aware of a job applicant’s whistleblowing history and decides on that basis not to give them a job, the applicant has no cause for legal action, a point highlighted by Mr Justice Langstaff in the case of BP v Elstone in 2010, when he stated:

“It is true that the statute does not prohibit action against a whistleblower should he be recognised as one when an applicant for employment, as it might have done”.

The Equality Act 2010 provides protection at the point of recruitment, but, just as is the case for harassment of whistleblowers by co-workers, it is crucial that PIDA—the legislation providing specific protection for whistleblowers—is brought into line with these provisions.

Since Committee stage, we have had a very fruitful discussion with the Minister on this specific point, during which the Minister indicated that the Government would be willing to look at the inclusion of job applicants within the definition of “worker” for the purposes of PIDA. This was followed up in a letter from the Minister, in which he stated that, in relation to the new power in the Bill to expand this definition, before exercising this power, the Government are planning a call for evidence on these and other issues,

“such as the need to protect job applicants who have suffered because they were blacklisted for blowing the whistle”.

I thank the Minister for listening on this important issue. I ask him to confirm to the House that this is still the Government’s intention, that the Government are minded to include job applicants within this definition, and that this review will be carried out soon after the enactment. I beg to move.

[Viscount Younger of Leckie]

My Lords, the issue of whistleblowers finding it hard to find a new job once they have blown the whistle against an employer was discussed in Grand Committee, and the Government agreed to take the issue away, as the noble Lord, Lord Young of Norwood Green, has said, and consider the problem that had been presented.

The Government very much understand the concerns here and, in considering this issue and looking at the provisions we are putting in place, are confident that if there is evidence showing that this problem exists, it can be addressed through secondary legislation. By taking a power to amend the definition of “worker” in Section 43K of the Employment Rights Act by secondary legislation, the Government have allowed themselves time to consider the scope of the definition of “worker” and to determine who needs to be covered. If changes, such as the inclusion of job applicants or other groups, are then necessary, these can be achieved in a relatively short time by making an order to amend Section 43K. With that in mind, I hope noble Lords will agree that there is no reason to make this decision at this point without first considering any evidence to confirm the existence of a problem. Once this Bill has completed its passage, the Government will launch a call for evidence to establish whether there is a case for reviewing the legislation, including its scope. The Government have agreed to meet the chair of the PCaW whistleblowing commission, Sir Anthony Hooper QC, and look forward to discussing whether and how we might work together.

I hope that this goes some way towards reassuring the noble Lord, Lord Young, that the Government are taking action in this area. With that in mind, I hope that he can agree to withdraw his amendment.

[Lord Young of Norwood Green]

I have listened carefully to the Minister’s remarks, which I welcome broadly. I trust that the secondary legislation will be affirmative legislation. I hope that he regards this issue as time critical. From listening to the tenor of his remarks, I feel that he does. We believe that the evidence is out there. Having heard the Minister’s comments and hoping that he will take into account the points I have made, I beg leave to withdraw the amendment.

Amendment 31 withdrawn.

17:45

Amendment 32

Moved by

[Viscount Younger of Leckie]

32: Clause 15, Divide Clause 15 into two clauses, the first (Disclosures not protected unless believed to be made in the public interest) to consist of subsection (1) and the second (Extension of meaning of “worker”) to consist of subsections (2) to (11).

[Viscount Younger of Leckie]

My Lords, government Amendment 32 is simply a matter of drafting. It divides into two clauses Clause 15, which, after the amendment made in Grand Committee, is rather long. This will make the provisions easier for people to read.

Amendment 33 is the government amendment on the good faith test in whistleblowing claims. Amendment 33 amends Part 4A of the Employment Rights Act 1996 to remove the requirement that certain disclosures be made in good faith. As a result, a claim will not fail as a result of an absence of good faith. Instead, the employment tribunal will have the power to reduce the compensation awarded to the claimant where it concludes that a disclosure was not made in good faith. This is an issue that my noble friend Lord Marland indicated we should return to on Report.

I note the argument that by introducing a public interest test the Government have inadvertently created a double hurdle for potential whistleblowers to navigate. To succeed, a claimant would need to show that they reasonably believed that the disclosure was in the public interest and that it was made in good faith. It is not the Government’s intention to make it harder for whistleblowers to speak out. It remains a government commitment that they have the right protection in law. However, I can see that by fixing the legal loophole created by Parkins v Sodexho in the way that the Government propose, there is a risk that some individuals may be concerned that it is too hard to benefit from whistleblowing protection, and therefore they will decide not to blow the whistle. We have listened to the arguments made by noble Lords on this point, but the Government remain unconvinced that the good faith test should be removed in its entirety. There are instances where it is important that the tribunal is able to assess the motives of a disclosure, even where it was in the public interest.

The judiciary tells us that the good faith test is well understood and utilised. As such, the Government have not sought to alter the substance of the test, but have reconsidered how it should affect the outcome of a claim. Currently, the good faith test can affect the success of a claim. This amendment moves the test so it will be relevant only when considering remedy. Instead of a claim failing, the judge will have the discretion to reduce a compensation award by up to 25% in the event that they find the disclosure was not made in good faith. We believe this to be an acceptable compromise, and my conversations with the noble Lord, Lord Stevenson, the noble Lord, Lord Mitchell, who is in his place, and the noble Lord, Lord Young, have assured me that this goes a good way to addressing their concerns.

Amendment 37 sets out the relevant transitional provisions for the whistleblowing provisions of the Bill. The changes apply only where the qualifying disclosure is made after the date on which this section comes into force. Amendment 92 provides for the commencement of most of the whistleblowing clauses of the Bill. I beg to move.

[Lord Touhig]

My Lords, on the good faith test, I certainly welcome Amendment 33, as I think it does mitigate the effects of the introduction of a public interest test as set out in Clause 15. The removal of the good faith test at the initial stages of a whistleblowing claim cuts down the number of hurdles that a whistleblower has to satisfy in order to establish a prima facie case. Having worked closely with the charity Public Concern at Work from the very first time I introduced a whistleblowing Bill when I was a Member of the other place, I know that it, too, welcomes the Government’s response here, as it certainly attempts to strengthen the protection of whistleblowers.

The publication of the Francis report, about which I spoke a moment ago, and the recent revelations about the NHS chief executive, show, in my view, that there is a compelling case for reviewing whistleblowing. We had attempted to persuade the Government in the past that the Public Interest Disclosure Act should be reviewed. I certainly welcome the Minister’s remarks. If I understood him correctly, he said that the Government will work very closely with Sir Anthony Hooper, who is to chair the commission that Public Concern at Work has now set up to look at these matters. I am very pleased that the Government will be co-operating with the commission. It will start taking evidence in March. It is in the interest of all of us that we make sure that as much information as possible goes to this commission so that if a strong case is made for further review, revision or amendment of the Public Interest Disclosure Act, we can do that together in the interest of protecting people who blow the whistle to protect us.

[Lord Young of Norwood Green]

My Lords, I welcome government Amendment 33, which implements an amendment tabled by my noble friend Lord Wills in Committee. This amendment addresses concerns that were raised across all sides of the House that the Government’s decision to introduce a public interest test to the Public Interest Disclosure Act would discourage whistleblowers from coming forward by placing an additional legal test on individuals in order for them to be assured of protection from retributive action by their employer.

It was already the case that in order for whistleblowers to qualify for protection under PIDA it had to be shown that the individual had made such a disclosure in good faith. Throughout the passage of the Bill, we have argued, alongside Public Concern at Work, the organisation that first lobbied for the protection of PIDA, that the combination of a public interest test with the existing good faith test will create legal uncertainty over how these two conditions should interact and potentially dissuade many more individuals from coming forward with concerns. As I and many other noble Lords have repeatedly said, now is not the time to be putting up more barriers to individuals who may blow the whistle but are scared of the consequences, as the Francis report highlighted.

The Government need to be doing all they can to foster a culture of greater openness and transparency within institutions such as the NHS in order to ensure that people feel supported and listened to when raising concerns. We welcome the move by the Government to remove the good faith test from PIDA, leaving just public interest as the primary test for any disclosure made in relation to protections under that Act. It implements what we have been calling for throughout, which is greater clarity and certainty around the Act, and we thank the Government for listening and responding to those concerns. I also endorse the points made by my noble friend Lord Touhig about the forthcoming commission and examining the need to review PIDA. Once again, I thank the noble Viscount and we will support the amendment.

[Viscount Younger of Leckie]

I thank noble Lords for all the discussions we have had on this important issue. We are all agreed that it is important that the legislation supports whistleblowers when making the very difficult decision to blow the whistle. The Government have outlined their reasons for this provision and I hope that it meets the concerns that noble Lords had in this area. I thank them for flagging this issue to the Government and, in particular, I thank the noble Lord, Lord Wills, whom I see in his place, for his help and advice on this matter. I hope that noble Lords agree with this approach.

Amendment 32 agreed.

Amendments 33 and 34

Moved by

[Viscount Younger of Leckie]

33: After Clause 15, insert the following new Clause—
“Power to reduce compensation where disclosure not made in good faith
(1) Omit the words “in good faith” in the following provisions of Part 4A of the Employment Rights Act 1996 (protected disclosures)—
(a) subsection (1) of section 43C (disclosure to employer or other responsible person);(b) paragraph (b) of section 43E (disclosure to Minister of the Crown);(c) subsection (1)(a) of section 43F (disclosure to prescribed person).(2) In section 43G of that Act (disclosure in other cases), in subsection (1)—
(a) omit paragraph (a);(b) in paragraph (b), for “he” substitute “the worker”.(3) In section 43H of that Act (disclosure of exceptionally serious failure), in subsection (1)—
(a) omit paragraph (a);(b) in paragraph (b), for “he” substitute “the worker”.(4) In section 49 of that Act (remedies for detriment suffered in employment), after subsection (6) insert—
“(6A) Where—
(a) the complaint is made under section 48(1A), and(b) it appears to the tribunal that the protected disclosure was not made in good faith,the tribunal may, if it considers it just and equitable in all the circumstances to do so, reduce any award it makes to the worker by no more than 25%.” (5) In section 123 of that Act (compensatory award for unfair dismissal), after subsection (6) insert—
“(6A) Where—
(a) the reason (or principal reason) for the dismissal is that the complainant made a protected disclosure, and(b) it appears to the tribunal that the disclosure was not made in good faith,the tribunal may, if it considers it just and equitable in all the circumstances to do so, reduce any award it makes to the complainant by no more than 25%.””

34: After Clause 15, insert the following new Clause—
“Worker subjected to detriment by co-worker or agent of employer
(1) In section 47B of the Employment Rights Act 1996 (protected disclosures), after subsection (1) insert—
“(1A) A worker (“W”) has the right not to be subjected to any detriment by any act, or any deliberate failure to act, done—
(a) by another worker of W’s employer in the course of that other worker’s employment, or (b) by an agent of W’s employer with the employer’s authority,on the ground that W has made a protected disclosure.(1B) Where a worker is subjected to detriment by anything done as mentioned in subsection (1A), that thing is treated as also done by the worker’s employer.
(1C) For the purposes of subsection (1B), it is immaterial whether the thing is done with the knowledge or approval of the worker’s employer.
(1D) In proceedings against W’s employer in respect of anything alleged to have been done as mentioned in subsection (1A)(a), it is a defence for the employer to show that the employer took all reasonable steps to prevent the other worker—
(a) from doing that thing, or(b) from doing anything of that description.(1E) A worker or agent of W’s employer is not liable by reason of subsection (1A) for doing something that subjects W to detriment if—
(a) the worker or agent does that thing in reliance on a statement by the employer that doing it does not contravene this Act, and(b) it is reasonable for the worker or agent to rely on the statement.But this does not prevent the employer from being liable by reason of subsection (1B).”(2) In section 48 of that Act (complaints to employment tribunals), in subsection (5)—
(a) for “includes, where” substitute “includes—(a) where”;(b) at the end insert—“(b) in the case of proceedings against a worker or agent under section 47B(1A), the worker or agent.””

Amendments 33 and 34 agreed.

Clause 19 : Transitional provision

Amendments 35 to 38

Moved by

[Viscount Younger of Leckie]

35: Clause 19, page 14, line 29, at end insert—
“( ) Section (ACAS: prohibition on disclosure of information) does not apply in relation to a disclosure, or a request for information, made before that section comes into force.”

36: Clause 19, page 14, line 32, at end insert—
“( ) Section (Dismissal for political opinions: no qualifying period of employment) does not apply where the effective date of termination of the contract of employment in question is earlier than the date on which that section comes into force.
“Effective date of termination” here has the meaning given by section 97(1) of the Employment Rights Act 1996.”

37: Clause 19, page 14, line 37, at end insert—
“( ) Section (Disclosures not protected unless believed to be made in the public interest), (Power to reduce compensation where disclosure not made in good faith), (Worker subjected to detriment by co-worker or agent of employer) or (Extension of meaning of “worker”) does not apply to a qualifying disclosure made before the section comes into force.
“Qualifying disclosure” here has the meaning given by section 43B of the Employment Rights Act 1996.”

38: Clause 19, page 14, line 38, leave out subsection (4)

Amendments 35 to 38 agreed.

Amendment 39

Moved by

[Lord Lea of Crondall]

39: After Clause 19, insert the following new Clause—
“Employee consultationEmployee consultation
(1) Regulation 11 of the Information and Consultation of Employees Regulations 2004 (S.I. 2004 No. 3426) is amended as follows.
(2) After paragraph (1) insert—
“(1A) In any event an employer shall start the negotiation process set out in regulation 14(1)—
(a) not later than 6 April 2014 if the undertaking has 1,000 or more employees;(b) not later than 6 April 2015 if the undertaking has 500 or more employees; and(c) not later than 6 April 2016 if the undertaking has 250 or more employees.””

[Lord Lea of Crondall]

My Lords, the amendment has a great deal to do with enterprise. Perhaps I may begin with an anecdote. A British company recently wanted to take over a Swedish company, and when the MD went to Gothenburg there was a meeting over lunch with the works council. The workers’ chief representative on this body asked him the following question: “Mr Struthers, if you take over this company, do you think it will help us to increase our world market share?”. Mr Struthers reported when he got home that he had been flabbergasted; no such question had ever been put to him in such circumstances in a lifetime of working in British industry and commerce.

We in this country have reached a crisis of non-representation of employees in most of British industry and commerce. I am talking here about a lack not of co-determination, as in Holland, Germany and Scandinavia—we will no doubt have time to talk about that next month—but of the most rudimentary processes for meaningful information and consultation, IC, with the workforce generally. By that I mean, as the rubric on the IC default mechanism states,

“consultation with a view to reaching agreement”.

According to the ACAS Workplace Employment Relations Survey, WERS, the proportion of firms or enterprises with no joint consultative committee at any level increased from 65% in 2004 to 76% in 2011. The conclusion is that the CBI pays lip service to this principle only on odd days of the week. Local team briefings and so forth are the most that is generally provided; and the research shows that the local manager often knows as little about what is happening in the company as a whole as the workers on the shop floor—and he or she is certainly in no position to engage in authoritative consultation about such questions as restructuring, which could lead, for example, to collective redundancies that are simply handed down as a fait accompli, thereby shutting the proverbial stable door.

This is the American business model of accountability exclusively to the shareholders—one might say to the share price—side by side, in case I overlook it, with rocketing increases in inequality of pay from top to bottom, with contempt for any notion that the enterprise is “one happy family”, as used to be said, or even that, “we are all in this together”.

Years ago, there used to be interest in these matters in the Department of Employment and Productivity, but now we have an ideology in the Department for Business, Innovation and Skills—I should make it clear that I am not suggesting that it is open to individual civil servants to change that ideology—that is totally orientated to the notion not only that we should remove the concept of two sides of industry but that one side of it is now without a voice or role in any sort of decision-making. Therefore, in practice, BIS does as little as possible to make progress on joint consultation. Indeed, it puts huge resources, side by side with the CBI, into killing off any real advance, particularly if it arises from EU legislation. All this is in the supposed interests of a competitive economy. What a blinkered view it is that is reflected in this ideology on what makes a modern competitive enterprise.

One model is of autocracy, with the interests of the few far outvoting the interests of the many. This ideology is more or less universal in BIS, with the notable exception of the Secretary of State, Vince Cable, who, in the light of the current debate on the scandals in top remuneration and tax avoidance, has described the IC regulations as “a potentially powerful mechanism” that,

“has been underutilised to date”.

Let me therefore try to do Mr Cable a favour, otherwise he will have to await the return of a Labour Government in two years’ time. In that broader context, it is now clear in Labour Party policy, to give one instance, that there will be worker representation on the remuneration committees of boards. You do not need to be Einstein to figure out that for that to be meaningful it is necessary for there to be a substructure for two-way communication.

One reason why the debate has got stuck is the ideology of what is called, “the British voluntary system of industrial relations”. It is true that the so-called voluntary system meant that it was not laid down by the state. However, that did not mean that there was no general system. On the contrary, it was a very substantial system, both through collective bargaining and other types of collective representation, depending on the subject, on such matters as are identified in the default list in the IC regulations. The fashionable point being made is, “Well, what have the unions been doing about it?”. Let me be very frank and ask the Minister a direct question. Is he aware that so far as triggering the IC regulations are concerned, to which I shall refer in more detail in a moment, in the vast majority of cases union representatives cannot even get through the gate, never mind to the canteen at lunchtime? Some senior figures in the central arbitration committee have even been heard to say that this is the intention—that is, that this is a “non-union” channel, meaning that union reps should not set foot in the place unless they are recognised. Unions are therefore damned if they do, and damned if they do not.

18:00

Research by Professors John Purcell and Mark Hall from Warwick Business School is particularly telling. If one wants effective consultation of employees as a group, documentation and pre-meetings of the employed representatives must be organised. For the CBI to imply that one is needed, but not the other, is illogical, to say the least. The CBI is in danger of grossly overplaying its hand, as it deemed the TUC to have done some 30 years ago. It is now the best part of 10 years since the TUC and the CBI were asked by the Labour Government to try to reach some agreed formula for the implementation—or transposition, in the jargon—of the regulations in this country. Experience has shown that that policy formula does not work. I doubt that the TUC or the CBI would contest that statement. The need now, at the minimum, is to provide that firms above a certain size should have a consultative body with a serious purpose. I strongly contest the notion that this obligation can ever be met by unilateral management e-mails, which are patently not the same thing at all.

Our UK regulations at present require 10% of the employees to sign a request for the body to be established. This is often referred to as the trigger. However, this entails a Catch-22 of classic proportions. The very people who might be able to help with the logistics of getting this off the ground are not allowed through the door. We know anecdotally that the whole process is an obstacle course which may have a stooge body at its end. For the individuals concerned, at a personal level there are certainly strong discouragements. These are people who, with no benefit to themselves, stick their head above the parapet for a proposition which is ridiculed by management and is very complicated to explain, out of the blue, to the average worker.

What is the immediate priority? It is to remove the trigger gradually from large companies, starting with 1,000 or more employees in 2014; 500 in 2015; and 250 or more in 2016. Removing the trigger whereby one has to gather 10% of employees’ signatures would remove the likelihood that it would be left to the employer to organise the employees. These numbers would within a couple of years take us to about half the private sector of the economy. The Office for National Statistics defines the other half of the economy—below 250 employees—as small and medium enterprises. Above that level, we have half the value added in the private sector and approaching half the employed. There are only some 6,500 firms involved in this group—the bigger firms—out of 9 million firms in the country as a whole, but they constitute half of the private sector of the economy, employing some 10 million workers.

Finally, for the avoidance of any doubt whatever, I want to be very clear that a trigger of a smaller number—for example, 5%—would be no more satisfactory than 10%. No: the system is broke, caput, dead duck. For the larger companies it simply encourages them to make mischief; removing it would be the first step in putting some substance into what is currently an empty shell.

This reform is pellucidly in the national interest. It would, over time, materially widen the scope and horizons of many millions of workers who at present are in no way recognised as being more than a cog in the wheel of industry and commerce. It will, in 10 or 20 years’ time, be seen as an absurdity that we so undervalued our fellow citizens that their citizenship had to be left outside the door of their workplace. This is not the 19th century; it is the 21st. This is a reform whose time has come.

[Lord Monks]

My Lords, I rise to support the amendment moved by my noble friend Lord Lea. The amendment concerns the information and consultation arrangements with which I have long been associated, first at the TUC and then at the European TUC. Its origins lie in some unexpected and sudden plant closures in the early 1990s, in particular a Renault plant over in Brussels. As a result, the European TUC pressed the European authorities to introduce a directive requiring advance information to be provided about imminent changes to representatives of the workforce, and then for consultation to take place with a view to reaching agreement. A directive was drafted to that effect.

It was a battle to persuade the then Labour Government to agree to this directive, but they did so in 2001 and the directive was enacted at European level. It is fair to say that they remained unenthusiastic about it. The TUC and the CBI were asked to come up with an agreement, and from the start it was clear that both the Government and the CBI wanted to qualify the universal right to information and consultation by introducing this minimum threshold of support. I acknowledge that it was also clear that some union leaders were apprehensive that the directive might be used to undermine the collective bargaining process, either by groups of workers using the consultation channel competitively with the negotiated channel, or by employers wishing to withdraw or to marginalise trade union recognition. This influenced the TUC to accede to the 10% threshold which is now UK law in these regulations. In view of the subsequent history, this agreement was a mistake. The law has had little effect—my noble friend referred to the recent book by Professors Purcell and Hall of Warwick Business School.

Since the law was introduced, we have had the crash of 2007-08, and of course the economy remains very fragile. Not only have the banks experienced corporate governance failures on a very large scale, but there have been more general failures too. The most spectacular has been the way that executive pay and bonuses have continued to surge upwards at double-digit rates every year. All this has been occurring at a time when recession has been very marked for nearly everybody else; real pay levels generally have been in decline; and British performance levels on nearly all measures have been poor.

I acknowledge that Ministers in the Government have struggled to find a way to stop top executives helping themselves, and to break this culture of conspicuous excess. They have not succeeded. The Business Secretary has said that the regulations could be used to influence executive pay and bonuses. However, here lies the reason behind this amendment. Most of the companies in the UK, large and small, do not have any arrangements comparable to a German works council or a French comité d’entreprise: bodies which can hold top executives to account. Many UK companies have hidden behind the 10% threshold which, as has been explained, is a number very hard to achieve for worker representatives. It is true that unions, too, with conspicuous exceptions, have not been very active in this area, finding the 10% threshold just too arduous to jump over.

It is therefore time to revisit these provisions. The noble Lord, Lord Heseltine, has made a persuasive case to this House for the UK economy to become more like Germany’s. A hallmark of the German model is the system of works councils and collective bargaining, widely used to keep managements and workforces in close step, and to keep companies on the path of long-term, sustainable success, not simply focusing on short-term shareholder value and lavish, self-rewarding systems. The amendment aims to help the UK on to a better path than is currently the case. It is time to make this law work, to align ourselves with the most successful European economies and to change our law—and for all concerned to make that change effective.

[Baroness Brinton]

My Lords, I rise briefly to say that the noble Lord, Lord Lea of Crondall, has exposed a problem with the practical arrangements that have come up through the 10% trigger. I, too, studied the Warwick Business School research, which makes a valuable point—which perhaps the CBI missed—about the combination of having documentation available and also having pre-meetings so that employees can get together to discuss issues and to be well informed. This is a particular problem for very large companies on split sites. I would be grateful if the Minister would explain the response that there might be in order to overcome this problem. Even if it is not helpful to enact it in legislation, perhaps the Government might encourage the members of the CBI to relax the trigger or make the facility such that it is not such a barrier, because clearly this is an issue.

[Lord Young of Norwood Green]

My Lords, I will be brief because my noble friends Lord Lea and Lord Monks covered the territory very well. I was glad to see that they received some support from the noble Baroness, Lady Brinton. I doubt that the Minister will rush to fully embrace the suggestion that the 10% trigger should be changed. However, one thing that the previous Government did and that this Government have maintained is employee engagement. Many statistics demonstrate that the more companies engage with their employees, the more they will improve their productivity. That was demonstrated in 2007-08 when companies were in serious trouble and there was a very positive response from trade unions. Therefore, there is a justification for the proposal made by my noble friend Lord Lea and supported by my noble friend Lord Monks, and I await with interest the Minister’s response.

[Viscount Younger of Leckie]

My Lords, I thank noble Lords for their interventions in this short debate. I will start by clarifying a point about the 10% hurdle. It does not need to be 10% of employees at a single point in time. Cumulative requests over a six-month period totalling 10% would trigger the requirement. It may be helpful for noble Lords to understand that.

I share the view of the noble Lord that employees can make an important contribution to the commercial decision-making process—an issue brought up by the noble Lord, Lord Lea of Crondall. They have a shared interest in the long-term success of the organisation, as well as having experience and knowledge that can increase operational effectiveness. The noble Lord, Lord Young, made a strong case for the inclusion of employees to this extent.

There are many ways in which employees can be consulted by their employer—formally or informally, voluntarily or as a result of statutory requirements. The Information and Consultation of Employees Regulations 2004 are one such formal mechanism. They implement a European directive and were developed through a landmark framework agreement between the CBI and the TUC. If 10% of employees request formal information and consultation arrangements, the employer is required to introduce such arrangements in accordance with the regulations. Employees can make the request direct to the employer, but, if they are concerned about raising their heads above the parapet, they can make the request to the Central Arbitration Committee and their names will be kept confidential from the employer.

It is true that the take-up of the right to formal information and consultation has been low, but I do not believe this means that we should remove the 10% trigger. If there is no demonstrable interest from employees, it is surely unreasonable to require employers to introduce information and consultation machinery. Employees are unlikely to be committed to engagement and discussions risk becoming desultory, wasting the time of all concerned. Nor should it be difficult for a workforce to secure the necessary number of signatures if formal information-sharing and consultation is of genuine value. Unions can play a role by ensuring that employees are aware of their rights and by helping them make the case more widely to colleagues. As the Parliamentary Under-Secretary of State for Trade and Industry, the noble Lord, Lord Sainsbury of Turville, said at the time, the regulations,

“balance the rights and responsibilities of employees and employers”.—[Official Report, 21/12/04; col. 1712.]

18:15

I will answer some questions raised by noble Lords in this short debate. The noble Lord, Lord Lea, raised the issue of the involvement of unions. I noted that he thought that there might be occasions when union leaders were shut out at the door—I think that was his phrase. However, as I explained, the ICE regulations apply whether or not a workplace is unionised. They provide a voluntary mechanism that empowers employees.

The noble Lord, Lord Monks, referred to the role that works councils could play in delivering restraint in directors’ pay. The Government believe that the measures for dealing with directors’ pay that are set out elsewhere in the Bill are the most appropriate way to change the current landscape in this area.

Finally, the noble Lord, Lord Lea, mentioned the findings of the 2004 Workplace Employment Relations Survey. The first findings from 2011 show that there has been growth in methods of communication that focus on the communication of information. Such communication includes meetings, staff surveys and the like. Many of these will be informal mechanisms as opposed to the formal structures provided by ICE, to which I alluded earlier. Clearly, communication is happening and has increased from 2004, when the previous WERS survey reported. Therefore, I ask the noble Lord to withdraw his amendment.

[Lord Lea of Crondall]

I am afraid I can describe the dialogue between this side of the House and the Government only as a dialogue of the deaf. I referred to people having no voice. The Minister referred to people getting e-mails or this, that and the other, but he did not say that they would have a voice. He said that there was progress in this field. Does he not accept the figure that I read out, which showed that there had been a 10% increase from the mid-1970s in the proportion of enterprises with zilch consultation and no machinery—no works councils and no joint consultative committees at all? The noble Lord implied that I had inaccurately said that unions were locked out at the gate, and purported to correct me.

[Viscount Younger of Leckie]

I did not imply that the figures were inaccurate; I just noted that the noble Lord had mentioned them. I am sure that what the noble Lord said about unions being shut out at the door was accurate, but I would be interested to hear examples of this.

[Lord Lea of Crondall]

That is very interesting. The impression given was that there was another route via the Central Arbitration Committee for workers who had the same obstacle to which I referred. However, the organising of workers across an enterprise is no straightforward matter for a union; you cannot just ring up one person.

The picture that HMG seem to have is quite incompatible with what the workplace employment relations survey describes. When it comes to a so-called voluntary model, it will not have escaped the Minister’s attention that in Scandinavia, the Netherlands and Germany, the works council is part of the machinery and does not require this complicated obstacle course. All I am saying is that the Minister should go away and reflect on the fact that 10 years of experience has produced progress backwards and that it is about time the Government revisited this issue, not wait for the progress that will be made in two years’ time under the Labour Government. I beg leave to withdraw the amendment.

Amendment 39 withdrawn.

Clause 20 : The Competition and Markets Authority

Amendment 40

Moved by

[Lord Whitty]

40: Clause 20, page 15, line 8, at end insert—
“( ) In all its operations the issue of benefit or detriment to consumers shall be paramount, and where appropriate consumers shall be held to include small businesses.”

[Lord Whitty]

My Lords, we now move to the competition and consumer part of this Bill. I move Amendment 40 and speak to the other amendments in this group, all of which are in my name. I have been briefly promoted to the Front Bench for this section and I should declare my past and present interests. I am a former chair of Consumer Focus and of the National Consumer Council, and I am very pleased to see one of my distinguished predecessors, the noble Baroness, Lady Oppenheim-Barnes, here for this section. I am also currently an honorary vice-president of the Trading Standards Institute.

Most of this group of amendments are designed to ensure that consumer interest runs through the whole of this part of the Bill and the whole of the operations of the new Competition and Markets Authority. The Bill starts out very well. Clause 20 states commendably and unequivocally:

“The CMA must seek to promote competition”—

here and abroad—

“for the benefit of consumers”.

It is clear in this part of the Bill that competition is not an end in itself or an ideological description of what the capitalist system should look like; it is about the benefit of consumers and avoiding detriment to them. There may be wider public interest issues in relation to mergers, cartels and anti-trust issues, but this part of the Bill deals with the competition dimension, and the definition right at the beginning relates to the benefit of consumers.

I regret, however, that once that declaration is past, the operational requirements placed on the CMA hardly mention consumers. They are not mentioned in Clause 23 on mergers, not in Clause 24 on interim measures, not in Clause 27 on cross-market issues, not in Clause 31 on anti-trust, and so on. After Clause 23, no clause mentions consumers in the main part of the Bill. There is an amendment from the Minister that does, but there is no formulation here.

Moreover, there are in this Bill 50 pages of detailed prescriptions as to how the CMA should carry out its task. I find that very odd in the first instance. Indeed, I think it was to the noble Lord, Lord Marland, that I suggested that Schedules 4 and 5 be scrapped entirely except for one paragraph, which says in effect that the CMA board should conduct its own procedures. The detailed laying down of procedures is perhaps slightly tangential, as it offers a target to the very litigious oligopolists who have to deal with regulators. I am sure that the sector regulators, the OFT and the Competition Commission have experience of people picking up tiny bits of the regulations and catching the regulators out on these competition and cartel issues. By extension, it is also important for legal reasons that there is a reference to consumers throughout these clauses and schedules, if indeed we are maintaining them.

There is one reference to consumers, in Schedule 5, paragraph 63, which simply says “Omit section 8” of the Enterprise Act 2002, which it states promotes good consumer practice. This is very odd, and it is clear that the way the people who have designed how the CMA will operate have not ensured that consumer interest runs through the whole DNA of the new CMA. These amendments attempt to change that.

Amendment 40, the key amendment in this group, says that benefit or detriment to consumers is paramount in all operations. This is my basic theme for this evening. Incidentally, my amendment also includes a reference to small businesses. Much of the trading and some of the detriment of oligopolistic and monopolistic practices affects small businesses as much as it affects individual consumers. I have therefore explicitly put that point in. Indeed, I received a letter today from the Federation of Small Businesses very much supporting that reference.

Amendments 42 and 43 would make it explicit that the chair of the CMA is subject to the appropriate Select Committee of another place. This is partly so that it can judge whether the putative chair has consumer interest at heart in his or her approach to the job. Amendment 44 would require the CMA’s annual plan to include an assessment of the benefits to consumers of its actions and investigations. Amendment 47 would require CMA panel members to have experience or knowledge of consumer affairs. Amendment 48 takes it slightly further and would require that three members of the panel have direct experience of consumer representation or of consumer law.

It is particularly important to state this here about the panel operations, because although Schedule 4 does not prescribe any consumer experience, it prescribes a lot of other experience that people on the panel should have. It says that some should have experience of newspapers, an interesting point to which I may return at a later stage. It says that some should also have experience of communications, utilities, other business, and Northern Ireland specifically, but there is no reference to experience in the consumer world.

Amendment 51 deals with the deletion which I just mentioned: that of Section 8 in the OFT’s responsibility for promoting good consumer practice. That general requirement on the new body to inherit the OFT’s responsibilities for promoting good consumer practice surely should be located somewhere in the remit of the new body.

We need to rectify the omission of consumer references. My Amendments 41 to 44, 47, 48 and 51 need to be treated as a batch, because they all attempt to do so and to put the consumer first.

Two other amendments in this group deal with a slightly different issue. Amendment 52 deals with the issue, which I have raised with the Minister before, of how some of the other functions that are currently with the OFT are devolved to other organisations. Clause 22 allows the OFT to hand on and transfer functions to the CMA or Ministers, but in practice a lot of what the OFT currently does is going elsewhere: to trading standards, to Citizens Advice, to the National Trading Standards Board, which has no clear corporate identity let alone a statutory identity. The Minister has written to me, this issue has been addressed in papers on the consumer landscape, and I am not necessarily against it, but surely if we are looking at what is happening to the end of the OFT and the rise of the CMA, we ought to be clear in this Bill where those current issues are going.

Some have already happened; Consumer Direct has already gone to Citizens Advice. Some are being talked about; scams procedures are being dealt with by Trading Standards. But some are going to bodies that are themselves under serious pressure. According to UNISON members in Trading Standards—I have no reason to dispute this—Trading Standards across England and Wales has suffered a 13% cut in funding and a 15% cut in staff, which has led to a 26% cut in inspections and a 29% cut in prosecutions. If we are loading further functions on to Trading Standards, we need to ensure the resources are there to do so.

The Minister is likely to say—indeed, it may even be scheduled in our forward business—that some of this is going to be dealt with by orders under the Public Bodies Act. However, for a complete picture of what is happening to the OFT’s responsibilities, surely we need some reference in this Bill. We need to be clear where those responsibilities are going and that the new CMA, wherever it is devolved to, will ensure that those responsibilities have a national focus as well. While the day to day operation may go down to Trading Standards or to Citizens Advice, there needs to be a statutory body that is responsible for the effective overall delivery of consumer education, consumer information and inspection and for dealing with widespread consumer scams.

18:30

Amendment 54 is more straightforward in the sense that it deals with the staff of the OFT and the Competition Commission. There is a reference to them being treated under TUPE or similar arrangements. My previous understanding—this was a bone of contention during the Public Bodies Bill—was that the staff would be treated with the equivalent of TUPE through Cabinet Office orders. If “similar” raises certain anxieties, I do not see why the Government are not prepared to put “equivalent” into the text of the Bill. That is a slightly separate point, which can be dealt with easily by the Minister accepting that amendment, or at least producing a form of words which means the same thing.

The bulk of these amendments are to ensure that consumer interest, including the consumer dimension of small businesses, runs through the whole of the CMA in the way that “Blackpool” runs through the stick of rock. At present, frankly, the Bill does not look like that. It is mentioned at the front but it is not followed through. The amendments would lead to some improvement and go some way towards rectifying that. I beg to move.

[Baroness Oppenheim-Barnes]

My Lords, I have to start my remarks with the words, “Oh dear”. We have reached a disappointing spot in the advance of the protection of consumers, with the part of the Bill to which the noble Lord, Lord Whitty, referred leaving out, as it does, all the references that he wants to add about consumer protection. One reason is that the CMA and the consumer body are very different from what exists today. There is direct access for consumers to the Office of Fair Trading. If that is not enough and can be improved, why not improve it? The same applies to all the competition clauses throughout the Bill. They may be good—some of them probably are—but I do not see that what exists today warranted such a total and revolutionary change in the way that these matters have been discussed, enacted and valued by those consumers, consumer organisations and others who have benefitted from it in the past.

The noble Lord, Lord Whitty, spoke in particular about the phrase “promoting competition”. I am not quite sure how you promote competition—I have no idea—but what is important is to ensure that there is protection against anti-competitive practices that are directly harmful to the interests of consumers. It is as simple as that. I do not see the proposed amorphous body getting to the kernel of the problems that will affect consumers.

The noble Lord, Lord Whitty, rightly said that the trading standards departments will need a great deal more financial support than they are likely to get. They are respected by consumers and others alike. They have dealt successfully over the years and most people have thought of them as among our most trustworthy and available resources. They are being given a much more important role, which I am content about, and I am confident that they will, given the right resources, be able to carry it out. They have had the experience and, as long as they are given the opportunity to digest the role, they will know what they will be required to do in borderline cases.

Once again I come to the point about access for consumers. This will now go because the Office of Fair Trading is going. Apparently, collections will be made from the experiences of citizens advice bureaux and of the trading standards officers themselves. They will receive information about the big consumer concerns that will confront them but, once again, there is no clear process in the Bill—and certainly not the funding—for the citizens advice bureaux, which are all staffed by voluntary and diverse workers, to go to their top echelons. They will have to collate the information and carry out research on it, which they have not yet had to do to such an extent, and then pass it on to the trading standards officers. They will discuss it with them and then decide whether the matter—it could be a competition matter—should go to whichever of the respective bodies. That will be their responsibility.

As I pointed out in Grand Committee—I apologise for raising this matter again—the funding of the National Association of Citizens Advice Bureaux, which was announced by the noble Lord, Lord Marland, at Second Reading, was going to be £1.7 million. I was able to look up the figures for 1979, when we were closing some citizens advice bureaux. The National Association of Citizens Advice Bureaux said that it needed more money, and I gave another £1.7 million then, making the amount up to £3 million altogether. In today’s money, goodness knows what that would be. Since Grand Committee, I have looked even further and have found that in 1981, while the process was still going on, I increased funding to £4 million for the citizens advice bureaux alone. If it cannot do its job properly because it has not got enough money, then the whole chain of information going down through trading standards, to the CMA, to whoever will be receiving it, will not have strong enough links. I hope that my noble friend will be able to tell us something encouraging about that.

I do not propose to say anything about the Monopolies Commission replacement part of the CMA at this stage. That may be more appropriate later.

[Viscount Younger of Leckie]

My Lords, Amendments 40, 41, 47 and 48 recognise the importance of consumer protection and consumer interests and I thank the noble Lord, Lord Whitty, for the opportunity to debate this important issue. I also know that the noble Baroness, Lady Hayter, has spoken strongly in favour of consumer rights and I note and acknowledge her interest in this area.

As we said in Grand Committee and in the other place, empowering and protecting consumers is a vital element of our approach to promoting growth in the UK economy. Indeed, in the coalition agreement, the Government committed to take action to protect consumers, particularly the most vulnerable, and to promote greater competition across the economy. That is why we have put consumer interests at the heart of the CMA, and in particular, by the following: first, by giving the CMA a single general duty to seek to promote competition for the benefit of consumers; secondly, to retain the OFT and Competition Commission’s markets powers that aim to make markets work better for consumers; thirdly, by giving the CMA primary expertise on unfair contract terms legislation and additional consumer enforcement powers to address business practices that distort competition or impact on consumer choice in otherwise competitive markets; and lastly, by transferring the OFT’s super-complaint function, which provides a fast track process for complaints by consumer bodies.

Given the vital role the CMA will play in protecting and promoting consumer interests, and this vast range of consumer functions, we do not consider that these amendments are required. Further, in some respects the amendments could produce the wrong result. Amendment 40 cuts across existing legislation where the CMA is required to consider a range of objectives. For example, in carrying out its regulatory appeals functions, the CMA must take into account the objectives of the sector regulators, which may include media plurality or energy security. A requirement for consumer benefit or detriment to be paramount in all its operations might therefore cast doubt on the ability of the CMA to carry out its regulatory appeals functions fairly.

Amendment 40 would also provide that “consumers” include SMEs where appropriate. While I agree with the sentiment, I do not believe that it is actually necessary to deal with SMEs in this way. The existing legislation has not to date constrained the OFT from considering business to business markets, because if there are competition issues in these markets they will usually ultimately affect end consumers as well.

With regards to Amendments 41, 47 and 48, as a core function of the CMA, I expect the board and panel members to have great expertise in consumer issues. However, it would be inappropriate to establish a legislative criterion of this kind for appointments to the CMA board and CMA panel. We should not impose unnecessary constraints on the sort of people who can be appointed to these. As is currently the case for the Competition Commission panel, we expect the CMA panel to be made up of a range of experts, such as lawyers, economists, accountants and business people. Between them, they have the range and depth of expertise to deliver on inquiries across the economy, including on consumer issues and different markets.

I now turn to Amendment 44. In the current regime, the OFT is not subject to a statutory requirement to estimate impact on consumers in relation to its work. At present the OFT and Competition Commission estimate the impact of their past work on consumers over a rolling three-year period, using a common approach. Looking backwards helps to make the impact estimates more precise, and looking over three years helps level out peaks and troughs in impact. Requiring the CMA to estimate impact of its future work would be significantly less precise and in many cases difficult to forecast. Merger cases, for example, are responsive to market developments, and the CMA cannot pre-empt the outcome of independent market inquiries. This amendment could also leave the CMA at risk of judicial review if forecasted consumer benefits were not realised, and it could incentivise CMA to underestimate, and underachieve.

On Amendment 51 we do not consider that the OFT’s function to promote “good consumer practice” needs to be transferred to the CMA. As we said during our debate in Committee, in the current regime, Section 8 of the Enterprise Act 2002 gives the OFT a general function of promoting good consumer practice, which recognises its leading role in providing consumer education, its function in relation to approving consumer codes and its international consumer advocacy work.

In the new consumer landscape, the Citizens Advice service will take the lead role in providing consumer-facing education from the OFT as well as taking over responsibility for consumer advocacy from Consumer Focus; the Trading Standards Institute will have the role of approving consumer codes. The CMA will continue to have an international consumer role—for example, to represent the UK at the OECD’s Committee on Consumer Policy. A specific provision has been made for this in paragraph 19 of Schedule 4 to the Bill.

18:45

Equally, we do not consider that Amendment 53 is required. The amendment enables the Secretary of State to make a scheme in relation to the transfer of the rights, properties or liabilities of local authorities, Trading Standards and the Citizens Advice service, to a Minister or the CMA. It does not allow for the transfer of consumer functions. Therefore, in effect the amendment would allow the Secretary of State to transfer, for example, staff or property from local authorities, Trading Standards and Citizens Advice to the CMA or a Minister without transferring the relevant consumer functions. We do not believe that this is desirable or workable.

I take note of the comments that were made by my noble friend Lady Oppenheim-Barnes. It may be an opportunity to reiterate again the aims of the Government combining the competition and consumer landscape in the reforms that they are delivering, to provide a better deal overall for consumers. The objective is to set out clearer responsibilities and to have better co-ordination between the enforcers and the consumer advisory bodies. For clarity, I should say that the Citizens Advice service will be the home for consumer advocacy, education, advice and guidance. Consumer enforcement will largely be the responsibility of Trading Standards, with the new National Trading Standards Board being responsible for prioritising national and cross-local authority boundary enforcement. The CMA will work with Trading Standards to ensure that there are no gaps in enforcement. As mentioned above, it will have primary expertise on unfair contracts terms legislation. Business education will be shared by the CMA and Trading Standards.

As was mentioned by the noble Lord, Lord Whitty, these changes will be made using two orders under the Public Bodies Act, and it is proposed that the first order laid in the House on 12 December 2012 will transfer Consumer Direct from the Citizens Advice services and modify the consumer enforcement legislation to enhance the role of Trading Standards. Finally, it is envisaged that the second Public Bodies Act order will transfer the functions of Consumer Focus to the Citizens Advice service. It will also transfer the OFT’s estate agency functions.

My noble friend Lady Oppenheim-Barnes also raised the issue of funding for the Citizens Advice service. I recognise my noble friend’s long experience in this particular area. The Citizens Advice service will be the home of consumer advocacy, as mentioned earlier, including education, advice and guidance. It will allocate an additional £3.72 million to carry out general consumer advocacy work, which was previously carried out by Consumer Focus. The Citizens Advice service will receive the appropriate budgets for energy and postal services advocacy, currently provided to Consumer Focus, once the regulated industries unit transfers to them in 2014.

I now turn to Amendments 42 and 43. There is already a system in place, introduced by the previous administration, for agreeing between Parliament and the Executive that the public appointments of government will be subject to a pre-appointment scrutiny hearing. Under this system, the Secretary of State discusses and agrees with the chair of the relevant Select Committee which appointments will have such a hearing. The Government in their response to the Liaison Committee’s report of Select Committees and public appointments encouraged Ministers to engage with Select Committee chairs to ensure that the right appointments are receiving Select Committee scrutiny prior to appointment. The current system works well and the Government do not believe that there is any advantage in formalising this process in legislation in respect of individual roles such as the chair of the CMA. For this reason, we do not think it necessary for there to be a statutory requirement for this process.

Finally, I turn to Amendment 54. Ensuring that the new Competition and Markets Authority has the right expertise and experienced staff is essential. Clause 22 gives the Government the power to provide protection to staff in circumstances where TUPE is not engaged, and to make schemes to transfer staff to the new authority. I hope that this helps to answer the question raised by the noble Lord earlier. It would be inappropriate to accept Amendment 54 because applying the exact provisions of TUPE may not be appropriate in these circumstances. For example, the Secretary of State may wish to incorporate within any transfer scheme a provision that allows for greater flexibility in relation to post-transfer contractual variations so as to enable the CMA to seek to harmonise staff terms and conditions through agreement. This can assist the process of harmonising disparate reward packages and thus may reduce the risk of unlawful discrimination, particularly on equal pay claims, and avoid unnecessary barriers to reform.

I hope that noble Lords will forgive me for giving rather a lengthy answer to these amendments and I hope that the noble Lord will be reassured to some extent by my explanation of how the CMA will operate its consumer role. I hope that he will not press his amendment.

[Baroness Oppenheim-Barnes]

At the beginning of his response, my noble friend said that the fast track would be a helpful element in the Bill. I have looked everywhere but I cannot see anything about a fast track. It would be helpful if he could tell us a little more about it. Who is at the beginning of it and who is at the end, and where is the information coming from?

[Viscount Younger of Leckie]

I thank my noble friend for that point. Given that it is a very specific question, I will most certainly write to her.

[Lord Whitty]

My Lords, I thank the Minister for that reply and the noble Baroness, Lady Oppenheim-Barnes, for her interventions. I am afraid that I am not hugely reassured. If the Minister is correct in saying that the issue of the consumer interest or the protection against consumer detriment runs through the Bill, it is important that that is reflected in it at various points. I did not expect him to accept all my amendments, but I thought that he might be a little more benignly disposed towards one or two of them than he appears to be. Part of the problem is that the detailed prescriptions as to how the CMA will work, running to 50 pages with no mention of consumers at all, will be seized upon by corporate lawyers and people representing those who wish to continue anti-competitive and anti-consumer activities. They will say, “You have to abide by this and never mind about the general broad principles. That is what it says here, and it does not mention consumer detriment or protection at all”.

There is a lack of specific reference in the procedural aspects to consumer experience in terms of the membership of the board and the panels. I would not mind so much if other expertise was not mentioned, but consumer expertise is not mentioned. As the noble Baroness, Lady Oppenheim-Barnes, has said, early on there were reassuring noises that the access that consumers have to OFT services will not be diminished, but nothing in what the Minister said actually explained how that would be the case when everything else is shifting things away from the OFT down the line to trading standards offices, citizens’ advice bureaux and so forth. They may well be able to do a decent job. I hope that they will, and that they have the resources, funding and staffing needed to do so, but there must be some responsibility centrally to make sure that that happens. That is not reflected in this Bill and it is not reflected in the terms of the new CMA. I think that the Minister really ought to accept at least some of my amendments. Amendment 40 summarises all of this, and therefore I shall seek the opinion of the House.

18:53

Division 3

Ayes: 155

---

Labour: 130
Crossbench: 15
Independent: 3
Democratic Unionist Party: 1
Conservative: 1
Plaid Cymru: 1

Noes: 178

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Conservative: 115
Liberal Democrat: 51
Crossbench: 8
Bishops: 1
Ulster Unionist Party: 1

19:00

Schedule 4 : The Competition and Markets Authority

Amendments 41 to 44 not moved.

Amendment 45

Moved by

[Lord Whitty]

45: Schedule 4, page 96, line 27, leave out paragraph (g)

[Lord Whitty]

My Lords, Amendment 45 is a more straightforward amendment in which I am trying to save the Government from themselves. I hope they will see the sense of that.

The meaning of this amendment may be a bit obscure from reading it on paper because it simply says “leave out paragraph (g)”. It would actually delete the reference to Monitor which, as noble Lords will know, is the expanded economic regulator for the National Health Service. The Government would really be very wise not to allow the terms of this Bill and the role of the Competition and Markets Authority to get entangled in the issues of the health service. It is therefore quite strange to me that the Government have kept the reference to Monitor. Paragraph 16 gives the CMA responsibility for writing a report every year on the other regulators as to how they have conducted their concurrent competition regulations and enforcement, and how they have been using their competition powers. Given that we are constructing a new organisation it is understandable that it is going to do that.

We have had some serious issues in relation to some of the sector regulators using other powers rather than their competition powers. For example, Ofgem has tended to use its licence powers rather than competition powers and has been very resistant to a referral to the Competition Commission; one could argue that Ofwat has managed to introduce hardly any competition into the sector at all, and so on. But those are very different from the issues that are going to confront Monitor, and to ask the CMA, in looking at these other regulators, to have a periodic assessment that applies the same terms as the utilities and transport regulators to the health service seems extremely foolish.

In part, the Government recognise this because their amendment in Committee also included Monitor, in terms of the ability of the Secretary of State to instruct the CMA to take over the competition responsibilities of the sector regulators, and they dropped that. That was extremely wise. This is a lesser issue but it is important, because during all the debates on the Health and Social Care Bill, Ministers here and in another place said that while they were introducing a degree of competition into the health service, competition would not outweigh other considerations.

Competition has a place in the National Health Service. One can argue about how much but it is never paramount. I do not think that even the most ardent advocates of a change in the National Health Service would regard competition as being more important to patients and the delivery of the National Health Service than the integration of services and the assurance that the quality of services in physical and social terms was important, and the degree to which competition existed was very much a secondary or tertiary issue. To give the CMA powers of supervision of a complex regulator such as Monitor, the prime consideration of which is to deliver a National Health Service that is integrated, available and flexible for the patient, and to try to override that with competition assessments that are equivalent to those used in the gas or electricity industries or the railways is not a sensible move.

Regrettably, this is also part of a wider picture. Orders are being produced under the Health and Social Care Act that also give rise to anxieties about the assurances given to us during the passage of the Act—I am looking particularly to the Liberal Democrat part of the coalition because the assurances were primarily directed at them—that competition would not outweigh other considerations in the regulation of the health service and that in particular the health service would not be open to the introduction of general competition policy, particularly EU competition law. That was a clear reassurance given us by the noble Earl, Lord Howe, and Ministers in another place throughout the difficult period when we were dealing with the Bill. It may be that the Government have changed their mind but certainly the combination of Monitor appearing in this Bill, supervised by the CMA, and the pushing of the boundaries of competition in some of the draft orders that are coming under the Health and Social Care Act seems to be a worrying tendency.

Tonight we are dealing with only this Bill. There is no reason at all why the effectiveness of the CMA is affected one way or another by whether it judges and marks Monitor, but the anxieties of having Monitor in that list are considerable. Any debate on the National Health Service is always highly emotive and not always entirely rational, but it would be wise for those who are promoting the role of the CMA in this respect to keep out of that area. I hope that the Minister and his colleagues will see the sense of doing just that. I beg to move.

19:15

[Lord Mackay of Clashfern]

My Lords, this is a matter that I find rather difficult. The noble Lord, Lord Whitty, has made a pretty important point in relation to Monitor. I had a certain amount of interest in the Health and Social Care Bill, although I am not a Liberal Democrat, as it happens—

[A noble Lord]

Yet.

[Lord Mackay of Clashfern]

Yet, yes. I will not predict the future. I do think that the duties of the general competition authorities and the duty of Monitor are fairly different in their character. I look forward with interest to what my noble friend has to say because I am sure he will have a very full answer to this. Until I have heard that, at the moment I am doubtful about the wisdom of putting Monitor under the authority of the general competition authorities.

[Viscount Younger of Leckie]

My Lords, the Bill strengthens the regime for the competition powers that will be held concurrently by the Competition and Markets Authority and sector regulators. The CMA will have stronger powers to co-ordinate Competition Act enforcement work and sector regulators will have explicit duties to consider using the Competition Act.

As part of these arrangements, and to ensure appropriate transparency and accountability, the CMA will be obliged to publish an annual report on the operation of the concurrency arrangements and the use of concurrent competition powers by the CMA and the sector regulators with concurrent powers. Amendment 45, moved by the noble Lord, Lord Whitty, would exclude Monitor from the scope of this report.

After lengthy debate on the Health and Social Care Act, Parliament decided that Monitor should have concurrent competition powers. Under the reforms being implemented through that Act, competition will not be pursued as an end in itself. We have said that competition will be used to drive up quality and will not be based on price. Nothing in this Bill affects this—certainly not the requirement to publish a report on how the concurrency arrangements have worked and the use of concurrent powers—or the Government’s commitment that Monitor will have concurrent competition powers so that a sector-specific regulator with healthcare expertise can apply competition rules.

However, Monitor’s concurrent competition powers in relation to the provision of healthcare services in England need to be co-ordinated with the CMAs, which can apply competition law in wider markets than Monitor; for example, in cases affecting the whole of the UK and in markets for pharmaceutical products or mobility aids. It is therefore quite right that Monitor be included within the concurrency regime and the CMA’s report on concurrency in particular.

I will address the question raised by my noble and learned friend Lord Mackay of Clashfern. I hope I can go some way towards allaying his fears, particularly regarding the application of competition law in health services, which was also alluded to strongly by the noble Lord, Lord Whitty. Competition law will not apply to the NHS Commissioning Board or clinical commissioning groups in their roles as commissioners of services because the case law is clear that, where public bodies carry out an activity of an exclusively social nature, neither that activity nor the bodies’ purchase of goods or services for the purpose of that activity will generally be treated as an economic activity. Also, a significant proportion of services delivered by foundation trusts would not be subject to competition law, as these NHS services are not provided in a market. They include accident and emergency, trauma, maternity, obstetrics, critical care and many others, particularly in remote rural areas.

A foundation trust will typically deliver some services to which competition law potentially applies and some to which it will not. If the intention or effect of an agreement was to prevent, restrict or distort competition, Monitor will, in considering a case, look at the benefits to patients alongside the detrimental effects to competition. When deciding on a remedy or penalty, Monitor will take into account the beneficial deterrent effect of a formal decision and possible fine against the impact that its payment might have on the public body and ultimately the taxpayer. Therefore, I ask the noble Lord, Lord Whitty, to withdraw Amendment 45.

[Lord Whitty]

My Lords, I thank the Minister and I thank the noble and learned Lord, Lord Mackay, for his intervention, which posed the question more succinctly than I did. The Minister has not effectively answered it. He has underlined that the situation in the health service is complex, but saying that the commissioning groups and others are exempt in their monopsonic dimension as buyers does not mean that other entities in the health service are exempt as providers. The aim of the health service is to look after the interests of patients, whereas consumers in most markets are served, with some exceptions, by greater competition. In the vast majority of situations the default position must be that consumers are better off if there is more competition. That is not the case when you need integrated and specialist services, and a whole chain of different services for different conditions in the health service. This is not equivalent to railway companies competing through franchises, or to gas and electricity companies, or even banks, competing; they are covered by the other concurrent regulators.

This situation is different and the report would have to be different. I am not against the CMA and Monitor co-operating but you should not have the CMA, with the kind of approach that it has to competition policy, being a sort of prefect, marking Monitor’s extremely complex task in relation to its competition powers. I know that I shall not persuade the Minister tonight but I ask him to reflect on this, and on how this could look to the public and to the professions in the health service. The Government are adopting an unnecessary rod for their own back and they would be wise to reconsider. However, for the moment, I withdraw my amendment.

Amendment 45 withdrawn.

Amendment 46

Moved by

[Lord Whitty]

46: Schedule 4, page 96, line 27, at end insert—
“( ) the Financial Conduct Authority”

[Lord Whitty]

My Lords, I beg to move Amendment 46, which also deals with concurrent regulators. There are two aspects to my amendments. Amendments 46 and 64 deal with the opposite issue to the one that I was discussing with Monitor. Amendment 69 deals with general relations between the CMA and concurrent regulators. The Government have also introduced a raft of amendments in this area and, broadly speaking, they are welcome. As they deal to a large extent with Amendment 69, I shall leave that to the end.

The first two amendments deal with the issue of the Financial Conduct Authority, which has just been established by the Financial Services Act. Strictly speaking, this is not quite about concurrent powers, but if we establish a new competition and marketing authority with wide-ranging powers across markets in different sectors, it is odd that the financial sector is not mentioned in this Bill. Some of the biggest consumer, competition and quasi-cartel issues that have arisen in the financial sector, particularly over the past few years, are among the most important issues of market structure and consumer protection. Somehow, the CMA does not seem to have a relationship with that new authority. Indeed, there are two authorities here. There is the Prudential Regulation Authority, which has some impact on the consumer side as well, but let us focus on the FCA.

If they are not to be put together at the end of a list of other concurrent regulators, there ought to be a reference somewhere in the Bill to the role that the CMA plays in relation to the FCA and the financial sector. Its omission is very odd. Maybe the Treasury has seen off BIS in a way that bodies such as DECC, Defra, the DCMS and the Department for Transport cannot in relation to their regulators, but it is wrong. If you talk to the average consumer at the moment, the markets, consumer interests and consumer protection issues are primarily about the financial sector—from the failure of the banks through to debt and insurance issues. To exclude mention of that sector from the Bill is very odd. Simply adding it to this list may not be the correct solution, but I hope that the Minister can tell me why it is not there and how it could be included.

Amendment 69 deals with general relations between the CMA and the sector regulators. That is important because, as it stands, prior to the Government’s new amendments, Clause 46 suggests a relationship rather like that between the hammer and the nail. It actually provides for the Secretary of State to take all the competition powers from the sector regulators and hand them over to the CMA. Stated starkly in that way, it seems wrong. My amendment began from the point that the relationship should be based on co-operation and perhaps reporting systems, and should move only in extremis to the possibility of the CMA taking over those powers. As I read the noble Lord’s Amendment 70 and some other amendments, it goes a long way towards that. I shall listen to what the Minister says but I will withdraw my amendment in favour of his. I beg to move.

[Viscount Younger of Leckie]

My Lords, the Bill will strengthen the concurrency regime. I have already noted that the CMA will have stronger powers to co-ordinate Competition Act enforcement work and sector regulators will have explicit duties to consider using the Competition Act before taking regulatory enforcement action. We also expect that the CMA will work in close co-operation with the sector regulators in applying their concurrent powers.

Consistent with this approach, the Government also want to send a further signal about the need for strong and effective use of competition powers across the regulated sectors. They have proposed that, if the new concurrency arrangements do not work and if a regulator, other than Monitor, which the Government have excluded from the scope of the power, fails to produce better outcomes, the Secretary of State will have a power to ensure that the OFT and then the CMA take sole responsibility for applying concurrent competition powers in that regulated sector.

There was a debate in Grand Committee about providing a more explicit focus on co-operation between the CMA and regulators, and ensuring that the power is not used without early warning to the regulator. We have considered these points carefully and have therefore proposed Amendments 62, 63, 65, 66, 67, 68 and 70. These amendments require that regulators, the CMA and relevant devolved Administrations be consulted on the potential use of the power prior to the launch of a more public consultation on a proposal to use it. This ensures that there will be early discussions with regulators on any concerns giving rise to a proposed use of the power and allows them an opportunity to respond.

The amendments will also set out a purpose for the power: the promotion of competition within any market or markets in the United Kingdom for the benefit of consumers. This prevents the use of the power for any purpose other than improving the competition regime and ensures the focus of the competition regime remains benefitting consumers.

19:30

Within this group are some technical amendments. Government Amendment 52 also touches on the sector regulators. It makes a consequential change to the Civil Aviation Act 2012 to refer to the CMA instead of the Competition Commission. Government Amendment 89 is a minor and technical amendment on the commencement of the reserve power, and Amendment 90 is a further minor and technical amendment on commencement.

I will now make a few points about the amendments tabled by the noble Lord, Lord Whitty, on the sector regulators. Amendment 46 would include the Financial Conduct Authority within the scope of the CMA’s concurrency report. After lengthy debate on the Financial Services Bill, Parliament decided that the FCA should have a competition remit and mandate to use its powers to promote competition, but it will not have concurrent competition powers under the Competition Act or the Enterprise Act. Instead, there are special arrangements to enable the FCA to pass issues to the CMA and for the CMA to be able to scrutinise the competition effects of the financial services regulators’ actions.

As it will not have concurrent competition powers, it would not make sense to include the FCA within the scope of the CMA’s specific report on concurrency as this would do nothing to improve transparency or accountability. We fully expect, however, that the CMA and the FCA will have a memorandum of understanding on how they work together and may well report on how they have worked together to improve competition in financial services.

Amendments 64 and 69 relate to the power to remove concurrent powers. I am pleased to see that the noble Lord agrees that such a power should exist, but I cannot agree with the form of the power he proposes. He proposes a general provision that the CMA and sector regulators work together on the basis of co-operation. The CMA, however, will have powers to carry out market investigations in the regulated sectors and can act as a second pair of eyes to the conclusions of a regulator. It will also determine regulatory appeals and references from the decisions of regulators. It therefore needs to be free to disagree with their conclusions and, as such, it would be inappropriate for it to be generally required to co-operate with them. In any case, the Bill and existing legislation already include a number of provisions on co-ordination of the CMA’s and the regulators’ functions and the OFT has a memorandum of understanding with a number of regulators.

The amendments proposed by the noble Lord, Lord Whitty, also link the use of the power to the CMA’s report on concurrency. This report, however, will be limited in scope. It ensures there is transparency around the use of concurrent powers and requires the CMA to provide an assessment of how the concurrency arrangements have operated. While the CMA’s concurrency reports may therefore provide some relevant analysis, they are not intended to provide a full assessment of sector regulators’ performance or of whether the distribution of powers across the CMA and the regulators remains appropriate. It is therefore not right to link the use by the Secretary of State of the power to remove concurrency to this report.

Finally, these amendments would include the FCA within the list of regulators whose concurrent powers could be withdrawn by the Secretary of State. As the FCA does not have concurrent competition powers under the Competition Act and the Enterprise Act, it would not make sense to include it within the scope of the Secretary of State’s powers.

The noble Lord, Lord Whitty, raised an issue concerning the Financial Services Act 2012 introducing a new competition scrutiny regime for financial services. The Financial Conduct Authority and the CMA will have an important role to play in promoting effective competition in financial services. The FCA needs a mechanism to engage the CMA if it is to make sure that the CMA’s powers and expertise are effectively brought to bear in the financial services sector. The FCA will therefore have the power of referral to the CMA with the OFT, and then the CMA when it becomes fully operational, under a corresponding duty to respond within 90 days. The availability of the power will not prevent the FCA taking the lead in addressing competition issues where it is better placed to do so. When it receives a referral from the FCA, the CMA may have the information and analysis it needs to take action almost immediately, for example, launching a market investigation reference or bringing Competition Act enforcement proceedings.

The noble Lord, Lord Whitty, raised an issue concerning the OFT/CMA powers under the Financial Services Act. The scrutiny regime exists now for the Financial Services Authority, but this regime is now duplicative and inconsistent with how scrutiny works in other sectors. Therefore, under the Financial Services Act there will be a first tier of scrutiny under the CMA’s powers to conduct market studies which may consider the impact of regulation on the market. The OFT and the CMA will be able to rely on existing powers to give advice to the regulators.

I hope I have gone some way to answering the questions raised by the noble Lord, Lord Whitty, and I ask him to withdraw Amendment 46.

[Lord Whitty]

My Lords, I thank the Minister for that very full reply. As I indicated, as far as the general issue of co-operation between the CMA and the sector regulators is concerned, while his amendments do not go quite all the way and omit one or two things from my amendments, they represent a major advance and a clear requirement on the CMA, so when we come to them I certainly will not press my amendments dealing with that area. The one oddity about his reply was that, in terms of assessing whether there was a need for the Secretary of State to intervene, the concurrency report which is required under the earlier section would not be relevant or detailed enough. I would have thought that the whole power to produce a concurrency report was so that it would identify where there were some serious failings that needed to be addressed and might need to be addressed in a fairly draconian way by the Secretary of State handing the power over the CMA, so I find that lack of linkage a bit odd. On the other hand, the totality of what the Minister said about co-operation and the process that you have to go through before you use the powers in Clause 46 is a very positive move, and I thank him for it.

As far as relations with the FCA are concerned, the Minister referred to a memorandum of understanding between the two. My recollection and, I think, that of my noble friend Lady Hayter is that during the passage of the Financial Services Bill the Government, in the form of the Treasury rather than BIS, were deeply resistant to us putting in the requirement that there should be some co-operation between the new FCA and the then competition authorities. There is no reference in this Bill to a memorandum of understanding. The Minister referred to existing powers, but with effect in both directions in terms of handing things from the FCA to the CMA and the CMA coming back to double-check the way in which the FCA is carrying out its powers in relation to the financial sector. I think this omission is significant. I am worried about it, and if anybody out there knew about it, they also would be worried. Whereas this new super-duper competition authority has clear powers and clear relationships with all sorts of markets, the one market where it is not clear that it has a relationship, a power and an ability to second-guess is the financial services area, the one area which everybody has been worried about for at least the past five years. That I find odd. While there may be the odd reference here or in preceding legislation that helps, I think the Government probably need to have another look at this, but tonight I beg leave to withdraw the amendment.

Amendment 46 withdrawn.

Consideration on Report adjourned until not before 8.39 pm.

Transport: HS2

Tuesday 26th February 2013 Lords Chamber

Question for Short Debate

19:40

Asked By

[Lord Truscott]

To ask Her Majesty’s Government what is their latest assessment of the cost/benefit ratio, and environmental and social impact, of the HS2 scheme.

[Lord Truscott]

My Lords, I thank the Government Whips’ Office for its assistance in tabling this short debate. I also thank noble Lords and the Minister in advance for their participation. Your Lordships’ House last debated the high-speed rail scheme, HS2, last July and I will not repeat all the excellent points made then by the noble Viscount, Lord Astor, and other noble Lords.

I have been following this debate with interest for some time and I have read all the contributions made in your Lordships’ House and the other place, together with all the relevant documents. I came to the subject with no axe to grind. The noble Lord, Lord Adonis, who I see in his place this evening, said in the debate last July that he was not biased in his pro-HS2 decision as Secretary of State for Transport. That is quite right and neither am I biased in my views. Since I gave my S-class Mercedes to my plumber last summer, making him the happiest plumber on earth, I have become totally dependent on public transport, in particular the marvellous Great Western Railway to reach my home in Bath.

As a neo-Keynesian, I also believe in supporting large infrastructure projects when they are in the national interest. They can create jobs and boost the economy. In my former role as UK Energy Minister, I understood well enough that large projects, badly needed by society as a whole, can have an adverse environmental impact. We are a densely populated island. Demographic pressures are growing, yet we all want to see improvements in our standard of living and quality of life. Yet, my Lords, I fear that with HS2 we are in danger of developing a huge and costly white elephant, with an ill-thought-out business case, social disruption and a catastrophic environmental impact.

As I said, we are a small island; we are not even the size of France, Germany, Japan or China, all of which have high-speed rail networks. Carbon neutral at best, HS2 will do nothing to enable our country to meet its carbon reduction obligations. Since the 1930s the UK has lost 50% of its ancient woodland which now accounts for just over 2% of total woodland. When our ancient woods are gone, they are gone for ever and we cannot afford to lose any more. Future generations will not thank us for such wanton destruction for the sake of 30 minutes less travelling time to Birmingham. As the Independent on Sunday pointed out, HS2 threatens 350 unique habitats, 50 irreplaceable ancient woods, 30 river corridors, 24 sites of special scientific interest and hundreds of other important areas. Threatened species include the stag beetle, purple hairstreak butterfly, great crested newt—where is Ken Livingstone when you need him?—slow worm, black redstart, long-eared owl, Daubenton’s bat and the badger.

We are told that the HS2 business case is sound—it will deliver much needed capacity, including freight, connectivity at record speed and it is in the national interest. That is wrong, wrong and wrong again. The business case is evaporating before our eyes. Instead of a benefit to cost ratio of £2 for every £1 invested, when you strip out the Department for Transport’s dodgy calculations, it is just 40p for every £1 invested, and it will cost every household in the country over £1,000. The Department for Transport’s record in accurate forecasting is poor—witness the west coast main line franchise fiasco or HS1, the Channel Tunnel Rail Link, where again its forecasts were wildly inaccurate.

Improvements to the existing infrastructure, such as working on pinch points within current transport corridors, would be a fraction of the cost—some £2 billion compared with £33 billion and rising—without the widespread disruption predicted by a scaremongering Department for Transport. Alternative proposals to upgrade existing lines provide a benefit to cost ratio of over 5:1. This can be achieved by rolling stock reconfiguration, operation of longer trains and targeted infrastructure investment to clear selected bottlenecks, enabling increased frequency.

I can see why some northern cities welcome HS2 as the best deal on offer. However, the fact is that HS2 will benefit London and connectivity between northern cities can be better improved by east-west connections over the Pennines and other inter-city improvements, rather than focusing on a north-south line to London. Most jobs and benefits will flow to London, as has been the case with Paris and Madrid with their high-speed rail networks. If I am not misquoting him, the noble Lord, Lord Jones of Birmingham, has rightly said that HS2 will turn Birmingham into a dormitory town for London. Meanwhile, hard-pressed commuters in the Home Counties, the south-east, south-west and East Anglia despite severe overcrowding will have all the costs but none of the benefits of HS2.

Nor do I think that Manchester, Leeds and Sheffield will be so keen when they are asked to cough up some of the £26 billion subsidy that HS2 requires or to pay the premium fares demanded of their citizens. Besides, has anyone told the Department for Transport that the north does not stop at Manchester? Liverpool and Newcastle have clearly been sidelined, let alone Scotland. Incidentally, I am grateful to the Minister for his prompt and timely replies to my Written Questions on HS2. The responses revealed that the Department for Transport has no idea how much the line would cost to expand to Scotland; nor does it have any contingency plans for Heathrow should another airport take its place as the UK’s hub.

Compensation is another issue. The Secretary of State for Transport in the other place said on 28 January last that he understood that HS2 would be “inconvenient” for some people. It can be argued that being unable to sell one’s house is more than a trifle inconvenient, quite apart from the noise and other impact of HS2 for up to 500 metres either side of the line for hundreds of miles, which will involve clearing thousands of acres of land and property. HS2 estimates that for every 100 metres of track it needs around 2.5 acres, yet just 2% of those affected will be compensated.

I hope that in his response the Minister will flesh out how the Government will keep their oft-quoted promise to compensate properly those affected. I can see the attraction for the Government of announcing a massive infrastructure programme, unparalleled in peacetime, which will not involve significant expenditure until 2017-18 and not be implemented for 20 years, when Ministers will have long moved on. It has all the benefits of giving the impression of action, while doing nothing to alleviate current problems and bottlenecks on the railway network, let alone boost the economy. If the Government really want to spend such an absurd amount of money, there are other projects which they may want to consider; for example, sorting out the nation’s airport capacity.

Finally, I know the noble Earl, Lord Attlee, will be concerned that the house of his late grandfather, Clement Attlee, in Prestwood, near Great Missenden, is imperilled by HS2. Will he do us all a favour, have a change of heart on HS2 and save the old family home?

[Baroness Northover]

I remind noble Lords that this is a time-limited debate and when the clock reaches three, noble Lords have had their three minutes.

19:47

[Lord Freeman]

My Lords, I am sure your Lordships are grateful to the noble Lord, Lord Truscott, for the opportunity to debate briefly the merits of high-speed rail. I am a strong supporter of high-speed rail and a strong supporter of HS2. My brief contribution this evening is based on my experience as Railways Minister between 1990 and 1994—it seems like an awfully long time ago—when I was responsible for dealing with HS1 and also on lessons learnt from that initiative which are relevant to HS2.

I want to make four brief points. First, the understandable concerns about noise and physical intrusion expressed by the people who may be affected by the construction of the line and its operation can, and must, be rationally and generously allayed in a planned and sensible financial compensation scheme. When I was responsible for the work on the line, the Government spent a lot of time listening to complaints from Members, from this House and the other place, and I hope met many of their concerns. After initial concerns on HS1, I believe that the final route was generally accepted. I know that present Transport Ministers will follow that example.

Secondly, the original HS1 route was changed to terminate at St Pancras rather than Waterloo. There was a strong argument in favour of that from my noble friend Lord Heseltine. The two main reasons were to revitalise parts of east London and to provide a link directly through to the Midlands and the north. That is provided for in a link for some trains to join HS2 from HS1, just north of St Pancras.

Finally, high-speed services will be popular, particularly with the business community; it is easier to work and discuss with other colleagues on high-speed trains because of the nature of their design. It is also easier than flying in many ways because of the congestion and difficulties in getting landing slots for short-haul flights. There should therefore be more capacity left for freight on the railways. I commend support for HS2 to this House.

19:51

[Lord Adonis]

My Lords, the benefit/cost ratio for HS2 is strong, and stronger still once the high-speed lines extend north from Birmingham to Manchester, Sheffield and Leeds, with high-speed trains proceeding on conventional tracks through to Liverpool, Newcastle, Glasgow and Edinburgh. The proposed “Y” network—London to Birmingham, then north-west to Manchester and north-east to Leeds—encompasses much of the economic heart of England in one integrated high-speed network of 330 route miles.

I obviously appreciate that some who live on or near the 330 route miles are opposed to HS2. The golden rule of high-speed rail is that everyone wants the stations but no one wants the line. However, the business case is robust and the Government are right to proceed.

There have been claims that the benefit/cost ratio is too optimistic. Actually, for transport infrastructure such as HS2, connecting densely networked population and economic centres, BCRs tend to be too pessimistic because they have difficulty in capturing wider economic benefits. The Jubilee line extension to Canary Wharf and Stratford was approved with a BCR of just 0.95, less than half that of HS2. Traffic forecasts for the M25, when planned in the 1970s, grossly underestimated usage; it was dubbed the “road to nowhere”—famous last words.

In assessing the case for HS2, it is vital to understand that the status quo is not an option. Critics talk as if the choice were £33 billion for HS2 or a few billion for upgrading existing infrastructure. Sadly, this is false. Patching and mending a 200 year-old railway, working at capacity, is hugely expensive and disruptive. There is no need to gaze into the crystal ball. The last upgrade of the west coast main line, completed five years ago, cost £10 billion. It entailed a decade of constant disruption to passengers and freight, and it delivered only a fraction of the capacity and connectivity of HS2.

Capacity is the key issue. To provide just two-thirds of the extra capacity of HS2 from London to Birmingham by further upgrading the west coast and Chiltern lines, would cost more in straight cash terms than building HS2. For starters, with or without HS2, Euston needs to be rebuilt. It was built in the 1960s for barely half of today’s traffic levels and is falling down. Furthermore, extending HS2 to Manchester, Sheffield and Leeds relieves all three main lines from London to the north, all three of which would otherwise have to undergo massive—and massively disruptive—upgrades over the next 25 years.

There is no free lunch here. The choice is this: invest billions in a patch-and-mend of the Victorian railway, or invest a similar sum in 21st century high-speed rail technology, with far greater social and economic benefits, like pretty well every other developed nation in the world. We should invest in the future, not the past.

19:51

[Lord Bradshaw]

My Lords, I agree entirely with what the noble Lord, Lord Adonis, has just said. The existing railway lines to the north—there are in fact four—are full. When a line is 85% full, it is impossible to run a reliable service because you get degradation with every incident.

Demand is bound to increase. There will be population growth in areas around London, Essex, Kent, Buckinghamshire and Bedfordshire. The very heavy extra freight which will come from the new port in London and from Felixstowe needs the railway. Of course, there are expanding markets. Without this, the railway is already expanding. Goodness knows what it would reach by the time we have HS2.

You cannot have incremental enhancement to existing lines. This would be very expensive and disruptive, as the noble Lord, Lord Adonis, has said. Such demand as there is for travel could be met by a new four-lane motorway, probably all the way from somewhere in Kent right through, around London and up to the north. However, that would be colossally expensive and disruptive. Or we could have a lot more flying. The only real choice is to have a new railway.

I was working for the railways when HS1 was built. I endorse entirely what my noble friend Lord Freeman has said. There was an enormous uproar in Kent, similar to that which we now have in the Chilterns. I asked a Labour MP whose constituency straddles HS1 how many complaints he got about noise and disruption. He said, “None at all. I get lots about gay marriage but I do not get anything about that”.

The other thing we must think of is that we need a link through London. I urge the Minister to address this significantly. The present link is very constricted. It will convey very little and offer nothing to people in Kent and Essex, huge areas of population growth, who want access to HS2 as well as Heathrow. A business case is difficult to make so far in advance. There are all sorts of external benefits which are almost impossible to measure.

The scheme will be much modified. Objectors will have their say. Rushing to judicial review in advance of the parliamentary process is premature and a waste of effort.

19:51

[Baroness Campbell of Surbiton]

My Lords, transport is not my area. However, I was pressed to find out more about the HS2 project after receiving worrying letters from disabled people, who will disproportionately suffer under the current proposals.

I shall seek to explain quickly. On reading the various government reports on HS2 and campaign literature on the issue, I was struck by the lack of detail regarding social impacts. I searched for the equality impact assessment and, again, failed to find anything that reflects any serious thinking. I came across only a short document that looks purely at passenger numbers by equality group.

For a £33 billion project, this seems grossly insufficient. A proper impact assessment, for example, would look at the population profile and pick up cultural groups or disabled people who may be forced to move away from the support of family or community. The voluntary purchase scheme applies only to properties within an arbitrary 120 metres of the line. It does not apply at all in urban areas. An elderly woman, now in residential care, is attempting to sell her home to fund that care. She was thrilled to find a couple who wanted to buy. Imagine her distress when they were turned down for a mortgage because HS2 meant the house had no value. No value—yet, at 400 metres away, she is not entitled to any compensation.

None of the schemes for compulsory or voluntary purchase, or the long-term hardship scheme, addresses the additional costs that disabled people may face because of the need to adapt new properties. This can include widening doorways or installing accessible kitchens and bathrooms. These are substantial costs that a disabled person would face if they had to move as a result of HS2.

I heard from a family where both parents are disabled. They are raising a two year-old daughter. The father is a wheelchair user and has respiratory difficulties. The dust and mud during construction would undoubtedly worsen his condition. It has taken many years for them to earn enough to adapt their home in order to have a child. As the father says:

“It is the one place in the world where I don’t feel disabled; where we can raise our child independently”.

They are just outside the arbitrary 120 metres from the planned line itself. HS2 is destroying the future they have so painstakingly put in place. I can hardly bear to think about it.

The Minister may say there is a hardship scheme, whereby if someone meets very exacting criteria, they might just about get the value of their property, but nothing more. When I looked further, however, I found reports of people being turned down for this scheme. One family was turned down despite the likely distress that the construction would cause to their autistic son. To allay their concerns, I would be grateful if the Minister would clarify whether there has been a full equality impact assessment of the project as a whole.

In conclusion, would the Minister be prepared to meet the family I mentioned? If he listens to their concerns, I am sure that he would want an opportune and appropriate equality impact assessment. It is their story that inspired me to investigate an initiative that would normally pass me by. I found it very wanting and I am glad to be able to share my concerns with noble Lords this evening. I would not be here after 7 pm otherwise.

20:00

[The Lord Bishop of Liverpool]

My Lords, yesterday I was at the launch of the International Festival for Business 2014, which will be held in the United Kingdom. The host city will be Liverpool. The Prime Minister was in the city in January, promoting the festival. He said:

“The United Kingdom is in a global race with a fight to win contracts around the world”.

If that is true of the UK, it is also true of Liverpool.

Business leaders in the Liverpool city region are very supportive of the Government’s HS2 scheme. However, they strongly urge the Government to include Liverpool in their plans. There is genuine anxiety that, without an HS2 spur, Liverpool will lose out to other northern cities. The chair of the local enterprise partnership, Robert Hough, has said:

“It is a question of the competitiveness of the city region. It is critical. Our case … has to be properly argued. It is an investment that will endure many decades. If we are disadvantaged now, it becomes a virtually permanent state”.

Without an HS2 spur to Liverpool, it is difficult to imagine how Liverpool will in future be able to bid successfully for such national and international business. I would be grateful, therefore, if the Minister, when he responds, could say whether the Government would reconsider an HS2 spur into Liverpool; without it, we fear a downgrading of the city with impacts on inward investment and regeneration.

20:02

[Lord Cormack]

My Lords, it is not just Liverpool that will suffer under the present plans. Nottingham, Leicester, Derby and other cities will be bypassed. I do not want to follow the right reverend Prelate, because I do not support HS2 and I never have. Now, of course, it threatens the county that I had the privilege to represent in the other place for some 40 years; I am receiving letters. “Staffordshire’s pain will not be Staffordshire’s gain” sums up the messages that I am receiving both by telephone and in the post.

We have to consider that this is a finite country. Our glorious, beautiful landscape is finite. The noble Lord, Lord Truscott—we are all in his debt this evening—talked about the vaster spaces in France and Spain, our continental neighbours. A thing of beauty is a joy for ever until it is destroyed; we will be destroying some of the finest and most beautiful countryside that this country has, in the Chilterns, the Midlands and beyond. To what point and to what purpose are we destroying it? The people who come to Liverpool and elsewhere come to this country not just to do business, although we hope they will come in increasing numbers. They do not come to enjoy our weather; they come, increasingly perhaps, to enjoy our cuisine; but most of all they come to enjoy our built heritage—our historic towns, villages and cities, and our cathedral cities in particular—and they come to enjoy the truly breathtaking countryside that we are privileged to have. It is our duty to pass that on to future generations.

There are so many other things that could be done with this money. I have the privilege of living in the glorious cathedral city of Lincoln. Lincoln does not have regular services to London. There is one train a day from Lincoln to London and one from London to Lincoln. A Lincoln man or woman can have a day in London, but somebody in London cannot have a day in Lincoln. As we approach the octocentenary of Magna Carta, we are going to have great celebrations in Lincoln. It is essential that we have better rail communications. People from London could have a day in Lincoln as they can so easily have a day in York. I am grateful to the Secretary of State for Transport for the personal interest he is taking in this matter. He is a man for whom I have the highest possible regard, as I do for my noble friend who will respond to this debate.

I think we have our priorities misplaced. We should be spending this money on upgrading and perhaps on reinstating some of the lines that were so ill-advisedly taken up in the wake of Beeching. My time is up; this country’s time will be up scenically and in many parts of its beautiful landscape if HS2 goes ahead. I hope and pray that it will not.

20:05

[Lord Stevenson of Balmacara]

I thank the noble Lord, Lord Truscott, for securing this debate. I declare an interest, as my home is in Little Missenden, which is close to the current preferred route for phase 1. Of course, being a nimby may encourage some others to devalue my comments, but without that close connection, I would probably not have studied the Government’s proposals in the way I have.

I want to make two points. I support investment in our national rail network and I am in favour of introducing a high-speed network for the UK, although I would start in a different place, both literally and metaphorically. I would start in the places that actually need high-speed connectivity, such as the south-west, Wales, the north-west of Scotland, and Scotland more generally—a contribution, perhaps, to a united kingdom.

I would insist on interconnectivity with other transport systems. Why on earth does HS2 no longer stop at Heathrow? Why does it not connect properly with HS1, through Stratford and thence to the continent? I would follow existing major transport corridors, such as the M40 from Heathrow to Birmingham, or the M1 through Milton Keynes. I would pay proper regard to areas of ancient woodland and precious areas of natural beauty, even if it means that journey times are slightly extended. I would consult properly on all the possible alternatives so that the best choice is made and I would certainly have a much better compensation scheme.

My second point is about the route through the Chilterns. The presentation of HS2 Ltd of the case for the “Y” route north of Birmingham trumpeted that it,

“avoids national parks, Areas of Outstanding Natural Beauty and registered parks and gardens”.

I welcome this, but it throws into stark relief the fact that the Chilterns is now the only AONB along the entire HS2 route that is adversely affected by the proposed scheme. My local campaign groups, Conserve the Chilterns and Countryside and the Chiltern Ridges HS2 Action Group have suggested a tunnel through the entire Chiltern AONB, which I support. However, HS2 Ltd clearly wants nothing to do with it. It claims it will increase costs by some 10 times the amount that we calculated it would cost but, of course, it will not publish its calculations to prove that.

A continuous full tunnel through the Chiltern AONB would not be necessary if HS2 was routed from Heathrow, up the M40, or through the M1 travel corridor to Milton Keynes. If the Government are intransigent on this, however, the continuous full tunnel would enhance the current phase 1 route because it better protects existing natural assets, meets local concerns, reduces the total phase 1 construction time and saves landscape-related costs of more than £65 million.

The Government should re-consult on the HS2 phase 1 route to allow proper and effective consideration of all alternative options, including those relating to the Chiltern AONB. They should ensure that the Chilterns tunnel proposals are included in the forthcoming environmental impact assessment, or else adopt the Labour Party’s proposals for hubs at Heathrow and Stratford.

20:08

[Lord Shipley]

My Lords, I am a long-standing supporter of high-speed rail. I served for several years on the Northern Way Transport Compact and we did a lot of work establishing the case for high-speed rail and setting out the positive cost-benefit ratio that could be achieved for the north of England. My contribution this evening comes from that northern perspective, where connectivity for business and growth matters profoundly, for both the speedy movement of people and the movement and export of freight in an increasingly competitive world.

As several noble Lords have pointed out, we have existing capacity problems, the product of both rising demand and underinvestment. When exploratory work was being done on the case for HS2, my great fear was that debate would become dominated by the route to be chosen between London and Birmingham to the detriment of the production of a wider rail investment plan and the wider benefits to the UK as a whole, which would be glossed over. Therefore, I am glad that the Government have understood the case for HS2, which I think is vital to our country’s economic future. It is not just a matter for the south-east and the Midlands because it will help to rebalance our economy away from overdependence on London and the south-east for tax revenues. That means building an infrastructure which helps Scotland, the north and the Midlands to grow. London currently provides 28% of non-domestic rates income in England with only 15% of our population. That is an unhealthy situation and one that requires a better transport infrastructure to put right.

Critically, HS2 will link northern cities with each other, not just with London and Scotland. The Leeds to Birmingham journey time will be just under one hour versus two hours now, and the journey from Leeds to London will take 82 minutes versus two hours and 12 minutes today. Newcastle will not be connected to the high-speed track in the next phase but when HS2 joins the east coast main line north of Leeds, the journey time from Newcastle to London will be two hours and 18 minutes, as against just under three hours now. There will also be an hour’s saving on the journey time to Birmingham. As a consequence of HS2, there will be greater freight capacity on the system as a whole.

I commend the British Chambers of Commerce, which says that HS2 will create confidence, jobs and prosperity. We cannot go on just patching the system. We need to plan for a full national UK network and, pending that, we need to ensure that we maximise speed north of Leeds and Manchester. The cost, at £33 billion plus rolling stock at £8 billion, should be seen as a 20-year investment. Discussions about cost did not stand in the way of Eurostar or Crossrail. I agree entirely with the comments about the Heathrow connection, but the Government’s vision is right. We can debate the detail of routes, and it is right that we do so, but HS2 remains central to our potential for growth and competitiveness.

20:12

[Baroness Wilkins]

My Lords, I declare an interest as I was brought up in Amersham and have family and friends living there and in other areas being blighted by this scheme. They are not nimbys but are among the thousands of people throughout the country who have examined the arguments for HS2 and find them utterly unconvincing.

The Government claim that HS2 is in the national interest and that it will serve to bridge the north-south divide. Yet, according to public policy expert, Professor Mike Geddes, that claim has no factual basis, with the likely movement of money and people being towards London rather than back to the north. International studies show that it will just strengthen London’s dominance. HS2 Ltd itself admits that seven out of 10 of the jobs created for phase 1 will be in London. Far from increasing connectivity between our cities, as the Government claim, some UK cities will have a worse service than at present. The Government are pressing ahead with this project despite the fact that it is based on flawed assumptions and calculations about its costs and benefits. The Public Accounts Committee in the other place has today pointed to the basic errors made by the DfT on the west coast franchising fiasco, which wasted at least £50 million of taxpayers’ money.

One of the most glaring flaws is that more than half the benefit claimed to derive from the shorter journey time—55%—is based on the fallacy that time spent on the train is all wasted. We are in the 21st century, with iPads, mobile phones and the internet. Will the Minister explain why his department ignores the extensive research, let alone the evidence of its own eyes, which shows that business travellers work on the train? Why is his department using out-of-date, 11 year-old data and incorrect assumptions on the value of time? Will he also explain why an outdated forecasting model is being used to project demand? I understand that the old model significantly overstated the growth forecast of long-distance trips, and so inflated the growth in demand for HS2.

I am nearly out of time, but any fair cost-benefit analysis would factor in the cost to the thousands of people whose homes have been blighted by this route, the farms that have been cut in two and the businesses ruined, yet the proposed compensation arrangements are derisory. Overall, less than 2% of blighted homes can hope for compensation. Thousands are trapped, unable to move, or can do so only by accepting large losses. As we have heard, one mortgage provider has valued a property 500 metres from HS2 at nil. I do not deny that the country needs infrastructure building, but it needs to spend £33 billion on houses—and on houses built now to draw a halt to the misery being caused by inflated rents, rocketing house prices and the iniquitous cuts to the housing benefit system. It does not need to blight existing houses, and it does not need HS2.

20:15

[Lord Faulkner of Worcester]

My Lords, this is a very high-speed debate and I am pleased to have the opportunity to repeat my wholehearted support for High Speed 2. I, too, am going to make just two points.

First, we are not in uncharted territory. HS1 has given us experience of the environmental and social impact of high-speed railways. Noble Lords have recalled the furore that greeted British Rail’s proposals to build the high-speed line across Kent in 1987. Protest groups were formed and scare stories circulated, so why do we not hear more about the environmental and social intrusion of HS1 today? Kent lives happily with its high-speed line, and for the county council and local businesses it is a major asset as it encourages inward investment and visitors. The reason is that the line was engineered carefully to minimise environmental intrusion, as the noble Lord, Lord Freeman, said. The use of tunnels, cuttings and noise barriers all help to reduce the sound, which is low anyway because the new track is laid on deep ballast, and the new trains minimise noise that would otherwise be created at the point of contact between wheel and rail. It is far less than that created by motorway traffic, which is intrusive 24 hours a day. Today, the Kent transport network could not function effectively without the high-speed line.

My second point is about how high-speed rail changes the way Britain does business. We tend not to be very good at assessing the benefits of new rail schemes. A cost-benefit approach has been adopted to satisfy the requirement for analysis where public policy or public money is involved. However, cost-benefit appraisals for rail schemes have consistently underestimated the benefits that they bring. The growth in passenger numbers is often achieved much earlier than forecast. Total passenger numbers in 2012 were higher than at any time in our country since 1922, and parts of the railway are already full.

Cost-benefit ratios are only part of the story. The railway will transform the way we do business in Britain. It will offer benefits that we are only beginning to understand, just as it has for high-speed lines in countries all over the world. Its speed will link the south-east economy with other parts of Great Britain and help to encourage economic development in every part that it touches—a point made by the heads of the chambers of commerce in their briefing to us yesterday. It will attract significant numbers of people from road and air, just as Eurostar has between London, Paris and Brussels, and as high-speed rail has in continental Europe. It will release capacity on the classic rail network, which can be used to provide more trains to towns not well served currently, and, in particular, carry more freight.

I congratulate the Government on their commitment to stick to, and indeed expand, what my noble friend Lord Adonis set in train when Secretary of State for Transport, and I hope that they succeed in accelerating the legislative timetable. I want HS2 built in my lifetime, and I want my grandchildren to benefit from the new railway age of the 21st century.

20:18

[Lord Rosser]

My Lords, I thank the noble Lord, Lord Truscott, for securing this debate, which provides an opportunity to discuss where we are with HS2 and to reiterate the point that, with the continuing growth in passenger and freight traffic, even during a recession, a new route is needed to address the inevitable and imminent line capacity problems, such as those on the west coast main line, where service frequencies are already well in excess of what they were a relatively few years ago.

We fully support the HS2 project, but we are concerned about its progress in the current Parliament. No legislation has been published, and the recent Command Paper suggested that Royal Assent for the Government’s first hybrid Bill would not be achieved until some point in 2015, and not by the time of the next election, as was previously intended. On top of that, the outcome of a judicial review is awaited. Perhaps the Minister could say when the Government expect to receive a judgment, and what impact a ruling against the Government would have on the timescale for the implementation of the HS2 project.

We have also expressed our concerns about the lack of a dedicated purpose-built link between HS1 and HS2, which would provide the proper links to enable HS2 to serve areas of the continent directly. Concerns have also been expressed that the Government do not propose to connect HS2 with our major city centres in some instances. There is also the issue of how HS2 will connect to Heathrow, which the Government have decided to park on one side pending the outcome of the Davies commission on aviation capacity, which will not report back before 2015. Our preference was to take HS2 directly via Heathrow. Now even the Government’s compromise position of a spur to provide a direct link to Heathrow has been taken off the table, at least for now.

The reality is that this Government are acquiring a reputation for dither and delay when it comes to major transport projects. A decision on airport capacity in the south-east has been put back until after the next general election. Now it looks as though there may be dither and delay over decision-making on HS2, not only as far as links to Heathrow are concerned but also because of apparent uncertainty over whether the Government still intend to pass the necessary legislation for even the first phase of HS2 through Parliament by the time of the general election. If the Government’s commitment to pass legislation in this Parliament still stands, can the Minister say what statutory issues in relation to HS2 that legislation will address?

The Minister owes it to everyone, whether they are supportive of HS2 or not, to clarify the Government’s intended actions with respect to the HS2 project between now and the general election in 2015. I hope that the Minister will respond to these points.

20:22

[Earl Attlee]

My Lords, I thank the noble Lord, Lord Truscott, for securing this evening’s debate, and I thank other noble Lords for their contributions, some in support and some expressing concern. A project as significant to Britain as HS2 deserves time to debate, and I am happy to try to address questions this evening.

My right honourable friend the Secretary of State for Transport recently set out his initial preferences for the route and station options for phase 2 of the scheme, extending the route north of Birmingham to Manchester and Leeds. This is an important step forward in the project’s development, a step closer to the high-speed rail network that will address the key challenges that Britain will face in rebalancing and rebuilding our economy.

I have previously expressed to this House that I believe passionately in a successful Britain, and HS2 provides a rare opportunity to secure a step change in Britain’s competitiveness. HS2 will generate jobs and rebalance the country’s economy, acting as a catalyst for Britain’s future prosperity. Benefits will accrue right across the UK, leaving a lasting legacy for generations to come. This is a transformational project that will enhance rail capacity, connectivity and reliability, helping to underpin economic growth. HS2 will provide the foundation for a truly national network and connect seamlessly to the existing network, serving destinations not directly on the high-speed line such as Liverpool, releasing capacity on the existing main north-south lines to enable additional commuter, regional and, most importantly, freight services to use the line, and creating more space on some existing trains. HS2 will be woven into the transport fabric of the nation. It will be accessible to all and not be just for rich business travellers. The recently proposed routes north of Birmingham offer a great starting point for the consultation process to follow.

The Government are determined to make this an environmentally responsible scheme and have gone to great lengths to listen to those concerned about the environmental effects. While I believe HS2 to be in the national interest, we know that it is not possible to build a railway without any effect on the environment. When designing the route, important considerations such as wildlife habitats must be carefully weighed against other concerns such as protecting as many people’s homes as possible. The Government must make sure that any environmental effects are kept to a minimum and also look for opportunities to benefit the environment along the way, such as the commitment already made to plant 4 million new trees as part of the HS2 project.

Following an environmental impact assessment, the Government will be best placed to understand the effects on the environment and bring forward proposals to make sure that it is protected as far as possible. The initial preferred scheme for phase 2 has been designed to avoid or minimise impacts to important sites, and avoid any national parks or areas of outstanding natural beauty. HS2 Ltd has worked closely with Natural England and the Environment Agency in choosing options and preparing designs that would have no impacts on sites of internationally recognised importance.

Where it is not possible completely to avoid certain areas, mitigating the effects of the line is important. This has been demonstrated through the proposals for the Chilterns area of outstanding natural beauty. Of the 13 miles of route through this area, less than two miles will be at or above the surface. This is more than a 50% increase in tunnel or green tunnel than proposed in the route originally consulted on. Noble Lords have mentioned the charming villages of Little Missenden and Prestwood. I would merely point out that my subsidiary title is Viscount Prestwood.

While a decision on this scale will be made on the basis of the long-term national interest, the economic case for HS2 remains strong. The latest analysis, published in August 2012, shows an estimated £2 of benefits for every £1 spent. As with any assessment of this kind, the economic case will continue to be reviewed and updated through the life of the project. However, the benefit-cost ratio can only ever form one part of the decision-making process for a project of this scale. Wider strategic considerations such as enhancing connectivity and regenerating cities to underpin the rebalancing of the economic geography of this country are clearly compelling cases.

The noble Lord, Lord Rosser, asked about the judicial review case. He will not expect me to say any more than that we expect the judgment shortly. He also challenged me about the progress on the necessary hybrid Bill. He will understand that to design the necessary powers, every piece of land needed has to be specified in the Bill. The process has to be done properly and will just have to take its time.

The noble Lord, Lord Truscott, pressed me hard on the issue of compensating those affected, and he was not the only noble Lord to do so. The Government are conscious that no major infrastructure project on the scale of HS2 can be built without an impact on local communities, as well as the disabled. However, just as the Government are committed to mitigating the environmental impacts, I should like to reassure noble Lords that the Government are equally committed to addressing the impacts on local communities affected by the route. For this reason, for phase 1, the package of measures that have been consulted on goes significantly beyond what is provided for in law, including, for example, a promise to buy all owner-occupied homes in a corridor that in rural areas is 240 metres wide. The responses to this consultation are being carefully considered, and the Government expect the final package to be in operation in the spring. Meanwhile, the exceptional hardship scheme for phase 1 remains operational, and offers have been made to buy more than 100 homes at their full unblighted value.

The Government are currently consulting on an exceptional hardship scheme for phase 2—a consultation that closes on 29 April—and will later consult on a full package of compensation measures for phase 2. Furthermore, the Government are determined to compensate for disruption and effects caused by the new railway, and have been working for years with community groups, local businesses and wildlife charities.

The noble Lord, Lord Truscott, talked about the problem of ancient woodlands. They are very important to our natural heritage; however, the Government have to strike a balance between a range of important considerations for HS2, such as the location of people’s homes as well as other environmental and heritage sites. We are doing everything possible to minimise the impact on ancient woodlands, but where this is unavoidable we will provide suitable mitigation and compensation, following the best practice recommended by ecologists. However, I fully understand the special status of an ancient woodland. As part of the HS2 project, the Government have already committed to planting 4 million new trees and we will also be looking at opportunities to enhance existing, or create new, woodland areas and wildlife habitats.

The noble Baroness, Lady Campbell of Surbiton, made important points about the impact of the construction project on disabled people. I understand her points. During the passage through the House under the hybrid Bill procedure, the noble Baroness will have a greater opportunity to raise her concerns. However, I gently point out that hers was an argument against any large-scale transport project, and not just against HS2.

Many noble Lords who spoke against the project claimed that there was no economic case for HS2. I disagree. The latest analysis, published in August 2012, shows a continued, strong economic case for proceeding with this strategically important scheme. It shows an estimated benefit-cost ratio for the Y network of around 2.5, including wider economic impacts. However, the economic case can form only one part of the decision-making process for a project of this scale, as its benefits go well beyond narrow transport economics. The Government remain convinced that HS2 is the best means of avoiding gridlock on our railways, and delivering the required step-changing capacity and performance of Britain’s intercity rail network to support economic prosperity over the long term. It will cost us more in the long term if we do not make the right decision now.

The noble Lord, Lord Truscott, pointed out that there are potential improvement schemes that have a BCR of 5:1. I do not deny this. However, one can run these schemes but at the end of the day still run out of capacity on the west coast main line. The noble Lord, Lord Adonis, made much the same point. He also made a very important point about the pessimism of the BCR and the difficulty of capturing the full benefit. I am very grateful for his wise comments, and I agree with everything that he said.

My noble friend Lord Freeman raised the issue of HS1. There are advantages to integrating the two high-speed rail lines. There is a strong strategic case for ensuring that a high-speed network in this country connects directly into the many thousands of miles of network in operation across Europe. I welcome the recognition by my noble friend Lord Freeman of the benefits that providing links with international gateways, such as HS1, can bring. My noble friend Lord Bradshaw also touched on HS1-HS2 connectivity.

The noble Lord, Lord Stevenson, raised the issue of why HS2 no longer stops at Heathrow. The spur has not been cancelled; it has been paused, and it is too early to predict the outcome of the airport’s commissioned work or of any decisions taken following that. There are no plans to slow down progress on phase 1, and we need to press on quickly with it so that we can deliver the wider economic benefits that high-speed rail can bring. The noble Lord, Lord Stevenson, also asked a question about where to build a high-speed railway. The main driver of where to build a new railway is the business case, and this is heavily influenced by the capacity constraints on the classic railway network. It is important to point out that eight of 10 UK cities will be connected by high-speed rail.

The right reverend Prelate the Bishop of Liverpool asked if HS2 could go to Liverpool. It is important to understand that trains will be able to run on HS2 and then on the classic network, so that the people of Liverpool will still get the benefits of HS2, as will the people of Scotland; everyone north of London will gain the benefits.

Unfortunately, I have run out of time. Where I have not managed to respond to noble Lords I will of course write. I am also hosting a presentation on HS2 shortly, and I would be delighted to see as many noble Lords as possible attend.

I reassure the House that the Government will continue to listen to those concerned about the impact of the scheme. HS2 is about helping Britain thrive and prosper. Tough decisions have to be taken, but they will be responsible decisions taken in the interest of making Britain better and stronger.

20:35

Sitting suspended.

Enterprise and Regulatory Reform Bill

Tuesday 26th February 2013 Lords Chamber

Report (1st Day) (Continued)

20:39

Amendments 47 and 48 not moved

Amendment 49

Moved by

[Viscount Younger of Leckie]

49: Schedule 4, page 108, line 44, after “20” insert “(3)”

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)]

My Lords, the smooth transition from the current competition authorities to the new CMA will be essential to ensure that competition enforcement and consumer protection are not undermined. Amendments 49, 50, 55 and 88 are minor and technical, and seek to assist with that process.

Amendment 49 amends Schedule 4 to make clear that the CMA will not be required to publish certain reports, such as an annual plan or concurrency report in relation to the period before it takes its competition and consumer functions. Amendment 50 makes it clear that when a member of the Competition Commission panel is also appointed to the CMA panel during the transitional period, the period when he or she holds both appointments will not be double counted. The Bill requires that the total length of the two appointments must not exceed eight years.

Amendments 55 and 88 add a new clause which seeks to allow the OFT and Competition Commission to consult on behalf of the CMA on, among other things, new guidance before the CMA becomes fully operational, and make clear that this new clause comes into force on Royal Assent. This is a time-limited provision that seeks to enable full and timely consultation on guidance, rules, statements of policy and other matters relating to competition reforms in the Bill. I beg to move.

[Lord Whitty]

I certainly have no objection to any of these amendments. The Minister referred to a smooth transition. There is one other aspect necessary for a smooth transition to which we referred earlier: greater clarity about those OFT functions which are going outside of the CMA. Clarity on this is necessary over and above what is provided in the Public Bodies Act orders, which we are about to consider. I would be grateful if the Minister could confirm that there will be a further White Paper on the consumer landscape. I know he cannot confirm that there will be a consumer Bill in the next session—he cannot pre-empt the Queen’s Speech—but I assume that Government policy is moving in that general direction. With those caveats, I am fully in support of the amendments.

[Viscount Younger of Leckie]

As noble Lords will note, these amendments, while minor and technical, are vital to the smooth transition to creating the CMA, notwithstanding the noble Lord’s comments, and ensuring that competition enforcement and consumer protection remain at the forefront of activity. The Department for Business, Innovation and Skills is working closely with the Competition Commission and the OFT to allow for this smooth transition to the new authority, including the development of guidance for business. These amendments will assist in that process. To conclude, the noble Lord, Lord Whitty, may not be surprised to hear that I cannot commit further to future consumer issues or Bills, but I fully note his comments.

Amendment 49 agreed.

Amendment 50

Moved by

[Viscount Younger of Leckie]

50: Schedule 4, page 109, line 17, after “Commission” insert “(excluding any period when he or she also holds office as a member of the CMA panel)”

Amendment 50 agreed.

Schedule 5 : Amendments related to Part 3

Amendment 51 not moved.

Schedule 6 : Regulatory appeals etc: minor and consequential amendments

Amendment 52

Moved by

[Viscount Younger of Leckie]

52: Schedule 6, page 176, line 33, at end insert—
“( ) In paragraph 7, in sub-paragraph (3), for “Competition Commission” substitute “Competition and Markets Authority”.”

Amendment 52 agreed.

Clause 22 : Transfer schemes

Amendments 53 and 54 not moved.

Amendment 55

Moved by

[Viscount Younger of Leckie]

55: After Clause 22, insert the following new Clause—
“Transitional provision: consultation
(1) This section applies in relation to a provision of this Act under or by virtue of which the CMA has a function of consulting another person in preparing rules, statements of policy, guidance or general advice or information.
(2) At any time before the provision comes into force, the Office of Fair Trading or the Competition Commission or both bodies acting jointly—
(a) may carry out any consultation that the CMA would have power to carry out after the provision comes into force, and(b) for that purpose, may prepare drafts of any documents to which the consultation relates. (3) At any time after the provision comes into force, the CMA may elect to treat any consultation carried out or other thing done under subsection (2) by the Office of Fair Trading or the Competition Commission (or by both bodies acting jointly) as carried out or done by the CMA.
(4) The Secretary of State may direct the Office of Fair Trading or the Competition Commission, or both of them acting jointly, to exercise a power conferred by subsection (2).”

Amendment 55 agreed.

20:45

Clause 41 : Cartel offence

Amendment 56

Moved by

[Lord Whitty]

56: Clause 41, page 38, line 20, leave out from beginning to end of line 2 on page 39

[Lord Whitty]

My Lords, I shall speak also to the other amendments in the group, all of which deal with broadly the same issue: the regime on cartels.

In Clause 41 the Government have made a bold and necessary step, despite criticism from significant sections of business, to make the cartel criteria work. They seek to delete the requirement that for any cartel operation to be an offence under the 2002 Act it has to have been committed dishonestly. That is an unnecessarily high threshold of proof, which has greatly restricted the competition authorities’ ability to use their cartel powers to deal with cartels. The issue should be whether a cartel has been established that restricts competition and is to the detriment of consumers, not whether lies, fraud and deceit can be proved. Scrapping those dishonesty criteria in the first three subsections of Clause 41 is very welcome.

However, there is a “but” coming. The rest of Clause 41 rather spoils and undermines it. Subsections (4) and (5) limit the occasions when an offence can be committed and provide an absolute defence. New Section 188A in subsection (5) states that an offence has not been committed if, despite a cartel-like arrangement, customers are told; or, in the bid-rigging situation, the assessors of the bidders, the clients, have been told; or the arrangements have been published; or that they are made in order to comply with another legal requirement. I fully accept the last defence—it makes sense—but the rest do not make sense. A damaging cartel arrangement can exist whether or not customers are told; a damaging cartel arrangement on contracting bids can be damaging to consumers and can exclude new entrants—small business mainly—whether or not the client has been told; and consumers and small business can suffer detriment whether or not such arrangements are published.

The purport of the notion about publication seems to go back to the old days when registered cartels were recognised and protected. It goes back two or three turns of the competition law provisions and is not sensible in this day and age. It is out of kilter with the rest of the Bill.

Unfortunately, it goes further than that. Even when an offence has been committed, new Section 188B in subsection (6) provides in absolute terms that it is a defence if there was no intention to conceal the cartel arrangement; or, extraordinarily, that it was disclosed to legal advisers. Again, cartels can damage consumers and potential small business new entrants whether or not concealment was intentional and whether or not my learned friend has been informed. The effect of the cartel is therefore the issue, not the motivation and not the way in which it has been communicated.

My amendments would delete all reference in subsection (5) to no offence being committed under new Section 188A(1). That is, the only context in which an offence could be deemed absolutely not committed would be where it is to fulfil another legal requirement. The rest of the amendments would delete all references to a defence and replace it with a relevant mitigation. I recognise that there is some mitigation if you have told the customers or the client, but it is not an absolute defence. It needs to be taken into account by the court, but it does not prevent the court reaching a “guilty” verdict. Otherwise, if you do not adopt those two deletions, the positive move by the Government in the first couple of subsections of Clause 41 will be seriously undermined. I therefore hope that the Minister will recognise the sense of that and understand that the very positive consensus on the main issue in relation to this clause will be undermined unless we modify it broadly speaking according to this group of amendments. I beg to move.

[Viscount Younger of Leckie]

My Lords, there is wide agreement in both Houses that having to prove “dishonesty” makes the criminal cartel offence unnecessarily hard to prosecute, so it is right that Clause 41 removes the dishonesty requirement. However, in the Government’s view one cannot simply remove that requirement and leave the offence otherwise unchanged. Rather, we have had to think through the implications. In place of the dishonesty requirement, the clause provides that the offence is not committed if customers are notified of relevant information or if that information is published in a prescribed manner. These are the provisions which Amendments 56 and 57 would remove.

The reason for allowing this protection is that a limited number of agreements may technically fall within the terms of the cartel offence once the dishonesty requirement has been removed but are lawful under the anti-cartel provisions of the civil anti-trust regime that governs which agreements businesses may enter into. In such cases, it is right that we allow individuals to ensure they do not commit the cartel offence by checking that under the arrangements customers would be informed or the arrangements would be published as prescribed.

This approach builds coherently on existing provisions of the offence in Section 188 of the Enterprise Act. Subsection 6 provides that,

“arrangements are not bid-rigging arrangements if, under them, the person requesting bids would be informed of them at or before the time when a bid is made”.

All the arrangements caught by the offence involve price fixing, market sharing, output restrictions or bid rigging. These are all potentially damaging. Where such arrangements are put in place, the parties should be prepared to justify their actions. In principle, and in most cases, it is reasonable that they provide notice of the arrangements to those likely to be affected by them, their customers, either directly or through publication as prescribed; and it would be unreasonable to prevent, as these amendments would, individuals entering into perfectly legitimate activities which they are prepared to publicise in one of the specified ways, just as the present offence provides in the case of bid rigging.

In the majority of cases, of course, the types of agreements caught by the offence will be clearly detrimental to consumers, and the participants will know that they are engaged in unlawful conduct. In those cases, the arrangements will not be published but will be kept secret, and quite rightly the individuals involved will be exposed to prosecution and punishment. Our intention is to remove the prosecutorial difficulties with “dishonesty” while ensuring that only conscious participation in hardcore cartels, which ought to be blameworthy, is caught by the offence.

Notwithstanding those provisions, however, businesses and their legal advisers continued to have some concerns that the amended offence would criminalise the participation of individuals in commercial conduct that would otherwise be lawful. I hope that there is widespread support for the view that it is right to crack down on cartels, but that we ought not to chill businessmen from engaging in legitimate business activities that serve and benefit customers.

Concerns were also expressed about the practicality in certain circumstances of disclosure or publication and the protection of commercially confidential information. In a limited number of cases, for example in relation to arrangements for the joint underwriting of certain insurance contracts, prior disclosure of the arrangements might be difficult. In such cases, customers would be aware that such arrangements were common even without notification or publication and would be untroubled by it. In other cases, the information would already be publicly available in an appropriate forum, such as technical standards. To meet these concerns, the Bill was amended in another place, including by providing individuals with a defence where they did not intend to conceal the nature of the arrangements in certain circumstances or they took reasonable steps to disclose them to professional legal advisers for the purpose of obtaining advice. This builds upon the present approach in the Bill of blessing arrangements that have been publicised or notified.

Amendments 56 to 61 would drastically dilute the protections that these provisions afford by removing the circumstances where the offence is not committed and transforming the defences into relevant mitigations. This would not provide protection to those who were engaged in otherwise lawful behaviour but who, for example, had neglected for whatever reason to give the arrangements the appropriate publicity. It would also discourage parties from entering into agreements that are exempt from the anti-trust prohibitions because they bring gains to consumers where prior disclosure would compromise the benefits the company gains from the agreement. Rather, the individuals would have no defence, but they would be able to plead a relevant mitigation in order to reduce their sentence. That is an unattractive prospect that is likely to chill legitimate business activities, contrary to the Opposition’s stated intention.

I thought it might be helpful to address some points that were raised by the noble Lord, Lord Whitty, concerning the Government’s approach. What characterises the kind of hardcore cartel activity that we wish to make it easier to prosecute from legitimate behaviour is that it is clandestine to a high degree. That is where the bar is set. Those responsible meet in secret, use code words and communicate through unofficial channels, thus bypassing a company’s normal procedures. This element is already recognised in the Bill by the provisions that take outside the offence arrangements that are disclosed to customers or publicised. We therefore think it appropriate to give further comfort in relation to the offence by providing individuals with a defence that they did not intend to conceal the nature of the cartel arrangements from customers or prosecutors, or that before making or implementing such arrangements they took reasonable steps to disclose them to professional legal advisers for the purpose of obtaining legal advice. In the light of these explanations, I hope that the noble Lord will feel able to withdraw his amendment.

[Lord Whitty]

My Lords, I find that reply very difficult to understand. I appreciate that there will be circumstances in which it is sensible for a restrictive practice to be agreed, communicated and, in one sense, registered in order to meet certain other objectives. Those may be legal requirements, quasi-legal requirements, safety requirements or in the broadest sense in terms of people protecting investments and so forth. However, I do not think that it is an absolute defence. It is something that the authorities will need to take into account in terms of motivation and judging whether the companies involved were acting reasonably, but it is not an absolute defence. I find that part of it particularly difficult to understand and particularly undermining of the Government’s general approach on this.

In terms of cartel offences not actually being committed, from the way the Minister has described it, it looks as if, in the bidding arrangements, any restriction would be on the bidders that the client was prepared to consider. It would not depend on their technical ability or their financial viability, but could be purely arbitrary; that is, the old boys’ network. That is effectively what the cartel offence in relation to bidding was attempting to stop. You go to the usual suspects only to bid for a contract and as long as you tell those bidders that you are restricting it to them then there is no problem. It is not even committing an offence. It is not even that there is a justifiable move. It is absolutely the case that an offence is not committed.

21:00

I can see there are restricted circumstances, for example in the insurance arrangements to which the Minister referred, where such a restriction of the impact would be sensible and necessary. However it is much narrower than the provisions of Clause 5(1) and (2) in terms of an offence not committed, and Clause 5(6) and Clause 6 in relation to the defence. I fear that the good intention in the Government’s changes could be undermined by markets or clients having too broad an ability to actually restrict the market. This would be to the detriment of other companies and ultimately the detriment of consumers. I will withdraw in a moment because there is no point in pushing these amendments tonight, but I think the Government need to reflect on these issues.

I am going to slightly abuse the process of the House. I am sorry I have not given the Minister notice although I have given it in various other contexts. I should have raised this on the earlier group of amendments relating to concurrent regulators, specifically in relation to Ofcom. I am not expecting an answer from the Minister on this tonight, but I am giving him notice and ask if he could write to me, or more appropriately to the noble Lord, Lord Stevenson.

I raised this point in the immediate debate after Leveson, in the debate we had the other week and in Committee on this Bill. Would the Government use the opportunity of this Bill—with its section dealing with the competition powers which we are just about to leave—to address the plurality issues that Leveson raises? Leveson made the point that if you want a truly free press you have to have diversity of opinion, and to have that you need plurality of ownership. Clearly there are parts of this Bill which relate to the newspaper industry. I am sorry I did not mention it before the dinner break because it was more appropriate to the discussion of the relations between the CMA and Ofcom, but I will now give notice to the Minister that we may be coming back to this. The last occasion on which the Government had an ability to deal with this was the week before recess when the noble Lord, Lord Stoneham, raised the issue of plurality with his DCMS colleague and was told that the Government are still thinking about it.

The competition section of this Bill is an obvious possibility for raising and implementing the plurality dimensions of Leveson. It has not got anything to do with the other areas which deal with behaviour and royal charters. Nor is it to do with the arguments about freedom of the press and regulations, but plurality is a separate section and—as I say—I have raised it on a number of occasions in various contexts. It would be useful if we could know the Government’s position on that before we reach the end of Report. I am sorry that I have done that out of order. Going back to being in order, subject to the points I have made, I beg leave to withdraw the amendment.

Amendment 56 withdrawn.

Amendments 57 to 61 not moved.

Clause 46 : Power to remove concurrent competition functions of sectoral regulators

Amendments 62 and 63

Moved by

[Viscount Younger of Leckie]

62: Clause 46, page 43, line 13, leave out from “may” to “so” in line 14 and insert “make a sectoral regulator order if the Secretary of State considers that it is appropriate to do so for the purpose of promoting competition, within any market or markets in the United Kingdom, for the benefit of consumers.
(1A) A sectoral regulator order is an order that amends one or more enactments”

63: Clause 46, page 43, line 22, leave out “An order under subsection (1)” and insert “A sectoral regulator order”

Amendments 62 and 63 agreed.

Amendment 64 not moved.

Amendments 65 to 68

Moved by

[Viscount Younger of Leckie]

65: Clause 46, page 43, line 32, leave out subsection (4)

66: Clause 46, page 44, line 5, leave out “An order under this section” and insert “A sectoral regulator order”

67: Clause 46, page 44, line 7, leave out “an order under this section” and insert “a sectoral regulator order”

68: Clause 46, page 44, line 21, leave out “subsections (1) and (4)” and insert “subsection (1A)”

Amendments 65 to 68 agreed.

Amendment 69 not moved.

Amendment 70

Moved by

[Viscount Younger of Leckie]

70: After Clause 46, insert the following new Clause—
“Orders under section 46: procedural requirements
(1) If the Secretary of State proposes to make a sectoral regulator order, the Secretary of State must carry out the first stage consultation.
(2) The first stage consultation is consultation with—
(a) the regulator whose functions would be removed by the order,(b) the Competition and Markets Authority,(c) where the regulator is the Office of Rail Regulation, the Scottish Ministers,(d) where the regulator is the Northern Ireland Authority for Utility Regulation, the Department of Enterprise, Trade and Investment in Northern Ireland and the Department for Regional Development in Northern Ireland, and(e) where the regulator is the Water Services Regulation Authority, the Welsh Ministers.(3) If (following the first stage consultation) the Secretary of State still proposes to make a sectoral regulator order, the Secretary of State must carry out the second stage consultation.
(4) The second stage consultation is consultation with—
(a) the persons consulted at the first stage,(b) any bodies who appear to the Secretary of State to represent the interests of persons in respect of whom the functions that would be removed by the order are exercisable (“regulated providers”),(c) any bodies who appear to the Secretary of State to represent the interests of persons who use the services supplied by regulated providers, and(d) such other persons as the Secretary of State considers appropriate.(5) The Secretary of State must give the following information to each of the persons consulted as part of the first stage or second stage consultation—
(a) an explanation as to whether the Secretary of State is proposing to remove the functions of the regulator mentioned in subsection (2)(a) of section 46, the functions of the regulator mentioned in subsection (2)(b) of that section or both sets of functions;(b) the reasons why the Secretary of State considers it appropriate to make the order.(6) The reference to the Competition and Markets Authority in subsection (2) is to be read, in relation to any time before the commencement of section 20(3), as a reference to the Office of Fair Trading.
(7) In this section, “sectoral regulator order” has the same meaning as in section 46.”

Amendment 70 agreed.

House adjourned at 9.05 pm.