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Oral Answers to Questions
(11 years, 9 months ago)
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Chris Skidmore (Kingswood) (Con)
1. How many young people have received support through the Get Britain Working programme to date.
The Minister of State, Department for Work and Pensions (Mr Mark Hoban)
Between January 2011 and November 2012, about 106,000 young people aged between 18 and 24 received support through Get Britain Working, including work experience and sector-based work academies. Many young people have also benefited from the help offered through volunteering, and work and enterprise clubs.
Chris Skidmore
Job clubs and job fairs play an important role in the Get Britain Working scheme. In Kingswood, as the local Member of Parliament, I have organised four job fairs so far, as well as running a weekly job club. Does my hon. Friend agree that we as MPs have a vital role to play in Get Britain Working by organising job fairs and job clubs and getting our constituents back to work?
Mr Hoban
My hon. Friend is well known for his support for getting young people into work, and I commend him on the job club and job fairs that he has run. As a result of the collective effort between employers, Members of Parliament, Jobcentre Plus and others, youth unemployment today is lower than it was in May 2010.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
Does the Minister not realise that however good some of these programmes are—and some of them are quite good—we are not doing enough? Nearly a million young people are unemployed. There must be more imagination. Could we not agree on a cross-party basis that we must not allow young people to fester in unemployment any longer?
Mr Hoban
No one should be complacent about the challenge that young people are facing, but I should point out to the hon. Gentleman that, if full-time students are excluded, 66,000 more young people have been in work over the last quarter. We are seeing more progress, but we must not be complacent, and we must not forget that the problem started some time ago.
Mr Philip Hollobone (Kettering) (Con)
What progress is being made with sector-based work academies? Which sectors are being targeted, and in which parts of the country?
Mr Hoban
My hon. Friend is right to point out what an important part of our programme sector-based work academies represent. They provide a combination of work experience, training and a guaranteed job interview. Jobcentre Plus will work closely with employers throughout the country to organise the right type of sector-based work academies, but I encourage Members to work with jobcentres to identify good opportunities in that regard.
Sheila Gilmore (Edinburgh East) (Lab)
A constituent of mine, aged 20, has spent a year and a quarter on the Work programme, and has had six meetings with three different advisers during that time. He still has no job, and has had no job offers. He eventually found a Barnardo’s course, but was told that he would not be allowed to go on it because he was on the Work programme. Is the programme not failing such young people?
Mr Hoban
I think the hon. Lady should raise issues about training in Scotland with the Scottish Government, who are responsible for it. They will not allow people on the Work programme to go on Scottish Government-funded courses, and I suspect that that is where the problem lies.
Grahame M. Morris (Easington) (Lab)
2. What steps he is taking to tackle the increased use of pension liberation schemes.
The Minister of State, Department for Work and Pensions (Steve Webb)
We take the issue of so-called pension liberation very seriously. The Pensions Regulator is currently investigating 21 cases, and scheme assets worth over £50 million have been protected as a result of regulatory action.
Grahame M. Morris
Many pension liberation schemes are skimming off thousands of pounds in charges and commissions, and leaving customers exposed to punitive tax penalties. In the wake of mis-selling scandals such as that involving payment protection insurance, what action is the Minister taking to ensure that future pensioners are protected?
Steve Webb
The hon. Gentleman is right. When people transfer money from a pension, they must fill in transfer forms. We have established a “scorpion sting in the tail” information campaign, producing very eye-catching literature which people wishing to transfer their money receive before signing on the dotted line. It is a “buyer beware” measure, and is one of a suite of measures that we are taking to crack down on such fraud.
Andrew Bridgen (North West Leicestershire) (Con)
Many participants in pension liberation schemes pay extremely high interest rates on any loans that are taken out, and residual funds are invested at the discretion of the trustees, which can lead to insecure or poor investment decisions. Does my hon. Friend agree that that is in no one’s long-term financial interests?
Steve Webb
My hon. Friend is right. We are warning people to be extremely wary. In general, they should not get their money out before they reach the age of 55, except in the event of, for instance, terminal illness. Trustees need to be wary, and participants need to be wary. Those who spot fraud should report it, and we will continue to crack down on it.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)
19. Some £400 million has been liberated illegally from pension funds, and all that the rather incurious Minister is saying is that he has produced some rather catchy literature. Is that sufficient?
Steve Webb
If that were all we had done, no of course it would not be. Many of the Government’s anti-fraud authorities, including, among others, the Serious Fraud Office, are working with us. One of the challenges is that the money is sometimes transferred overseas, where we have less jurisdiction. However, what we need is trustees not to be transferring money—authorising the transfer of money—out into suspicious pension funds. So trustees have a part to play, as do scheme members.
Ian Murray (Edinburgh South) (Lab)
3. What recent assessment he has made of the effects of the Government’s proposal for a single-tier pension on women born between 6 April 1952 and 6 July 1953.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
6. What recent assessment he has made of the effects of the Government’s proposal for a single-tier pension on women born between 6 April 1952 and 6 July 1953.
Kate Green (Stretford and Urmston) (Lab)
7. What recent assessment he has made of the effects of the Government’s proposal for a single-tier pension on women born between 6 April 1952 and 6 July 1953.
Heidi Alexander (Lewisham East) (Lab)
16. What recent assessment he has made of the effects of the Government’s proposal for a single-tier pension on women born between 6 April 1952 and 6 July 1953.
The Minister of State, Department for Work and Pensions (Steve Webb)
With permission, I will answer this along with Questions 7, 8 and 16.
We have today published a document analysing the pension outcomes of this group of women. Overwhelmingly, women in this group—who reach state pension age up to three years before a man born the same day—would get more pension benefits over their lives than a man with the same national insurance record.
Mr Speaker
The Minister is a man of formidable intellect and therefore I hesitate ordinarily to disagree with him, but I think that the grouping is with Questions 6, 7 and 16. I hope he does not mind.
Ian Murray
The Minister may have a formidable intellect but I am going to disagree with him. As he will know, half a million women born between 1952 and 1953, many of whom will have celebrated mother’s day yesterday, will lose out on this single-tier pension. Will he apologise to the 700 women in my constituency who are affected and have written to me? Will he do something before they lose out?
Steve Webb
I take your correction on the question numbers, Mr Speaker.
I think that the hon. Gentleman should apologise to the 700 women in his constituency, as he seems to be asking us to treat them the same as a man born on the same day—that appears to be the essence of his problem. If we did that, those women would have to wait up to three years longer for their pension, and they would not thank him for that.
Catherine McKinnell
Some 1,700 women in Newcastle will miss out on the single-tier pension, yet men born in the same period will qualify. Claiming that those women are better off because they are allowed to retire earlier is simply not good enough. If they are retired for 20 years, they could lose up to £38,000, which is well over twice what they would receive through benefiting from retiring earlier. What message does this send out to the hard-working women of Newcastle, many of whom celebrated not only mother’s day yesterday, but international women’s day on Friday?
Steve Webb
The message it sends out is that their MP did not listen a moment ago. We have published research today that shows that 85% of these women will do better over their entire retirement—both the first few years and their entire retirement.
Steve Webb
Unless the hon. Lady has read the research, I do not know why she should be shaking her head. It says that 85% will do better by being treated as women than they would by being treated the same as men.
Kate Green
You and I, Mr Speaker, have just had the great pleasure of welcoming a rather beautiful portrait of Emmeline Pankhurst to Parliament, and I hope that all colleagues will want to go to admire it in the Upper Waiting Hall. It is important that we remind ourselves that women’s political interests can sometimes be different from men’s, and I am grateful to have the chance to ask the Minister about his pension proposals and their implications for women today. Many women will struggle to achieve 35 years of full employment and full contributions, partly because of caring responsibilities and also because of labour market discrimination. What steps does he intend to take to address that disadvantage?
Steve Webb
As the hon. Lady says, we have a system of not only paid contributions, but credits. Although 35 years will be needed for the full £144, even a woman with 30 years will get thirty thirty-fifths of £144, which is more than the current basic pension of £107. So, many women will benefit from the new rules.
Heidi Alexander
The Minister says that 85% of women will benefit under the proposals that he has announced today, but what about the 15% who do not?
Steve Webb
It is gratifying that the main Opposition response to our proposals is that they want more people to benefit from them. The hon. Lady is right: there is a set of women—a small number of women—who would do better under the new system than the old, but overwhelmingly the vast majority will do better under the current system. She raises an issue about allowing people to choose whichever was the better, but it is not always certain—at the moment—what the better answer would be for their entire retirement. So we could not actually advise people in advance which category they would be in.
Jane Ellison (Battersea) (Con)
The Minister might be aware that during the pre-legislative scrutiny of the Bill there has been considerable confusion about how much some of these women would lose. There is considerable misunderstanding out there, so could he provide some clarity in this area?
Steve Webb
I am looking forward to two hours with the Select Committee this afternoon after this warm-up. My hon. Friend is absolutely right, in that some of the women in the group we are talking about will miss out on nearly £20,000 of pension if they were to be treated the same as a man born on the same day. I think that very few of them would think that a good deal.
Gordon Birtwistle (Burnley) (LD)
Does my hon. Friend agree that the reforms to the state pension will be advantageous to women in the future?
Steve Webb
Absolutely. The process of state pension reform was happening at a glacial pace and equality between men and women was many decades away. We have brought that equality forward and men and women on both sides of the House should welcome that fact.
Nigel Mills (Amber Valley) (Con)
We look forward to seeing the Minister later. Does he agree that one of the problems is that people just do not understand what the change will mean for them? What plans do the Government have to write to everybody to tell them what pension they would have received under the old system and what they will receive under the new one?
Steve Webb
My hon. Friend is right to say that information will be crucial. One thing we have been doing with the changes to the state pension age, for example, is writing to the individuals affected so that they know exactly what position they are in. All too often in the past, laws have been passed, no one has been told and it has taken many years for people to find out about it. An information campaign will be central to taking forward these excellent proposals.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
The Minister has so far provided cold comfort for the 429,000 women who will not benefit from the new state pension when men of precisely the same age will. May I ask the Minister about a specific group of 80,000 women who are represented in Parliament today? Under the Pensions Act 2011, which this Government passed, their retirement age increased with little notice. Now they will miss out on the Government’s proposed new pension with an average loss to the tune of £9 per week. Is it fair to penalise these women twice in two years?
Steve Webb
To be clear about the particular group to which the hon. Gentleman refers, their pension ages increased by a maximum of six months under the 2011 Act. The vast majority of those 80,000 would be worse off if we treated them the same as men, which is what he seems to be calling for. I was not clear what else he was calling for, but treating them the same as men would leave them worse off than they are now.
Mr Adam Holloway (Gravesham) (Con)
4. What assessment he has made of the availability of one-bedroom homes for single-person households to downsize to following the housing benefit changes due to take effect in April 2013.
The Secretary of State for Work and Pensions (Mr Iain Duncan Smith)
There are about 400,000 working age households on housing benefit in under-occupied social housing in Great Britain who require just one bedroom according to the size criteria. There are more than 1.1 million one-bedroom properties in the social rented sector in England and 730,000 one-bedroom properties in the private rented sector. The availability of housing varies from area to area and is constantly changing. During 2011-12, there were about 112,000 new lettings of one-bedroom properties in England in the social rented sector alone.
Mr Holloway
Will there be an improvement in the position of disabled children in Gravesham under the spare room subsidy?
Mr Duncan Smith
My hon. Friend makes an important point. As the law stands, when a local authority agrees that a family needs an extra bedroom because their child’s disability means that they are unable to share, the family can be entitled to the spare room subsidy in respect of that extra bedroom. As with housing benefit claims, the determination of whether their disability requires them to have an extra bedroom is a matter for the local authority to decide with the help of DWP guidance and medical evidence. This week we will issue final guidance to local authorities on a number of areas, including this one, that will confirm the position that the judgment in Burnip, Trengove and Gorry applies to both the social rented sector and the private rented sector.
Bill Esterson (Sefton Central) (Lab)
One effect of the Secretary of State’s policy is that foster carers who have a spare bedroom and are waiting for a child to be placed must move to a smaller property without the space for them to foster. Is that what he intended?
Mr Duncan Smith
As the hon. Gentleman will know, we have made discretionary payments of £5 million available for foster carers to ensure that that does not happen. The effect for foster carers, as we move forward, will be that they will not have to change the number of rooms or their property as they will be able to remain there and to foster. That is what the policy will be.
Greg Mulholland (Leeds North West) (LD)
My right hon. Friend and the Prime Minister have acknowledged that some of the spare rooms are not spare by acknowledging the need for discretionary housing payments. May I urge my right hon. Friend to reconsider whether some of those categories could and should be covered by genuine full exemptions?
Mr Duncan Smith
As I have just explained, one of those categories—severely disabled children—is covered and the guidance coming out tomorrow will make it very clear that we will apply that judicial judgment across the board to children with severe disabilities who need that extra room as they are unable to share. I shall keep everything under review and I guarantee to my hon. Friend that we will ensure that the intent of the change is bound up in how it takes effect in so far as the spare rooms will be kept for those who need them. Honestly, however, when so many houses have spare rooms and when so many people are in queues to get housing, it would seem wrong to go on subsidising everybody to stay the same.
Dame Anne Begg (Aberdeen South) (Lab)
Is it fair to penalise someone who had wanted a one-bedroom property, had asked their local authority for a one-bedroom property, but instead was given a two or three-bedroom property because there simply were no one-bedroom properties available?
Mr Duncan Smith
The purpose of the policy is to readjust the disparity that exists and that lay there under the previous Government. Local housing allowance for social tenants in the private rented sector does not and did not allow people to have spare rooms. In the social sector there are a large number of houses that people occupy without occupying all the rooms, so the purpose is to get that smoothed out. A number of councils have people waiting for housing, people in overcrowding, while others are subsidised to have spare rooms in housing that they do not need.
Andrea Leadsom (South Northamptonshire) (Con)
Will my right hon. Friend confirm that there will be discretionary payments available to councils to meet particular needs? Does he agree that it is despicable for Opposition Members to be scaremongering unnecessarily and scaring people who are in a vulnerable position already?
Mr Duncan Smith
The Opposition know what they have been about over the past few weeks. They have deliberately set about trying to confuse people with their ridiculous title. They have tried to confuse people that they will all come under this change, when only those on housing benefit will be affected, and they also seemed to indicate to many others, such as pensioners, that they were not exempt. They are exempt.
Ian Austin (Dudley North) (Lab)
Is it not the case that there just are not enough homes for people hit by the bedroom tax? The Government promised, and the Secretary of State said a moment ago, that pensioners would not be affected, but those on universal credit will be. Soldiers’ families will not get full housing benefit, but someone who is sent to prison could keep every penny. The Government are hitting pensioners but safeguarding prisoners, so how can it be right that if someone has worked hard all their life and loses their job, or if someone is serving their country or is disabled or a pensioner, they could lose out?
Mr Duncan Smith
I do wish the hon. Gentleman would get his facts right. Convicted prisoners are not exempt, so he is wrong. With respect, he does not know the difference between someone on remand and someone convicted—[Interruption.]
Mr Speaker
Order. The hon. Member for Dudley North (Ian Austin) is noisier in heckling the Secretary of State than he was in heckling me at Essex university 30 years ago. He needs to calm down.
Mr Duncan Smith
With respect, Mr Speaker, the hon. Gentleman’s noise covers a complete lack of intelligence. That is what I would say. Let me bring something forward—[Interruption.] No, monkeys can jump around, but the noise they make is not necessarily relevant. Let me tell the hon. Gentleman about his own area. In Dudley, which I think he might know, the National Housing Federation estimates that there are 2,000 households under-occupying—in other words, with spare rooms. It also estimates that there are 1,500 families in overcrowded accommodation. In other words, if property is properly managed, we might get those who are overcrowded into decent-size accommodation. When will the Opposition moan about that?
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
5. What recent assessment he has made of the likely effects of the under-occupancy penalty on households that include a disabled person.
The Parliamentary Under-Secretary of State for Work and Pensions (Esther McVey)
Let us be clear. The spare room subsidiary is not a penalty and it is not a tax. It is the result of, and a solution to, the inequality of treatment between those in the private rented and the social rented sector. The fact that housing benefit doubled in the past 10 years and the sheer imbalance in the system that we inherited resulted in 1.8 million people on waiting lists, 250,000 in overcrowded houses, and 1 million spare rooms in the system, when 180,000 claimants who are claiming disability living allowance, or whose partners are doing so, have spare rooms.
Cathy Jamieson
I thank the Minister for that answer, although I do not think it addresses the question. Disabled people in my constituency are coming to see me terrified about the implications of having to find additional money every week, so what can the Minister say about the disabled people who are contacting the local authority in my area to be told that they may not get a discretionary payment and that, even if they do, it may not last for the full year? Does she have any words of comfort for them?
Esther McVey
The hon. Lady, like all of us, has a duty to allay those fears, and it is something that we can all do. We know that so many specific instances could not be regulated clearly in law, hence we have trebled the discretionary payment to take into account all these factors. We know that pensioners are exempt and that we are helping, obviously, severely disabled children, and we have made clear all those who are being assisted. It is our duty to make sure that facts are clearly spelled out, and those who are most in need will be supported.
Duncan Hames (Chippenham) (LD)
I know from my own constituency case load that Wiltshire council is often persuaded that families with disabled children can require an additional room in order to meet their needs. Will the Minister clarify the earlier answer to the hon. Member for Gravesham (Mr Holloway)? Is it the Government’s position that these families will be reliant on discretionary payments, or is it indeed the case that they will not see their housing benefit cut?
Esther McVey
If the disabled child cannot share and there is impact on another child, if they need that room, that room will be provided for, as the Secretary of State has said and in accordance with the local authorities.
Ian Paisley (North Antrim) (DUP)
I thank the Secretary of State and the Minister for their answers today. This policy will affect all parts of the United Kingdom irrespective of the devolved settlement in Northern Ireland. On the assessment and the figures that have been presented today, is the Minister able to say something about how many people will be affected in Northern Ireland, given that there is a complete lack of single bedroom homes, both in the private and public sectors, in Northern Ireland?
Esther McVey
I will be very happy to write to the hon. Gentleman with the exact numbers for Northern Ireland. I can say, from the money that has been made available through the discretionary payments, that we will be supporting those most in need, as we have said so clearly throughout today.
Mrs Anne McGuire (Stirling) (Lab)
Given that the Prime Minister continues to state that families with disabled children or with family members as carers will somehow be exempt from the bedroom tax—and before the Minister reaches for her brief and tells me once more about the discretionary fund, she needs to realise that it is time limited and there is not enough in the fund—will the Minister advise the House whether the Prime Minister is pulling the wool over the public’s eyes, or has she abrogated her responsibilities as the Minister with responsibility for disabled people and not told them the exact impact of his Government’s policies?
Esther McVey
In line with the judgment, the Prime Minister was correct. We have clarified today that they will have the room and they will not need to move.
Ann Coffey (Stockport) (Lab)
8. What recent representations he has received on the sharing of data on missing children in the Troubled Families programme.
The Secretary of State for Work and Pensions (Mr Iain Duncan Smith)
My Department plays a vital role in the cross-Government programme to turn around the lives of our most troubled families, a matter on which the hon. Lady has a long track record. Although I have not received any representations on sharing data on missing children, as we do not deal with them particularly, we are committed to building a clearer picture across Government of how many children are missing from care and where they go. We will begin piloting new arrangements shortly.
Ann Coffey
I thank the Secretary of State for that answer. As he will be aware, children going missing is a key indicator of being at risk of child sexual exploitation, and he will also know that information on children going missing from troubled families is under-reported. Will he ensure, together with his colleagues in other Departments, that data on missing and absent children is collected and shared properly, so that children from troubled families at risk of coming to harm can be identified, helped as early as possible, and not end up in the care system?
Mr Duncan Smith
Yes. I congratulate the hon. Lady on focusing on this across all the Departments, as I am aware that she has asked this question to a number of Departments. She is absolutely right. We do need to co-ordinate much better between Departments. As she knows, this is an historical issue for different Governments. The Department for Education chairs the data working group, which includes the Home Office, the Serious Organised Crime Agency, and the Children’s Society. I understand that my right hon. Friend the Secretary of State for Communities and Local Government is also involved. That should help to improve the collection and publication of data. The pilot will begin shortly to see that we sort this out. She is right that we must do more to improve data as part of the missing children strategy and make sure that we get it right.
Mr Peter Bone (Wellingborough) (Con)
9. If he will bring forward proposals to restrict eligibility for housing benefit for people aged under 25.
The Secretary of State for Work and Pensions (Mr Iain Duncan Smith)
In June last year the Prime Minister commenced a debate on the cost to the taxpayer of meeting the £2 billion bill for automatic entitlement to housing benefit for people aged under 25. Although that is not current Government policy, I have had a number of representations on the issue—not from the Opposition, but from others.
Mr Bone
If the Prime Minister and the Secretary of State are in favour, I cannot understand why that is not Government policy. With so many under-25s who are hard-working having to stay at home with their parents, why are the Government spending £1.8 billion a year housing under-25s who are on benefits? I cannot see how that is fair.
Mr Duncan Smith
My hon. Friend is right that the bill for under-25s in receipt of housing benefit is in the order of £2 billion a year. Some 370,000 under-25s claim housing benefit, and 42% of them are without children. However, the reality is that when we looked at that in the round prior to the spending review, it was agreed that it was not a priority area for the coalition. No doubt he will continue to campaign for it to be a priority area, and I am very happy to discuss the matter with him.
Mr David Lammy (Tottenham) (Lab)
The Secretary of State has decided to move forward with his benefit cap in four pilot areas in London. How much has he decided to compensate Haringey council for making it a guinea pig in that way?
Mr Duncan Smith
I do not believe that there is any need to compensate anybody. We have already told all those councils that they are not guinea pigs; they are actually getting very close support and advice. I think that it will be a tremendous success story. What they are doing is learning, along with us, about any issues that might arise, and we have already said very clearly that we will support them through any extra costs and expenses. The right hon. Gentleman’s party has to recognise that the reality is that the cap is right. The public support it because they are tired of seeing people getting more on benefits than those who are in work, so setting the cap is right. He needs to ask why his party keeps voting against it.
Dr Julian Huppert (Cambridge) (LD)
I and my Liberal Democrat colleagues are delighted that that proposal did not become Government policy and will happily keep making representations on it. Although it would be wonderful if all under-25s had a loving and stable family to live with, does the Secretary of State accept that that is simply not the case? Will he meet the YMCA to understand the realities facing many under-25s and continue to provide them with the support they need to have somewhere to live?
Mr Duncan Smith
Yes, I would be very happy to meet my hon. Friend and any group of people, such as the YMCA, he wishes to bring to me. I simply say this: we have a significant problem, because we inherited a welfare budget approaching £200 billion that had risen out of control under the previous Government. He is fully aware that we have to reform it both to get people back to work and to ensure that we get the cost under control. Those are all areas we have looked at, but in those discussions we decided that, in the round, it was not a priority.
Stephen Timms (East Ham) (Lab)
On Friday morning I met a 19-year-old autistic young women whose family home, which is rented from the council, with housing benefit, has been adapted at public expense, but now they are very worried because they are deemed to have one bedroom too many. Surely the bedroom tax should not apply when a council house has been specifically adapted for the occupants at public expense.
Mr Duncan Smith
The right hon. Gentleman knows very well that that is the point of discretionary housing payments—[Interruption.] Opposition Members can groan, but we have put more money into discretionary payments to sort these things out than they ever did when they brought these in. The reality is that there is money for them to do just that. I remind him that the National Housing Federation has estimated that in his area of Newham some 3,000 people are under-occupying and some 5,000 are overcrowded. Perhaps he would like to take his own side to task for never doing a thing for those struggling in overcrowded accommodation.
Mr Stephen Hepburn (Jarrow) (Lab)
10. What steps he is taking to tackle long-term unemployment.
The Minister of State, Department for Work and Pensions (Mr Mark Hoban)
Long-term unemployment fell by 15,000 last month. Our main initiative to help get people who are long-term unemployed into work is the Work programme. In the period to September 2012, 200,000 people found work as a consequence of the Work programme.
Mr Hepburn
Long-term unemployment in my constituency went up by 67% last year. Does that not tell us exactly what the Tories are like in this country today? Will the Minister stand up, put his hands up and admit that the policies of the millionaires in government are totally failing the ordinary people of this country?
Mr Hoban
I would have thought that the hon. Gentleman would want to celebrate the fact that an additional 21,000 people in the north-east are in work compared with a year ago. Yes, there are deep-seated challenges in the north-east, but I am confident that progress is being made in rebalancing the economy, and that is down to the strength of the private sector.
Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)
May I ask my hon. Friend what happens when someone who is long-term unemployed rings Worthing benefits centre given its failure to return calls within even the three-hour performance target and its failure to meet the target of processing 85% of employment and support allowance payments within the target of 16 days? What action is being taken to remedy the position, and when does he anticipate that the centre will be meeting all its performance targets?
Mr Hoban
My hon. Friend is right to highlight the issues at Worthing benefits centre. As a consequence of a very high level of applications for ESA, there is some pressure on performance at the centre. Work is being done to help tackle the backlog and to get back to the 85% level. Managers from the Department are happy to meet my hon. Friend to discuss the situation.
Robert Halfon (Harlow) (Con)
11. What assessment he has made of recent trends in unemployment.
James Wharton (Stockton South) (Con)
13. What assessment he has made of recent trends in unemployment.
The Minister of State, Department for Work and Pensions (Mr Mark Hoban)
Unemployment has been falling in each of the last 11 months; on the International Labour Organisation measure it is down by 156,000. The unemployment rate is now lower than it was in 2010. This is testament to the strength of the private sector, which has created 1 million net new jobs since May 2010.
Robert Halfon
My hon. Friend will be aware that Tesco has announced the closure of a huge depot in Harlow, with the possible loss of 800 jobs. Will he work constructively with the Union of Shop, Distributive and Allied Workers, which is trying to ensure that the workers who are offered jobs in other plants get the same pay and conditions?
James Wharton
In Stockton South youth unemployment has fallen from 11.3% to 9.6% January to January. This is a welcome trend, but I would like it to go further. What are the Government doing to ensure that it can continue over the coming year?
Mr Hoban
I am delighted to welcome the news of what is happening in Stockton South. That is in contrast to what has happened in Jarrow, but it demonstrates the resilience of the economy in the north-east. The fact that 40,000 extra private sector jobs have been created in the north-east over the past couple of years demonstrates that while there are difficult challenges, the economy is rebalancing, and that should be to the benefit of everyone there.
Wayne David (Caerphilly) (Lab)
Will the Minister kindly tell the House how many young people are unemployed?
Alison McGovern (Wirral South) (Lab)
The Minister mentioned the so-called 1 million new jobs. With reference to the labour force survey, will he tell me how many of those so-called new jobs arise from reclassification and how many represent people who are under-employed?
Mr Hoban
If the hon. Lady looks at the labour force survey, she will see that the figure is 1 million net new jobs. She talks about people being under-employed. I hope that she is not being condescending to those of her constituents and mine who are working part-time and want to work part-time.
John Stevenson (Carlisle) (Con)
20. Does the Minister agree that the economic success and, indeed, the social success of places like Carlisle depend on the creation of private sector jobs? Will he confirm that to help to achieve this he will ensure that it is always better financially to be in employment than on benefits?
Mr Hoban
That is absolutely at the heart of the roll-out of universal credit, which will mean that people know that they are better off in work, and better off working more hours and earning more than working fewer hours and earning less. That incentive to get paid work is at the heart of our welfare reforms.
Katy Clark (North Ayrshire and Arran) (Lab)
12. If he will reconsider the decision not to include residential properties owned by local authorities for temporary accommodation in the definition of temporary accommodation contained in the Housing Benefit (Amendment) Regulations 2012.
The Minister of State, Department for Work and Pensions (Steve Webb)
From 8 April, people living in temporary accommodation will, in most cases, be unaffected by the removal of the spare room subsidy in the social rented sector. However, where a local authority’s own temporary accommodation is used, the spare room subsidy will be removed if the tenant is placed in accommodation that is larger than they need.
Katy Clark
In North Ayrshire the council owns 63% of the accommodation used as temporary accommodation, and the bedroom tax will apply to approximately two thirds of those properties. Will the Minister look again at the definition of temporary accommodation, given that this policy will simply mean that local authorities end up spending a lot more on less suitable accommodation from the private sector?
Steve Webb
We think that local authorities using their own stock to discharge their homelessness function should, wherever possible, house people in appropriately sized accommodation. If there are short-term problems in matching families to accommodation size, discretionary payments are available and can be used to support any shortfall a local authority may experience.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
Half of all the temporary accommodation in Scotland is council-owned and the accommodation size reflects the existing housing stock and a varying range of needs in that sector. The discretionary housing budget in Scotland will not even cover the cost of keeping disabled people in specially adapted homes, so in no way will it cover the needs of people in temporary accommodation. Will the Government look again at this and reconsider what I can only assume is an unintended consequence or an oversight?
Steve Webb
The hon. Lady raises the important issue of the mismatch between the housing stock and families who need housing. That has gone unaddressed for decades and we now need to address it. We recognise that there may be particular issues in Scotland, partly with rurality and partly with the housing stock, and we are happy to continue having that conversation with hon. Members.
Mark Pawsey (Rugby) (Con)
15. What arrangements his Department is making for benefit payments to people who are unable to receive them through a bank or building society account.
The Secretary of State for Work and Pensions (Mr Iain Duncan Smith)
People who are unable to receive benefit payments through a bank or building society account are paid under the new simple payment. The service is easily accessible and is available free of charge and over the counter at more than 10,000 PayPoint outlets across the UK. The phased roll-out of simple payment began in October 2012 and we are closely monitoring the service to ensure that people can access their payments.
Mark Pawsey
I recently met a constituent of mine who wishes to receive his pension payment in cash but has had some difficulty in doing so since the transition from cheques to simple payment. What support is available for people such as my constituent?
Mr Duncan Smith
The contract is working very well across the board at the moment. About 99% of all claimants are getting their money as required at the right time, and 95% are within 1 mile of outlets, or within 5 miles in rural areas. It is, therefore, better than the previous system and it is also cheaper. The last cheque system cost £30 million and was defrauded to the cost of about £5 million; this costs about £7 million.
Immediate responsibility for the individual mentioned by my hon. Friend lies with PayPoint and the bank. They have a responsibility to ensure that cash is available at every location. We take them to task over that and they will have to make restitution.
Glyn Davies (Montgomeryshire) (Con)
17. What plans he has to support disabled entrepreneurs.
The Parliamentary Under-Secretary of State for Work and Pensions (Esther McVey)
We offer a range of support to help disabled people get and stay in work, including Work Choice, the Work programme and Access to Work. In fact, we have extended Access to Work to make it available to disabled people setting up businesses though the new enterprise allowance.
Glyn Davies
Investment in disabled people’s user-led organisations has proved very helpful to disabled people, but does my hon. Friend accept that it is crucial for the coalition Government’s commitment to delivering fairness that we build on this policy?
Esther McVey
I share my hon. Friend’s views about disabled people’s user-led organisations, which is why we have put £3 million aside—£2.2 million has been spent so far—to support programmes that are being built by such organisations. I have been impressed with the innovative designs that have resulted from that, including, most recently, an app called Georgie, which was designed by a blind person and is now being manufactured and used across the country.
Michael Fabricant (Lichfield) (Con)
18. What plans he has to tackle the potential for digital exclusion under his plans for universal credit; and if he will make a statement.
The Secretary of State for Work and Pensions (Mr Iain Duncan Smith)
It is important to recognise that 80% of existing benefit claimants already use the internet. For the minority who do not, we are helping them move online by, for example, working with digital champions, testing the new universal credit system with more than 6,200 real claimants to date, and developing a local support framework to ensure bespoke services. Even before universal credit is introduced, we are seeing the effect of this change.
Michael Fabricant
My right hon. Friend gives a good indication of the progress being made, but he will know that a number of people who are applying for universal credit and, indeed, other benefits will not have access to a computer, technical skills or even broadband. What sort of support is he giving them?
Mr Duncan Smith
We have put—and will continue to do so—large numbers of internet access devices in jobcentres, so people will automatically get help and support when they go in. We are talking and working with local authorities to ensure that people will be able to gain immediate access through libraries and all other local authority outlets. We are also working with individuals to make sure that those who have computers at home fully understand how to use the system. The truth is that this will be helpful. The Opposition seem to occasionally miss the fact that 92% of advertised vacancies require basic IT skills and that if people do not have the ability to go on a computer, they cannot apply for the job.
Jeremy Lefroy (Stafford) (Con)
22. How many people are in receipt of out-of-work benefits; and what assessment he has made of the level of inactivity in (a) Stafford constituency and (b) England.
The Minister of State, Department for Work and Pensions (Mr Mark Hoban)
The proportion of people who are in work or looking for work is the highest for more than two decades, and the number of people who are claiming the main out-of-work benefits has fallen by 230,000 since 2010. In Stafford, about 5,000 people are claiming one of those benefits, which is down on the year and down since 2010.
Jeremy Lefroy
Last month, inactivity fell to the lowest rate since 1991 at just 22.3% of the working-age population. What has contributed to that fall?
Mr Hoban
There is a range of factors, including the resilience of the private sector in creating jobs and the fact that people are able to work more flexibly and thereby manage health conditions and look after children while working part time. The Government have had a relentless focus on using welfare reform to encourage more people to look for jobs and move into work. The benefit of that is starting to flow through.
Mr Clive Betts (Sheffield South East) (Lab)
T1. If he will make a statement on his departmental responsibilities.
The Secretary of State for Work and Pensions (Mr Iain Duncan Smith)
I welcome the recent introduction of mandation to universal jobmatch, which means that Jobcentre Plus advisers can mandate jobseekers to use the new service to help them find work and require them to demonstrate their progress. More than 2 million jobseekers are now registered, which is twice the number when I last updated the House. That shows just how quickly the system is revolutionising how jobseekers look for work.
Mr Betts
This question was raised with me by my constituent, Mr Leonard Jolicoeur. He asked whether it is true that someone who is of pensionable age when the new single-tier pension comes in and who has a small occupational pension and therefore does not receive pension credit will get the existing state pension, but that someone who is in exactly the same financial circumstances and becomes of pensionable age after the single-tier pension comes in will get the new single-tier pension, which is some £40 a week more. What can the Minister say to persuade my constituent that it is fair or reasonable for somebody who is in exactly the same financial circumstances as his neighbour to get £40 a week more than him?
The Minister of State, Department for Work and Pensions (Steve Webb)
That is not what would happen. People who have contracted out into an occupational pension, such as his constituent, currently get money off their state pension, which is called a contracted-out deduction. That will remain part of the single-tier proposition. Therefore, somebody such as his constituent who has contracted out would not get the £144. There is no cliff edge. There would be a deduction for past contracting out in both cases.
Andrea Leadsom (South Northamptonshire) (Con)
T3. Does my right hon. Friend agree that for Opposition Members to talk of the spare bedroom subsidy as a tax shows a profound lack of understanding on their part of what a tax actually is?
Mr Speaker
Order. I say gently to the hon. Lady that Ministers have no responsibility for the Opposition’s use of terminology. It is better that we leave it there. There has been a very full exchange on that subject.
Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)
May I start by thanking the Secretary of State for briefing me and my right hon. Friend the Member for East Ham (Stephen Timms) on his plans for urgent legislation, about which his Department has commented in The Daily Telegraph this morning? Both he and I believe that sanctions are vital to give back-to-work programmes their bite. However, when he signed off the 2011 regulations that created sanctions for the Work programme, why did he not check that they were legally bullet proof?
Mr Duncan Smith
The right hon. Gentleman knows that the advice that we received made it very clear that the regulations would survive a challenge, and that was the view that we took. As he knows, the High Court upheld our position. It was the Court of Appeal that decided, on quite a technical line, to change that position. The position on human rights was upheld, as was the main point of our direction of travel.
Mr Byrne
I do not think that it is a technical challenge when three Court of Appeal judges unanimously quash the 2011 regulations because they are not in line with the law. That mistake puts in jeopardy about £100 million of sanctions that have been issued. I did not think that the Work programme could get any worse, but it has. We will support wise and sensible legislation that will fix the problem, but will the Secretary of State take personal responsibility and apologise for this mess, which may cost twice as much as the west coast main line fiasco?
Mr Duncan Smith
The right hon. Gentleman knows very well that when Ministers make regulations, they take the fullest advice possible. That advice came to us; it was checked and it said that the regulations were fine. The High Court upheld them. It was the Appeal Court that decided that an element of that was not correct.
I do not wish to make this a political issue, and I take full responsibility for everything that goes on in my Department. I accept that we wish we were not in this position, but if the right hon. Gentleman supports the idea that people who have been mandated to do work, should take jobs and do work experience once they have volunteered without messing around otherwise they lose their benefit, I hope that we can look forward to his supporting the legislation that will ensure that we do not have to pay out money against a judgment that we never anticipated.
Mr Edward Leigh (Gainsborough) (Con)
T4. Is the Secretary of State aware that Conservative Members support his courage and his battles in trying to reduce the crippling burden of the social security budget? In particular, may I commend his quiet courtesy this weekend in reminding the Archbishop of Canterbury that trapping people in dependency is not necessarily a Christian response? What the Secretary of State is doing is a good and positive way of making work pay.
Mr Duncan Smith
I am grateful to my hon. Friend. I have no issue whatever with the Church of England and the bishops saying whatever they believe. It is right and proper that they should argue with us and put pressure on us on a variety of issues. However, I do not agree that the way to get children out of poverty is to keep transferring more and more money to keeping people out of work. The reality is that we are having to reform a system that became completely out of control under the last Government and get in place a system that gets people back to work, because being in work is how people get their children out of poverty.
Sheila Gilmore (Edinburgh East) (Lab)
T2. Mandatory reconsideration after employment and support allowance is refused and when somebody wants to appeal can lead to people being without either ESA or jobseeker’s allowance. Will the Minister ensure that a short time limit is set on reconsiderations so that people are not left without any income?
The Minister of State, Department for Work and Pensions (Mr Mark Hoban)
Mandatory reconsideration is in place to help accelerate decision making, so that the Department can revisit a case rather than have to wait for it to go to the tribunal. We try to keep delays as short as possible to ensure that we get the right outcome and get the right support to people as quickly as possible.
Paul Uppal (Wolverhampton South West) (Con)
T6. As the Minister may be aware, the number of private sector jobs in the west midlands decreased under the last Labour Government. Will he welcome the news, as I do, that Jaguar Land Rover is increasing investment in the engine plant in Wolverhampton by £150 million, creating an additional 700 high-skilled jobs?
Mr Hoban
My hon. Friend is right to celebrate the achievements of Jaguar Land Rover. In national apprenticeship week, I commend him for his work to promote apprenticeships in his constituency. He is right, and he points the way towards how a private sector-led recovery can increase employment. That is why we have seen 107,000 additional jobs in the west midlands.
Ann McKechin (Glasgow North) (Lab)
T5. Local housing associations in my area are deeply concerned about their ability to provide services as a result of this year’s welfare changes. What assessment will the Secretary of State make of their credit ratings, both this year and next? Does he expect them to go down the way?
Mr Duncan Smith
The best thing for me to do is to ensure that I write to the hon. Lady properly and place the reply in the Library of the House.
Glyn Davies (Montgomeryshire) (Con)
T7. Last week we discussed in the House the treatment of women across the world. To deliver equality and fairness of treatment in the United Kingdom, we must ensure equal access to work and remuneration. Does my hon. Friend agree that it is important to make a continuing assessment of the number of women in work?
Mr Hoban
My hon. Friend will celebrate, as I did on international women’s day, the fact that there are record numbers of women in work and that the number of women unemployed has fallen by 29,000 over the past year. We need to do more to get women in work, and universal credit will help, but it is important also to celebrate the flexibility of the labour market, which enables more and more people to work part time to meet their responsibilities.
Mr Jim Cunningham (Coventry South) (Lab)
T9. Why is the Secretary of State disregarding research by the National Housing Federation which shows that the discretionary fund to provide help with the bedroom tax is £100 million short of what is required?
Mr Duncan Smith
We are not. We listen to councils and everybody else who talks to us about these things, and ensure that we adjust accordingly. In reality, more than £280 million is going in discretionary payments direct to councils over two years to resolve these issues. That is more than ever before and I believe it is enough. We are asking councils to make sensible judgments that benefit the maximum number of people—tenants and those on housing benefit—in their areas.
Mr Shailesh Vara (North West Cambridgeshire) (Con)
T8. What assessment has the Minister made of the support available to disabled people through the Access to Work programme?
The Parliamentary Under-Secretary of State for Work and Pensions (Esther McVey)
Last year 30,000 disabled people were supported through Access to Work. We have extended that programme and added an extra £15 million, and it is working very well.
Hywel Williams (Arfon) (PC)
This afternoon I received a message in my inbox that was sent to all MPs and marked “importance: high”. It said that one-bedroom apartments, located in the most convenient and sought-after positions in the heart of St James’s, and including a spacious reception, double bedroom and fitted kitchen, were advertised at £390 per week although the landlord would take an offer to fall-in with the parliamentary allowance. Would the Secretary of State advise one of my Caernarfon constituents, currently luxuriating in a two-bedroom flat, to apply?
Mr Duncan Smith
No, I would not, and I hope that nobody else in the Chamber would be able to apply either—otherwise we may find out exactly what they are worth. The changes we are making with the spare room subsidy are to get rid of the subsidy that ordinary taxpayers are paying for people to under-occupy houses while many others live in overcrowded accommodation.
Mr Stewart Jackson (Peterborough) (Con)
There is significant concern across the country about the likelihood of welfare dependency as a result of immigration from Romania and Bulgaria from January 2014. Will the Minister look urgently at the habitual residence test within the context of the free movement directive and ensure that such issues are addressed in good time?
Susan Elan Jones (Clwyd South) (Lab)
Will the Secretary of State consider introducing a compulsory jobs guarantee for people who have been unemployed for two years or more?
Mr Hoban
The hon. Lady should be commended for trying to trot out a policy that I thought the Opposition had dropped two or three weeks ago. When such a scheme was piloted under the previous Government, it demonstrated that it was not good value for money or good for the unemployed. The hon. Lady should welcome the measures the Government are taking to get people into work. That is why record numbers of people are in work and unemployment has continued to fall for 11 months in a row.
Philip Davies (Shipley) (Con)
Although the Labour party thinks that the benefit cap is too low, the majority of my constituents think it is far too high. May I urge the Secretary of State to ignore the left-wing bishops, who probably do not even speak for the majority of people who go to church each week, let alone the vast majority of the British people?
Mr Duncan Smith
I listen to everybody who gives me advice although I do not necessarily follow it. The Government are doing the right thing in bringing in a benefit cap, and for the first time ever people on low and average earnings will realise that at last those on benefits will not be paid more through their taxes than they themselves earn.
Andy Sawford (Corby) (Lab/Co-op)
I met the mother of Hayden, a three-year old boy in my constituency, who has just received a letter stating that she must now pay the bedroom tax. Hayden has sleep difficulties and often has disturbed nights. Should he be forced to share a room with his four-year-old sister who will now also be disturbed, or will it all be okay because there is a tiny amount of discretionary funding?
Mr Duncan Smith
I do wonder that the Labour party, which sat in government for 13 years, never once raised the issue of people living in overcrowded accommodation, and never once seemed to care that huge numbers of people were on the waiting list. Nevertheless, Labour Members bleat about those who are under-occupying and are being subsidised by poorer people who cannot find accommodation.
David Mowat (Warrington South) (Con)
The Pensions Minister will have seen the recent press coverage about the high margins generated by annuity providers. That comes as no surprise given the complete market failure that has occurred in large parts of the private pension industry. Will he consider imposing a uniform product structure—as has been done in energy—and will he enforce legally the open market option?
Steve Webb
My hon. Friend has a good track record of challenging the issue of charges and value for money. The Association of British Insurers has just published its code of practice, to which members have to sign up, to ensure that instead of people just defaulting to the provider they save with, they shop around. We will monitor closely whether that makes the market more effective. [Interruption.] Opposition Members are shouting “Do something”, but they did not do something when they were in power.
Mr William Bain (Glasgow North East) (Lab)
A constituent I met on Saturday is a divorced lone parent who works hard for a low income, and his children stay with him on three evenings a week. Why does the Secretary of State believe that such a hard-working individual should lose £12 a week under his hateful bedroom tax?
Mr Duncan Smith
Again, another hon. Member who does not know the difference between a subsidy and a tax. The reality is that those who do not occupy all the rooms in social housing are being subsidised by many of those who live in overcrowded accommodation. Let me remind the hon. Gentleman—Opposition Members do not like to be reminded—that under local housing allowance for the private social rented sector, which was introduced by the previous Labour Government, people were not allowed to occupy houses that had spare bedrooms.
Dr Julian Huppert (Cambridge) (LD)
The Government’s under-occupancy policy relies on people being able to move into appropriately-sized housing, but in specific parts of the country that is very hard to achieve. Does the Secretary of State agree that no benefit reduction should take place until people have at least been offered somewhere appropriately sized and located? Will he make sure that there is enough discretionary housing budget for councils to ensure that that is the case?
Mr Duncan Smith
I agree, particularly with the last part of the question. We have set aside £280 million over two years for councils to be able to negotiate and work out with their tenants the best and most amenable way to go. My hon. Friend’s question is constructive, in sharp contrast to the Opposition. All they can do is moan about a policy, but in 13 years they did nothing about overcrowding, with the lowest level of house building since the 1920s.
Helen Goodman (Bishop Auckland) (Lab)
When the bedroom tax is introduced in my constituency, some people, who will be unable to move because properties are not available, will be left with £18 a week to live on. During the recess, I tried that to see what it would be like. I have had a lot of messages from members of the public asking me one question: will the Secretary of State try for a week to live on £18?
Mr Duncan Smith
When we made changes to local housing allowance, the hon. Lady and others prophesised that hundreds of thousands of people would be made homeless—they went up and down the country scaring everybody. The figures now show that our homeless figures are lower than the peak under the previous Labour Government.
Overseas Aid (Private Sector Contracts)
(11 years, 9 months ago)
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Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
Each Urgent Question requires a Government Minister to give a response on the debate topic.
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Mr Ivan Lewis (Bury South) (Lab)
(Urgent Question): To ask the Secretary of State for International Development to make a statement on her Department’s policy on tied aid, and the criteria applied to private sector contracts in the light of briefings over the weekend and her recent speech to business leaders at the London stock exchange.
The Secretary of State for International Development (Justine Greening)
I am delighted to update the House on my speech today. There is no change on the Government’s policy on tied aid. I was clear in my speech on 7 February, and again this morning when I said:
“I am not talking about tied aid. I do not believe that is the way to achieve good, sustainable development...It’s the wrong way to go about things.”
That answers the hon. Gentleman’s first point.
Department for International Development contracts are awarded in line with EU procurement regulations. The vast majority are subject to competitive tender. The evaluation process for large contracts includes an assessment of technical and commercial criteria, which are published at the outset of the tender. That answers his second question.
In relation to today’s speech on pursuing poverty reduction and an end to aid dependency through jobs, it is clear that economic growth is vital in developing countries. Wherever long-term per capita growth has been higher than 3%, we have seen significant falls in poverty. Sustainable public services in the developing world, as here in the UK, need a funding stream of tax receipts, and that means a thriving private sector. Today, therefore, I have been discussing how DFID will put increased emphasis on economic development, including through reducing overall barriers to trade and investment; unlocking the ability of entrepreneurs and business people in developing countries to drive economic growth through their own businesses; and fostering greater investment by business in developing countries and those in the UK. I want more businesses, including those in the UK, to join the development push with DFID. We all have the opportunity to help build up responsible trade with developing countries.
Finally, may I welcome the positive response from organisations such as CARE International and the Overseas Development Institute? The former said that
“it’s no longer an option for development agencies to view business as operating in a parallel universe”.
Mr Lewis
I would say to the Secretary of State that economic growth matters in all countries, although I thank her for her response, despite the fact that these policies should have been announced to the House first.
This year should have been a source of unity and pride for decent Members on both sides of the House and many campaigners across the country. This year, Britain should once again have been a light unto the nations, with the Government honouring Labour’s historic 0.7% commitment. Instead, over the past fortnight, we have seen two cynical interventions that threaten to undermine the UK’s global reputation for progressive development: first, the Prime Minister’s suggestion that holes in the defence budget would be plugged by aid money; and, secondly, the Secretary of State’s ill- advised briefings over the weekend, ahead of her speech today.
We support the private sector’s central role in stimulating jobs and growth in developing countries and welcome the fact that UK companies are seeking to access growing markets, but we are vehemently against tied aid, trickle-down economics and growth that has no focus on inequality or sustainability. I have several questions for the Secretary of State, therefore: first, why did she brief a return to tied aid over the weekend yet deny it today? Secondly, will she assure the House that no company engaged in tax dodging will receive any funding or support from DFID? Thirdly, will she confirm whether companies that are to receive DFID support will have to demonstrate decent employment practices, including acceptable levels of pay to workers in developing countries, throughout their supply chain? Fourthly, under what circumstances does she think that a British company should be awarded a contract in a developing country without having to compete in a fair and transparent tendering process?
As a substantial increase in the DFID budget is set to take effect, these interventions have nothing to do with the national interest or our commitment to the world’s poorest, but are an act of desperation by a Prime Minister who once earned cross-party respect for making the moral case for aid. He is now so weak that he is reduced to misleading the British people that UK aid in the future will largely be devoted to defence and UK business. The big society is gone, the green agenda is gone and now sound development policy has been undermined to satisfy the Tea party tendency in his party. It is the same old Tories.
Justine Greening
The Member asking an urgent question normally has some additional questions, but I do not think the hon. Gentleman asked any. He talked about the Daily Mail. We know from his time with the shadow Culture, Media and Sport brief that he is keen on muzzling the press. I noticed that, in spite of all his rhetoric, ultimately he supports what I am saying about getting business more involved in the development push. I must remind him, however, that it was this Government, not the previous Government, who set up a private sector department within DFID. He had 13 years to do that, but failed.
I also noticed how quickly the hon. Gentleman turned to highlighting the risks of businesses getting involved in development. The Government seek to mitigate those risks and are working hard on initiatives on transparency and governance. He will be aware of the ethical trading initiative, which looks at how we can ensure that companies get involved responsibly. I want to set out today not only how we can take steps to mitigate those risks, but how we can tap into the huge opportunities that business, particularly UK business, can offer developing countries to help them develop and, in doing so, lift the poorest people out of poverty. I believe that is not just in the UK national interest—although frankly it is in our national interest to be market-making and to see more economies in this world that we can trade in—but in those people’s interest too. Men or women in developing countries say they have one top priority: to get a job. We can work with business on that.
Sir Gerald Howarth (Aldershot) (Con)
I welcome my right hon. Friend’s statement this afternoon, but given that the £11 billion that she will have at her disposal this year comes entirely from the pockets of her, my and our collective constituents, is it not right that, wherever possible, it should be returned to British companies that offer first-class equipment and services to overseas countries, which are the beneficiaries of British taxpayers’ aid?
Justine Greening
UK companies have a key role to play. In fact, my hon. Friend will be interested to know that, in terms of their value, more than 90% of the contracts awarded by the Government go to UK companies. That is probably because those companies out-compete other companies, but also because we have a strong corporate governance structure, which many other countries seek to emulate.
Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab)
But is the Minister aware that there are genuine concerns that the objective of 0.7% of gross national income is being swallowed up—or might be—by it being diverted to the Ministry of Defence or some other Department? Does she not agree that development is about removing poverty and ensuring sustainable development? If we are to be convinced that the Government are on the right road, can we have some of the transparency that was promised, for example, in the International Development (Reporting and Transparency) Act 2006?
Justine Greening
On the right hon. Gentleman’s last point, we do have transparency. In fact, I think I am right in saying that my Department was rated as the most transparent organisation in the series of stakeholder organisations involved in development. In answer to his earlier question, he will be aware that the definition of official development assistance—as set out by the OECD and monitored by the development assistance committee, or DAC, the organisation that brings together donors—is clear cut, and we will stay within it.
Mr Peter Bone (Wellingborough) (Con)
May I thank the shadow Minister for asking the question? I would like him to ask a lot more parliamentary questions such as that, because it is great to give the Secretary of State’s speeches a more widespread audience. She is absolutely right: the answer to the problem is not aid, but trade.
Justine Greening
I agree with my hon. Friend; indeed, so would the Indian Finance Minister, who said aid is the past, trade is the future. This is about ending aid dependency by driving growth and job creation.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
The Secretary of State may wish to correct the record on the private sector team: there has been one in DFID for a number of years. After the Budget next week, will the proportion of the 0.7% commitment spent by Departments other than DFID—if they meet it—be increased, and if so by how much? Will she also confirm that all our spending will be in line with the terms of the International Development Act 2002?
Justine Greening
Our spending will be in line with the International Development Act 2002 and the ODA definition. The split of ODA across Departments can change. As the hon. Gentleman knows, we have done a lot of work with the Foreign Office and the Ministry of Defence in conflict and in fragile states. We will continue to look at how we can do that effectively, but I think I am less interested in where ODA sits than I am in the impact it has on the ground. If he really cares about getting the most out of the budget we have got, I hope he will prioritise that over taking cheap political shots.
Martin Horwood (Cheltenham) (LD)
I welcome the Secretary of State’s statement. Drawing on my experience in Oxfam, rather than the Labour party’s sources in the Daily Mail, does she agree that private sector decisions have a disproportionate impact on people’s lives, for good or ill, and that we have to engage with the private sector to have a complete view of development?
Justine Greening
My hon. Friend is absolutely right. Major companies in the UK such as M&S know this as well—that is why it has NGOs such as Oxfam on its sustainable retail advisory board. It seems that the only people who have not caught up are the Opposition.
Gavin Shuker (Luton South) (Lab/Co-op)
May I commend the Secretary of State for her courageous commitment to the 0.7% target, but say to her that the way to appease those on the Benches behind her who do not want that commitment to go through is not to try to sound right wing on aid, but to take on the argument?
Justine Greening
We have been making the case for international development, and I would say to the hon. Gentleman that what I have announced is what I think is the right thing to do; it is not about how I want to please anybody in the House.
Fiona Bruce (Congleton) (Con)
I thank the Secretary of State for her announcement. Does she agree that many developing countries fundamentally aspire to the dignity of moving out of donor dependency, and that one of the best ways in which we can help them to do that is by strengthening their private sector? What role does she see for parliamentarians and for businesses in our local constituencies, following her policy announcement today?
Justine Greening
I agree with my hon. Friend about the impact that economic growth and jobs can have on reducing recipient country dependency. The President of Liberia, Ellen Johnson Sirleaf, has said that aid should not be an alternative to self-sufficiency. Developing countries want to plough their own furrow and take control of their own destiny. We want to reach out beyond the large companies with which we are already working, such as M&S, Diageo, Tesco, Sainsbury’s and other stock exchange-listed companies, to the small and medium-sized companies in Britain, to see whether we can get a broader base of companies to join the development push.
Richard Burden (Birmingham, Northfield) (Lab)
Along with other members of the International Development Committee, I have just come back from Ethiopia, and I can tell the Secretary of State that DFID staff are already working with colleagues in other Government Departments to try to involve British business in development. There is nothing wrong with that, but will she accept that there is no easy line to be drawn between tied aid and untied aid? We have only to look at the way in which the United States’ development efforts work to understand the truth of that. The Tea party tendency that my hon. Friend the Member for Bury South (Mr Lewis) referred to is alive and well in her party, so how will she prevent her announcement today from being used in some quarters to—
Mr Speaker
Order. I think we have the gist of the hon. Gentleman’s question.
Justine Greening
The US Agency for International Development—USAID—would accept that part of its development spend takes the form of tied aid, but I have made it very clear that that is not what I am talking about here. I know that the hon. Gentleman finds this issue complex, and I accept that there are risks that we will need to manage, but they can be managed. Instead of seeing only the risks, we should see the opportunities too.
Tim Loughton (East Worthing and Shoreham) (Con)
I commend my right hon. Friend for her patience when listening to such sanctimonious drivel from the other side. Does she agree that while well-targeted aid from agencies can alleviate poverty and suffering in the short term, it is only through private business helping to eliminate poverty through micro-finance and through using private ownership, private innovation and private employment that we can achieve a long-term solution to the poverty that she and I are both striving to eliminate?
Justine Greening
My hon. Friend is absolutely right. There is another reason that the involvement of the smallest companies in developing countries is so important. Many of them are agricultural smallholdings run by women, and we know that if they can invest in and grow those businesses, 90% of the income will be reinvested in their families and communities, providing a double bonus.
Fiona O’Donnell (East Lothian) (Lab)
In her response to the shadow Secretary of State, the right hon. Lady rightly mentioned the need to increase tax receipts in developing countries and to have responsible trade. Has she had any discussions with the Chancellor of the Exchequer to advance those two causes ahead of next week’s Budget?
Justine Greening
The hon. Lady might have seen that I have today set out our plans to work with Her Majesty’s Revenue and Customs to set up a tax capacity-building unit, which will provide tax expertise to developing countries to help them to broaden their tax base and improve their tax collection. The Chancellor has made it clear that we want to see real progress on tax and tax transparency at the G8, which is why they are on the agenda.
Pauline Latham (Mid Derbyshire) (Con)
The hon. Member for Birmingham, Northfield (Richard Burden) and I came back from Ethiopia last week. A company called Pittards is investing money from this country to upskill people there—it has helped 1,500 so far and it wants to get up to 5,000. It is paying more than the minimum wage. Does the Secretary of State agree that that is the best way for companies to invest, to get the right products coming back to this country and exported all over the world, and to get women into better jobs?
Justine Greening
I completely agree. My hon. Friend has provided a really good example of how this can work in practice. Another good example would be Taylors of Harrogate, which has worked to improve its tea collection and tea capability in Rwanda. It has not only improved things but brought about new products that benefit us all. This is a really practical way of lifting the poorest people in developing countries out of poverty—not just through cash transfers, but by genuinely providing them with what they want: a job.
Andrew Gwynne (Denton and Reddish) (Lab)
I was pleased to hear the Secretary of State refer to ethical standards in her response to my hon. Friend the Member for Bury South (Mr Lewis). Will she outline what standards her Department requires private sector-led DFID projects to meet in respect of work and labour?
Justine Greening
In my answer to the shadow Secretary of State, I set out the criteria we use for giving out contracts. We need to engage with the CBI—we have already had initial meetings—on how to get a more structured approach to responsibly engaging business in the development push. It is right to point out that there is a good way and a bad way of doing this, as the hon. Member for Denton and Reddish (Andrew Gwynne) says. The key thing for today is to engage in a process, working with the CBI, industry federation bodies, non-governmental organisations and stakeholders, business schools around Britain and other communities, about how to develop a proper strategy for getting business involved in the development push. That is what I want to see happen. To date, we have done a number of ad hoc projects, but now we need to pull them together and develop a more holistic strategy.
Mr Henry Bellingham (North West Norfolk) (Con)
I congratulate the Secretary of State on her excellent speech this morning, and I particularly welcome what she said about relieving poverty through trade. Does she agree that one of the best ways of unlocking wealth creation is through free trade agreements in developing countries? Would she particularly welcome Trademark East Africa, a Southern African Development Community- led tripartite agreement?
Justine Greening
Yes, I would. DFID has supported the Trademark East Africa initiative, and my hon. Friend will be aware that African Union leaders want to create a free trade area by 2017. It is an ambitious plan, but one that we should support.
Kevin Brennan (Cardiff West) (Lab)
Last Friday, I received a group of constituents from the IF campaign, Enough Food for Everyone, who asked me to seek assurances from the Government and the Secretary of State that the commitment to the 0.7% gross national income figure remains as strong as ever, and that she will resist any attempts to overturn it. What words of assurance can she give to my constituents?
Justine Greening
I think we can be judged by our deeds, and also by the fact that I am wearing an IF campaign bracelet here today.
Jeremy Lefroy (Stafford) (Con)
As chairman of the all-party group on Tanzania, I can say that the UK is the biggest investor and one of the biggest traders with, and donors to, Tanzania. Does my right hon. Friend agree that aid does not need to be tied to be beneficial to the UK?
Justine Greening
My hon. Friend is absolutely right. We are talking about having a balanced approach with these countries, developing their public sector, but also helping them to develop their private sector. He is right to say that, ultimately, that is the best way to see change on the ground. I would like to see UK business and companies getting more involved with that as a means of supporting it.
Chris Bryant (Rhondda) (Lab)
Contrary to some of the rhetoric we have heard from the Government on immigration, the vectors that lead to people from these countries coming to this country and elsewhere in Europe are not the benefit system, but poverty, famine, war and insecurity in their own countries. Surely, then, part of our argument to people who are worried about our spending money on development must be that it is in our best interests to enable people to live a decent, healthy life in their home and stay there.
Justine Greening
I never thought I would say this, but I agree with the hon. Gentleman!
James Duddridge (Rochford and Southend East) (Con)
Does the Secretary of State agree that it is somewhat surprising to see the Opposition Front-Bench team being so negative, because this project builds on the good work done not just by this Secretary of State and the previous Secretary of State, my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), but by the last Labour Government? In fact, the best example I can find of this succeeding was started by the last Labour Government, so perhaps they should be praising us. I refer to the Vodafone and M-Pesa deal—the type of deal we should do a lot more of, yet exactly the type of deal they are criticising today.
Justine Greening
I agree: it is pretty bizarre. I think that we should ramp up this work, because it can have real benefits for people in developing countries. I thank my hon. Friend for his interest and his efforts, which have been incredibly important.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
Last week the Secretary of State spoke about the needs of women and girls in the context of development. What explicit commitments to gender equality have been built into the Government’s plans to promote economic growth and responsible trade in developing countries, and how will that be measured?
Justine Greening
Ensuring that we understand the impact of our programmes on women and girls is increasingly dependent on our obtaining good facts—in other words, gender-disaggregated data. All our country programmes involve thinking about how the work that we do affects women and girls. When discussing our economic development strategy with business leaders this morning, I made it clear to them that the issue of women and girls is perhaps the most powerful in driving changes on the ground, not just short-term changes through the alleviation of poverty but changes in attitudes towards women.
Mark Pritchard (The Wrekin) (Con)
I congratulate the Secretary of State on her excellent statement. I believe that the current millennium development goals expire in 2015, and that—as discussed in Liberia—economic development may be one of the new goals. In my view, the public sector does not have all the answers and neither does the private sector. Might not a combination of public and private deliver some of the answers for sustainable development?
Justine Greening
My hon. Friend is absolutely right. No one can achieve this agenda on their own. We have been working on it, but we must increasingly work on it together, adopting a single strategy rather than disparate parts. I agree with CARE that we should stop working in, as it were, a parallel universe with businesses, and start working in the same world.
Jane Ellison (Battersea) (Con)
Before entering Parliament, I worked for one of many good private sector companies, the John Lewis Partnership, which, through both John Lewis and Waitrose, does terrific work with suppliers overseas. Does my right hon. Friend agree that it is rather depressing that the Labour party has so little faith in the ability of such private sector companies to do good in relation to this agenda?
Justine Greening
My hon. Friend is very well placed to ask that question, and she is entirely right. I think that we should be proud of the work of companies such as John Lewis and Waitrose, which not only makes business sense for them but makes a huge difference to the thousands of young people whom they are not only employing but “skilling up” in countries such as South Africa. We are delighted to be working with Waitrose. It is projects of that kind that have led me to announce today that I want to do more, and to do it in a more structured way.
Let me also thank my hon. Friend for the incredibly important work that she has been doing in raising awareness of female genital mutilation.
Geoffrey Clifton-Brown (The Cotswolds) (Con)
Does my right hon. Friend agree that the public sector is often too large in the poorest countries in the world? Is not the best way in which her Department can help to release people from poverty sustainably to create a climate in which the private sector in those countries can flourish? Has that not been proved in countries such as Vietnam?
Justine Greening
My hon. Friend is right. Part of DFID’s work involves helping to create developing-country environments that are, as it were, “investable in”. That means pursuing the Prime Minister’s “golden thread” agenda in relation to the rule of law, the ability to set up contracts and the establishment of the right legal base. Those will all be key ingredients if we are to see business flourish in developing economies.
Damian Hinds (East Hampshire) (Con)
Does my right hon. Friend agree with the business leaders who are quoted in today’s Financial Times as saying that the prospects of the world’s poorest people are increasingly being defined by what businesses do, alongside the established work of Governments? Cannot private sector development simultaneously help those people, and economies throughout the rest of the world—including our own—through specialisation, trade and economic growth?
Justine Greening
The short answers to that question are yes and yes. As was pointed out in the Financial Times, aid and business constitute a crucial alliance, which we must try to bind more closely.
Richard Fuller (Bedford) (Con)
It is no surprise, is it, that the Labour party’s hostility to the private sector led Opposition Members to miss my right hon. Friend’s observation that ignoring that sector’s role in development was like trying to win a football match by leaving half one’s team on the bench? Can she add to her excellent list of initiatives an initiative to tap the entrepreneurial potential of Britain’s various diaspora communities by supporting development in their countries of origin?
Justine Greening
My hon. Friend will not be surprised to hear that this issue was raised after my speech in this morning’s question and answer session, and it is an incredibly powerful one. I believe that this country has more natural links to many of these developing economies than almost any other country in the world. We should be making the most of those and allowing our diasporas also to be part of helping the countries to which they have family links to develop.
Mr Graham Stuart (Beverley and Holderness) (Con)
Trade with the developing world was an insufficient priority of the previous Administration, yet it is economic dynamism, not dependency, that our development spend should be seeking to encourage. I congratulate my right hon. Friend on her speech. Does she agree that British education companies have a key role to play in developing the economic strength of developing countries, which will be good both for them and for us?
Justine Greening
I do agree and, for example, we are talking with Pearson about how we can work more closely with it in places such as Pakistan. A number of sectors in our country’s economy have real value to add. We have talked a lot about retail today, but education is yet another sector where we have so much knowledge and so many skills. We can pass those things on to developing economies, and it is in everybody’s interests to do so.
Andrew Jones (Harrogate and Knaresborough) (Con)
I welcome my right hon. Friend’s statement, and I noted her mention of my former employer, Taylors of Harrogate, in both her speech this morning and in the House this afternoon. Does she agree that trade and partnership, thus creating sustainable economic growth, is the key to taking people out of poverty?
Justine Greening
It certainly is, and statistically we have seen that that equation absolutely holds. As anybody who has ever been to Harrogate will be aware, it is definitely worth while dropping into Bettys, where people can sample some fantastic Taylors of Harrogate tea.
Glyn Davies (Montgomeryshire) (Con)
I congratulate the Secretary of State and the Prime Minister on their continuing commitment to standing by our international obligations to United Nations targets. Does the Secretary of State accept that it is crucial to focus on effectiveness, flexibility and value for money in each situation? Does she agree that that will be done sometimes through supporting security and sometimes through humanitarian aid, but always by using the dynamism of the private sector to maximise the long-term impact?
Justine Greening
My hon. Friend is right. Even when we are building up core basic services, the innovation of the private sector has a real role to play, and my Department has sought to tap into that. There is a strategic question about what we need to do for ourselves and what expertise we buy in from outside, but there is no doubt a key role for the private sector to play.
Gavin Williamson (South Staffordshire) (Con)
Will my right hon. Friend use her position to encourage both her Department and the many aid organisations that it supports and funds to start buying more British-manufactured vehicles? Far too often we see foreign-manufactured vehicles being purchased by aid organisations, even though we all know that the best 4x4s are manufactured in the midlands and have a Land Rover badge on the front of them.
Justine Greening
My hon. Friend has made his point, and I am sure that the non-governmental organisations will have been listening to this urgent question and will have taken note accordingly. As I have said, we aim to get best value for the taxpayer, and I am sure that in many cases that best value is indeed British.
David Mowat (Warrington South) (Con)
Fifty years ago, South Korea had the same GDP per head as Ghana and now its figure is about the same as the UK’s. This has been achieved by trade, not principally aid. What more could the Department do to ensure that there are more South Koreas—we hope in sub-Saharan Africa—in the next 50 years?
Justine Greening
In the past decade, sub-Saharan Africa has probably had one of the fastest growth rates in the global economy. As my speech set out, and as my hon. Friend rightly says, we need to do more work in this area and to work in the business environment to really drive economic development and jobs.
Point of Order
Chris Bryant (Rhondda) (Lab)
On a point of order, Mr Speaker. You will recall that last year the Prime Minister said that he wanted to be as open and transparent as possible about public meetings held by Ministers and that Ministers would publish all meetings with outside bodies on a quarterly basis. You will also recall—I remember you were in the Chair at the time—that earlier this year the Secretary of State for Culture, Media and Sport said that they were being published in the usual fashion and that if they were not she would ensure that they were. It now transpires that the Prime Minister’s meetings with the proprietors and editors of national newspapers were not published until very recently for any date beyond last June. Now we have the information for up until September. This very afternoon, serious decisions are being made about what should be done to implement the Leveson inquiry and to introduce legislation to this House. Will you confirm that the Secretary of State for Culture, Media and Sport could, if she wanted, either hasten the publication of further information so that we all know exactly who the Prime Minister has been meeting with, or correct the record, as what she said earlier this year was not strictly speaking accurate?
Mr Speaker
It would be open to the Secretary of State to opt for either of the courses of action that the hon. Gentleman has helpfully described. We will leave it there.
Financial Services (Banking Reform) Bill
(11 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
21:48 - The House divided: - Ayes: 277 / Noes: 218 - Question accordingly agreed to.
The Financial Secretary to the Treasury (Greg Clark)
I beg to move, That the Bill be now read a Second time.
The Bill has a simple objective at its heart, which is to answer what the Chancellor has called the British dilemma: how can Britain be one of the world’s leading financial centres without exposing ordinary working people in this country to the terrible costs of banks failing?
Let me illustrate both sides of the dilemma. The financial services sector is one of our most important industries. Together with related services, it employs around 2 million people in this country, two thirds of whom work outside London. Even in the recession, financial services contribute about £1 in every £8 of government revenue to pay for public services. The industry is by far our biggest exporter, generating last year a £47 billion surplus from overseas trade and providing us with vital foreign exchange earnings.
Mr Andrew Love (Edmonton) (Lab/Co-op)
The Chancellor is on record as saying that this is a critical piece of legislation if we are to get the banking system right, yet he chooses not to appear before us today. There has been no explanation of why the Chancellor is not in the Chamber. Could the right hon. Gentleman give us one?
Greg Clark
I should have thought it was reasonable for the Financial Secretary to the Treasury to introduce a Bill on financial services.
Let me continue to make my point. The financial services sector is of great importance to Britain, but that importance carries risks for this country. At their peak, the banks’ balance sheets amounted to 500% of UK GDP, compared with 100% in the US and 300% in France and Germany. In 2008, for example, the Royal Bank of Scotland was the biggest bank in the world and, as we all know, Britain also witnessed the first bank run for more than a century, with depositors queuing in the streets to get their savings out of Northern Rock. RBS and HBOS had to be bailed out, with £65 billion of taxpayers’ money needed to shore up the banks.
The system of regulation failed, as did the culture of the banking sector, in not preventing and resolving the crisis without recourse to taxpayers’ money or otherwise putting people’s deposits at risk. That is why fundamental reform was needed, the first pillar of which has been put in place through the passage of the Financial Services Act 2012, which received Royal Assent in December and establishes a clear and distinct role for prudential regulation and conduct regulation, a role that was blurred and ineffective.
The Bill is the second pillar of those reforms and it reflects the considered views of no fewer than two expert commissions. The first, chaired by Sir John Vickers, was the Independent Commission on Banking, whereas the second, chaired by my hon. Friend the Member for Chichester (Mr Tyrie), was the Parliamentary Commission on Banking Standards, on which many Members of the House have served.
Let me say something about the process we followed, briefly summarise how the Bill reflects the recommendations of each commission and then explain in some detail the rationale for the few remaining areas in which the Government’s proposed approach differs.
Alison McGovern (Wirral South) (Lab)
In his discussion of the process, will the Financial Secretary explain why, given that the crash in 2008 to which the Bill is a response was one of the most momentous economic events in my lifetime and the lifetimes of many people, and given the importance of its proposals, the Chancellor did not see fit to lead the debate today?
Greg Clark
I am disappointed that my presence here does not satisfy the hon. Lady. The Chancellor trusts his Financial Secretary to speak at the Dispatch Box. I do not know how it is in the Opposition.
Chris Leslie (Nottingham East) (Lab/Co-op)
Will the Minister at least tell us where the Chancellor is? Is he watching on television? Is he doing some shopping or knitting? What is going on? Where is the Chancellor right now?
Greg Clark
I should have thought that the hon. Gentleman would reflect on the fact that the Chancellor has many serious responsibilities and he is discharging them at the moment.
Let me talk about the process that we have followed, then I will address in some detail the particular aspects of content. The process that we have followed has sought to come up with the best possible way to address the dilemma that I described, and to do so by building, as far as possible, a broad consensus. That may not be there—yet—on every particular, but I think most Members would concede that Sir John Vickers’ commission has come closer to achieving that than many people thought possible.
The Independent Commission on Banking was established as soon as possible after the general election, in June 2010. It took extensive evidence before publishing an issues paper in September 2010 and an interim report in April 2011, on which it consulted, before publishing its final report in September 2011. The Government gave, and consulted on, an initial response in December 2011, before issuing a White Paper for consultation in June 2012. In the light of the responses to the consultation, a draft Bill was published last October and the Parliamentary Commission on Banking Standards was asked to subject it to pre-legislative scrutiny. The parliamentary commission’s report was published on 21 December last year and many of its recommendations were accepted in the Bill published in February and laid before the House.
At the time of introduction, I made it clear from the Dispatch Box that we would table further amendments in response to the commission’s future recommendations as the Bill proceeds through both Houses. I hope that Members on all sides would agree that this has been an exceptionally extensive process of both policy development and scrutiny of emerging proposals, and I repeat what I said to the right hon. Member for Wolverhampton South East (Mr McFadden) last month, that I will personally insist on taking a constructive and open-minded approach to the views of this House throughout the Bill’s passage. To the extent that the Bill reflects the unanimous views of Parliament, it is immeasurably strengthened.
Kelvin Hopkins (Luton North) (Lab)
Does the Minister accept that one of the major factors in the 2008 crisis was the complete failure of the auditing sector to get a grip on what banks were doing? Will he be putting forward proposals for strengthening audit for the future?
Greg Clark
That was not a set of particular recommendations in the reports that were commissioned, but I know that it is of some interest to members of the parliamentary commission and, as I will go on to say, we stand ready to consider their further recommendations, and I dare say they might have something to say in that respect.
Chris Leslie
I want to pick up on the Minister’s statement that he wants to take this parliamentary process seriously and listen to the debates. If that is the case, why on earth has he ignored the clear recommendation of the Parliamentary Commission on Banking Standards that there should be a three-month gap between the publication of the Bill and the Committee stage in the House of Commons? We will not have a Committee stage at a time when we can fully take account of the final recommendations of the commission. Is that not totally contemptuous of the Commons parliamentary procedures? Perhaps that is why the Chancellor has not turned up for the debate.
Greg Clark
I just said that I intend to be constructive and to pursue the approach that we have taken. If the hon. Gentleman will be patient, I will respond shortly to that particular recommendation.
Let me summarise the principal contents of the Bill where they reflect the advice of one or both of the commissions, before I set out the areas in which we take a different view. One of the central recommendations of the Independent Commission on Banking is that the UK banks should ring-fence
“those banking activities where continuous provision of service is vital to the economy and to a bank’s customers.”
That recommendation has attracted widespread support, and the Bill creates the basic architecture of the ring fence by making it an objective of the regulator—the Prudential Regulation Authority and, if necessary, the Financial Conduct Authority—to secure the continuity of core services by preventing ring-fenced bodies from exposing themselves to excessive risks, by protecting them from external risks, and by ensuring that, in the event of failure, core activities can carry on uninterrupted, the so-called resolution objective. The core activities are defined, as recommended by Vickers, as the taking of retail and small and medium-sized enterprise deposits and overdrafts, but they can be added to if required through secondary legislation.
In response to the parliamentary commission’s recommendations, the Bill is now clear that to be ring-fenced means that the five so-called Haldane principles of separation should be followed, namely that the ring-fenced bodies should have separate governances, including boards; remuneration arrangements; treasury and balance sheet management; risk management; and human resource management. As the parliamentary commission has also recommended, directors of banks will be held personally responsible for ensuring that the ring-fence rules are obeyed. The parliamentary commission also made a recommendation that the ring fence should be electrified. That is to say that, if the rules are breached, the banks should be forcibly split.
While the Bill is before the House, the Government will bring forward amendments to provide a power to require the full separation of a banking group, where, in the opinion of the regulator and the Government, such separation is required to ensure the independence of the ring-fenced bank. As hon. Members know, the parliamentary commission made a further recommendation for a power to trigger separation of the entire system, which I will come to shortly.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
How confident is the Minister that over the coming years the all-powerful financial lobby will not water down the ring fence and return to a business as usual scenario?
Greg Clark
That is a principal source of concern. Sir John Vickers, the author of the report, has given evidence in public that he is confident that the arrangements are robust, but we reflected on one of the recommendations of the parliamentary commission to provide this electrification so that there are consequences for a bank that tries to game the system. That is right and it is a valuable contribution from the commission.
Mr Andrew Tyrie (Chichester) (Con)
Sir John Vickers has in evidence to us also endorsed in full our proposals for electrification, part of which the Government are rejecting.
Greg Clark
I will deal with the important recommendation made by my hon. Friend’s commission very shortly.
For the sake of completeness, let me summarise the Bill’s other main provisions.
Stewart Hosie (Dundee East) (SNP)
The Minister said that electrification would work because the regulator—the PRA or the FCA where a financial institution is not PRA-regulated—will be given the power to ensure core services. Does he see any issues arising if the PRA and the FCA perhaps take a different approach to what they might do to the same institution? Is there a concern about two different regulators looking at different institutions on the same matter?
Greg Clark
The hon. Gentleman makes an important point, which we considered in drafting the Bill. We would expect all of these activities and institutions to be regulated by the PRA. The FCA was included in the Bill as a means of ensuring that if some other activities were to take place in the future—although we do not envisage that happening—it would not be necessary to come back to the House. That is our clear intention.
Let me summarise what the Bill does include before I go on to talk about what it does not. As proposed by the independent commission, the Bill provides that deposits protected by the Financial Services Compensation Scheme—the deposits of individuals and small businesses up to £85,000—will be preferential debts in insolvency. The Bill provides the regulator with the power to require ring-fenced banks to maintain a buffer of at least 17% of what is referred to as the primary loss absorbing capacity—that is, equity, other non-equity capital instruments, and debt that can be written down or converted into equity in the event that a bank fails. This allows losses to fall on the bank’s wholesale creditors—sophisticated financial investors—rather than on ordinary taxpayers, as was the case with RBS.
A legitimate question arises as to whether additional loss absorbency requirements should apply, in an international financial centre such as the United Kingdom, to the overseas operations of UK-based global banks. This has been much debated in the House, both before the parliamentary commission and elsewhere. It is obviously right that where the overseas businesses of a UK-based bank could pose a threat to UK financial stability, or to the British taxpayer, that bank should issue loss-absorbing debt against the entirety of its group operations. Equally, where overseas units do not pose such a threat they should be exempt from loss-absorbing debt requirements, not least to avoid creating a false impression that the UK somehow stands behind those overseas businesses.
The question that has exercised the commission is this: who should decide? The Government have listened to the Financial Services Authority and the parliamentary commission on how that should work. We agree that the requirement should follow the strategy for managing the failure of each group, known as the resolution strategy. Where a UK parent company will provide support to resolve failing overseas operations, the regulator must ensure that the parent company issues loss-absorbing debt against the entire group. However, where a bank’s overseas subsidiaries would be resolved locally by overseas regulators without reliance on the UK parent, the parent company should not be required to issue loss-absorbing debt against those overseas subsidiaries. Crucially, it will not be the bank’s call but the decision of the regulator and the Treasury as to whether group primary loss-absorbing capacity—PLAC—should be held.
Mr Love
Of course, the UK regulator will have to know whether the third-country regulator will accept responsibility for the subsidiary. How does the Minister intend to ensure that the UK regulator can be reassured that the third-country regulator will accept responsibility for the subsidiary should it get into trouble?
Greg Clark
The hon. Gentleman is absolutely right. That will be one of the requirements—the regulator, and indeed the Treasury, will need to be satisfied by the bank that the overseas regulator has accepted, and credible arrangements are in place, to ensure that no liabilities will fall on the UK taxpayer.
Greg Clark
The resolution plans have to be agreed between the regulator and the Treasury, so both will have that responsibility.
Stewart Hosie
Just to get some clarity on the previous point about the relationship with overseas regulators, if both the Treasury and the regulator are required to be convinced of the plan, how will that work in the relationship with, say, the single supervisory mechanism in Europe? Will it, too, not be required to be convinced, or at least will discussions not have to take place, to determine first where liability might lie and then whether the resolution plans are adequate?
Greg Clark
The reason for arranging this through the resolution plans is that they should be agreed in advance and everyone should be clear who will be responsible. It is no good the Treasury or the regulator in this country thinking that an overseas jurisdiction will pick up the bill if they were actually blissfully ignorant of it, so the hon. Gentleman is absolutely right that there has to be that clarity.
As I promised on 4 February, I have provided Parliament with drafts of the principal statutory instruments so that the House, while scrutinising the Bill in detail, can understand more clearly how the powers that the Bill grants are intended to be used. As a further aid to scrutiny, I will also make available to the House, in advance of consideration in Committee, a so-called Keeling schedule giving a consolidated text of those parts of the Financial Services and Markets Act 2000 that will be amended by the Bill, including the amendments the Bill will make.
Let me turn to some of the relatively few recommendations of either the Independent Commission on Banking or the parliamentary commission on which the Government have not been persuaded. There are four main areas to consider. The first is the timing of scrutiny, which the hon. Member for Nottingham East (Chris Leslie) mentioned. I hope that hon. Members will accept, from the process I described earlier, that these proposals have already benefitted from an exceptional degree of consideration, both in the amount and, if I may say so, in the august quality of its scrutineers. It will soon be three years since the Vickers commission began its work, and it is less than two years until all the secondary legislation must be enacted if this work is to be completed in this Parliament, as I think we all hope it will be. The Bill is comparatively short—20 clauses— and the time envisaged for its Committee stage is not unreasonable for consideration of all the amendments proposed by the parliamentary commission in its report published today.
However, I know that the parliamentary commission has other advice to give, and I welcome its commitment to produce its final report by the middle of May. Once we have received the commission’s advice, we will of course want the chance to be able to take it. I therefore give this commitment: subject to the usual channels, I will make sure that this House has enough opportunity to consider and debate whatever further recommendations the commission makes in its final report.
Mr Love
I thank the right hon. Gentleman for that commitment. Another issue that made life more difficult for the parliamentary commission was the lack of any knowledge of the delegated legislation that he has said will go through the House. Will he give some indication as to when that will be published so that although the parliamentary commission might not have that information available to it, the Public Bill Committee may?
Greg Clark
I am grateful for the hon. Gentleman’s point. As I said, I have published some of the principal statutory instruments and more will be available before the Bill goes into Committee. I will make sure that the House has access to the principal measures; as he knows, minor measures will sometimes follow. I repeat that it is absolutely my intention that the Bill should be properly considered and scrutinised by this House. The strength of these arrangements will benefit from their being exhaustively considered and enjoying the full confidence of the House.
Mr Tyrie
I apologise for interrupting for a third time, but I want to clarify the scrutiny question. The Government intend to get the Bill out of Committee before the date that the Banking Commission had proposed that it should go into Committee. Therefore, this all boils down to how much time we are going to get on Report. Will the Minister now, at the Dispatch Box, give a commitment to two days on Report?
Greg Clark
I cannot do that, but I repeat my commitment that this House will have the opportunity fully to consider the amendments proposed by my hon. Friend’s commission. He has not yet produced his report, so we do not know what he has in mind, but I have been as clear as I can at the Dispatch Box that there is no intent to avoid scrutiny; quite the opposite.
Chris Leslie
The Minister talks in very emollient tones, because he likes to sound moderate, but this is a series of instances of contempt for the House of Commons’ powers and our ability to scrutinise the Bill. The Government ignore the recommendation of the parliamentary commission, they then try to whisk the thing out of Committee before we have even had a chance to consider the recommendations of the commission, and now, when asked for a mere two days on Report, the Minister will not even give that commitment. The Chancellor is not here, either. In what seriousness do the Government hold this Bill? There is a sense that it is just part of a rubber-stamping exercise for them.
Greg Clark
The hon. Gentleman will discover that through our debates in Committee he will have plenty of opportunity to scrutinise the Bill. When we have the commission’s recommendations, if we think that they need more than a day on Report then I will make the case for that. Whatever happens, I will ensure that this House has the opportunity fully to consider these matters.
Mr Pat McFadden (Wolverhampton South East) (Lab)
I am afraid that I want to press the Minister further on the same point. He said that the Government would ensure that there was full consideration in this House of further recommendations from the Parliamentary Commission on Banking Standards, yet the timetabling motion that he will move later says:
“Proceedings in the Public Bill Committee shall…be brought to a conclusion on Thursday 18 April”.
That is before the date of the parliamentary commission’s final report. How meaningful will be his commitment to full consideration of those proposals, given that he is rushing the Bill through Committee before the commission, which I remind the House was set up by the Chancellor, has even issued its final report?
Greg Clark
The right hon. Gentleman will find that he is satisfied with the scrutiny that is available. It is a question of chickens and eggs. We have not yet had the recommendations of the commission, on which he serves. When it makes its recommendations, if we think that they require more time then we will certainly make sure that there is plenty of opportunity for the House to scrutinise these matters.
Ed Balls
I remind the Minister that, around the time of the LIBOR scandal a year ago, a serious proposal by the Opposition for a full, open public inquiry into these issues was rejected by the Chancellor in favour of a parliamentary commission. The commission’s recommendations on process as well as substance and the House of Commons’ scrutiny of its recommendations —which will not even have been made by the time the Committee stage is complete—are being treated in a way that is very much against the spirit of the Chancellor’s announcement last summer, when he rejected a full public inquiry. If the Minister can get hold of the Chancellor before the vote at 10 pm, he should tell him that the Government should reconsider the contemptuous way in which they are treating the House of Commons and the all-party parliamentary commission of both Houses. It is not in line with the spirit of the discussions that the Chancellor had last summer with the chair of the commission, the hon. Member for Chichester (Mr Tyrie).
Greg Clark
The right hon. Gentleman will find that he will be perfectly satisfied with the degree of scrutiny that the recommendations, which have not yet been made, will receive. I have made that commitment and he will see it in time, even if he is not very trusting at this stage. I hope he will change his view.
One of the parliamentary commission’s policy recommendations was for a general reserve power to split up the entire banking system if it were considered to be appropriate in future. The Chancellor, the chairman of the commission—my hon. Friend the Member for Chichester—and, indeed, the Archbishop of Canterbury had a learned and erudite discussion about the origin of the sword of Damocles metaphor. The Government’s view is that such a power would, in effect, introduce a different policy—one that was considered and rejected by the Independent Commission on Banking, which concluded that full separation would have higher costs for a gain
“that might not even be positive”—
without anything like the three-year period of scrutiny and analysis that this policy has enjoyed.
The proposal would, in effect, legislate for two policies at the same time—ring-fencing and full separation. We must legislate for the policy that the Vickers commission proposed. If a future Government were to consider that ring-fencing was no longer the right solution—which they would be perfectly entitled to do—they should conduct a full analysis of the case for alternative reforms and, in the light of that analysis, introduce new legislation to Parliament.
In addition, the parliamentary commission has proposed that the exercise of the reverse power by the Prudential Regulation Authority should include safeguards, including a Treasury veto, to ensure that the regulator behaves in a non-discriminatory way. The Government agree that there should be such a veto and will table an amendment to provide for a firm-specific power to require separation while the Bill is before the House. In addition, a further safeguard is available for any bank that believes it has been treated unfairly—namely, recourse to the courts.
One very important point that both the Vickers commission and the parliamentary commission agreed is that, in addition to the enhanced capital requirements on ring-fenced banks, there should be a minimum leverage ratio and that it should apply to unweighted assets of 4.06%, rather than the Basel III standard of 3%.
Let me be clear: this Government support the introduction of a minimum leverage ratio. It provides a simpler measure than risk-weighted assets, the calculation of which can be complex and disputed. Furthermore, it has been established empirically that a rise in the leverage ratio often preceded credit booms in this country and overseas.
The question remaining is about the precise level of the leverage ratio. I referred earlier to the British dilemma of how to maintain an internationally competitive financial sector without imposing risks on domestic taxpayers. This is a case in which that dilemma is, to be frank, most acute. When it comes to capital requirements, international agreements have already established that different countries will have different requirements. The European Union capital requirements directive, CRD4, provides for member states to have discretion to go beyond agreed capital requirements.
In the case of the leverage ratio, the 3% Basel III recommendation was for the requirement to be binding only from 2018, and it is not clear yet whether there will be the flexibility in European law to increase it as Vickers and the parliamentary commission recommend. The Vickers commission did not recommend that the higher leverage ratio should apply before 2019, in order, for reasons that I think we all understand, to minimise the impact on lending in the short term while the economy is still recovering.
Furthermore, during our repeated consultations, concerns have been raised by institutions such as building societies that they could be caught by a 4% leverage ratio despite having a relatively low-risk portfolio of assets, thereby restricting lending to home owners. Moreover, it would lead to assets in Spanish property, for example, being viewed as equal to US Government bonds for the purposes of the calculation. Our view, therefore, is that at this time we should follow the international approach and press for countries to have power to set a higher ratio from 2018, following a review in 2017.
Having said that, in the interests of transparency, we agree with the recommendation of the Financial Policy Committee that banks should disclose their leverage ratios from 2013. I confirm that they will do so from this year.
John Mann (Bassetlaw) (Lab)
Does the Minister perceive there to be a problem for very small building societies, because they are more disadvantaged than large institutions and could be swallowed up, thereby reducing competition in the market rather than increasing it?
Greg Clark
I have taken to heart the need to allow into the market smaller players, whether they be building societies or banks. I will say something about that shortly which I hope will satisfy the hon. Gentleman.
Mr McFadden
I suggest to the Minister that he has just ducked the British dilemma that he set out at the beginning of his speech by saying on the one hand that we have a huge financial services sector, but on the other hand that we are going to go at the speed of the slowest ship out of Basel on the capital and leverage rules. Is not the proper response to having a huge financial services sector relative to our economy to ensure that we have adequate rules to protect the UK taxpayer, rather than always going for the lowest common denominator internationally on such standards?
Greg Clark
I think that the right hon. Gentleman would concede that what Vickers recommended will advantage us and protect the British taxpayer in a number of respects, including through ring-fencing and higher capital requirements. We are already doing those things. He will know that Vickers did not recommend an early increase in the leverage ratio. I have been candid with the House that we would like to see one. However, in line with what Vickers advised and given the discussions that are taking place in other jurisdictions, we think that it is right to have the consideration in 2017, with a view to introducing the higher leverage ratio later.
Mr Love
The Minister said earlier that capital requirements and the leverage ratio were protections for the UK banking sector. However, capital is based on risk-weighted assets, which, as he has accepted, are controversial and, to many people’s minds, do not provide the level of protection that is required. It therefore becomes acutely important that the leverage ratio provides that protection. As has been said, given the size of the UK banking industry, it is critical to prioritise safety and soundness. Those things will be delivered by a higher leverage ratio.
Greg Clark
I do not disagree with the hon. Gentleman’s analysis. A higher leverage ratio is important. However, we have reflected the view of the Vickers commission that a higher leverage ratio is not necessarily required immediately. It is our intention to bring it in following the review in 2017. That is a reasonable time frame. I repeat that it is our intention that there should be a backstop ratio.
The final major difference between the Bill and what was recommended by the parliamentary commission is that it does not include proposals on how creditors, rather than taxpayers, will be expected to bear the costs in the event of a bank failure. We are working with other European countries to develop a credible and effective bail-in tool as part of the European recovery and resolution directive, reflecting the recommendations of the global Financial Stability Board.
The Irish presidency of the EU has set out plans to make rapid progress towards concluding the recovery and resolution directive. The RRD is due to come into force in 2015 and the bail-in tool by 2018. Given that progress, we have not included clauses on the matter in the Bill, but if agreement cannot be reached, which we do not expect to happen, we will consider tabling amendments later in the Bill’s passage to allow the UK to act alone.
Andrea Leadsom (South Northamptonshire) (Con)
Does my right hon. Friend agree with me and Andy Haldane that bank account number portability could make a positive contribution to the prospects of easy resolution in the event of a future bank failure?
Greg Clark
My hon. Friend is a passionate advocate of that, and I think that what I will say about it will please her. I hope that she will be able to contribute to the debates on it in the weeks ahead.
The Government intend to go further on the matter of competition than was suggested in the reports of the two commissions. I strongly believe that the concentrated nature of the UK banking industry is unacceptable. I want to see far greater possibility, and indeed reality, of entry into the market by new banks and building societies. One of the barriers to that has been access to the UK payments system. Potential challengers have to win the permission of incumbents to be able to use the system. The Government will therefore shortly consult on a proposal to make access to the payments system regulated, to ensure that it is available on fair, reasonable and non-discriminatory terms. Subject to the findings of the consultation, the Government will consider tabling amendments to the Bill to give the regulator the necessary powers. I think that would address my hon. Friend’s ambitions.
John Mann
I welcome the Minister’s comments. Will he also table an amendment to recreate the Halifax building society out of the state-owned Lloyds-TSB bank? That would immediately create a major competitor on the high street that would be hugely popular, as it was before it was bought out.
Greg Clark
We want to see greater competition and more entrants. The hon. Gentleman will know that in the case of the banks in which we were in the unfortunate position of having to take a shareholding, the arrangements that govern that shareholding require us to operate at arm’s length of the interests of other shareholders. No doubt he will be able to make his points throughout the passage of the Bill.
John Mann
This is a Bill, and it can become an Act, so the Minister could table a Government amendment to do precisely what I said. Why is he not taking the opportunity to recreate the Halifax building society, which hundreds of thousands—perhaps millions—of consumers across the country would greatly welcome?
Greg Clark
All I would say is that that is not one of the Government’s proposals. We operate at arm’s length, but if the hon. Gentleman is a member of the Bill Committee he will be able to table such an amendment, and I am sure it will be vigorously debated.
I hope that in years to come the Bill will be viewed as a landmark piece of legislation in the history of our economy. I readily concede that a Bill entitled the Financial Services (Banking Reform) Bill does not set the heart racing, but important legislation can have a profound effect on our economy and come to represent a particular approach. That is shown by our familiarity even today with an American Act, the Glass-Steagall Act, the common name for the US Banking Act of 1933. I am modest and realistic enough to hold out no hope or expectation that this Bill will be referred to in 80 years’ time as the Clark-Javid Act, but if the House’s scrutiny is as thorough and constructive as I hope it will be, the names of Vickers and, dare I say, Tyrie might find a place in the history books. The hon. Member for Nottingham East and even myself might get a footnote.
The real test of the Bill is for it to establish once and for all the conditions in which the British banking system can be a global success story for decades to come while contributing to, not detracting from, the prosperity of the British people. I commend the Bill to the House.
Chris Leslie (Nottingham East) (Lab/Co-op)
I am sorry that the Chancellor has not been able to join us for the debate. The Bill may be called the Clark-Javid Act, but it will certainly not be called the Osborne Act given his disappearance.
As the Financial Secretary said, the global financial crisis has cast a long shadow. Our recovery to pre-crisis levels of economic output has still not been achieved because of the drag anchor of the Chancellor’s austerity programme. The high-risk, high-reward culture of worldwide banking systems required a taxpayer bail-out; profits were retained privately in the good times, but losses fell on the shoulders of the public when things turned bad. We cannot allow a repetition of those risks to the taxpayer in future, which is why banks must be reformed in the UK, across the EU and across the globe.
The Bill has its roots in the 2009 G20 Pittsburgh summit when world leaders decided to insist on tougher loss-absorbing capital rules for banks. Britain’s financial services sector is larger than most, and with the greatest financial centre on the planet in the City of London we must take additional steps to guard against the risk of future collapse. The Financial Services Act 2012 sought to address regulatory shortcomings, but the jury is out on whether the Bank of England will be inherently stronger than the Financial Services Authority.
The advent of the FSA in 1998 was a step forward from the dark ages of self-regulation, but that regulatory framework was not capable of policing the extreme risks and dangers of a rapidly expanding global banking sector, interdependent from country to country. We agree with the need to introduce prudential regulation and greater systemic oversight, but that theory has not yet been translated into reality. Although there were regulatory shortcomings, we should be in no doubt that primary culpability rests with the banks, which should not be allowed to get away without reform.
The Vickers Banking Commission concluded that structural firewalls are needed to supplement capital safety buffers, which is undoubtedly true. With this Bill some of the legislative underpinnings for those firewalls will gradually take shape, and to the extent that it enables the ring-fencing of retail from investment banking, we welcome that. However, the Bill merely provides the scaffolding for the basic building blocks that will come at a later date, largely in secondary legislation by Treasury order. It focuses only on structural scaffolding, not on wholesale reform of the standard and culture of the banking sector—something we hope that the cross-party Parliamentary Commission on Banking Standards will help focus on to help fortify the Bill in due course. As the Banking Commission points out, it is perhaps not the beginning of the end of banking reform, but the end of the beginning.
The timing and process for consideration of the Bill, and the programme motion before the House, propose a ridiculously compressed Commons scrutiny process and for the Bill to be out of Committee by 18 April. As I said earlier, that shows total disregard for the parliamentary process and flies in the face of the Banking Commission’s careful recommendations. The Bill is already a cursory framework because it is largely a string of enabling powers for the Treasury to arrange for ring-fencing through secondary legislation. The Government established the Parliamentary Commission on Banking Standards to ensure that recommendations could be added to the Bill. So far, however, we have had only part 1 of that commission’s points about structural questions.
The Government now expect the Commons to consider this partial Bill in Committee without having the final report on standards and culture from the parliamentary commission. That is treating the Commons as though this is merely a tick-box exercise and a part of the process that does not matter, and there is no need to scrutinise the final proposals. Dropping in late additions to the Bill on Report or—more likely—during consideration in the Lords, is not an appropriate way to legislate. As I said, the parliamentary commission recommended a three-month gap between publication of the Bill and commencement of the Committee stage, but the Government rejected that idea.
Mr McFadden
My hon. Friend said, I think, that the timetable was inappropriate. Does he agree that it may also be unwise, given that if the amendments are moved in the other place, the first three speakers in that debate are likely to be the former Conservative Chancellor, the former Chair of the Treasury Committee, and the Archbishop of Canterbury?
Chris Leslie
Recently I have been looking at a number of Thatcher quotes, given that the Prime Minister mentioned TINA—there is no alternative—which hon. Members will remember. Another famous quote from Lady Thatcher was, “Always leave yourself a way out”, and I wonder whether the emollient approach taken by the Financial Secretary is because he realises that when there is inadequate scrutiny in this House, the questions go to the other place and it is likely that the Government will have to back down on some of these matters. Perhaps he is listening to the advice of Baroness Thatcher on some of these issues.
It is not adequate to expect, as the Minister suggested, that we will be able to scrutinise the Bill sufficiently on the Floor of the House on Report. As he knows, with the knives that come into effect during considerations on Report, one often finds that amendments are put without a full debate. It is a different process from the Commons Committee stage. The programme motion should reflect the right of the Commons to scrutinise the full version of the Bill, and that is not the version we have before the House today. If the Government were serious about this issue, the Chancellor would be here. Clearly, our downgraded Chancellor has downgraded the banking reform Bill.
Andrea Leadsom
The hon. Gentleman has mentioned a few times that the Chancellor is not here. Does he regret that his former boss, the ex-Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), is not here to make a sincere apology to the House for his role in the mess that put us in the place we are in today?
Chris Leslie
I presume that is almost an apology for the anti-regulatory approaches historically taken by the Conservative party. I do not seem to recall Conservative Members ever saying, “Please, more regulation! Let us have it now. This is insufficient; we must regulate far more firmly.” It does not seem that that was ever part of the lexicon in the approach taken by Conservative Members.
Alun Cairns (Vale of Glamorgan) (Con)
In the hon. Gentleman’s preamble, he talked about the shifting of powers to the FSA, and I was somewhat taken aback that he called it a step forward. Would he like to repeat the fact that he supported that as a step forward, or would he like to apologise for that move?
Chris Leslie
The Conservative party, I think, voted in favour of the creation of the FSA. I think even the Conservative party recognised at the time that moving from self-regulation—[Interruption.] I apologise if I have got that wrong. It may well have been that it opposed the legislation because it introduced statutory regulation. The state of affairs that existed before was self-regulation—the regulatory environment was not there.
Sir Peter Tapsell (Louth and Horncastle) (Con)
In the 1997 debate, I strongly opposed the establishment of the FSA, with its tripartite regulatory structure. I predicted it would be an absolute disaster, and it has been.
Chris Leslie
Without in any way casting aspersions on the motives of the Father of the House in voting against setting up the FSA, I wonder whether he voted against it because its regulatory stance was too weak, or whether he was anxious at the time that its regulatory approach would be overbearing. I suspect that Conservative Members know, in their heart of hearts. Were they really opposing the creation of the FSA because they thought that the strength of the regulatory arrangement would not be sufficient? Is that what they are really saying?
Sir Peter Tapsell
I opposed it, if I remember correctly, because I said that if the Treasury, the Bank of England and the FSA were all involved in regulation, they would all be quarrelling with each other and passing responsibility on to the other two when things went wrong. Those, I think, were almost the exact words I used, and that is exactly what happened.
Chris Leslie
Hindsight is a wonderful thing. All I say to the Father of the House is that we are now in a situation where we have a new Financial Conduct Authority, the Prudential Regulation Authority, the Financial Policy Committee and the Monetary Policy Committee. The Bank of England is of course still involved, and the Chancellor of the Exchequer will still have a number of powers. He may not have realised it, but the Government’s changes have not exactly simplified the regulatory environment. I digress. That was the Financial Services Act 2012, but we are addressing the Financial Services (Banking Reform) Bill in 2013.
Greg Clark
When I took over my role, I read the Hansard report of the November 1997 debate. I commend it to the hon. Gentleman because it makes it absolutely clear that we opposed the creation of the FSA in the form proposed because we predicted it would be a mess. The then shadow Chancellor, my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), said:
“The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”—[Official Report, 11 November 1997; Vol. 300, c. 732.]
That is exactly what happened.
Chris Leslie
Conservatives have a tendency to try and rewrite history, but this really takes the biscuit. If the Minister is seriously saying that he would have preferred to have stayed with a non-statutory regulatory arrangement, which was the option available, he should stand up and admit it. He often asks where the apologies are, but we have accepted that we should have adopted a more prudential approach to regulation than the arrangements in the Financial Services and Markets Act 2000. It is now equally important, however, that Conservative Members recognise that regulation is a good thing, that we need regulation of the financial services sector and that they were wrong to prefer a self-regulatory, non-statutory environment. Until they do that, they will never really confront the demons that still exist within the Conservative party’s philosophy.
Mark Reckless (Rochester and Strood) (Con)
Surely, the argument is not about whether regulation is good or bad, but that the tripartite regulation was completely incoherent and led to a mess in the banking sector and the consequent recession that we are all paying for now.
Chris Leslie
I do not know whether the hon. Gentleman is telling the full story of what he truly believes about regulation. To listen to Conservative Members today one would think they were all keen market regulators. Perhaps the Conservative party has transformed—the Cameronian vision we have all been waiting for—but, as I understand it, it still regrets the regulatory encroachment on to the market in these matters.
Andrea Leadsom
Does the hon. Gentleman recall that back in 1995, when Barings went bust, there was not a run on a bank? I remember playing a very small part helping Eddie George, the then Governor, to call round international banks urging them not to allow a run on the banks in the following weeks. The reason was that he understood that he was entirely accountable for ensuring the integrity of the banking system. Is that not the point? When Labour came into power and created the tripartite system, it simply removed accountability from any one body. We are trying to return it to the Bank of England.
Chris Leslie
We will see what happens under the new Financial Conduct Authority, the Prudential Regulation Authority, the Bank of the England and the Chancellor. It is important that Conservative Members realise that self-regulation failed and that not having that statutory arrangement was no great thing. Eddie George was the Governor who said, “Let’s just trust the chaps at the desks to deal with these issues.” That was how banking reform was regarded during their tenure in office. But this is turning into a history lesson.
Stewart Hosie
Ten minutes ago, before the hon. Gentleman got dragged into a debate about how rubbish the tripartite system was—and it was—he was making a good point about the lack of time for scrutiny of the Bill. Not least, issues such as the one referred to some time ago—capital requirements for small building societies—took some time to emerge. Will he perhaps get away from the history of how rubbish the tripartite system was and continue to make the case for more time for proper scrutiny, so that those in the industry can tell us what they think of the final shape of the Bill?
Chris Leslie
For once, I am grateful to the hon. Gentleman for wanting to focus on the issues; it is important that we have enough time to look at the detail. It is also important to commend the work of the banking standards commission, which has done a phenomenal job so far. I will find today’s report of great use in the short Committee stage, because at least it has taken the rather helpful step of drafting suggested amendments that no doubt the Minister, I and others will be discussing in due course.
The banks have not changed sufficiently. The LIBOR scandal shifted the agenda away from the discussion about excessive risk taking in the financial services sector so that we are now talking almost about anti-corruption measures that need to be put in place. We have had the mis-selling of personal protection insurance and the fleecing of business customers with mis-sold hedging interest rate swap products, while the high-reward bonus season continues to roll on and on, with £600 million of bonuses at RBS sanctioned by the Government, despite a £5 billion loss, to take just one example, so why are they dragging their feet on reform?
Alison McGovern
Conservative Members point to times in history when things changed in banking. While my hon. Friend is talking about culture, is it not important to listen to those who were there at the time, such as the former Chancellor, Lord Lawson? He said of financial deregulation:
“When the Thatcher Government first took office in 1979 it inherited an economy beset by all manner of government controls…We judge these…regulations to be amongst the causes of Britain’s economic weakness and we wished to be rid of them.”
Does this story not go back much further? If we want to look at points in history, we might do well to look at the big bang, which changed the culture.
Chris Leslie
My hon. Friend is entirely right. Ducks go quack, cows go moo and Conservatives hate regulation of the market. It is part of their ingrained DNA.
Stephen Barclay (North East Cambridgeshire) (Con)
Will the hon. Gentleman give way?
Chris Leslie
I will make a bit of progress and give way in a minute.
There is not enough in the proposed legislation on the safety of the banking system, not enough to rebuild consumer confidence, not enough to reform the high-risk banking culture and not enough to support growth and create a banking system that serves the needs of our economy. Too often, Ministers sound as though they are acting like shop stewards for banking executives desperate to retain bonuses that are many multiples of their salaries. Instead, Ministers should roll up their sleeves and put the taxpayer, the consumer and the UK economy first.
I want to address some of the issues the Minister raised about the detail of the Bill. First, on banking safety and protections for the taxpayer, Labour believes that a reserve power for full separation is needed, not just the firm-by-firm approach that the Government have conceded. Stopping short on backstop powers will reduce the chances that ring-fencing will succeed. Ministers are ignoring the commission’s conclusions, claiming that it would be wrong to give the regulators full separation powers, but the commission is scathing in its report today, saying:
“The Government has erected a straw man which it has then successfully demolished, because we made no such recommendation”
in the first place.
It is clear that the commission wants a full separation power only after a full review and decision by Government and Parliament—perhaps it was being inadvertently misrepresented by the Treasury—so it would be far more sensible to legislate now, not just if one or two individual banks misbehave, but in case ring-fencing as a whole fails across the sector. Indeed, we see cross-sector failings, as LIBOR illustrates, so it is not enough to have a half-done backstop. Stopping short will deliver only half the backstop measures that we need and will have corporate lawyers across the City rubbing their hands with glee at the prospect of litigation against regulators who might want to intervene on a case-by-case basis. However, given the possible views of the other place, I suspect that the Government will eventually be forced to change their mind.
Let me turn to leverage and the risk-weighting of assets, which has been introduced as an antidote by regulators to the high-risk, high-reward culture that was pervasive in banks before the crisis. However, the risk-weighting process has been partial and, in some cases, self-defining by the banks, and in the EU the zero risk-weighting attributed to some palpably risky sovereign debts has brought the system into some disrepute. The Basel committee published new evidence in January highlighting the major variants between jurisdictions and banks on this issue. Regulators and the Bank of England need to get a grip of this, but as a counter-balance we also need protections against the over-extended vulnerability of bank balance sheets. That is why the leverage ratio powers need to be clearly set out in the Bill and phased in ahead of the European Union plans for the end of this decade, which is one of the main recommendations and conclusions of the Vickers report.
Mr Love
Vickers was absolutely clear in his evidence to the commission about the need for a higher leverage ratio, as were the current Governor of the Bank of England and the forthcoming Governor. With such evidence presented to the commission, we wonder why the Government simply refuse to listen.
Chris Leslie
My hon. Friend is spot on. A bank’s leverage is the ratio of its assets to its equity capital. Its equity is equal to the value of its assets minus the value of its liabilities. A higher leverage ratio magnifies returns because any growth in the assets will be proportionally greater if equity is thin. The corollary, however, is that any losses are also magnified if leverage is greater. Such a bank’s equity can be wiped out by a smaller shock than would wipe out the equity of a less leveraged institution.
Vickers recommended a 25:1 leverage ratio for systemically important banks—in other words, 4% of equity capital—but the Chancellor has dismissed that proposal. The parliamentary commission says that it is “not convinced” by the Government’s decision to reject Vickers’ recommendation to limit leverage in that way, and that it
“considers it essential that the ring-fence should be supported by a higher leverage ratio, and would expect the leverage ratio to be set substantially higher than the 3% minimum required under Basel III.”
Jesse Norman (Hereford and South Herefordshire) (Con)
Will the hon. Gentleman explain why the average leverage ratio for the banking system, which had been 20 times for the 40 years before 2000, went up to 50 times in the seven years between 2000 and 2007, according to the Independent Commission on Banking? Might that have had something to do with the present shadow Chancellor being the Minister for the City at the time?
Chris Leslie
No. With hindsight it is clear that we need a tough leverage ratio, and I think the hon. Gentleman’s question implies that he accepts that leverage is an important part of the regulatory toolkit. That is why it is wrong that the Bill ignores the recommendations of Vickers, in particular, but I am afraid that the Chancellor seems to have dismissed the recommendations of not only Vickers but the parliamentary commission on this issue. It is not good enough that the Government are leaving this matter out of the Bill, perhaps assuming that the European Union will somehow address it in the next eight or nine years.
Even the incoming Governor of the Bank of England, Mark Carney, pointed to the value of a higher leverage ratio as a backstop for a risk-based capital regime when he gave evidence to the Treasury Select Committee. There are ways of overcoming the impact of such a measure on a minority of non-plc institutions—I know that some of the bigger building societies, in particular, have expressed their concerns about a crude leverage ratio approach—but that is not a reason not to put a safeguard in place. At the very least, the Government ought to accept the parliamentary commission’s proposal for an annual assessment to be carried out by the Bank of England of the progress of the work to improve risk weightings and the work towards the leverage ratio.
Jesse Norman
Let me put the question to the hon. Gentleman in another way. Does he regard it as slightly ironic that he is now pushing for a leverage ratio that is roughly half the ratio that the Labour Government allowed to occur five years ago?
Chris Leslie
We have to learn the lessons of that global financial crisis, one of which is that leverage has come to the fore as a way of illustrating the over-extended nature of the banking system. I am glad that consensus is breaking out across the Chamber on this point. As the hon. Gentleman knows, he and I have almost been in concert in voting on a variety of amendments, some of which have been inspired by his very own articles. I therefore look forward to him joining us in the Division Lobby—if it comes to that—on the question of the leverage ratio.
John Mann
Before too much consensus breaks out, may I ask my hon. Friend to say a little more about how he envisages the problem of small building societies being addressed? They are saying unambiguously—although privately, of course, for commercial reasons—that their future is imperilled. Is a one-size-fits-all approach the right one? Is that the approach that my hon. Friend would take if he were in power?
Chris Leslie
Of course there are ways of ensuring that the building society sector can be accommodated in the leverage ratio framework. Building societies have a totally different equity structure, as my hon. Friend knows; they do not have the same equity as a plc structure. There are therefore important differences in that sector. In my view, however, it is important that all institutions, large and small, should be subject to safety requirements regarding capital loss absorbency and protection against over-extension in certain risk areas. There are ways and means of dealing with that, but I am annoyed that the Government have not seen fit to put any provisions on the leverage ratio in the Bill.
Neil Carmichael (Stroud) (Con)
Does that attitude not call into question the future of the Co-operative bank? What would the shadow Minister say about that?
Chris Leslie
I do not want any of our banks to be in a position of over-extending themselves, putting at risk either their customers or the taxpayer. It is very simple. We need to listen to the carefully thought through advice of the banking standards commission, the Vickers report and others, including the incoming Governor of the Bank of England, on these particular issues. The Government may call it the British dilemma, but it is astonishing that they always seem to be asking the European Union to come to their rescue at some point with some reform to deal with bail-in or whatever other problems happen to be around later on down the track. That is not adequate.
Let me deal with the issue of derivatives inside the ring fence, as I know that the parliamentary commission has been concerned about it. The Vickers report said that derivatives trading should not be allowed—full stop. The parliamentary commission recognised, however, that there were services on the margins where some simple derivative products might be permitted, but it added that
“allowing ring-fenced banks to sell derivatives other than as an agent creates additional prudential and conduct risks.”
I agree with the commission on that issue. We need clearer protections to prevent abuses within the ring-fenced retail banks where derivatives are sold. That was illustrated, of course, by the mis-selling of some interest rate hedging products to small and medium-sized enterprises. The danger is one of information asymmetry between customer and vendor and the fact that the trade became exceptionally lucrative for the banks. We have to move away from this era of the exploitation of the customer’s lack of knowledge, and the commission was clear about that in the three tests it set.
We have seen one of the drafts of the secondary orders, subsequent to the commission’s recommendations. It is therefore worth comparing that order with the tests that the commission has set. The commission said that there should be adequate safeguards against mis-selling, but as far as I can see, the draft order does not go into any detail about how the Prudential Regulation Authority or the Financial Conduct Authority will enforce anything new. The commission said that there should be a clear definition of simple derivatives, which will be allowed, versus complex derivatives, which will be disallowed, but the draft order seems to define simple derivatives quite widely—in other words, as instruments designed to tackle interest rate risk, exchange rate risk, default risk, liquidity risk or for dealing in assets included in the liquid assets buffer. It would be easier if the Minister set out what would not be allowed rather than what would be allowed in the ring fence.
The third test relates to limits on the proportion of a bank’s balance sheet. The commission thought that was necessary, but the draft order so far leaves out what that percentage should be. There is a space left for a figure before the percentage sign, so perhaps the Minister can give us a sense of what that proportion of the bank’s balance sheet should be. That was one of the commission’s tests, as I said, so we need to secure assurances from the Minister about the Government’s intentions. As Martin Taylor said in his evidence to the commission:
“I can’t see the point of having a fence round the chicken coop, electrifying it to keep the foxes out, and then inviting a family of tame foxes to live inside it.”
That sums up the problem quite neatly. I have already alluded to the bail-in powers. Again, it is disappointing that the Government are relying on future European directives as the means to achieve bail-in rather than building it into the Bill before us. I do not think that the frequent excuse of “We’re waiting for the European Union” will do any longer.
We need also to focus on some of the other issues that should be in the Bill today, particularly rebuilding consumer choice, financial inclusion and a diverse market. The Bill is silent on all those areas. There is nothing about challenger or new entrant banks; nothing to ensure a universal obligation on banks for basic bank account services. There is also pussyfooting around on switching of bank accounts, about which I know some Government Members are concerned. There is nothing on mutuality, despite the pledge in the coalition agreement to
“foster diversity in financial services, promote mutuals and create a more competitive banking industry”;
and nothing about a fiduciary duty of care for clients and customers. We will table amendments to ensure that high street lenders offer a basic bank account, which is particularly necessary because of the onset of universal credit. We want a report within six months addressing obstacles to new-entrant challenger banks and current account provision. We also want Parliament to have an opportunity, soon after Royal Assent, to examine the adequacy of customer switching arrangements, and we want the publication of bank data on “lending deserts”, the postcode areas where—as we are finding in our constituencies—some small and medium-sized enterprises and customers find it difficult to gain access to credit. Other tests need to be included in the Bill to fulfil the coalition’s mutuality pledge. We also want a duty to be imposed on directors of ring-fenced banks to operate prudently and to safeguard deposits, and we want them to have a fiduciary duty of care to customers throughout the financial services.
Andrew Bridgen (North West Leicestershire) (Con)
The hon. Gentleman has rightly described consumer choice as the main driver of any market. Does he believe that encouraging Lloyds Banking Group to buy HBOS, or intimidating it into doing so, increased or decreased consumer choice in this country?
Chris Leslie
The hon. Gentleman may not have noticed it, but there was a bit of a financial storm going on in the financial services sector at the time. He may think that his constituents who had deposits in Lloyds would have been better off had the bank not been saved in the way that it was, but I do not think that they would have enjoyed the experience of turning up at the cash machines and not being able to get their money out. I think that rescuing the banks was a necessary step at the time, but now we must learn from that crisis, which occurred not just in the United Kingdom but in the United States and throughout the developed world. If Government Members think that they can get away with rewriting history, and that the former Prime Minister uniquely got on a plane, caused the collapse of Lehman Brothers, and then went off to Greece and Spain, they must be living on a different planet.
Andrew Bridgen
Does the hon. Gentleman not remember that Lloyds Banking Group needed to be bailed out only because it was intimidated into taking over HBOS by the last Government?
Chris Leslie
I disagree. I think that there was a high-risk, high-return culture in the banking sector—we saw it in the United States, and we saw it here—which Government Members fuelled through their deregulatory philosophical approach.
Chris Leslie
Not at the moment.
We need improvements in the standards and the culture of our banking sector, and Ministers ought to have allowed enough time for them to be discussed in Committee. We will table amendments providing for the establishment of a professional standards body to enhance the approved-persons process. There needs to be a clearer complaints procedure, and a stronger facility for failing banks to be struck off. We need clarity in regard to the professional qualifications and competences that are expected, especially in the wholesale sector, and a code of conduct that is monitored and enforced effectively and applies not just to significant influences in the banking sector but to all bank employees. We need safeguards to secure the independence of board directors overseeing ring-fenced banking activities. The commission has very reasonably recommended a “sibling” rather than a “parent-child” corporate ownership structure.
Jesse Norman
I am trying to follow the hon. Gentleman’s argument, but it has become fatuous. The fact is that the banking system had a leverage ratio of 20 times in 2000, as it had had on 40 previous occasions. Deregulation under the last Government but one had nothing to do with this financial crisis, which was caused by an increase in leverage—an explosion of leverage—under the Labour Government between 2000 and 2007. It is in the Vickers report.
Chris Leslie
If the hon. Gentleman’s analysis is correct, he will no doubt join us in the Division Lobby to institute the recommendations on leverage from the parliamentary commission. Is that his intention? Will he join us in supporting our amendments? I will give way to him if he wishes to answer that question, but I do not think he does. That is a shame, because I know that he feels strongly about these matters, but I can detect the gagging influence of the Treasury Whip as he texts the message “Be careful: Jesse Norman is on his feet again.” Forgive me, Mr Deputy Speaker, I meant to say the hon. Gentleman. The alert has gone out that rebellion is in the air.
We need more protections to deal with standards and culture, and we need to make sure that whistleblowers in the banking sector are given protection. We also need to set up a financial crime unit within the Serious Fraud Office, using some of the resources that are flowing from the fines. We probably also need to deal with the statute of limitations issue, going beyond the three years to give the regulators additional powers.
Chris Leslie
I think I ought to make some progress, and I want to talk about the need for the banking system also to enhance our economic prospects, support enterprise and growth, and maintain the supply of credit to the economy. Those are some of the issues that our constituents are concerned about for the future. Nothing in the Bill looks forward at the challenges facing business or the economy more broadly. So we want to see urgent action—ideally in the Budget, but if not in this Bill—that improves the operation of the funding for lending scheme to ensure that lending to small business is prioritised. We called for that last summer when the scheme began, but since then net lending to business has fallen further and further still. It is very important that we take this moment to improve and adapt the funding for lending scheme in this way. We must recognise that we have had the failure of Project Merlin and we have had credit easing, which was given eight months to do the job. So funding for lending is the third scheme that the Chancellor has tried and we have to make sure that it is changed in a way that makes these things work.
Even if the Government eventually create a fully formed Bill, we need regular parliamentary oversight of how ring-fencing and the new structures are working. As the Parliamentary Commission on Banking Standards says today:
“The Government’s proposal for the periodic review to be conducted by the regulator is wholly inadequate.”
We also need to have more than the one-and-a-half-hour, rubber-stamping Committees to scrutinise the detailed secondary legislation, which is why we advocate a super-affirmative order-making process to give time for the Treasury Committee and others to examine the technical detail of the changes in respect of the clauses and the orders that flow from them.
We want a Bill that makes banking safe and protects the taxpayer, but this one falls short in several areas. We want a Bill that improves banking standards, enhancing probity and conduct, and reforming the culture of banking, but this Bill contains none of those changes yet. We want a Bill that helps to rebuild consumer trust and choice, supporting more competition, new entrants, mutuality and consumer switching. We want a Bill that creates a banking system that supports jobs and growth, and maintains the supply of credit to the economy. The Opposition will not oppose the Bill on Second Reading today, because reforms are clearly needed, but too many important policy changes are still conspicuous by their absence. After such a big global crisis, and so many scandals and inquiries, the Government have no excuses and they need rapidly to populate this shell of a Bill with some real substance.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I remind Members that there is a 12-minute limit.
Mr Andrew Tyrie (Chichester) (Con)
Last July, immediately after its creation, the Parliamentary Commission on Banking Standards was asked by the House to undertake pre-legislative scrutiny of this Bill. In other words, in addition to fulfilling its terms of reference it was asked to examine the Government’s proposals for the implementation of large parts of the Vickers review. We have worked very hard to do what the House has asked of us, and I particularly wish to thank all my colleagues on the commission; all the commoners are in the Chamber today and although I cannot see any of the five peers up in the Gallery, their work has been not inconsiderable—as has been pointed out, they are a formidable bunch. I also wish to thank the Treasury Committee, which has continued to participate in aspects of this debate in our inquiries and the vast majority of whose members—nine, I believe—are also in the Chamber.
The first report from the Parliamentary Commission on Banking Standards, published in December, welcomed the Government’s decision to implement the Vickers ring fence, but we also argued that the ring fence had to be made much more robust if it was to have a good chance of enduring. We suggested that the level of innovation in financial services, the lobbying power of the banks, and the short memories of regulators and politicians all pointed to the need to reinforce the ring fence. That is why the commission recommended that the ring fence be supported by a reserve power, subject to final Treasury approval, to enable the regulator to impose full separation on a bank that attempted to game the ring fence. The Government have now accepted the merits of that recommendation and the Bill will be amended to provide for the reserve power, which is very welcome news.
In their response to our report, however, the Government did not accept a number of other proposals, so we produced a second report. It was published today and it seeks to do three simple things. First, for the convenience of the House, especially those Members who will serve on the Committee, it provides draft amendments to support all our proposals that might need statutory backing. As far as I know, that is an innovation for a Select Committee or Joint Committee and I hope that it will be of some use and perhaps set a precedent for how such Committees operate. The amendments have been prepared with the help of a former senior parliamentary counsel.
Secondly, an annex juxtaposes our recommendations against the Government’s response to enable the House to see clearly what has been accepted and what has been rejected.
Thirdly, the report examines the arguments made by the Government for rejecting a number of our recommendations. We were able do that on the basis of further evidence gathered from, among others, Sir John Vickers, the Governor of the Bank of England, the deputy governors and the chief executives and chairmen of most of the major banks. We have concluded that much more work is needed to improve the Bill and I shall linger briefly on only two areas. Much of what needs to be said is in the report and I hope that colleagues will find time to read it.
The first area is leverage. The parliamentary commission has not heard a convincing argument for blocking, as the Government seem determined to, the Financial Policy Committee of the Bank of England from setting the leverage ratio. We have concluded that the ratio is likely to be too low—that is, that banks are likely to remain overleveraged—but we also think that that judgment should rest with the financial stability regulator, the Financial Policy Committee, and not with the Chancellor. We argue that the regulator will want to consider long transitional arrangements, particularly for building societies—the Minister mentioned his concerns about this—as some problems particularly apply to those with large mortgage books. In our first report, paragraph 295 and the paragraphs preceding it go into the issue in some detail.
We also argue that the Bank of England should provide an annual assessment to Parliament on risk-weighting. It is clear to anybody who has considered the composition of risk-weightings and how they are derived, including the fact that they are based on modelling by the banks themselves, that to rely on risk-weighting alone would be a perilous task. It is vital that that should be supported by a robust leverage ratio, as risk-weightings are not a good measure, on their own, of overall balance sheet risk.
The Government have rejected all those suggestions and, frankly, I find it surprising that they cling to the line, which we heard again today, that we should wait for Basel—that is, that we should wait for other countries to decide. As many witnesses have said, it is for us to sort out what is best for Britain. We need to work out what is right for our industry, rather than waiting for a lowest common denominator decision from the Basel group. I was a little disappointed to hear more in that tone from the Government today.
From time to time, the Government even remind us, as they did today, that the transfer of the power to the Financial Policy Committee, if and when it happens in 2018, should occur only after it has been reviewed. In other words, it is possible that the Government might conclude that it should not be transferred at all. I think that would be a grave mistake. Getting leverage right is crucial to the future of the banking industry. With twin peaks in place and the financial policy up and running, it must be right to give that power to the FPC.
A second major outstanding area of disagreement is the Government’s rejection of a second reserve power for industry-wide separation. Our first report made it clear that this should be exercisable only after a fully independent review, after a recommendation from the regulator, and with Treasury approval. Not only did the Government reject the second reserve power, but in their first published response they even rejected the case for an independent review after a few years to assess the effectiveness of the ring fence.
On that last point—the need for a review—when the Chancellor came before the Committee about a fortnight ago, he appeared to be a little more flexible and he said he would consider it, and I noted the more emollient tone that we heard from the Minister today. I very much hope this presages some action on that point. I hope the Chancellor will give very careful consideration to the two points that I have raised here and that we raised in the report, both on leverage and on general separation.
Mr Tyrie
I do not think it is particularly democratic to give the authority directly to the Chancellor of the Exchequer, but I understand what he means if he thinks that Parliament should be given some opportunity to debate the issue. It is possible that some scope for flexibility could be built in to reconcile the point that he is making and the point that the commission is making. What would be unacceptable would be for the legislation to reach the statute book without a power of general separation and without there having been a thoroughgoing independent review. If those are in place, the extent to which Parliament can be involved a second time, and the extent to which the Chancellor himself should trigger that involvement, is something on which we could show flexibility.
I said that I hoped the Chancellor would think carefully about leverage and general separation, but there are a good number of other issues to which I hope he will give some thought, most of which have, at least briefly, been mentioned so I will not linger on them. I know that other Members want to speak, so I shall cite just three or four.
On derivatives, the Government appear completely at odds with the Vickers review and somewhat at odds with a slightly modified version of the same point that has been put forward by the commission which I chair. I will not delay the House now by going into the detail.
I hope the Chancellor will also consider a point that has scarcely been raised so far today—the need for the imposition of the so-called sibling relationship between the two parts of the ring-fenced bank under a single holding company, rather than the parent-child relationship, which was originally proposed in the Vickers report and which the Government still support. There are good corporate governance grounds and other grounds for supporting that proposal, which won widespread support in evidence that we took on it.
I hope the Chancellor will also think carefully about the way in which individual banks demonstrate whether they should benefit from a PLAC exemption—an exemption from the requirements of primary loss-absorbing capacity. This is a complex area which mainly affects banks headquartered in the UK with large overseas subsidiaries and branches. It is an issue that needs to be approached with considerable care. We thought very carefully about it and came forward with a balanced recommendation. On that, too, so far I have not seen enough flexibility from the Government.
The issues in the Bill are crucial for Britain. The industry is a great one, but it has serious problems. The Bill will address only some of the sector’s structural problems, and there is a lot more to be done. The parliamentary commission expects to produce its final report in May and that will seek to address some of the wider issues, the problems of standards and the culture in banking. We have just had a shocking LIBOR scandal and the wholesale rigging of crucial wholesale markets, and we have seen the equally shocking rip-off of consumers in the payment protection insurance scandal and of small businesses in the interest rate swap scandal. Those and other revelations, which have included sanctions busting and money laundering, reflect deep-seated problems of standards in banking.
Neither the Bill nor our proposals in May, nor for that matter any global initiatives under way, will solve all those problems. In fact, many of them will perhaps take many years—decades—to address. But something can and should be done, and that is why the Government are right to have made a start with this Bill. I very much hope that they listen to what the commission has said about it, because if they improve it further, along the lines that we have proposed, it can make a substantial contribution to a much stronger banking industry in Britain.
Mr Pat McFadden (Wolverhampton South East) (Lab)
I would like to begin where the Minister began, with this issue of the British dilemma: the relationship between the size of our financial services industry and the rest of our economy. It is right that it is a very big UK industry. It is a big contributor to taxes, as the Minister said, and it is a major employer. It has a cluster of expertise around it, including law, accountancy, and consultancy services, which are also important contributors to our exports.
There are two views that we can take because of that importance. One is the view, sometimes canvassed, that because of its size we cannot touch it, or only in a minimal way, because if we harm this huge industry it will go to Singapore or the United States; it will go somewhere. But there is another view, which I would like to advance in this debate, that the very size of the industry in relation to the UK economy places a responsibility on us to ensure that that size does not damage the interests of UK taxpayers or the real economy.
We have seen through the crisis that occurred several years ago precisely how damaging failure in that industry can be to the wider economy. I do not have to remind the House about the results of that failure in terms of the bail-outs, the deficits and the decisions about tax and spending, the consequences of which our constituents are living with today and will be living with for many years to come. The approach that we should take to this British dilemma is to say, yes, the industry is valuable and important, but because of its very size we believe in the need for particular measures in the UK to insulate us from wider damage. Simply to stress the size of the industry and to ask for it to be left alone whenever someone comes up with a regulatory proposal is, to put it in the language that bankers would understand, a one-way trade, and a one-way trade is not good enough. We need a two-way trade that protects the interests of taxpayers too.
Mark Field (Cities of London and Westminster) (Con)
The right hon. Gentleman was a Minister in the Department for Business, Innovation and Skills at the time of the bail-outs of the banks, which are commonly regarded as a great success. As part and parcel of looking back on the past while also preparing for the future, does he recognise that elements of those bail-outs were not quite the success that they were portrayed as at the time? To get out of the large positions that we still hold in Lloyds Banking Group and RBS with any profit, let alone the large profit that perhaps we should have been negotiating at the outset, seems a long time away. Does he recognise that mistakes were made over the bail-outs which will be with us for many years to come?
Mr McFadden
One of the reasons for having this debate is that when the crisis hit in 2007-08 there was no proper resolution mechanism or bail-out regime in place to ensure that bondholders, rather than taxpayers, were on the hook for bank failure. We are having this debate precisely because we did not have the tools in place in legislation to deal with the global crisis when it unfolded. As I have said, what we need is a two-way trade.
Mark Field
I do not buy into the argument that the tools were not in place. In reality, it was not that many of the businesses were too big to fail, but that they were too interconnected, which I accept put us in a very different position from that in any previous bail-out. In relation to any insolvency or restructuring, there were and are protocols in place, and they should have been adopted to ensure the best value for the taxpayer in the long term. That did not happen in 2008-09.
Mr McFadden
If the hon. Gentleman believes that the tools were in place, I must refer him to the Chancellor, who is constantly saying that his predecessor, my right hon. Friend the Member for Edinburgh South West (Mr Darling), had no alternative when the crisis hit in 2008.
Let me turn to the Bill and some of the issues before us today. There is broad agreement on the need for some kind of structural separation between retail and investment banking. It is important to understand that the point of ring-fencing, as recommended by the Vickers commission, is not to ensure that no retail bank can ever fail—that is impossible—but to make failure, if it does occur, more manageable by insulating the risks and focusing the resolution effort on the essential services that the Government judge it in the public interest to protect: people’s savings, the payments service and simple consumer and SME lending. It would be going too far, and it would be far too rash, to say that that solves the “too big to fail” problem. However, ring-fencing ought to reduce the risks of future failure to taxpayers and the wider economy.
As the hon. Member for Chichester (Mr Tyrie) has said, the parliamentary commission, on which I serve, made two proposals in relation to structural separation. The first was the reserve power to separate individual banks should they try to burrow under, climb over, erode or get through—or any other metaphor that has been used—the fence, and the Government have accepted that recommendation. The second was to have a wider power to enforce separation on the sector as a whole. That second power would be needed precisely because problems in the sector do not come in the neatly wrapped form of one institution. As we saw in 2007-08, contagion is a fact of life in banking; the weakness of one can quickly affect others. Cultural problems in one part of the sector also spread quickly. It is precisely because problems in the industry are often widespread that there is a strong case for taking a reserve power to enforce separation on the sector as a whole, in the event that the sector tries to get around the intention of the Bill.
Stewart Hosie
I am not yet convinced about the reserve power and have many questions. The three banks that actually collapsed were Northern Rock, Bradford & Bingley and Dunfermline, all narrow mortgage banks. How would the ability to separate investment from retail banking have helped in those circumstances?
Mr McFadden
The hon. Gentleman neglects to mention RBS, a universal bank, which needed major intervention to bail it out.
The Minister has said that he does not want wider separation because the Bank of England does not want it. It is true that the Bank of England has expressed some reservations about the power if it were to be wielded by the regulator. I took the opportunity to ask the Governor about it last week when he appeared before the commission. He replied that
“a provision so important that it affects the entire sector is one that both de facto and de jure will and should be taken by Parliament.”
When I explained to him that it had never been the commission’s recommendation that this be a policy decision taken purely by the regulator, and that all along we had been clear that it was a decision for Government, he said:
“As long as the decision is taken by Government, we would have no objection to that.”
I hope that we will no longer hear Ministers saying that they are rejecting this power because the Bank of England is opposed to it. This should of course be a decision taken by Government. As for the Chancellor’s point that it would be “undemocratic”, what is undemocratic about holding a proper review into legislation passed by this House as the Banking Commission suggests, or about taking a reserve power the exercise of which would involve the parliamentary process of debate and approval? The truth is that it would not be undemocratic at all.
Mr McFadden
I am afraid that I want to make some more progress.
This is not, as the Minister argued, about introducing two policies at once; it is about introducing a policy and making sure that it is adhered to. As the hon. Member for Wyre Forest (Mark Garnier) said in this House a few weeks ago, the banks have nothing to fear if they adhere to the spirit and letter of the Bill. It need not introduce uncertainty, as some have argued; in fact, it ought to provide certainty that we are serious about the ring fence.
On capital and leverage, it is absolutely true that in the run-up to the crisis banks were over-leveraged, and that is because they held too little capital against the risks that they had. The Vickers commission was very clear about that. It recommended a future leverage ratio of 25:1, which is still quite high in historical terms, while the Government are recommending 33:1 because that is the internationally accepted Basel outcome. Without going into any more detail, I just say to the Minister that this goes back to the one-way trade to which I referred. It is a really important question running through all these reforms. If, every time we rub up against an issue, we say that we cannot damage the industry because it is so big here in the UK and we therefore have to stick to the lowest common denominator of international reforms, we will not be doing our duty to the UK economy or to UK taxpayers. If we have learned anything from the crisis of 2007 and 2008, it ought to be that there is a case for taking particular measures here in the UK precisely because of the size of the sector in relation to our wider economy. That is the basis on which we should judge the correct degree of leverage for the banks that operate in the UK.
Then there is the question of resolution and bail-in: in other words, what happens when a bank fails, and who is on the hook for that failure? In 2008, it was the taxpayers, not the bondholders, because a resolution mechanism was not in place in law that could allow for normal insolvency procedures were those to whom the banks owed money to take the risk. A very important part of the reforms is to change that situation. Bail-in is signed up to by the Government, but, like my hon. Friend the Member for Nottingham East (Chris Leslie), I am very curious as to why the Government are pursuing this through the European resolution and recovery directive. I would have thought, particularly after last week, that the Government might be somewhat nervous about pursuing a major financial services reform through a European directive. I return again to the one-way trade argument. Surely, because of the importance of this industry here in the UK, we should legislate to make sure that bondholders take a future risk and not UK taxpayers, and we should not leave it to the very uncertain process of a European directive negotiation. That might work out fine; there might be spontaneous agreement among the 27 member states. However, I am sure that the Minister agrees that that there is a very real possibility—this is not uncommon—that that would not be the case. I ask him to think again on the bail-in regime and to ensure that a proper UK decision is taken rather than leaving it all to a European directive. I would have thought that Government Members would support such a suggestion.
In conclusion, I want to reiterate the point about time. The parliamentary commission, which was set up by the Chancellor, has spent six months taking in—the chairman, the hon. Member for Chichester has done more totting up than me—60-odd oral evidence sessions and much written evidence. It is simply not good enough for the Minister to say that he will take the Bill out of Committee by the end of April, before we issue our final report. The Opposition supported the establishment of the parliamentary commission after the House had voted on the issue. We expect its recommendations to be properly considered by the Government, not swept out of the way by the timetable. I hope that the Minister will think again, because the structural issues under discussion are not the only issues. Important changes still need to be made to banking culture, standards and corporate governance, so that this very important industry contributes positively to the UK and does not put the economy and taxpayers at risk.
Sir Peter Tapsell (Louth and Horncastle) (Con)
I asked Harold Macmillan what the secret was of making a good speech in the House of Commons and he said, “I once asked David Lloyd George that very question and the answer I got was, ‘Don’t say anything interesting or important in the first five minutes of your speech—just wait for the Chamber to fill.” I am not sure that that will happen this afternoon, which is a pity because I believe that if this Bill finishes up as the Act I hope it will be, it will be the most important Bill of the whole of this Parliament. It may stop the second shoe falling, as it did in 1931, to use the phrase of the time. After the stock market crash of 1929 came the slump and the 1931 crisis.
In 2007-08—but in 2008 in particular—we saw the greatest financial crisis since the 1930s, which resulted in almost a decade of slump that was only solved by Adolf Hitler. If we can get this Bill right and make sure that 2008 is not repeated, it will be an enormous achievement.
Hank Paulson is the former head of Goldman Sachs and was US Treasury Secretary at the time of the 2008 crisis. If hon. Members read his book, they will see that the critical day was 15 September 2008. He says that everybody who mattered in finance was in his room and that, although he is a big man who was a famous university footballer in his youth, the stress and strain was so great that during the course of the conference he had to leave the room twice to vomit. He writes that on that day capitalism was on the verge of total collapse. I think that people have forgotten the seriousness of that crisis.
I believe that crisis was more important than 9/11. As it happens, I woke up in my club in New York on the morning of 9/11, so taking part in this Second Reading debate means that, during the course of my life, I have been present at two very important events. The fact is that the 2008 crisis ruined the lives of millions of people all over the country. Many of my constituents are suffering real hardship as a result of the measures that had to be taken to deal with the effects of the crisis, and the same is true right across the world. We really must prevent it from ever happening again, but I fear that there is a real danger that it could happen again.
The high spirits—to put it at its most polite—of investment bankers do not seem to be unabated. Many banks are in a weak state, including, as we heard only three or four days ago, Goldman Sachs itself. Some major European banks are close to bankruptcy. This Bill is a belated but welcome attempt to prevent the banking crisis of 2008 from happening again.
The Opposition spokesman is the hon. Member for Nottingham East (Chris Leslie) and in far-off days I was the hon. Member for Nottingham West, so we have a certain amount in common. Our views on regulation also have a great deal more in common than he has indicated. There is no reason why he should know what my views are on anything—nobody really does and I only do on a day-to-day basis. He should look up a speech that I made on 16 July 1984. I spoke for 40 minutes—in those days, Back Benchers were allowed to make proper speeches—and strongly opposed the deregulation of that time, which, in those days, was called big bang. Deregulation had suddenly became tremendously fashionable. Lady Thatcher, Keith Joseph and all the monetarists were terribly keen on it, but one of the reasons why I resigned from the Opposition Front Bench on which the hon. Gentleman now sits and why I refused to serve in Margaret Thatcher’s Government is that I disagreed with it.
I reread my speech last night and if the hon. Gentleman reads it, he will see that I predicted, very clearly and unbelievably presciently—I was much younger and more alert then, and knew how to put points so much better than I do now—exactly what would happen and the reasons why. I also predicted the tremendous decline in the moral standards of the financial world that would result from the internationalisation and Americanisation of the City of London. That, of course, is what, unfortunately, happened.
In that speech against big bang, I opposed the absorption of high street banks, merchant banks and stockbroker firms—I was a partner in one—into universal banks, free to speculate, on their own account, with the money of depositors and large sums of borrowed money in what is now called leverage, which we and America pronounce differently. I will not go into the arguments about ratios, except to point out that, even as respectable a hedge fund as Carlyle was dealing on a ratio of 30:1. The leverage situation was one of the causes of this disaster.
At the beginning of this Parliament I described the banks as today’s over-mighty subjects and that is what they are. They have been strongly lobbying the Vickers commission and the Treasury not to deal effectively with the bank that is too big to fail. I take the view that if a bank is too big to fail because of the systemic effect that would have, it is too big to exist at all and should be broken up now. As a start, I strongly support the recent recommendation of the Governor of the Bank of England to break up the Royal Bank of Scotland.
Glass-Steagall imposed an absolute separation between commercial banking and investment banking. It also banned proprietary trading in commercial banking. The essence of Glass-Steagall in 1933, by which Roosevelt managed to save the American banking system, was to root out conflicts of interest, which are the evil at the heart of universal banking. Banks were told that they had to choose between servicing a client and promoting their own short-term interests. Combining the two inevitably creates conflicts of interest that lead to many other problems. That is what Mr Paul Volcker, unquestionably the most distinguished and experienced banker in the world, urged on America in what became known as the Volcker rule and on our Parliamentary Commission on Banking Standards, which has been chaired so ably and brilliantly by my hon. Friend the Member for Chichester (Mr Tyrie).
I read the accounts of what is being said and the questions that are being put at the parliamentary commission with great jealousy, although I do not want to be co-opted on to it. Its second report reached me just before lunch, and I chose lunch. However, I will read the report and all the subsequent reports with the greatest possible interest. I find it difficult to understand how anyone who has read the complete account of Mr Volcker’s evidence to my hon. Friend’s commission, as I did at the time that it was published, could fail to be persuaded that we need, in effect, a complete return to Glass-Steagall.
What I mean by a complete return to Glass-Steagall is that we should have none of this nonsense of ring-fencing, which used to be called Chinese walls. It never works. Chinese walls turned out to be papier-mâché. I worked in the City for 40 years and I promise Members that it is impossible to make that work.
Andrew Bridgen
Does the Father of the House remember that it was President Bill Clinton who relaxed the Glass-Steagall rules in return for the American banks lending to sub-prime borrowers? Were not the seeds of the financial crisis sown at that point?
Sir Peter Tapsell
Yes, they were. The American banks turned mortgages for people who could not afford to pay the interest into derivatives disguised as bonds and then sold packets of them—500 or so—all over the world. They could not have done that under Glass-Steagall. That really makes the point, so perhaps I ought to sit down now.
John Mann (Bassetlaw) (Lab)
It is a pleasure to follow the Father of the House and to agree with many of the sentiments he expressed.
I look at the Bill and at the Ministers and my reaction is to ask, “Is this it?” Considering what we have been through and the problems in British and world banking, is this Bill the best that we, as legislators, can do? If that is the case, it is no surprise that we are increasingly derided outside this place.
The Minister should have set the context. I offer him my file detailing the top 50 banks in the world by assets. What unifies those top 50 banks is that every single one, without exception, either has been subject to major convictions for criminal fraud recently or is being investigated for criminal fraud. The Americans have been very good at portraying this as a British problem. They have, perfectly properly, exposed problems and illegalities in British banks. However, their banks are doing the same and worse, as are banks the world over. That sums up the problem. What other industry could have all 50 of its top players committing criminal fraud at the same time while the world’s legislators are happy to do just a bit of poking, a little juggling and a few bits and pieces?
I do not disagree with the bits and pieces, especially if there is strengthening and improvement, but is that all we are going to do? I heard reference to the 1930s and I have heard that time used before as a comparison. We are doing the same thing with the same boldness, but it did not work in the 1930s because 1931 turned into 1933 and into 1939 to 1945. That was the consequence. We therefore need to be significantly bolder in what we are doing. This Parliament, like other legislatures, remains cowed by the bluster and power of investment banking.
There are models that are different from the British model of investment banking. The Chinese have a very different model. We seem to be forgetting how successful that model is. While we are sellotaping our banking system together, they are building a competitive base that will dominate the world economy for generations. It is as if we are the fools at the Chinese emperor’s ball. By using a model of cheap finance, concentrating on raw materials and technological transfer, investing in skills and infrastructure, and planning for the medium term, China is showing how ruthless simplicity creates permanent competitive advantage. That contrasts with the short-term monetary advantage that our investment banking model offers. We play with paper while the Chinese build with concrete. Worse than that, they are developing tomorrow’s building materials, designs and visions.
A simpler, democratic model that similarly contrasts with the British investment banking model is the German model. An example is KfW, which was formed in 1948. Its lending to business in 2011, the last year for which I could find figures, was €70 billion out of a loan portfolio of nearly €500 billion. That is a less risky and less speculative model than our money market, casino model. Just like the Chinese model, which I do not recommend but do admire, the German model is beating ours. The danger is that we are playing yesterday’s games, whereas those countries are playing tomorrow’s games. That is a bit like the 1930s.
We must not be fearful of investment bankers. We should not just create an electric ring fence between retail and investment banking, but should consider whether the model that we have is fit for purpose. One thing that it certainly is not is competitive. We have allowed a model that does not create competition, and the Bill does nothing about that. There is the hope of the challenger banks, but they have not been very successful and there is more that we could do to help them. Over the past 20 years in this country, we have stripped out competition.
I would like to be able to follow the advice that I was given when I first got a bank account: “Put your money somewhere safe. You won’t get a great deal of interest on it compared with other places, but it’ll be reliable and it’ll help you get a mortgage and buy a house in the future.” It was called a building society. That was only one part of the model, but there were a lot of them all over the country not many years ago. The problem with the Bill is that there could end up being even fewer of them and a greater concentration of the tiny number that there are. Building societies are only one part of the financial services market that I want to see, but they should be a significant part—at least 30%, if that is what consumers want, but consumers have not been given the choice.
There is no real competition. Where is the national interest test for takeovers and mergers? The vast majority of investment banking’s speculative profits over the past 20 years have come from the mania for takeovers and mergers. Germany has such a test, and would anyone try to merge or take over a major conglomerate in China? I do not think so. A national interest test should be in place.
The two state banks should be broken up, and the Halifax building society should be recreated out of them, but we need far more than that. Competition should be created in the marketplace and enforced. If that were to happen, consumers would flock to that model in large numbers. I would like to see a model of tiered risk. I do not believe the idea that we can guarantee every type of saving for ever up to a certain limit—£85,000, or whatever it ends up being in the future—is rational. I would like a real choice between low interest rates and total security for my money, and medium or higher risk. We should give the consumer the choice rather than have the pretence that the state will always be able to provide a bail-out. From the moment such a pretence is created—we have essentially had it since the war in this country—there will by definition always be banks that are too big to fail. The fundamental logic of that cannot be broken.
There are many other bits and pieces that I would like to see. One of the Treasury Ministers ought to be in Europe full time. Whether or not I agree with what the coalition argues, one Minister ought to be negotiating, pre-warning and advising on and helping to create what comes out of Europe. I would like to have the bonus cap and the Government disagree, but the point is that we have not been there at the table, which is where we need to be. That is a fundamental weakness, as it was under the last Government. It would be wise politics to make that change.
Auditing has been mentioned, and another minor point that ought to be in the Bill, on the micro level, concerns compliance officers in banks. They are the office boys—there is no qualification for them and no basis of standards. It would be pretty easy to sort that out and ensure that there is a qualification to be a compliance officer. We should raise their grade and standard. We should not make a fetish of degrees, but it ought to be a graduate-quality job, which it has not been. That is a fundamental weakness in how banks see themselves and compliance.
A major change that I would like to see concerns tax loopholes. There has been a lot of talk about them, but when it comes to banking the biggest loophole involves the UK Crown dependencies. We have a significant degree of influence over them and they rely on us for their legal system and their defence, but we allow them opaqueness in finance, whether banking, commercial, personal or a combination. No wonder my file is full of cases of money laundering and other criminal corruption that have been found out, and those are only the ones that people have been able to see. That opaqueness should go, and we have the power to do it. Those are the big issues that have not been addressed in the Bill. I implore my party to get on the case and get it amended.
Mike Thornton (Eastleigh) (LD)
Thank you, Mr Speaker, for allowing me to make my maiden speech during this important debate.
Being able to represent the people of my own local area here in the Chamber, with its history and traditions, is an immense privilege and honour. I begin by paying thanks to all those who helped me during the by-election. I thank the whole Liberal Democrat campaign team, whether local, from our headquarters or from around the country, for their tireless work, efficiency and constant cheerfulness, especially considering the weather. Most importantly, I thank the voters of Eastleigh, who have put their faith in me. My first duty is, and always will be, to the members of my constituency, whoever they vote for.
I am surprised, overwhelmed and extremely grateful for the incredibly warm welcome that I have received from you, Mr Speaker, from hon. Members of all parties and from the staff of the House. I must say, I am still trying to absorb all the help and advice they have given me, and I am not exactly sure who has given me what, I am afraid.
Let me pay tribute to my immediate predecessor, Christopher Huhne, whose contributions must not be overshadowed by recent events. He was a dedicated constituency MP, and throughout the constituency I have met thousands of people who are extremely grateful for the help that he has given them. Furthermore, let us not forget his outstanding service as Secretary of State for Energy and Climate Change, driving our transition to a green economy while playing an internationally recognised role in combating climate change.
I was delighted to campaign with Lord Chidgey, the previous Member of Parliament for Eastleigh, a man held in such high regard by my constituents that when I was walking around and knocking on doors with him, after putting thousands and thousands of photos of myself through people’s doors and having been on television and in the newspapers, what did they say when they saw us? “Who’s that chap with Lord Chidgey?” If I can be as well remembered as he is, I will feel that I have done a good job.
Although many hon. Members may feel that they already know my constituency after pounding its streets recently, I ask them to please indulge me by letting me talk a little bit about it. Before there was Eastleigh there was Bishopstoke, which just happens to be where I live, and I have served as a councillor there for the past six years. Bishopstoke was mentioned in the Domesday Book, and it was to Bishopstoke junction that London and South Western Railway moved its railway works and employees lock, stock and barrel in 1891. Indeed, it was the company that proceeded to change the name of the station and the surrounding area to Eastleigh. Bishopstoke has never forgiven it.
As the years passed, Eastleigh developed as a bustling railway town with a strong industrial identity and a skilled work force. Aside from the railway, Eastleigh played a major role in the development of Britain’s aero industry, and it was at Southampton airport, formerly Eastleigh aerodrome, that the Spitfire was designed and built. Of course, local people remember with much pride and some sadness that its designer, Reginald Mitchell, foreseeing the awful shadow of war, defied his doctors and literally worked himself to death to ensure that the Spitfire would be ready in time to defend our country against the evil of the Nazis.
I am pleased to say that that proud tradition of manufacturing and engineering continues in Eastleigh —at the rail site now operated by Knights Industries, at GE Aviation Systems in Hamble and through the development of high-tech industries including SPL Lasers and Lubetech in Hedge End and Prysmian in Eastleigh town, which I believe our Prime Minister visited during the campaign. These firms demonstrate that the key to a sustainable and balanced economy is to embrace both the old and the new. Eastleigh is fortunate to have a much lower rate of unemployment and youth unemployment than the national average. Indeed, both have dropped recently. Of course, this week is national apprenticeship week, and I celebrate the fact that more than 28,000 apprenticeships have been created across Hampshire since 2010, many of them helped by Eastleigh college, which has a superb reputation.
In Eastleigh new businesses are opening at an increasing rate, with more than 100 starting up last year due to the support and far-sighted approach of our borough council led by Keith House. Despite that success, however, and having spoken to businesses both as a candidate and previously in my professional role, I have found that business after business is struggling to obtain financial support from our banks to enable it to grow and expand its work force. The Business Secretary has worked tirelessly to improve that situation; I am confident he is succeeding but the banks seem too slow to respond. The funding for lending scheme is a superb initiative, but many banks seem to believe that its purpose is to enable them to lend to people they would ordinarily have lent money to, just at a lower interest rate. As Mark Twain said:
“A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”
We have seen the start of alternatives such as the extraordinary Bank of Dave, other peer-to-peer lenders, and new banks starting up with a fresh approach. Our traditional banking sector needs to wake up before it finds that its customers have gone elsewhere and that it has joined the penny farthing as an historical curiosity.
Moving on, one of the great privileges of this job is the opportunity to work with local people—the unsung heroes of the voluntary sector. Such people have been labouring away tirelessly in their own local communities, often without much credit and probably no money. From unpaid parish councillors to street pastors, local groups such as the Pilands Wood community association have transformed the area and created an extraordinary sense of community. I would like to mention all the volunteer organisations that contribute so much, such as One Community, Churches Together in Eastleigh, Eastleigh Basics Bank, Acts of Random Kindness—which I recommend to everybody—and Open Sight. I could go on, and I am sorry for not mentioning all the groups, but I would go well past my 12-minute allocation of time.
My constituency is blessed with some of the best schools and colleges in the country. The Deputy Prime Minister and I were privileged to see the extraordinary partnership between Hamble community sports college and the Dynamo school of gymnastics that delivered an Olympic-class gymnasium. I am eternally grateful for the support that my daughter received from superb teachers and staff at Stoke Park infants and junior schools and Wyvern technology college. Wildern, Crestwood and Toynbee schools have superb reputations, and I believe we have been honoured today by a visit from Eastleigh’s own outstanding Barton Peveril sixth-form college. I also want to mention that a friend of mine who taught at that college is sitting in the Gallery now.
I will leave the House with a parting thought about how fortunate I am to be able to step outside my front door and in minutes be in the beauty of Stoke Park woods or walking down the Lloyd to the water meadows, while at the same time being a 15-minute walk from Eastleigh town with its variety of shops and restaurants.
I thank you, Mr Speaker, for giving me the opportunity to speak, and I thank hon. Members for listening with such courtesy. I suspect that next time I am called I will not be heard in quite such a manner. I look forward to serving my constituency, this House and my country for many years, and consider it an honour and a privilege to be here.
Alison McGovern (Wirral South) (Lab)
I congratulate the hon. Member for Eastleigh (Mike Thornton) on his maiden speech, which was a really good first contribution. As a former railway person, I know that the town of Eastleigh is extremely important to that industry, but there is no more important a subject for him to make his maiden speech on than this Bill. I offer him my sincere congratulations.
Let me say why I think this Bill matters. By way of setting the scene, I want to explain something from which I think the financial services industry suffers. There has been a recent influx of Members to the Chamber for this debate, although I fear that it is not entirely due to the subject under discussion. Normally, the financial industry is quite a niche subject, which is partly to do with the fact that people often talk in code about financial services. There is a certain language that people are supposed to use when talking about financial services, and I suspect that those who work in the industry feel a bit as though they are part of a special club. They use words that normal people cannot really understand; they repeat their shibboleths and some of them live in their gated community, quite apart from normal society. Well, hands up, Mr Speaker, it takes one to know one; Parliament is just the same in so many ways. If we make things sound complicated, people will think we are really clever, but I think we should learn that democracy and financial services are too important for that.
Unfortunately, the culture in financial services makes scrutiny much harder than it ought to be. We now know that in the 2008 crash, the real risks taken by the banks were hidden, and that happened because of the insider culture. We are yet to hear from the Parliamentary Commission on Banking Standards about the cultural aspects of the financial services crash, so I repeat to Ministers earlier pleas about the timing of that advice. As I have explained, cultural aspects are important for effective scrutiny and good legislation in the future, so can we not ensure that we proceed with the best possible advice from the parliamentary commission? We in this House would probably all agree that we have been sent here to speak up for ordinary people, but what happens in the City’s square mile matters on every high street in Britain. It is not good enough anymore for financial services to be a niche interest in Parliament.
Growing up in the 1980s and 1990s I often felt that Merseyside was being buffeted and shaken in the interests of the City of London. Given the Chancellor’s words over recent months, it has sometimes felt a little like my teenage years on playback. The Chancellor talks about defending the interests of London as a financial centre—for example on leverage ratios—but how much do financial institutions worry about the average British high street?
Alison McGovern
Let me finish the point, and then of course I will give way to the Member who represents the square mile.
Let us be honest: some financial institutions do worry about that, and some are very large employers, and I know that many people in the financial services would agree absolutely with my point. However, wage inequality skews influence to insiders at the top.
Mark Field
Does the hon. Lady recognise that as well as the hugely important business, which is perhaps based culturally within the square mile in my constituency, a vast number—indeed, the majority—of jobs in UK banking and financial services are based not just outside the City but outside the capital? She will be aware, for example, that not too far from her constituency in the city of Chester, a huge number of employers employ many thousands of people in the financial services.
Alison McGovern
That was the point I was trying to make, and I refer the hon. Gentleman to comments made by my right hon. Friend the Member for Wolverhampton South East (Mr McFadden), who said that although that is true, it is not enough to say, “We’re a big employer; leave us alone.” The influence of the financial services in the City is greater than that, and that will not do anymore.
Wage inequality in financial institutions skews influence to insiders at the top. This is a classic insider-outsider problem, and we in Parliament must work out how to scrutinise more what goes on in the City. I believe that the Royal Bank of Scotland’s final report makes great play of how it is finally a living wage employer. Well, good for RBS, but it is perhaps a little too late.
On the bonus culture, the Government have said that there could be a perverse incentive in controlling bonuses and that people might be paid more if their bonuses are reduced. That is true if—and only if—they think the following two things: that it might not be better to have more fixed costs and less turbulence, and that we might want to think about the impact of those highly variable costs on incentives; and, secondly, that the overall remuneration of bankers is just fine and the current inequality in the financial services sector is okay. Well, it is not okay. The hon. Member for Cities of London and Westminster (Mark Field), who represents the City, mentioned the many people all over the country who work in financial services, but when I make the point about inequality in the financial services sector, it is those very people, and the money in their pockets, who I am thinking of.
Mr McFadden
On pay and reward, does my hon. Friend agree that it is unfair that the vast majority of financial services workers, who are in ordinary branches of banks and so on and paid normal, average salaries, get tarred with the brush of excess and of salaries way out of kilter with what normal people earn, when in fact that is taking place at the very top of banking and not in the local branch?
Alison McGovern
I could not agree more. It is also not okay that people in regular branches were pressured to sell all kinds of products, which we know happened.
I was very much taken by the contribution made by the Father of the House, the right hon. Member for Louth and Horncastle (Sir Peter Tapsell). Unfortunately, he has left his place. I was going comment on the deregulation of building societies and the big bang back in 1986, but as he has already covered that very well, I will not do so except to say this. On reading Lord Lawson’s account of the impact of the 1980s boom on the real economy, I think he is clear that he thinks he made a mistake. We should listen to the lessons of history. We should also congratulate the right hon. Member for Haltemprice and Howden (Mr Davis), Lord McFall and Baroness Kramer on establishing the New City Network, which is trying to find ways to answer some of the questions I have raised.
To turn to my second point, which is more specific to the Bill, we need to ask ourselves what kind of economy we want. My constituents, unsurprisingly, are interested in having a job to go to, and in having enough money in their pockets to feed their family and have a roof over their heads. They want a Government who do not tell them that they will cut debt to solve the problem, only to see debt rising. Notwithstanding that, the Bill ought to help finance to underpin a growing economy. Will the ringfence help us do that? That is determined by what we think banks are for. We should say that banks are not just like any other industry: cavalier risks are totally unacceptable, and that is why the ringfence matters. We need to assure ourselves that we have done enough to provide for business continuity in a real, productive economy.
I am not sure that the ringfence is necessarily enough to do that, however. What about the examples of straightforward bad lending? What about investment banks with no retail operation, such as Lehman’s in the US? What about retail banks that went under in this country? How does the ringfence de-risk in those cases? Then there are the comments from the hon. Member for Chichester (Mr Tyrie) about the industry marking its own exam. That gives rise to the need for reserve powers, which other hon. Members have described well.
We need to be clear that some in financial services argue against separation at all—they worry about the cost to the bank. I am afraid that that sounds a little too much like special pleading. Saying that this will hurt lending to the real economy because it passes costs on just sounds like tit-for-tat: “Block our preferred business model and we will punish small and medium-sized enterprises, small business and the average small lender.” Why do they have to do that? I am not sure that one necessarily leads to the other—it is about their business model. How does the Bill help with protection from banking failure in other European countries?
We have heard other hon. Members talk about competition, so I will not dwell on that for too long, but the Government must be clear and Ministers must say exactly what kind of competition they want. Any economics textbook will tell us that three firms are enough for competition, but I think we all think that common sense dictates otherwise. How many new entrants to the market are sufficient? More importantly, what kind of competition do we want?
There is nothing in the Bill about ownership, but perhaps there should be. What are the Government doing to open up banking to more mutuals? Could we look back over our history at what happened to building societies, as my hon. Friend the Member for Bassetlaw (John Mann) mentioned, and see whether there is room for change in that sphere? I have raised before the Financial Services Compensation Scheme and pre-funded deposit insurance. If we compare the EU’s position on making sure that banks commit properly to the UK’s position, I wonder whether Ministers have got that one right.
In conclusion, this is a shell of a Bill and we can do much better. To paraphrase John Donne, financial services is not an industry entire of itself; it is a piece of the continent, a part of the main. We therefore need a greater commitment from the industry that it is prepared to change, and from the Government that they are prepared to legislate to help it do so. The impact of the financial crash on people in my constituency was huge, be that from the threat of losing their house, or losing their job. That is too important for this subject to remain a matter of technical, niche interest. The Government must be much stronger and listen to the voices calling for change.
Mark Garnier (Wyre Forest) (Con)
I add my congratulations to the hon. Member for Eastleigh (Mike Thornton) on his maiden speech. I remember when I made my maiden speech: it was the most terrifying event of my life. If he continues with that masterful performance, the good people of Eastleigh will be very well represented in the years to come.
I am grateful to my hon. Friend the Member for Chichester (Mr Tyrie), who is no longer in his place. He started by talking about the members of the Parliamentary Commission on Banking Standards. As one of those members, it falls on me to pay tribute to the extraordinary work he has done in the past nine months or so, pulling together what is quite a tour de force.
At the heart of this debate lies the balance of interests within banks. Any commercial organisation—or, indeed, any bank—must balance the interests of its shareholders, the interests of its staff, and, importantly, the interests of its customers and the wider society at large. When those interests become unbalanced, we end up with problems. When staff are over-incentivised with bonuses, they will take greater risks at the expense of shareholders. When shareholders see stellar returns, they will fail to provide the governance oversight needed to protect the organisation. When looking after customers is seen as a tricky task in an ever-increasingly competitive world, the customer takes second place to proprietary trading, and is relegated to providing mere liquidity to help the proprietary traders. When those balances of interests become too skewed in favour of staff and shareholders, society loses out altogether, with the banking collapses and the bail-outs we saw, and which we are trying to avoid in the future.
One of the concerns that I have been wrestling with is that of over-regulating our banks. Can we, unwittingly, drive our banks to relocate offshore by supposedly over-regulating them? We need to look closely at the problem. What do we mean by relocating? In part, we are looking at banks changing their domicile, and in part we are looking at the moving of specific operations to different parts of the world. Those are two very different things, and it is important to make sure that we do not confuse them. Setting up a trading desk in Spain, for example, is decided by where the traders want to work. Moving a global bank to Singapore is a very different thing indeed.
First, these banks are huge. One has to asked oneself the question: who would want to have one of them located in their economy? If HSBC went to Singapore, its balance sheet would be over 1,000% of Singapore’s GDP. Not many countries can take a bank of that size, and, of those that could, do they have the same offering that we have here? There would be no question whatever of any implicit guarantee. London offers some key elements that banks need: we speak English, we are in the centre of the global time zone, we have a transparent and well-tested legal system, and, importantly, we have what amounts to a relatively good regulatory system. All those points are absolutely key.
The banks benefit from an implicit guarantee—valued at between £10 billion and £40 billion, depending on where we are in the cycle—that comes as a result of the expectation that the British Government would stand behind a failing bank in exactly the same way that we saw in 2007 and 2008.
Steve Baker (Wycombe) (Con)
I am glad that my hon. Friend raises that point. Does he agree that if we subsidise anything, we get more of it, and that this actually subsidises risk taking?
Mark Garnier
Yes, it does, absolutely. I am going to develop that point in a second, if my hon. Friend will bear with me. We need to get rid of this implicit guarantee for exactly that reason and in order to encourage competition, because competition requires a guarantee for all banks, not just the big banks.
If we combined a transparent legal system with a robust and secure regulatory regime, international capital would come to this country—because of that security—and because capital would trust the UK’s legal and regulatory system, it would be prepared to take a slightly lower return. London would provide an environment in which the cost of funding for banks would be lower. That cheaper funding, as a result of regulatory security, should replace the banks’ implicit guarantee and thus result in a lower cost of capital. As a result of that cheaper funding cost, which is reliant on good regulation, we should not fear banks relocating when we introduce regulatory reform. They might complain, but they will ultimately thank us for the strongest regulatory regime in the world.
That also depends, however, on how the Government take forward the Bill. The Banking Commission has made its early recommendations, and the Government have responded. As we heard from my hon. Friend the Member for Chichester, we are grateful to the Government for listening to some of our recommendations, but they could pay more attention to certain other areas. We want a leverage ratio set at 4% by the Financial Policy Committee, a full reserve power for full industry-wide separation and regular reviews of the effectiveness of the ring fence in order to ensure the most effective and secure regulatory regime in the world. By winning the race to the top, we will ensure cheaper capital funding for our banks and help to preserve our country’s lead position in the financial world.
I turn to the thorny issue of proprietary trading. The term “casino banks” was coined by someone at a time when I suspect they were keener to play to the gallery than necessarily to address the serious issue of what investment banks actually do. It is important to remember that investment banks raise huge amounts of debt and equity capital, generating thousands, if not millions, of jobs in the UK and around the world in commerce and industry—jobs that create wealth and tax receipts for this country—but there is an element within investment banks of proprietary trading. The important thing is to define proprietary trading. Every bank that makes a loan makes it on a proprietary basis, but no one would want to prevent banks from doing that—it is the key to what they do. Pure proprietary trading, however, for the sole purpose of enhancing shareholder returns—with no benefit to the customer or society—has no place in our banks. It fails the balance of interest test and is incredibly difficult to define.
We can recognise the evil type of proprietary trading when we see it, but let us take market marking, for example. It provides a service to customers and liquidity to the markets, and so passes the balance of interest test, but at what point does a residual position on a trading book stop being that which is left over from normal market making activities and start being deliberate directional betting? That inability easily to distinguish between one and the other leads me to believe that, although a Volcker rule would probably be desirable, it would be too difficult to impose in a meaningful way. That is why, reluctantly, I come down on the side of not banning pure proprietary trading. If the Vickers proposals that the Bill implements seek to put a ring fence around the deer park, does it matter what type of predator is kept outside? The consumer will be protected from both the wolves of market makers and the tigers of proprietary trading.
Much of the commission’s work has looked at competition. With a handful of super-huge banks dominating the market, competition is tricky. Long before the commission was set up, however, I spent much time meeting smaller banks, including challenger banks, and those seeking to win new banking licences. It was clear that there was a huge problem with banks being too small to start—the regulatory hurdles facing small banks, such as licence applications and ongoing supervision, distorted the market in favour of the big banks—but the FSA has responded to pressure and had a change of heart. The regulator is moving in the right direction, and I am grateful to the FSA for taking heed of our warnings about new banking application processes and the treatment of asset risk weightings on the balance sheet. The regulator is moving towards greater opportunity for small banks in terms of regulation, which is very important.
There is also the thorny issue of account switching. Later this year, the seven-day switching programme, which is a significant step forward, will be put in place. I strongly believe, however, that the ultimate goal has to be full account number portability. VocaLink, which provides the payment system services, is considering doing for banks what the telecoms regulator did for mobile phones, and it is making good progress. My hon. Friend the Member for South Northamptonshire (Andrea Leadsom) has done a lot of work on this subject, and for four reasons her proposals for full portability are right: first, it will ensure greater competition, as I am sure we will hear later; secondly, the financial system will be more transparent and so provide greater oversight for the FPC, which is charged with ensuring stability in the financial system; thirdly, in the event of a collapsing bank, full portability will make bank resolution far easier and cheaper; and finally, the legacy IT systems in many banks have their foundations in the ’50s and ’60s, with the punch-card system. At some point, the banks will have to massively update their systems, and combining everything makes huge economic sense.
What is the point of banks? Why are we so keen to reform them? Those questions are crucial to the whole debate. Clearly, people need a safe place to deposit their money, to manage their finances and to plan for the future, but banks also provide an incredibly important social and economic function. There has yet to be devised a better way of taking money from where it has accumulated and distributing it to where it is needed. Successful investors and business men need a way to get their money to where it will work for them, and those with an idea but no cash need to be introduced to investors with surplus funds. So far, banks have done that job better than anyone else. No matter what we say, they have a fantastic distribution network, which we must utilise to the fullest extent.
Mr Love
Unfortunately, the banks are not doing a good job of providing loans to small businesses. In particular, those banks in partial public ownership seem to be struggling to do so. Is there any way—a funding for lending scheme, for instance—of encouraging more lending from banks to small businesses?
Mark Garnier
The hon. Gentleman is absolutely right. The two of us have spent much time together wrestling with this thorny issue over the past nine months—and before that on the Treasury Committee. Part of the problem is that, with the risk weighting of assets, a loan to a small business carries the least weighting, because it is deemed to be one of the greatest risks. The world is putting pressure on banks to reduce their balance sheets and become less risky institutions, and the simplest way to do that is to withdraw lending to small and medium-sized enterprises. That is the natural outcome, if we ask them quickly to reduce their balance sheets. Funding for lending schemes seek to bypass the risk-weighting element, but none the less it is incredibly difficult to encourage more of what the regulatory regime sees as the riskiest type of lending. It is a problem we have to resolve, however, because, as I said, there is no alternative way of getting money to businesses.
It is incredibly important that the Government never again have to bail out banks when things go wrong. Broadly speaking, the Bill is an enabling Bill. There is much more detail about the nuts and bolts to be introduced in secondary legislation, but it is important that it achieves what it is trying to achieve, which is to ensure that banks can go bust without bringing the system down with them. For a functioning financial market to work properly, it is important that poorly run banks be allowed to fail—but elegantly and non-destructively. The Bill will ensure that, in a crisis, the vital parts of a bank can be resolved in a dignified and stable way and that the British taxpayer will never again be left on the hook to bail out bankers for their foolhardy recklessness. That is why the Government are right to introduce it. They were right not to rush into anything, but to have spent a great deal of time listening to Vickers, Erkki Liikanen in Europe and others, including of course the Banking Commission. For those reasons, I have no hesitation in supporting the Government fully and look forward to working with them as part of my work on the Banking Commission.
Frank Dobson (Holborn and St Pancras) (Lab)
I think everyone in the House would welcome a step forward in trying to gain some control over the excesses of the banking industry, but most Members—at least those who have spoken—seem to be dubious about whether the Bill goes far enough. Following on from the speech by my hon. Friend the Member for Bassetlaw (John Mann), I tend to be what might be described as a “Bassetlaw-ist”. I think we need to go much further than most people are proposing.
We need to start by recognising that the British banking industry is a failure—it was a failure and it remains a failure. Let me remind the House that, of the big four, HSBC lost $27 billion in the crash, while RBS lost $14 billion, Barclays lost $8 billion and Lloyds lost $5 billion. Between them, these masters of the universe lost $54 billion in the crash. It did them harm, but it did a lot more harm to the rest of us. In the recession that has followed their lunacy—matched all round the world by the rest of the world banking industry—British production has lost £700 billion, as a result of the reduction in goods and services that we have produced.
That is what the banks dropped us in. They did it through all sorts of fancy schemes, in an effort to get rich quick, and for quite a long time they did get rich quick. Everybody was told, “You can’t stop us. We know what we’re doing; it’s the market.” Then the market crashed. Under normal rules, if the market crashes, those who crash stay crashed, but that does not happen with banking. That is why we need to change the rules. The banks demanded taxpayers’ money, either to bail them out or offer them guarantees. They said, “You’ve got to do it, otherwise we will bring the temple down and we’ll bring you all down with us.” In other words, “Heads we win, tails you lose” has been the motto of the banking industry.
That is not all that the banks were doing wrong, we now discover. They were also rigging LIBOR—the London interbank offered rate. Individuals in banks were fiddling, and apparently not a single boss knew what was going on. LIBOR was run by the British Bankers Association, which apparently did not know that any fiddles were going on, so obviously “Ignorance is strength”—this year is the centenary of George Orwell’s birth—was the motto of the British banking industry. People have been prosecuted or threatened with prosecution—they have settled to avoid it—in the United States for LIBOR fiddles, but nobody has been prosecuted here. Why is that?
There have been several repeated conspiracies—in fact, dozens and dozens of them—to gain financial advantage by deception, which is a common-law crime, so we do not need an Act of Parliament, but we now know that LIBOR rigging was not the banks’ only wrongdoing. Instead of “The world’s local bank”, HSBC’s motto turns out to be “The world’s local money launderer —helping Mexican drug barons, fighting the United States’ anti-terrorism sanctions”. Lloyds—motto: “Banking worth talking about”—was involved in money laundering to help sanctions-busters. Barclays—“It’s our business to know your business”—was involved in dodgy transactions and busting sanctions against Iran, Libya and Burma. Most of us would think that sanctions against Iran, Gaddafi’s Libya and Burma were quite appropriate.
The banks have also been spending a great deal of time promoting tax dodging. The big four have 1,649 subsidiary companies. For Barclays, HSBC and the Royal Bank of Scotland, a third of those companies are in—where would you guess?—the places where tax is fiddled. They are in tax avoidance places—Lloyds is a bit better, with only 20%.
Up to now, most criticism, both here and in the newspapers and so on, has been of the investment bankers speculating—“It’s a casino. Separate it out; ring fence it; break it up”—on the grounds, apparently, that retail banking has been a really big success, when actually it has an appalling record. It was the retail arms of the big four that did all the PPI fiddles and the IRSA—interest rate swap arrangements—swindles. Indeed, the big four sold 34 million payment protection insurance polices. Between them, they are now having to set aside £14 billion to repay people who were swindled. That is what the money is for—simple stuff: it is a swindle. Between them, the big four are employing 10,000 people to administer the system of repaying the money they swindled. It is almost a banking job creation scheme.
Then there are the retail banks’ interest rate swap arrangements. Some 40,000 agreements with small and medium firms are now being reviewed. The idea was sold by the British Bankers Association to
“help insulate business customers against fluctuations in interest rates,”
as the BBA put it, but that is exactly what interest rate swap arrangements did not do. A sample survey shows that 90% of the agreements being reviewed break existing banking regulations, yet small firms were bullied into accepting their terms in order to get a new loan or extend an existing one—if they did not agree, they would not get it.
Jonathan Edwards
Does the right hon. Gentleman agree that some instances of products being mis-sold by the retail elements of banks were driven by the investment arms of those entities? Ring-fencing will not go far enough. If we are to stop such abuses by the retail elements of the universal banks, we have to have full separation of investment and retail banking.
Frank Dobson
Yes, but if we are to get the changes we need, we also need to change the culture in both sectors.
The banks have never competed with one another, or at least not in trying to get customers. Rather, they have tended to compete by copying one another. When one bank comes up with a wheeze that swindles money, the bosses of the other banks say, “Why are they getting all this money in through this swindle? Can’t we do the swindle as well?” That is presumably how PPI started off at one bank and then went to all the others. Interest rate swap agreements certainly started at one bank and were then taken up by the others, because people in those banks felt they had to compete with the other swindlers down the road.
These people—this collection of money launderers, gun runners, drug money launderers, people who swindle small businesses and people who lose billions in their normal day-to-day business—are still paying themselves huge amounts of money. I know that the Prime Minister has a difficulty with facts, but I did not realise that he had a problem with adjectives, because when the Royal Bank of Scotland announced that it was paying £600 million in bonuses this year, he commended it—this bank of losers —for its restraint. That is not my definition of restraint. “Excess” is probably a better word in the circumstances. Restraint involves cutting the benefits of poor people and the pensions of the police, the nurses and the teachers. Restraint involves capping the pay of public employees. They have certainly been losing out. In 2009, I said that the two banks that were being semi-nationalised should have the normal public sector pay policies applied to them, and I think most people in this country would agree with that.
Kelvin Hopkins
I am greatly enjoying my right hon. Friend’s speech, and I agree with every word of it. Does he not find it interesting that Lord Lawson has recently suggested that the Royal Bank of Scotland should be brought completely into public ownership? That would involve only a small amount of money, and we would then have a bank that was publicly accountable and responsible.
Frank Dobson
I entirely agree with that. I also agree with my hon. Friend the Member for Bassetlaw that it would be good to see the Halifax building society separated out from Lloyds HBOS, so that what was the country’s leading firm could be relocated and its decisions could once again be made in Halifax, rather than in the City of London.
Let us remember that while the people who are nursing the sick and carrying out operations in hospitals, the people who are teaching our children, the people who are policing our streets and the people who are risking their lives to fight fires are being restricted, HSBC is paying 204 people more than £1 million a year, Barclays is paying 428 people more than £1 million a year and RBS is paying 95 people more than £1 million a year. They are being paid those sums to play with other people’s money. That is all they are doing; if they lose but cannot go broke, they are clearly not playing with their own money. But not everyone at Barclays is getting £1 million a year; 100,000 people working for that bank are paid at a level that entitles them to child tax credit. What is more, it is people such as them all around the country who have been losing their jobs while that collection of losers at the top carry on.
Then we have the Prime Minister and the Chancellor, whose top priority in Europe is to prevent those horrible Europeans from imposing a limit on bankers’ bonuses. We used to be told that if we imposed such limits, the bankers would go elsewhere. We were told that they would go to Switzerland. Well, they will not be doing that since the referendum in that country, because they would now be worse off there than they would be here. Would they perhaps go to the United States? Some of them would have to think very carefully about that, because money launderers can be locked up over there, and that has indeed happened, even to Brits.
What all this boils down to is that the banking industry does not need mild tinkering; it needs a total worldwide transformation. Instead of acting as the back marker in the convoy, we ought to be out there banging a drum and getting a grip on the world banking industry, for the benefit of ordinary people in virtually every part of the world.
Mark Field (Cities of London and Westminster) (Con)
I shall endeavour not to stray quite so far from the Financial Services (Banking Reform) Bill as the right hon. Member for Holborn and St Pancras (Frank Dobson) has just done.
No one could accuse the Treasury or the coalition of rushing into banking reform; nor, to their credit, has there been anything other than the most comprehensive consultation with—and without—the banking industry here in the UK. I shall not repeat the timeline that other hon. Members have referred to, save to say that I accept the concern expressed by my hon. Friend the Member for Chichester (Mr Tyrie) that the Bill will not be considered directly in tandem with the report of the Parliamentary Commission on Banking Standards.
Above all, we all need to face up to our complacency. The conventional wisdom of the day, to which I fully signed up in the first half of the last decade, was that financial services would thrive best with light-touch regulation. What a difference half a decade makes! It was also during that period that the present Chancellor fatefully nailed his colours to the mast. Despite clear evidence that we were collectively living well beyond our means during the previous Administration, and amidst growing public and private debt, he decided to stick to the outgoing Labour Government’s spending plans and characterise our fiscal aspiration as “sharing the proceeds of growth.” I regret the fact that as a result, when the crisis hit home, my party was unable to make the orthodox Conservative case that the seeds of that financial destruction had been profligacy and the leverage that was referred to earlier. Instead, the established view was, and continues to be, that regulatory failings—of which there were undisputedly many—and reckless actions by the bankers were the primary, if not the sole, cause of the financial calamity. Hence the persistent demand for more extensive and punitive regulation of the banks, and the constant chatter of hostility towards bankers and all that they do.
My contention remains that the core issue that we need to tackle is global imbalances, many of which are still worryingly in place after a half decade of near stagnation economically. Alongside this, a generation of Britons—as well as Americans and continental Europeans—have lived and continue to live miles beyond their individual and collective means. We are still mortgaging the future of our children and grandchildren.
The Chancellor’s recent declaration that any UK bank failing to adhere to the Vickers safety regime would run the risk of being broken up was an understandably uncompromising response to the Treasury Committee’s demand for an electrified ring fence. Similarly, few could criticise the populist insistence that RBS would have to fund LIBOR—and, presumably, other future mis-selling—penalties from senior executive bonus pools. At a stroke, however, the Treasury has inadvertently imposed a permanent impairment on the value of the UK Government’s still huge stakes in the banking business. Our £66 billion investment in RBS and Lloyds is currently worth two thirds of what we paid for it. Nothing in the Bill will bring forward the date on which we, as taxpayers, will be compensated.
It is often claimed that the banking lobby, here and on Wall street, has used its considerable muscle to water down, undermine or even cast aside moves by politicians and public interest groups to rein in the banking system. Several Members have mentioned that tonight. Ironically, much of the criticism comes from the self-same media outlets that have placed intense pressure on elite politicians to dismantle the proposals for their own industry, as set out in the Leveson report. As a matter of fact, the banks have taken much of what has been proposed on the chin. Many have privately expressed great concern to me about the wisdom and practical application of ring-fencing, but they feel that they have no choice but to accept Vickers virtually in its entirety.
Ironically, existing financial services players could reap the unanticipated benefit that comes from erecting ever more onerous barriers to entry for potential new banks. Sadly, as the hon. Member for Wirral South (Alison McGovern) suggested, the zest of competition has been largely ignored in an effort to make banking safe and to punish banks for their past wrongdoing.
The City of London’s size and global reach continues to make the UK economy especially vulnerable to turbulence in the financial markets. The centrepiece of the Bill’s reforms—the plan to ring-fence domiciled banks’ retail arms from their investment ones—is based on the notion that the less risky retail operations require protection from the so-called casino excesses of investment banking. The aim to reduce the burden on the British taxpayer in the event of banking failure is, of course, a laudable one. Many in the financial fraternity are simply glad that the reforms fell short of a return to a full-blown plan along the lines of Glass-Steagall, to which my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell) referred. That was the US legislation that separated commercial and investment banking for almost seven decades until 1999. In addition, the big banks will now need to raise capital and loans equivalent to 20% of the part of their balance sheet for which UK taxpayers would be liable in a crisis.
The coalition Government were swift to accept the Vickers recommendations almost without reservation, giving British banks until 2019 to install their ring fence. However, I fear that the question of the separation of banks’ retail and investment arms has still not been successfully settled here in the UK. Fears have been raised that the Vickers reforms will tie up billions of pounds in additional capital and impose on banks a requirement to overhaul compliance and corporate affairs—a burden that will, I am afraid, have to be met by our constituents, the general public, in higher interest rates and in the sharply reduced amounts that banks are willing to lend.
One of the causes of this paralysing uncertainty that has enveloped the UK’s big banks is the mixed messages coming from the Treasury on the one hand and the central bank on the other over the dual requirements to recapitalise, and thus reduce the risks of future taxpayer bail-outs, while also being ready to lend to credit-starved UK plc as if it were 2006 or 2007 all over again.
Meanwhile, at EU level, the Liikanen report has recommended to the European Commission a similar, Vickers-style ring-fencing of retail banking from investment banking. This has given a small crumb of comfort that the UK might not be going down this path alone. However, I fear that the Liikanen proposals are sufficiently different from the Vickers proposals to heap further uncertainty on financial services here in the City.
Since there is likely to be precious little consensus between the EU, the UK and the US authorities any time soon as to whether the structure of banking is best under Liikanen, Vickers or indeed Volcker, how should banks realistically now prepare? Once again, I fear that the cost of all that uncertainty will be borne by the consumer and the wider economy, not to mention heavy job losses throughout the financial services industry. In this regard, it is important to nail the understandable public misconception, also heard here tonight, that it has been “business as usual” in the City since 2008. It would be fair to say that particularly over the past two years, volumes of business have collapsed, state financial support has been largely withdrawn and there has been and will continue to be a huge jobs cull. If we couple that with falling salaries and bonuses for the vast majority of workers, it means bad news all round, as Treasury receipts from financial services have plunged to what I suspect will be a new norm for the future.
Aside from the issue of commercial uncertainty, there are, I believe, question marks over whether the ring fence will actually work. The Bill’s template is based on a somewhat simplistic and outdated division between what amounts to wholesale and retail banking. There are numerous transmission mechanisms between the two that make a hard-and-fast split between high street and casino investment banking very difficult to achieve.
Historically, the City of London has repeatedly benefited from arbitrage with Wall street, from the withholding tax under President Kennedy over 50 years ago, which precipitated the creation of the eurodollar and eurobond markets, right through to the “big bang” in the mid-1980s and the effects of Sarbanes-Oxley in 2002 in the aftermath of the Enron and WorldCom collapses. If the UK is to prevent its competitors from benefiting from unilateral action along the lines set out by Vickers, it must continue to press for international agreement on the future landscape of the financial services world.
There is, in my view, a danger that the UK and EU regulators will somehow look at the Bill’s ring-fencing as a panacea, and will sell it as such to the general public. Instead, in the light of the pitfalls of the ring-fence options, it might prove more effective to look at an alternative dual system when it comes to ordinary deposit accounts. This would allow those who desire a risk-free place to store their money to place it in savings banks, while those happier to take a risk—unprotected, of course, by any Government guarantee—could have an account with a fractional reserve bank, as used to be the case in the UK until the mid-1980s.
Tighter regulation, newfangled restrictions and imploring banks to behave ethically as set out in this Bill and future legislation will no doubt do little to restore the City’s reputation for integrity. I fear that the spate of mis-selling scandals still has a hell of a long way to run, especially as, in fairness, 20:20 hindsight now deems that almost any novel financial product created and marketed by our banks since 2000 will be regarded as having been mis-sold against consumers’ interests.
Mr Love
If I may characterise the hon. Gentleman’s argument, it seems to be that a race to the bottom in terms of regulatory cover will be to the advantage of the City of London. Many, however, including the witnesses who gave evidence to the parliamentary commission, have said that there should be a race to the top to provide safety and security, which will attract investors to London. Why does he not accept that argument?
Mark Field
I am afraid that the hon. Gentleman has mischaracterised what I was trying to say. What I would say is this: we do not know—we cannot be sure, so it is better to approach the problem by trying to organise international agreements rather than by “a race to the bottom”, as he puts it. I do not believe that either. Much of the evidence taken by the parliamentary commission has played an important part in ongoing thoughts about the whole landscape of international financial services for the future. It is wrong to mischaracterise what I said, but there are risks and, given the importance of the financial services industry, whether we like it or not, we need to ensure that we go into this with our eyes fully open.
If Governments of any political colour continue to take ultimate responsibility when consumers purchase products from our banks, a whole set of unhealthy and perverse incentives will continue to plague our financial services industry. It is imperative to remember that regulation is often the sworn enemy of competition—one of the other avowed goals in the Bill. Public confidence and ethical foundations will slowly and surely be restored in financial services only when the landscape becomes far more competitive. That means, in my view—whether we like it or not—that consumers of financial products need to take a far greater level of responsibility. No amount of banking reform or new regulation will otherwise create the conditions for free-flowing capital to build the successful businesses of the future, let alone restore the reputation of our nation’s most important invisible export, which is and remains financial and business services.
Mr Michael Meacher (Oldham West and Royton) (Lab)
We have had an interesting and thoughtful debate, which has concentrated on detail, but I think it is worth putting it into context. Despite the banks triggering, as we all know, the biggest economic crisis since the 1930s, with the Government having to provide nearly £1 trillion in loans, guarantees and asset protection schemes to ailing banks, it has taken five years to reach this point of proposing reform—and even then, by any standards, this Bill is woefully short of what is urgently needed to prevent a recurrence of financial collapse and to produce a safe and desirable finance sector. I have a lot of sympathy with my hon. Friend the Member for Bassetlaw (John Mann) when he said, “Is this it?”
First, the Bill’s central mechanism—ring-fencing between the investment and retail arms of the banks—is all too likely to be subverted by the Machiavellian skills of the City in regulatory arbitrage. The Minister mentioned that, but rather slithered over it, I thought, by saying that he had confidence that it would work. The only evidence he quoted in favour of that was the opinion of Sir John Vickers. Since it was his proposal, it is not surprising that he believes it will work. Historically, however, all the evidence is that Chinese walls will be circumvented.
Let me deal with the Parliamentary Commission on Banking Standards. One has to ask, as has been asked a number of times already in this debate, why after five years of delay this Bill is being rushed through just a few months before the Government’s own appointed commission actually reports? The Tyrie banking commission has made it very clear that it strongly advocates electrification of the ring fence. The Chancellor initially rejected that until the commission’s chair, the highly respected hon. Member for Chichester (Mr Tyrie), and Lord Lawson threatened to table amendments to force the Chancellor’s hand to ensure that the full sanction of separation remained in the Bill. Finding his hand forced, the Chancellor then made the absolute minimum concession he could get away with, namely giving regulators the power to dismantle an individual bank that tried to undermine the ring fence, but not a more general power to apply full separation across the industry. Even after that, dubiety remains because the Bill does not say what precisely is to be ring-fenced. Savings, for example, can certainly be placed in a variety of exotic securities.
The Government have also succumbed to the banking lobby in permitting banks to locate simple derivative products within their retail operations. As my hon. Friend the Member for Nottingham East (Chris Leslie) pointed out, that can be, and indeed already has been, uncomfortably extended. The Government’s retreat can only have the effect of opening the door to other forms of speculative activity to nest inside retail banking.
There are other uncertainties. Let me give just one example. Let us suppose that funds are transferred from a ring-fenced to a non-ring-fenced entity via a foreign subsidiary or affiliate in a place where there is no such separation. Is that a breach of the ring fence? How does anyone actually know? I presume that we will not rely on the good intentions of bankers.
The real problem with the Bill, however, is that it does not deal with the fundamental causes underlying the reckless and destructive banking that has done so much damage. It is preoccupied with investment banking, and it offers no relief from those suffering from the abuses in retail banking. As many people have mentioned, payment protection insurance, money-laundering, the fixing of endowment mortgages and interest rates, and pension mis-selling are just some of the rackets that have been run by retail banking. Nothing in the Bill offers any reform.
Many of those abuses, on not only the investment but the retail side, are fuelled by the incessant stock market demands for higher short-term returns, as well as the profit-related pay of executives and traders. Even when the European Union tried to limit the latter by means of bonus caps, the Chancellor went out of his way to stop it without managing to secure a single ally in any of the other 26 member states. I can only say that the banks certainly do not provide half the annual donations to the Tory party without expecting a very big return.
However, even more important than the ring fence and the ambiguities relating to the status of so-called simple derivatives, which are anything but simple—for example, there is the obvious question of whether currency hedges can be sold to small businesses from within the ring-fenced operations—is the leverage ratio. As has been mentioned, the Vickers recommendation was for capital of 4% with a lending ratio of 25:1. The Chancellor, in yet another very big concession to the banks, dropped that to 3%, opening up a 33:1 ratio. In its interim report published today, the Tyrie commission—rightly, in my view—rejected that as being wrong-headed and unnecessarily risky, precisely because of the excessive size of the finance sector in our economy, relative to the size of those in other economies and, indeed, absolutely. I think that that unwise concession ought to be overturned in both Houses.
This is not, I think, a great Clark-Javid Bill. It is a mini-Bill which, unforgivably in my view, entirely ignores the wider banking framework. The big four—and this, surely, is the background to the Bill—have let Britain down badly. We need to transform the whole banking culture, and end its present obsession with property, overseas speculation, offshoring and tax avoidance. By being too big to fail, the big four exacerbate moral hazard; because of their size and weight they choke competition and new entrants to the market; and they have manifestly failed to keep adequate funding flowing to business. They should be broken up, initially by a clean break between the investment and retail sides—on the basis of all the historical evidence, I think that a ring fence is highly unlikely to work—and beyond that by a wider restructuring.
What the country really needs is a national investment bank supported by a range of smaller specialist banks, focusing on infrastructure development, science and technology, small and medium-sized enterprises and a low-carbon economy—to mention only some—together with a regional spread of banks along the lines of the German Mittelstand. The other essential requirement is the regaining of public supervision of the money supply. As the Minister mentioned in his opening speech, the total gross lending of the banking sector has been about £7 trillion a year, five times as much as GDP. What the Minister did not say, however, is that only about 8% of that has gone towards productive investment. The banks have used their virtual monopoly over domestic credit creation—amounting to some 97%—largely to fuel successive property booms and speculative foreign ventures. That is a basic reason for the fact that the country now has a fast-rising and unsustainable deficit in traded goods, which last year amounted to more than £100 billion —7% of GDP.
Steve Baker
The right hon. Gentleman has raised a point that many people fail to appreciate: the banks lend money into existence and into housing, partly because they are encouraged to do so by the risk weightings in Basel. Does he agree that, at least in that respect, the money supply tripled because regulators encouraged banks to do it?
Mr Meacher
I do agree, and I know that the hon. Gentleman believes that banks have far too much power to create money out of nothing. He and I may not agree on exactly how that can be dealt with, but it certainly needs to be dealt with.
Frank Dobson
Does my right hon. Friend agree that one of the characteristics of our banking system is that the banks have invested more money in fancy offices in the City for themselves than in British manufacturing industry?
Mr Meacher
That is also true. My right hon. Friend listed some of the huge abuses that have been turned to the private benefit of the bankers and the people at the top, and that is another example.
Our balance of payments problem cannot be allowed to continue. That is integral to our future. If Britain is to achieve what we all want—a long-term recovery with stable growth and full employment—we need a lending system that prioritises manufacturing, construction and export promotion, and allocates credit in accordance with the national interest rather than the private interest of banking executives and traders. The Bill is concerned almost exclusively with limited regulation. All the historical evidence suggests that it is likely to be highly ineffective even on that score, but its real fault is that it does not even address the central issue in the financial sector, which is immensely important and crucial to Britain’s survival. This is a feeble Bill, and the next Government will have to introduce a proper Bill to achieve the necessary regulation.
Steve Baker (Wycombe) (Con)
One man has done more than any other to popularise the cause of banking reform. Astonishingly, he is not a member of the Government or a Member of the House of Commons; he is, incredibly, a minibus salesman in Burnley named Dave Fishwick.
On these occasions I generally stand up and say something arcane, usually referring to literature from the 1930s, but today it is my pleasure to talk about the Channel 4 documentary “Bank of Dave”. Of course, Mr Fishwick has not been allowed to start a bank; he has had to start a savings and loans company. The documentary reveals just how difficult it is today to start a tiny little bank. But what does he do? He knows his depositors—his savers—and his borrowers; he goes out and personally shakes hands; and he understands the businesses into which he is lending. In the documentary, we can see what tiny sums are necessary to allow a small business to grow—just a few thousand pounds to buy a new oven. Yet he puts his own personal assets at risk to guarantee what he does. He knows his depositors and he wants to make sure they get their money back, so all the savings he accepts are underwritten out of his personal wealth. If you read his book, Mr Deputy Speaker, you will discover that he believes in 100% backing for demand deposits and would do so were he allowed to start a bank.
This is an incredible thing, because Dave Fishwick, working on little other than his basic entrepreneurial ability—his street-level ability to get business done—has come up with a model of banking that has overwhelming public support and that demonstrably can be seen to be serving those in his local community, be they savers or borrowers, those working in business or the elderly who cannot afford to lose their money. In addition, all this service to the community is personally underwritten by him. I have introduced a number of Bills in this House, one of which was the Financial Institutions (Reform) Bill. It would have made bank directors liable without limit for their commercial losses and put bank bonuses into a pool to be treated as capital for five years. That would realign incentives so that those operating banks would take sensible decisions, cease to be reckless, lend well and think about what they were doing for their customers. We are in the absurd situation where a simple, unsophisticated man running a corner shop in my constituency was subjected to a bank calling him—a bank that had specifically procured an Urdu speaker in order to obtain his trust—to sell him a sophisticated interest rate swap that he did not need. This is a bank that has been bailed out at taxpayer expense but is now paying bonuses. So we have that injustice, yet a man such as David Fishwick, who is doing the right thing and underwriting the commercial risk at his own expense, is not allowed to call himself a bank—it is disgraceful.
This Bill should help a man such as David Fishwick to serve his community by setting up a tiny bank. Three things about his approach make it feasible. The first is his personal guarantee. The second is his personal relationship with his customers. The third is that if he were to take demand deposits, he would put a 100% reserve on them. If that were also capped at a certain level of lending, it would be possible for that bank to exist as a bank with very little regulation. That business man, who just knows how to get good honest business done, would be able to get on and serve his community. That approach would answer so many of the points made in this debate.
Of course I cannot resist addressing the rest of the Bill’s provisions and some of the more arcane points, which I like so much to talk about.
Frank Dobson
The hon. Gentleman is fairly youthful, so he may not remember the time when most big banks had local bank managers and so had some of the characteristics of the Bank of Dave, in that there was someone local who knew the locality and its businesses. Many people now find that they apply to the bank and the algorithm says no.
Steve Baker
My bank manager is named Guy Birkby, and I am sure that he would not wish to be compared with Dave Fishwick because he is an employee of Handelsbanken. I moved my money to Handelsbanken specifically so that I could have a local bank manager who knows me. Indeed, when I ring the bank, people recognise my voice and off we go, and that is a far better way to do business. This particular combination of personal relationship and personal liability—in Dave’s case, not Handelsbanken’s—is a way to re-establish trust. What are the other ways of doing that? They are unlimited liability, which I have discussed, trustee savings banks and mutuals. I am afraid that one of the big flaws of the big bang was that it encouraged this limited liability corporate form where nobody ends up taking the risk and it falls to the taxpayer—it is a disaster.
On ring-fencing, I very much share the comments made by the Father of the House, my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell). I am extremely sceptical that ring-fencing will work. I think that the efforts in the Bill are extremely brave, and of course I shall support it, but this is the last brave attempt to prop up the contemporary monetary orthodoxy. I shall come back to that subject after talking about depositor preference. When we combine the ring fence with the particular instance of taxpayer-funded compensation, there is a real problem that the same old incentives are being preserved. Commercial risk is being subsidised by the taxpayer and to deal with the consequences of having encouraged that reckless behaviour at taxpayer expense an attempt will then be made to regulate those risks away—it has not worked before and it will not work now.
On depositor preference, I have learned through my last five or six years of working with academic economics that if there is one subject we cannot resolve it is who owns—or should own—the money in someone’s bank account and what the contractual obligations should be. In other words, if someone’s money is on demand and they can have it back any time, should there be a 100% reserve—it is their property and the bank is safekeeping it—or should it be the bank’s property which it can use to fund itself?
That question is extremely difficult to resolve, but I shall just cite a speech I have used before, in which the Earl of Caithness said:
“The current crisis, like previous ones, emanated from a base of judicial decisions. Prior to 1811, title to the money in depositors’ accounts belonged to the depositor. However, in that year, decisions in Carr v Carr and, in 1848, Foley v Hill gave legal status to the banking practice of removing depositors’ money from their accounts and lending it to others. Since then, title to depositors’ money has transferred from the depositor to the bank at the moment when the deposit is made.”—[Official Report, House of Lords, 5 February 2009; Vol. 707, c. 774-75.]
That goes very much to the point about the money creation process on which the right hon. Member for Oldham West and Royton (Mr Meacher) and I had an exchange. There was a time when this fractional reserve process created money, but that has now become meaningless, as banks are able to lend with almost no restraint. As I explained in my maiden speech, that is the fundamental reason for this massive boom-bust cycle.
I try never to have an idea of my own on these matters, so let me come back to what Irving Fisher wrote in 1935, when he brought forward a plan for 100% money. He said:
“The essence of the 100% plan is to make money independent of loans; that is, to divorce the process of creating and destroying money from the business of banking. A purely incidental result would be to make banking safer and more profitable; but by far the most important result would be the prevention of great booms and depressions by ending the chronic inflations and deflations which have ever been the curse of mankind and which have sprung largely from banking.”
So I return to David Fishwick, because he knows instinctively, as a business man, that if he takes somebody’s money on demand deposit he should 100% reserve it, in case they want it back.
By this point, I will have upset my friend Professor Kevin Dowd, who was a tutor to Andy Haldane at the Bank of England. I have had the privilege of meeting both of them to discuss these matters. Kevin is a free banker—he would believe in fractional reserves on demand deposits, without a shadow—but in his banking system there would be no limited liability and no taxpayer-funded deposit insurance, banks would issue their own notes and money, at bottom, would be gold. That commodity backing would limit the banks’ ability to create deposits.
There is also a problem in our banking system with accounting, which is another area where I have introduced a Bill. Since I did so, significant progress has, thank goodness, been made on one aspect—loan loss provisioning, which Members can refer to in the media. However, there is another problem with international financial reporting standards accounting for banks, which is mark-to-market accounting. We have heard today the story of how banks have securitised lending and sold it. In a chronically inflationary banking system where banks lent money into existence and, as we heard from another hon. Member, were encouraged to make bad loans—they were creating money to make bad loans into property—they of course wanted to get this off their books. So they wrapped it up in a bond, insured it with a derivative and sold it. They did not even have to sell it. They just took this instrument, moved it from one accounting book to another and they could then immediately mark its value to market. What does that mean in plain terms? It means that one can take 30 years of cash flows, unrealised, from mortgages not yet paid, and by marking them to market within a bond, around a vehicle that is all these mortgages securitised, one can take bad loans—loans that probably will not be repaid—and take it all as profit in capital today. You can pay yourself a massive bonus out of cash not realised—out of capital.
If hon. Members and the Minister wish to know more about how this works, I hope that they will look at my colleague Gordon Kerr’s book, “The Law of Opposites: Illusory profits in the financial sector”. Gordon has spent many years engineering financial products. In a sense, he is a dissident banker gone good. In that book, he explains how those accounting problems, combined with easy money, create so many of the problems that are, as Fisher said, the curse of mankind today.
At bottom, there will ultimately turn out to be two banking reforms that we should adopt. As I have said before—this is particularly the case for the question of the status of demand deposits, gold as the ultimate backing to money and so on—we will find in the end that the Bill is an honourable and brave attempt to prop up a contemporary monetary orthodoxy that is failing. This is the end of the post-Bretton Woods monetary order through which we have been living. We were told that it was a banking crisis. We learned a little later that it was a debt crisis. In a minute, people will realise that what we use as money is debt, that what the banks deal in is debt and that the vast majority of the money in our accounts was created by somebody else taking a loan. When that is accepted, we will discover that this is a monetary crisis. We will then find that there are two plausible ways to reform money and banking.
We could have 100% reserves on demand deposits and the preservation of state control over money and banking—that is, paper money, fiat money, the central banks planning interest rates, taxpayer backing and so on. That is the sort of plan advocated by my friend Jesús Huerta de Soto as a route to what we really should do, which is get the state out of money and banking. We should have a free banking system, as proposed by my friend Professor Kevin Dowd. He has brought forward a plan called “two days, two weeks, two months”, which would return us to a free banking system backed by gold within that time scale. It would not need regulation and it would be just and moral because people would take responsibility for the things they did.
This is not the first time that a monetary order has come to an end. By some calculations, in the 20th century there were about eight global monetary orders. The thing that is remarkable about the post-Bretton Woods order is not that it is ending but that it has lasted so long. I am afraid that I agree that this Bill is not enough, but it makes some progress and I hope that it will be the last attempt to prop up a contemporary banking system that cannot last.
Kelvin Hopkins (Luton North) (Lab)
That was a fascinating speech by my good friend the hon. Member for Wycombe (Steve Baker). I cannot compete with his erudition; I have a much smaller speech on a smaller issue.
In 1983, I stood for Parliament on a manifesto that called for the public ownership of large sections of the banking system. It is an irony that large sections of it are now in public ownership, having been put there by people who profoundly disagree with and disbelieve in that process, but who were forced to do so or to let the system collapse. That is interesting. I certainly wish to see public ownership go further, as well as public regulation and accountability, as the risk in banking is being underwritten not by the borrowers but by the Government, by the state and by the citizen, and if risk is not and cannot be transferred, the ownership and accountability should be in public hands as well.
During the Minister’s opening speech, I mentioned audit and the appalling failures of the audit industry during the banking crisis. The hon. Member for Chichester (Mr Tyrie) said that more needs to be done, and much more certainly needs to be done. I hope that some component of the Bill, when it is amended, might deal with audit.
There is a need for radical reform of the rules governing audit. The Financial Reporting Council is undertaking a consultation on the new rules that will compel auditors to write what is called a commentary, flagging problems, risks or disagreements with management at audited companies and institutions in clear and comprehensible language so that shareholders can understand. That will be seen as controversial by company management, but will be welcomed by shareholders and, by the same token, by bank depositors and customers.
We should of course remind ourselves that auditors, above all, represent shareholders—or at least they should. In reality, however, they are taken on by managers so power is effectively in the hands of managers and shareholders, or bank depositors, and customers simply have to trust them. When an audit contract comes to an end, auditors are unlikely to be critical of managers for fear of failing to be re-engaged. The inevitable cosy relationship between auditors and managers lies at the heart of what has gone wrong in the banking sector.
If auditors had been doing their job properly and their audit reports had not been so opaque and impenetrable, the financial crisis would not have happened as it did. The fact that banks were gambling with worthless bits of paper based on sub-prime mortgages was the fundamental cause of the banking crisis, and it is not over yet. Auditors did not do their job in relation to the practice of bankers such as those at Northern Rock before and until it collapsed. If they had, we might have prevented that catastrophe.
Frank Dobson
Does my hon. Friend agree that it is a trifle irksome to listen to the radio or watch television and to hear someone from PricewaterhouseCoopers telling us what we ought to do for the future when PricewaterhouseCoopers audited Northern Rock and did not spot anything going wrong, or to hear about the famous Ernst and Young ITEM Club when the biggest item in the firm’s history is that it did not spot that Lehman Brothers were broke?
Kelvin Hopkins
I thank my right hon. Friend for that intervention, and I am just about to mention those great companies.
As if to reinforce the case for radical reform, on 22 February the Competition Commission published a report that was deeply critical of PricewaterhouseCoopers, Ernst and Young, Deloitte and KPMG—the big four—for a deep “misalignment” with shareholder interests. The commission made it clear that auditors and company executives had acted as a cabal to their mutual benefit and to the exclusion of the interests of investors. Under the definition of investors, we can include depositors and retail customers in the banking sector.
The commission concluded that the relationship between auditors and management has been too cosy and must be overhauled. The big four audit nearly 90% of all blue chip companies. One suggested remedy has been for the mandatory rotation of tendering so that after, for example, five years or so an audit company would have to relocate to other companies and could not be re-engaged. The companies engaging auditors would then be required to ask new auditors to compete for business. That would go some way towards breaking the unhealthy link between auditors and the companies they are supposed to be auditing.
Whatever new rules might be introduced, it is vital that auditors are compelled to ensure that their loyalties are to shareholders, depositors and customers and not to banking and company managers. Auditors failed to raise the alarm before the financial crisis and that must never happen again.
John Stevenson (Carlisle) (Con)
People talk about banking being a very dry subject, but this has been an interesting debate with different views and varying opinions that I have found enjoyable to listen to. I hope I can make a small contribution.
Historically and, indeed, even now financial services and the City have been, and are, a vital part of the UK economy. London in particular and the financial industry in general have made a massive contribution to the prosperity of this country.
London is recognised as one of the, if not the, pre-eminent financial centres in the world. London is a world city, partly because of its location, our language and our legal system, but also because of the financial industry. In our system, there is huge expertise and skill and many successful companies and businesses, not just banks, have their headquarters in England. It is a city that we should be proud of and a financial capital that we should not underestimate.
Through the financial sector and its successes, we have the most precious commodity of all—jobs, and not just in London but up and down the country. There are financial services in my constituency, Carlisle. It is skilled employment that is often well paid and it creates wealth and prosperity for many that goes beyond the financial industry into other aspects of our economy, such as law, accountancy and consultancy as well as other support industries, creating many jobs in the wider economy.
There is also taxation. We should not underestimate the substantial contribution to the public purse made by the financial sector. We might bash bankers, but taxes pay for public services and a high proportion of the tax take in this country comes from the sector. Bonuses are taxed, profits are taxed and those taxes go towards our public services. They make a positive contribution. The balance of trade supports our economy year in, year out. We would probably have a real crisis were it not for the invisibles that earn us considerable sums, compared with the manufacturing sector.
If this debate were taking place in 2007, we would probably be saying that everything in the garden is rosy and we would believe that nothing needs to change, but we know how different the situation has become. Banks became arrogant and thought they were invincible, Government became complacent—“No more boom and bust”—and where were regulators? It was a lethal combination and we all know what happened. In 2008 there was a failure of policy and regulation on a huge scale. Since 2008 we have been dealing with the fall-out of the previous Government’s failures. Arguably it is this problem, the banking problem, that is still holding back recovery. Since the bail-out there has been much discussion of what direction Government and our country should take in managing and regulating our banks and the banking sector.
We have various choices. We could do nothing and allow banks gradually to recover, carry on as they did before and hope that the banking crisis never happens again. Alternatively, we could split the banks completely—split retail from investment—and create a clear, absolute divide. We could help change the sector completely by creating smaller banks and more of them, in effect creating a banking sector where banks are small enough to fail. Finally, we could pursue the middle way, which is in effect what the Government propose. All these options could be equally correct. They may be different solutions to the same issue, but who knows if one of them might be more successful than the others? However, there appears to be broad consensus that there should be some form of divide within banking services. I therefore support the Government’s proposals as they have a certain degree of flexibility within them, allowing for changing circumstances.
We all acknowledge that the financial sector is critical to the success of businesses up and down the country. Central to that is the success of the banks themselves. The goal for Government must be to ensure that the country has financial stability at the heart of the banking sector. Clearly, stability must be the priority. We do not want our recent experience to be repeated, but we should not lose sight of other considerations for Government: lending to businesses and consumers, which is vital to growing our economy; choice through competition; awareness of the risks to the health of the nation’s finances; and the need to ensure stability and strength in the wider economy. I appreciate that some of these issues are not relevant to the Bill and do not require legislation. Nevertheless, it is important that the Government do not lose sight of the other aspects that support a strong and vibrant economy.
The Government clearly take the issue of banking stability very seriously, and so they should. We have had the Vickers report, the Parliamentary Commission on Banking Standards and the Government’s response to them. We now have the Bill before us. The issue for the House is whether the Bill will achieve the Government’s aims and objectives, and whether those are the right solutions. In general, I support the direction of travel and the thrust of the Government’s aims. The concern, as ever, is the detail. The Bill is a skeleton. Much flesh still needs to be put on the bones. There is clear provision in the Bill for further orders and regulations, which the Minister touched on in his speech. I acknowledge that he will be making further amendments to the Bill and that he has indicated that he will be open-minded about amendments. That is to be welcomed, but to understand the Bill fully we need to see those orders and regulations to judge whether the effect is likely to be successful. I assume that that will be done in Committee. That was the indication that the Minister gave.
I appreciate that those on the Treasury Committee and on the commission have a much better understanding of the issues, but I would like to touch on three aspects of the Bill. First, a number of questions arise from the provisions relating to a ring-fenced body. Which banks will be affected? What will be the de minimis level? If there are going to be only a few such banks, can we name them? As for the reserve power to split up a group structure, the proposal is not for a general industry-wide reserve power, but for a specific power. Is this potentially nonsense if there are only a few ring-fenced banks? The same thing could be achieved by applying the specific reserve power to each of them. In some ways we want our banks to be small enough to fail and we want plenty of them so that they do not need to be ring-fenced.
What of the ring-fenced institutions themselves? They may be separate legal entities, but how independent will they be? What of the boards? Who will the directors be? Will they be entitled to be on the board of the subsidiary as well as of the parent company? How independent will they be? What of the employees? Who are they responsible to? Who will key and talented employees look to as their bosses? Will it be the parent company or the ring-fenced company that they are actually working for? They will obviously be considering their careers, and that could have an impact on their judgment.
What about the systems of the ring-fenced institutions—the computers, the customer information? How separate will these be from the parent company’s or those of the other institutions within the group? What about management? Will it be totally separate? It could be argued that even the buildings would have to be separated. Who has access to information and decision making? Human resources, systems and management issues need to be addressed to ensure that the whole structure of the proposals will work.
With reference to core services, the proposed primary legislation deals only with deposits. Is that it? What other services may be included or specifically excluded? I appreciate the need for flexibility, but we still need to have a clearer idea of the proposals or at least of the Government’s thinking. On the core activity, the acceptance of deposits, what about small and medium-sized enterprises and high net worth clients? What is the definition of an SME or of a high net worth client? That could mean different things to different banks and to different people. There are still many issues that need to be addressed so that we have a better understanding of what we are being asked to support and to ensure that we pass legislation that will work.
We all want to see a strong, stable and successful financial sector. Within that we want a robust and competitive banking industry, which is itself stable but able to finance and support the wider economy. Although I support the Government’s intentions in the Bill, I encourage the Government always to remember that a competitive market with low barriers to entry and sensible regulation robustly applied should always be at the centre of a successful banking and financial sector. That should be our goal and it should certainly be the goal of the Bill.
Mr William Bain (Glasgow North East) (Lab)
The Bill matters greatly to my constituents in Glasgow because the financial services sector north of the border contributes nearly 8% towards Scotland’s GDP, which is the second highest in the UK after London, and 8.6% of jobs in Scotland are in the financial services sector. The Bill will affect a large number of savers, businesses and employees in Scotland.
I have to say, with regret more than anything else, that the Bill is desperately weak and disappointing and it will need substantial amendment in Committee if it is to provide the radical surgery that the banking and economic system needs. The truth is that our banking system is badly broken. It is failing to supply or boost demand for lending to businesses in key parts of the economy. As the Institute for Public Policy Research found in December, the remuneration packages within the industry have been responsible for a huge rise in inequality across our country.
It is disappointing that we have not had a commitment from the Government to introduce a proper financial transactions tax and that they have not shown leadership by pressing for that to be introduced at G20 level, given that we already have such a tax in this country in the form of the stamp duty that is paid on share transactions.
Steve Baker
Between 1997 and 2010, the broad measure of the money supply, M4, tripled. That new money had to go to somebody first. That meant that it widened wealth inequality. The hon. Gentleman is arguing that because the state encouraged this enormously elastic money supply and created wealth inequality, we now need more state intervention to try to fix it. That would be a disaster.
Mr Bain
I know that the Prime Minister has been very much a fan of a magic money tree. The Chancellor, by refusing to change course on fiscal policy and putting everything on to monetary policy, shows that the policy of the Government is to treat the Bank of England almost as if it were a magic money tree, so I am not sure of the point that the hon. Gentleman is making.
There is very little in the Bill on competition. There is nothing that would impose a fiduciary duty on the banks in relation to their clients’ money in the same way that company directors have in relation to company funds or lawyers in relation to clients’ funds, so there are huge deficiencies. There is also the great suspicion that the Bill waters down some of the key recommendations of the Vickers report. The maximum leverage that the Chancellor is prepared to accept is way beyond the Vickers recommendation. The Chancellor appears to be prepared to allow a leverage of 33 times, whereas Vickers’ recommendation was for only 25 times. That is because instead of adopting the Vickers report on the level of equity capital at 4% of assets, the Chancellor is going for the Basel III recommendations.
As I said, the IPPR, in a report published in December, examined the culture of greed and how the remuneration system got out of control in the banking system. For example, the top 0.5%, or even the top 0.1%, enormously enriched themselves because of the practices in the industry. That is one reason why it is regrettable that the Bill does not contain provisions for a banking code of conduct or to put ordinary employees of the banks on remuneration committees to ensure that there are annual binding shareholder votes on executive pay. Neither does it propose properly to enforce the legislation passed by the last Government to reveal how many people in the banking system earn more than £1 million a year. There are great areas where the Bill is enormously disappointing.
In terms of the overall reforms, we have three major issues of contention with the Bill as framed. First, too much of the detail of the Government’s policy is to be dealt with by delegated or secondary legislation and is not present in the Bill. Secondly, the Government are prepared to allow too much flexibility within the ring fence, and do not give consumers and taxpayers the assurances they deserve that the principle of too big to fail will not still exist within a regulatory system. Thirdly, the culture of the banking system is not changed enough by the Bill. There are insufficient steps to ensure the proper degree of lending to households and SMEs that is required.
To take that final point first, the figures we have seen on the national loan guarantee system, Project Merlin and funding for lending have one thing in common: the Government are not matching up to their promise and the banking system is inadequate to meet the needs of households and businesses. After a net growth in lending of just £0.9 billion in the third quarter of last year, net lending through funding for lending participating banks contracted by £2.4 billion in the fourth quarter of last year. Whereas Lloyds was drawing £3 billion through funding for lending, lending by Lloyds shrank by the same amount in the final quarter of the year. Whereas RBS has drawn £750 million, it decreased its lending by £1.7 billion in the same quarter. It is clear that funding for lending, as it has been conceived and is operating, is simply not providing the lending to small and medium-sized businesses. There is a missed opportunity in the Bill to change course and ensure that the system provides the support to businesses that is necessary if we are to have the growth that is the only means of cutting the deficit.
We also see from the bank data published last week insufficient detail on the breakdown of lending to households and businesses. However, we know that business investment fell by 1.2% in the last quarter of 2012, and it is clear that confidence in the economy is stubbornly low. There are still high levels of corporate surpluses, but the banking system is failing to deliver money to those businesses to start increasing orders, to deal with our low productivity and to restore confidence where it is most needed now.
It is also clear that there are unfortunately no provisions to establish immediately a British investment bank that would break the logjam of getting money out of corporate surpluses and flowing into the real economy and promoting orders and demand. Why have the Government persisted with this argument, even in the light of the proposal in the second report from the parliamentary commission for a secondary reserve power to ensure that where there are examples, or even the possibility, of the primary reserve power being circumvented by the banks, there is a reserve back-up power to break up the entire system if that is necessary in the national interests and to prevent financial collapse?
The commission’s report argued that the banking industry could indeed dilute the impact of the ring fence, and that not just the primary but the secondary reserve power was necessary in order to ensure that that did not occur and that we had proper enforcement of the ring fence. The Bill also introduces a requirement for directors of ring-fenced entities to be approved by the regulator, with such persons being subject to disciplinary action by the regulator if they have been involved in any contravention of the ring-fencing rules. It is clear that those powers should also be increased.
The problem with the Bill is that the devil is in the detail, but a huge amount of the detail is not apparent. One reason why the Chancellor said that he could not accept the secondary reserve power is that he claimed it would be anti-democratic. He said that it would not be present on the face of the Bill and it would not be fair to introduce that by delegated legislation. The question remains for the Minister: if that is the objection, why not put more of the detail into the Bill? Why not ensure that we can then have that secondary reserve power, which the hon. Member for Chichester (Mr Tyrie) and the other members of the parliamentary commission deemed to be absolutely necessary to have confidence in our banking system? Then we would be able to move on in a spirit of consensus, instead of, with regret, having to point out the Bill’s great deficiencies.
The other shortcoming of the Bill is the inconsistent treatment of derivatives. Those were described by the US investment guru, if we can call him that, Warren Buffett as financial weapons of mass destruction, but sadly the Government have yielded to some of the more regressive parts of the financial lobby and will permit banks to locate simple derivative products—whatever simple means—within their retail banking operations. They should look at that again.
The Bill is weak and does not learn the real lessons from the financial crisis. It does not learn the lesson that we have a very small number of very large banks, whereas other countries, such as Germany, France, Canada and United States, have a more diverse range of successful financial institutions, including co-operatives, credit unions and Government savings banks. There is little in the Bill that would help to expand the thriving credit union movement. I recently visited credit unions in my constituency and others in Glasgow city centre that are providing mortgages and expanding the range of financial services in a responsible way given the scale of financial exclusion that many of our constituents face. Having different types of banks in an economy introduces different incentives and gives the public real choice. The point is not to have more banks competing on the same business model of short-term speculative profit, but to have competition across different business models with diversity of form and diversity of function.
Unfortunately, the Government refuse to listen to those points and have taken insufficient steps to make the reforms that our country needs. I hope that in Committee they will listen to the arguments again, because our constituents, businesses and the people who save and invest in our financial system deserve no less.
John Thurso (Caithness, Sutherland and Easter Ross) (LD)
I begin by apologising to the Chair and to Members on the Front Bench; due to the vagaries of snow at Aberdeen and the fact that the plane I was on was not de-iced on time, I missed my connection and therefore arrived to hear only the latter part of the Minister’s speech. However, judging by the tone of the debate, I think that I have a fairly good idea of what he must have said.
The second point I would like to make at the outset relates to the staff of the Parliamentary Commission on Banking Standards. My hon. Friend the Member for Wyre Forest (Mark Garnier) made the good point that the Chair of the commission, my hon. Friend the Member for Chichester (Mr Tyrie), has done a sterling job, but we have also been extraordinary lucky in having staff of such high quality. The preface to our report lists the staff and shows the amount of resource that has been available to us. The staff who have been available to the commission are of an extraordinarily high quality. We have therefore been able to produce work of an extraordinarily high quality. I say that at the beginning because, whatever my poor remarks, I very much hope that those on the Front Benches will take note of the work that has been done to date.
I think that the next banking crash will happen some time between 2078 and 2088, with a couple of small wobbles between now and then. If one looks back to the dawn of banking, when an Italian moneylender first sought to made a buck or two, one sees that crashes have happened ever since. One of the best pieces of work I have read recently was a commission staff note setting out exactly how often crashes have taken place and the fact that they are pretty much identical. They all start with over-exuberance and an asset bubble, which is followed by a collapse, and on each occasion, going back several centuries, the Bank of England has intervened and the country has had to rescue the financial system.
The Bill sets out not to prevent those sorts of crashes from happening in future, but to try to make them survivable, in particular by making banks resolvable. If we are to have risk and reward, there will be problems in future. The Bill, and the recommendations of the parliamentary commission in relation to it, set out to try to make those situations less systemic and less of a risk to the country and the taxpayer. At this stage, the Bill is necessarily rather more about structure than it is about some of the other points that have been raised. I welcome the Bill and want to comment on one or two of the things that are not in it and to urge the Government to listen to the points that the parliamentary commission has set out in our report. When I have done that, time permitting, I would like to look at some of the wider points.
On the question of process, it is a matter of regret that the Bill is unlikely to have sufficient time in Committee to allow the House to consider all the issues. Once again, the unreformed other place will have the duty of sorting that out. I am particularly concerned about the fact that, should the important areas of standards, culture, competition and remuneration require any action in legislation—we have yet to deliberate on whether they might—the Bill will almost certainly have passed through this House by the time the parliamentary commission completes its final work.
Let me turn to the points that I wish to make. First, on the question of leverage, the key is risk-weighting assets. Much of the academic work has shown that, broadly, the banks that had better leverage ratios were the ones that survived. It is a very simple fact. The risk weighting of assets does not actually assist terribly much in that process. Andy Haldane made that point remarkably forcefully in evidence to both the Treasury Committee and the parliamentary commission. Therefore, the simple test of the leverage ratio is extremely important. Vickers came up with 4% and the Government have gone for 3%. I am convinced that 3% is not enough, but perhaps 4% is too much. Certainly, as the report we have published makes clear, we should be looking at that. There is a problem for Nationwide and for building societies, but we really cannot let that tail wag the dog when it comes to sorting out the banks’ part of it.
Secondly, there is the question of industry-wide separation, which a number of Members have referred to. I want to be clear about what we are setting out to do and what we have recommended. The electrification of the ring fence is by means of allowing the regulator a power to separate an institution. The institution is observed by the regulator to be burrowing, tunnelling, climbing over, powering through—however it is done and whether it is a tiger, fox, wolf or whatever—and the regulator then makes a decision for that one institution, saying, “You’ve tried your luck too far. That’s it: your institution is separate.”
The wider power seeks to address the fact that we are not going to have another crack at this for a good few years and that in all probability, in five or six years’ time, things will be recovering and people might say, “Well, the punch bowl is not there yet so we don’t have to pull it away. Let’s all just leave it be”. We are saying that the Bill should permit secondary legislation if necessary. There should be a review—I cannot remember whether we agreed that it should be every three years or every five years—at which time the Financial Stability Committee could recommend, were there an attempt to undermine the system, that the Government bring in secondary legislation to effect a total separation. That is an immense number of barriers between the placing of the possibility in a Bill and the actuality of it happening. I really hope that the Government will accept the argument that allowing for such a power in the Bill would stand as a potential encouragement to the banking system not to seek to undermine the ring fence.
Ever since I started to study this in the last Parliament, when I served on the Treasury Committee with the now Lord McFall, I have been a Glass–Steagaller. I am in favour of full separation. However, I accept the Vickers compromise, because it is where we have got to. I accept it on the assurance that the ring fence is properly electrified and that there is the fall-back power.
My third point relates to the sibling or parent governance structure. The parliamentary commission’s members broke up into panels, and we have now all reported back. I had the honour of chairing a panel on corporate governance. The evidence I saw was not reassuring. If there is a parental relationship, the temptation of the CEO to tell the ring-fenced bank what it should do will, over time, become overwhelming. Therefore, an equal governance structure, which gives proper independence required within the corporate governance of the ring fence, is absolutely essential.
The last point relates to derivatives. When someone defines a simple derivative, will they let me know what it is? I know what a simple product is. When I want to fix my risk by having a fixed-rate loan, I know that there is a derivative product that I am sold. I understand that and have no problem with that product. The problem is this: why on earth does that have to be originated in a ring-fenced bank? Why on earth can it not be sold on an agency basis? It will cost me a little bit more, but I will probably get advice on which is the best one in the marketplace. We have agreed with the Government that simple derivatives should be permitted but, as our report shows, it was pretty well surrounded by caveats.
My final point is that we need to answer the question what are banks for, because it is at the heart of the whole issue of separation. Over the past half century or so we have pushed together various businesses, some of which were never banking and never will be. The problem now is that we talk about bankers as a collective when we are really talking about bankers, financiers, traders, stockbrokers, and all sorts of other people. This makes it difficult when we come to consider regulation of the profession. Pure banking, if I can put it like that, is a profession, can be regulated as a profession, and can have professional standards expected of it, but many other areas should be regulated in different ways; traders should be licensed, and so on. I am sure that we will come on to consider that issue.
My right hon. Friend, if I may call him that, the Member for Wolverhampton South East (Mr McFadden), chaired a panel on small and medium-sized enterprises and I chaired one on Scotland. One of the things that came out of that is that banks have completely failed industry, individuals and commerce. My worry is that this process will be about the political bubble talking to the financial bubble—the Westminster village talking to the City village. At the end of all this, we need a banking system that serves commerce and industry. If that means that we have to start by getting more competition through breaking up RBS or creating a “good bank, bad bank”, then so be it; there is a lot that we need to look at. However, what we must do is ensure the availability of reasonable credit to our constituents and provide a system that is resolvable, so that at least for a couple of generations we can go without a crash.
Mr Deputy Speaker (Mr Nigel Evans)
Order. I am lifting the time limit for the remainder of this debate. I call Mr John McDonnell.
John McDonnell (Hayes and Harlington) (Lab)
Thank you, Mr Deputy Speaker. Does that mean that I have an hour and a half?
John McDonnell
I most probably will not even take 10 minutes.
I am very pleased that the plane of the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) did come in, because he always makes complex issues simple and entertaining. There is a consensus in the House around regulation as the approach to take towards resolving the banking crisis and ensuring that, if we do not prevent a future crisis, we at least stave it off for, as the hon. Gentleman suggested, possibly another 70 years. The degree of positioning is around Glass-Steagall-type full separation, a ring fence, and then, as he said, the novelty of an electrified ring fence. There must be different power levels of electricity on this ring fence, as well.
I stand outside that debate, because I do not think that regulation will work. I was the first Member to raise the issue of Northern Rock in this House. At that time, I completely underestimated what Northern Rock was up to. I thought that it was all about an offshore tax scam that was part of its link with the organisation that it called Granite; I had no idea of the scale of the problem that would be unravelled. I can remember the then Chief Secretary to the Treasury, I think, leaving the Chamber after I had talked about Northern Rock, to obtain a briefing about what I was talking about. I realised that what I was talking about was a crisis that was being created in the City by greed, primarily, and by speculation and casino banking. I remember being at the Labour party conference in the 1980s, around the time of big bang, and organising the launch of a book called “Big bang: the launch of a casino economy”, authored by the then Member for Hackney and my hon. Friend the Member for Bolsover (Mr Skinner), which predicted some of the outrageous potential that there was for speculation as a result of big bang.
When I raised Northern Rock, I completely underestimated the levels of casino banking and the corruption that was taking place. In the previous debate a few weeks ago, I described the City as a “cesspool of corruption”, which it was. However, what was also revealed was the absolute incompetence. It was like “The Wizard of Oz”—when the curtain was pulled back, there was not a wizard but someone scrambling with various levers. We discovered then that the hierarchy of British banking did not even understand the instruments with which they were working because they were so complex. Then it all started to unravel, and we discovered scales of greed, incompetence and corruption that none of us expected.
At that time, we were assured that the regulatory system was not at fault, but we soon discovered how inoperable it was. The result, as we all know, is that the then Government intervened to borrow and they used taxpayers’ money to bail out the system. At its peak, taxpayers’ exposure to the bank collapse was on the scale of £1.2 trillion. I understand that so far we have retrieved only £14 billion of that taxpayers’ money. The second wave was the austerity programme introduced to pay for the Government intervention to save the banking system. Mervyn King estimated the cost of that to be £1 trillion. Anthony Haldane, who is probably more accurate in his assessment, estimates that we have lost the equivalent of between one and five years’ GDP. Those absolutely staggering sums are the result of a crisis brought about by incompetence and greed. The majority of people are 7% poorer than in 2007, and their living standards have fallen, according to the latest estimate, by 13.2% since 2008. The median household income in 2015-16 will be the equivalent of that in 2002-03. These are the implications of what this wealth of greed brought about: mass unemployment, welfare benefit cuts, food banks, and parents missing meals so that children can eat. It is absolutely staggering.
I find it extremely difficult to come to terms with an issue that was raised by my right hon. Friend the Member for Holborn and St Pancras (Frank Dobson). Since the crisis occurred—since I first stood up in this House and mentioned Northern Rock—and we went on to the nationalisation of banks, and then to quantitative easing on a scale that we had never seen before or could even comprehend, the scandalous practices have not gone away: they have continued. As my right hon. Friend said, the bonuses have continued, fraud has continued, LIBOR interest rate fixing has been investigated, and we have seen tax evasion and money laundering. This is happening even when the bankers are in full public sight. At a time when the eyes of the country are on them, they are still manipulating the system.
I find it astounding—I have raised this in the House three times, and 10 days ago I received a letter from the Minister about it—that when quantitative easing was introduced, we discovered through press reports that bankers even then sought to profiteer from it. The letter from the Minister confirmed that at one point the Bank of England had to intervene and withdraw from the market because there were suspicions of price fixing and manipulation of the market during quantitative easing.
Kelvin Hopkins
I am very interested in and admire what my hon. Friend is saying. There is a suggestion that the recent surge in share prices is simply the effect of quantitative easing and that it bears no relation to what is happening in the real economy.
John McDonnell
Exactly. I accept that point, but the relatively simple point that I am trying to make is that a group of people who have, in effect, been caught with their hands in the till are trying to use the money that has been used to bail them out to profiteer at the taxpayers’ expense. That is staggering and it says to me that regulation will not work with these institutions. Even when they are absolutely shamed, subject to public opprobrium and under the acute gaze of the public eye, they still try to profiteer.
Steve Baker
This is the point that I have been trying to make. Every time the state sets up these dreadful institutions, people are able to profiteer. If we tell people that we are creating new money out of nothing and giving it to them in exchange for Government bonds, of course they will seek to make a profit. The thing to do is to make sure that they have institutions within which they can make a profit justly.
John McDonnell
There is another route and I will come on to it. The hon. Gentleman and I agree about the problem, but there is another solution. As he has said, regulation does not work with these institutions or the motivation to profiteer. I do not think that the new regulatory system—whether it be subject to a ring fence, an electrified ring fence or leverage ratios—will work. The reality is that as long as the banks are in private hands and have profit as their motive, they will aim to get around a regulatory system. The hon. Gentleman has mentioned how they will dig under and go around the fence. Like a chicken finding its way into the coop, they will always find a way. The regulatory regime proposed by the Bill is complex and, to be frank, virtually unenforceable. I think it will be almost impossible to execute the attempt to impose a firewall, as the Good Banking Forum concluded recently.
I agree with the hon. Member for Caithness, Sutherland and Easter Ross that we need to revisit the question of what role banks should play and what people want. I think that people and society want and need banks in which they can safely deposit their money and savings and which lend responsibly and provide credit to finance investment growth across the country. That is not what this Bill will secure and it is certainly not what is happening at the moment. The larger banks have an estimated £6 trillion at their disposal, but just £200 billion —3% of the overall total—is used to fund investment in this country’s industry. I do not think that a system of honest, responsible banking or long-term investment is deep in the culture. That may well have occurred at the earliest stages of capitalism but, many crises of capitalism later, we should have learned the lesson that this system is not working.
I believe that the only way to secure probity and to ensure that people’s funds are safe and secure and that we can invest in our economy in the long-term to create jobs is through a publicly owned and democratically controlled banking system. Of course, we own banks at the moment—we nationalised them. After Northern Rock, I remember standing up in the House to urge the then Chancellor of the Exchequer, my right hon. Friend the Member for Edinburgh South West (Mr Darling), to nationalise the banks. The next day he said that he had nationalised three of them. I told him that I had been right and he said, “Well, you were bound to be right at least once in 30 years.” We nationalised those banks, but we have no control over them. They are not democratically accountable to Government, workers, investors or the wider community. That is why they are not investing and why people cannot secure loans.
We should take full ownership of the larger banks. We already own Northern Rock, RBS and Bradford & Bingley and a large part of Lloyds. We should take public ownership and control of the UK-based operations of Santander, Barclays and HSBC, and we should create a unitary industry. That would enable us to control investment, secure savings, stop the paying out of large bonuses and ensure that any surpluses are returned to the public by investing in the public good. That is secure and safe banking, which is what I thought was the House’s objective.
What would full nationalisation cost? An excellent piece of work for the Fire Brigades Union by Michael Roberts and Mick Brooks, which was published and launched in this House only a week ago, estimates that it would cost £55 billion at current market rates. That is 3% of GDP. We could ensure that there would be no need for any cash exchanges and could simply swap shares for bonds, thereby saving the public purse a large amount of money. The Co-operative bank and mutuals would continue to operate as alternatives, as would credit unions, because we have confidence in them as safe and secure banks. We could also—we called on the previous Government to do this—remutualise those banks that transformed themselves from mutuals into limited companies.
In that way, we could achieve the stated objectives of the Bill not through regulation, but through public ownership and control. I do not believe that regulation will work. The system has gone too far and the profit motive has overridden any sense of value or judgment in the City. Unless we take action now, we will be back in a limited number of years to deal with another banking crisis. To be frank, we have not even talked tonight about the shadow banking process, the scale of the transactions that take place within it or how we should deal with it. That is beyond all our controls at the moment.
I will finish by saying who we are taking action for. We are doing it for my constituents, some of whom are threatened with evictions or job losses or are having their welfare benefits or their services cut, all because of an economic crisis that they had nothing to do with. They did not cause it and did not contribute to it. It was caused deep in the financial sector of this country and across the world. My constituents deserve not reform of the banking sector in this country, but an absolute transformation of it, based on public ownership and democratic control.
Andrea Leadsom (South Northamptonshire) (Con)
I am delighted to speak almost last in this debate.
I agree with the hon. Member for Hayes and Harlington (John McDonnell) when he says that many people have suffered terribly as a result of the financial crisis, and when he speaks of the greed and the complete lack of regulation and control over banking over the past decade.
The British people are still furious about the behaviour of bankers, and they have every right to feel that way. Banks were already seen as greedy and arrogant. They have now reached the depths of humiliation in the wake of the LIBOR manipulation, PPI mis-selling and bank swaps mis-selling. Individual bankers are rightly being investigated by the police. I and all colleagues in the Chamber hope that if criminality is proven, they will go to jail and bear the same brunt of punishment as any other criminal.
Nevertheless, we must recognise the vital importance of the financial services sector to the UK economy. It is a huge employer. If all financial services are included, more than 1 million people have jobs in the sector. The vast majority of those people do an honest day’s work for a fairly modest salary and do not receive a large bonus.
We must also remember that we are talking about a globally mobile business. In the investment banking business, someone can pick up the phone in London on a Friday morning, put it down on Friday night and carry on doing the same deal on a Monday morning in Singapore. While reforming the industry to make it safer for people in this country, we must be careful to preserve it so that we can take advantage of the enormous opportunities that it provides, such as the sale of mortgages and health and life insurance policies in developing markets such as China, Brazil and South Korea that do not have developed, simple, basic banking packages. We can make profits for Britain at the same time as helping those developing economies. It is important that we remember to protect this industry at the same time as reforming it.
The Bill offers the opportunity to put right many of the wrongs of the previous Government’s approach to financial services in the UK. It will help to bring back to UK banking what used to be called the balance of fear and greed. For many years, there has been enormous greed with no fear of consequences. We have allowed a small group of vast institutions to grow by consolidations, mergers and takeovers. The culture has been one of, “Heads, I win; tails, the taxpayer loses.” That has proven to be true.
The Bill will address Labour’s failed tripartite system of regulation. It will put accountability for the supervision of the banks and for systemic risk back into the hands of the Bank of England. In 1995 when Barings went bust, before Labour had had the chance to mess up the regulatory system, I was a small cog in the wheel trying to prevent a run on the banks. I remember supporting the then Governor, Eddie George, to ring the various international banks to ensure that there was not a run on the banks on Monday morning. Why did he do that over that fateful weekend? It was because he knew that the buck stopped with him and that it was entirely down to him to ensure that there was not a run on the banks. How different it was under Labour’s tripartite system. When people were queuing down the streets to take their money out of Northern Rock, the Treasury was looking at the Bank of England, which was looking at the FSA, and nobody took any action. That was utterly shameful, and the Bill will ensure that it cannot happen again.
Jim McGovern (Dundee West) (Lab)
The hon. Lady said that she was a small cog in the wheel and that Sir Eddie George was the big wheel. Does she think that that was working at that time?
Andrea Leadsom
I always think that the proof of the pudding is in the eating, and the fact is that Barings was culpable for a potential massive run on the banks, because of rogue trading. It did not happen, and why? It was because one individual took responsibility, surrounded himself with people who could prevent it and ensured that it did not happen. We do not need to look any further to see that it was working.
There is one area in which the Bill is a lost opportunity. It offers us the chance to address the big elephant in the room, which is the lack of competition in the banking sector. We have the chance to go well above and beyond what John Vickers proposed. Retail banking in this country should be truly competitive. As we all know, one of the biggest problems in our economy right now is the lack of finance for small and medium-sized enterprises, which are the lifeblood of our economy.
Steve Baker
My hon. Friend is absolutely right, of course, but the other problem is the lack of return for savers. Is that not the other of the current system’s twin failings—that it is failing to intermediate between the two groups?
Andrea Leadsom
I agree completely, and my hon. Friend tempts me down the route of blaming quantitative easing for the extraordinarily diverse results in the savings market, particularly for pensioners and other savers whom we desperately need to spend more. The evidence is that as a result of reduced annuities, their propensity to save has increased. We would like people to spend more in the economy, but they are not doing so.
The best way to shake the banks out of their current complacency is to allow new entrants to get into the market, bringing with them the high standards of service that customers believe they should be able to take for granted, including IT that works. To go back to Adam Smith in “The Wealth of Nations”, a truly competitive environment requires that there is free entry and exit for market players. That is not the situation in banking in this country right now. New entrants have experienced massive barriers to entry not just from competitor banks but from the regulators. Likewise, failure has not been possible, as we have seen at eye-watering cost to the taxpayer. Rather, the trend has been towards consolidation and mergers, with a small number of very large banks dominating. In 2000, there were 41 major British banking groups and subsidiaries, whereas in 2010 there were just 22. Four banks have an almost 80% market share of the personal current account and SME lending market, so there is evidently a need for genuinely comprehensive action to increase competition in Britain.
One significant step in the right direction would be to take the opportunity to sell off the state-owned banks, as the Governor of the Bank of England himself suggested last week at the Parliamentary Commission on Banking Standards. Selling off the taxpayer-owned banks in small parcels would instantly create potential new challenger banks, and I urge the Government to consider doing so again. The Governor regretted the fact that RBS remained in public ownership and pointed out that we had not yet solved the “too big to fail” problem. He urged the Government to do more.
As right hon. and hon. Members have heard me say a few times before, the real game changer would be introducing full bank account number portability. We take that for granted with our mobile phones—if we change our provider, we take our mobile phone number with us. Why should it be any different with our bank accounts? Earlier this evening, the Father of the House told me that one of his ex-colleagues had spent years banging away in the Chamber about the importance of mobile pensions in the private pension sector. I was unaware that it had ever not been possible for someone to take their pension with them when they changed jobs, but apparently one of the greatest revolutions in the pensions sector happened when account number portability was achieved. We know what such portability did for the mobile phone sector; surely the time has come to introduce it to the banking sector.
At a recent round table meeting with various luminaries from the banking sector, Which?, the Bank of England and so on, all those present agreed on a show of hands that if anyone is to achieve bank account number portability, the UK should be first. Let us, as the world’s leading financial services centre, be first to innovate and not wait until someone else does it.
Switching instantly between banks would remove the huge barrier to entry that currently constrains new, innovative banks. Several benefits would accrue from that policy. First, it would cut barriers to entry for new challenger banks. Increased competition would force existing and new banks to differentiate themselves to retain customers, leading to enormous improvements in customer service and the differentiation of bank offerings. Secondly, new challenger banks would mean more banks and increased access to new and different sources of funding, and over time that would reduce the risk of banks being “too big to fail”. The US has more than 3,000 banks and when a retail bank fails there is just a ripple and hardly anyone notices. We need diversity of financial service providers, which I genuinely believe such a measure would provide.
Thirdly, industry experts argue that the impact of creating a new shared payments clearing infrastructure would mean the banks sorting out the problem of multiple legacy systems that dates back to the consolidation of the 1990s. Clearing banks currently spend billions each year on string and Sellotape solutions for creaking systems, and we have seen twice recently the problems that RBS subsidiaries had in managing payments for their customers because of poor systems and systems failure. New systems could lead to a reduction of up to 40% in bank fraud that costs the sector billions of pounds each year.
Fourthly, multiple legacy systems within banks make it hard for them to evaluate business ideas. The banks’ poor systems make it harder for them to assess good business ideas versus good collateral, and better and new systems would enable them to make better lending decisions to SMEs. Finally, and importantly, account number portability would offer the potential for the orderly resolution of a failed bank. The potential to close down a bank and transfer its accounts overnight to a solvent bank would be a valuable tool in any future financial crisis.
To kick-start a move to account number portability, the Government would need to introduce a new payments regulator with the power and mandate to require equal and fair access to money transmission systems. Only an independent regulator of money transmissions would get the job done, and using an existing regulator or the Office of Fair Trading is unlikely to be effective. I therefore welcome the Minister’s announcement of a consultation on establishing a new, independent payments regulator.
I conclude by saying that seven-day switching, as proposed by John Vickers, is not the same or even similar to full bank account number portability. It is a costly, overly-manual way of way of improving the customer experience, and does not solve the problem for small businesses, many of which—some 80%—have felt unable to change bank account provider in the past three years. Banks have SMEs tied up and want them to have personal overdrafts and bank accounts, business accounts and fully funded bank loans, whether or not they draw them down. It is extremely complicated for an SME to move banks in the current environment, and trying to change bank account number is part of that problem, as well as the lack of other banks that are willing to lend.
The first problem with seven-day switching is that it will not change the future for SMEs. Secondly, it does not address the administrative burden for SMEs. If we find that seven-day switching dramatically increases the number of people who switch bank accounts, that will simply increase the burden on all of our milkmen, dry cleaners, Tesco or whoever it might be. We will all have to change our bank account numbers with them, and they will have to change their systems. For big businesses that might not be a problem, but it is certainly a problem for small businesses. Which? has provided a wealth of evidence showing that SMEs are concerned about the impact of seven-day account switching on their administrative burden. I urge my hon. Friend the Member for Chichester (Mr Tyrie), in his Parliamentary Commission on Banking Standards, to put forward proposals on bank account number portability when he produces the final report later next month.
Now is not the time for timidity in reforming our banking sector, and it is not the time for false economies. We have to focus on enabling new entrants into the market, taking steps that are good for the consumer and for small businesses, and beginning the long process of restoring the reputation of our banking sector.
Stephen Barclay (North East Cambridgeshire) (Con)
It is always a pleasure to follow my hon. Friend the Member for South Northamptonshire (Andrea Leadsom), and, Mr Deputy Speaker, to be the last speaker to catch your eye before the wind-ups.
The Father of the House spoke about one of his speeches in 1984, so I took the liberty of having a look. If the House will indulge me, I will quote from it:
“There has been a great deal of talk about capital. Of course that is important, but vastly more important than that is expertise, integrity and judgment.”—[Official Report, 16 July 1984; Vol. 64, c. 68.]
Indeed, there was much expertise, integrity and judgment in my right hon. Friend’s remarks, and in essence I want to focus my comments on them. The Bill addresses structure and it is right to learn the lessons. Of course there was too much leverage in the system. No one would think that the level of liquidity available to the banks at a time of crisis was adequate, and there has been much work by regulators and central bankers since the 2008 crisis to address that. What there has been rather less of, however, is a willingness to tackle culture.
While I commend the Government for the Bill’s focus on leverage, and on dealing with the well-measured suggestions of my hon. Friend the Member for Chichester (Mr Tyrie) and his commission, we should be clear on what the Bill is not doing. It will not stop retail bank failures, such as Northern Rock and Bradford & Bingley; it will not stop investment bank failures, such as Lehman’s; and it will not stop the regulatory failures of universal banks, as we have seen with the anti-money laundering and sanctions abuses or the LIBOR abuses by some of our largest banks. The Bill does not address the shadow banking world—the £200 billion of risk that is currently carried in private equity. Most of all, the danger of today’s debate is that we do what is so often the case after a regulatory crisis: we focus on solving the problem we have just had. We are not talking about the impact on banks if we lose control of interest rates, which we all hope will not be the case. The focus is on the structural failures relating to liquidity and capital, and that has been the tenet of the debate.
Stephen Barclay
Of course that is not wrong. I said that the Bill is welcome, and that it is a positive response to the commission’s report. The focus on leverage and liquidity is absolutely right, and that is why I pay tribute to the work of central bankers and regulators. I am not sure that the hon. Gentleman was listening to my remarks. The danger is that we focus on the past and do not anticipate the future. There is a need for flexibility, and for that the Bill needs to tackle culture. The paradox is that individuals in banks are motivated by big bonuses, which drive their behaviour, yet when things go wrong, we do not have their corollary, which is big fines against individuals. That might be the sort of thing to grab people’s attention when they become aware of issues.
I am glad that the hon. Member for Nottingham East (Chris Leslie) is back in his place, because he missed addressing that point in his remarks—it is a shame he would not take interventions from me. Under his Government, the Financial Services and Markets Act 2000, probably the most-debated Act for many years, created a rulebook of more than 6,000 pages. He spoke about the need for more regulation and suggested that Conservative Members had failed because of the lack of regulation, yet we had 6,000 pages of it. The issue was that the regulation was not enforced.
It is even worse than that, because the hon. Gentleman actually allowed a regulatory regime that included things such as guaranteed bonuses. Not only would somebody get a bonus if they performed well, but they got a guaranteed bonus even when the bank collapsed. When the financial crisis hit in 2008, contractually the banks were signed up to guaranteed bonuses, so they were still doling out money under the enhanced regulatory regime to which he referred—true socialism in action.
It gets worse. There was a fines system that incentivised banks to profit from the wrongdoing of other banks. When a bank was subject to a regulatory fine, the money went not to the taxpayer in the form of funding good works or to customers of the bank affected, but to the other banks in the form of lower levies to the regulator. When a bank committed a wrongdoing, therefore, other banks in the sector profited. This is the regulatory regime on which we are now being lectured.
Let me give another example on structure: the collapse of RBS. After 10 months of the brightest minds in our Treasury—I am sure they are the brightest minds—looking at this issue, they still could not rely on the books. So untrustworthy was RBS’s auditing that the permanent secretary to the Treasury had to send for a letter of direction from the Chancellor saying, “I can’t rely on the books. It’s such a mess, Chancellor, you’ll have to give me a letter of direction.” We will not take any lectures from the Opposition, therefore, about their regulatory regime or the mess in which it has left our constituents, who are the ones footing the bill.
Mr Richard Bacon (South Norfolk) (Con)
It is a pleasure to listen to my hon. Friend, who, unlike many in the House—particularly in the Opposition, but also, I fear, on the Government Benches—as a former financial regulator actually knows what he is talking about, which is a dangerous thing here. In September 2007, when Northern Rock collapsed, the Treasury did not even know if it had the power to take it over, which was something of an indictment of thousands and thousands of pages of regulation. Does he agree that it might not be a coincidence that John Pierpont Morgan and Nathaniel Rothschild, the founders of two of the most successful banks in the 19th century—JP Morgan and NM Rothschild —had a considerable personal interest and stake at risk in those institutions if things went wrong?
Stephen Barclay
My hon. Friend is absolutely right, and he is right because, as I know from my time in banking, people in banks are usually aware of the problems, but there is a perverse incentive—a short-termism—that says, “If the rewards are delivered short term, but the risk is unlikely to crystallise”—
Chris Leslie
I believe that the hon. Gentleman was director of regulatory affairs at Barclays bank from 2006 right up, I think, until the general election. Will he assure the House that he was not aware of any of the LIBOR issues that took place under his watch?
Stephen Barclay
Once again the hon. Gentleman has got his facts plain wrong, because although I was—[Interruption.] We can all see that he has had a quick read, but as so often with Labour politicians he has not understood what he has read. I was director of regulatory affairs in the retail bank and, as anyone knows, the retail bank was not responsible for LIBOR. That was an investment banking issue.
Stephen Barclay
Unlike the hon. Gentleman, who repeatedly refused to take interventions, I will happily take another.
Chris Leslie
I did take a fair few interventions. If the hon. Gentleman was the director of regulatory affairs at Barclays bank from 2006 until the general election on the retail side, was he aware of the mis-selling of payment protection insurance?
Stephen Barclay
Once again the hon. Gentleman has not listened to the answer. I was actually head of anti-money laundering and sanctions for half the period, so once again he is getting the basic facts wrong. It is interesting that he does not want to debate the issues. He does not want to debate the fact that there were guaranteed bonuses or a fines system that incentivised the wrong things. He does not want to debate the fact that, as my hon. Friend the Member for South Norfolk (Mr Bacon) correctly pointed out, we had a Treasury that was not even aware of its own powers. We also had a tripartite system in which it was unclear who was in charge. We then had Treasury officials looking at banks and their assets without being able to rely on what was under their noses. That is the legacy that Labour left us.
Stephen Barclay
No. I have taken two interventions from the hon. Gentleman and he did not do well with either. I want to make progress, because I am conscious that time is moving on.
I shall return to the comments made by someone who, unlike the hon. Gentleman, speaks with professional expertise, namely the Father of the House. He was correct—as he is on so many issues, but particularly this one—to talk about the danger of focusing on structure and not rooting out conflicts of interest. That is at the heart of the point I want to make about individual accountability, linked to conflicts of interest—about the awareness, as my hon. Friend the Member for South Norfolk pointed out, of those in institutions who know where the risks are and how they are incentivised to speak up. On Thursday we will have a debate on the NHS and the fear of whistleblowers to speak out. Many of the issues in the NHS are similar to what we have seen in our banks. Let me give the House an example that makes the point highlighted by my hon. Friend. So far, the two biggest fines imposed on any individuals in banking were imposed on two Northern Rock executives. On both occasions they were less than those individuals’ bonuses the preceding year. How are people incentivised to do the right thing in our financial sector when they can see such short-term benefits from wrongdoing and very little downside risk?
I very much endorse what my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) said about empowering consumers by having portability in the system and grass-roots pressure. However, we cannot rely on that alone—I do not think she would suggest for a minute that we could—to address the regulatory failures or the asymmetry of information that customers face.
Jim McGovern
I became an MP in 2005, and between then and about 2009, I do not think any business people approached me. Since then, however, a lot of them have approached me to express their grievous concern about keeping their businesses going. I have to say that I am struggling to understand what the hon. Gentleman means, and I think the people in my constituency who have started small businesses as joiners, bricklayers or whatever would also struggle to understand him. Will he please make his point in lay terms?
Stephen Barclay
Yes, I can address that question head on. It is logical to have introduced measures to try to manage risk in the financial sector, but we are requiring banks to retain more and more assets at the same time as asking them to lend more. We are therefore asking them to do two conflicting things, as well as introducing a structural fix that innovative people will often be able to find ways around. For example, the shadow banking sector is not affected by this kind of proposal. If we want to address innovation, to be flexible and to move with the market, and retrospectively to impose fines for wrongdoing, we would be far more successful if we changed the culture than if we imposed rigid rules.
In many ways, I agree with the hon. Gentleman, in that we all have constituents who complain that the banks are not lending, but perhaps that is an issue for another day. There are many areas in which the banks’ behaviour is wrong, but we cannot change the culture through rules alone. We had more than 6,000 pages of rules, but that did not achieve the right culture. We can achieve it by having individual accountability, and one of the best ways of doing that is through personal fines.
I am sure that the hon. Gentleman read the Daily Mirror today, as I did; I always try to avail myself of the Daily Mirror. On the front page, there was a story about the “Fat cat in the hat”, who is a former Barclays executive, according to the report, and it must be true because it was in the Daily Mirror. The point is that it is individuals like that, where there is alleged wrongdoing, who are able to keep their bonuses and keep their profits. That does not send the right message on culture. Rules are too blunt a tool.
If we want to change the banks, the Bill is extremely welcome, but I hope that the very constructive proposals put forward by my hon. Friend the Member for Chichester will be given further consideration. There is much to support in the Bill, however.
Mark Garnier
Does my hon. Friend agree that the Chancellor’s measures stating that the fines levied on RBS should be taken from the bonus pool go some way towards addressing the point that he makes?
Stephen Barclay
Those measures are a step in the right direction, but they will also catch the legitimate people, rather than focusing on those who have done wrong. There will be no means of clawing back from wrongdoers. Let us take the example of Sir James Crosby. To what extent would he face retrospective clawback? He is long gone, and he has taken the money.
Andrea Leadsom
Is not this exactly the issue that we have been debating over the past week, with the EU proposal to cap bonuses? That would have the unintended consequence of pushing up salaries, which are notoriously difficult to claw back. Does my hon. Friend agree it would be much better to put in place a proper compensation scheme, perhaps through statute, that was determined by the banks themselves and that ensured clawbacks and full accountability?
Stephen Barclay
My hon. Friend is absolutely right. One-size-fits-all rules often capture the good but are insufficiently robust to deter the bad. Yes, the Bill is welcome and takes constructive steps forward, but we also need to see more measures from the Treasury on individual fines.
Mr Bacon
There are some people here who are not interested in the debate, but they can go away if they want to. I am grateful to my hon. Friend for giving way; I have now caught up with those on the Labour Front Bench in terms of interventions.
I heard from 27 employees of Lloyds bank who were caught by the temporary ban on bonuses. Some of them were getting bonuses of only £2,000, so that was quite unfair. I think my hon. Friend the Member for Wycombe (Steve Baker) might have suggested that senior bankers and bank directors should be required to post personal bonds. Does my hon. Friend agree that that would go some way towards dealing with the problem?
Stephen Barclay
My hon. Friend is right. We have to introduce into the system a position in which those at the top who are getting the biggest rewards also face the biggest risks. Some colleagues have talked about criminal sanctions, but the burden of proof is such that it is often difficult for the prosecuting authorities to get sufficient evidence to make it an effective tool. I am not against that, but it is often not an effective tool in practice. We need to ask how we can get to a situation where we do not catch those on £2,000 bonuses and those who have done no wrong, and do not set in place a whole load of rules that fetter innovation or deter business, but where we do create a stick and a deterrent for those who have abused the system and know they are still on the hook for significant financial loss. Those are the people most motivated by big fines in the first place; we should have a correlation between the bonuses and the fines.
In conclusion, the Bill is constructive and welcome, but we need to hear much more from Treasury colleagues about individual accountability, not just structures.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
We have had a wide-ranging debate and heard some useful, thoughtful and constructive contributions. Everyone has had the opportunity to make all the points they wanted to—except, perhaps, for the Father of the House, who understandably bemoaned the fact that he had only 12 minutes. He might well be disappointed not to have been here at a later stage of the debate to give us the benefit of his wisdom, as he certainly gave us an interesting contribution.
We heard the maiden speech of the hon. Member for Eastleigh (Mike Thornton). He paid tribute to his predecessors in the traditional style, but raised a number of important points, not least of which was about bank lending and particularly the lending scheme for small businesses.
I would like to pick up some of the general points and themes running through the debate. My hon. Friend the Member for Nottingham East (Chris Leslie) gave a comprehensive opening speech from the Opposition Front Bench. Other Members picked up the point that he made that we cannot have any repetition of the actions that led to the taxpayer bail-out. The actions and attitudes of the bankers meant that the banking sector—or individuals in it, as many hon. Members have said—thought that it was okay to retain the profits privately when the sun shone, to use that metaphor, but to let the losses fall to the public purse when the rainstorms arrived. We simply cannot allow a repetition of such risks to taxpayers in the future. That is why the banks must be reformed here in the UK, and further reformed in the EU and across the world.
As my hon. Friend the Member for Nottingham East outlined—it was echoed by my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) and by my hon. Friend the Member for Wirral South (Alison McGovern)—our financial sector is larger than most. The greatest global financial centre is in the City of London, and there are important centres in Edinburgh and across the UK, so we have to take any additional steps required to guard against any risk of future collapse.
My hon. Friend the Member for Nottingham East also spoke eloquently about the passage of the Financial Services Act 2012, which sought to address some regulatory shortcomings. Many hon. Members will have heard him during the course of the Public Bill Committee speaking eloquently—and, I have to say, frequently—about many of the issues that we are looking to this Bill to address. He highlighted a number of them, including concerns about LIBOR.
I hope that the hon. Member for North East Cambridgeshire (Stephen Barclay) will take the point made by my hon. Friend the Member for Nottingham East. The hon. Gentleman talked a lot about regulatory shortcomings, but we need to remember how members of the public and ordinary people in the street will view this issue. People in the banks were culpable; they were individuals who somehow thought it was all right to take those risks and—[Interruption.] I hear the hon. Gentleman say, from a sedentary position, that it was our system. At the end of the day we can have systems, we can have regulatory reform, we can have all those rules in place, but if the culture and the attitude of the people involved do not change, that will simply lead to more problems in the future. Members on both sides of the House have recognised that today. I am surprised that the hon. Gentleman, who, I understand, previously had a career in the banking industry and, indeed, in regulation, does not seem to accept that individuals as well as systemic failures bear some responsibility.
Cathy Jamieson
I am happy to be corrected if I have misunderstood the hon. Gentleman.
Stephen Barclay
The hon. Lady seems to be misrepresenting the entirety of my speech. The whole speech was about the need for individual accountability. I said that under the system established by the hon. Lady’s party, there was no such accountability. That is why Sir Fred Goodwin walked away with his huge bonus untouched. Under that system, there were no real fines and no individual accountability. That is the essence of it.
Cathy Jamieson
I understood the hon. Gentleman to be blaming the regulators rather than the individuals who were involved in the wrongdoing. Let me repeat that, notwithstanding the amount of regulation that is introduced, if there are people who are intent on wrongdoing, we need to address the culture and the expectations in banking. I think that members of the public expect us to do that.
A number of important points were made at the outset of the debate about the timing of the Committee stage. My hon. Friend the Member for Nottingham East, and a number of those who intervened subsequently, expressed concern about the fact that the Bill provides such a slim framework for further secondary legislation, largely by Treasury order. My hon. Friend the Member for Bassetlaw (John Mann) described it as an “Is this it?” sort of Bill, and my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) called it a mini-Bill.
The Minister seemed to suggest that we would have adequate opportunities not only to scrutinise the Bill itself, but to scrutinise and respond to whatever other measures or recommendations were made by the parliamentary commission at a later stage. I think that how, when, and where that scrutiny will take place remains rather uncertain. The hon. Member for Chichester (Mr Tyrie), the chair of the commission and of the Treasury Committee, asked for two days to be provided on Report, but it seems that Ministers did not consider that appropriate, or did not wish to do so. That is serious, because the Bill is very thin as it stands, and a great deal of work will be needed in connection with the secondary legislation. We ought to have every opportunity to scrutinise not just the good work that has already been done by the commission, but what it will do in future.
The commission report has helpfully provided us with a series of amendments and explanations of why they are important. It has also provided us with information on why the members of the commission feel that certain amendments should be proceeded with even if the Government do not agree with them. I think that we should have an opportunity to look at those amendments properly. I think that the public would expect us, having given the responsibility to the commission to make recommendations, to pay proper attention to them, and would expect the Government to take heed of them.
It is hard for the public to believe that things have changed when they perceive that a massive bonus culture is alive and kicking, and that has been reflected in the debate. A number of Members pointed out that debates of this kind may appear to be technical, and concerned very much with the rules and regulations. People watching may wonder how it affects their everyday lives. A number of hon. Members made the point that we have to ensure that we use the opportunity of legislation to rebuild consumer confidence, but we also have to talk about financial inclusion and diversifying the sector, and we have to change the culture of high-risk banking and see an improvement in standards, because that is what people expect legislation and the change to deliver. We also want action to support growth and to create a banking system that serves the needs of our economy, a point well made by hon. Members on both sides of the House.
Paul Farrelly (Newcastle-under-Lyme) (Lab)
I, too, used to work for Barclays in a past life. Does my hon. Friend agree that it would not do justice to the reputation and professionalism of this House, and to the many months of work by the Parliamentary Commission on Banking Standards and the Select Committee, if this Bill were not given the most time possible for scrutiny, because it is so important for this country? Does she also agree that one thing we should be very wary of is the watering down of recommendations that have been made by experienced people on commissions, in much the same way as experienced people have looked at the press?
Cathy Jamieson
My hon. Friend makes very good points. There would be real concerns if the Committee stage of the Bill was seen as a rubber-stamping process and the Bill was not scrutinised properly. The Economic Secretary to the Treasury likes to think of himself as a listening Minister—he says that often—so I hope he is listening today to the real concerns expressed by hon. Members. [Interruption.] He does not seem to be listening at the moment, but perhaps someone will give him a nudge and tell him what points I am making on behalf of other hon. Members about the Committee timetable.
I wish to make a number of points about the particular issues that hon. Members have raised. On leverage, I was reminded very much about our discussions on the pronunciation of “schedule” in a previous financial services debate. Obviously, it will be important for us to have the opportunity to look at the issue of leverage properly. I heard the Financial Secretary to the Treasury talk about the dilemma of trying to ensure that he not only does the right thing for the taxpayers, but listens to the industry. It is very important that the leverage ratio powers need to be clearly taken in the Bill and, as was said during the opening speeches, phased in ahead of the European Union plans for the end of the decade.
The Parliamentary Commission on Banking Standards highlighted that issue, particularly in respect of building societies and the concern about the 3% ratio. Indeed, my hon. Friend the Member for Bassetlaw raised particular issues about small building societies, with others raising the more general issue of the building societies and how the matter could be dealt with. I would hope that proper scrutiny of the Bill would give us the opportunity to overcome any negative impact or any problems that would arise for building societies, which clearly have different equity structures. I would argue, as did my hon. Friend the Member for Nottingham East, that that is not a reason for not putting safeguards in place. I wonder whether the Government have looked at the matter specifically or will do so. Could they give us some further information, perhaps in the Economic Secretary’s closing speech?
Another issue raised by a number of hon. Members was the derivatives inside the ring fence. A number of references have been made to the Vickers report and the fact that derivatives trading should not be allowed—that was of course the position. However, the parliamentary commission recognised that there was a case for some simple derivative products. A lot of hon. Members have sought a definition of a “simple derivative product”. Again, we need clearer protections to prevent abuses within the ring-fenced retail banks where derivatives are being sold. Again, I expect us to examine that more fully in Committee. I hope that we will be able to get assurances from the Economic Secretary about the Government’s intentions, as this is one area where they depart significantly from the original recommendation of the Vickers report.
I mentioned that the Economic Secretary likes to think of himself as a listening Minister, and we heard that again from the Financial Secretary when he opened the debate. I have heard that comment on a number of occasions, as I have been on a number of Committees and in Bill debates with the Economic Secretary. Although he has certainly appeared to listen, I am not sure that that has translated very often, if at all, into the acceptance of Opposition amendments or to any change in Government policy. I hope that on this occasion, even if he does not accept amendments tabled by my hon. Friend the Member for Nottingham East and me, he might at least be persuaded to accept the amendments proposed by the Parliamentary Commission on Banking Standards, which are very important.
I also want to pick up on a number of areas where the Bill makes no comment or does not do enough, as discussed by a number of Members. The hon. Member for Wycombe (Steve Baker) mentioned the Bank of Dave and the Bill does not address the issue of challengers or new entrants. There is nothing in the Bill on a universal obligation for banks on basic bank account services, which is very important. We take it for granted that we have a bank account, but it is not quite so simple for many people on low incomes.
Questions were asked about switching and bank account portability. There is nothing in the Bill on mutuality and I do not see anything about a fiduciary duty of care, which was mentioned by my hon. Friend the Member for Glasgow North East (Mr Bain).
My hon. Friend the Member for Wirral South talked eloquently about how in such debates everyone on the inside speaks in code, making it difficult for those who are external to break through and understand how important such discussions are for them. She put that into perspective very well when she talked about some of the issues that matter to ordinary people. The theme was picked up by my hon. Friend the Member for Hayes and Harlington (John McDonnell), who rose to the challenge of the dropping of the 12-minute limit on speeches and gave us a clear account of some of the challenges for his constituents in the current economic circumstances.
Of course, it is important that we have a banking system that enhances our economic prospects. We want to see support for enterprise, we want to see growth and we want to see the supply of lending and credit to the economy. A number of Members mentioned that, particularly in relation to small businesses. I hope action will be taken in the Budget, but if it is not, I hope that we will at least see an improvement made through this Bill to the funding for lending scheme so that we give priority to lending to small and medium-sized enterprises. We called for that last summer when the scheme began, but it has not been as successful as the Government might have liked.
We heard a number of interesting suggestions from my right hon. Friend the Member for Oldham West and Royton and my hon. Friend the Member for Glasgow North East about the idea of a national investment bank as well as about how regional banking could be organised along the lines of the German model or in other ways to support SMEs. I hope that we can consider those issues as the Bill makes progress.
We heard a couple of comments about whether the Bill would become known as the Clark-Javid Act. It has certainly seemed that it might end up being known as the Chancellor’s disappearing Act, given that he did not come to the Chamber and does not seem to have prioritised the debate today. When we discussed timetabling and the Committee, the shadow Chancellor asked the Financial Secretary whether he would take the opportunity to go out to track down the Chancellor and ask whether he would be prepared to amend the timetable to allow for proper scrutiny of the Bill.
In conclusion, we will not oppose the Bill’s Second Reading today because reforms are clearly needed, but there are many important policy changes that are conspicuous by their absence from the Bill, and those must be addressed as we proceed.
The Economic Secretary to the Treasury (Sajid Javid)
This has been a thoughtful and considered debate, led by my hon. Friend the Member for Chichester (Mr Tyrie) and his colleagues on the Parliamentary Commission on Banking Standards. I take this opportunity to thank my hon. Friend for his leadership of the parliamentary commission and to thank all the Members of the House and in the other place who have made contributions to that commission.
I congratulate the hon. Member for Eastleigh (Mike Thornton) on an excellent maiden speech, and I welcome him to the House. I, too, spent quite a bit of time in Eastleigh over the past few weeks. I do not think I helped him get to the House, but now that he is here I congratulate him and wish him the very best. From what I heard today, I think he will make a fantastic contribution. Thank you.
We heard a number of pertinent and considered contributions from both sides of the Chamber, and I am pleased to see widespread support throughout the House for the measures that the Government have put forward in the Bill. The support from the Opposition Benches for so many measures is an admission, at least from some Opposition Members, that they got it wrong during their time in office, and that, as my right hon. Friend the Chancellor has said, when the fire alarm was ringing, nobody was listening. That was a point well made by my hon. Friends the Members for Carlisle (John Stevenson) and for North East Cambridgeshire (Stephen Barclay).
Nearly six years ago, we experienced the first run on a high street bank in over 100 years. Five years ago, the previous Government were forced to bail out both RBS and Lloyds, as well as to provide billions in support to the financial system. It was the worst financial crisis in a generation. It happened on their watch and it left this Government with a huge mess to clear up and with the task of restoring trust in the banking system and ensuring that taxpayers are unlikely ever again to have to step in to bail out banks. That is exactly what the Bill is designed to achieve. Ring-fencing will ensure that core services continue to be provided if a bank gets into trouble, and it will ensure that it is those who lend to banks and benefit in the good times who take losses when there are bad times.
This is a crucial Bill for the future of banking in this country, and its seriousness has been reflected today by the Members who contributed—15 right hon. and hon. Members, and the Father of the House, my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell), who made a superb contribution. I will attempt to respond to as many of the issues they raised as possible.
As my right hon. Friend the Chancellor has stated before, we have built a strong consensus around ring-fencing as the right structural reform, and others are following our lead. The proposals of Governor Liikanen and the high-level expert group draw heavily on this Government’s proposals and are entirely compatible with the Bill put forward by this Government. A number of Members, including my hon. Friends the Members for Chichester and for Caithness, Sutherland and Easter Ross (John Thurso), and the right hon. Members for Wolverhampton South East (Mr McFadden) and for Oldham West and Royton (Mr Meacher), raised the issue of the “electrification” of the ring-fence, as proposed by the parliamentary commission and accepted by the Government.
It seems clear that the House is in broad agreement with this important addition to the Bill. The Government agree that a power to require an individual group to separate could be a powerful deterrent against attempts to game the ring fence. This power would strengthen the ring fence. The Government will therefore table an amendment while the Bill is before this House to provide for the regulator to have the power, subject to Treasury approval, to require a group to separate.
On a related issue, several hon. Members have raised the proposal of the parliamentary commission that the Bill provide for sector-wide separation to be triggered at some, as yet undetermined, point in the future. The Government do not accept that proposal. The parliamentary commission is, in effect, asking the House to legislate two parallel policies: ring-fencing and full separation. That is despite the conclusion of the ICB, which rejected full separation in favour of ring-fencing, and despite the parliamentary commission producing no evidence in favour of sector-wide separation as an alternative. Indeed, the parliamentary commission accepts that there is no compelling case at present for full separation. That is why it recommends an independent review at some point in the future to consider whether full separation should be implemented.
However, ring-fencing has already been endorsed by a thorough independent review, which undertook public consultation, extensive scrutiny and cost-benefit analysis lasting nearly three years before rejecting full separation. The parliamentary commission’s proposal to legislate for an alternative policy in case we change our view would, in the Government’s opinion, be bad law-making. If in the future a Government were to believe that ring-fencing was no longer appropriate, which they would be perfectly entitled to do, they should conduct a thorough analysis of the evidence, consider the arguments for and against, including perhaps by commissioning an independent review. If they concluded that a different approach was necessary, they should bring forward legislation for Parliament to consider in the light of all the facts.
Several Members referred to the Volcker rule, including my hon. Friend the Member for Wyre Forest (Mark Garnier). While some may support such a measure, after 18 months of consideration, Sir John Vickers did not recommend that the ring fence be supplemented by a ban on proprietary trading. When the parliamentary commission asked him whether a Volcker rule should be introduced on top of his ring fence, he warned that the complexity of such a rule could, by distracting regulators’ focus, actually undermine the ring fence. On top of that, in Europe, Governor Liikanen and his high- level expert group noted how difficult it could be to distinguish between market making and proprietary trading. They also worried about pushing proprietary trading into the shadow banking sector, instead choosing to keep it within the regulated banking sphere. This Government are minded to agree with such an appraisal, and do not therefore see the benefit of a Volcker rule on top of ring-fencing.
We have heard some interesting views on the leverage ratio. Let me be clear. The Government strongly support a robust leverage ratio and are pushing hard for full implementation of the Basel III leverage ratio in the EU via the capital requirements directive. The ICB and the parliamentary commission have both proposed that we increase the minimum leverage ratio above the 3% international standard set out in Basel III. The Government strongly support the idea of a minimum leverage ratio as a backstop to risk-weighted capital requirements. But a higher leverage ratio would become a front-stop, the primary capital constraint on low-risk institutions, including building societies—a point made by the hon. Member for Bassetlaw (John Mann)—and one that could reduce essential lending to households. A front-stop leverage ratio would also create perverse incentives for these institutions to risk-up, because a leverage ratio does not distinguish between the safest assets, such as UK gilts, and the most risky assets. I do not think any hon. Member would like to see policies encouraging our safest banks and building societies, including those that weathered the last crisis quite well, to become more risky. So the Government are not persuaded by the arguments for a higher leverage ratio.
We have also had a number of interesting interventions on primary loss absorbing capacity requirements, not least from the Chairman of the parliamentary commission. The Government are committed to ensuring that banks have the means to absorb losses should they get into trouble, and that those losses fall on those best able to assess the risk that they are taking. The Government agree that the ICB recommendation that ring-fenced banks, and UK-headquartered globally systemically important banks, should be subject to new PLAC standards. That will be 17% of risk-weighted assets for the largest banks. That extra capacity to absorb losses will improve resilience against shocks and mean that, if a bank does fail, it can be resolved without recourse to bank bail-outs.
Some Members questioned who would decide whether banks should issue primary loss absorbing capacity against their overseas activities. The parliamentary commission recognised that the Treasury should have a role in shaping how the regulator applies primary loss absorbing requirements. That is because such decisions will be inextricably bound to the key Treasury objectives of protecting public finances and supporting long-term growth. The Government therefore believe that there is strong merit in the FSA’s suggestion that PLAC instruments and decisions should be made in the context of a firm’s resolution strategy. We will therefore make provision during the passage of the Bill to give effect to that.
Members have also mentioned bail-ins, which were discussed at some length by the right hon. Member for Wolverhampton South East. Bail-in is an important statutory tool that helps to ensure that creditors, rather than taxpayers, expect to bear the costs in the event of bank failure. It is a particularly important tool for systemically important banks, where the impact of insolvency on the wider economy is large.
To ensure that UK banks are not disadvantaged relative to international competitors, and because the task of resolving large cross-border banks is complex and requires close co-operation, it is important that the UK works with other countries to design a consistent bank bail-in tool that can work in relation to the resolution of cross-border institutions. We are therefore working closely with our European partners to develop a credible and effective bail-in tool as part of the European recovery and resolution directive. We are pleased that the Irish presidency has set out its intention to make rapid progress towards conclusion of the RRD. However, if agreement cannot be reached—we expect that it can—we will consider tabling amendments at a later stage in the Bill’s passage to allow the UK to act alone.
We heard many thoughtful interventions on competition matters. We heard from my hon. Friends the Members for Wyre Forest, for Cities of London and Westminster (Mark Field), for Wycombe (Steve Baker) and for South Northamptonshire (Andrea Leadsom). The Government are committed to making changes to encourage greater competition in the banking sector. Many of those do not require legislation to take effect, and we have already acted in a number of ways. The FCA is now tasked, through the Financial Services Act 2012, with a competition objective, as Sir John Vickers, the former head of the Office of Fair Trading, recommended.
While discussing competition, we also heard from a number of Members on what might be called alternative structures for banking. The hon. Member for Bassetlaw suggested that we move to the Chinese model, and the hon. Member for Hayes and Harlington (John McDonnell) suggested that we nationalise the entire banking sector. However well intentioned those proposals, I think that they are wholly misguided.
Sajid Javid
Well, let us talk about the German model. As someone who worked for a German bank for 10 years, I think I might know a little more about the German model than the hon. Gentleman does. The German model was the one that had to nationalise Commerzbank and other banks in the regional sector, and the largest bank in Germany was not without its own problems, such as the LIBOR scandal. He suggests the German model, but I do not really understand what the difference is.
Sajid Javid
I think that the hon. Gentleman needs to do some homework on the German model.
Let me turn to switching. The Vickers commission made a number of recommendations on competition, one of which was for a seven-day switching service. That will go live in September this year. It will be free to use and will come with a guarantee to protect customers against financial loss in the event of any errors occurring during the switching process. A number of Members, not least my hon. Friend the Member for South Northamptonshire, made interesting points on full account number portability. The Government have always kept an open mind in that debate, arguing that the seven-day switching service should be allowed a good run. If it does not deliver the expected consumer benefits, more radical options will of course be looked at, including full account number portability.
The structural reforms proposed in the Bill will of course aid competition. As the Bank of England’s executive director for financial stability, Anthony Haldane, said to the parliamentary commission, one of the biggest challenges we face on competition concerns is that banks are perceived as being too big to fail. The banking sector reforms made through the measures in this Bill are designed to address precisely that issue.
Andrea Leadsom
Does my hon. Friend agree, though, that the big banks will lobby extremely hard against greater competition, particularly full bank account number portability, and does he undertake to resist their lobbying attempts?
Sajid Javid
My hon. Friend makes a good point. The contents of the entire Bill show how the Government have already resisted the attempts of many in the banking lobby.
My right hon. Friend the Chancellor—this will also interest my hon. Friend—has, as she will know, announced a consultation on bringing the payment system into regulation. We will make sure that new players in the market can access the payment system in a fair and transparent way and that they serve the needs of consumers, not those of established banks. Members may want to note that we will launch this consultation soon after the Budget. I am sure that my hon. Friend will want to make representations on full account portability to the consultation.
Several hon. Members talked about RBS. The Government believe that RBS’s future is as a major UK bank with the majority of its businesses in the UK as regards personal, SME and corporate banking. United Kingdom Financial Investments Ltd continues to be responsible for managing the Government’s shareholding in RBS on a commercial and arm’s-length basis and for developing and executing a strategy for disposing of the investment in an orderly and active way. UKFI continues to look at a full range of options for disposing of the investment, and RBS should emerge as a stronger and safer bank able to maintain lending to businesses and consumers that can, in time, be returned to full private sector ownership.
The Bill before us ensures that a future Government can keep bank branches going and cash machines operating while letting investment arms fail. It ensures that taxpayers will not fork out for the mistakes of others. Put simply, it deals with exactly the issues that are of concern to most of the UK public after the recent crisis. Financial services are a vital part of our economy, as evidenced by points well made by my hon. Friend the Member for Cities of London and Westminster, and they employ over 1 million people across the country. Let us not forget that the total tax take of the financial sector, including the income tax paid by its employees, adds up to over £60 billion—money that we rely on to fund our vital public services. It is crucial that we make sure that the British public again begin to trust the industry, that banks continue to serve families and businesses, and that the sector becomes what my right hon. Friend the Chancellor has described as a
“financial industry that is strong, successful and inspires the pride of all those who work for it.”
Question put and agreed to.
Bill accordingly read a Second time.
Financial Services (Banking Reform) Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Financial Services (Banking Reform) Bill:
Committal
1. The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 18 April 2013.
3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
4. Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
7. Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Greg Clark.)
Business without Debate
Mr Speaker
With the leave of the House and for its convenience, I propose to take motions 5 to 15 together.
Motion made, and Question put forthwith,
Companies
That the draft Companies Act 2006 (Amendment of Part 25) Regulations 2013, which were laid before this House on 10 January, be approved.
Legal Aid and Advice
That the draft Criminal Legal Aid (Determinations by a Court and Choice of Representative) Regulations 2013, which were laid before this House on 14 January, be approved.
That the draft Civil Legal Aid (Costs) Regulations 2013, which were laid before this House on 21 January, be approved.
That the draft Legal Aid (Information about Financial Resources) Regulations 2013, which were laid before this House on 21 January, be approved.
Constitutional Law
That the draft Police and Fire Reform (Scotland) Act 2012 (Consequential Provisions and Modifications) Order 2013, which was laid before this House on 22 January, be approved.
Pensions
That the draft Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2013, which was laid before this House on 30 January, be approved.
Social Security
That the draft Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2013, which were laid before this House on 4 February, be approved.
That the draft Pneumoconiosis etc. (Workers’ Compensation) (Payment of Claims) (Amendment) Regulations 2013, which were laid before this House on 4 February, be approved.
Electricity
That the draft Renewables Obligation (Amendment) Order 2013, which was laid before this House on 4 February, be approved.
Tax Credits
That the draft Loss of Tax Credits Regulations 2013, which were laid before this House on 4 February, be approved.
Electronic Communications
That the draft Electronic Commerce Directive (Trafficking People for Exploitation) Regulations 2013, which were laid before this House on 28 January, be approved.—(Anne Milton.)
Question agreed to.
Delegated Legislation (Committees)
Ordered,
That the Measure passed by the General Synod of the Church of England, entitled Diocese in Europe Measure (HC 1020), which was laid before this House on 28 February, be referred to a Delegated Legislation Committee.—(Mr Lansley.)
Ordered,
That the Measure passed by the General Synod of the Church of England, entitled Clergy Discipline (Amendment) Measure (HC 1021), which was laid before this House on 28 February, be referred to a Delegated Legislation Committee.—(Mr Lansley.)
Mr Speaker
I issue my ritual appeal to Members leaving the Chamber, however unaccountably, to do so quickly and quietly so that the Adjournment debate can be launched by the hon. Member for Harwich and North Essex (Mr Jenkin).
Economic Regeneration (Harwich)
(11 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Bernard Jenkin (Harwich and North Essex) (Con)
I am extremely pleased to have secured this debate on regeneration in Harwich. Harwich is both typical and exceptional. Harwich, Dovercourt and the surrounding area have suffered from the economic dislocation and isolation that have affected so many seaside towns and ports in the past 60 years or so. Throughout the Anglo-Dutch war of the 1670s, when Samuel Pepys was the local MP and secretary to the Navy board, to the Napoleonic wars, when Nelson himself oversaw the construction of the town’s defences, and the two world wars of the 20th century, Harwich was a key naval base. It closed, however, after the second world war.
During the ‘70s and ‘80s, the dock labour scheme drove the final nails into the coffin of the traditional ports industry, ensuring that the containerisation of freight was concentrated elsewhere. The huge opportunities promoted by Hutchison Ports for a five-berth container terminal at Bathside bay have so far been stymied by an excessively complex planning system and the downturn in world trade. Latterly, the chance of using that vast site for alternative economic development has been frustrated by the EU habitats directive.
Over the years, the growth of civil aviation and the channel tunnel have intensified competition for Harwich as a gateway to Europe. As elsewhere, traditional manufacturing businesses have gradually died out and the sea fishing industry has declined to one small commercial boat. Furthermore, Harwich is at the extremity of the commuting distance from London—a fact not made any easier by recent decisions to end the running of direct trains to and from Liverpool Street. Such things show up in the unemployment figures: just 5.1% of people are recorded as unemployed in Harwich, but that is well above average for the county as a whole at 2.8%, and above the national average of 3.8%.
Harwich is also exceptional. It has an outstanding history and heritage and is surrounded by the stunning Essex and Suffolk countryside and coast. The spirit of the place has not diminished and some industries thrive. Harwich has a specialist oil refinery and a major firework and explosives factory, and I watched on Friday as JCBs arrived at the old Navy yard for export. The railway, and the ferry and cruise liner terminal at Parkestone quay—now known as Harwich International—serve hundreds of thousands of passengers every year.
However, Harwich desperately needs new jobs and new sources of wealth creation, as well as improved infrastructure, a recognition of the importance of high-speed broadband, and to ensure that the A120 has the appropriate designation at national and European level to attract the funds needed for improvement. The immediate and pressing issue is for Harwich to respond to the exceptional opportunities offered by the offshore wind energy sector, which now employs around 4,000 people in the UK. Harwich is the UK’s largest windport. It has extensive experience with the Gunfleet Sands Array and is currently working on the Greater Gabbard and London Arrays. It has deepwater facilities and it is ideally located to take advantage of billions of pounds of investment in the future Thames Array and East Anglia 1 Array in the North sea over the next 10 to 15 years. However, if we do not provide the necessary infrastructure of skills and businesses to serve the tier 1 primary contractors that deliver that investment, there is a real danger that business will be transferred not just elsewhere in the United Kingdom but out of the country altogether, perhaps to Flushing in Holland. I therefore very much welcome the fact that Harwich is to be at the centre of one of the nine employer ownership of skills pilots launched by the Department for Business, Innovation and Skills. It is questions about this that I wish my hon. Friend the Minister to address today.
The Harwich scheme is called “Energising Harwich”, and is aimed at being a passport to work for local people across the Haven Gateway low carbon supply chain. The Government are injecting £875,000 into the scheme over two years. It is being led by the Colchester Institute, and I am grateful to Gary Home and Brian Cairns of the institute for arranging a briefing for me on Friday. That was attended by the lead employer, AJ Woods, a leading steel fabrication business that has already been closely involved in the development of the Gunfleet Sands and Greater Gabbard wind array, and part of a concerted attempt to attract wind energy inward investment to Harwich.
The aim is to co-ordinate up to 40 other employers—small and medium-sized enterprises—in this scheme. A new social enterprise, the Harwich Mayflower project, aims to build a replica of the Pilgrim Fathers’ vessel, the Mayflower, which sailed from Harwich in 1620. It also aims to re-establish Harwich as a wooden boat and shipbuilding centre, providing training and apprenticeships for future generations.
The chairman of the Haven Gateway initiative and the chief executive of Tendring district council were also present at our briefing. Tendring district council is taking a close interest not only in this debate but in the whole project. Essex county council was represented by county councillor Ricky Callender, who represents Harwich. Together, the institute and Tony Woods have appointed Mandy Morris as project manager for “Energising Harwich”. This is a formidable team infused with creativity and determination to succeed. There have been too many Government training initiatives with the aim of simply filling schemes with people who may well finish up with qualifications, but find that they are of little relevance to the requirements of local employers. The challenge for “Energising Harwich” is to ensure that the skills learned equip local people and enable them to apply for jobs that will otherwise go to people from outside the area.
Working offshore is a huge challenge. Unlike Teesside, for example, Harwich has had zero involvement with the offshore oil and gas industry. The key to the success of this pilot will be the ability of local employers to train people in the particular skills for the particular jobs they have on offer; otherwise it will prove a waste of time and money. Success depends on a breadth and depth of understanding between employers and the Colchester Institute. Employers are having to adjust, because the scheme requires companies, who may well be competitors, to co-operate and to deliver it. They need to understand the constraints attached to public money. Culturally, it is also hard for traditional training providers, such as Colchester Institute, to adjust to allow commercialism to lead the allocation of the funds available, but they must be supported in doing so.
I commend the Government for allowing the structure of this funding allocation to be so much more flexible than others before it so that it can fit employer needs. The UK Commission for Employment and Skills and the Skills Funding Agency should be congratulated. I am concerned, however, that it is too early to say how easy it will be in practice for the bid leader to provide the necessary paper trail to meet audit needs once the project is in progress. This is where I must press my hon. Friend the Minister to support necessary flexibility, or the pilot will fail.
There are three other main hurdles for the pilot. One is that employers must provide match funding to the value of 50% of the training fees—a big ask for small companies in the present climate. The second concerns legislative accreditations, which are not covered under this or any other funded programme and yet are essential to the employers’ survival. In most cases, the life of such accreditations is only two years and full retraining is required again thereafter. Maybe some rationalisation of training could be made. The pilot must have the flexibility to address that need, which includes statutory requirements for qualifications in manual handling, first aid and working at heights, and such things as machinery operation that are never, or very rarely, publicly funded. At Friday’s briefing, it was mentioned that even caterers and the food industry need to be trained to deliver support to offshore workers. These are referred to in the bid as “mandatory accreditations” and comprise a group of what are known as “tickets” that allow workers to go offshore. In their own way, they could be seen as legislative accreditations, but the bid explained that workers could not go out to sea without them and that each contractor required a different set. I would be grateful if the Minister confirmed that he is in favour of using this bid funding to support such training.
Finally, working offshore places huge demands on these businesses as employers. This issue arose during conversations between the Colchester Institute and employers. Offshore contractors need ISO 9001 accreditation and to be registered with Achilles or First Point Assessment Ltd, the trade bodies that approve and monitor suppliers on behalf of the utility and offshore oil and gas industries. Without accreditation, businesses cannot bid for contracts. Applying for them takes time and can cost hundreds of thousands of pounds, but building the businesses’ capacity to operate and employ counts as much as does the training. There is a danger, however, that by concentrating on training the work force, this other aspect is neglected. Clearly, this support might not be available from the “Energising Harwich” fund, but funds will have to be found if these relatively small and vulnerable employers are to be able to compete effectively for the contracts on which these jobs will depend. I would be grateful if the Minister acknowledged that, and I look forward to his response, for which I am extremely grateful.
The Parliamentary Under-Secretary of State for Skills (Matthew Hancock)
I congratulate my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) on securing the debate. The hour is late and we are deep into apprenticeships week, so it is right that we debate the importance of skills in his constituency. As he started with Samuel Pepys, so I shall start with Chaucer, who first mentioned apprenticeships more than 650 years ago. Although this is a novel and innovative project, it has a rich history.
I was in Lowestoft earlier this month looking at the links between the skills system and the offshore industry developing all along the East Anglian coast. It is critical that, as new industries develop, we provide the necessary skills, but in the past our skills system has perhaps not been good at responding to the needs of new industries as they emerge. I am delighted that, like other parts of the country, my hon. Friend’s constituency is benefiting from the reinvigoration of apprenticeships. There was an 18% rise in the number of apprenticeships in his constituency last year and 740 starts.
We must do more to make the system more rigorous and responsive to the needs of employers, however, and the employer ownership pilot is a critical part of that. It is about a shift towards delivering skills through the needs of employers and seeing employers as customers of vocational skills. That is the big picture for the employer ownership pilot, for which my hon. Friend has set out a crucial and innovative bid.
In total, in round 1, which I announced within the first week of being in this position, the bid comprised £80 million of training activity over two years. The AJ Woods proposal, “Energising Harwich”, is an important part of that, bringing together local employers, working together, and the Colchester Institute, as my hon. Friend said. Bringing together different players in the consortium also ensures that the whole supply chain gets the chance to participate in the skills enhancements that are supported.
Regional employers in the project will contribute some £3 million over two years, which will be supported by more than £850,000 in public sector funding. The first thing he asked about was the need for flexibility in the paper trail and the audit. This is a pilot scheme, the purpose of which is to investigate new ways of delivering skills that employers need, in exactly the way he described, in order to support wider regeneration efforts. It is therefore crucial that we keep under constant review the audit needs and the bureaucracy surrounding the bids. With public sector money it is critical to have appropriate audit. However, we have to ensure that that does not get in the way of delivering the project. I will therefore take that point away and very much keep my eye on it, as the project develops, and try to ensure that the burden is minimal, considering the necessity for good audit, given that we are putting public sector money into the project.
My hon. Friend’s second point was about match funding of 50%. Co-funding of skills provision is an important principle. The beneficiaries are the wider economy and the employer, as well as the individuals who do the training. In this case the 50% match funding was agreed locally as part of the bidding process. It was not a ratio set by the Department for Business, Innovation and Skills, although we require some co-funding. Of course I recognise the challenge for some companies, especially smaller ones, in contributing their own cash and time, and it is appropriate that the model was developed locally.
Mr Jenkin
I am listening carefully to my hon. Friend. The first two concerns might be related, because the permanent secretary in his Department, as the chief accounting officer, will need to be satisfied that match funding has been delivered. However, given the way in which time and benefits in kind are costed in a small business, we all know that it is rather unlikely that some hard and fast, actuarially justifiable figure for match funding will be available. I therefore suggest that a little flexibility or generosity of understanding of what has been committed to meet the match funding will be required, and it is the accounting officer in my hon. Friend’s Department who will have to be satisfied.
Matthew Hancock
That is an important point. In a way, it answers the question about the need for flexibility in the audit requirements and the need for the accounting officer in the Department to be content that this is an efficient and effective use of public money, as well as being confident about surviving the ferocity of the Public Accounts Committee, should any hearing take place—not that there needs to be one on this subject.
Mr Jenkin
Forgive me, but my other point was that the businesses that are providing the 50% matched funding will account for it from their own resources. Some of these small businesses have their accounts audited, but they probably do not have the sort of comprehensive audit that one would expect of a bank or a major manufacturing business. There will have to be some leeway on that and, not so much a flexibility, but a recognition that everything is being done in good faith, rather than as a means of defrauding the taxpayer and getting away with committing less than 50%.
Matthew Hancock
Yes, I recognise that that is a strong argument. We are running this pilot precisely to work out those kinds of issues, especially with respect to small businesses, with which the Government are, frankly, not particularly well equipped to deal. We do not have a good history of engaging with them, and skills is an area in which the Government as a whole need to improve.
That links to my hon. Friend’s third point, which was funding for legislative accreditations, or accreditations that are near-legislative. The skills system has a general rule that legislative accreditations should be paid for by the employer, so as not to crowd out private sector funding with public sector funding, except in the case of unemployed people who need accreditations in order to get a job and who have no employer to take on the burden.
There is a link to co-funding. We recognise that funding for accreditations can in some cases be expensive. In many cases it is necessary, and it also forms part of the co-funding of the project. The two can therefore be linked. A limited amount of resources go into skills funding, and we try to focus it on skills that are transferable and that would not otherwise be paid for by an employer. After all, there is a £40 billion to £50 billion economy in skills provision across the whole economy, and the Government budget for adult skills is £4 billion, so it is important that we do not end up trying to pay for the entirety of training across the whole economy. We simply would not be able to afford that.
Those are my responses to my hon. Friend’s specific points, but I want to give him a broader, more generic, response as well. We are going into round 2 of the employer ownership pilot. The bids for round 1 of the pilot are important, in that we can learn from them how the system can work better and in different and innovative ways. This is an innovative example of companies large and small coming together to provide for a specific need, so it is important for the Government to learn from what works and what does not, and to change what needs to be changed to make the pilot deliver.
This is called the employer ownership pilot for a reason. Each of the projects is, in itself, a pilot, and I give my hon. Friend the undertaking that I shall take a personal interest in his project. I shall ensure that the necessary understanding of the context of running a small business and the costs relating to time that he mentioned are taken into account. I will ensure that I watch his project very closely, because it has the potential to unlock a new industry in an area that, for too long, has not had the vibrancy of a new industry. It has the potential to do a lot, not only for the town but all the way up the East Anglian coast. I will take away the points that he has raised and look into them in more detail.
I congratulate AJ Woods on the work that it has done, but I also urge the company to work closely with others to bring the project to fruition. As my hon. Friend said, the area has higher unemployment than elsewhere in the region, as well as skills shortages. That tells me that, for too long, the skills system has not been working properly. Where we have unemployment alongside skills shortages, there has been a problem. It is my job to try to fix that, and the employer ownership pilot is an important element of finding the solution. I want to work hard to make it happen and to learn what the Government need to do to deliver better and innovative skills, and I shall be happy to work with my hon. Friend on that.
Question put and agreed to.
Written Ministerial Statements
(11 years, 9 months ago)
Written StatementsRead Full debate Read Hansard Text
Higher Education Student Support (2014-15)
(11 years, 9 months ago)
Written StatementsRead Full debate Read Hansard Text
The Minister for Universities and Science (Mr David Willetts)
I am today confirming the student support package for higher education (HE) students undertaking a course of study in the academic year beginning September 2014.
Tuition charges and loans
For all new full-time students and eligible continuing full-time students who started their courses on or after 1 September 2012, maximum tuition charges and maximum tuition loans will be maintained in 2014-15 at the £6,000 and £9,000 levels which apply in 2013-14.
For continuing full-time students who started their courses between 2006-07 and 2011-12, maximum tuition charges and maximum tuition loans will be maintained in 2014-15 at the £3,465 level which applies in 2013-14.
For students who started their sandwich courses on or after 1 September 2012 and are undertaking a work placement year in 2014-15, tuition charge and loan caps will be set at 20% of the maximum full-time tuition charge and tuition loan caps.
For all new part-time students in 2014-15, and eligible continuing part-time students who started their courses on or after 1 September 2012, maximum tuition charges and maximum tuition loans will also be maintained at the £4,500 and £6,750 levels which apply in 2013-14.
Tuition charges and loans for Erasmus and Overseas Study Years
In May 2012, I announced a replacement to the existing fee-waiver support for students taking a study or work placement year abroad under the Erasmus scheme. The new support arrangements will come into effect from the academic year 2014-15 and will limit the maximum amount that HE institutions can charge students starting their course on or after 1 September 2012, to 15% of the maximum tuition charge cap. Students will be able to apply for tuition loans to meet the costs of their tuition for their Erasmus year.
The 15% tuition charge and loan cap will also apply, for the first time in 2014-15, to students starting their course on or after 1 September 2012 who are taking a study year abroad at overseas institutions outside of the Erasmus scheme. These extended support arrangements emphasise the importance I attach to students gaining mobility experience.
Maintenance Grant
I am also announcing the living costs package for full-time students in 2014-15. The maximum maintenance grant for students attending full-time courses in 2014-15 will be increased by 1%, the same figure that has already been announced for increasing some benefits and pay in the public services. This means for new students and eligible continuing students who started their courses on or after 1 September 2012, the maximum grant in 2014-15 will be £3,387. For continuing students who started their courses before 1 September 2012, the maximum grant in 2014-15 will be £3,110.
Loans for living costs
Maximum loans for living costs for all new and continuing full-time students attending their courses in 2014-15 will also be increased by 1%. For new students and eligible full-time students who started their courses on or after 1 September 2012, who are living away from home outside London while studying, the maximum loan for living costs will be increased to £5,555. I can confirm that the equivalent loan rates for students living away from home and studying in London will be £7,751; for those living in the parental home during their studies, £4,418; and for those living overseas as part of their studies, £6,600.
For eligible full-time students who started their courses before 1 September 2012 and are living away from home outside London while studying, the maximum loan for living costs will be increased to £5,000. The equivalent loan rates for students living away from home and studying in London will be £6,997; for those living in the parental home during their studies, £3,876; and for those living overseas as part of their studies, £5,953.
Part-time grants and loans
For those students who started part-time and full-time distance learning courses before 1 September 2012 and who are continuing their courses in 2014-15, maximum fee and course grants will also be increased by 1%. Maximum fee grants will be increased to £1,285, depending on the intensity of study of the course. Maximum course grants will be increased to £280.
Household income thresholds for grants for tuition and living costs, and loans for living costs, will be maintained at 2013-14 levels for 2014-15.
Dependants Grants and Disabled Students Allowances
Lastly, I can confirm today that we will increase the current levels of disabled students’ allowances, adult dependants’ grant, childcare grant and parents’ learning allowance for all new and continuing students by 1% in 2014-15. This additional non-repayable support is available to those students who face additional costs in studying because of disabilities or caring responsibilities.
Regulations
I expect to lay regulations implementing changes to student support for 2014-15 and a further set of regulations changing tuition caps for students undertaking sandwich placement years and overseas years of study later this year. More details of the 2014-15 student support package will be published by my Department in due course.
Daw Mill Colliery Closure
(11 years, 9 months ago)
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The Minister of State, Department of Energy and Climate Change (Mr John Hayes)
On Thursday last week, 7 March 2013, UK Coal Operations Ltd announced the closure of one of their deep mines at Daw Mill in Warwickshire following a serious fire which broke out on 22 February 2013 and continues to burn.
They have assured us that the nature of the fire itself and the depth of the mine (740 m depth and a distance of 8 km from the bottom of the main shaft) means there is no danger to the general public in Warwickshire and that the Health and Safety Executive (HSE) and Coal Authority are continuing to work with the company on ways to quench the fire safely.
UK Coal directly employed some 570 people at Daw Mill and the company are fully focused on making sure they do all they can to help and support the work force. This includes the redeployment of members of the Daw Mill work force to other UK Coal operations, which I understand is already taking place.
Officials from my Department have been co-ordinating a cross-Government response with nine Departments and agencies involved, including BIS, Shareholder Executive, DCLG, HSE, Coal Authority, Insolvency Service and Jobcentre Plus since the fire broke out last month. They continue to ensure there is a fully joined-up approach at both national and regional level.
In relation to supporting the work force at a local level, BIS West Midlands and Jobcentre Plus have met with local authorities and other local partners to bring together a response to manage the impact of the closure, not only on the employees at Daw Mill, but also on local businesses and the local community. This will build on a rapid response package led by Jobcentre Plus. It will include other nationally available support, such as Talent Retention Solution, and relevant support providers at local level.
We continue to work closely with the company and I will be meeting them again later this week when I will make it clear to them that I regard their treatment of the workers affected to be a high priority. I also expect to meet with union representatives this week.
European Charter for Regional or Minority Languages
(11 years, 9 months ago)
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The Minister for Europe (Mr David Lidington)
I have today arranged for copies of the UK’s fourth periodical report on the implementation of the European charter for regional or minority languages, to be placed in the Library of the House.
The report is also available on the website of the Foreign and Commonwealth Office at: www.gov.uk/ government/publications.
State Pension Reform
(11 years, 9 months ago)
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The Minister of State, Department for Work and Pensions (Steve Webb)
To assist the Work and Pensions Select Committee with its pre-legislative scrutiny of the draft Pensions Bill, I shall later today publish some additional research carried out by the Department for Work and Pensions into the state pension outcomes for the particular cohorts of women who have become the focus of the Committee’s enquiry.
I will place a copy of the analysis in the House Libraries, it will also be available later today on the Department’s website at: www.dwp.gov.uk/single-tier- pension.
Grand Committee
The Deputy Chairman of Committees (Lord Colwyn)
My Lords, welcome to the Grand Committee. We have a minor water leak in the corner so if Mr Evans appears with a bucket during the opening speech, that is what it is all about. Now we have the usual housekeeping: if there is a Division in the House, the Committee will adjourn for 10 minutes.
Somalia: Piracy (EUC Report)
(11 years, 9 months ago)
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Lord Teverson
That the Grand Committee takes note of the Report of the European Union Committee on Turning the Tide on Piracy, Building Somalia’s future: Follow-up report on the EU’s Operation Atalanta and beyond (3rd Report, HL Paper 43).
Lord Teverson
My Lords, we have a bucket filling up with water and this debate is all about turning the tide. I do not know whether it will also solve the leak problems here in Grand Committee.
It is not often that a committee looks at a subject comprehensively, as we did in 2010, and then decides to revisit it two years later because it feels it of sufficient importance that a number of lessons needed to be learnt and to see how an operation has moved forward. This is what we did with regard to Operation Atalanta and the other problems regarding Somalia.
I shall remind the Committee of the reasons for Operation Atalanta to begin with. It was not just about commercial shipping, which we most know it for. It was about protecting the World Food Programme, which was keeping vast numbers of people alive and away from starvation in Somalia itself, and getting that product to the port of Mogadishu was quite a challenge. It was also technically about protecting Somalia’s fisheries and has actually been pretty successful at that, but not of any great help to the Somalis. It was also about helping the commercial shipping side in terms of repulsing piracy on one of the world’s most important trade routes. Atalanta itself is one of three organised operations; Atalanta is the European Union one and there is NATO’s Ocean Shield, while Combined Task Force 151 is a coalition of other countries. There are also a number of independent operators as well, which we will come back to.
I shall set the scene by coming back to the 2010 report, in which we made a number of specific observations and recommendations. We had the World Food Programme leasing ships that were probably the slowest that ploughed the oceans anywhere on the globe. Why? Because they were the cheapest. However, that meant they were the most vulnerable and, because of the way that the charter agreement was, they did not allow military contingents on those vessels so they had to be shadowed by very expensive and scarce warships from the areas of issue right the way through to port. There was a lack of tanker refuelling, which meant that the best naval vessels had to go backwards and forwards to port in order to refuel, wasting a lot of time. If pirates were captured, there was often nowhere to send them or try them, because western navies were reluctant to bring those pirates back to their own shores. The insurance companies seemed to be oblivious to the problem or not to care about it. As far as they were concerned, it was a loss, they got their income and there was an occasional “hit” in terms of ransoms that had to be paid out, but there was no responsibility on the part of the insurance industry.
The Indian Ocean and the Gulf are a vast ocean, yet there is very little air surveillance. In fact, Luxembourg had to rent a private plane on behalf of Atalanta, which was used as surveillance out of the Seychelles, and that was about all there was to begin with. There was an undisciplined merchant fleet, which is still a problem to some degree, and many masters did not pay attention to the convoy systems or the various other ways of repulsing or at least putting off piracy attention. We also encountered the issue that the European Union and NATO seemed not to be managing to get on very well operationally, as always.
What was the result of that? In 2010 there were 174 attacks and 47 pirated ships. More than that, however, through this effort we managed to displace this problem from the Gulf right out to the Indian Ocean as a whole, so it became a far more difficult problem. Somali piracy, which is part of the private sector and private entrepreneurship to a large degree, found new ways of modifying the model through mother ships and all sorts of other ways, so that it could be more successful over that broader area. That brought major economic issues—we often forget this—to those littoral states in east Africa, whether it be Somalia itself, Tanzania, Kenya or the Seychelles. Because people feared to transit those waters or go to port in those areas, there were direct economic consequences. Tourism was also affected. The one area that did benefit, I am told, is the fisheries stocks. No one dared go there, so the fisheries did well. Unfortunately, the Somalis themselves probably did not benefit much from that.
What is the situation now? In 2012 the attacks decreased from 174—in 2010—to 36; instead of 47 pirated ships in 2010, we only had five. In 2013 so far—these are early days, admittedly—there have been only two attacks and no pirated vessels whatever. During that whole time, the World Food Programme has not suffered one loss. So, in some ways, the prime reason for Atalanta has been successful.
Why has this happened? My colleagues and fellow noble Lords will no doubt go through this. However, the reasons include very strong international co-operation, not just between those three forces but also between independent nations. This includes China, which for the first time has operated outside its regional area; India, Russia and even Iran—although that is one country where the co-operation has not been so great. The international effort has led to success. There has also been real practical working at sea, even at a practical level between the European Union and NATO, which must be a first. Merchant fleet behaviour has become much better through the work of Northwood. Surveillance and intelligence using the Seychelles as a base has worked well; air surveillance has been far more effective and consistent; and intelligence has been shared.
The committee also recognised that there has been a more robust approach. We are regularly reminded that this is a constabulary operation, not a military one, and that the use of force therefore has to be proportionate and used carefully. However, we generally regarded the raid on the coast as a successful instance of putting down a marker to show that the European Union force was serious in terms of its intent regarding pirate bases. Also, armed guards are now allowed on most of the merchant fleet. Our own committee was against this originally but we have changed our mind on that. However, I would be interested to hear the Government’s view on how the programme has worked. Perhaps most significant of all, in his evidence to us Alexander Rondos, the EU special representative, described Somalia and its cities as having bustle and growth, although he saw it as an economy without a state.
What are the lessons we learnt? The obvious ones are that there is disorder where there are weak states and where the rule of law does not go to the borders; and that regardless of whether that is due to religious militancy or, as here, private sector entrepreneurship, it is very bad for nationals and for the international community. We have seen a different sort of piracy in west Africa as well and we will need to tackle that over time, too. We also know that it is good to have a comprehensive policy. We now have a much more comprehensive one in terms of the European Union’s Horn of Africa policy in Atalanta, the EU trading mission for Somali troops and increasing the coastal capabilities of all those states through the EUCAP NESTOR operation. We felt that the Gulf states should be more involved, but we know that until we solve problems onshore in Somalia, those operations will have to remain.
I congratulate a number of actors on their work, the Seychelles in particular. The Foreign Ministry of the Seychelles came and gave us evidence. It worked strongly and very responsibly with the community. At Northwood, we saw a most professional operation which was hugely international in its scope. We felt great confidence in it and it has clearly been a major part of success. However, I commend perhaps most of all the international co-operation between all those forces; for example, between the UK and France—one of the French warships, FS “Surcouf”, has a UK Lynx helicopter on it. I also commend the Seychelles, Kenya and Mauritius on the trial and imprisonment of pirates. However, I remind my fellow Members of this House that four vessels are still being held; that is, 108 human beings are still being held as hostages in those conditions. We have a ready business model that can be used elsewhere in the world. I believe also that we have failed to see the needs and the hopes of the Somali people in judging this operation. Perhaps looking inland, as well as out to sea, is something that we need to learn from this otherwise successful operation. I beg to move.
Lord Jopling
My Lords, I want to begin with a complaint. I find it absolutely intolerable that a committee such as ours sits for a number of weeks or months, takes evidence and brings a lot of people kindly to give evidence before us; we produce a report in August; the Government respond shortly afterwards; but we cannot find time for the House to debate it until the following March. I find this quite intolerable. We have a government Whip who is kind enough to be with us—it is nothing to do with him—and I hope that he will pass on to the usual channels and those who organise our business that we really must treat Select Committee reports in a better way than this. I find it very unsatisfactory indeed. I say no more about it.
I should like, secondly, to express a number of thanks. I thank the noble Lord, Lord Teverson, who has been chairman of this sub-committee, ably supported by the staff who help us enormously—I thank all of them.
The next thing I want to do is to welcome the reduction in incidents of Somali piracy during the past year or so. This is a very significant fall and reflects great credit on the various military and naval forces which have helped to bring it about. I suppose that it has been helped particularly by the fact, referred to by the noble Lord, that a great number of merchant ships now have armed guards on them. We heard evidence that this has had a salutary effect on potential pirates, who find that there is a certain amount of fire directed towards them when they start attempting to board merchant ships.
As the chairman said, the committee changed its mind over this matter. In the earlier report, I think that a number of us were a little anxious lest we moved into a situation where oil tankers with a huge amount of inflammable material aboard started being attacked by rockets fired by pirates. There is a danger that, over months, as a response to armed guards on ships, the pirates might start using much more lethal weaponry which could lead to a major attack on a ship causing it to catch fire. So far, however, having armed guards has been a big success.
The chairman did briefly refer to another success—that 1,000,000 tonnes of food has been brought into Somalia under the World Food Programme. This is a wonderful record in an area where there is a great deal of belligerence. Many people would say that they did not deserve it, but of course starving people always deserve it and we should salute those who have taken in this 1,000,000 tonnes of food under considerable difficulty.
Another salutary episode which has helped to reduce the number of incidents was the single land attack on one of the harbours used by the pirates. I am glad that Admiral Potts said that we would do it again. There has been a certain amount of criticism about attacking a land target but it was quite right to do it and I think the committee agreed with that. When we went to Northwood I suggested that it would be a good idea to have another one just to show that it was not a one-off. I may sound rather belligerent but it did have an enormous salutary effect and another attack should not be ruled out.
When the Minister responds, I hope he will speak about the political progress that has been made in Somalia itself. From our committee’s report and from the comments of virtually everyone who has spoken about the crisis in Somalia and in the seas around it has been agreed that, on the ground, the long-term solution is a political one. This is very important and I hope the Minister will talk about it.
I am very disturbed indeed to hear that the newly elected president has decided to release 959 pirates by way of amnesty. Again, I hope the Minister will explain this because, from the brief I looked at which said that the president had given an amnesty to 959 pirates, I am not sure whether they were convicted, or that they were held and awaiting trial, or that they were known to be pirates to the civil authorities, such as they are in Somalia. I am interested to know quite what the basis of this amnesty is. We are told that the amnesty does not extend to what I would call the godfathers—the evil plotters who have been organising these attacks and who have been receiving vast amounts of money in ransoms. I am glad to know that the godfathers have not had amnesties but it would be helpful to know about it.
I turn now to the future. It seems to me that those 959 pirates who have received an amnesty are now free to get up to their monkey tricks again. The godfathers are presumably still there, ready to organise such things. Again, I hope the Minister will talk to us about the future. As the number of attacks has been so significantly reduced, there will be a temptation on the part of NATO, the Americans, the European Union and others who have been involved to say, “Oh well, it is much less now—we can relax our presence”. I am sure that there will be political pressure, particularly given the pressure on all the militaries around the world, to say that they are going to reduce the military and naval presence there. Having done so, however, there is a danger—because the pirates have received an amnesty and the godfathers are still there—that it will all start up again using the assets which have been used previously. I hope that the Minister will speak about this.
Another matter which I very much hope the Minister will speak about—I will try to fill in for a moment until the Minister has got his brief; I quite understand that one has to do that—is the fact that we said in our report that it was important to enthuse the Gulf states about attacking the pirates and causing the incidents to be reduced. Quite honestly, however, the Government’s response to our suggestion that the Gulf states should be encouraged to take a much more active part was pretty wishy-washy. I will not read aloud the Government’s response but they gave us four answers to that: we have a headquarters in Bahrain; there are port facilities in Oman; there is co-operation in Dubai; and a whole lot of countries came to a conference in London. With great respect, that is not at all what we meant. These Gulf countries are earning monumental amounts of money for their hydrocarbon exports. As far as I know, their physical assistance in all of this is not as great as it might be. I hope the Minister will look into this and say whether a much more positive approach can be made to our suggestion, in paragraph 87 of our report, to get those states much more actively involved.
Finally, I was concerned that we were told during the inquiry that quite a few convicted pirates were going to be returned to Somalia from Kenya, the Seychelles and other places. It seemed to some of us that to send them back to prisons in Somalia was not very clever because one could not be sure of the security around those prisons. We were told that the United Nations was building a prison and that it would be properly supervised. Given that 959 pirates have received an amnesty, does that mean that the United Nations prison will be redundant and not used? I do not know who these 959 pirates who have received an amnesty are, but it seems to me rather a strange decision that the prisons within Somalia are secure enough to hold convicted pirates. It would seem to me to need a great deal of expert outside supervision to ensure that those prisoners could not be freed. I look forward to hearing what the Minister has to say.
Lord Davies of Stamford
My Lords, it is a pleasure to follow the noble Lord, Lord Jopling, and I think I agree with everything that he said on this subject. I learnt from him—no doubt there is something wrong with the way that I get information on these kind of incidents but I had not heard about it—about the 950 pirates being amnestied by the Government of Somalia. I totally share his anxiety, indeed his horror, at that news and put it to the Government that it should have consequences. Unless there was consultation with the EU in advance of that decision being made by the Somali President then consequences really ought to flow, because it is quite inconsistent with the kind of collaboration and mutual confidence which one had understood had been developed over the past few months between the EU on the one side and the Somali Government on the other. The consequences should be in terms of aid or other forms of support which will be felt, in measured degree, by the Government of Somalia. If we just allow this incident to go uncommented on and unsanctioned, we shall be encouraging similarly bad behaviour in the future and shall lose that sense that we need to act as a team and keep in close co-operation with the Somali Government—we need to consult them about things but they need to consult us as well, and we expect their support. The cost of capturing these pirates is very considerable and the idea that they should be released in this way is quite horrific.
I will make three points, two of which will be approving—indeed congratulatory—points about the report and one of which will be more hortatory, or perhaps slightly critical. First, although there are other very good examples which I will not mention but which we all have had before our eyes, this seems to be an extraordinarily and particularly good example of the success of the European common foreign and security policy. We have managed to make considerable progress—the figures have already been mentioned—in dealing with this great threat and have managed to do so with tremendous leverage in the case of this country. We have almost not contributed any military units at all. We have contributed one of Her Majesty’s ships, a Royal Naval vessel, for a few months and of course contributed very importantly by providing command and control and logistical management of the exercise from PJHQ. We have obviously done an extremely good job there, and I add my own words to the words of congratulation that have already been spoken. I am of course very familiar with PJHQ—it is a wonderful body and a superb organisation, and it is not surprising to me that it has done such a good job. On top of that contribution, we have got all these vessels together. It would have been nice to have even more resources but we have contributed very considerable resources. It is an example of the leverage that can be generated by the common foreign and security policy and of the success that we can have.
Eurosceptics tend to say that we do not need an explicit EU policy and that we can just have a series of ad hoc coalitions where a lot of countries agree in their assessment of the problem and are prepared to do something about it. That is a very inadequate answer indeed. If you do not have a common foreign and security policy, you do not have the mechanisms and the tried and tested procedures there for, first, evaluating the threat, which is very important, and then for managing the response. You do not have the long-standing commitment and sense of solidarity; everybody just starts off saying, “Is it really in our national interest to do this? Do we really want to do it? How much will we be compensated by allies if we do it?”. You have to start afresh again, negotiating all these things from scratch, and every operation has the weaknesses and dangers of an experiment rather than being an ongoing, tried and tested policy where people have the confidence, know the procedures will work, and are familiar and happy with the decision-making process. This is a very good example of how we need a common foreign and security policy. I do not know that the Government are particularly interested in my contribution to their balance of competences review—they would probably dismiss me as a Europhile and anyway a member of the Labour Party, and so would not be interested in what I say—but I hope that the point gets included in the evaluation of the balance of competences review when it comes to the European common foreign and security policy. In fact, it would be monstrous if this was not taken into account as one of the examples of the success of that policy.
The second point I wanted to make, which is again very much approving, is to congratulate the committee on having been pragmatic enough to review its original position on two matters. One was the attack on the pirates’ land bases and the second was on having armed guards on ships passing through the pirate zone. The committee reviewed its original position in the light of evidence and experience and came up with absolutely the right policy solution. It strongly supports—as do I—the initiative taken to deal with some of the land bases. I agree with the noble Lord, Lord Jopling, that it may be necessary to take further action. If it is, I hope that the authorities concerned will be encouraged to do so.
Equally, armed guards have proved their worth. It is not necessary to carry heavy armament for this purpose: a couple of general-purpose machine-guns, one on the port side and one on the starboard, will be enough effectively to deter the sort of pirates with whom we are dealing in the Indian Ocean. The committee was very good on that. It did not just come up with an initial response but looked carefully at the developing situation, and its report is the stronger for it.
On my third point, about ransom payments, I take issue with the committee. I have spoken on this in the Chamber, so noble Lords may be familiar with my views, which have not changed. The committee’s recommendation comes in paragraph 51 on page 18, which states:
“We reiterate our previous conclusion in our 2009 report that those involved in assembling ransoms in the United Kingdom have a duty to seek consent for its payment and that not to do so, if necessary by filing a Suspicious Activity Report, may result in the commission of a criminal offence. We request that the Government now respond substantively to this recommendation”.
This is woefully inadequate and thoroughly pusillanimous. It does not even begin to address the reality of the situation, which is that these are criminal payments. They are rewards to criminals for criminal activity that endangers life.
They are also very substantial—not that that makes a difference to the principle—and run into tens of millions of dollars on a regular basis. It has become something of an industry and is now a regular feature of the insurance market in London. Lloyd’s makes ransom payments that are transported by all sorts of dramatic means to the pirates in Somalia. This is simply not a situation about which we as legislators should be complacent. It is quite clear that these are criminal offences. They are payments to criminals for criminal purposes and they should be illegal. It should not be a question of reporting the matter through a suspicious activity report. The payments should be seized by the Serious Fraud Office or whichever arm of the police is responsible for monitoring illegal payments of this kind, and we should make sure, if the law is not robust enough to deal with the matter in this way and does not make it a criminal offence to make ransom payments to terrorists, pirates or any other form of criminal, that we change the law to make sure that it does exactly that.
I am very disappointed and very sorry that the committee did not come to that conclusion. It does not explain why it did not, and in its report did not even examine the suggestion that I am making—unless I missed it, and I hope I did not. I would be very interested during the rest of the debate to hear from Members of the Committee about why they feel that the present legal situation is adequate, and why a suspicious activity report is the furthest they envisage going in dealing with this matter—which after all, if it is not dealt with effectively both by the physical measures about which we have been talking and by measures controlling flows in the financial markets, will become a criminal industry affecting commerce throughout the world.
Lord Jay of Ewelme
My Lords, I, too, greatly welcome the opportunity to discuss this report by Sub-Committee C. As I am about to be rotated—perhaps in this context I should say helicoptered—off the committee, perhaps I may also pay tribute to the stewardship of the committee by the noble Lord, Lord Teverson. I say “stewardship” because I am not sure that Liberal Democrats accept the concept of chairmanship. I also welcome the chance to comment—as did the noble Lord, Lord Davies—on a European Union activity that is working well, and to which the UK has made an important and perhaps even determining contribution. I will come back to that general point at the end of my speech.
I welcome, too, the way in which the effectiveness of Operation Atalanta today draws on the lessons from its own operations at the start. I think that there is a lesson here perhaps for other European Union operations and policies too—that there needs to be a constant rethinking in the light of experience. The first example which strikes me in particular is the stronger co-operation between Atalanta and NATO and others including India and China. I think that the way in which this has become a much more international anti-piracy operation is very impressive. The second example is the inclusion of security teams on board ships. The committee did indeed have reservations about this at first but, in the light of experience, it, too, changed its mind. It is clear that having security operations on board has proved itself in the past couple of years or so. Finally, as the noble Lord, Lord Teverson, pointed out, persuading the World Food Programme to provide larger and quicker ships to reduce their vulnerability to piracy, which has had a very marked effect on the ability of the programme to deliver food to populations in Somalia and elsewhere who really need it, is something which I greatly welcome, too. However, I welcome in particular the realisation that piracy is largely the result of chaos and instability within Somalia, which has effectively for the past 20 years or so, with a slight improvement recently, been a failed state.
We need to see Atalanta as part of a broader EU approach to the Horn of Africa, not just an operation in its own right. The Horn of Africa strategy adopted at the end of 2011, including the training mission in Uganda for Somali security sector training and the mission to strengthen coastal defence capabilities through the region—the horribly named EUCAP NESTOR—have not only been very worth while but add up to an overall approach by the EU to the Horn of Africa that is admirable. At the same time, it is encouraging that some economic and political stability is emerging at least in and around Mogadishu and that the influence of al-Shabaab is at least for now—and let us hope for longer than now—on the decline. Ensuring that that continues must be the main aim of EU and our own policy from now on. This should largely be an African task, not just an EU or western task, although it is very hard to see how EU and western help will not be necessary in the foreseeable future.
It seems to me that the African Union will have a key role to play here. It has huge challenges at present, and it has weaknesses, but it is far more effective than it has been in the past. I hope that the European Union and the UK will continue to do what they can to strengthen it. It would be very helpful if the Minister could say something about that.
At the same time the EU must focus its development on capacity building in Somalia. I declare an interest here as the chair of a medical aid charity, Merlin, which operates in Somaliland, Puntland and Somalia itself. Britain, like the EU, has an important role to play in helping with education and medical aid both through its own funds and through the help that it gives to non-governmental organisations.
I should like to branch out just slightly from Somalia and look at two other African issues that have arisen since our report was produced—as the noble Lord, Lord Jopling, said—some months ago. The first is Mali and the second is piracy in the Gulf of Guinea. Sub-Committee C has expressed great concern about the destabilisation of Mali and the impact that that could have on Britain and on wider European interests since the break-up of the country two years ago. The attack on the oil refinery in southern Algeria and the recently—alas—proven murder of hostages, including a British hostage in northern Nigeria, show only too clearly how developments apparently remote from us can affect us and damage us directly.
I would not accept the argument that these attacks are the result of western action. We have a role to play in supporting west African countries in countering al-Qaeda, Boko Haram and other terrorist groups, but I do not underestimate the difficulties in doing it. I greatly welcome the help that we are giving the French in what could still be a long and unpredictable campaign in Mali. I believe that our contribution there really matters and is important.
More related perhaps to the debate on Somali piracy is the growth of piracy in west Africa, in the Gulf of Guinea. In some ways this seems to be of a different kind of piracy from that in Somalia, including attacks in port—for example, in Abidjan in the Ivory Coast—and it is centred more on stealing cargo for money than on kidnapping ships and crews for ransom. The effect of piracy in west Africa can be particularly dramatic on fragile economies, increasing insurance rates but, much more than that, reducing revenue—by up to 70% in the case of Cotonou, the only port in Benin. That has had a pretty dramatic impact on the state of a fragile economy.
From the recent Parliamentary Statement in another place by the Foreign Office Minister, Alistair Burt, I am glad to see that the Government are taking the growth of west African piracy seriously. I am also glad that the Royal Navy is deploying at least one ship in the Gulf of Guinea and is working closely there with the French. When the Minister responds could he say whether that deployment has been stepped up in the light of the growth of piracy in the Gulf of Guinea?
I would make one final point in drawing some of these threads together. We see a mixture of piracy, conflict and terrorism in Somalia, Mali and the Gulf of Guinea—all of these seem a long way off but this can affect our interests directly. As a nation with global interests and, as a member of the UN Security Council, of NATO and of the European Union, with global responsibilities too, we cannot stand aside from nor ignore instability of this sort. Nor, given budgetary pressures of which I am sure the Minister is only too aware, can we respond to them on our own. We also need to recognise that political influence, development and military intervention where necessary need to be looked at together—as has been the case in Somalia—and not as separate activities. As we have seen in Somalia, the European Union is uniquely able to do this, by bringing together actions through its defence policy and its common foreign and security policy. All those are important for the African countries themselves, for the EU and, I would argue, for Britain as well. None of those policies is perfect; all would be better with the full engagement of the United Kingdom, and British interests would be well served too. In the context of common foreign and security policy and of bringing together policies in Somalia, that argument is relevant to our policy towards the European Union in a wider sense where critical, constructive engagement can be in our interests and can make a real difference to the policies of the European Union itself.
Lord Radice
I agree very much with what the noble Lord, Lord Jay, has just said. I would like to congratulate the chairman, my colleagues and the staff on what is an excellent report. It is a tribute to the chairmanship of the noble Lord, Lord Teverson, and I would like to pay him a general tribute as he is stepping down. He has been an excellent chairman of this committee and we have produced a number of very good reports in recent years.
I turn to the report. Operation Atalanta has been a success, as has the EU’s foreign policy—there is no question about that. This is due partly to the efficiency of the operation under UK leadership, which I hope people will focus on. We saw that leadership in operation at the command and control centre at Northwood, which we visited as a committee and very much admired. It is an amazing place and it was quite spectacular to see it in operation. Of course there has also been the co-operation with the other international organisations: the US-led combined maritime force; the NATO-led Operation Ocean Shield; and with other countries such as Russia, China and India. All that has obviously been very helpful, too.
Then, of course, we have the game-changer of putting armed guards on ships, which has been backed by a regulatory system that is becoming increasingly effective. As colleagues have noted, the committee changed its mind on this. The facts changed and so we changed our minds—that is a sensible thing for a committee to do. The truth is that having armed guards on ships has proved a highly effective deterrent. So far, no ships carrying armed guards have been successfully pirated. That in itself speaks for that idea.
I should also mention the building-up of a judicial system to deal with culprits. There are 101 in prison in the Seychelles and 147 in Kenya. I hope we are going to hear something from the Minister about this. I am not saying that he is responsible for what the Somali President has done, but it is important. It ostensibly drives a coach and four through the whole policy. If the Somali President comes along and gives amnesty to 959 pirates, what are we to say about the rest of them in prison elsewhere? This will clearly have to be looked at rather more carefully.
The most important point in the report is that the mandate of the operation should be extended beyond December 2014. That is an important signal that the EU and the international community are not going to walk away from their obligations to clear the Indian Ocean and the Gulf of Aden of piracy. Interestingly, there was a meeting of the European Economic and Social Committee on 24 January, attended by the shipping industry and seafarers generally. They very much endorsed the position in our report. The noble Lord, Lord Jay, made strongly the point about the importance of attending to the political development in Somalia and of getting rid of the conditions in which piracy can flourish.
Our report also strongly supports the Horn of Africa strategy: the combination of diplomatic, financial and operational tools which provides some opportunity for a sensible and coherent response to all the awful crises facing the region. Alongside Atalanta, you now have NESTOR—the EU’s training mission for Somali security forces—as well as the appointment of the special representative for the Horn of Africa, which we welcome in our report.
Like the noble Lord, Lord Jay, I turn to the west African issue. The trouble with piracy, particularly if it is successful, is that it is very infectious. Although the background is different, Somali piracy is increasingly mirrored in what is happening in west Africa. Armed hijacking is on the rise in the Gulf of Guinea, the waters of Nigeria, Benin, Togo and Ivory Coast. It is interesting that many of these incidents involve vessels transporting petroleum products. The UN Office on Drugs and Crime explains this by the booming black market for fuel in west Africa. Clearly, this is a rather sinister situation growing up here and it needs watching very carefully indeed. It is essential that there should be a response not only by the region’s Governments but by the international community so that west African seas do not become as dangerous as the Indian Ocean has been, but—fortunately—now is not.
I want to ask the Minister several questions. What are the UK Government and the EU doing to meet the threat? Can the Minister—I share the point made by the noble Lord, Lord Jay, here—confirm that the Royal Navy is deploying units to west Africa and working in conjunction with France and the United States? Is there a case for applying some of the lessons that have been learnt in Somalia and the Indian Ocean in west African waters? Can the strategy and models that have been used successfully in this area be used also in west Africa? I know that it is a different situation but we ought to learn some lessons.
As a last point, we must not forget the cost of piracy. At the European Economic and Social Committee meeting which I was referring to, Dr Anna Bredima, who is vice-president of the Employers’ Group, said that piracy costs the global economy $12 billion a year. She went on to say:
“Piracy is not only a maritime problem. It is also a humanitarian, trade and global one, affecting consumers and taxpayers around the world”.
I also saw in a paper for Nautilus International, the seafarers’ organisation, a rather graphic description, drawn from the Times of India, of 23 crew members who were taken hostage from the cargo ship “Iceberg”—this is the human cost—and held for three years by Somali pirates. One died of malnutrition, and the Times of India told how the rest spent,
“four months next to a freezer with a body inside”,
and how officers were,
“hung upside down and tortured and the ears of a senior officer [were] … chopped off”,
for failing to move the ship. Pirates would beat or whip crew members if aircraft passed overhead. It is not surprising that these men are haunted by such memories. It serves as a reminder to us when we write our reports of why the pirates have to be fought, pursued and prosecuted.
Baroness Young of Hornsey
My Lords, I joined Sub-Committee C, on external affairs, just in time to see the Turning the Tide report through to its conclusion, although I missed direct involvement in the original inquiry that preceded it. This was my first inquiry with Sub-Committee C and, along with other noble Lords, I thank the noble Lord, Lord Teverson, for his chairmanship, and also note the expertise of the staff and the warm welcome offered by noble Lords who were already on the committee.
Before I joined Sub-Committee C I was, along with many others, all too aware of Somalia’s recent troubled history and in particular its notoriety as the launching pad for numerous acts of piracy in the Indian Ocean. I therefore welcome the opportunity today to address some of the issues raised by the report. I should say from the outset that I agree with many of the points that have already been made by other noble Lords on the committee but want to go into some other areas.
Naval patrols, armed personnel on vulnerable ships and the military operation on land-based criminals have all, as we have heard, contributed to diminishing the threat of piracy in the region. However, none of these activities represents a viable, or indeed a desirable, medium to long-term strategy. Political, economic and social stabilisation is the key to reducing piracy and other high-stakes criminal activity. If the root causes are not addressed, such crimes will continue to flourish.
As we reported, the EU has now formulated a strategy for the Horn of Africa and appointed a special representative, Alexander Rondos, who has already been referred to. It has also launched two missions: a training mission to Uganda—EUTM Somalia; and, crucially, the newish mission to strengthen the maritime capacity of the coastal states of east Africa—EUCAP NESTOR. As my noble friend Lord Jay said, that is not a very pleasant sounding title, but none the less we hope that it will be effective.
Alexander Rondos told us of the need to build up coastal communities if piracy was to be countered. He believed that extending stabilisation and investing in coastal areas was essential and absolutely key in offering an alternative incentive to those who feel that they need to tolerate piracy or allow it to operate from within their communities. The evidence from the Council of Somali Organisations supported this assertion and made the additional point that coastal communities had,
“persistently lobbied donors for small scale support to help them develop local mobile marine cadres”,
to patrol their coastline and provide a security presence that would disrupt and deter pirate groups and al-Shabaab activity.
To counter the argument that the EU presence represents yet another hostile foreign military force, as some see it, the EU needs to make a commitment to protect and monitor fishing in Somali waters. There has been a call for the mandates to be revised to protect Somali waters from illegal fishermen and those who transport toxic and other dangerous materials. When we received the evidence, we considered recommending that Operation Atalanta should undertake greater protection of Somali fishing grounds, but we concluded that a naval mission was not in a position to undertake this additional role as well as protecting shipping, and that the task should be taken up by another organisation.
To some extent, the newly established civilian mission EUCAP NESTOR goes part of the way towards addressing some of the concerns. The mission aims to train a coastal police force and judges with expert advice on legal, policy and operational matters concerning maritime security. Giving more resources and support to the countries of the region to build capacity would make further improvements and ultimately cost the EU less in the longer term. The FCO told us that the setting-up phase of EUCAP NESTOR was going well. I hope that the Minister will be able to tell us that the initiative is on track.
The focus on a military solution to Somalia-based piracy, and conventional approaches to aid and development, should not prevent the EU addressing real concerns about fishing and the historic dumping of toxic waste by multinational organisations. A recent Italian investigation concluded that around 35 million tonnes of waste had been exported to Somalia, leading to the assertion that its inland waste dumps were among the largest in the world.
The Somali people have been caught up in a dreadful vicious circle. With the likelihood that the country will achieve just one of the eight millennium development goals by 2015, weak governance structures at all levels, an underdeveloped civil society, the constant threat of armed conflict within and between clans and extensive corruption, it is no wonder that some companies feel able to take advantage of the situation and act with impunity, dumping nuclear and other hazardous waste in Somali coastal waters.
I emphasise that this is not put forward as an excuse for piracy—not in any way. However, the issue must be addressed if the EU is to maintain confidence in what it is doing. European multinationals, the Somali Government and local clan warlords have all been implicated in these activities. Arms have been traded for the right to dump hazardous materials. The ships bringing the cargo into Somalia then become trawlers when they leave the area, with their holds full of tuna fish. These illegal activities must be robustly monitored and the consequences addressed if there is to be a long-term solution to piracy in the region.
Recently, pirate gangs have turned to land-based criminal activity such as kidnapping aid workers, tourists and journalists in Somalia and Kenya and holding them for ransom. That is why military interventions need to take place alongside strategic local and regional political initiatives supported by international collaboration. As the noble Lord, Lord Jay, said, the involvement of organisations such as the African Union and ECOWAS is crucial to that operation.
In Somaliland, which is relatively stable, unemployment among young people stands at approximately 75%. One strategy to help keep young people from the grasp of criminal gangs would be to capitalise on the influx of foreign aid agencies and other NGOs into the area by ensuring that these organisations provide opportunities for local young people to learn skills, undertake internships and gain paid work. EU development aid should also be directed towards providing alternative livelihoods for the Somali people. Somehow, as the noble Lord, Lord Teverson, mentioned at the beginning, the vast majority of the Somali population are not involved in these criminal activities yet they seem to get punished whichever way things go.
As the Africa Research Institute points out, the EU needs to demonstrate its willingness to address the issue of European-owned companies that have been dumping toxic waste off the Somali coast for years. Robust action on this matter would help to underline the legitimacy of the EU endeavours in the region. I wonder if the Minister, or indeed the Government, has a view on this matter.
There are some positive signs emerging from Somalia, some of which have already been referred to. We heard from witnesses that there was less hostility from the Somali population to the African Union’s mission in Somalia, a greater spirit of optimism and more talk of nation building. The EUCAP NESTOR mission will be a significant development in combating piracy from the land.
What happens over the next few years will be crucial to the settled future of the Somalian peoples. I very much hope that the sub-committee will somehow find a way to revisit these issues and have another follow-up report at some point in the future.
The Earl of Sandwich
My Lords, I congratulate the noble Lord, Lord Teverson, and the sub-committee on the report. I missed the debate of the noble Lord, Lord Luce, last year, so this is a valuable opportunity for me not just to speak today but to inform myself on an important area of foreign policy. This policy, as the Minister knows very well from his experience of Africa, ties defence priorities closely to those of international development. The unexpected release and safe return of the chemical tanker “Royal Grace” last week brought welcome relief to the operation as well as to those on board. I hope that we shall soon learn the fate of the other tanker MS “Smyrni”. These welcome facts further suggest that Atalanta, while not resting on her laurels, should already be rated as a major success of international co-operation alongside the remarkable military and political turnaround in Somalia itself.
The noble and learned Lord, Lord Howe of Aberavon, said memorably in the last debate that the name Atalanta gave it a NATO benediction. It is true that, provided that there are no golden apples or false rewards, the name implies great rapidity from a defence point of view. It has been a spectacular demonstration of our own naval command and control over the past four years. I am personally enthusiastic about the Navy—perhaps not quite as gung-ho as the noble Lord, Lord Jopling, about a land operation but I think that we have done magnificently. For the EU, as the noble Lord, Lord Davies, has mentioned, it should mean a feather in the cap of the EEAS for its solid support of the operation. It should also get a mention in Sub-Committee C’s new report about to be published.
There are, of course, always dangers ahead. Last December, the Piracy Ransoms Task Force called for greater co-ordination among the countries and agencies involved. I am surprised that the committee has not pronounced more on the question of ransoms. There remains a widespread concern that while the incidence of piracy has come down, the amounts of ransoms are increasing. There are also fears that complacency may set in, armed guards will be reduced and the cycle may begin all over again. The trend of kidnapping in the region, notably in west Africa, has recently been upwards.
As for Somalia itself, the noble Lord, Lord Hannay, said in October that the priority should now be the re-establishment of stability and the rule of law. Nobody could disagree with that. He expressed the hope that the international community,
“will not allow that task to fail through lack of resources and lack of political will”.—[Official Report, 24/10/12; col.280.]
I agree with that aspiration: there is an upward trend of political will but no easy path ahead—as the noble Lord, Lord Jay, has expressed, and the noble Baroness, Lady Young, has already brought home to us.
Somalia is,
“possibly the toughest place in the world to be a child”,
according to the CEO of Save the Children when he returned from that country. The number of people in urgent need of humanitarian aid is expected to exceed 2.1 million in the coming months. The figure is down from last year but it is still large. Again, success is relative. Recurrence of the 2011 famine has been largely averted in rural areas, but there is still an imperative to plant crops and avoid food dependency while encouraging the return of traders and small businesses to towns. Here, I strongly agree with the noble Baroness, Lady Young.
I am glad to say that one of the most effective programmes is the SEED employment programme, funded by the UK, which works alongside the FAO in Puntland and south-central Somalia. It generated 56,000 jobs and has trained nearly 4,000 women and young people in livestock and agriculture. This is exactly the kind of programme that must revive the economy. When extended to coastal areas, it will provide alternatives to piracy, which everyone knows is a side-product of the civil war and of anarchy over the past decades. Employment, small business support and trade should feature prominently at the London conference that will be held on 7 May. Somalia is making a rapid recovery. We in this country are host to many Somali refugees and should be well placed to encourage the return of business leaders and professionals who will help rebuild their communities.
On the rule of law, there are many gaps to be filled, as we all know. I hope that the Minister will bring us up to date with the work of EUCAP NESTOR, notably in Puntland and Somaliland, and tell us whether there has been any progress in setting up the new land-based coastal police force. The committee report states that,
“Nestor could and should be the gateway to a permanent solution”.
The name “Nestor” is familiar to me because it is the name of my grandson, whom I took to see HMS “Belfast” yesterday afternoon. I hope that everyone will see him as a figure of wisdom in the future.
I am not familiar with the intricacies of Somali politics. The noble Lord, Lord Avebury, who came to the previous debate but who unfortunately is not here today, pointed out in October that until last summer the Puntland maritime police force had been very effective in closing bases and arresting pirates. Then it fell foul of other recognised authorities, including the UN, and even of its own South African trainers, one of whom was shot dead. Where food and commodities are scarce, clan loyalty and corruption easily turn into police connivance with the enemy—the pirates. Now that the new federal Government have greater confidence and are earning international recognition, will the Puntland police force be allowed to resume its former effectiveness? What will AMISOM and IGAD contribute to this exercise? Tributes are paid to them in the report. The government response to the committee mentioned training in Uganda but was silent on the calibre of the police forces in Somalia.
Finally, I hope that the Minister will congratulate Kenya and the Seychelles. They have expanded their courts and prisons over the years to accommodate hundreds of detained and convicted pirates. Perhaps he will update us on the attitudes there. In the context of what the noble Lord, Lord Jopling, said, will the Minister say to what extent and on what terms the pirates and prisoners are being returned either to civilian life or to face judgment in Hargeisa prison, which we have helped to rehabilitate, or elsewhere in Somalia?
We must be grateful that greater stability in Somalia will have valuable consequences over the border with Kenya, at a time of uncertainty following elections there. I hope that the world’s largest refugee camp will empty, that refugees will return home and that the acute conditions of poverty, malnutrition and ill health that we have seen so often on our TV screens over the past 20 years will disappear. Whether or not Atalanta is extended, the mission will have played a major role in this—largely, let us admit, for the benefit of the Gulf states and developed countries such as our own. Internal political stability can rarely be guaranteed by outsiders. Ultimately, it must depend on the Somali people themselves.
Lord Rosser
My Lords, I add my thanks to the noble Lord, Lord Teverson, and the European Union Committee for the report that we are considering today, which is a follow-up to the 2010 report on the European Union’s naval operation Atalanta. The noble Lord, Lord Teverson, gave us a comprehensive introduction on the present state of play, the key issues involved and progress made since the previous report. I do not, therefore, intend to refer to all the issues which he so ably addressed and which are referred to in the report.
The report indicates an improving situation as far as the levels of Somali piracy are concerned, with a significant reduction in the number of pirated vessels and hostages in June 2012 compared to June 2011, as well as much greater practical co-operation between organisations and nations. However, the report certainly does not suggest that the problem has been solved. The committee welcomed the EU Atalanta attack on the pirate land base and, in their response, the Government agreed with that. The committee also reported that it had changed its view on having armed guards on ships, in light of the fact that no ship carrying armed guards has been successfully pirated and violence has not apparently escalated.
Evidence was given to the committee, though, that those involved in piracy were increasing their activity on land, including kidnapping on shore, and that the smaller number of successful attacks had led to an increase in the level of ransom demands and greater violence. Indeed, the view appears to be that piracy will never be eliminated except, hopefully, in the longer term and that the realistic objective must be to make sure that it is contained. As a key part of that objective of containment, Operation Atalanta’s mandate was renewed in 2012 until the end of 2014.
I should like to raise a few points of relative detail about the report and the Government’s response. I note that, when the previous report was discussed in this House in November 2010, the response was given by the Foreign Office Minister. Today, the response to the European Union Committee’s follow-up report is being given by the Defence Minister, the noble Lord, Lord Astor of Hever. I am not sure whether the change in department responding to the debate represents any change in the Government’s priorities and approach to the issue of Somali piracy, Somalia and the EU’s Operation Atalanta, or whether it is simply an issue of the availability—or flexibility—of government Ministers. It would be helpful to have that small point clarified.
Paragraph 26 of the report states:
“We were, however, surprised to hear from the Minister that only one Royal Navy ship was allocated to Operation Atalanta for three months in a two year period”.
While the committee was surprised to hear this, it was not concerned, unlike the Chamber of Shipping, as the committee felt that there were financial constraints and considered that our command role from Northwood Headquarters was compensation for our limited contribution of vessels.
As the noble Lord, Lord Jopling, said, the committee’s report was completed last summer—over six months ago—and the government response was written last September, so could the Minister tell me whether our allocation of Royal Navy ships to Operation Atalanta remains as indicated in the report and the government response? I ask that also in the light of a recent article in the House magazine about HMS “Westminster” and her crew, which referred, among the other roles that they have, to the proud contribution made,
“to the international naval effort which has seen piracy attacks off the Horn of Africa reduce by 75% in the last 12 months”.
It may be that HMS “Westminster” has been involved in one of the other operations in the area, rather than in Operation Atalanta.
In its report, the committee expressed the view that any reduction in effort would quickly result in a renewed upsurge of pirate activity and that the mandate of Operation Atalanta should be extended beyond December 2014 to send a clear signal that the EU would not walk away from confronting piracy in the Indian Ocean. Rightly or wrongly, I rather took it from that that the committee may not wholeheartedly share the view that a decision on the renewal of the operation’s mandate should wait until the middle of next year, as appears to be the intention. The Government’s response to the report did not specifically address the issue of whether and when the mandate should be renewed, so it would be helpful if the Minister could say whether, on the basis of the situation on piracy as it is at the moment, the Government would or would not support renewal of Operation Atalanta’s mandate.
When the committee’s earlier report was discussed in 2010, there was general agreement that the long-term elimination of piracy would be secured only through addressing the underlying causes of instability affecting Somalia. That clearly remains the view. The committee’s report and the Government’s response set out the developments that have occurred and the steps that have been taken since the earlier report by the EU, the UN and the international community to help to improve the prospects of stability in Somalia. As the Government’s response says, fundamental to the EU’s efforts is the principle of encouraging greater African ownership, including by the African Union.
The committee is to be congratulated on the thoroughness of its work, including the follow-up report, which has highlighted the considerable progress that has been made and the reasons for it. Let us hope that that progress proves to be soundly based and that, despite some of the information that we have been given in the debate today about the release of those involved in piracy, it will ultimately lead not only to the eventual end of piracy but to a safer, more secure and more prosperous future for Somalia and its people in particular and for the region in general.
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever)
My Lords, I begin by acknowledging the quality of the contributions to this debate. Noble Lords have demonstrated a keen and impressive grasp of this very complicated issue. I praise in particular the excellent work of my noble friend Lord Teverson and the other committee members in compiling the report on Operation Atalanta.
Operation Atalanta has successfully contained, constrained and deterred acts of piracy. None the less, the UK’s longer-term aim is to eradicate the underlying causes of the instability that affects Somalia and gives rise to acts of piracy, and several noble Lords have made that point today. This can be achieved only by addressing the root causes of the problems in Somalia. EUTM Somalia and EUCAP NESTOR, launched as part of the EU’s contribution to an overall strategy for the Horn of Africa, aim to provide a comprehensive solution to Somalia’s problems. In time these missions, alongside AMISOM, will create a secure and stable Somalia, remove the incentives for piracy and develop the capacity of coastal states in the region to police their own coastlines.
The UK remains fully supportive of Operation Atalanta’s mandate and is committed to the continued command of Operation Atalanta from Northwood for the current mandate, which expires in December 2014. International pressure on the pirates must be maintained in order to prevent a significant resurgence of activity. While any formal decision to extend Operation Atalanta’s mandate beyond 2014 is unlikely to be taken in the immediate future, the EU has demonstrated a firm commitment to its counter-piracy efforts, including through enhancing the mandate with agreement on the use of autonomous vessel protection detachments and the disruption of pirate logistics dumps. Additionally, the launch of EUCAP NESTOR and a growing EU diplomatic role send further strong signals of increasing EU engagement.
The degree of maritime co-operation between the three core international counter-piracy forces—the EU’s Operation Atalanta, the US-led Combined Maritime Forces Combined Task Force 151 and NATO’s Operation Ocean Shield—is among the best that we have ever seen. The three operations provide a variety of effective framework opportunities for third-state contributions to anti-piracy efforts to further enhance international co-operation, evidenced recently when Royal Thai naval forces commanded a Combined Maritime Forces task force from a UK vessel. The shared awareness and deconfliction mechanism has also helped to ensure that military efforts in the region are effectively co-ordinated between international partners.
The threat from piracy remains a serious problem, but results and trends suggest that Operation Atalanta, in conjunction with other measures to counter piracy, is proving effective. For example, as of 7 March this year, two vessels and 60 hostages were being held off the Somali coast, the lowest levels held by pirates since September 2009. I hate to correct my noble friend but two vessels and 48 hostages were released over the weekend, so the figures that I have quoted are the accurate ones. This compares favourably with May 2011, when 23 ships and 503 hostages were held. Attacks and pirating of vessels are down by over 75% during the past 12 months. However, I emphasise that these gains remain reversible and it is vital that we do not relieve any of the considerable pressure that is currently being brought to bear on the Somali pirates.
The ability to prosecute and detain convicted pirates is an important element of our strategy to combat piracy and is an effective deterrent. Over 1,200 suspects or convicted pirates are being held in 21 states across the world. The Seychelles currently holds 101, representing some 20% of its prison population, while Kenya holds 147. We continue to support regional partners in developing local prosecutorial capacity.
Capacity-building assistance is being provided to the Seychellois justice sector by the international community. For example, the UK has provided funding to the UN Office on Drugs and Crime for the work of its counter-piracy programme, which has included work with Montagne Posée prison in the Seychelles. A new 60-cell block was opened there in September 2011 to help with the detention of suspected and convicted pirates. The UK has provided assistance to the Attorney-General’s Office by seconding two prosecutors from the Crown Prosecution Service to assist with the prosecution of suspected pirates.
A longer-term solution to develop Somali capability and ownership of the piracy problem is being implemented by the UNODC’s post-trial transfer programme, which returns pirates convicted in regional jurisdictions to Somalia to serve out the balance of their sentences. The programme has so far transferred 59 convicted pirates from the Seychelles to Somaliland under the terms of a bilateral memorandum of understanding, the agreement of which was facilitated by the United Kingdom at the London conference on Somalia. Further transfers from the Seychelles are anticipated this year.
I turn to the specific questions asked by noble Lords. The noble Lord, Lord Jopling, asked what political progress had been made in Somalia. Real political progress has been made there in recent months. The transitional period concluded on 10 September with the election of a new president, Hassan Sheikh Mohamud. This was a significant moment in Somalia and an important step towards a renewed political process. The London Conference on Somalia in February 2012 brought the international community together to support this process and, for the first time in years, it was run in consultation with the Somali people through their elders. They led a process to draw up a new constitution and formed a new parliament which elected a new president.
It is clear that, after two decades of conflict and instability, the people of Somalia want to usher in a new era of peace, security and democracy. Recent political progress marks a new chapter in their history. The end of the transition is the best opportunity in years to make progress towards peace and stability. Already, people are rebuilding their properties and businesses; confidence is increasing; and the diaspora is returning.
My noble friend Lord Jopling and the noble Lord, Lord Radice, mentioned the 959 pirates who were released. They asked what was the basis of the amnesty and why did this not apply to the “godfathers”. This amnesty referred to the boys who had committed acts of piracy at sea but did not apply to the financial backers or the senior leaders of the pirate action groups. My noble friend Lord Jopling asked for the Government’s response to the committee’s recommendation for an increased contribution from the Gulf states. We are working closely with a number of the Gulf states, particularly the UAE, Bahrain and Oman, and organisations such as the Organisation of Islamic Cooperation. The UAE has commanded the Combined Maritime Forces Combined Task Force 151 and Bahrain, Oman, Kuwait and the UAE all provide bases for Royal Navy ships. They all share information with coalition forces.
My noble friend Lord Jopling also asked whether, as the number of attacks reduces, there is a temptation to relax our presence there. Military response must remain proportional to the threat until the root causes of piracy have been addressed ashore. This is now occurring via EUCAP NESTOR and other capacity-building initiatives. Meanwhile, Operation Atalanta, NATO and the CTF 151 continue their deterrent patrols which deliver the time and space to allow development activity to take place ashore.
My noble friend asked whether pirates would be returned to Somalia. The committee did not consider this to be sensible given the level of prison security. He asked would the UN prison remain unused. The UN has refurbished a prison in Somaliland which is currently housing convicted pirates returned from the Seychelles. Work is on the way to building additional penal facilities. This is crucial to Somalia’s ongoing development. Building justice and the rule of law is a priority for the new Somali president.
The noble Lord, Lord Davies, pointed out that the example of success on Operation Atalanta should be included as part of the balance of competences review. Operation Atalanta will be part of a case study on common security and defence policy activities in the Horn of Africa. The noble Lord said that the committee’s conclusion in respect of ransom payments was wholly inadequate because these are criminal payments. Companies assembling ransoms in the UK must seek consent from the Serious Organised Crime Agency prior to payment. The Government do not make or facilitate substantive concessions to hostage-takers, including the payment of ransom. I would point out that it is not against UK law to pay piracy ransoms.
Lord Davies of Stamford
On that point, do the Government believe that it is a satisfactory situation that these payments are not illegal?
Lord Astor of Hever
We agree with the noble Lord that it is not a satisfactory situation.
The noble Lord, Lord Jay, asked whether the United Kingdom continued to strengthen the African Union in Somalia. Support through the EU training mission will continue. The UK continues to support AMISOM in Mogadishu, which is the military arm of the AU in Somalia and was critical to the recent successful retaking of Kismayo that forced al-Shabaab out of one of its key strongholds and away from a key source of revenue. I am very grateful to the noble Lord, as a former ambassador to Paris, for his encouraging words on our support to the French over Mali.
The noble Lord also mentioned west African piracy. The situation there is much more maritime criminality than piracy—the theft of cargo, illegal bunkering et cetera—and should not be seen as similar to that in Somalia. As such, it is clearly the role of national police forces to deal with it. The Royal Navy is taking action where it can, predominantly in terms of training and capacity-building: HMS “Dauntless”, HMS “Edinburgh” and HMS “Argyll” have all recently worked in this area. The noble Lord asked what effect the destabilisation of Mali might have on wider UK interests. It would allow ungoverned space from which terrorists could operate, plan and launch attacks with impunity, and could also destabilise other parts of Africa such as Nigeria and Sierra Leone.
The noble Lord, Lord Radice, asked what the United Kingdom and the EU are doing to meet the threat in west Africa, whether the Royal Navy will deploy assets to west Africa and whether we will apply the lessons from Somalia to west Africa. Lessons are being learnt from Somalia and applied to west Africa. The UK is supporting the industry initiative to create a regional maritime trade information-sharing centre. The Royal Navy deployment has helped build capacity aboard vessels and it is helping to train maritime law enforcement officers and develop maritime legal frameworks to prosecute maritime crime. Corruption locally is the biggest threat.
The noble Baroness, Lady Young, and the noble Earl, Lord Sandwich, asked how EUCAP NESTOR is progressing. The answer is: as well as can be expected. Building capacity where none has existed for 20 years is a great challenge. It involves preparing assessments of what is required, identifying key leaders who will have to drive forward development on behalf of the Somali Government and people, working in conjunction with various institution-building initiatives and prioritising where EU funds need to be spent.
The noble Baroness asked what the Government’s view is on dumping toxic waste off the coast of Somalia. Historical reports of toxic dumping in the early days of piracy cannot be denied, but it has reduced significantly owing to the naval presence in the area. Recent reports to the UN Security Council have failed to provide evidence of toxic dumping off the Somali coast. This Government remain committed to working with international partners to tackle all the reasons used to justify committing acts of piracy.
The noble Earl, Lord Sandwich, asked me to congratulate Kenya and the Seychelles on their efforts and asked what the Government’s attitude was towards Operation Atalanta. Regional partners are an essential part of the UK’s counter-piracy strategy. The Seychelles are leading the effort, having recognised the threats from piracy to tourism and their fishing and maritime industries. We commend their continuing efforts and those of Kenya.
The noble Lord, Lord Rosser, asked whether there was a change in the department responsible, as I am responding to this debate, and whether it reflects a change in the Government’s approach to piracy. There is no change in the department. The Ministry of Defence led the written response to this committee, and it is therefore fitting that I attend this debate now. This Government remain committed to countering the threat of piracy in the Indian Ocean and to working with our international partners.
The noble Earl, Lord Sandwich, asked whether the Puntland maritime police force would be allowed to resume its activities. The Puntland maritime police force is a local militia trained by a private security company and it received weapons in breach of the UN sanctions regime in force for Somalia. The decision to employ or allow the activities of the PMPF rests with the new Government of Somalia.
The noble Lord, Lord Rosser, asked whether the Government’s allocation of ships to Atalanta remains as per the report. The answer is yes. We allocate ships on a case-by-case basis, and it may not be the most effective use of ships to allocate them to Atalanta rather than to other coalitions. This is kept under constant review and plans made accordingly. A Royal Navy helicopter is currently assigned to Atalanta, working from a front ship. The noble Lord asked whether, given the current situation, the Government would support extension of Atalanta’s mandate. The EU is beginning a strategic review of Operation Atalanta, and we remain committed to supporting this mission.
The piracy threat cannot be dealt with through military means alone. It will require a sustained international effort that addresses not only the threat from pirates but institutional incapacity. The UK is ultimately seeking greater coherence between EUTM, Atalanta and Op NESTOR within the overall EU Horn of Africa strategy but also with other international and UK unilateral activity. All the symptoms—terrorism, piracy and migration—are a result of the causes of instability in Somalia. EUTM does not currently link directly to the other CSDP missions but rather to the wider EU strategy as part of the comprehensive approach to Somalia. Linking missions with diplomatic and developmental tools should enable the EU to take a lead internationally in seeking to bring stability and governance to the country and wider region.
Lord Teverson
My Lords, I thank my noble friend the Minister for his response and particularly for the good news—I am delighted to be corrected—that we are down to two vessels and 60 hostages. That has to be very good news for the families and the people who are involved. I hope that we can bring those figures down to zero before too long.
When I mentioned World Food Programme vessels coming into Mogadishu, I meant Djibouti. Clearly, they could not go into Mogadishu because it was not under any sensible control.
Perhaps I may respond briefly to what the noble Lord, Lord Davies of Stamford, said about ransoms. We considered this in our first report but not in our second. I recognise that this is a hole in the report. In fact, the bit that was put in was really from another EU Committee report through the noble Lord, Lord Hannay. Perhaps we can look at this further.
Will the Minister ask his officials to do a broader note on pirate release? This is of concern to the committee and is an important context. It is not for further debate now, but if his department could give us more background, particularly on how it was done with the EU and contributing nations, we would find that very useful.
It is important that the pirate community, if we can call it that, knows that this operation will go on until the situation is resolved on land and the rule of law comes back right across Somalia.
I thank noble Lords for having participated today, particularly those who are not members of this committee. It has been a huge privilege and pleasure for me to be chair of the committee over four years—although all committee members have put me under great pressure most of the time, quite rightly—but this will probably be the last report that I present within this Committee Room. I thank the staff of the committee. I am trying to remember who was a part of the team back then, but I know that one of them was Kathryn Colvin. I thank her in particular for having put this report together and for having brought all those witnesses in front of us as well as she did. I commend the report to the Grand Committee.
Government’s New Approach to Consultation: “Work in Progress” (SLSC Report)
(11 years, 9 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Goodlad
That the Grand Committee takes note of the Report of the Secondary Legislation Scrutiny Committee on The Government’s New Approach to Consultation: “Work in Progress” (22nd Report, HL Paper 100).
Lord Goodlad
My Lords, I greatly welcome the opportunity to open this debate on the Secondary Legislation Scrutiny Committee’s report. The committee was grateful to the many organisations and individuals who responded to our call for evidence; to the Minister for Government Policy, Oliver Letwin, who gave evidence to us; and to the clerks—Kate Lawrence, who is now on a well earned sabbatical, Jane White and Paul Bristow—for their invaluable work.
The main issues in our recommendations reflected the concerns expressed in the very large number of submissions that we received in response to our call for evidence. The Government did not ask for evidence, so I hope that the responses to our call for evidence will have been helpful. We urge the Government to ensure that the review of the consultation principles that were announced last July reflects the concerns expressed in the evidence, in particular a widely expressed preference for a 12-week standard duration of consultation. We ask the Government to recognise that six weeks is regarded as the minimum feasible consultation period, except in exceptional circumstances; to ensure that consultation periods do not clash with holidays or peak periods of activity for the target group of consultees; and to engage with key interest groups prior to launching consultations, so as to reach agreement with those groups on the broad outlines.
We recommended that the review should be started in January—we are now in March—and that its findings should be published by Easter. There are no plans to add to the evidence, which is already to hand. We recommended that the review should be carried out by a unit independent of government and that a stakeholder reference group should be convened, containing members from across civil society, to provide input for the review team. We also asked the Government to recognise that a “digital by default” approach to consultation was very likely to exclude a large proportion of our society, and in particular vulnerable groups. We asked the Government to demonstrate that wider engagement with vulnerable and so-called hard-to-reach groups was being delivered in practice.
In its evidence to us, the organisation Disability Rights UK voiced concern on behalf of the 42% of disabled people who live in households without internet access. The Disability Charities Consortium asked,
“How does the Government expect the proposed new approach to consultations to impact on its obligations to involve disabled people in policy development and decision-making under the UN Convention on the Rights of Persons with Disabilities?”.
A large number of the elderly, and indeed other people, who are not disabled will also be affected by the predisposition to digital communication. The noble Earl, Lord Lytton, who I am glad to see in his place, submitted evidence on this matter, and I hope that he will say more about that later in the debate.
We asked the Government to introduce as soon as possible a single website listing open consultations in the order in which they close, for the benefit of the many organisations that respond to invitations to give evidence to consultations. We further recommended that the new principles should explicitly commit departments to publicising timely responses to consultations and to strengthening the role of the Cabinet Office in the co-ordination of consultations. We also recommended that it should be clarified to stakeholders what redress is available to them if the consultation does not comply with the published principles.
The Government’s response to the report covered the format of the proposed review, its timing and its content. We were disappointed that a more leisurely timetable is proposed for the review than we had recommended, and that the proposed membership of the external advisory panel appears small in number. It is to be hoped that the disquiet and suspicion expressed in the responses to our call for evidence will be allayed by the findings of the review and by the Government’s subsequent actions.
Our recent history is littered with examples of government action where successful consultation could have averted enormous wastes of parliamentary time, government time and money, the time and money of other people, embarrassing government climbdowns, reversion to the drawing board and so on. Most recently, my noble friend Lady Thomas of Winchester, in the debate last week on the Delegated Powers and Regulatory Reform Committee’s report on strengthening statutory procedures for the scrutiny of delegated legislation, cited the lack of consultation on a crucial part of the Social Security (Personal Independence Payment) Regulations, which had to be changed by the DWP at the last minute and for which the Minister apologised. More or better consultation would have averted that.
A successful example of consultation, on the other hand, was the Department of Energy and Climate Change’s handling of the Nuclear Decommissioning and Waste Handling (Finance and Fees) Regulations 2013, where the consultation persuaded the Government that the regulations needed to be looked at again. In 2012, they invited views on a revision to the 2011 regulations, and the issue of workability in relation to reporting and verification requirements was thereby resolved in the most recent statutory instrument, thanks to proper consultation.
Over the past five years, an average of just over 900 statutory instruments per year have been scrutinised by your Lordships’ Secondary Legislation Scrutiny Committee, formerly the Merits Committee, each accompanied by an Explanatory Memorandum, including a section on the policy background of the instrument and a section on the consultation outcome.
The importance of effective consultation to the process of government appears before your Lordships’ Committee every week. It is clear that a willingness to listen to the views of interested parties sometimes gains support for a Government’s work, and that encouraging interested parties to comment on proposals before they are finalised and implemented usually means that the policy, which has been conceived within Whitehall, can be adjusted to the reality of the outside world.
Whitehall can never foresee all the detailed impacts of policy proposals. Those at the receiving end usually can, and may thereby contribute to the avoidance of mistakes. In our experience, some departments struggle to understand the use—the validity, even—of parliamentary scrutiny as a disinterested process rather than an unwelcome but necessary interference in the project management of an item of secondary legislation, far less the intrinsic value and necessity of consultation. As always, the extent of hoisting in this necessity depends on who you are dealing with. Some departments get it better than others; some learn it faster than others.
All who have worked in government have been impressed from time to time by feelings of profound frustration. Why can we not simply get on with the job when it is so obvious what needs to be done in the public interest? Why does the car not move forward when we press the accelerator? Why is the system so furred up, obstructed by endless consultations, reviews, inquiries, inquiries into inquiries, judicial review, human rights and so on? Conversely, we all, when at the receiving end of government activity that we do not like, sometimes feel that the world is being run by people in Whitehall who have descended from Mars, speaking only Martian, and have not the slightest knowledge of or interest in the concerns of ordinary people upon whom their whims and diktats are arbitrarily inflicted without a by-your-leave. To govern by consent in a modern democracy requires for success a resolution of those two conflicting states of mind. I hope that the committee’s report and this debate will make a small contribution to enhancing that success. I beg to move.
Lord Hart of Chilton
My Lords, I, too, am a member of your Lordships’ Secondary Legislation Scrutiny Committee, whose 22nd report for 2012-13 on the Government’s new approach to consultation we are considering today. The report was published in January this year and responded to by the Government in February, and here we are debating the matter in early March. Unlike in the previous debate, there can be no complaints about tardiness in that respect; on the contrary, compliments, not brickbats, are due to the usual channels. I am in complete agreement with the speech by our chairman, the noble Lord, Lord Goodlad. I pay tribute to his distinguished chairmanship of the committee, not just on this occasion but throughout his tenure.
Accordingly, I simply wish to emphasise and repeat some of the key issues that have arisen. First, I was very surprised that the Government, in bringing forward what they called new principles of consultation, failed to carry out any consultation themselves. In my view, the importance of the proper process of consultation in initiating new or revised policy cannot be underestimated. Much of my earlier career was spent reading and responding to consultations so I suppose I have a special interest, but proper consultation, in my view, is the essential oil for the engine of government. It test-beds the underlying principles with those most likely to be affected. It checks the support or opposition that will be forthcoming. It affords the opportunity to discover mistakes in assumptions, methodology or technical background. Last but by no means least, it forms part of a healthy participatory democracy; its presence strengthens confidence in government and its absence weakens democracy itself.
It follows that the process of consultation must afford sufficient time for views to be obtained, analysed and, in certain cases, responded to. Any perceived short cuts risk confidence being eroded or lost altogether. So, in the absence of any prior consultation exercise, the committee carried out its own by calling for evidence and, as the noble Lord, Lord Goodlad, has said, we were gratified by the extensive and constructive response. There was certainly no doubt about the importance that witnesses placed on consultations, but there was some scepticism about whether the Government shared that view. In particular, there was criticism over the time allowed to participate. There was a preference for 12 weeks for issues of importance or complexity, with a minimum of six, and the period selected should not fall over bank holidays, summer holidays or periods of peak activity for the target groups.
Prior consultation was something that the Government should engage in with key stakeholders to seek a consensus on the broad outlines of the matters to be consulted upon. With a significant percentage of the public not connected to the internet, the approach of “digital by default” left some excluded and others constrained. There was a feeling that the Government sometimes failed to realise the complexity of some of the issues being consulted upon and the capacity of organisations to respond with speed. There was often a lack of response to consultations once they had taken place, leaving an impression that the consultation process was just an exercise to be got through as quickly as possible.
Our recommendations to the Government recognised the strength of many of these issues, and suggested ways in which the principles could be improved. Our conclusion was that the new principles, in many respects, were failing to provide the consistency and transparency that the public are entitled to look for in consultation exercises. Accordingly, we urged the Government to launch an independent external review of their new approach to consultation without delay, meaning a start in January and the publication of findings by Easter this year. Although the Government have accepted the principle of a review, they are not treating the matter with the urgency that we recommended and that it deserves.
For my part, I have misgivings about whether the Government, even now, have really appreciated the important part that consultations play in the formulation of policy and in winning the confidence of the public, which was one of the avowed intentions in forming the coalition and embarking upon office. Speed is not the prerequisite hallmark of good governance; full and proper consultation most certainly is.
Baroness Hamwee
My Lords, some people might wonder why the Secondary Legislation Scrutiny Committee has given so much attention to the issue of consultation. With the unremitting tide of secondary legislation—except that tides go out as well as keep on coming in—almost invariably the question is prompted, “What has been the response to consultation on this?”. If the answer is not apparent, then the question is asked, “What consultation has there been?”. Our splendid advisers, for whom my admiration grows weekly, have extraordinarily sensitive and alert antennae to this.
It is important for the committee to know the response to consultation in order to fulfil its own remit. We have some specific roles and are also required to look at,
“general matters relating to the effective scrutiny of secondary legislation”.
It is obvious also that a House asked to approve—or at any rate not object to—an instrument needs to know how it has been received. Our chairman, the noble Lord, Lord Goodlad, gave a very comprehensive account of our report. I thank him for his chairmanship. Perhaps I may say that his conclusion was all the more devastating for being delivered so quietly.
The noble Lord referred to the report of the Delegated Powers and Regulatory Reform Committee, chaired by my noble friend Lady Thomas of Winchester. I am glad that she is here but sorry that she felt that she had to take her name off the list this morning because of the weather. I believe that she is waiting for updated weather reports to see how long she can stay. The debate reminded us that it is often secondary legislation that has the greatest impact on individuals. We hardly need reminding of this since so much contentious legislation bites through statutory instruments. We might think that as the amount of primary legislation grows, the amount of secondary legislation would diminish, but that seems not to be the case. The issue is inseparable from that of the House’s narrow and rigid powers explored by the DPRRC and by the Leader’s Group, chaired by the noble Lord, Lord Goodlad. This has been thrown into sharp focus by the high public expectations that fill our in-boxes about what the House can do in response to secondary legislation.
I agree with the proposition that was the starting point of the Government’s exercise: namely, that consultation should not be a matter merely of ticking boxes. However, it fails to recognise that tick-boxes have a place as aide-mémoires. We do not need to abolish tick-boxes to avoid being ruled by them. Consultation is important not just because, like everything government does, the instruments need to be seen from the point of view of those affected—for all the reasons explained by the noble Lord, Lord Hart of Chilton—but because Whitehall does not always know quite how things work in a variety of specialised areas. One may come from Maidenhead or Manchester, not just from Mars, and fail in that regard.
Last week, the regulations on health service commissioning were withdrawn. Our committee had received a huge amount of evidence, including from many professional organisations that understood how the regulations before us would or would not work. They gave very powerful evidence about the practical impact.
Baroness Hamwee
My Lords, I was making the point before the Division that the content of instruments and consultation are not simply technical matters. Our committee received a great deal of evidence on the subject when we put out a call. I shall quote a comparatively small amount—although I am going to quote quite a lot—from the large bundle of evidence that I am holding. The first points come from an individual who wrote:
“The new Principles have retained all of the previous authority of the Government while reducing the scope for individuals and groups to prepare useful submissions. Yet, within the latest incarnation of the No. 10 website, the message is positive and encouraging, and the linked site Inside Government is clear and easy to follow … The contrast between the Principles and the No. 10 site is glaring - Governments must not create difficulties designed to deter the public. In turn, the public has a responsibility to understand the policy and explicit questions asked within a consultation … Individual members of the public generally struggle to be heard as the collective forces of lobbyists, media, and protest groups set about their respective quests. It is understandable that single-interest groups are forming as a response to perceived indifference, often spawning other groups holding alternate opinions. The internet enables such groups to form quickly and at low cost, perhaps inspiring the media … to provide their online readers with facilities to comment directly on articles, swiftly followed by site moderation: give the public a stick and anonymity and they will use both”.
The use of digital media came up a great deal, as did problems of capacity and timescales, which have already been referred to. I shall quote from a small part of the evidence, this time from an organisation. We were told that,
“communicating the consultation questions to all the relevant affected groups: we understand that the Government would do its best to notify all the groups whom it believes would be affected by a particular proposal, however, part of the reason for consultation is to be able to identify any unintended consequences. These may well come from groups whom the Government has not foreseen will be affected by the proposal in question. A two week consultation period will be unlikely to reach them … Many NGOs operate on a consensus basis and would have difficulty in meeting much shorter deadlines. For example, the Women’s Resource Centre”—
which was the witness—
“like many similar organisations, needs its members’ consent before making a response on issues of policy and this cannot be done within a fortnight. Smaller NGOs that have few if any professional staff are likely to find it particularly difficult to respond quickly”.
It is not only NGOs that have problems with short timescales. For some organisations—local government is an obvious example—there are formal processes which have to stick to a formal timetable. We were given evidence by a number of organisations about the burden of consultation. They were complaining not simply about the number of issues which the Government keep throwing up—all Governments do that—but about the burden of being asked to give a quick turnaround. The Bar Council was one of those.
The Women’s Resource Centre went on to state, of the Government’s proposals:
“This approach seems to be based on receiving a ‘yes’/‘no’ response from trusted insiders rather than being ‘a more proportionate or targeted approach’”—
it was quoting from the Government’s comments—
“and it has some obvious adverse impacts”.
“Digital only” or “digital by default” was referred to. The centre then stated:
“Additionally, on-line responses tend to allow less flexibility in the way respondents can answer the questions”.
That rang quite a bell with me. I have often been frustrated by online consultations where it has been very difficult to include any sort of nuance or spectrum of response. I was horrified to hear or see—I am not sure whether it was in the debate on my noble friend’s committee’s report or in the evidence—the suggestion of making a response by Twitter. I hope that we do not come to that.
I understand the Cabinet Office’s wish to ensure that consultation is effective and not wasteful of resources. Although those are entirely benign intentions, the very reaction must have prompted some doubt. As we have heard, there is to be a review, with the involvement of an external advisory panel, not a stakeholder reference group, to “inform the review”. Can my noble friend the Minister give us more information on who will take part in the panel and the review group, on how it will operate, and on anything else that he is aware of that might help your Lordships assess the whole situation?
The Government announced their consultation principles as,
“a new approach to consultation”.
It seems not very long ago that in another capacity, as a scrutiniser, I was being informed of a new approach to consultation which put in place formal processes, a formal 12-week period and so on. I fear that, in seeking efficiency, we may find ourselves on a path back to some of the old ways of doing things, and not in a brave new world.
Lord Bichard
My Lords, I have experienced consultation from several different perspectives during my long years. I have experienced it as a local authority chief executive, as a senior civil servant, as a quango chair, a chair of several major voluntary organisations, and as a non-exec of a private sector organisation providing services for the Government. These experiences have taught me some important lessons.
This first is that, as a rule, and with some honourable exceptions, civil servants instinctively do not much like consultation because it rather slows down the process of implementing their favoured proposal and can throw up some inconvenient but valid objections which even—heaven forbid—Ministers might find convincing. For many of the same reasons, some Ministers and quango chairs are sometimes inclined to circumnavigate the consultation process while, in contrast, voluntary organisations and private providers much value consultation because they often feel that the frequent changes to government policy and operating procedures could and would benefit from more, not less, consultation.
From these various experiences, I have been convinced that policy can be greatly improved as a result of effective consultation. There are many examples of that having happened. It has not yet been mentioned that consultation is also much more likely to ensure that legislation and policy changes are introduced with public support rather than in a hostile environment.
Consultation matters, as the chairman of the committee of which I, too, am a member, so eloquently said. This is a serious and important matter. It is not arcane. It is not just a matter for the nerds, or something that can be swept into the long grass. Not only does it matter, it needs to be regulated to ensure that it is conscientiously and thoroughly undertaken.
Strangely, before the Government introduced these new guidelines, there was, as has already been said, advice in place. It had been agreed with the voluntary sector and other interested stakeholders, and seemed to be working rather well. Although it set a uniform 12-week period for consultation, common sense accepted that sometimes a shorter period would be needed, and that happened when necessary. But perhaps, without having time to look at the statistics which demonstrated that this was being operated sensibly, Ministers were convinced by their officials that this was all taking up too much time, was excessively bureaucratic and was delaying the implementation of vital government policy, and so the new guidance was issued.
Oddly, since it was about consultation, it was not felt necessary to consult those affected. Nor was it felt necessary to prohibit commencing consultations at the start of holiday periods when those affected might not be available. Surely no one would do that deliberately. However, it has happened rather a lot to be a coincidence. It was not even felt necessary to require departments to publish a response to consultations so that respondees could at least see that their views had been considered rather than peremptorily ignored. Of course, if people cannot see that their views are taken note of, they very quickly decide that it is not worth being involved in a consultation at all. A commitment, as has been said, was made to digital consultation as the norm, with no attempt to identify groups for whom this would cause serious problems. No commitment was made at publication for an independent review of how these new arrangements were working.
It has been said that when the Minister appeared before the Select Committee, he appeared to concede significant ground on all these points. Perhaps it would have been helpful to make clear that consultation during holiday periods was not desirable; perhaps it would have been useful to publish some analysis of responses; and maybe an independent review would have been helpful. But the Minister’s later, more considered response suggested that all these matters would merely be looked at as part of the review; not now to be undertaken independently and externally but by the Cabinet Office—which is not perhaps entirely dispassionate on the matter—with advice, it seems, from an advisory committee. At this point I am trying to recall which episode of “Yes Minister” contained this storyline, because I am absolutely certain that there was one. I have been away and I have not had a chance to research that.
The final irony is that these changes have been made to inject a sense of urgency into the policy process and to reduce bureaucracy. So far their introduction has provoked widespread opposition and criticism. It has caused the Secondary Legislation Scrutiny Select Committee to discuss the proposals on at least four occasions, with the Minister attending one of those; it has led to the establishment of a review; and it has led to the establishment of an advisory board and the likelihood of many further debates when the review is published.
Perhaps most important of all, it has suggested that the Government’s commitment to the big society and listening to the voice of civil society is more about rhetoric than a genuine desire to listen to the views of interested parties—especially, I am sad to say, if their views are inconvenient. I suggest that it would be better, even now, to revert to the previous guidelines and, if not, to have a properly independent review carried out with greater urgency than we have seen so far.
The Earl of Lytton
My Lords, I was a late addition to the speakers list, having struggled manfully over the weekend to address the reasons why I could not enter my username and password on the Government Whips website. Eventually I had to e-mail late last night, asking if they would do it on the basis of an e-mail rather than either appearing in person or having filled in the form. This highlights that even those who think they know what they are doing on information technology sometimes fail to unlock the key to the relevant bit they want to get at. I will return to that theme.
Apart from the noble Baroness, Lady Smith of Basildon, and the Minister, I am the only speaker who is not a member of the committee. I am very glad to support the committee because I receive its regular bulletins and I find them extremely useful and the most valuable guide. I would like to mention that in passing.
I congratulate in particular the noble Lord, Lord Goodlad, and his committee on what is a very lucid and well reasoned document. The Government would have done well to accept it without demur or delay; the evidence certainly seems to me to speak for itself very cogently. I agree with him and the other committee members on the importance of the basic issue; efficient secondary legislation and engagement with the public through the medium of consultation is, in my view, the very bedrock of an effective and inclusive parliamentary democracy. It is important that it is respected as a process both by the public and by the Government.
Changes introduced in 2008 were necessary to restore confidence because in some respects the issue of consultation had become a music hall joke in which the “departmental book of dirty tricks” would have indicated such things as a 10-week consultation period starting on 25 July, or a six-week one starting in the first week in December. I have come across both in years gone past. So glaring have some of these examples been in the past that it was quite impossible to believe that the timing was an innocent accident as opposed to being the fruits of calculated design aimed at circumscribing the practicability of any response. I agree entirely with the noble Lord, Lord Bichard, and some of his comments. Having myself been a regular consultee, involved in consultation processes such as those that we are talking about, I know what it is like to find myself thoroughly disillusioned. Even without any realistic outcomes to consultation, as has sometimes happened, and this has already been mentioned, the body language of the whole process was really quite evident to anybody who chose to look at it in the round.
I do not say for one minute that brief consultation periods are wrong. I can think of one last summer that concerned the matter of signatures necessary for parish councils to make payments and the impediment that the previous rules presented to electronic payments—I declare an interest here as president of the National Association of Local Councils—where the consultation on the solution involved a very limited pool of interests. The participants had already sought resolutions that their national body lobby the Government to revise the regulations and make the necessary changes. It was important, particularly in the context of local government finance, to do something sooner rather than later, so arguably a short consultation in the summer holiday period was reasonable in that situation. Even there, though, a two-week consultation would, frankly, have been a complete nonsense. There must be a minimum, as suggested by the committee.
In evidence to the committee, I referred to the practicalities more generally concerning consultations that involve parish and town councils, with their customary cycle of meetings and the customary holiday periods that interpose into those. I do not want to make a meal about it because I am sure that noble Lords are entirely au fait with exactly what that means: in short, it is impossible, under a very curtailed consultation period, to make a proper response. Eventually, it falls probably to one person—either a clerk or the chairman—to try to knock something out for themselves and hope that it actually meets with the general view of the committee. It is not a satisfactory way of doing things and leaves people feeling that they are exposed; on the one hand not being able to consult their members, and on the other hand having to make a consultation of some sort or miss the opportunity. We need to guard against doing things that are administratively convenient but are apparently done without assessing the impact on those whom we are trying to consult. To put it another way, the process at the moment is not sufficiently proof against the proper role and function of consultation being overlooked, so this report is timely.
I noted that one of the consultees, the Consultation Institute, set out a sort of subdivision between short, medium and long-term consultations. I think we need a more elaborate and more sophisticated approach than that crude subdivision but the idea of a simple impact assessment, assessing the gravity of effects multiplied by the numerical instance, seems to be along the lines of a risk assessment and that type of approach that is now well understood in government and outside. There are always going to be cases where the matter is urgent but I do not think that we are ever going to be dealing with emergency measures by way of consulting the world and his boy. However, where the consultees are a small and identifiable group of, say, specialist manufacturers, I can see that a very short and targeted consultation might well be fine in that situation.
Consultation must be an intrinsically organic and human-scale exercise. It has to operate at a reasonable speed for the typical consultee, having regard to their characteristics. Those include their age, their ability to absorb technical detail and their educational attainment, as well as competition for their valuable time.
The noble Lord, Lord Goodlad, referred to my comment in the consultation about the “digital by default” approach. There are a number of issues here. First, taken at face value, that is not the answer. Significant numbers of people do not have digital access. Secondly, many of those who have such access do not have more than basic computer skills. Thirdly, not everyone is comfortable filling in a form online, regardless of their ability with a computer. Fourthly, it is very easy to limit the utility and type of response that one can get from a consultation process by the manner and design of the electronic consultation form, and in particular the space allowed for certain types of answer. Some consultations specifically ask for answers to particular questions that the consultor wants answered. The answers are not necessarily the comments that the consultee wishes to give.
It is very important that we get this right. It will be damaging if the public once again feel that they are being short-changed by the process, by over-short timescales, by artificial limitation of the type and range of issues that can be raised, by the matter not being set in its proper context or by the issue being too complex because it has not been unpacked sufficiently. All those things militate against good consultation. I share the committee’s view that the Government’s response lacks urgency. If we are not careful, there is the risk that the momentum of a very considerable and beneficial piece of work will be lost.
Lord Scott of Foscote
My Lords, I congratulate the noble Lord, Lord Goodlad, on securing this debate. Formally, it is a debate on the report of the Select Committee of which he is the very efficient chairman and of which I have the honour to be a member—as does practically every other noble Lord in the Room. I agree with everything that has been said about the report and the importance of consultation, but I will say a few words of my own.
The purpose of consultation must be to improve the quality of proposed legislation, whether primary or secondary. It is much more important in relation to secondary legislation than to primary. With primary legislation, a Bill will have gone through the House of Commons and will go through its stages in the House of Lords. It will become public property. From time to time there will be comments in the newspapers. Members of the House will receive letters from interested persons, sometimes expressing support and sometimes expressing misgivings. They will be fully informed in that way about the merits and demerits of the proposed primary or secondary legislation before the matter comes to a head.
With secondary legislation, what is the opportunity for members of the public to make those sorts of observations—of support or criticism, as the case may be? If an affirmative resolution of the House is required, in due course the legislation will come before the House. Either it will start in the Moses Room and go to the Chamber or it will be dealt with entirely in the Chamber. However, the notice might not be sufficient to alert interested members of the public to what is afoot. With secondary legislation that requires a negative resolution to prevent it coming into effect, there will be no notice to the public at all. Every now and again, a regret Motion may be tabled. In that way a debate of which the public may become aware will take place, but that is a relative rarity. Secondary legislation that is going to come into effect without any express resolution, and which requires a negative resolution to prevent it coming into effect, is much more common. How, without prior consultation, are defects in secondary legislation of that negative character going to become apparent and be acted upon? Prior consultation, in my respectful opinion, is essential in all cases where the statutory instrument in question is going to come into effect unless there is a successful regret Motion preventing it coming into effect.
The importance of that is obvious and does not need overstating. The importance of the consultation is, first, that defects not necessarily apparent to the Minister or civil servants who have drafted the statutory instruments in question can be brought to their attention and revisions can be made before it is too late for them to be made. The pros and cons of the proposed secondary legislation can be brought to the attention of those who will be affected by the legislation. They may be affected because their interests will be involved by what is proposed. They may be affected simply because they are very knowledgeable about the subject matter of the proposed legislation. In either case, they are people whose comments may be very valuable to the Government for the purpose of obtaining the effective and sensible legislation that must be the aim of the Executive.
The importance of consultation cannot be overstated. However, effective consultation requires that there be communication with the right people. As I have said, they will be people with a particular knowledge of the subject in question and whose interests are likely to be affected by the proposals that will be embodied in the statutory instrument that is under review. They are the people who the Government should consult with before drafting and putting forward the proposed secondary legislation. There is no reason why that cannot be done but, if it is going to be done, it must be done effectively, and if it is going to be done effectively then it must be done with sufficient time for two things to happen. First, there must be sufficient time for the persons who are being informed of the proposals—the persons with whom the consultation is taking place—to think about it and draft a response. Secondly, there must be time for the Government to consider the responses and to act on them as they may think appropriate.
The proposition that there can be a consultation in two weeks is absurd. That suggestion is no more than a request, perhaps, for a fig leaf of consultation that can be held up for public relations purposes as being a consultation when in fact, because of the absence of any time adequate for a proper consultation, it will be nothing of the sort. It will not deserve the description of a consultation. The proposition that two weeks might be adequate is, in my respectful opinion, laughable. It demeans a Government who put it forward as sufficient.
The proposal that there be a flexible time limit is of course acceptable in principle. Twelve weeks as the norm has been satisfactory, but maybe there are cases where that could be abridged, or shortened to some extent. A minimum of six weeks appears to me to be a sensible limit to place on the abridgement possibilities.
Subject to those requirements of genuineness in the consultation process, consultation might be described as being plainly a good thing. However, it is not a good thing if inadequate time is allowed for responses to be given or for thought to be given to them. If insufficient time is allowed, what purports to be a consultation becomes no more than a public relations exercise in hypocrisy. That, plainly, cannot and should not be supported by the House.
I respectfully endorse the suggestions in the report of the committee—of which, as I have said, I have the honour to be a member—of a minimum period of six weeks. I urge the Government, if not to adopt the number of weeks in question, at least to adopt the principle of the essential requirement of time for response and time for thought for anything that is going to be an adequate consultation.
Lord Beecham
My Lords, I congratulate the chairman on his appointment. I take particular pleasure in the fact that I think he is now the only Member of your Lordships’ House from the north-east to occupy such a position, and I am very glad on that account. I also congratulate the noble Lord, Lord Goodlad, and the committee on the report.
Before I joined this House nearly three years ago, I spent 50 years in politics in one form or another, 43 of them as a local councillor. In my innocence, though, I was quite unaware of the degree to which the scrutiny conducted, particularly at the other end of the Palace of Westminster, was so inadequate. It is undoubtedly better in your Lordships’ House. Having said that, though, it is clear that the process of scrutiny is not as good as it should be, and that is partly a function of the consultation process. This first came to my attention when we discussed the changes that were to be made to the Public Bodies Bill. It was quite clear that decisions had in fact been made and that the consultation, to the extent that it did occur, was something of a sham.
I think that I coined the term “pre-legislative implementation” for some of what happened under the aegis of that Bill, and I am glad that the Constitution Committee is looking into that. I recall particularly the noble Lord, Lord Taylor of Holbeach—I do not blame him personally for this—giving constant assurances that there would be consultation in connection with the regional development agencies, and that each would be considered on its merits. In the event, there was no consultation at all and they all went. I do not blame the noble Lord for that; the decision was clearly taken somewhat above his pay grade.
The noble Lord, Lord Goodlad, referred in his speech to contributions from Mars. I can reassure him about that; one item that has been subject to consultation is the reform of the Outer Space Act. On page 26 of the committee’s report it will be seen that 14 weeks were devoted to possible consultation on that, in contrast to four weeks for the statutory instruments concerning the delivery of structural funds—a matter of more immediate concern, it might be thought, to all save those particularly interested in astronomy and the like. Equally, when looking at the Department of Health, one sees some strange discrepancies. Page 32 of the report points out that making nursery milk schemes more effective had an 18-week consultation whereas consultation on the membership of Healthwatch England, a matter that itself particularly concerned scrutiny, took only five weeks. Clearly, something is amiss with all this.
I respectfully differ somewhat from the noble and learned Lord, Lord Scott, on the assumption that we should deal only with secondary legislation. Experience of the Crime and Courts Bill in particular underlined that consultation took place very late; indeed, material was introduced into your Lordships’ House halfway through the passage of the Bill on the basis of consultation that had taken place after the Bill had been launched. In another context, on transforming bailiffs, months elapsed between the end of the consultation and a government response being provided, well into the course of the Bill. So while in many respects secondary legislation would be the prime area, it is not the only one about which we should be concerned.
The difficulty that many of us see is that there is an increasing reliance on secondary legislation to fill in the details not included in primary legislation nor debated during the passage of what, too often, is in effect becoming enabling legislation. I strongly support the committee’s recommendations and hope that they can be implemented in relation to consultation at whatever point it is initiated.
Baroness Thomas of Winchester
My Lords, I, too, applaud the committee’s report and strongly endorse its recommendations. I will just say a very quick word about why consultation is so important, particularly for disabled people. I absolutely accept that there are many sorts of disability, but let us take the disability of somebody such as me, with mobility problems. No one except a disabled person, or their carer or helper, can know what it is like to be disabled. That is why consultation, for this group of people, is so important. People have their eyes opened when they either go round with a disabled person or when they put themselves in a wheelchair. I know a lot of MPs have done just that to see what conditions are like in their constituencies. I note that many of the responses that the committee has highlighted are from charities with a lot of disabled people in them. I will not speak about the PIP regulations again but they are an absolutely classic example of why consultation is so important.
The other thing I will highlight is that a single website for publicising government consultations would be invaluable. At the moment they are all over the place and it is quite a scandal that the Government are expecting some organisations to respond in a very short timeframe. After all, the people in these organisations are usually paid very small amounts, because the organisations are funded by voluntary donations, with no state support. To make these people look all over the place for consultations from the Government is ridiculous. I thoroughly endorse the robust language of the report and hope that the Government are listening.
Baroness Smith of Basildon
My Lords, I first thank the noble Lord, Lord Goodlad, and his committee for a welcome and extremely useful report for your Lordships’ House. This is the second debate on a Secondary Legislation Scrutiny Committee report in the past two weeks to which I have responded on behalf of our Benches. If I am honest, my first reaction on looking at the reports was, “This could be a bit dry”. However, it actually goes much deeper than that. Not only have I have enjoyed participating in, and learnt an enormous amount from, these two debates, but they go right to the heart of our democracy and our role in your Lordships’ House as people who scrutinise legislation. It shows the House of Lords at its best: it is looking at the process of government not in an academic or remote way but in a very practical way and examining the impact of these proposals on parliamentary scrutiny. It has also—I cannot overstate this—given a voice to those who had serious concerns about the changes that the Government have made to the principles of consultation but who had not been given an opportunity to express their concerns or to be consulted in any way, to try to influence that policy before it came in. The House owes a debt of gratitude to the committee for providing that opportunity for a proper consultation on this issue.
I have been quite eager to hear today’s debate and the Minister’s response. The main reason is that, having read through the Government’s statement from July, the reports and the appendices, and the government response, I am still not totally clear what problem the Government are seeking to address by changing the rules and having this new statement of principles on consultations. I hope that we will hear from the Minister today what the problem is that the Government feel has to be addressed and what the evidence base is for the change that has taken place. The Minister’s statement in July is quite clear as to the Government’s stated objectives: that consultation must be proportionate, in terms of time, scale and type; that there should be real engagement rather than just a bureaucratic process; and that thought should be given to with whom Ministers should seek to engage so that there can be a targeted consultation.
However, all Governments would say exactly the same about those processes. In 2008, when the Labour Government brought in the Code of Practice on Consultation which this Government have now replaced, my noble friend Lord Hutton of Furness who was then Secretary of State for Business, Enterprise and Regulatory Reform, wrote in the foreword:
“This Government is committed to effective consultation; consultation which is targeted at, and easily accessible to, those with a clear interest in the policy in question. Effective consultation ... which the Government can use to design effective solutions”.
That 2008 code of practice, which laid out seven criteria for consultation, was a widely respected and very welcome document. Noble Lords here today have asked why we do not just go back and use that 2008 document. Why the change?
In its report, the committee acknowledged that that document was produced for consultation and engagement with those parties who had an interest in such matters. From looking at the way in which these new proposals have been put forward and handled and, from reading the report, the Minister’s first response has led to considerable suspicion that the Government’s priority is to curtail consultation and accessibility to it. The proposals for two areas of the process were announced in a Written Ministerial Statement issued on the last day before the Summer Recess. The Statement made clear that these were now to be the principles, though the Government would have a post facto look at them if they received any representations. That sounds very mealy-mouthed. Of course there would be representations. The Secondary Legislation Scrutiny Committee was overwhelmed with responses when it asked for views on this matter.
As to content, the headline measure was that the 12-week default timescale for consultation was to be dispensed with in pursuit of proportionality and flexibility. That Statement overlooked the fact—as the committee has rightly pointed out—that the 2008 principles already contained such scope for flexibility. In the wider context, when the Prime Minister spoke to the CBI in November 2012, suspicions were then roused about the real intention behind the Government’s changes. What is the Minister’s reaction to the Prime Minister’s comments that,
“we are going further, saying, if there is no need for a consultation, then don’t have one”?
Here are the Government making the decision as to whether or not there is any need for consultation on a government policy. I think we would all agree that the Government do not have a monopoly on wisdom; genuine, meaningful, effective consultation is very important. At that time, the Prime Minister also said:
“When we came to power there had to be a three month consultation on everything and I mean everything, no matter how big or how small”.
Clearly that was not the case, as the committee outlines in its report.
So how does the attitude of the Prime Minister square up to other stated aims of this Government, to foster a new politics of citizen engagement and to promote localism? What has happened to those principles of the big society? Democracy and the big society are about more than casting a vote once every five years in a general election. They are about engagement, and consultation is the opportunity for engagement with the wider community.
I would welcome comments and assurances from the Minister here today, because the Government will have to show by practice and example that suspicions that they want to curtail consultations are unfounded. Failure to engage on process and content before it was introduced will mean that assurances alone will not be enough to allay the fears of those who have raised concerns.
There is much in the statement the Government made in July with which we can all agree. The first purpose of consultation should always be to use the knowledge, skills and information from consultees to improve policy formulation or implementation. I appreciate that no amount of consultation is going to change a key manifesto commitment or policy aim of the Government. But there are few consultations that fulfil those criteria. Many seek the views of those with expertise; the committee used the expression “expert critique”, which seems very apt.
One concern regarding the new principles is the removal of the requirement to provide feedback to participants. Both the Centre for Public Scrutiny and the Association for the Conservation of Energy expressed concerns, and the committee raised this with the Minister. In his response when he met with the committee, the Minister accepted that the feedback would be “very reasonable”, but he failed to make a specific commitment. The committee is right to highlight this as a recommendation. There should always be a timely response with feedback, otherwise the whole process of consultation becomes flawed.
As a slight aside, there is a serious point about the credibility of consultations. There is a great danger that consultation, in itself, is losing credibility with the public. A large proportion of the public now feel that many consultations, not just those of central government but of local government and other organisations, are a sham. The reason is that, too often, nothing significant changes as a result of consultation. We will all know of examples where a majority oppose an issue being consulted on, and yet it goes ahead. In my local area there is a consultation as to whether blood tests conducted at two local hospitals should be bussed up to Bedford for the testing to take place. I have not found anybody in favour of it yet, but it seems to be going ahead, which is quite wrong.
A Guardian article today—I am sure that the Minister is a Guardian reader; he has that look about him—which the Minister’s laugh tells me he has probably read, says that parents have criticised academy conversion talks as a farce. It states:
“Parents at a popular primary school threatened with takeover by an academy chain have labelled a promised consultation a farce after the main questionnaire failed to even ask them if they wanted the school to change status”.
This is a consultation that the DfE has instructed the company wanting to set up the school to undertake. A parent quoted in the article says:
“To not even ask us initially if we wanted the school to be an academy, it’s just indicative of a whole attitude … It really doesn’t seem that they want our views at all. It’s as if the decision has already been made—which we think it has. It’s a bit of a farce”.
I worry about that because consultation is extremely important, as the committee highlighted in its report, in helping the Government produce good legislation. Any Government should welcome that. If the whole process of consultation falls into disrepute, the Government will not get the support, the “big society”, the buy-in or the participative democracy that any true society or Government needs.
We are less likely to see changes in key policies from consultation than we would from consultations on implementation. There is often a reluctance to make significant changes, especially when preparatory work has already been undertaken during the consultation period. It is clear that pre-legislative scrutiny has been useful in ironing out potential difficulties and problems, but when such scrutiny or consultation is inadequate we see the kind of problems that we saw even last week: the Government had to revoke a key order which formed part of the Health and Social Care Act. Adequate scrutiny could have avoided that taking place.
True scrutiny, true consultation, has to be genuine and not a process or exercise. If a Government have no intention of listening or making any changes, then it is frankly irrelevant whether it is two or 12 weeks; it is wasting everybody’s time. Yet the losers there will be the Government and legislation, through the loss of support.
I recall a specific incident when I was a Minister for a devolved department in Northern Ireland. There had been a consultation exercise for the standard 12 weeks. It was brought to me with the original consultation responses and the response that we should make—not a single thing having changed in response to that consultation. When I asked about it, there were clearly two or three significant points. However, as the noble Lord, Lord Bichard, said, when work has been undertaken and a report has been prepared, there is a reluctance to change. I am pleased to say that, on that occasion, we did respond to the consultation and make some fairly significant changes as a result. Good consultation makes for better legislation and better implementation.
I will emphasise four points and ask for the Minister’s comments. First, what is the problem that the Government are seeking to resolve? In its report, the committee is very clear about the amount of consultation that takes place. The Prime Minister’s comment that everything had to be consulted on for three months was not the case. The committee looked at statutory instruments between November 2010 and November 2012 and found that there was a 12-week consultation in only around 25% of cases. Clearly it was not the case that everything was consulted on for three months.
Further evidence was provided to the committee by Oliver Letwin, showing that it was not the case that everything was consulted on for three months, even though there was quite a lot of change. That led to the committee to observe that,
“it would be helpful to the wider public debate if the Government were to recognise more explicitly that Departments have always had, and applied, flexibility over the conduct and timing of consultations”.
The Government do not give their case any credibility by failing to acknowledge that. I would welcome the Minister’s comments on what the problem was and why this had to be brought forward, given the comments made by the committee on that point.
The second point is about “digital by default”. We all know that it is cheaper and easier for the Government to consult via the internet. However, as we have heard, not everyone has internet use. The committee’s report identifies that 23% of people do not have any access to the internet. Last year I received several very neatly written letters from a young man who was highly intelligent but had a form of autism. He was a savant. His letters were very detailed and had drawings attached. He had wanted to be part of a government consultation, but his contribution had been sent back because he had not put it on the appropriate form and had not replied via the internet. It is inappropriate when somebody who wants to respond is prevented from doing so in such a way.
The committee made a number of helpful recommendations. Unfortunately, they were not addressed in the Government’s response. It would be helpful if the Minister would say exactly what is meant by “digital by default”. There is a lack of clarity, particularly when there has not been a response to the points made by the committee.
The committee also made very helpful suggestions on engagement. It is clear from those who responded to the committee’s consultation that a lot of people want to respond, to engage and to be helpful and useful to the Government. Many made very valid points about why the consultation should be 12 weeks. I draw the Minister’s attention to the submission from the Institution for Occupational Safety and Health, which makes the point that as a key stakeholder it can provide invaluable information and suggestions that consulting bodies may otherwise fail to consider. Its members come for practical health and safety input and for help in determining what is workable, effective and enforceable. The institution states that it needs 12 weeks to get that kind of information together in order to be helpful and comprehensive in its approach to government.
The CBI makes a similar point on page 10 of the report. It states:
“How not to do it: employee-owner status ... The consultation opened on 18 October 2012 and closed just three weeks later”,
despite the complexities of the issues raised. Does the Minister think that those organisations raised valid concerns about the nature of the consultations to which they responded? Will he confirm to the Committee that the points raised by those organisations and others will be taken into account and addressed in the review?
I agree with the point of the noble Baroness, Lady Thomas, that there should be a central point for consultations that people can access. Just last week I had to telephone the Home Office because the link I had been given to respond to a government consultation did not work. The department had been helpful in sending the link, but it was not available. A central point for all information would be useful.
I agree with the committee on both review and oversight. I thought that the Minister’s response was trying to be helpful in terms of the content of the review, though I entirely agree that, given the nature of the Government’s principles and the response that there has been, an earlier date would be preferable. I do not think that the points that Oliver Letwin made about the reasons were unreasonable, but they seemed to be taken account of in the committee’s recommendation. If the Minister could explain why there has to be a delay in getting this review under way and reporting back to your Lordships’ House, that would be helpful.
I hope that the review itself will also be subject to consultation. The great error highlighted in the report is that it has not been subject to consultation and has caused problems as a result; it would be useful to have buy-in from consultees. The committee said in its report:
“We recommended an early review because of the strong evidence we had received that a very wide range of interested parties saw the new Consultation Principles as having a detrimental effect on the development of good legislation”,
and said that it had,
“the superficial attraction of speeding up consultations”,
although that is contradicted by the Minister’s own figures that have been passed to the committee.
The committee made some very valid criticisms of how the Government intend to implement the external advisory panel. I am interested in why the Government are rejecting the point.
I think that I have spoken long enough on this issue. I hope that the Minister is taking this debate seriously and understands the real concerns that have been voiced. A lot of weight will be attached to the response that he gives today and to the Government’s review, and I hope that he is able to address the real concerns and worries we all have in the interests of good legislation.
Lord Wallace of Saltaire
My Lords, I am tempted to speak at double speed in the hope that we may finish before we have the next Division. This is for me also the second debate in two weeks on machinery issues, as it were—how we go about things. I started on both thinking, “This is very dry”, but I think that this shows the House of Lords very much at its best—looking at, in the previous instance, how we handle secondary legislation and, in this instance, how we handle consultations.
I intend to answer this not by defending the current Government, because I am aware that these are structural problems of government and of the way in which the Executive deal with the legislature and vice versa. I am conscious, as I think back, that I first used to worry about Henry VIII clauses when I was in opposition many years ago. In reading back to the 2007-08 consultations, I come across phrases like “consultation fatigue” and “the struggles of the Better Regulation Executive”. Indeed, I have a dim memory that my wife was on the Better Regulation Advisory Council at the time, and would come home very frustrated with some of the problems that it was facing about all the different contradictions in attempting to improve regulation and consult with the widest number of parties but nevertheless to reach an end to it.
The noble Lord, Lord Hart, rightly said that speed is not the universal hallmark of good government, but of course delay over extended periods is not the universal hallmark of good government either. If one looks back at some of the other areas in which successive Governments consulted most—airports policy in south-east England, for example—one could not say that one ever cut short consultation on that process. Over the past 30 years, the occasional decision by a Government, whichever Government it was, to override one or two of those consulted parties might have been a good idea. Consultation does not necessarily lead to consensus. I have been involved in consultations over House of Lords reform over the past 20 years, and we have not quite reached consensus on it yet through each successive process of consultation.
One of the starting points for the current Government on consultation is to say to departments, “The earlier that consultation is engaged in, the better”. A process in which you more or less decide what it is you want to do and then, when you have decided, you carry out a 12-week consultation process in which you ask everyone what they think about what you have decided is actually a very bad thing. It would be much better and more constructive—this is part of what the Cabinet Office has been saying to departments—to engage with your stakeholders as early as possible, before things have hardened into a consensus within Whitehall, so that you learn where the obstacles are likely to be and you can actually have a worthwhile exchange of views. That of course means that the Government are likely to consult first with the visible stakeholders and that there is always the problem of those who might be excluded or those who want to be involved. A later-stage consultation in which you allow others who you might not have thought of in the first instance to come in nevertheless is there to be added at the later point. Late consultation risks being a formal allowance for objections to be made; the earlier it is, therefore, the better.
My noble friend Lady Hamwee rightly talked about the burden of consultation on both sides. That came back in some of the evidence submitted to the committee —the number of occasions on which the Government are asking for consultations.
Looking back into some of this, I was struck when I came across the phrase, “the consultation and engagement community”; the professionals who were out there doing their best to catch each consultation as it came through. I am conscious of how far this industry—in a sense, this community—has grown. Coming back on the train—
The Deputy Speaker (Viscount Simon)
My Lords, a Division has been called in the House. We will adjourn until 6.56 pm.
Lord Wallace of Saltaire
My Lords, I was saying when we broke that much of this is about the tension between the Opposition and the Government, legislature and Executive, and that we have a range of long-running problems in how government consults.
I will try to answer the four questions that the noble Baroness, Lady Smith of Basildon, has raised as a focus for dealing with this extremely broad subject. After all, when one talks about consultation, one is covering a very wide range of subjects. What you need to do when consulting about, for example, the patterns of dog ownership and how to address identification of dogs—on which, on a digital consultation, some 27,000 individual replies came in very rapidly—is very different from when you are discussing an issue on land planning, the school curriculum or even perhaps on caravan sites. We have to have different sorts of consultation patterns to some extent for different sorts of issues.
The problem that the Government are seeking to resolve is how to make consultation more effective as government becomes more digital—the digital revolution provides a great many opportunities for us—and as the Civil Service gets leaner and therefore, unavoidably, slightly meaner. We note that a number of people have remarked that government has not been good at responding to consultations. Certainly that is part of what the review will need to take into account: how do we ensure that if you are consulting—and the formal consultation processes, which often come very late in a policy-making process, are the ones which really matter here—government is able to take the consultations into account and to provide a timely response?
On the “digital by default” issue, the Government are moving to a single gov.uk website. One of the things I am most excited about within government is the whole government digital proposal; how far we are beginning to transform the way in which government relates to the citizen as we go through the next digital revolution.
When I first began to be involved in this, I did not believe the DWP statistics about how many benefit claimants were interacting with government digitally. It is of the order of 25% and is expected to go up to about 70% within the next six to seven years. I found this very difficult to believe, but I now understand that we are all beginning to move along the digital corridor much more rapidly than we expected. People who do not see themselves as computer-enabled nevertheless have complex mobile phones through which they are beginning to interact with government. Part of what we hope we are able to do as we make government more open, and make access for the individual and for particular groups more available, is to make the process of consultation easier. There will be a single website, which will list all available consultations. This comes out of the whole governmental “digital by default” proposals.
The question of what is meant by “engagement” takes us into a broad set of issues, in which my noble friend Lord Goodlad raised the question of what we meant by “government by consent” in a modern democracy. I am conscious that part of the problem of how consultations are organised is that consultation now means dealing with a wide range of lobbies and interested groups, which perform the function that 30 to 40 years ago was often performed by political parties, which sorted out the range of political priorities and began to crunch through how you reconciled different priorities. Now that political parties are very much weaker and smaller, we have masses of single-issue groups, volunteer organisations, advocacy bodies, lobbies, interests and protest groups. Travelling back on the train from my party’s spring conference yesterday, I found myself sitting opposite a leading member of a major advocacy group who said that his biggest problem was “all the lobbies”, by which he meant the interested groups with which he competes and for which he wants to see, as do others, a statutory register of lobbyists, which will control their interactions with the Government. We all understand now that the battle over consultation and access to government, which will come up in a further discussion when the Government produce proposals for a statutory register of lobbyists, would take us yet again into this question of transparency, access, government response and so forth.
The noble Lord, Lord Scott, talked about the need for the Government to communicate with the “right people”, but consultation probably also has to be communication with the wrong people as well as the right people. At least, one has to be prepared to listen to the wrong people from time to time, although of course we recognise that communication and consultation early in the process has to start with the most logical stakeholders. However, we do not have to communicate only with them. We have to be careful not to communicate simply with the loudest people, or the best organised or funded.
The Government are therefore committed to open policy-making, as far as possible. The consultation principles say:
“Increasing the level of transparency improves the quality of policy making by bringing to bear expertise and alternative perspectives”.
How we manage that will also depend on how far the groups with which we are dealing are prepared to engage in a much more active consultation process from the beginning through to the end.
On hard-to-reach groups, when we are dealing with major aspects of aviation policy there are a few vulnerable groups about which one has to worry. Clearly, if you are dealing with disability policy, a Government have to make particular arrangements. Similarly, if you are dealing with caravan sites, there are different vulnerable groups and you have to make a particular effort. The Government are well aware of that. It will also come into the review.
The noble Baroness, Lady Smith, remarked critically on the Prime Minister’s comments that, if there is no need for a consultation, we should not have one. Oliver Letwin, in his evidence to your Lordships’ committee, talked a good deal about the principle of proportionality: some very minor and technical changes, such as a change in the name of an authority, do not need lengthy, expensive consultation. However, there are other areas with widespread consultation.
The noble Baroness, Lady Hamwee, talked about small organisations struggling to respond quickly, especially NGOs and local authorities. I emphasise that the consultation principles explicitly protect the compact with the voluntary sector, and we are well aware that the voluntary sector is one of those that are most actively concerned to be included in the consultation process. I reassure the noble Lord, Lord Goodlad, that the evidence presented to the committee will be taken into account in the review that the Government are about to undertake.
I say to my noble friend Lady Hamwee that the membership of the external advisory panel is currently being finalised, and will most likely include a representative from the National Audit Office. We will also take into account the committee’s recommendation that members should be drawn from the charity sector, from industry and from academia to represent a wide range of interests. As members of the committee will know, the review will begin after Easter and the panel will be announced then.
We take all the points made about avoiding holiday periods and the Christmas period into account. I am sure that the gamekeeper turned poacher that we have with us is well aware of occasions in the past when civil servants, and possibly even Ministers, have wished to use those sorts of expedients as ways of minimising the reality of consultation while going through the motions. Again, I suspect that that is a universal and secular habit of all forms of government, and it is part of what good legislatures should always be on the lookout for.
Baroness Smith of Basildon
I am sorry to interrupt. The Minister has made a great effort to answer the many questions that have been raised but, just before he sits down, there is one that I asked him a couple of times: what is the problem that the Government are seeking to address by changing from the 2008 principles to the ones that they brought forward in July?
Lord Wallace of Saltaire
I was saying that as we move towards greater interaction between government and citizen through digital means, the characteristics of consultation will change. I was also remarking that Governments have not been good enough—departments have not been good enough—at consulting with stakeholders at an early enough stage in the process. A formal consultation after you have taken the principal decision is itself sometimes bound to lead to disappointment for those who come in. We are trying to move towards a more flexible and faster system of consultation where appropriate. I hope that that provides an answer.
The review panel that will now be meeting will take fully into account everything that the committee has said and the evidence submitted to it. The panel will be reporting by the summer, and I expect and hope that, as a good legislative committee, this committee will then return to the subject and look at how satisfied it is by the review panel’s conclusions.
Lord Goodlad
My Lords, this has been an exceptionally interesting debate. Your Lordships’ House, as the Minister has indicated, is a veritable revolving door for poachers and gamekeepers, who are well represented here today.
Lord Chesterfield, in a letter to his son on the subject of women, wrote:
“A man of sense only trifles with them, plays with them, humours and flatters them, as he does with a sprightly and forward child; but he neither consults them about, nor trusts them with, serious matters”.
A bit later, when it was suggested to Arthur Balfour that he might consider the views of the Conservative Party conference on a particular matter, he said that he would rather consult his valet. However, times have moved on. There is now experience, custom, practice and indeed jurisprudence. I am grateful to the noble and learned Lord, Lord Brown, who was in his place until some time ago, for reminding me that the jurisprudence is summed up in the statement of the basic requirements for consultation originally formulated by counsel and adopted by the judge in R v Brent London Borough Council, ex parte Gunning in 1986, which was accepted and approved in courts thereafter. It says, first, that consultation,
“must take place at a time when proposals are still at a formative stage”.
Secondly, it says that,
“the proposer must give sufficient reasons for any proposal to permit of intelligent consideration and response”.
Thirdly, it says that,
“adequate time must be given for consideration and response”,
and, lastly, it says that,
“the product of consultation must be conscientiously taken into account in finalising any statutory proposals”.
That is the building block in the jurisprudence that no Government can afford to ignore. There is experience, custom, practice, jurisprudence, the 2008 code and, now, the review.
I am extremely grateful to all noble Lords who have participated in this debate and to the Minister for what he has said and the assurances that he has given. I have to say that what he said about the digital revolution did not encourage me. I hope that it resonates with the Government that there are an enormous number of people in our society, however many more come on to the web, who are not joining up to the digital system and never will, and they are going to live for a very great deal longer. Unless the Government understand that, they are going to get into a tremendous muddle, and so is everybody with whom the Government deal. I really hope that they will look at that a little bit more carefully.
We wish the Government well in their aspiration to improve consultation. As the Minister said, people throughout the country will join us in scrutinising their efforts and the committee will certainly join them in doing so. The proof of the pudding will be in the eating.
House of Lords
Inequality: Income and Wealth
(11 years, 9 months ago)
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The Commercial Secretary to the Treasury (Lord Deighton)
My Lords, fairness underpins the Government’s plans to reduce the deficit. Universal credit will allow people to keep more of their income as they move into work, while the personal allowance increases announced by this Government will benefit 25 million individuals. As a result of this Government’s actions, the richest pay more tax on capital gains, more stamp duty on their homes and more tax on their pensions, and they are less able to avoid or evade tax.
Lord Dubs
Listening to that Answer, one would not be aware that the disparities in wealth and income in this country have reached record levels. Will the Minister confirm that 1% of the top earners earn 10% of income? The Government are being criticised on the grounds of their inequality policies by everybody from the bishops to the anti-poverty lobby—people who know what is going on. Further, does he not agree that when inequalities in a country get beyond a certain level, as they have here, our social cohesion is seriously damaged?
Lord Deighton
With respect to the 1% of the top taxpayers, the first point I would make is that actually they are responsible for paying 24% of income tax. The top 10% pay just under 50% of income tax—I think it is 44%—so their contribution to our revenues is the greatest in proportion. As for the development of inequality since this Government came into office, the commonly accepted measures of income inequality have in fact decreased.
Lord Forsyth of Drumlean
My Lords, will my noble friend confirm that the substantial increase in the capital gains tax levied, which was forced through the coalition by the Liberals, has led to a dramatic reduction in the revenue from capital gains tax?
Lord Deighton
I thank my noble friend for that question. I am not aware of the initial revenue yields. I asked the department earlier, and it said that it did not break it down that way. My noble friend clearly alludes to the importance in tax management of understanding the ultimate yield on a tax, rather than simply assuming that when tax rates are changed people will continue to behave the same.
Lord Peston
My Lords, is the Minister aware that, apart from me, the leading researchers in this subject all agree that there is far more inequality in our society than is required for the efficient working of the economy? Therefore, it follows that the inequality is totally unjustifiable.
Lord Deighton
There is clearly a relatively academic debate about the impact of equality and inequality on efficiency. All I can tell noble Lords is that this Government and their policies are focused on ensuring that, at the top end, those in receipt of large incomes and with significant wealth have been by far the major contributors to the consolidation of our deficit.
Lord Howarth of Newport
My Lords, given the view of employers that business competitiveness requires the replacement of British jobs by new technologies at home and by low-paid jobs abroad; given the Government’s view that the rate of income tax paid by the wealthy should be cut, public services for us all should be cut and the incomes of the poor should be cut; and given that, taking these together, the effect is a reduction of demand in our economy and widening inequality in our society, how do the Government foresee growth and the fruits of that growth being shared equitably among all our people?
Lord Deighton
There are a significant number of issues in that question. At the heart of this Government’s economic policy is that until we are able to balance our public finances, it is extraordinarily difficult for us to grow this economy in a sustainable way. All our policies are devoted to making sure that we can consolidate our fiscal position and that the contribution to making that happen is appropriately distributed, with by far the most significant contribution coming from those who can afford most. At the bottom end of society, we have a welfare system that works on the basis of incentivising people to get back into work. I absolutely agree that jobs transform lives. The 1 million-plus private sector jobs that have been created are a welcome development in the economy.
Lord Waddington
My Lords, may it not be more sensible for the Government to concentrate their efforts on trying to increase the overall wealth of the country, rather than rabbit on about how they might divide a perhaps declining cake?
Lord Deighton
My Lords, I absolutely agree—I am sure everybody does—with the sentiment that it is much easier to argue over the slices of an increasing cake than to divide one up that is static or shrinking.
Lord Barnett
My Lords, on the noble Lord’s major point about increasing personal allowances as a factor, does the greater relief go to somebody on £50,000 a year or somebody on £15,000?
Lord Deighton
What I can tell the noble Lord about the increase in personal allowances is that it is a highly progressive change in the tax system. It applies to about 24.5 million or 25 million taxpayers, who will enjoy a benefit of about £400 from it in 2013-14, and it takes just over 2 million people out of the tax system.
Lord Avebury
Has my noble friend studied the evidence published by the Equality Trust, which shows that across all the OECD countries, and similarly across all the states of the United States, there is a strong correlation between income inequality and indices of social malfunction such as crime, alcoholism, and teenage pregnancies? Considering that we are the second most unequal state in the whole comparison, does he not think that the Government’s policies should be strengthened to deal with those inequalities?
Lord Deighton
I thank my noble friend for pointing out that the causes of some of these social challenges are broader than those that will be tackled by our tax policy. It is much more important to get to the root causes and deal with issues such as education challenges, other public services, alcoholism and the breakdown of family life. That is extremely important.
Lord Eatwell
The noble Lord has made much in his Answer of the proportion of taxation paid by the highest earners. Is not the reason for this that their gross incomes are excessively high compared to those of others in our society?
Lord Deighton
The noble Lord is correct that it is a simple question of arithmetic. At equal changes, they will make the greater contribution. However, if one looks at the distributional analysis—it is to the Government’s credit that at each fiscal event we lay out the distributional analysis, which is a great step forward—it shows that their increase is proportionally greater than the amounts they have.
Justice: Legal Advice
(11 years, 9 months ago)
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The Minister of State, Ministry of Justice (Lord McNally)
My Lords, these matters were assessed as part of the impact assessments, which were published alongside the Legal Aid, Sentencing and Punishment of Offenders Act 2012.
Lord Bach
My Lords, I thank the Minister for his reply as far as it goes but I do not think it is very full on detail. It is now only 21 days until civil legal aid effectively disappears, affecting access to justice for perhaps hundreds of thousands of people every year. What do Her Majesty’s Government think will happen to the disabled person, for example, who wants to appeal his or her Atos decision, or the person who needs housing advice but cannot get it because the local Shelter housing advice centre has been forced to close, as today’s newspapers report? What are the Government’s contingency plans when unadvised and unrepresented clients flood courts and tribunals? No one can say the Government have not been warned, all the way from the very top of the legal system to small charities that are at breaking point. What will the Government do when it all goes wrong?
Lord McNally
My Lords, we are working on some of these issues. We are working with the judiciary to improve guidelines for people representing themselves in court. We are developing a new online information service to help people find out if they are eligible for legal aid or signpost them to other services. We are giving £65 million of funding to help not-for-profit social welfare advice providers to adapt and transition over the next two years. We are also encouraging innovations in the legal services market, such as the provision of lower-cost advice services to help people in resolving their problems.
Lord Naseby
My Lords, how can anybody make a useful assessment in such a short time as there is from now to the changes? Should we not recognise that great trouble has been taken over these proposed changes? In a very tight financial situation, has not the time come to see what happens and then, if necessary, make changes one way or the other?
Lord McNally
I thank my noble friend for that question. It is true that the noble Lord, Lord Bach, has made something of a cottage industry of—
Lord McNally
He continually talks about what is going to happen. As my noble friend has just said, let us see what happens. As I indicated, we are making a number of changes. Of course I understand that there are difficulties for organisations such as Shelter and the CAB. We have tried to give assistance in those adjustments. It is extremely difficult to give precise responses to predictions of catastrophes that may or may not happen. I can say to my noble friend that we will keep these matters under review. As noble Lords on those Benches will remember, on their instructions we inserted into LASPO a clause that allows review of the impact of the changes that we have made.
Baroness Butler-Sloss
My Lords, I will not ask the Minister about legal aid, but is he aware of the increased importance of law centres and citizens advice bureaux advising unrepresented litigants, of which there will be an enormously increased number come April? What are the Government going to do to help them advise unrepresented litigants?
Lord McNally
Yes, my Lords, I am aware of that, but one of the points I have made continually through this is that the CAB and the law centres will have to adjust to a situation where the amount they have at their disposal is a lot less, just as my department and local authorities have had to do. That is a fact of life. As I have said on a number of occasions, we are a lot poorer than we thought we were four years ago. Citizens Advice has been extremely successful in lobbying and, as I have indicated, we have made more funds available. For example, my right honourable friend the Lord Chancellor has announced today that we will be giving further aid to the CAB at the Royal Courts of Justice to help with the particular work it is doing in this area.
Baroness Hollis of Heigham
My Lords, in three weeks’ time the bedroom tax will kick in—and I use the phrase “kick in” advisedly. Some 660,000 families, two-thirds of them including someone with a disability, will lose between £14 and £25 a week from their benefit. Given that, despite the noble Lord’s answers, CABs are losing—locally, certainly—some 40% of their funding because the Lord Chancellor’s money has dried up, where does he expect those 660,000 families to go for advice?
Lord McNally
The Opposition continue to preach gloom and doom about this. They will be entitled to bring to our notice how these impacts take place, but we have put a number of measures in place to try to deal with this new situation. We have put on a new online information service, we have given Citizens Advice and other advice centres transitional money and will continue to do so, and we are looking for innovations in legal services from other parts of the legal profession. We will see what happens.
The Chancellor of the Duchy of Lancaster (Lord Hill of Oareford)
My Lords, we are now into the 17th minute, so I fear we must move on to the next Question.
Railways: Reopenings
Lord Faulkner of Worcester
To ask Her Majesty’s Government what plans they have for future railway reopenings.
Lord Faulkner of Worcester
I beg leave to ask the Question standing in my name on the Order Paper and remind the House of my railway interests declared in the register.
Lord Popat
My Lords, the Government recently announced a £20 million new stations fund to support the development of new stations promoted by third parties in England and Wales. The Government have also allocated funding for the reopening of a key part of the strategic east-west rail route in Oxfordshire and Buckinghamshire. We believe that local authorities are best placed to consider whether a rail reopening is the best way to meet local transport needs.
Lord Faulkner of Worcester
My Lords, I welcome the Minister to the Dispatch Box for his first transport Question. He has given the House a positive Answer, which I hope indicates that the pro-rail consensus in this House is in good order. The Beeching report was published 50 years ago this month. Its implementation cut off a third of the network and deprived many parts of the country of access to the railway. Does the Minister agree that one of the most shocking parts of the Beeching legacy was the indecent haste with which so many closed lines were sold off and the land built over, which made their restoration expensive and often impossible? While the Minister’s support for reopenings is good news, will he take a particular look at schemes which run across local authority boundaries and which would bring major benefits, such as the Lewes to Uckfield route and the suburban lines around Bristol?
Lord Popat
I thank the noble Lord for his Question and I know he has considerable knowledge of this area. I had the pleasure this weekend of flicking through Holding the Line, his excellent book on Britain’s love of railways, and it touches on the Beeching report. With the benefit of hindsight I do not believe anybody feels that the Beeching report’s legacy is all positive. The noble Lord raises some of the most frequently expressed concerns. Regarding the Lewes to Uckfield line, I know that this is a long-standing campaign supported by many local residents. Network Rail has agreed to carry out a study into the capacity of the nearby Brighton line and the reopening of the Lewes to Uckfield line is one of the options being considered. The department is unaware of any work comparing the benefits of investment in rail schemes and road schemes in this corridor. In instances where proposed schemes go across local boundaries, we will, as always, encourage the authorities to work together.
To sum up the noble Lord’s response to the Beeching report, I had the privilege of looking at the report this weekend. It is fair to say that the author could not foresee how the country would change in the subsequent 50 years. Different times require different responses.
Lord Bradshaw
My Lords, will the Minister take into account the variations in cost between opening a line that has been closed, opening a station that has been closed and putting money into services such as Nottingham to Lincoln, where a small amount of money would greatly enhance the service and utility provided?
Lord Popat
My Lords, it is for the local authorities and PTEs working with the local enterprise partnership to determine whether a new railway line, train service or station is the best way to meet local transport needs and the wider strategic objectives of economic growth, housing growth and carbon reduction. With regard to the cost, if there is a good business case, I am sure the local authority will look into it.
Lord Davies of Oldham
My Lords, I, too, welcome the noble Lord to his new responsibilities and look forward to our future exchanges. I will begin with a very gentle question. Given that capital investment in Network Rail has been slashed by more than a £1 billion by the Government since they came to power, does not £20 million to local authorities look like a flea bite?
Lord Popat
My Lords, I thank the noble Lord for his compliment. The £20 million that has been allocated by the Government is for the 14 new bids that we have recently received. With regard to the investment of £1 billion, one must look at the McNulty report where the study recommends a review of a number of things. One of the recommendations, if implemented, will bring efficiencies and savings of between £2.5 billion and £3.5 billion.
Lord Spicer
My Lords, does my noble friend accept that before privatisation all the talk was of the closure of railway lines and that after privatisation it is all about reopening them? Nowhere is this more true than on the line to Worcester that the noble Lord, Lord Faulkner, champions.
Lord Popat
My Lords, the council has submitted a bid for funding a parkway station on the Worcester to Oxford line. While the bids are being considered, it would be inappropriate for me to comment on the merits of this scheme. Since privatisation the number of passengers travelling on our railways has gone up by 60%.
Lord Snape
My Lords, in this spirit of co-operation, I ask the Minister on his first appearance at the Dispatch Box to consider paying tribute to Mr Tony Speller, the former Conservative Member of Parliament for North Devon, who died recently, whose amendment to the Transport Act did so much to help to reverse some of the disastrous decisions that were taken following the Beeching proposals 50 years ago.
Lord Popat
My Lords, I agree with the noble Lord; we must pay tribute to him. I also pay tribute to my noble friend Lord Fowler, who, when he first became the Secretary of State in 1979, was the one who put a stop to the closure of railway stations.
Armed Forces: Reserve Forces
(11 years, 9 months ago)
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Lord Rosser
To ask Her Majesty’s Government what progress is being made towards achieving the projected increase in the size of the United Kingdom’s reserve forces.
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever)
My Lords, the first year of the Future Reserves 2020 programme has been about stabilisation and understanding. The number of inquiries about reserve service has increased, and early indications are that strength is stabilising. We recently conducted a public consultation to ensure that the right relationships were established between reservists and their families, their employers and the Armed Forces. We intend to publish a White Paper in the spring that will set the conditions to deliver the reserve force strength we require.
Lord Rosser
My Lords, the future strength and capability of our Armed Forces is dependent on increasing our Reserve Forces to 30,000 by 2018, yet the Territorial Army has declined by 1,000 over each of the last three years. In the year up to this March, it looks as though the number of recruits will be well below target. A Federation of Small Businesses survey showed that even among members who are open to employing reservists, two out of every five believe that the Government’s future requirement that reservists serve and are away from their civilian jobs for one year out of every five would negatively impact their business. What action do the Government intend to take to accelerate recruitment to our reserves; what incentives will be given to employers to hire reservists; and what protection will be given to reservists to prevent them being discriminated against in respect of both hiring and promotion?
Lord Astor of Hever
My Lords, we acknowledge that this is the start of a challenging programme to reshape our Armed Forces. We inherited Reserve Forces that were in decline and not being used in the most cost-effective way. What we are setting out to do is sensible and achievable, and the planned strengths are well within historic levels. However, we are not complacent, and we are already running a major recruiting campaign for the TA. This has already resulted in over 6,650 inquiries since it started on 17 January. The Government are fully committed to delivering Reserve Forces that are integral to and integrated with the Regular Forces, and we are investing an additional £1.8 billion over the next 10 years.
Lord Trefgarne
My Lords, is my noble friend aware, in his reference to the historic situation with Reserve Forces, that I stood at that Dispatch Box and announced the increase in the Territorial Army, not to 31,000 but to 83,000, and that I announced the formation of 607 City of York Squadron, Royal Auxiliary Air Force, to be deployed in support of 2nd Infantry Division, then commanded by Major-General Peter Inge, now of course the noble and gallant Lord, Lord Inge? Is he also aware that I stood at that Dispatch Box and announced the purchase of 11 River class minesweepers, exclusively for the Royal Naval Reserve, assisted on that occasion by the then Commander Alan West, now of course Admiral Lord West, the noble Lord, Lord West?
Lord Astor of Hever
My Lords, I remember well when my noble friend was a very distinguished Minister standing at this Dispatch Box, and I believe I lobbed the odd question at him. My noble friend mentioned the figure of 83,000. That is why we are very optimistic that we can get up to a figure of 30,000 by 2018.
Lord Dannatt
My Lords, when the noble Lord, Lord Trefgarne, was announcing the things he has just referred to, I was a mere Lieutenant Colonel working as a military assistant to the Minister of State for the Armed Forces. Therefore, we are all aware of the aspirations for our Reserve Forces and the way it has worked out. We are all committed to making this policy work in the interests of the security of the realm, the safety of our citizens, and the well-being of the Armed Forces. However, as this Government think about the next defence review, are they also thinking of an alternative if we are not able to recruit Reserve Forces of the size that we currently need? Might we think about increasing the size of our regular Army in particular?
Lord Astor of Hever
My Lords, we are thinking optimistically. I quote General Monro, who is head of the Territorial Army, and who is very focused on its success. He said:
“There is a mission, and we have to achieve the mission. I am confident that we will get there.”
We intend to maintain appropriate force level to meet our planning assumptions. If necessary, mitigation strategies are in place to ensure that we can take early action to maintain an appropriate force level.
Lord Anderson of Swansea
My Lords, is it not the truth that the Government are currently below their projected targets? Is not the Government’s failure to estimate the number of SMEs, because employers and employees within SMEs are more reluctant to join and co-operate with the Government’s targets, part of the problem? Will the projected and likely decrease in recruitment centres have an adverse effect on recruitment?
Lord Astor of Hever
My Lords, we have always recognised that reversing the long-term decline in the Reserve Forces and increasing their strength would be challenging, which is why an additional £1.8 billion is being invested in them and why we have recently conducted a public consultation to ensure that the right relationships are established in future between the reserves and their families, their employers and the Armed Forces. As I said earlier, the number of inquiries has increased and early indications are that the strength of the reserves is stabilising.
The noble Lord mentioned SMEs. We aim to tailor our approach, adjusting our working practice to reflect the different opportunities and impacts of reserve service for different employers—public and private, large, medium and small—as well as by sector.
Lord Palmer of Childs Hill
My Lords, can the Minister tell us how, in the rush to increase our Reserve Forces, we will ensure that the relevant skills are available from the new reserves so recruited?
Lord Astor of Hever
My Lords, all three Armed Forces are recruiting reservists against defined military trade requirements. Some reservists seek to use their civilian skills in their military role, and we encourage them to do this, but many do not, and training will be provided in the required military trades. In future, we seek to achieve greater accreditation of training and increased mutual recognition of civilian and military qualifications between the Armed Forces and civilian employers.
Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2013
(11 years, 9 months ago)
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Lord Newby
That the draft orders and regulations laid before the House on 28 January be approved.
Relevant documents: 18th and 19th Reports from the Joint Committee on Statutory Instruments, considered in Grand Committee on 4 March.
Renewables Obligation (Amendment) Order 2013
Baroness Verma
That the draft order laid before the House on 4 February be approved.
Relevant document: 19th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 6 March.
Lord Gardiner of Kimble
My Lords, I beg to move the Motion standing in the name of my noble friend on the Order Paper.
Legal Deposit Libraries (Non-Print Works) Regulations 2013
Lord Gardiner of Kimble
That the draft regulations laid before the House on 28 January be approved.
Relevant document: 18th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 6 March.
Enterprise and Regulatory Reform Bill
Baroness Whitaker
“( ) in Schedule 1, paragraph 6;”
Baroness Whitaker
My Lords, I support the amendments of my noble friend Lord Stevenson of Balmacara in this group, but I will speak to the ones in my name. I tabled these amendments in Committee and will not repeat what I said at that time. The reason for their reappearance is that in his reply on 28 January the Minister said that I had raised an interesting point which deserved further consideration. He went on to say,
“we shall have the opportunity to consider these very specific issues more carefully”.—[Official Report, 28/1/13; col. GC 443.]
At a subsequent meeting that the noble Lord helpfully held with us and his officials, I was assured that my points were taken and that they were working on a solution. Now is the time, I hope, to hear it.
I briefly remind noble Lords that Amendment 84ZBA applies the new copyright protection to works of art made prior to June 1957 and brings the UK back into compliance with European legislation. Amendment 84ZEB is pretty much consequential to Clause 66 to make sure that regulations apply to copyrights which were never protected under previous legislation but will be now, again bringing the UK into compatibility with the decisions of the European court. Amendment 84ZEA allows a short transition period, with a possible extension for third persons who manufacture or hold stocks of copies of design works within the European Economic Area.
I also remind noble Lords of the present situation for our many talented designers who contribute sizeably to economic growth. Because sufficient protection has been lacking, the UK has become a safe haven for the sale of replicas of designs which breach copyright. Only two other countries in Europe behave in this way—Estonia and Romania. Criminal prosecutions are pending against UK-based suppliers in other countries. We should not allow this damage to the reputation of our design market, potentially one of our great strengths. No British jobs are at stake if we implement these amendments and fair competition, as well as our international reputation, will be improved. Our brilliant design businesses will have more security to develop, so I very much look forward to the Minister’s reassurance.
Lord Clement-Jones
My Lords, I would like to speak to Amendment 84ZC in this group. I come from a slightly different perspective from that of the noble Baroness, Lady Whitaker, because there is particular concern among publishers that the giving of full copyright protection to three-dimensional artistic works will impact on those who create two-dimensional images of such works, including publishers, museums, educational establishments and filmmakers, and that designers taking inspiration from existing works will be penalised.
There is particular concern that this clause will have an adverse effect on the publishers of books that include images and description of artistic works. This consideration was wholly absent from the impact assessment. Where such books currently include copyright material, they may possibly come to be in breach of copyright as the images and descriptions being used will have had their copyright term lengthened. Furthermore, implementation of the clause will have a serious negative effect on the future ability of publishers to produce such books.
In Committee, the Minister responded to a debate on an initial amendment, and said:
“The amendments seem to be intended to create special cases for particular uses of works. It is not clear that there is a compelling reason for some artistic works to be treated differently in that way”.
However, the Minister further said that exceptions being proposed as part of the modernising copyright programme could cover the situation. He said:
“These will include, for example, an amended quotation exception, which will permit the use of photographs of artistic works in situations that the courts determine to be fair, and new exceptions for education. Those could cover some uses envisaged under the amendment”.—[Official Report, 28/1/13; col. GC 437.]
This amendment is designed to elicit a more detailed statement from the Minister about the expected exceptions, such as quotation, education and fair dealing. It is important for him to clarify issues about the retrospectivity of the clause where legitimate copies have been made of a work after the expiry of the design protection and before the new extended term of copyright protection has arisen under this clause. Can existing photographs, for example, be used in newly published works? What is the position of reprints?
The Government also need to give details of the impact of this clause on publishing and other sectors and to give assurances about the formulation of the transitional provisions accordingly. In that respect I support, and have added my name to, the amendment tabled by the noble Lord, Lord Stevenson, about when this clause might come into effect.
Government Amendment 84A is also in this group, which I very much welcome. We debated the former Clause 66, which is now Clause 67. I may get my retaliation in first in terms of welcoming the clause. It is a good omen for going forward in further discussion on Part 6, and a good omen for discussion on the exceptions when we come to them later this year. I am delighted with the Government’s very clear statement about the use of Clause 67, and I know that it will be widely welcomed.
Baroness Brinton
My Lords, I want to add my support to the comments that have been made so far this afternoon, but perhaps from a different sectoral perspective. There are certainly a number of concerns about how this clause will affect designers and manufacturers. In particular, universities and colleges want to draw attention to the fact that it will substantially affect teaching, research and design. The ability to display photographs of designs is essential to the teaching of design. The change in copyright terms for these articles would mean that in future, any academics seeking to do this in a way which is not covered by the existing exemptions—including any digital reproductions such as displaying Powerpoint slides during a lecture—would have to seek a licence to do so. This will also apply to publishers reproducing photographs of industrially produced articles, or museums which may wish to display such articles.
We share concerns that this will frustrate the development of the creative sector in the UK, and the teaching of subjects associated with it. As has already been mentioned, the impact assessment focused very much on the commercial uses of designs, such as manufacturers of replica furniture and household goods. I believe that it should consult with non-commercial users of designs which are currently covered by Section 52 of the Copyright, Designs and Patents Act 1988, such as academics, museums and publishers to ensure that its appeal does not have an unduly negative effect. To this effect, I support Amendments 84ZC and 84ZE.
Baroness Buscombe
My Lords, I support my noble friend the Minister in his Amendment 84A to Clause 67. It is a sensible amendment that recognises that the IPO’s original Henry VIII wording was not fit for purpose. If I may say so, it skilfully overcomes legal and parliamentary complexities to meet this stated aim of the Government since this clause was first introduced in another place. As I understand it, the clause now maintains criminal penalties for copyright infringement without inadvertently giving this or future Governments power to introduce copyright exceptions.
Lord Jenkin of Roding
My Lords, I have some sympathy with the amendment moved by the noble Baroness, Lady Whitaker. The protection of designs is a hugely important part of the whole question of intellectual property. I am not convinced that the Bill as drafted adequately protects this, and I shall be very interested to hear what my noble friend on the Front Bench says. I understand the points that have been made by my noble friend Lord Clement-Jones and others about the desire of the people who might want to use this for other purposes, but I feel very strongly that it is necessary to protect the property rights of those who were responsible for the original design. As I understand the amendment of the noble Baroness, Lady Whitaker, that is the intention that she has put forward.
When I spoke on this Bill before, both in Committee and at the previous Report sitting, I was initially given the impression that this issue was not sufficiently high on the Government’s agenda. However, by the time we had finished the Committee stage, and in the light of the amendments which my noble friend has tabled and to which reference has already been made, I have been reassured. However, I still feel that those who are responsible for creating the designs—they may be designs of all sorts of artefacts and artistic works—should have their rights properly protected. Having heard the noble Baroness, Lady Whitaker, and having read some of the briefing on this from bodies that represent designers of all sorts, I am not wholly satisfied that the individual’s rights are properly protected. I shall be interested to hear what my noble friend has to say when he replies to this debate.
I should add that I am very much in favour of and welcome government Amendment 84A in this group. That seems to be a considerable improvement and reinforces my view that my noble friend is doing his best to try to hold the balance fairly. However, on this question of design, on which the noble Baroness, Lady Whitaker, laid emphasis, and on which I have seen some of the representations that have been made, I still require reassurance. I hope that my noble friend may be able to provide it.
Lord Howarth of Newport
My Lords, I should like to enter a dissenting note in relation to what was said by the noble Lord, Lord Jenkin, and my noble friend Lady Whitaker on this specific question of designs—for example, of furniture. It is not clear to me why it would be an improvement to extend the period of protected copyright in a registered design from the 25 years that has prevailed for a long time past to the proposed “life plus 70 years” period. The effect would be to perpetuate monopolies held by designers and their assignees, and by those who purchase intellectual property from them.
It is of course essential that there be a proper period of protection for intellectual property and that designers and other originators of intellectual property are able to enjoy a proper return and reward for their investment. However, it is not clear to me why the prices of the items that they designed—tables and chairs, for example—should be kept artificially high beyond 25 years, for perhaps 100 years and more.
Let me quote to my noble friend William Morris, a pioneer of English socialism and of English domestic design, whose general injunction was:
“Have nothing in your house that you do not know to be useful, or believe to be beautiful”.
He also said:
“I do not want art for a few any more than education for a few, or freedom for a few”.
We must reward and incentivise our designers, but we must keep a balance that will enable people to have beautiful things in their homes. It is not clear to me why the price of a Charles Eames chair or an Eileen Gray table should be kept very high for long periods beyond 25 years, thereby preventing ordinary people having beautiful things in their homes.
I wonder also whether the proposed extension would prove to be policeable. I do not know what the noble Lord and my noble friend anticipate the intellectual property regime will be that will successfully police the manufacturing of furniture by, for example, 3D printing. The pace of change in the digital economy and its extent is so vast that we may need to think in more radical terms about how we find ways to protect the legitimate interests of individual and private rights holders while extending the benefits of digital design that are capable of being replicated at virtually no cost as rapidly and extensively as possible. I wonder whether it is sensible to try to continue to shore up this decaying edifice of traditional copyright, or whether Governments and possibly charities should not be finding ways to give the rewards to the designers but, at the same time, allow the maximum number of people to have the benefit of those designs as early as possible.
Baroness O'Neill of Bengarve
My Lords, the noble Lord, Lord Howarth, has put his finger on the real difficulty for designers. It is not that the period of copyright protection is too short; rather, it is too ineffective. What is needed for our designers is some method of ensuring that their designs are not ripped off extremely rapidly so that they have no effective period of protection. I have heard it said that new fashion designs that appear on the catwalks of London or Paris are copied within a very few weeks, and the copies are then retailed in our shops. If we wish to protect our designers, as we surely should because they are so talented, it seems to me that that is the direction in which we should look. Rather than extending the period of copyright protection, it should be made an offence to sell something that was designed within a shorter but reasonable period of time, and such goods should be seizable if they appear in the retail markets here.
Lord Stevenson of Balmacara
My Lords, as has already been said, all of us around the House can welcome Amendment 84A. This has been a troubled point that has caused difficulty in another place as well as in Committee and here, so we welcome what has now been drafted. We think it does the trick, given what it was intended to do, so we are happy to put our weight behind it. However, it will be obvious from the short debate that we have already had on this rather complicated set of amendments on a rather complicated part of the Bill that not everybody is happy with the direction of travel here. It is important to reflect for a second on why that is.
The debates are really all about whether the Government are right to delete Section 52 of the Copyright, Designs and Patents Act and whether, by so doing and so ending the current regime of registered designs, which, as has been said already, has lasted for a good number of years, the Government have really and fully considered all the issues that flow from that decision. Implications would arise for products that are or are about to be put out of rights protection under the present registered design period of 25 years, and that will in future be copyright for a period of 70 years after the death of the designer. That is a substantial change.
As the noble Baroness just said—and I have a lot of sympathy for this—there is growing concern that the whole approach, which is reflected by this proposed change, goes against where good sense would suggest the issues are going to go in the future. Some countries have very little legal protection for copyright, and what there is is very weak, and others are moving in different directions from us. What is the point of trying to tie down longer periods during which protection could be offered if you cannot also put forward the necessary arrangements under which that protection is to be guaranteed?
There is of course a case, and a very good one, to be made for letting industrial designers have the same protection for their efforts as are available to composers, writers and the like. However, there are still some very real questions on this issue, which have led me to put down the amendment, which would delay the implementation of Clause 66 and give us time to consider two very different and rather important issues. The first is whether this is the right decision, and if so how and on what basis it will be introduced. We have not been given the detail here, we have not seen the draft regulations, and we are not aware of the timescale that the Government have in mind.
Secondly and more importantly, a lot of what is being argued, or will I think be argued by the Minister when he comes to respond, relates to the exceptions and changes that have been forecast by the Hargreaves review to the way in which copyright and copyright exceptions are organised. This point was made by the noble Lord, Lord Clement-Jones, in relation to 2D design representations of 3D designs. So much of what is going to change could, with the right sort of regulatory framework brought in under the Hargreaves exceptions, allow some guarantees and support for those involved. However, we simply do not know enough about it, so surely it would be better to see those regulations, take them through the due processes in this House, agree them in their original form or as modified if that is thought appropriate, and then consider whether Section 52 should be changed and the new regime brought in.
I will give a bit more detail on this. I asked the Minister in Committee, although I did not get much of a reply and he has not included any further detail in the letters I have received so far, why this proposal was not preceded by a consultation with stakeholders and why the impact assessment that has been published has very little detail about the impacts that will be implemented by its changes.. The impact assessment, although it is not complete, admits that the reform of Section 52 will harm consumer welfare, as classic designs—those that are more than 25 years old—will be remonopolised. Replicas that are currently available at some 15% to 20% of the price of an original will no longer be available, but no opportunity has been taken to consult consumers. Moreover, there are those who argue that the impact assessment significantly underestimates the other costs that will arise, partly because of its focus on furniture and three-dimensional design, and because it fails to acknowledge that section’s immunising effects on certain secondary uses.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)
My Lords, I start by thanking noble Lords for their helpful contributions to this debate. I very much recognise their detailed knowledge of these issues.
I should like to begin with government Amendment 84A. During Grand Committee, in response to very helpful interventions by my noble friend Lord Clement-Jones and the noble Lord, Lord Stevenson, I made a commitment to look again at the wording of what was Clause 66 and is now Clause 67. The purpose of the government amendment is to limit the clause so that when the Section 2(2) power is used to amend copyright exceptions, the limitation on criminal penalties does not apply. The new clause no longer operates a separate power. It is now a way of removing the undesirable consequences which flow when Section 2(2) is used. With this amendment I believe we have responded to the concerns that were expressed in Grand Committee by my noble friend Lord Clement-Jones and the noble Lord, Lord Stevenson.
I should like to deal with Amendments 84ZBA 84ZC, 84ZD, 84ZE, 84ZEA and 84ZEB together, but shall deal first with Amendments 84ZEA and 84ZE. The Government understand the real concerns about the repeal of Section 52 of the Copyright Act. We want affected groups to have adequate time to adapt but we also take seriously the fact that rights owners are pressing us for early implementation. That is why the Government have committed, as I said in Grand Committee, to consult all interested parties on the timing of the change. To decide those timings now would prejudge the consultation, and any transitional period will allow appropriate time to implement changes to copyright exceptions.
I will just answer a question that was raised by the noble Lord, Lord Stevenson, on the economic effects on consumers and those who use 2D images. I can reassure him that the Government will consult on traditional provisions and publish another impact assessment.
On Amendment 84ZC, the Government have met with publishers and the Publishers Association, representatives of replica furniture manufacturers and academics. We have heard from others, such as the British Screen Advisory Council and the Victoria and Albert Museum. We will continue this productive engagement and helpful exchange of information through the consultation.
Copyright exceptions will go some way towards moderating the impacts of the change. The forthcoming changes to copyright exceptions, announced in December, are particularly important for this. For example, fair dealing exceptions relating to teaching and the use of quotation are likely to be relevant to the use of two-dimensional images of artistic works in the teaching of design or related subjects. My noble friend Lord Clement-Jones raised the issue of the amended quotation section. He wanted, I understand, a more detailed statement from me concerning retrospectivity and the impact on the publishing sector. I hope that what I have said has gone some way towards answering his particular query.
It may be helpful to focus more in an answer on film makers, photographers, picture libraries, designers and publishers. The Government understand that film makers, picture libraries and photographers who use images of certain artistic works, and designers who use motifs from existing designs, could be affected if there is copyright in the underlying work. For example, a wallpaper that has been inspired by a design from the 1950s by Lucienne Day has been cited to the Government as a follow-on design which could be affected by the changes. Further consideration will be given when the Government consult on how and when to implement the repeal. Moreover, in December 2012, the Government announced changes that will be made to copyright exceptions. It is possible that these will address many of the concerns that have been raised about the use of images of artistic works.
Turning to Amendment 84ZD, I note concerns about the ability to use artistic works as features in new designs. This sort of follow-on design plays a useful role in the thriving UK design culture. However, it is not clear that it would be lawful to provide a copyright exception permitting follow-on designs. There are concerns about what happens to copies of an artistic work made after the expiry of the 25-year design protection but while Section 52 remains in force. I can confirm that any copy made, distributed or imported into the UK or communicated to the public while Section 52 is in effect will be unaffected by the change in the law. However, if, for example, a book containing photographs of artistic works is reprinted after Section 52 is repealed, permission will need to be sought from the relevant rights owners unless a copyright exception applies.
On Amendment 84ZEB, I have heard concerns about imposing an obligation on the owner of a revived work to grant a licence, even if they would prefer not to. The points raised will be given careful consideration in the consultation.
I will deal now with Amendment 84ZBA. Some are concerned about the revival of copyright in works of artistic craftsmanship created before 1957. A work protected by copyright in any other EU member state on 1 July 1995 would also be protected in the United Kingdom. In the circumstances, I hope that my noble friends will agree that an amendment is not needed, as provision already exists under the current law.
I will answer a couple of points raised by the noble Lord, Lord Howarth. He emphasised the need for balance, and was concerned about the overly long term of copyright. The term after the abolition of Section 52 will be the same as for most other copyright holders. It will thus put furniture designers of classic works in a position to be incentivised, as is the case for any other creator. He also raised some concerns about the benefits of design classics not reaching the greater public. Some people see the availability of cheap replicas as good for consumers who cannot afford the originals. However, designers argue that replicas damage the integrity of the design industry and make British companies less willing to support long-term investment in design than their European competitors. Supporting British designers and offering greater choice to consumers are not mutually exclusive and the Government hope that the repeal of Section 52 should lead to UK designers developing new designs in markets which become less dominated by copies of artistic work. That would benefit consumers by offering them greater choice and variety. In the light of what I have said, I hope that the noble Baroness will withdraw her amendment.
Lord Clement-Jones
The Minister said he hoped that what he had to say would be reassuring about retrospectivity. However, I did not pick up exactly what he had to say about retrospectivity; he talked a lot about fair dealing and the educational exemptions. Specifically on retrospectivity, can the Minister give a little more clarification? I understand that if copies of those three-dimensional works are made after the new extended term of copyright has come into effect, clearance will need to be obtained for those existing works.
Viscount Younger of Leckie
I thank my noble friend for that question. The best thing would be for me to get back to him in due course, as I have done on many occasions, with a focused letter on the specific question of retrospectivity.
Baroness Whitaker
My Lords, I am grateful for the authoritative support of the noble Lord, Lord Jenkin of Roding. In response to my noble friend Lord Howarth of Newport, I remind your Lordships’ House of the double damage done by undervaluing individual creativity in design: the disincentive and loss to a significant sector of our economy on the one hand, and the simple, yet common, injustice of yet again failing to recognise that the,
“lifeblood of a master spirit”,
is not just the written word but other unique manifestations of the human spirit.
I agree with the noble Baroness, Lady O’Neill of Bengarve, about the importance of effective implementation and enforcement. I also welcome the Minister’s arrangements for consultation. That will be helpful on the dilemmas that we have been exploring in my amendments, but I shall want to check the exact application of the law as he quotes it before Third Reading. In the mean time, I beg leave to withdraw my amendment.
“Penalties under provision amending exceptions: copyright and rights in performances
Paragraph 1(1)(d) of Schedule 2 to the European Communities Act 1972 (limitation on criminal penalties) does not apply for the purposes of provision under section 2(2) of that Act amending—
(a) Chapter 3 of Part 1 of the Copyright, Designs and Patents Act 1988 (acts permitted in relation to copyright works), or(b) Schedule 2 to that Act (rights in performances: permitted acts).”
Lord Clement-Jones
Lord Clement-Jones
My Lords, I shall also speak to Amendments 84AB, 84AC and 84AD.
Amendment 84AA straightforwardly addresses a specific aspect—that is, the duration of copyright in existing anonymous or pseudonymous works. The amendment is designed to clarify the scope of the application of Clause 68. Rather more importantly, the effect of Amendments 84AB and 84AC would be to prevent the Secretary of State being able to curtail the period of protection in respect of unpublished pre-1988 Act films and pre-1956 Act photographs, and in respect of other unpublished pre-1988 Act works whose authors are known and who died in the period from 1900 to 1989. This means that the copyright material covered by the amendment will, unless published in the mean time, fall into the public domain at the end of 2039, which is the position under the law as it stands.
I thank the Minister for his correspondence on Clause 68; that correspondence has now extended to quite a number of letters, which I have found extremely helpful. However, no one would object to this clause if it simply solved a problem about copyright protection attaching to centuries-old, unpublished manuscripts and private charters. As regards works created more recently, such as unpublished minutes of meetings and correspondence from the 20th century, being within the scope of Clause 68, the Minister is clearly of the view, as he said, that these provisions are part of the solution to the orphan works problem. In the discussions about the copyright clauses in Grand Committee, I pointed out that one of the difficulties was that the Government’s policy had such an insubstantial evidence base. The Minister has now in correspondence referred to the Seeking New Landscapes study by Barbara Stratton. However, without going into great detail, there is doubt as to whether generalisations can be drawn from that study. It would be helpful to know what proportion of the material held by archives and assessed as orphan is pre-20th century, and what proportion of the 20th century material post-dates 1960. That, at least, would give some indication of whether Clause 68 will in fact make a significant contribution to reducing orphanage.
Baroness Buscombe
My Lords, I have added my name to this group of amendments, which, as my noble friend has already explained, are to deal with the situation where the Bill as drafted would permit a number of unintended consequences, including permitting the publication of confidential family papers and destroying the value amassed in archives of works.
Clause 68 contains a particular quirk of historic definitions in copyright law that means that films and photographs are defined as published only when they are first hired, sold or made available for hire. As most films are broadcast and photographs appear in newspapers or magazines, they are not as such published and therefore would fall under the scope of the clause. Although on the one hand, the Government want to use the clause to allow organisations such as the British Library to publish medieval manuscripts, it will also enable millions of commercially valuable films and photographs to be put into the public domain. We believe that that loophole can easily be fixed by including in the Bill that unpublished photographs and films should fall outside the scope of that power. The amendments solve that problem in a clean and simple way and will give surety to concerned rights holders but not impact on the valuable contribution that the clause can make to organisations such as public libraries. I urge my noble friend to accept them.
Baroness Brinton
My Lords, I shall speak against Amendment 84AA and the other amendments in the group. I refer back to the point made by my noble friend Lord Clement-Jones about the scope and size of the problem of unpublished works and grey literature. A study by the British Library found that 43% of potentially in-copyright works published between 1870 and 2010 were orphan works. The figure for unpublished works, including letters, diaries, photographs and memos is far higher, and grey literature produced by charities, societies and associations but not for any direct commercial purpose, also contain high concentrations of orphan works. One example of that is a study of sound recordings of political debates in the 1960s, which identified 350 performers, of whom only 100 could be traced, meaning that more than 70% of the content was orphaned; 350 hours were spent trying to clear the rights to use the material; and the success rate—permissions received—was only 4%. That shows us the size of the problem, which is why I am grateful to the Government for the clarifications in the Bill and why we need to oppose the amendments.
Bringing copyright for unpublished work into line with the existing copyright duration would release much valuable historical data into the public domain and would not affect unpublished works created shortly before the 1988 transitional arrangements. As we have discussed in previous stages of this Bill, works of these kinds are, of their nature, orphan works. The copyright holders are incredibly difficult to identify. The British Library notes that it still has material from the 7th century in copyright. As a result, a large amount of material currently in copyright due to the transitional arrangements would be difficult or impossible ever to obtain a licence for.
Viscount Younger of Leckie
My Lords, I turn first to Amendments 84AA, 84AB and 84AC and thank my noble friends for raising the important issues in them. At the outset, I will answer questions raised by my noble friend Lord Clement-Jones, supported by my noble friend Lady Brinton, about the voices concerned about the evidence for the clause and for the orphan works, and especially asking how much is pre-20th century. That is probably a slight paraphrase of the questions raised by my noble friend Lady Brinton.
We do not know the exact amount, but the National Archives estimates that around 12 million—or 42%—of the 30 million archival items held in English and Welsh public archives predate 1891, which is over 120 years ago. Therefore we are now likely to be 70 or more years past the date of creation. The vast majority of these are thought to be unpublished and would therefore remain in copyright under the current law until 2039. The law relating to the transitional provisions of the Copyright, Designs and Patents Act 1988 is complex. The various points that have been raised through these amendments and in debate underline that complexity. These are important points, and it is right that we should take time to debate them properly.
The Government’s overriding policy objective has always been to enable use of historically important unpublished material which has over-long copyright protection. Prior to 1998, copyright on such material was perpetual, and from 1998 it ran until 2039 at the earliest. Because of the way the 1956 and the 1988 copyright legislation interact, it appears that it may be possible for a film to remain unpublished, even if it has been commercially exploited by showing it to the public in a cinema or on television. This is because it can be shown to the public by various legal routes which do not technically constitute publication; for example, public performance, exhibition or communication to the public.
To become published, a film would need copies of it to be issued to the public, such as on DVD or through online sales. It may be necessary to recognise this in the treatment of films in the regulations. Before they exercise this power, the Government recognise that it will be important for the impact assessment accompanying the regulations to assess whether there are costs to specific rights holders or industry sectors. The regulations would allow the Government to treat different works in different ways.
However, my noble friend has raised a good point about the impact on commercial film and photographic archives. My noble friend Lord Clement-Jones today raised concerns about business expectations in relation to unpublished works. I will therefore commit to looking in advance of Third Reading at how this should be addressed. I hope that in the light of this assurance, my noble friend will not press this particular amendment.
Finally, Amendment 84AD relates partly to the provisions to reduce over-long copyright in some unpublished works—which we spoke about earlier—and partly to the orphan works licensing scheme. I can confirm that where there is any doubt about whether an unpublished, anonymous or pseudonymous orphan work is still within copyright, an orphan works licence could be applied for. This would be under the scheme proposed in Clause 69. Therefore I believe that there is no need for this amendment.
If the user of an orphan work chose to proceed without gaining an orphan works licence, they would be open to possible legal action if a rights holder reappeared and the work turned out to be still within copyright. That might be described as a risk-based approach to the problem of copyright infringement. However, the courts would be likely to take a dim view of such infringement when there was a lawful means of using such a work through the orphan works licensing scheme. In the light of the assurances that I have provided, I hope that my noble friends will not press their amendments.
Lord Clement-Jones
My Lords, I thank the Minister for his reply. In the light of it, I suppose that I should be grateful that I do not have to trade discussion with my noble friend Lady Brinton about the study instituted by the British Museum. There are many of us who do not believe that Barbara Stratton’s report, Seeking New Landscapes, comes to conclusions that can be generalised about in the way that some people have done by extrapolating from it in a way that is not necessarily helpful, although I do not think that the British Museum has done that.
That said, the way that the Minister has tied together Clauses 68 and 69, in his undertaking that the orphan works provisions would come together with unpublished works which were in copyright, is extremely helpful. I am not quite sure how that is achieved by the actual wording of the clause. One may wish to be rather clearer about when the duty of diligent search applies, certainly in regulation, because it may not be obvious from the outset that these works are orphaned and in copyright. Some further probing may be necessary on that.
I very much welcome the Minister’s undertaking on news film and so on, and his recognition that films have not necessarily been published even when they have been exhibited. That is one of the absolutely fundamental issues that the organisations which I mentioned earlier have been labouring under. However, their point has come across and I am grateful to the Minister for recognising it. I look forward to seeing what he will come forward with on Third Reading. In the mean time, I beg leave to withdraw the amendment.
DfID: Tied Aid
(11 years, 9 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Northover
My Lords, I will now repeat the Answer to an Urgent Question asked in the other place earlier today. The Answer, given by my right honourable friend the Secretary of State, is as follows:
“I am delighted to update the House on my speech today. There is no change on Her Majesty’s Government’s policy on tied aid. I was clear in my speech on 7 February, and again this morning when I said:
‘I am not talking about tied aid. I do not believe that is the way to achieve good, sustainable development … It’s the wrong way to go about things’.
That answers his first point. DfID contracts are awarded in line with EU procurement regulations. The vast majority are subject to competitive tender. The evaluation process for large contracts includes an assessment of technical and commercial criteria, which are published at the outset of the tender. That answers his second question.
In relation to today’s speech on pursuing poverty reduction and an end to aid dependency through jobs, it is clear that economic growth is critical. Wherever long-term per capita growth has been higher than 3%, we have also seen significant falls in poverty. Sustainable public services in the developing world, as here in the UK, need a funding stream of tax receipts and that means a thriving private sector.
DfID will be putting an increased emphasis on economic development, including: reducing overall barriers to trade and investment; unlocking the ability of entrepreneurs and business people in developing countries to drive economic growth through their own businesses; and fostering greater investment by business in developing countries. I want to see more businesses, including those in the UK, joining the development push with DfID. We all have the opportunity to help build up responsible trade with developing countries.
Finally, I welcome the positive response from organisations like CARE International and the Overseas Development Institute, with the former saying that,
‘It’s no longer an option for development agencies to view business as operating in a parallel universe’”.
That concludes my right honourable friend’s Statement.
Lord Collins of Highbury
My Lords, we also welcome UK companies seeking access to growing markets across the developing world. However, from the media reports at the weekend, the Government’s policy was not clear. We are vehemently against tied aid, trickle-down economics, and growth that has no focus on either inequality or sustainability. I have two specific questions for the Minister. Can she tell the House what steps her department will take to ensure private sector-led projects by DfID will be required to meet decent work and labour standards? Secondly, under what circumstances does she believe it right that a British company should be awarded a contract in a developing country without having to compete in a fair and transparent tendering process?
Baroness Northover
My Lords, I thank the noble Lord for his acceptance that economic growth through the expansion of businesses and so on is very important for developing countries, as it was in the United Kingdom. As we have seen in China and India, it obviously has a transformative effect. I reassure noble Lords that DfID remains poverty focused. That underpins everything that we do. Therefore, we are trying to ensure the development of the private sector, it is so that those long-term aims of relieving poverty are addressed. On how British companies would be awarded contracts, as I said in the Statement from my right honourable friend, contracts awarded to British companies by DfID go through the EU procurement regulations. However, the focus of DfID is always on the relief of poverty.
Lord Laming
My Lords, I, too, am grateful for the Statement repeated by the noble Baroness. Could the noble Baroness reassure the House that actions are always in place to ensure that when these decisions are made the beneficiaries receive the benefit—I am expressing this badly but noble Lords know what I mean—that the money goes to the right place for the right purposes, that it is properly monitored and that we are reassured that it is not being diverted into other means?
Baroness Northover
I thank the noble Lord for that question. I assure both noble Lords that DfID supports responsible business standards, which are very relevant here, through various schemes such as the Ethical Trading Initiative, the UN global compact, OECD guidelines for multinational enterprises and so on. One striking thing about the United Kingdom’s potential help for developing countries is what we can offer by way of our law and justice system. I was struck in meeting the Minister responsible for mines from Afghanistan the other day to learn how initially they found that in dealing with Chinese companies the benefit was probably not for Afghanistan so much as for the Chinese companies, but that now they are rooting it very much in British law guided by British companies. That is an instance where it is of mutual benefit. Of course, it is of benefit in business to the British companies working in this area, but you can see immediately the effect in terms of the poorest in Afghanistan. That is where the greatest benefit is. Therefore, these things can be looked at as of not exclusive but mutual benefit.
Lord Elystan-Morgan
My Lords, I am left with the very clear impression from the Minister’s Statement that there will be no difference as far as the future is concerned in the total amount of aid that is disbursed at every level and in every way. If that be so, I heartily congratulate the Government. It is all very easy when the going is benign and happy to be charitable, but it is in situations of difficulty such as this that the true test of a community’s charity is put to the proof.
Baroness Northover
I appreciate what the noble Lord has to say, and I hope that he continues to say such things loud and clear, because in a time of austerity there is a clamour of voices asking whether this is the right thing to do. As we meet the 0.7% commitment, which we have built to and kept to, we have a moral obligation to address the difference in the levels of need around the world. There is also the interest in terms of greater stability. If you are addressing the most abject poverty around the world, that helps to stabilise things for everybody, whether in that region or in our own.
Lord Tugendhat
Does the Minister agree that Africa is now one of the fastest growing regions in the world and that we should all be very pleased about that? Aid is now a relatively small proportion of the disbursements that go from the developed world to what used to be called the developing world. Remittances and direct investment have grown enormously, and the role of aid is far less significant than it used to be. It is not a question of this Government cutting back on what they have been giving; the extraordinary thing about this Government is that, at a time when they are cutting back on almost everything else, they have been increasing the overseas aid budget by 30%. I find that barely explicable.
Baroness Northover
If the noble Lord listens to Bill Gates, for example, he will hear how small contributions looked at globally can leverage an enormous effect. The noble Lord is right that remittances are coming in and there is more inward direct investment and so on, and that is very welcome. We have to make sure that, as the noble Lord, Lord Laming, indicated, the poorest are included in that benefit and that there is the health and education provision to make sure that there is a skilled workforce to benefit from this, because it is in nobody’s interest to have countries with the instability and inequalities that that lack of provision would ensure. It is extremely important that we retain our commitment in this area, but at the same time we must make sure that these other areas, such as direct investment, grow as well and that they are to the benefit of the poorest in these countries.
Lord Kerr of Kinlochard
I thank the Minister for repeating the Statement. I was very pleased to hear her strictures on tied aid and her support for competition. Will she confirm that the same applies to consultancies? The only thing that worried me in her Afghan homily was the interjection that investors in mining in Afghanistan were advised by British companies. When such advice from consultancy firms comes from the aid programme is it subject to the same degree of open competition? In developing countries, one sometimes hears that rather a large share of the British aid programme does not go into projects on the ground but into consultants in London.
Baroness Northover
The Afghan Government chose to gain their legal advice in the way that I indicated. Consultancies are subject to open competition, so the noble Lord can be reassured in that regard.
Lord Fowler
I agree with what my noble friend set out as her department’s general policy. I have a specific question about the statement by the former Secretary of State that new money, extra money, would be going to the global fund for HIV and other diseases. Will that pledge be kept?
Baroness Northover
I am going to have to write to my noble friend to clarify that. I know that the Global Fund had some problems, with which he will be extremely familiar. I also know that DfID was working extremely closely with the Global Fund, because it had been so effective in the past, to bring it back to that position. I have not had the most recent update. I will make sure that he gets it.
Enterprise and Regulatory Reform Bill
17:32 - Division on Amendment 84AG - Ayes: 194 / Noes: 214 - Amendment 84AG disagreed.
18:46 - Division on Amendment 84AHAZB. - Ayes: 174 / Noes: 221 - Amendment 84AHAZB disagreed.
Lord Clement-Jones
Lord Clement-Jones
My Lords, I will also speak to Amendment 84AEA. We had a very good debate in Grand Committee about orphan works, and the Minister gave some very useful assurances about how the orphan works regime would operate. However, there are one or two loose ends, and I want briefly to raise them.
Amendment 84AE is essentially a retabled amendment designed to establish definitively the nature of diligent search. I was slightly disconcerted by the way the Minister replied to this amendment last time. Surely diligent search must cover each work involved, and I hope the Minister can demonstrate how such search should be undertaken. There is no amendment to this effect, but I should say in passing that many of those who have debated this subject believe that it is very important that orphan works cannot be sublicensed. The argument is clear that to permit sublicensing would risk the distortion of the market through, for example, enterprises that sought orphan works licences and then resold them to all comers, circumventing the safeguards promised in the regulations. I do not know whether that is a loophole or simply a fear that will not be realised.
Amendment 84AEA relates to an objectionable feature of Clause 69, which is found in the new Section 116A(6) of the Copyright, Designs and Patents Act 1988. This states:
“The regulations may apply to a work although it is not known whether copyright subsists in it, and references to a missing owner … are to be read as including references to a supposed owner and a supposed right or interest”.
The objection to this is that if copyright does not subsist, the work or performance is in fact in the public domain and there is no rights owner who could reappear.
It seems rather unsatisfactory to introduce what I believe is called the domaine public payant in this surreptitious way. If there is going to be an orphan works licensing scheme it should surely be confined to orphans. If it cannot be determined whether a work is still in copyright, surely an orphan licence should not be available. It should be plain in the Bill that this should not extend to works that may be in the public domain. It would be helpful to have a ministerial assurance on this point. I beg to move.
Baroness Buscombe
My Lords, I support my noble friend in relation to diligent search. I think the amendment speaks for itself, and I echo the words of my noble friend Lord Clement-Jones.
Lord Howarth of Newport
My Lords, I speak to Amendment 84AE only. The noble Lord, Lord Clement-Jones, referred to it as a loose end. It is an issue of fundamental importance. The effect of the amendment would be to require a diligent search to be made for each individual orphan work. It is true that the European Union orphan works directive requires the same. We have not yet incorporated the directive in our own law, nor should we. It is unfit for purpose in this and in other respects. We had some discussion about aspects of it last Wednesday and previously in Committee. The requirement that there should be a diligent search for each individual orphaned work is totally and utterly unrealistic. If it were to be legislated it would scupper the Government’s orphan works project.
The success of the project depends upon the regulations being proportionate and manageable. They should, of course, have a proper regard for the legitimate interests of all rights holders, and certainly for the interests of the publishing and entertainment industries. Equally, however, they should have regard for the wider public interest in enabling as full access as possible—for educational, research and cultural reasons and reasons of public enjoyment by the mass of our people—to the enormous collections of orphan works in our great public cultural institutions.
Carrying out a diligent search to establish the intellectual property rights in orphan works is a time-consuming and laborious business. It is significantly easier when we are speaking of commercially published books. Reference was made in an earlier debate to the British Library’s study, the results of which were published under the title Seeking New Landscapes, which demonstrated that it took on average about four hours and cost some £80 to establish where the intellectual property rights lay in the case of a single book. The noble Lord, Lord Clement-Jones, says that you cannot generalise from that study, but it does demonstrate that this is a laborious, arduous and expensive process.
In the case of a single postcard, perhaps sent in 1916 by someone who simply signed herself “Betty”, copyright resides in the design of the postcard, in the design of the postage stamp on the postcard, and in the words Betty inscribed on the postcard. If you were to be required to investigate to establish where the intellectual property in each aspect of that particular picture postcard now lies, you would spend a lot of time.
There are vast quantities of such items in our public archives and collections. The impact assessment at pages 7 to 11 gives some indication of the scale of orphan works in our public institutional collections. It mentions, for instance, that the BBC has some 5 million photographs and the British Library has 112.5 million newspapers. Inevitably, in an age of mass digitisation we have to think of how we can satisfactorily legitimise digitising en masse this kind of material in public collections.
Extended collective licences already provide for the mass licensing of the use of large numbers of works where it has been recognised that individual negotiations would be impossible because of the volume of the material: for example, in the fields of educational photocopying or musical broadcasting. Extended collected licences are provided for in the other directive—the European copyright directive—so there is some tension between the two directives.
Where market failure means that it would otherwise not happen, public access will be lost unless we have streamlined procedures for rights clearance, so a generic approach is essential. The licensing authority will need to verify that the approach to the search by the cultural institution and its methodology have been appropriate: that it has been reasonable in regard to the nature of the works-whether for example they were originally commercially published or unpublished. It should have regard to the proposed use of these orphan works; to whether access to them would be provided free of charge for educational or cultural research purposes and for the benefit of the general public, or whether they would be charged for; to what the risks might be to rights holders in this particular category of works; and to the feasibility of tracing the present rights holders.
We need to establish under the regulations that the generic approach has been diligent. If we were to insist that there should be a diligent search, item by item, for every orphan work, it would be impossible, and access would continue to be denied to great swathes of our public collections in the Bodleian Library, Cambridge University Library, the British Library, the BBC, the British Film Institute, and many other institutions. If modern copyright law is to be respected, people must feel that it is proportional and rational and sensibly balances the private and public interest.
Baroness Brinton
My Lords, I, too, oppose these two amendments and support the points that the noble Lord, Lord Howarth of Newport, has made, to which I briefly add two further points.
The rights holders of apparently orphan works very rarely come forward at a later date. This makes court action unlikely in most cases, particularly where use of the works was manifestly for the purposes of teaching or research. However, using works in these ways would require institutions such as universities and libraries to operate outside the law in order to make legitimate use of this material. This is not a satisfactory long-term solution.
It is important that what constitutes a diligent search is sensitive to the intended use and the kind of material. Searching for the author of a commercially published book, where the intention is to republish for commercial gain, should require a higher level of diligence than for the digitisation for preservation purposes of an archive of non-commercial material. It is very important that the Bill is flexible enough to allow regulations to account for these differences. Unfortunately, these two amendments would take it in the opposite direction.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)
My Lords, I begin by thanking my noble friends for their amendments. They raise important issues.
Turning first to Amendment 84AE, in Grand Committee there was a full and productive debate, as has been mentioned, on the issues around diligent search. I have also subsequently written to the noble Lords who spoke in that debate. I can confirm that, before a work qualifies as an orphan, a diligent search for the all the rights holders in the work must be undertaken. If as a result of an initial UK search there are indications that the rights holders may be overseas, there will be a requirement to expand the diligent search to include relevant overseas territories. However, a balance must be struck between protecting rights holders and making the system cost-effective for users. That is why the orphan works working group is undertaking detailed work to ensure that diligent search requirements reflect current best practice across all sectors. These requirements will be set out in regulations that will be subject to both consultation and the affirmative procedure.
I will answer some questions raised by my noble friend Lord Clement-Jones and the noble Lord, Lord Howarth, about the provision of more detail on the requirements for diligent search, although I am not sure how far I can reassure the noble Lord, Lord Howarth. Diligent search should find rights holders when works are not really orphaned, and it is important to find the right balance between protecting rights holders and making the system cost-effective. Extensive thought has already been given to what should be done in a diligent search for different sectors, including by the European digital libraries initiative. Existing industry databases and registries and bibliographic publications are just a couple of examples of sources of information that could be searched. It is likely that searches would differ across the various sectors, and therefore sector-specific guidance may need to be developed. To that extent, this may help to answer some of the concerns of the noble Lord, Lord Howarth.
Diligent search is being considered with stakeholders through the orphan works and ECL working group. Diligent search guidance will cover the scenario where the work may have originated outside the UK. The noble Lord, Lord Howarth, may know that the Canadian orphan work scheme licenses works, provided that they have a strong connection with Canada. They may be of foreign origin, but with an orphan work this will not necessarily be known.
In relation to Amendment 84AE, my noble friend Lord Clement-Jones was concerned that there might be a loophole regarding sublicensing. The answer to this is that the Bill does not permit sublicensing, if that is a help to my noble friend.
I may well have touched on this earlier, but for clarity, the noble Lord, Lord Howarth, again raised the issue of diligent search and made a fair point about the need to cover every orphan. I believe that he used the analogy of the postcard. I do not think that we can avoid the need to look for a legal owner, but we do not want a search regime that is too obtrusive and costly. This is a matter of achieving balance, and that is why these matters are best dealt with in regulations, where the needs in different sectors can be properly addressed.
Amendment 84AEA would remove the option of licensing a work under the orphan works scheme where it was not known whether copyright subsists. Establishing whether a work is still in copyright will of course be a key part of the diligent search process. Indeed, it is in the applicant’s interest to establish this fact, because if the work is out of copyright they will be free to use it and will not need to apply for an orphan works licence. However, it may not always be possible to establish definitively whether a work is still in copyright. This will particularly be the case with unpublished works, where often key information such as the date of creation or the date of the creator’s death is not known. Having to establish definitively whether a work is still in copyright could, therefore, exclude very many works.
This practice of allowing a licence where there is uncertainty about whether copyright subsists is followed in Canada, which I mentioned earlier, where a scheme has been running for nearly 25 years. In doing so, it provides legal certainty for the user of the work. If we do not include such works within the scope of the orphan works scheme, we could exacerbate the very problem that the proposals are designed to address. I hope that in the light of the assurances that I have provided, my noble friend will not press his amendment.
Lord Clement-Jones
My Lords, I thank the Minister for that reply. I am reassured by his statement in at least three respects. He made the distinction between the requirement to have an individual search and the requirement to be proportionate in the way the diligent search is carried out. That is the distinction that I would make. I found the statements of the noble Lord, Lord Howarth, rather bloodcurdling in many respects. The proportionality lies not in whether each individual work is looked at but in the nature of the search. I hope that the regulations focus very much on that.
I of course agree that if one is to have an orphan works scheme, it has to be economically viable and has to work for all those taking part in it, but at the same time it must protect genuine rights holders and make sure that searches uncover works that are not orphan but may appear on the face of it to be so. Therefore, I look slightly askance at measures that say “streamline procedures” when individual rights holders, if they exist, are to be ignored. I think that we have common ground on proportionality, but the question is where that lies. It will be useful to refer to the Minister’s words generally when the regulations are drawn up. We may have a chance to debate them in this House in future. I very much welcomed what he had to say on the sublicensing point; that was a very helpful statement. Those who are concerned about Amendment 84AEA will also be reassured. I beg leave to withdraw the amendment.
Lord Clement-Jones
Lord Clement-Jones
In moving Amendment 84AEB, I wish to speak also to Amendments 84AEC to 84AEG and Amendment 84AF.
I will speak first to Amendment 84AF as it falls outside the scope of the other amendments. Clause 69 as drafted does not factor into the opt-out of ECL the situation where the rights holder is not the creator. A firmer commitment from the Government in the Bill is necessary to give more reassurance to rights holders on the ECL provisions in Clause 69 before the legislation completes its passage. This amendment was tabled as Amendment 28X in Grand Committee. An opt-out is available to copyright owners in the Bill as it stands. The amendment would extend this opt-out to exclusive licensees and authorised representatives.
In Grand Committee, the Minister committed the orphan works and extended collective licensing working group to look into this issue as part of its deliberations. While this commitment is welcome, there needs to be certainty that any regulations for extended collective licensing will include such provision. Since ECL has the effect of exercising property rights, potentially against the will of the rights owner, the ability to opt out under subsection (3) of what will be the new Section 116B must be as straightforward and easy to implement as possible. To effectively administer the repertoire they have invested in, music publishers will need to make catalogue-wide arrangements applicable to hundreds, thousands, or potentially, millions of separate works. The grant of rights and arrangements between creators and music publishers are very often not exclusive assignments of copyright; grants can also be made by way of licences, both exclusive and non-exclusive.
It will be unworkable to have an opt-out which is exercisable only by the copyright owner or exclusive licensee. This would require a publisher to go contract by contract, checking the nature of each grant of rights and, where necessary, asking composers to sign opt-out documentation to be sent to the body seeking to operate the scheme. If the opt-out could be operated by the composer’s authorised representative, this would give a publisher or other representative the right to seek the permission from its composers to exercise an opt-out on their behalf, which could then comprise one repertoire-wide opt-out from a rights owner in a manageable way.
Practical experience abroad is that, in the absence of this possibility, ECL provisions can be manipulated by bodies operating schemes to make it impossible for right owners to opt out in any manageable way. I am informed by representatives from music publishing that one example of this is the operation of the extended collective licensing provisions enshrined in Hungarian copyright law in relation to the performing right. In Hungary, one reason for the failure of being able to rely on the opt-out came from the requirement of Artisjus that the rights owner—not any representative—provide due diligence evidencing ownership of each title in question. In relation to a repertoire of many thousands of works, this represents a huge barrier to successfully exercising the opt-out in terms of tracing the title back to its source. It is often via a complicated chain, redacting and copying documents to comply with confidentiality restrictions and then shipping these across to Hungary.
This example of abuse of proprietary rights provides ample evidence that, in the context of ECL, the burden of challenging any opt-out must sit with the entity operating the scheme and not with the individual rights owner. I believe that it is not the intention of this legislation to create such problems but it is important to guard against potential abuse. Can the Minister give assurances on this?
At the end of the day, I cannot see any downside to giving composers a choice in being able to elect to have their trusted authorised representative act on their behalf in this context. I am also not aware of a prevailing view that would be opposed to creating such a modest requirement. Indeed, in Grand Committee, the Minister stated that the Bill does not rule out such a provision.
With the experiences of ECL in other territories in mind, I hope that Report stage is an opportunity for the Minister to clarify responsibility for overseeing due diligence in an opt-out process. I hope that the Government will use this stage of the Bill to clarify that regulations will be clear that the burden of proof for the due diligence in an opt-out will be on the body applying for ECL.
On Amendment 84AEB, copyright licensing bodies are indispensible in many circumstances. For example, no composer could keep track of all the playings of his or her song on television, radio, the internet and in concerts, pubs, hairdressers, department stores and so on; PRS for music does this collectively. However, this kind of licensing is voluntary, meaning that the rights owner gave his or her permission to PRS to license his or her works for use in broadcasts and public performances. Extended collective licensing means that the licensing body can also license works whose authors have not given permission.
Therefore, ECL—and we have debated this in Grand Committee—is potentially dangerous to rights owners. A rights owner may not know about extended collective licensing and find that his or her work has been licensed without their permission. Perhaps they would not have wanted it in that particular publication, or perhaps they had given another publication an exclusive deal. Perhaps they would have charged a different fee; if they had given permission direct, their fee would not have suffered deduction of the licensing body’s commission. Foreign composers in particular may not be aware of the licence at all and may grant conflicting rights or may not collect their fee.
The Government’s explanations always described ECL as “voluntary extended collective licensing”, but the fact is that ECL allows the licensing body to license its rights without their prior authorisation. It is government policy that the author can opt out, but this acknowledges that the licensing body has permission to license his or her rights in the first place. This permission is ultimately given by the Government by authorising the organisation to license rights that it does not in fact hold, not by the author who must withdraw by opting out.
To their credit, the Government have acknowledged the dangers inherent in ECL, and in Grand Committee on 31 January, the Minister explained the Government’s policy regarding safeguards for rights owners. However Clause 69, which enables ECLs to be created by statutory instrument, only very minimally reflects the safeguards as the Minister has now enunciated them. The Government have claimed that the Nordic ECLs provide a strong precedent. However, the safeguards are set out in the Nordic primary legislation. By “Nordic”, I mean Sweden, Norway, Denmark, Finland and Iceland. Setting out the safeguards in primary legislation is clearly an aspect of the Nordic precedent that the UK Government should follow.
My amendments are essentially translations of the Nordic statutory provisions, adapted to the Copyright, Designs and Patents Act. The safeguards usefully include a requirement on licensing bodies to qualify, the need to explain the type of licence being granted, the need for the authorised body to be representative, the adoption of a code of conduct, the ability to refer to the Copyright Tribunal where a claim is being made that the body is not representative or that licences go beyond scope of existing copyright licences, a limitation on the term of authorisation to five years, and clear provisions about the ability to give notice of exclusion of a work.
The Minister has said that there must be flexibility, but he has been fairly detailed in his description of what the secondary legislation will consist of. Flexibility is not therefore necessarily an argument for excluding safeguards for rights holders from the Bill, and there can be no reasonable argument against including those safeguards. I beg to move.
Baroness Buscombe
My Lords, I should like to speak to Amendment 84AF, to which I have added my name. I spoke at some length in Committee on the extended collective licensing measures in Clause 69, and I made it clear then that I do not like the principle of ECL. I cannot see how it materially benefits the UK and it will bring uncertainty by not being truly voluntary.
I believe—and I have said so previously—that such a scheme should be opt-in, rather than opt-out, whereby rights holders who want to license their content through others can do so. However, I welcome the Minister’s assurances thus far that safeguards to such a scheme are vital, but—I echo the words of my noble friend Lord Clement-Jones—the safeguards should be included in the Bill, not left to secondary legislation. If the Government are backing ECL because it works in the Nordic countries, why not follow the Nordic lead and put the necessary safeguards in the primary legislation? Whoever may benefit from such a scheme can then benefit, and whoever feels threatened by it will have some comfort in knowing that the Government have protected the rights of rights holders.
As I said on an amendment on Report last week, China has just announced that it will implement ECL in its copyright law and has said that the details will be in regulations yet to be published. Where have we heard that before? The UK Government will not be in a position to demand appropriate safeguards for licensing of UK copyrights by ECL in China if we do not have them in our own legislation, as the Nordic countries do, nor will UK rights holders or their representative bodies be in a strong position to safeguard UK rights abused by ECLs in foreign countries if the UK’s own statute lacks the necessary safeguards. My noble friend Lord Clement-Jones and I have tabled a series of amendments to this clause which does just that, putting into statute the very safeguards that the Minister himself has articulated.
Again, I urge my noble friend the Minister to accept these amendments, and avoid a situation in which companies can seize the intellectual property of others and license it on their own terms.
Viscount Younger of Leckie
My Lords, this group of amendments is designed to incorporate in legislation a series of safeguards regarding extended collective licensing. The Government have publicly committed to many of these safeguards in some form or other. I thank my noble friend for his continued positive engagement with ensuring ECL is a fair system. The Government share those aims, and I seek to reassure my noble friend that we have met them.
As there are a large number of amendments in this group, I will respond to them by reference to a set of themes. Amendments 84AFA, 84AFB, 84AGA, 84AGB, 84AGC and 84AGD are essentially consequential in nature, and so I will not deal with them directly. Amendments 84AEB, 84AEC, 84AED, 84AEE and 84AEF seek to provide clear safeguards against an unwanted extension of the scope of collective licensing, and to define the characteristics of a body which can be authorised to operate ECL schemes.
The need for safeguards is absolutely beyond dispute. A working group which includes creators of photographic, audiovisual, literary and musical works is helping us to develop these safeguards into draft regulations. I gave commitments during Grand Committee on some of the issues the working group would be asked to consider, such as those raised by Amendment 84AED. The Government will consult on these draft regulations before asking Parliament to approve them. The Government feel that regulations can more easily be adapted to keep safeguards effective in the light of market changes. Such adaptability ensures that the scheme continues to protect creators’ interests. Regulations can also more easily be adapted to emerging best practice; this better prevents abuses. The Government’s approach will still allow for a comparable level of safeguards to those found in primary legislation in other jurisdictions.
My noble friend Lord Clement-Jones raised the issue of the Nordic protections which are in primary legislation, a topic also alluded to by my noble friend Lady Buscombe. The UK proposals include similar safeguards, such as the right to opt out and a test of representation, and a different legislative route that has been used to provide future-proofing. However, not all Nordic ECL provision is for specific uses. For example, the Danish Act includes provision for a “general” ECL. Some vital safeguards are on the face of the Bill: the right to opt out and the requirement that ECL can be authorised only for specific types of works and rights. Applications to operate ECL would be authorised only on the basis of significant, demonstrable support for collective management in relation to the specific licence. This would need to include evidence that the applicant—a significantly representative licensing body—has the consent of its members to apply for the authorisation.
My noble friend Lord Clement-Jones raised the issue of ECL. If I have him correctly, he described ECL as potentially dangerous and questioned the description of it as voluntary. Noble Lords have queried our description of our proposals as voluntary, but they are voluntary because the Government will have no power to impose ECL on a sector. This is not compulsory collective licensing; it will be for a relevant licensing body which will require the explicit consent of its members to choose whether to apply. For non-member rights holders, I accept that ECL, where it applies, shifts collective management from opt-in to opt-out. This is why the Government are committed to a series of safeguards to ensure ECL is authorised only when there is a demonstrable case for it, and to make sure that rights holders have the opportunity to exercise their opt-out.
In relation to the advertisement of ECL schemes prior to authorisation, the Government have proposed that an application should be publicised to allow comments from interested parties before a decision is taken. The Government do not propose that new regulations should be laid in relation to each proposed authorisation. With regard to Amendment 84AEF, I confirm that authorisations will apply specifically and solely to the licensing scheme which was the basis of the application.
In relation to Amendments 84AEE and 84AEG, the Secretary of State will decide whether to grant or reject an application and to set the conditions of any authorisation. We therefore consider it appropriate to provide in the regulations that the Secretary of State should also have the power to revoke an authorisation, should that prove necessary. The Government believe that this may be a more efficient process than a referral to the Copyright Tribunal. Following discussions with the working group, I can confirm that the Government intend to make ECL authorisations subject to renewal.
I turn now to the question of the opt-out, and I hope that my subsequent comments on the subject of exclusive licensees will be helpful to my noble friend Lord Clement-Jones. Amendment 84AF focuses on the right to opt out of ECL schemes. In Grand Committee, I made a commitment that the working group on extended collective licensing would be asked to consider whether the right to opt out should be extended to exclusive licensees and their representatives. The Government take the opt-out protection seriously. If it becomes clear that an extension of the provisions to cover exclusive licensees and representatives is necessary, the Government will act on that basis. However, I do not want to pre-empt the work of the working group, given my Grand Committee commitment.
I know that my noble friend Lord Clement-Jones also has concerns regarding due diligence in relation to opt-out. I can confirm that the Government’s intention is that the burden of proof should favour the party seeking to opt out. That seems to us the right and fair thing to do.
My noble friend Lord Clement-Jones raised his concern that the opt-out would be too burdensome for rights holders. However, the responses to the consultation make it clear that rights holders expect to be able to opt out entire collections of work or individual works quickly and with minimal or no cost. It will be the responsibility of the collecting society to operate opt-out schemes which meet the needs of effective rights holders. They will need to demonstrate how they intend to do this when they apply to operate an ECL scheme.
On Amendment 84AEH, the Government believe that licensing bodies rather than users, who may be individuals or small businesses, should accept and process opt-outs. Licensing bodies will be required to publicise any ECL scheme before it comes into effect, giving rights holders every opportunity to opt out in advance.
Subsection (b) of the amendment presents some practical difficulties. “Reasons to believe”, for example, could prove to be a very subjective judgment. It would seem more practical for licensing bodies to address issues of exploitation that the “author would oppose” on a scheme-by-scheme basis through, for example, licence conditions.
On fair treatment and remuneration for non-members, I reiterate my support for the principle. However, I do not feel that it would be appropriate to give non-members of licensing bodies recourse to the Copyright Tribunal that members do not have. I also feel that it is unlikely to be cost-effective.
Codes of practice will require fair treatment for non-members, and ECL will not be authorised unless a suitable code is shown to be in place. If a dispute fell within the scope of a code, a non-member would be able to use the licensing body’s complaints procedure, with appeals going to an independent ombudsman. The Secretary of State would have the power to revoke an ECL authorisation if a code was not complied with. This is in addition to the proposed wider backstop powers and code review system, which includes the ability to impose other sanctions.
Amendment 84AGE would mandate that the regulations provide for a creator’s moral rights to have been assumed to have been asserted. I am happy to confirm that the orphan works regulations will indeed provide for this.
In relation to ECL, the principle is that the licence conditions applicable to the use of member’s works would also apply to the works of non-members. Amendment 84AGE would, however, also remove references to other safeguards. These include the various rights and obligations once a work ceases to be orphan, and the right to withdraw from an ECL scheme once it is up and running. The fact that these matters are specifically referenced in the Bill is an indication of their importance.
My noble friend Lord Clement-Jones and others have made some valuable points, but I can reassure the House that the Government understand the importance of getting the detail right. Fixing the detail in regulations will allow for expert input from the working group, further consultation and parliamentary scrutiny via the affirmative procedure, and will help the Government to keep safeguards up to date and effective. While I appreciate the intention of these amendments, I am concerned that they would hinder us in getting the detail right now and in the future. I therefore ask my noble friend to withdraw his amendment.
Lord Clement-Jones
My Lords, the Minister has been so forthcoming that I almost do not know where to start in thanking him for the assurances that he has given about the nature and content of the regulations in terms of the safeguards that will be similar to those in most of the Nordic legislation—that is, the way in which licensing bodies will need to demonstrate significant support, the way in which the Secretary of State will set out the requirements, and the powers of the Secretary of State in relation to codes of conduct. These schemes will be subject to renewal, which is extremely important. The way in which the Minister expressed these assurances was extremely important, first, in terms of meeting the expectations of rights holders, which is crucial in meeting some of the concerns. Secondly, even more important is what the Minister said about the onus of proof in terms of the ability of rights holders to withdraw from collective licensing schemes. Above all, that will provide more assurance than almost anything else.
I shudder to think how long some of the regulations following on from Part 6 of this Bill will be, since we are putting huge emphasis on secondary legislation following on from the clauses that we are agreeing. However, the Minister has given a very useful route map of what those regulations relating to extended collective licensing are, and to that extent it is extremely welcome. I beg leave to withdraw the amendment.
Lord Howarth of Newport
Lord Howarth of Newport
My Lords, this amendment arises from conversations that I have held with the British Library, with Universities UK and with the Wellcome Trust. They all endorse this amendment, as do the Chartered Institute of Library and Information Professionals—CILIP—the National Museum Directors’ Conference and the British Broadcasting Corporation. The issues at stake are important for our universities, our libraries, our archives, our museums, our galleries and our broadcasters, as well as for our culture and economy.
The purpose of the amendment is to create some flexibility in respect of a requirement that fees should be paid up front for the use of certain in-copyright works, known as orphan works. Orphan works are works whose rights holders, following a diligent search, remain unidentified or untraceable. The amendment would ensure that there is no absolute requirement in the statute that fees for the use of orphan works should be paid up front.
Let us remind ourselves of the benefits of being able to license the use of orphan works, provided that it is done with appropriate safeguards. I strongly support the Government’s policy of making orphan works accessible.
Baroness Blackstone
My Lords, I support my noble friend Lord Howarth of Newport. In doing so, I declare an interest as chairman of the board of the British Library. I will not repeat all my noble friend’s arguments, which were made at some length and extremely cogently. Nobody could have made the case better. However, on behalf of the great cultural institutions, of which the British Library is one, I want to say how important this amendment is. As my noble friend said, it is absolutely right that more than 40% of the in-copyright collections at the British Library are orphan works. I can confirm that.
My noble friend made a plea for flexibility and this is an example of legislation where flexibility should be built in. Clause 69 is an important clause in this Bill and I congratulate the Government on bringing it forward. However we need to make sure that it leads to the maximum use of orphan works for research, scholarship and other public uses. I fear that without this amendment, maximum use will not take place and many of the benefits of Clause 69 will we lost, as my noble friend has said. I cannot believe that the Government would want that to happen.
It will be extremely damaging if there is a requirement to pay upfront for orphan works in the way that the Bill requires. It is also quite unnecessary. I can see no downside to making this small change; otherwise it will end up—as my noble friend has said—as a tax on the very public institutions that both the Government and all parts of this House want to support. I ask the Minister to respond positively to this amendment. It is extremely important and will make a great deal of difference to this Bill.
The Earl of Erroll
My Lords, I support the noble Lord, Lord Howarth, in this amendment. It is extremely sensible, very simple and allows for flexibility, which is what we want. The concept of licensing for orphan works and for extended collective licensing is important if we are to disseminate things that we want to do and see. More and more programmes, books and so forth now dwell on our recent past. In this case, “recent”, when it comes to copyright, means the lifetime of the author plus 70 years.
The situation gets confusing. First, if one of your Lordships were to send someone a postcard, the copyright—wherever that postcard ends up and whoever buys and sells it and owns it later—would subsist for their lifetime plus 70 years. The next confusion is the assumption that copyright resides with the person who wrote the document. Let us suppose that someone tries to produce a study of an incident that happened between the wars. Indeed, a similar issue arose the other day when someone asked whether they could use a letter from my great-grandfather and whether I would grant copyright. There is a certain technical problem. I presume that they had looked at all the wills between my great-grandfather, my grandfather, my mother and myself to find out that I was the residual legatee; or that each was the residual legatee of each will; or that the copyright in this particular case had not been assigned to someone else. How on earth would you prove that? It would be totally impossible. For things that were never designed to be commercial, the concept of trying to trace the person who owns the copyright is ridiculous and is just a non-starter.
A clampdown will mean that a whole raft of things will not be able to be published by people in public office, because one cannot say to a public servant, “Just break the law because nobody is going to sue you”. You are telling them to act illegally. You can possibly do that as a private person and say, “They are not going to dare to sue me”, but you cannot expect people in libraries, universities, other such public bodies and charities to break the law. It is the wrong way to treat the law. As a result, we need something more sensible. That is why this entire clause is there, to try to solve the problem. But think of the millions of pounds involved if we charge even one penny per potential orphan work. We heard the figures a moment ago from the noble Lord, Lord Howarth. I do not believe that there should be a presumption of an upfront payment unless it is a small administrative charge. There should be no payment that tries to reflect the number of orphan works that might be involved, particularly if it involves lots of little individual things going from A to Z.
I am also worried about what happens to the money. If it goes into general taxation, I am not sure that is a very good use of it. I tend to think that the great institutions probably know how to spend the money better than central government, but maybe I should not say that. I certainly feel that most taxpayers think that they know how to spend their money better, so for this to be a covert tax is not a good idea. I also find the concept of government departments taxing and fining each other absolutely ridiculous, as it just circulates money around.
I would disagree with the noble Lord only about the copyright on digital photographs. If, because there is a technical challenge with some people stripping out metadata, exclusions are made for one class of item, exceptions and exemptions will be created because there are many ways around it. What happens if you take what is an analogue photograph and digitise it? At that point, it is going out there digitally. Is it now digitised so that the copyright rule does not therefore apply to it, or whatever? We should keep it simple and include everything within the orphan works scheme. Apart from that, very soon there will not to be many photographs that are not digital, so by excluding them the law will take some time to catch up. In any event, this amendment is sensible and it would be madness to refuse it. Please will the Minister look on it kindly?
Lord Howie of Troon
My Lords, I want to make a very brief observation with regard to orphan works. The existing definition of an orphan work is not terribly satisfactory. The matter came before the previous Government in their last weeks—I see my noble friend Lord Young nodding over there—when I was successful in persuading them to accept a new definition of what an orphan work actually was, so that people would be in no confusion as to what they were dealing with. Unfortunately, this was the declining days of that Government and that part of the legislation disappeared in the wash-up. I wonder whether the Minister might look back to the Hansard of that period for the redefinition of orphan works and, perhaps at a later stage of this Bill, bring it back in.
Lord Stevenson of Balmacara
My Lords, this has been a very powerful debate. In contradistinction to what have been discussing in the immediate run of amendments, this seems to be a situation where the Government are trying to be a little too definitive in primary legislation. My point would be, to support the comments made on this side, to suggest that the Minister might wish to review that.
We have heard that we are talking about hundreds of millions of works, which are—in the words that my noble friend used—underused, understudied and undercelebrated. There is no contention that the repositories in which these works lie are happy to pay for the cost of the administration of the scheme that is to be used to provide access to them. The concern is that by providing a very inflexible approach to this, these institutions will effectively have been taxed to provide funds which will go to the Crown under the bona vacantia rules. This seems extraordinarily unfair and I urge the Government to think again about this issue. I am aware that it has already been the subject of some discussion and debate but, given that we have at least another 10 days until the final stages of this Bill, perhaps there is still time for the meeting or discussion that I might encourage the Minister to have. We would certainly be very willing to meet his timetable in order to progress this.
The point must surely be that there ought to be a way round this that would accept the overall architecture of the structure of the orphan fees arrangement but would not penalise or tax those who have to operate it for the benefit of the public good. We have already had some suggestions that would perhaps include something to do with digital photography, which will always be a difficulty in this area. That might be a step too far. However, there are other ideas around, such as that the escrow account might be not returned to the Crown but made available for cultural work or, more particularly, returned to the original institution if the money is not claimed by a bone fide rights holder.
There might be a case for trying a pilot scheme, which would allow us to test out a number of options. Whatever there is, there is certainly a willingness on our side to see if we can get this right. This scheme is a good scheme. It is one that we on this side want to support, but we find it very difficult to see the right way forward if the Government insist on the present wording of the Bill.
Viscount Younger of Leckie
My Lords, I begin by thanking the noble Lord, Lord Howarth, for his amendment. I do not underestimate the strength of his views on this particular issue and the remuneration for orphan works. I have listened very carefully today to his argument. As he well knows, I listened carefully in Grand Committee and, indeed, outside the Chamber to his views, which are well known.
It is one of the core principles of the Government’s proposals that remuneration is payable for the use of an orphan work. Making payment discretionary would risk undercutting the market. It would also risk rights holders not receiving the remuneration that they would otherwise be due. Therefore, to avoid unfair competition, it should not be cheaper to use an orphan work than a non-orphan work. Where cultural institutions are acting commercially, it seems only fair that they do not receive preferential treatment to other parties licensing in the market.
I can assure the noble Lord that in setting the tariff of remuneration the Government will ensure that, as far as possible, it reflects the appropriate tariff for the same type of use of a similar non-orphan work. Where an orphan work is not being used commercially the licence fee will reflect that. In such cases, the fee could be minimal. My officials are consulting the competition authorities about how tariffs are determined.
I will address a number of questions raised by noble Lords, in particular the noble Lord, Lord Howarth. First, he suggested that excluding digital photographs from the orphan works scheme might be a possibility. A stakeholder working group will be considering the possibility, at least initially, of excluding from the scheme photographs without an analogue context—so photographs merely taken from the internet would not qualify for an orphan works licence.
The noble Lord, Lord Howarth, suggested removing the principle of upfront payment and his views were very clear on that basis. We cannot, however, expect cultural institutions to ride over the rights of creators even in the interests of the public good. Of course we hope that there will not be returning rights holders. We hope that diligent search will identify any such people. However, the principle of upfront payment is an important one. Abandoning the principle of upfront payment is a guarantee to creators that even if their works are missed in the search, they will not be deprived of an income. The fact that rights holders may be content to allow their works to be used is not a reason for trying to reduce their legal rights. In many cases, the payments may be minimal, indeed nominal.
The noble Lord, Lord Howarth, also raised unclaimed licence fees—an issue alluded to by the noble Earl, Lord Erroll. The authorising body will hold unclaimed licence fees in an escrow account. Unclaimed fees could be used to subsidise the cost of running the orphan works scheme, or to pay for preservation costs in public institutions or industry training. There will be further consideration of these options with the input of stakeholders.
The noble Lord, Lord Howarth, raised the issue of a renewable term and the fact that he was not in favour of it. To allow for business certainty, there will need to be some limit on how long an orphan work can be used before a new authorisation would be required. Any returning rights holder would receive remuneration for this period of time and would be able to stop further use at the end of the period if they so wished. The metrics for determining the durations of licences have yet to be decided. In some cases, it might be a period of time; in others, it might be something else such as a print run. Therefore, there will be further consideration of how charges are determined but licence fees will be appropriate to the type of work and use proposed. I hope that, with those reassurances, the noble Lord will not press his amendment.
Lord Howarth of Newport
My Lords, the novelist Edith Wharton has a character in one of her early stories, a woman novelist, who discusses with her former lover what should be done with their love letters. She says:
“A keen sense of copyright is my nearest approach to an emotion”.
Noble Lords may be feeling rather similar by this stage of the proceedings. I am grateful to all noble Lords who have spoken in the debate—my noble friends Lady Blackstone, Lord Howie of Troon and Lord Stevenson of Balmacara, as well as the noble Earl, Lord Erroll—for their very helpful contributions.
Lord Clement-Jones
“Greater protection for authors when assigning or licensing copyright
In paragraph 1(c) of Schedule 1 to the Unfair Contract Terms Act 1977 (scope of sections 2 to 4 and 7), omit “copyright”.”
Lord Clement-Jones
My Lords, there is currently in many cases an imbalance in economic power between the creator and those with whom they are dealing on copyright. I moved an amendment similar to this in Grand Committee, and at that time the Minister said that the Unfair Contract Terms Act is intended to regulate only business to consumer relations. Of course that is correct. The Minister has, however, agreed to see what can be done by way of review within the Department for Business, Innovation and Skills of this type of issue.
The amendment is designed to elicit from the Minister an assurance that this work will be undertaken. I have sent the Minister a paper suggesting how such a review might take place. It would be an independent review of copyright contracts for creators and would explore how copyright contracts could be made fairer to ensure that creators receive a fair share of the money that consumers pay for copyright content and that the purpose of copyright in stimulating and sustaining creativity is met.
The kinds of contracts that such a review might consider are those with publishers, broadcasters, record labels and film studios; creator’s contracts with, and mandates to, collecting societies; and contracts with internet platforms such as Flickr. Some possible solutions for the review to explore—I am not going to go through them all—might include whether the doctrine of undue influence that applies when a person in a dominant position uses that position to obtain an unfair advantage for himself or herself could be codified in statute law; or whether, for instance, a right to equitable remuneration for creators is a necessary underpinning to fair contracts for creators; and whether model licences and codes of conduct could extend the benefit of collective negotiations through professional bodies to a wider range of creators, particularly new entrants to the entertainment industries and consumers-turned-creators. I very much hope that the Minister can indicate how a review might take place and who would be responsible for it. I beg to move.
Baroness Buscombe
My Lords, I support this amendment, to which I have added my name. I support everything my noble friend Lord Clement-Jones has already said. This amendment would go some way to mitigate risks to the individual creators, without whom there is no creative economy. We have here more risks of unintended consequences of the government proposal for extended collective licensing. Already before the passage of the Bill, there is renewed pressure on individual creators to sign away to publishers all their rights, including rights to income from extended collective licensing. While creators are vulnerable to the take-it-or-leave-it approach in contracts offered by powerful organisations, the likelihood is that creators will thus be deprived of the compensation for the use intended by the drafters. I should add that we have had so much correspondence in this regard that we are looking to my noble friend the Minister for strong reassurance.
Lord Jenkin of Roding
My Lords, I support this amendment. As I understand it, there has been a presumption in some way that the Unfair Contract Terms Act applies only to dealings between business and the consumer. Of course, there are in the field of copyright—indeed, I suspect in many aspects of intellectual property—areas where there is a substantial imbalance between the negotiating power of the intellectual property owner and the prospective licensee.
I understand that the Department for Culture, Media and Sport has been impressed by this argument. I have been told that there are discussions currently going ahead with my noble friend’s department to see if there is some way in which this imbalance could perhaps be recognised in the law. It might well not be possible to do it in this Bill, and on that I wait to hear my noble friend’s argument. I would like to be assured that the discussions going on within government—I understand this may be between the two departments—will continue so that there can be a proper examination of whether this extension can be made in some way. There is no doubt about it; someone has to deal with what at the moment looks, to many of the people in the creative industries, like a very unfair balance. It is part of the duty of government to see that that is put right. I hope my noble friend will be able to give us that assurance.
The Earl of Erroll
My Lords, we need to move somewhere in this direction, so I support this amendment. The unfairness of copyright law recently came home to me. Someone wanted to publish a book involving some of my ancestors, and asked whether they could use some material that I had at home. I replied, “Certainly, I would be delighted”. Then they said, “We need a release document”. They put a contract in front of me that said that they would have total rights to this material throughout the universe, known and unknown, in media not yet developed, incorporated and not incorporated—this, that and the other. The only thing it did not include was parallel universes. The contract said that I would have to defend the copyright whenever and wherever required, at my cost. I was not receiving anything for this; I was simply trying to be kind and helpful to someone who was making a documentary. I asked someone legal about it who said, “Oh, they probably couldn’t enforce it because it’s an unfair contract”, but apparently it is not because unfair contracts do not apply to copyright. I therefore asked whether other people had signed this, and was told, “Oh yes, they’ve signed them. Don’t worry, I’m sure nothing will happen”.
It is madness for people to sign these things. Something will come home to roost. You have only to look at the chancel repair bills that some people receive as a result of things signed long ago, which come home to roost generations later. This copyright thing would, if I had signed it, presumably have burnt my heirs and successors as well for the period of that copyright. This is potentially quite serious—something that people are ignoring. They think that it will go away and that it does not matter because it is so over the top. I struck through all the relevant clauses in the contract and said, “Right, you can have whatever rights you want to it, but you defend it and look after it”. I never heard any more and they never used the material, which is sad.
This is all part of the previous discussion on orphan works and extended collective licensing. So much is locked up that could help the future, help current understanding of the past and help to disseminate things, yet the big rights holders are so bullying in holding on to this material that they are preventing its dissemination. We have to open up and start being more reasonable, particularly in the digital age. On this amendment, therefore, I definitely support the noble Lord, Lord Clement-Jones.
Viscount Younger of Leckie
My Lords, I start by answering a question that my noble friend Lord Clement-Jones raised at the beginning. Well, it was more of a point, really. He said that he had sent a paper to me on how the issue of unfair contracts could be addressed. I confirm at the beginning that I have received this paper and that we will consider his suggestions very carefully. It is a little early to talk about this as a formal review, but I reassure him that we will certainly discuss this and take it forward.
However, I thank my noble friends for this amendment. I understand that individual creators can be at a disadvantage when negotiating contracts with intermediaries and large organisations. However, I believe that amending the Unfair Contract Terms Act in this way, as intended by this amendment, would not address these concerns. My noble friend Lord Clement-Jones is aware that we have had discussions on this outside the Chamber. This is because the provisions of this part of the Act are limited in scope. Section 3 applies only where one of the parties is a consumer, or is on the other party’s non-negotiated standard terms of business. However, we should also consider the overarching point. Successive Governments have maintained the principle that businesses should be able to contract freely with each other, and that the Government should not unduly fetter or circumscribe this freedom.
My noble friends have raised valid concerns about individual creators. Although I do not consider that the Bill needs amendment in this respect, I would be happy to meet creators to explore these issues further. I hope that in the light of what I have said, my noble friends will not press their amendments.
The Earl of Erroll
Will the Minister clarify something? It sounded as though this amendment would cover the situation in which I found myself. If a creator is a sole trader, will he be covered as a business to consumer rather than business to business? Would that help?
Viscount Younger of Leckie
The noble Earl raises an interesting point. This is very much a technical issue. As noble Lords will be able to imagine, a number of lawyers were involved before I was able to stand at the Dispatch Box today. On that point, I ask the noble Earl to allow me to get back to him with a specific reply.
Lord Clement-Jones
My Lords, I thank the Minister for that reply. I also thank the noble Earl, Lord Erroll, for his comments. He rarely supports one of my amendments, and I have learnt more about his ancestors today than on many previous occasions, so I thank him for his support.
The issue is not whether or not to amend this particular Act. As the Minister says, the Unfair Contract Terms Act does not apply to copyright or business-to-business transactions. Therefore, the essence of this is that, where many of these small creators are small businesses, we need to find a mechanism that will create a more level playing field with some of the larger contractors with whom they want to do business, and to find some way in which those transactions can be reviewed in the way that I suggested.
The Minister did not go quite as far as I would have liked and commit to a review. I think he said that he would meet to discuss how a review might take place. I will take that for what it is. I very much hope that I will be able to persuade the Minister, especially with the paper I sent him, which I confess was drawn up by the Creators’ Rights Alliance, which represents smaller creators and feels very strongly about these issues. I am sure that its members will be only too delighted also to meet the Minister. In the mean time, I beg leave to withdraw the amendment.
Lord Clement-Jones
“Diligent search
(1) The Copyright, Designs and Patents Act 1988 is amended as follows.
(2) In section 97(2)(a), after “infringement” insert “, in particular whether in respect of any work or group of works the defendant has carried out a diligent search in accordance with the requirements of inserted section 116A.”
(3) In section 191J(2)(a), after “infringement” insert “, in particular whether in respect of any work or group of works the defendant has carried out a diligent search in accordance with the requirements of paragraph 1A of Schedule 2A.”
Lord Clement-Jones
My Lords, I am afraid that this House will get rather tired of my voice over the next few minutes. I beg to move Amendment 84AHA. This amendment seeks to clarify the matters to be taken into account by a court in exercising its discretion to award additional damages in certain cases of copyright infringement. The power to award such damages for copyright infringement is contained in Section 97 of the Copyright, Designs and Patents Act 1988, and Section 191J covers infringement of performers’ rights. As the provisions are identical in form, I will speak only to copyright infringement.
Additional damages are a form of damages that are intended to have a punitive or deterrent effect on the infringer, and are awarded in exceptional cases, in addition to the compensatory damages based on a reasonable royalty that are the usual remedy for copyright infringement. They are often referred to as “flagrancy damages”. Some kinds of copyright infringement are carried out with such flagrant disregard for the rights of the copyright owner that it is appropriate to have a sanction available to the civil courts that both contains an element of punishment of the infringer and which, more importantly, acts as a deterrent to others who might consider doing something similar. The sanction is not often used, but has been applied, for example, where the defendant has already been found to have infringed and then repeats the infringement.
This amendment will bring the provision up to date to reflect the changes being made by this Bill in relation to orphan works. Your Lordships will recollect that it is proposed that before any work can be declared an orphan it must be subject to a diligent search for its owner. There is considerable disquiet in some parts of the creative community about how conscientious all those who wish to use orphan works will be in carrying out such a search. Of course, we expect that in due course there will be some detail, which the Minister has described in detail, of the requirements set out in the relevant regulations. They will be designed to minimise the possibility that people will take inappropriate advantage of this provision.
None the less, given the enormous potential commercial benefits, it is entirely likely that some organisations will seek to test how little they have to do by way of diligent search. In particular, one of the concerns raised with me is that a potential user may argue that, as they have carried out a search in relation to one item in a group of works, they should be permitted to assume that the result will be the same for the others, and that they are relieved of the need to carry out separate searches. We debated this only a few groups ago.
The protection that this affords to people is that before their work can be declared an orphan and used without their authorisation, there must be a diligent search. This simple amendment deals with the temptation to use the orphan works provisions in a manner that is clearly not intended by the Bill. It spells out that failure to carry out a diligent search will be one of the considerations that the court takes into account when deciding whether or not to award additional damages. It will not be definitive of the question, just one factor to be taken into account.
This would send a clear message that the new freedoms provided by these provisions are not to be abused, especially not at the expense of creative individuals who do not have the resources of large corporations standing behind them to enforce their rights. This is an important aspect and one that is entirely consistent with the policy direction behind these measures. I beg to move.
Viscount Younger of Leckie
My Lords, Amendment 84AHA returns to the subject of diligent search, something that was discussed in one of the earlier groupings. I understand and sympathise with the intention behind this amendment. However, the Government are not convinced that a failure to obtain an orphan works licence legally should be treated as an aggravating factor over and above any other form of copyright infringement. There are already provisions in the 1998 Act for special damages, but the general principle of law at issue is that civil redress is about compensation rather than punishment. The Government feel that the courts should be in the best place to determine damages in the light of the circumstances of each case. I hope that in this light my noble friend will not press his amendment.
Lord Clement-Jones
My Lords, I thank the Minister for that. I will need to consider some of the points that he has made. I am not sure whether I agree that it should be a matter of pure compensation and not damages, but I am sure that his words will be worth looking over again in the light of day. In the meantime, I beg leave to withdraw the amendment.
Lord Clement-Jones
“Right of identification
(1) The Copyright, Designs and Patents Act 1988 (the “1988 Act”) is amended as follows.
(2) For section 78 (requirement that right be asserted) substitute—
“78 Moral rights
(1) The rights conferred by this Chapter (moral rights) are—
(a) exercisable without formality in unpublished works,(b) exercisable without formality in works made available to the public after this section comes into force.(2) There shall be no cause of action for omission of attribution in re-publication of a work that was legitimately made available before the commencement of this section, unless the rights conferred by this Chapter were asserted at the time.”
(3) For section 205D (requirement that right be asserted by performers) substitute—
“205D Moral rights
(1) The rights conferred by this Chapter (moral rights) are—
(a) exercisable without formality in unpublished works,(b) exercisable without formality in works made available to the public after this section comes into force.(2) There shall be no cause of action for omission of attribution in re-publication of a work that was legitimately made available before the commencement of this section, unless the rights conferred by this Chapter were asserted at the time.””
Lord Clement-Jones
My Lords, I beg to move Amendment 84AHAZA. The labelling of the amendments gets more and more complicated as time goes on.
The requirement that the moral right be asserted is widely agreed not to be a particularly useful concept. Discovering whether a right has been asserted is in many cases, for practical purposes, impossible. It was noticeable that the Minister confirmed in our previous discussion of orphan works that it would not be necessary in certain circumstances that a right be asserted. In the case of a photograph, for example, it may be necessary to refer to the invoice for payment for the licence for first publication. A consultation held following the debate on the Digital Economy Act could find no reason to retain the requirement to assert the right of identification, and I am aware of no body that is strongly attached to retaining this requirement.
I believe that the Intellectual Property Office has indicated that it is proposed that a right shall be treated as being asserted, and this was confirmed today, in respect of orphan works in the regulations proposed under Clause 69. This amendment therefore makes an important amendment to the Copyright Act and makes the situation uniform. All authors and performers having the right to be identified is an essential precondition for measures to permit licensing of orphan works and to help to prevent the creation of new orphans. More will be required to strengthen this right and to protect the metadata that contains the identification of authors and performers, but this is an important start. It would remove a serious barrier to the ordinary citizen having a right to be identified in the first place, since they are very unlikely to be aware of the requirement to assert. I beg to move.
Lord Jenkin of Roding
My Lords, I very much support this. I believe that it is a very worthwhile amendment. I cannot understand why somebody who is claiming the right to be the copyright owner of an orphan work should have to assert his right from the beginning. He will not know about this, as it is a requirement that will be hidden in the legislation. I cannot for the life of me understand why he has to do this in advance, as it were. It is an unnecessary restriction and requirement to be placed on the shoulders of an individual, perhaps an artist, writer or musician, who says that they are the author and owner of an intellectual property, only to be told that they have not asserted their right from the beginning. I do not believe that that is right.
I hope that my noble friend will look on this amendment sympathetically and, even if he cannot accept the words, undertake to have a good look at the issue and perhaps meet some of the people concerned, with a view to having something put into the Bill at Third Reading. I think that my noble friend Lord Clement-Jones has made a very sound point in moving this amendment.
Viscount Younger of Leckie
My Lords, the noble Lord’s proposed amendment would make automatic the right to be identified as the author of a work. Currently Section 78 of the Copyright, Designs and Patents Act 1988 provides that moral rights, including the right to be identified or attributed, must be asserted to take effect. The Government appreciate that there is a legitimate debate around the issue of moral rights, particularly the right to attribution. Some stakeholders would like to see the moral rights of creators strengthened further. The Government acknowledge that there are creators who would like to see the right of attribution become automatic and some who would also like it to be unwaivable. We are also aware, however, that other creators take the view that moral rights, such as the right of attribution, can have an economic value. These creators argue that they should be free to decide whether to exploit that value.
As can be seen, this is a complex area on which creators hold strong and often differing views. The economic question of the cost of using works is an important one. Changing the law on moral rights would affect many groups in different ways. It is not an insignificant question and would require a full consultation. I hope that these words help to answer some of the questions raised by my noble friend Lord Jenkin and that, in the light of what I have just said, my noble friend Lord Clement-Jones feels able to withdraw his amendment.
Lord Clement-Jones
My Lords, I thank the Minister for that response, and I thank the noble Lord, Lord Jenkin, for his very valuable support. I appreciate the Minister saying that there is a legitimate debate. There are, of course, a number of aspects of moral rights that are debatable, not only the automatic right stated in this amendment but also the issue of waiver, the question of the economic value of moral rights and so on. This amendment was a way of putting a marker down that this is an area that is somewhat archaic. If we are going to move on, especially when the new exceptions come into play, we must look at further aspects of reform of copyright law, such as the way in which contracts are made with creators, aspects of moral rights and metadata. This is an area that the IPO could very usefully focus on and, in the next round of legislation, look and see whether we can get rid of something that I believe is now not required and is rather out of date and unnecessary. In the mean time, however, I beg leave to withdraw the amendment.
Lord Mitchell
Lord Mitchell
My Lords, in moving Amendment 84AHAZB, I will also speak to Amendment 84AHBA, which is consequential. These would give shareholders an annual binding vote on executive remuneration.
Last year, my noble and very dear friend Lord Gavron tabled a Private Member’s Bill on the subject of executive pay. Sadly, he cannot be with us today. In the next few days, he is due to have a very serious operation. I know that I speak for the whole House when I wish him a very safe and speedy recovery. It was the noble Lord who first stimulated my interest on this issue when he asked me to support his Bill. Of course, I was pleased to do so. Since then, I now find myself on the Front Bench and fortuitously in a position to lead the opposition position on this issue. It must also be said that the noble Lord, Lord Gavron, is also a generous supporter of the High Pay Centre, which has conducted a great deal of important research on this subject. Based on discussions that the noble Lord had with the noble Lord, Lord Marland, and others, he felt that the Government had taken his points on board and in consequence he withdrew the Bill. To their credit, the Government have indeed incorporated some of the points made in the Gavron Bill, but I believe that this Bill can still be improved on. That is what we are seeking to do.
At the heart of the matter lies the empowerment of shareholders. Just in case noble Lords question my position in speaking on this subject, I add a little personal background. From 1972 to 2006, I set up numerous businesses. Some were very successful, some were total disasters. I will make no further reference to the Soho restaurant that vanished without trace. I lost a packet and there were several others like that. On the other hand, I have had my notable successes. I have been in the IT services business most of my adult life. I created three businesses from scratch, built each of them over 10 or more years and then sold them. Each company became a market leader and two of them were international operators. Not surprisingly, I dwell upon my successes these days although it must be said that the failures made me a better man. I learnt one golden rule: stick to what you know.
I am a senior entrepreneur in tooth and claw. I know that success is wonderful and failure is painful. I understand the rules of the game. I have made this personal statement to put it all in context because the series of amendments I have tabled, and which we are about to discuss, centre around the rights and powers of the shareholder, with whom I have a strong personal sympathy. The shareholders are the owners. If the company does well, their share price goes up. If it fails, they can lose the lot. Executives can move on; shareholders are left with a loss. The board of directors is accountable to the shareholders and the management reports to the board of directors.
In many small private companies, the management, the board and the shareholders are often one and the same, but in quoted companies this is seldom the case. That is one of the reasons why these amendments refer solely to quoted companies. There are, of course, other stakeholders in all companies, first and foremost, the employees, but also the customers, the suppliers and the community where the company is located. They are important but just for now we are concentrating on the shareholders and their rights to know and to control. When we address executive pay, we are saying that this subject is so important that the shareholders of a publicly listed company should not only be consulted but should also vote on the policy and the actuality of the pay packages that senior executives are to receive.
Much today is said about the shareholder spring—the hope that shareholders will assert themselves more and, of course, we agreed wholeheartedly with this. If we look around the world, shareholders are flexing their muscles in all sorts of ways. In the United States, the Dodd-Frank enactment of 2010 has significantly tightened shareholder scrutiny on executive compensation. This is referred to as “say on pay”. In the EU a couple of weeks ago, strong recommendations were announced with respect to bankers’ pay and bonuses. It will not have escaped noble Lords that just over a week ago, the Swiss, of all people, held a referendum on curtailing bankers’ bonuses. The proposal received 67% support among Swiss voters; 1.6 million of them turned out to vote; and all 26 cantons approved it. Were we to have such a referendum here, one wonders what the result would be, although we can get some idea by looking at the attitudes of the British public. Only 7% of those polled say that they think that the CEO of a large company should receive compensation of more than £1 million and only 1% think that they should be paid more than £4 million a year. Is that any wonder when profits for failure feature so heavily in the news? For example, last week, HSBC announced that 204 of its global staff were to receive £1 million in bonuses and compensation—this in a year that has seen the bank fined £1.2 billion for laundering Mexican drug money. RBS has made it clear that a £5.2 billion loss was no barrier to paying out more than £600 million in bonuses.
Lord Wills
I am very grateful for that, but I just hoped that before my noble friend sat down he could address one particular issue that is of concern to me. He has put forward a compelling case for these amendments, and I hope that the Government will consider them extremely carefully. In his closing remarks he put his finger on one of the main problems with this whole area; it is not just that shareholders find it difficult to hold companies to account for their remuneration policies but that those shareholders are for the most part, as he has identified, large financial institutions. They are not as accountable as they perhaps should be to those whose savings they manage. Has my noble friend given any thought to making those institutions give an account of their policies on remuneration to those whose savings they manage, and why they have taken a particular stance on a company’s remuneration policy—to making those institutions more accountable—which might make them even more activist than they already are?
Lord Mitchell
I thank my noble friend for that comment. I think it is a really good idea. They should be accountable. They manage so much money, and I think it is a very important factor.
Lord Blackwell
My Lords, I am sure that all of us who are directors of public companies agree with the spirit of the Bill: that directors have an obligation to carry shareholders with them and to win their support for policies on remuneration as on other matters. However, the noble Lord’s particular point about having a special resolution to approve remuneration policy I found very difficult to follow. I am not sure that that argument was well made.
The special resolution requiring a 75% vote to approve a remuneration policy in effect biases any vote of shareholders against approving the director’s recommendations. I do not quite follow why, if 51% of voter shareholders believe that the remuneration policy is to the advantage of shareholders and 49 % believe it is against, the 49% should hold sway over the 51% who agree with directors. I could argue that there might be a case for biasing the vote the other way: that there ought to be presumption that the director is acting in the interest of shareholders and not necessarily that the majority voted the other way. However, I am perfectly happy to go along with a majority vote one way or the other. I just do not think that the noble Lord made any case for requiring a special resolution.
Lord Tugendhat
My Lords, I would like to address the noble Lord’s point about annual approval. I spoke in favour of annual approval on Second Reading, and I am a little surprised to be speaking on it again on Report. I gained the very clear impression from the wind-up speech of the then Minister the noble Lord, Lord Marland, that there would be annual approval. In referring to the noble Lord, Lord Gavron, Lord Marland said:
“He also asked me the frequency of the new binding vote on remuneration policy. The binding vote on future pay policy will happen annually, unless companies choose to leave their pay policy totally unchanged. I think there will enormous shareholder pressure on companies that continue to leave their policy unchanged”.—[Official Report, 14/11/12; col. 1608.]
I strongly agree with the noble Lord, Lord Mitchell, that this matter, like other important issues that come before the AGM, should be dealt with annually. Indeed, it would be eccentric to suggest that any other proposition be put forward. If the Minister really wants us to agree to triennial agreements, he will have to make a powerful case that has not yet been made in this Chamber.
It would be preferable if the Minister cast some light on how he interprets the undertaking of the noble Lord, Lord Marland. If the Minister is saying that any change whatever in executive remuneration is subject to a vote, we will, in practice, have annual votes because it is inconceivable that you would have a group of executive directors whose pay would remain completely unchanged for three years. Indeed, it is pretty unlikely that you would have a group of executive directors who themselves remained completely unchanged for three years. The overwhelming likelihood is that there would be changes in the pay packages and the composition of the executive group. If the Minister can assure me that any change whatever, either in an individual package or in incorporating the arrival of a new executive director, will mean that the matter has to come before an annual vote, I would be able to follow my noble friend. However, if he cannot do that and if he is saying that unlike the report and accounts and all kinds of other things, executive pay should be given special status and subjected only to triennial review, he is diminishing the value of the Bill.
I said on Second Reading that I commend the Government for tackling this issue, and I hold to that position. It was not tackled under the previous Government and it is good that it should happen now. The Government have established the principle that the issue is a matter of public interest, but if that is the case, as is the case in other important areas such as the appointment of auditors and the annual report and accounts, why on earth should it not be dealt with on an annual basis? Or is the Minister going to suggest that the appointment of auditors should be made triennial, quinquennial or at some other interval? He must either try carefully to explain why he puts executive pay into a special category—not just tell us about investors saying something but actually make a reasoned case—or he must convince us that any change whatever will trigger an annual approval.
Viscount Younger of Leckie
My Lords, I wish first to follow on from the comments of the noble Lord, Lord Mitchell, concerning the noble Lord, Lord Gavron. I am sure that everyone on this side of the Chamber would agree that we wish him a speedy recovery. Secondly, I take this opportunity to acknowledge the considerable experience of the noble Lord, Lord Mitchell, in the management of companies and on the ups and downs of fortune. It was helpful to hear about his background.
Lord Lea of Crondall
I am grateful to the noble Viscount for giving way. I would like to check that I have understood. He referred to the words “pay policy”, and an amendment is coming up shortly on the question of top to bottom ratios. If this is now an acceptable form of words, why do the Government not think there is now a need for a top to bottom pay policy, which we will come to in a minute?
Viscount Younger of Leckie
I will come to this in a minute. If the noble Lord will forgive me, I think it is best that we continue with this rather than move on to that particular subject. We can then focus on the noble Lord’s comment during the debate on the next amendment.
I should reiterate that throughout our consultation shareholders with considerable experience in investments research and analysis consistently expressed concerns about the downside effects of annual votes and special resolutions. This was acknowledged by my noble friend Lord Tugendhat. It is a fact, and it is the main point I want to make. Stakeholders have expressed their support for the Government’s proposals. For example, the Association of British Insurers stated that it is,
“pleased the Government has decided to proceed with this with a 50% voting threshold”.
The noble Lord, Lord Mitchell, raised some questions. First, he asked to which year a policy would relate if it were renewed annually. Well, he did not raise precisely this question, but it was alluded to. It is important to provide companies with the flexibility to decide themselves how the timing of the pay proposals will best work for them. Whether a pay policy relates to the current financial year or the following one is a decision for companies and shareholders to take together.
The noble Lord, Lord Mitchell, also raised the issue of the Cox review. I acknowledge this review, and the Government welcome its publication. The review raises some key issues about directors’ pay. I reassure the House that we will consider the recommendations made in the Cox review in the context of the Kay report. The Kay report provides a framework to restore relationships of trust and confidence, and to realign incentives throughout the investment chain. I remind noble Lords that the Government are fully committed to taking forward the recommendations made in Professor Kay’s review that investment in equity markets supports UK companies to deliver sustainable growth.
To conclude, my noble friend Lord Tugendhat raised the matter of annual votes, on which some fairly strong comments were made. I stress that in the end this is about giving companies and shareholders the flexibility to do what is best for them. However, the noble Lord is correct that a vote would be required in the event of any change in policy, so annual changes would lead to an annual vote.
Lord Tugendhat
The noble Viscount used the words “any change in policy”. Am I right to understand him to mean that if there was a change in the remuneration of two or three directors, or even of just one director, during the course of 12 months, the total pay package would have to be put to the AGM that year and could not be held over for two or three years, or whatever was left? Would it have to be voted on immediately or at the next AGM?
Viscount Younger of Leckie
I can confirm that it would have to be voted on immediately, because the change had happened in that particular year, so there would be that trigger for year two, in effect. If I have failed to do so already, I ask the noble Lord to withdraw his amendment.
Lord Mitchell
I thank the Minister for his comments and all other noble Lords for their contributions. I will deal first with the 75% special resolution issue, which was raised by the noble Lord, Lord Blackwell. As my noble friend Lord Wills was saying, it is important for the shareholders to hold the executives’ feet to the fire in some respects. This is a crucial issue. I know there is a difference in this between the ordinary and the special resolution, but that was why we went for the 75%.
The main issue is the annual point. You only have to read any newspaper in this country, and indeed around the world, to see what a vexatious issue this is at the moment. The population is disturbed, and the financial press is disturbed. Not only the popular press but leading newspapers in this country and throughout the world bring up this issue of executive pay. It has got out of kilter. We are going for the annual situation rather than the triennial situation because it should be an automatic consequence and is just as important as the selection of auditors and the approval of the accounts. Three years just seems to us to be too long for such an important issue. I have listened to what the noble Lord has said, but I would like to test the opinion of the House.
Lord Mitchell
“(2B) The regulations must require the inclusion of information regarding the 10 highest paid and 10 lowest paid employees in the company outside of the board and executive committee.”
Lord Mitchell
My Lords, Amendment 84AHAA speeds right to the heart of the matter in hand. The disparity in pay between top and bottom earners has informed much of the public outrage about remuneration, and it no doubt lies behind the polling figures that I mentioned previously. Had the minimum wage kept track with executive pay since it was introduced, it would now be worth in the region of £19 per hour. Instead, we see a very pronounced wage discrepancy. It is felt particularly acutely here in London, where many FTSE 100 companies and our financial sector are based. In 2010, the top percentile here received 16.5% more than the bottom percentile. The ratio between top and bottom pay has gradually grown over the past 30 years to the point that in both the Lloyds Banking Group and Barclays top pay was 75 times that of the average employee in 2011. By way of comparison, in 1979 the difference was only 14.5 times.
Put simply, too many are being left behind. This is certainly not the one-nation economy that this country needs. Therefore, shareholders should have more power to hold to account the companies they invest in, as we argued with regard to the previous amendment. Greater transparency about levels of pay at the top and bottom of the company would give shareholders the tools they need to make informed decisions on how they vote. This amendment gives shareholders those tools by requiring companies to disclose the top and bottom 10 earners outside the boardroom.
There are corresponding moves to increase transparency on pay, so it is worth going over why we consider there to be a need for this amendment. Most of the moves to get companies to release more information on pay to their shareholders cover only banking. The Treasury’s current consultation proposal is that the top eight highest-paid earners beneath boardroom level in banks are to have their salaries disclosed. Although it is difficult to know the details at present, it appears as though the European capital requirements directive IV will opt for a different disclosure proposal, whereby the figures for those earning more than €1 million a year are to be collated and sent to the EBA, which will then produce the numbers in a common format. It is possible that in some institutions this could produce less information than the Treasury proposal.
Both these proposals from the Treasury and in the European capital requirements directive IV differ from ours in several important ways. First, they concern only the banking sector, but this issue is not limited to that industry. Let us consider the top pay at BP. In 2011, it was 63 times that of average employee pay, whereas in 1979 the difference was only 16.5 times. However, these proposals had nothing to say about the severe problem of low pay, which, as my noble friend Lady Turner of Camden pointed out in Grand Committee, produces many difficulties in our society. I think we could all agree that pay at the bottom of a company should be considered when pay at the top is set.
The initial Private Member’s Bill of my noble friend Lord Gavron contained a similar provision. Clause 2 said:
“A company’s annual report must prominently feature details of the remuneration ratio between the highest remunerated director or employee and the average remuneration of the lowest remunerated 10% of employees”.
This amendment is slightly different but would have the same effect, introducing a measure of transparency as to the ratio between the highest and lowest paid workers.
Yesterday, Secretary of State Vince Cable pledged to support a push for openness about what tax businesses pay in different countries. This amendment is a similar push for transparency. I hope that the Government will find that they are able to support it. I beg to move.
Lord Lea of Crondall
My Lords, I strongly back this amendment. I know that it is not for here and now with the present Government, but in two years’ time it will be very interesting to see how a Labour Government get the architecture together to relate the income distribution of the rest of the enterprise to the incomes at board level. That is what they have in the most successful European societies—I include Germany, Holland and Scandinavia, and I do not think that anyone would draw up a very different list. In answer to the notion that these economies are not competitive, their place in growing world market share is far superior to that of Europe generally and certainly to that of Britain.
The point has just been made that the banking sector is a rather special sector. I can tell you one respect in which it is very special: people get paid enormously more at the top than in any other sector. That is what is special about it. It is not special in the sense that there has not been a huge growth in the disparities in all the rest of the sectors. Anybody close to industry will know that two things happen when pay at the top gets to 30, 40 or 50 times that at the bottom. The first is that there is a crossover effect in the rest of the sectors—in construction, mining or any other sector. Banking does not live in a world of its own, although in some respects, of course, it does. Some people say that the banking industry is Britain’s biggest industry. When we were young, to say that banking was Britain’s biggest industry would have been thought a rather risible thing to say. Yet that is infecting the rest of the economy. A lot of the best talent used to go into the Civil Service. Now, not as much of the best talent is going into the Civil Service. Not as much of the best talent is going to many of the sectors that had their share of the best available talent years ago.
While we are on the subject of top people and talent—and what you might call inherited wealth, which is part of this question—the fact is that we are failing to bring out the best of the talents and opportunities of everybody else in society. So when one talks about 1%, one immediately says, “What about the 99%?”. I think that for this Government to ally themselves ideologically with the interests of the 1% at the top is going to prove a fatal mistake.
The clock is ticking, and those of us who now believe what this side of the House believes, in the challenges that we will face in two years’ time there must be some connection between our policy of worker representation on boards and what is happening in the rest of the company. You do not need to be Einstein to figure out that if there is some new structure of boards, there has to be some substructure. You cannot have a superstructure without a substructure. Whether it is through information and consultation bodies or any other way, it will be a major challenge to get it right this time under the next Labour Government. It is rather academic from the point of view of Members opposite in the Conservative Party, but it is a very interesting pointer to the future that this is one of the elements in the architecture that will be built.
Lord Blackwell
My Lords, I have listened very carefully to the speeches of the noble Lords, Lord Mitchell and Lord Lea of Crondall. While they made some interesting points, I did not find that either of them had any compelling rationale for this particular amendment.
We have all agreed that the remuneration policy for those at the top of companies has to be transparent and has to be voted on and agreed by shareholders; that is only proper. As for the low-skilled workers on the minimum wage, that is a matter which is voted on by Parliament in setting the minimum wage. However, I am not sure that to juxtapose those two things in a company’s annual report provides any useful information. Let us consider company A, which, we hope, does a great job for the community in employing lots of people, including low-skilled workers, on relatively low wages. Offering them employment helps them to come off benefits and thus creates a great benefit to society. Company B, operating in the same sector, decides to ship all those jobs off to India. Which company would shareholders—or, indeed, society as a whole—think is doing a better job? I do not think that juxtaposing how many people a company successfully employs at the lower end of the skill level compared to the top end, and comparing that with other companies, gives any useful information about whether those at the top of the company are being rewarded appropriately.
Lord Lea of Crondall
The noble Lord asked a direct question about the connection, because of the minimum wage, between the bottom and the top. One phrase that gives a clue to the connection is, “We are all in it together”. Does that not give any sort of clue to the noble Lord?
Lord Blackwell
That is precisely my point. I would have thought that the company that successfully employs lots of people at all skill levels, including those on the minimum wage or at a low-skill level, is helping society and helping us all to prosper together.
Another example is a company in a consultancy that employs only PhDs. The ratio between the top and the bottom in that company may be relatively small. Is that a better company than one that employs lots of people on the minimum wage? I think that this information is almost entirely irrelevant to any judgment about whether the pay at the top of the company is appropriate. That is a relevant question, but this information is potentially misleading and potentially encourages those viewing the annual report to take a misguided view of the appropriateness of the pay policy within the company. I do not think a case is being made for it.
Lord Kerr of Kinlochard
My Lords, I understand the general points made the noble Lord, Lord Mitchell, and I have considerable sympathy for them. However, I do not understand their relevance to Clause 71, which is about remuneration reports. The problem with remuneration reports is that the degree of detail now required in them means that they have become rather long and complex. An additional requirement to include a comparison between payments made to two categories of staff, neither of which is within the scope of the remuneration report, would add further complexity without the justification of relevance. Remuneration reports are about the remuneration of directors and senior executives. The amendment calls for the inclusion of factual material on individuals who are neither directors nor senior executives.
Such complexities have costs. Take two plcs with 70 and 100,000 employees across the world in, say, 50 to 85 countries. I am thinking of two examples which I know well. Is it really necessary, for the purposes of the remuneration report, to require them to establish with each of their businesses in each country where they operate which are the lowest pay rates paid, presumably to the most junior, temporary staff of that country, then take appropriate exchange rates and try to work out the unluckiest 10 in any of their operations anywhere across the world? The remuneration report is about the directors and senior executives. The purpose of a remuneration report must surely be to explain to shareholders the company’s remuneration policy and the result that it has produced for the senior individuals that the report is required to cover, and to do so as simply and clearly as possible. Would this amendment assist that? I do not think so.
Viscount Younger of Leckie
Amendment 84AHAA seeks to require that companies report on high and low pay outside the board. Taking high pay first, the issue of high pay outside the boardroom is most relevant in the financial services industry, as was mentioned earlier, where poorly designed remuneration structures can incentivise excessive risk-taking. We remain committed to having the most transparent financial centre in the world and we have already taken significant steps forward. During ongoing negotiations with Europe over new regulations for the banking sector, we have argued strongly for further improvements to the disclosure of pay below board level. As a result, the current EU proposals would require banks to disclose the aggregate pay of senior managers and material risk-takers in bands, as well as further information about how much is paid in total in fixed and variable pay. We await the outcome of these discussions before deciding whether additional UK regulation is necessary.
The noble Lord, Lord Mitchell, raised the issue of disclosure of pay below board level in banks and asked why the UK does not regulate. We argue that it does not make sense to proceed with UK regulations until we know the precise details of the European rules. Once this is confirmed, we will decide whether we need to go further. It is not a major issue in other sectors. In our consultation on this, shareholders were clear that requiring all companies to report on high pay below board level would create an unnecessary regulatory burden and so we will not pursue this. The noble Lord raised the issue of pay below board level in non-banking sectors, which we acknowledge is an issue. In the end, pay reports are produced for shareholders, so they should be designed to include information that they want. We should not clutter them with information that they do not find useful. Shareholders and the Government share the view, however, that high pay below board level is not a major issue in other sectors. In our consultation, shareholders were clear that requiring all companies to report on high pay below board level would create an unnecessary regulatory burden, so we will not be pursuing it. That point was made eloquently by the noble Lord, Lord Kerr of Kinlochard.
One matter that shareholders are increasingly interested in is how board pay relates to that of the wider workforce. That is why companies will have to say more about how they have considered pay across the whole of the company workforce. They will also be required to publish the percentage increase in pay of the chief executive officer compared to that of the workforce. I can directly answer the question raised under the previous amendment by the noble Lord, Lord Lea of Crondall. It is something that investors are asking for and is comparable across companies, but we have no plans to mandate that companies adopt a standardised ratio for top to median pay because it is clear that this measure has limitations. It is difficult to compare between different companies and sectors. For example, an investment bank with many highly paid staff will have a much lower pay ratio than a supermarket.
New regulations will implement these proposals. Noble Lords will have the opportunity to debate these regulations later in the year. I conclude by making an overarching general point about trends in pay. It is pleasing to note, although I acknowledge that there is still much work to do, that in 2012 several firms, including Aviva, WPP, Centamin, Pendragon and Trinity Mirror failed to win majority backing for their pay reports, with several senior executives stepping down in the face of shareholder opposition. Voting results from AGMs in 2012 suggest that the average vote against the remuneration report was 8.9%, up from 6% in 2011. So, there is more work to be done but the trends are going in the right direction. I therefore ask the noble Lord to withdraw his amendment.
Lord Mitchell
My Lords, I shall come first to the Minister’s final point. These are good pointers that he draws to our attention. Much of what we have been trying to do is to accelerate the process, and to encourage shareholders to become much more involved so that we get even further results on this.
My noble friend Lord Lea of Crondall made an eloquent speech about working people working for companies and the fact that it is useful to see these disparities in black and white. Indeed, it is usual for countries in the north of Europe to do it, and they seem to be doing very well in the world economy. The noble Lord, Lord Blackwell, again made a useful contribution. I am not sure that I agree with his position but it was useful and not dissimilar to that of the noble Lord, Lord Kerr of Kinlochard. Our position is that it is information that some investors would like to know about companies: what is the disparity in those companies? I say to the noble Lord, Lord Kerr, that I had not really thought about it, but it must refer only to the United Kingdom. It had not occurred to me that we could be looking at the pay that somebody in a call centre in India gets compared with the senior executive of, say, a bank in this country. I have listened closely to everything that has been said, and I beg leave to withdraw the amendment.
Viscount Younger of Leckie
84AHB: Clause 71, page 67, line 36, leave out from “which” to “, and” in line 38 and insert “the company becomes a quoted company”.
Viscount Younger of Leckie
My Lords, the majority of these amendments are minor and technical and designed to improve the clarity of the legislation. Amendment 84AHH is substantive and I shall make the case for it first. It amends new Section 226E of the Companies Act 2006, which would be inserted by Clause 72. New Section 226E imposes a potential liability on directors who authorise an unapproved remuneration or loss of office payment. This amendment will ensure that, as is consistent with other provisions in the Companies Act 2006, a director who acts honestly and reasonably may be relieved of this liability if a court, taking into account all the circumstances, decides that it is appropriate to do so.
Noble Lords will understand the need for there to be legal consequences in the event of a company making a payment to a director which has not been approved by shareholders. In the first instance, the company may seek to recover the unauthorised payment from the director who received it. However, if this is unsuccessful, the directors who authorised the payment can be held liable for any losses incurred as a result. The company or its shareholders may take action to recover these losses from them. These consequences will act as a deterrent to the minority of directors who might deliberately try to pay more than shareholders have approved. However, the Government recognise that directors may make honest and reasonable mistakes, either through misinformation or misinterpretation of the remuneration policy. This is recognised in other parts of the Companies Act, which deal with unauthorised payments and under which directors who act honestly, or take reasonable steps to ensure compliance, are not subject to liability.
Unless we make a similar provision with respect to remuneration payments the risk of liability could hang over remuneration committees and affect the pay-setting process. This risks making remuneration committees heavily dependent on lawyers and overly keen to agree broad, vague policies. More worryingly, there is a real risk that this could deter good people from taking up important and challenging roles on remuneration committees. Case law shows that the courts apply a rigorous test when assessing whether a director has acted honestly and reasonably, particularly when the director concerned is one of a large public company. As such, we are confident that this provision will ensure that those directors who should rightly be relieved may be, while ensuring that those who should be held liable, are not.
We have also proposed a handful of minor and technical amendments which will clarify the legal drafting of the Bill on three issues, which I will speak to in turn. Amendments 84AHB, 84AHC and 84AHK clarify how and when Clauses 71 to 74 affect companies that become quoted after these provisions come into force. Amendments 84AHE, 84AHF and 84AHK make clear the different procedures that should be followed in the event of unapproved payments in the form of shares, property and other undertakings of the company. Finally, Amendments 84AHD, 84AHJ, 84AHL, 84AHM and 84AHN tidy up the drafting by moving some of the provisions in Clause 74 into other clauses so that they may appear alongside the sections to which they apply. I hope that noble Lords will support this. I beg to move Amendment 84AHB.
Lord Mitchell
My Lords, we are very supportive of this amendment. It is clearly needed. I have only one question about whether the words “reasonably” and “honestly” are strong enough. A lot of lawyers would have a field day with this. I just ask the Minister to go away and think about whether we can perhaps have something a little more assertive, which would leave less latitude for a lot of lawyers to make lots of fees.
Viscount Younger of Leckie
I thank the noble Lord, Lord Mitchell, for that, and also for his contribution on this important issue. The proposed amendment to Section 226E ensures that those who should be rightly relieved of liability can be, while those who should be held liable will be. To answer his question about how one can define or further improve on the definition of “reasonable”, the concept of reasonableness has been thoroughly tested by the courts, which are very rigorous in judging directors. A court might take into account what advice a director had sought, what conversations had taken place, and what records were kept. Of course, it remains up to the court to decide and it will vary in each case. The court will take into account, for example, the full context of the situation. Therefore, the expectations of a “reasonable” director of a FTSE100 company with a strong compliance function and ease of access to professional advisers will be much higher than those of a director of a smaller quoted company. I hope that that takes matters forward and helps answer the noble Lord’s question. I also thank noble Lords for their understanding of the need for various minor and technical amendments.
“( ) Subsection (2) does not apply in relation to a quoted company before the first meeting in relation to which it gives notice under subsection (1).”
“(5A) Nothing in section 226B or 226C applies in relation to a remuneration payment or (as the case may be) a payment for loss of office made to a person who is, or is to be or has been, a director of a quoted company before the earlier of—
(a) the end of the first financial year of the company to begin on or after the day on which it becomes a quoted company, and (b) the date from which the company’s first directors’ remuneration policy to be approved under section 439A takes effect.”
(a) subsection (2) does not apply, and(b) the payment”
“( ) subsection (2) does not apply, and( ) the payment”
“(5) If in proceedings against a director for the enforcement of a liability under subsection (2)(b)—
(a) the director shows that he or she has acted honestly and reasonably, and(b) the court considers that, having regard to all the circumstances of the case, the director ought to be relieved of liability,the court may relieve the director, either wholly or in part, from liability on such terms as the court thinks fit.”
“( ) In relation to a company that is a quoted company immediately before the day on which section 71 of this Act comes into force, section 439A(1)(a) of the Companies Act 2006 (as inserted by section 71(4) of this Act) applies as if—
(a) the reference to the day on which the company becomes a quoted company were a reference to the day on which section 71 of this Act comes into force, and(b) at the end of the paragraph (but before the “, and”) there were inserted “or at an earlier general meeting”.( ) In relation to a company that is a quoted company immediately before the day on which section 71 of this Act comes into force, section 226D(5A)(a) of the Companies Act 2006 (as inserted by section 72 of this Act) applies as if the reference to the day on which the company becomes a quoted company were a reference to the day on which section 71 of this Act comes into force.”
Lord Mitchell
“Pre-packs
(1) The Secretary of State shall commission an independent review into pre-pack administration.
(2) Such a review shall report on but not be limited to the following—
(a) the adequacy of existing requirements in relation to transparency of arrangements;(b) compliance with existing requirements by pre-packs including Statements of Insolvency Practice;(c) adequacy of existing enforcement mechanisms in relation to compliance;(d) rules relating to the continuation of supply to businesses on insolvency.(3) A review under this section shall report to the Secretary of State no later than 12 months following the day on which this section comes into force.
(4) A copy of the report under subsection (2) shall be laid before both Houses of Parliament.”
Lord Mitchell
My Lords, I speak to Amendment 84AHNZA, which calls for the Government to commission an independent review into pre-pack administrations. Noble Lords will see that this amendment represents the recommendations of the BIS Select Committee report to the Insolvency Service, released on 29 January this year.
It might be helpful if I attempt to define a pre-pack administration. I find many people do not know what it is, and I am not surprised. It is where the directors of a failing company seek to preserve its continuing existence after administration by lining up replacement owners and finance before the administration takes place—in effect, relaunching the company with many of its creditors and minority shareholders stripped out, while effectively continuing the existing business in another name. It gives the business a second chance, but often at the expense of these creditors and shareholders. My contention is that it is often unprincipled and unfair. Usually, there is no creditors meeting and no consultation with the court before this takes place. The sale may be to individuals who were directors of the firm before the pre-pack administration, and the new firm may have a similar name. As I say, the only difference is that the new company is shorn of its debt and maybe its smaller shareholders. Effectively, it is cooking the books. Such firms have sometimes been known as phoenix companies, having risen from the ashes of the old insolvent company.
My interest in pre-packs arose when a company in which I had a minority shareholding interest wanted to restructure its financing to my detriment. To do this, it needed me to sign off on a revised deal. I refused. It threatened me with a pre-pack, a term that I had not heard of before, but about which I learned pretty quickly. I still refused and, fortunately, it backed down. However, I saw how that could be used as a negotiating tactic. More to the point, I saw how the small people can get hurt. Despite that, I am prepared to concede that pre-packs can have a very important function. They can allow a company to continue and the administrator to move quickly to preserve the business and, most importantly, jobs. That is what all of us want.
Viscount Younger of Leckie
Noble Lords will be aware that the administration procedure is the primary mechanism for effecting business rescues. It is important to recognise that the objective of administration, if the rescue of the company is not feasible, is to provide the best return for creditors. A pre-pack sale is merely a means of achieving that outcome and should therefore always be in the interests of creditors. I am most grateful to the noble Lord, Lord Mitchell, for his helpful description of pre-packs for the benefit of the House.
As the noble Lord said, pre-packs can be an effective way to the best outcome for creditors, enabling businesses to be rescued and preserving jobs, but we recognise that there can be scope for abuse. That scope is greatest where pre-pack sales are to connected parties, such as the directors or their families. Again, I am grateful for the anecdotal evidence given tonight by the noble Lord, Lord Mitchell. That is when most concerns are expressed, and it is vital that everyone involved has confidence that such sales are at fair value. We have been listening carefully to concerns expressed about the use of pre-packs, and Ministers have met with stakeholders to discuss the issue. I am aware that, as the noble Lord, Lord Mitchell, mentioned this evening, he recently met with the Minister for Employment Relations and Business Affairs, Jo Swinson, to discuss the issue. We have also invited those who have complained about the procedure to provide evidence of abuse, so that that can also be pursued.
I reassure noble Lords that work is already under way to improve the transparency about pre-pack sales. There is a statement of insolvency practice, SIP 16, setting out the information that has to be provided to creditors by insolvency practitioners. That is being strengthened to ensure that more information will be disclosed and that creditors will receive that information at an earlier stage. Insolvency practitioners will also have to confirm that a pre-pack sale is in the best interests of creditors. That should provide greater confidence that the pre-pack sale is justified. The Insolvency Service is proactively monitoring information disclosed under SIP 16 reports to establish whether there has been any abuse. Where there is evidence to suggest abuse, it is reported to be relevant regulatory body for action to be taken. Such action can include fines, sanctions and, ultimately, loss of the insolvency practitioner’s licence. The Insolvency Service will report on its findings in this regard.
We therefore already have measures in place to protect against abuse, and continue to monitor the pre-pack process to ensure that it is being used appropriately. However, I share many of the concerns raised by the noble Lord, Lord Mitchell, which I know have been expressed on other occasions in both this House and the other place.
I agree that an independent review into the issue would be beneficial. For that reason, I confirm that we will commission an independent review into pre-pack sales in late spring, once the strengthened SIP 16 is in place and after the Insolvency Service has reported on the findings from its monitoring.
On the review issue surrounding continuation of supply to insolvent businesses, this is now the subject of a Government amendment being debated shortly. We propose to consult on the issue prior to implementing reforms and I am satisfied that this will address the concerns in this area. In view of this assurance to commission an independent review into pre-pack sales, I hope that the noble Lord will agree that it would be unnecessary to introduce a statutory requirement to do so, and will therefore withdraw his amendment. I conclude by thanking the noble Lord, Lord Mitchell, for raising this important issue.
Lord Mitchell
My Lords, I thank the Minister for his words. I remember when we were in Grand Committee, he too had an anecdote on this same subject. I suspect that many other people have as well. I thank him for what he has said and for the Government’s plans for a review of this area. I beg leave to withdraw the amendment.
“( ) Regulations under subsection (1)—
(a) must make provision requiring all regulated persons to be members of an approved redress scheme for dealing with complaints in connection with the supply of customer data under this section, and(b) may also require a person authorised to receive data under subsection (1)(b) to be a member of such a scheme.”
Lord Stevenson of Balmacara
In moving this amendment, I apologise that my noble friend Lady Hayter is unable to be present and has asked me to speak on her behalf. I will also speak to Amendments 84AHNB, 84AHNC and 84AHND. I start by making it clear that we on this side support the broad thrust and intent of Midata, which is to give consumers increased access to their personal data in a portable, electronic format so that they can use this data to gain insights into their own behaviour, and make more informed choices about products and services. However, to make Midata work and to build consumer confidence in it, there are concerns which we raised in Committee and which our amendments seek to address.
Confidence is key, here as in many other places, and a smart way to ensure that users can trust the use and care of their data is through a redress scheme. Not only does this give comfort in itself—people know where to go if they have a complaint about the provision, cost or use of their data—but it serves two other functions. One is that any regulated person using the logo of a particular redress scheme also signifies some assurance of quality and regulation to the user. The second, more significant function, is that a body of evidence accrues via such a complaints scheme of the sorts of problems or the particular regulated persons which are causing concerns. Given that the Information Commissioner uses a risk-and-evidence-based approach to his work, he is highly reliant on evidence—both of the extent and detriment of any problems—and these are best captured by an accessible and effective complaint or ombudsman scheme.
I start with Amendment 84AHNA, which would require regulated and possibly authorised persons to join a redress scheme. This would not entail setting up a whole new redress body, as there are plenty of other high-quality ombudsmen covering a range of sectors who could be approved under this Bill. Without our amendment, the Bill covers high-level enforcement, but with customers able to bring an action for breach of regulations only before a court or tribunal or, under Section 13 of the Data Protection Act, to claim compensation through the courts. That is a pretty unrealistic hurdle for individual consumers. Hence our call for a redress scheme for individual complaints. Knowing a redress scheme is available if things go wrong would give consumers the confidence to harness the empowering potential of Midata.
Amendment 84AHNB deals with the costs of complying with requests. At present, the charges reflect costs to the data supplier. Our amendment is about costs to consumers: after all it is their personal data that they want released. Charges must not dissuade consumers from engaging in the Midata programme. The EU data protection directive uses the phrase “without excessive ... expense”, but given that not everyone is familiar with that directive, it should be added to the Bill.
Amendment 84AHNC deals with strengthened consumer protections. There are risks from Midata, especially as combining datasets into a whole-person view poses risks to privacy and identity. Secondly, because Midata will see multiple parties including the consumer assume responsibility for data at different points, liability becomes complex, with the risk that consumers will be left exposed. Thirdly, legitimate businesses offering third-party services could incentivise consumers to provide data which might otherwise not be accessible.
Fourthly, there is the risk of misuse of data. Businesses and third parties might, for example, sell on and share data with their affiliates or engage in uninvited cross-selling and marketing. Finally and pervasively, there is security. ID fraud is a real risk as it would be easy to build a picture of an individual, drawing on different information sources. Given that data protection is already of huge concern for consumers, an assurance of security is essential for Midata to succeed and benefit consumers, who will need to be confident they are sharing their data only with trustworthy service providers. We ask the Secretary of State to consult widely to develop protections to ensure that the consumer interest is represented alongside those of regulated and authorised persons. We know that the Information Commissioner would welcome being included on this list.
Viscount Younger of Leckie
My Lords, as I explained in Grand Committee, the idea behind the powers and Midata is simple: to give consumers the right to request their existing consumption and transaction data back from their suppliers in a portable, electronic format. I remind the House that are data already exist. We are not talking about collecting new data here.
In addressing Amendment 84AHNA, I reassure the noble Baroness, Lady Hayter, and the noble Lord, Lord Stevenson, who is speaking to this amendment, that I agree with them both that customers need to be protected from data misuse. Service providers under Midata must comply with all existing data security and protection rules. There are well-established complaint and redress schemes through the Information Commissioner’s Office in the core sectors where ombudsmen already operate. Data controllers must notify the Information Commissioner of data processing under Section 17 of that Act. Failure to do so is an offence.
However, there may be a need for further measures. This is why a consumer protection and trust work stream has been established under the Midata programme. A number of working groups made up of privacy experts, business, regulators and consumer groups are looking at a wide range of consumer issues. They have been tasked with identifying and recommending existing best practices and, where appropriate, new approaches that may be needed to ensure the security of individuals’ data. The groups are due to report in summer and any recommendations that they propose may need to be reflected in enforcement provisions made under these powers.
The role of third parties is important. Where citizens choose to provide data to a third party, or provide authorisation for a third party to request data on their behalf, the Data Protection Act applies. Under that Act, data controllers do not need to comply with a request for data unless they are satisfied that the requesting party has authority to access it. The consumer protection and trust working groups are looking at a wide range of issues that could emerge in a new Midata world and the Government will want to take their advice before acting. Their recommendations might include kitemarks, accreditation processes and complaint handling and redress schemes, as well as other proposals. The Government do not want to pre-empt any recommendations by setting out detailed protection measures in the Bill.
Turning to Amendment 84AHNB, I reassure noble Lords that the aim of our provision is to make data more accessible. We believe that Clause 75(5)(b)(ii) will have much the same effect as the limitation put forward by the noble Baroness, Lady Hayter, and the noble Lord, Lord Stevenson. The Government expect data to be provided back to consumers cheaply, and ideally for free, but businesses may initially incur additional costs in making data available electronically and the power allows businesses to charge to recoup their only cost. Noble Lords may be reassured to know that data that have been so far released under the Midata voluntary programme have been provided to customers free of charge.
On Amendment 84AHNC, I would like to deal with proposed new subsection (6A)(a) first. As I have said, businesses do not need to comply with a request for data unless they are satisfied that there is a valid claim of access under the DPA. Mechanisms that might enable this are being considered in the working groups, so this is still a matter under consideration. However, it is clear from our discussions with data controllers that they will not be willing to release data to third parties unless fully satisfied that it represents a legitimate request from an authorised party. The methodology may vary by sector but the additional measures proposed in this amendment do not appear necessary at this time.
In her proposed new subsection (6A)(b), the noble Baroness, Lady Hayter, has raised an interesting point but the Data Protection Act already affords protections in this area. I recognise the concerns in this respect, particularly around the possible actions of nefarious or rogue operators. However, access to Midata would not alter the current data protection law and any criminal activity could be dealt with appropriately, as it is now. In relation to proposed new subsection (6B), we are working with privacy experts, businesses, regulators and consumer groups in the working groups that I have mentioned. Legislation would be introduced only after a period of public consultation. Scope will exist in any regulations to place conditions on accessing data by authorised persons. Therefore, I believe the specific provisions set out in the amendment to be unnecessary.
Finally, Amendment 84AHND would extend the Information Commissioner’s powers of compulsory entry and audit to the private sector for the first time. This is primarily a matter for the Ministry of Justice and I am not convinced that such a major departure from current policy can be justified here. Its most likely effect would be to stifle innovation. As a result, services that help people to analyse their data will not be developed or may be withdrawn. The ICO already has investigation powers to require information from the private sector; we believe that these are sufficient in this case.
I would like to come back to the noble Lord, Lord Stevenson, on his assertion about claiming compensation through the courts. I think he deemed that to be unrealistic, but the power does provide for a non-court redress route. This could include empowering the ICO to address Midata complaints, if that helps the noble Lord. In the light of my responses, I ask the noble Lord, Lord Stevenson, on behalf of the noble Baroness, Lady Hayter, to withdraw the amendment that she tabled.
Lord Stevenson of Balmacara
I thank the Minister very much for that full response. I am glad that he recognises the issues we raised. We are probably pulling in the same direction on this. In particular, the work streams to which he referred are obviously very helpful and seem to be widely inclusive. I am glad to hear that they will report in the summer, at the point where they can inform any regulatory steps that are to be taken in consequence of this Bill. I think we were very glad to see a couple of other points but I will read them in Hansard and come back if there are any further points we need to make.
My concern is that there were a couple of times in the Minister’s response where he made great play of the fact that he felt that the companies to which requests for access to data are being made would have sufficient ability to determine whether the request was bona fide and therefore to be relied on, without having to have any other cross-regulatory approvals. I hear what he says on that but would like to read it in Hansard to be sure that I am right on it. At this stage, I would say only that that sounds a slightly unlikely premise on which to run what will be a very large amount of personal data, if this works, and be very widely spread across a number of possible providers and users. In that sense, it will therefore raise all the sort of concerns that the public have about how their data are being kept and looked after. At this stage, I would not like to push the amendment any further and I would like to withdraw it.
“(3) A statutory instrument containing (whether alone or with other provision)—
(a) regulations under section 75 which make provision by virtue of section 75(2)(d), or(b) regulations under section 76,may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.(4) A statutory instrument which—
(a) contains regulations under section 75, and(b) is not an instrument to which subsection (3) applies,is subject to annulment in pursuance of a resolution of either House of Parliament.”
Viscount Younger of Leckie
My Lords, I now turn in more detail to the Government’s own amendment in this area by addressing Amendment 84AHP. I am grateful to have received the advice of the Delegated Powers and Regulatory Reform Committee. Following that advice, I have put forward an amendment to Clause 77 so that any enforcement measures made under the power provided in Clause 76 would be subject to the affirmative resolution procedure. I have also made changes to allow provisions relating to core sectors under Clause 75 to be introduced using the affirmative resolution procedure. This would apply only when regulations under Clause 76 or those applying to non-core sectors are simultaneously proposed. I have undertaken this because there will be times when instruments tabled under both clauses will probably be necessary. Enabling the instruments to be considered together and using the same procedure—the affirmative procedure—ensures efficient use of parliamentary time.
Having these provisions in the Bill will help to progress the Midata programme and deliver economic benefits in terms of consumer empowerment and growth. We continue to seek progress on a voluntary basis. However, we are continuing to discuss the potential enforcement regime and appropriate levels of funding with the Information Commissioner and other relevant regulators so that should the power in the Bill prove necessary, we will be in a position to provide protection to consumers. We believe that the Government’s amendment strikes the right balance between providing the flexibility to tailor enforcement appropriately and ensuring adequate parliamentary scrutiny.
“Power to add to supplies protected under Insolvency Act 1986
(1) The Secretary of State may by order amend section 233 of the Insolvency Act 1986 so as to add to the supplies mentioned in subsection (3) of that section any of the following—
(a) a supply of gas, electricity, water or communication services by a specified description of person;(b) a supply of a specified description of goods or services by a specified description of person where the supply is for the purpose of enabling or facilitating anything to be done by electronic means.(2) The Secretary of State may by order amend section 372 of that Act of 1986 so as to add to the supplies mentioned in subsection (4) of that section any of the following—
(a) a supply of gas, electricity, water or communication services by a specified description of person;(b) a supply of a specified description of goods or services by a specified description of person where the supply is for the purpose of enabling or facilitating anything to be done by electronic means.(3) The power to make an order under this section includes power to make incidental, supplementary, consequential, transitional or saving provision, including doing so by amending any enactment.
(4) An order under this section must be made by statutory instrument.
(5) A statutory instrument containing an order under this section may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.
(6) In this section—
“enactment” includes—
(a) an enactment contained in subordinate legislation (within the meaning of the Interpretation Act 1978),(b) an enactment contained in, or in an instrument made under, an Act of the Scottish Parliament, and(c) an enactment contained in, or in an instrument made under, a Measure or Act of the National Assembly for Wales; and“specified” means specified in the order.”
Viscount Younger of Leckie
My Lords, these amendments respond to points raised by the noble Lord, Lord Stevenson, in Grand Committee. I am most grateful to him for raising this important issue. It is relevant to this Bill because it will help businesses, especially those needing to be rescued, and as such supports the Bill’s themes. The amendments contain powers that, when exercised, will assist businesses in insolvency procedures by increasing the chance of business rescue. Alternatively, where there is no chance of a rescue they may help to achieve a better return for creditors than would be delivered by an immediate liquidation or bankruptcy.
Amendments 84C to 84E contain powers to render void contractual terms that allow an essential supplier in the utility and IT sectors to withdraw supply from an insolvent business. These powers would also prevent suppliers in these sectors taking advantage of the insolvency by unfairly and unreasonably increasing charges for that supply. Some have described such demands as “ransom payments”, saying that where they are made, that supplier gains an unfair advantage over other creditors in the insolvency. They can act as a barrier to rescue and may force businesses to close down, causing unnecessary job losses.
Amendment 84B provides an enabling power relating to IT suppliers and those that provide or sell gas, electricity, water or communication services that are essential to business. By communication services, we mean services such as telephone, fax or broadband access that may be provided to a business. The amendment would add such supplies to an existing list of essential suppliers who must continue to supply and who may not demand payment of a pre-insolvency debt as a condition of that supply. They may, however, seek a personal guarantee from the insolvency practitioner as a condition of continuing to supply the insolvent business.
“( ) omit subsection (2)(a), and”
Lord Stevenson of Balmacara
I start by warmly welcoming the amendments tabled by the Minister, which respond in a very positive fashion to the amendment that I moved in Committee. I had no idea I was being so persuasive. That was a trick I should learn in other places. I clearly have something that I did not know I had. The points that the noble Viscount went on to make are also well taken. Even so, there are a couple of things that we would like to suggest are also taken into account.
For the reasons outlined, the necessity of IT equipment to the continuity of a business in difficulty cannot be overstated. Frankly, without this, there is no chance of any continuation, or of selling on, and thus of maintaining economic activity and jobs. IT is today as central as supplies of water and utilities. Therefore we also welcome the Government’s amendments to add on-sellers of utilities to the list of supplies that must continue. Given our desire to enhance business rescue, especially in these difficult times when banks are less than helpful, this change to prevent certain suppliers withdrawing services to struggling businesses is a significant step forward. We are delighted that the Government heard this plea.
The one area that we wish to raise, covered in the amendments that have been tabled, is the new mandatory requirement for a personal guarantee from the office holder—the insolvency practitioner—to cover essential supplies. Subsection (3) of government Amendment 84C permits the supplier to terminate the supply unless an insolvency office holder personally guarantees any charges arising from the continuation of the supply. This is a move away from the current legislation, which provides for an optional personal guarantee.
Although Section 233 of the 1986 Insolvency Act contains an optional guarantee in subsection (2)(a), when the Bank of England, FSA and HMT introduced equivalent provisions to protect financial institutions, this optional guarantee provision was removed, and there are now no provisions for such personal guarantees. This position for financial institutions is right, as we see no case for a personal guarantee from an office holder, since an insolvency practitioner should not be subject to personal liability when acting as the agent for the company.
Contrast the situation affecting directors, who are not mandatorily subject to such personal liability even though they have a similar relationship to their company. Such a requirement for a personal guarantee appears particularly inappropriate in respect of certain types of insolvency, such as for a supervisor in a voluntary arrangement who has no control over the business. The mandatory guarantee requirement in the government amendment is therefore a backwards step, and our amendments are to align the provisions with the recent regime for financial institutions, by removing the requirements for mandatory personal guarantees from office holders.
Our first two amendments also take this opportunity to amend the 1986 Insolvency Act to remove the optional guarantee from Section 233(2)(a) so that the provisions for essential services in the 1986 Act are brought into line with the protection regime for financial institutions. It is hard to understand the requirement for a personal guarantee, as there is no reason why insolvency practitioners should be subjected to personal liability when acting as the agent of the company. There is a real danger that such a requirement would reduce use of this tool with a real threat, therefore, to business rescue.
The existence of a mandatory personal guarantee would be particularly detrimental in CVAs where the management retains control of the business with the insolvency practitioner acting as supervisor. Given the limited control insolvency practitioners have over the business, with no control over the assets, they would be exposing themselves to significant risk by providing a personal guarantee. It is very unlikely that any insolvency practitioner would, in fact, go down this route. I should add that the proposed 28-day maximum credit period in subsections (2)(c) and (3)(c) of the new clauses is a reasonable compromise. Thus the demand for an additional personal guarantee seems excessive. We know the Government share our desire to maximise company rescues—often with the role of an insolvency practitioner as key. We trust they will not undermine their otherwise welcome amendments by the introduction of this counterproductive measure. I beg to move.
Viscount Younger of Leckie
My Lords, these amendments seek to amend the powers being introduced by the government amendments, to remove an important protection for suppliers. That protection is provided in the Government’s amendment by allowing suppliers to require a personal guarantee from an insolvency practitioner where they are prevented from exercising a contractual right to terminate supply. Not only does the amendment put forward by the noble Lord remove the protection provided by the government amendment, it also seeks to take away the right of a supplier to a personal guarantee in situations where it already exists in legislation.
I should make clear that essential suppliers who may be required to supply the insolvent business are very likely to be owed money within the insolvency. They are most unlikely to be repaid any more than a small proportion of that claim through realisations within the insolvency. Therefore the Government think it is only right that where such suppliers are obliged to continue supplying the insolvent business, they do so knowing that they will be paid.
The new powers do include other safeguards for the supplier, but none of these guarantees payment of the post-insolvency charges. We do not expect that a supplier will always require a personal guarantee, but we do think that, as is the case as the legislation currently stands, they should be entitled to one where they feel it necessary. It should be noted that the right to request a personal guarantee from the insolvency practitioner is a protection that utility providers have had since 1986, where they are requested to continue supplying the insolvent business.
Removing this right at a time when we are extending the requirement to provide supplies may send the wrong message. However, noble Lords will be aware that the powers do contain the ability to provide for exceptions to the right to request a personal guarantee. While it is anticipated that this would only be exercised in certain limited circumstances, it does provide for some flexibility in the matter.
There is a balance to be struck here. The powers provided by the government amendments will prevent essential IT and utility providers making ransom demands upon insolvency professionals. This can only help the chances of insolvency practitioners being able to rescue struggling businesses. However, they do interrupt normal contractual rights and, as such, we believe it is right to provide safeguards, of which the right to a personal guarantee is one of the most important.
I thank the noble Lord, Lord Stevenson, for his contribution. I am grateful for his comments and reassure the House that the Government take these issues very seriously. The government amendments demonstrate that the Government are committed to seeking improvements to the insolvency regime where there are clear reasons for doing so. However, the Government consider that the amendments suggested by the noble Lord would unfairly remove necessary protections for suppliers. I therefore hope that the noble Lord will agree to withdraw his amendment.
Lord Stevenson of Balmacara
My Lords, I agree that the Government are making good steps in this area. I do not want to in any sense take away from them the change that they are introducing through their substantive amendment. I agree that the insolvency processes in the UK generally are very good. They may be slightly better in Scotland, which is moving ahead with another Bill, and I hope that the lessons that Scotland is going to teach us are learnt in the processes in England and Wales.
It is really a question of whether it is appropriate to expose those who are trying to help companies get back on their feet and continue to operate to having to give a personal guarantee. On a very superficial level, it seems to be completely at variance with the overall process that we are trying to introduce. The fact that it may exist in legislation at present does not make it right. Given that the Government have legislated to make sure that these personal guarantees no longer exist in financial companies, it seems slightly odd that we are requiring them for SMEs and smaller companies, which often go into voluntary administration or some other form and then come out again. To hamper that by curtailing the willingness of an IP to get involved does not seem to be right.
However, there is a balance to be struck. I ask the Government to think very carefully about this and to look at it again. I am very happy to have further discussions if that would be helpful. At this stage, I beg leave to withdraw the amendment.
“Corporate insolvency: power to give further protection to essential supplies
(1) The Secretary of State may by order make provision for insolvency-related terms of a contract for the supply of essential goods or services to a company to cease to have effect where—
(a) the company enters administration or a voluntary arrangement under Part 1 of the Insolvency Act 1986 takes effect in relation to it, and(b) any conditions specified in the order are met.(2) The order must include provision for securing that, where an insolvency-related term of a contract ceases to have effect under the order, the contract may be terminated by the supplier if—
(a) an insolvency office-holder consents to the termination,(b) a court grants permission for the termination, or(c) any charges in respect of the supply that are incurred after the company enters administration or the voluntary arrangement takes effect are not paid within the period of 28 days beginning with the day on which payment is due.(3) The order must include provision for securing that, where an insolvency-related term of a contract ceases to have effect under the order, the supplier may terminate the supply unless an insolvency office-holder personally guarantees the payment of any charges in respect of the continuation of the supply.
(4) The order may provide for exceptions to the right of a supplier to terminate a supply under provision made by virtue of subsection (3).
(5) The order must (in addition to the provision mentioned in subsections (2) and (3)) include such other provision as the Secretary of State considers appropriate for securing that the interests of suppliers are protected.
(6) A contract for the supply of essential goods or services is a contract for a supply mentioned in section 233(3) of the Insolvency Act 1986.
(7) An insolvency-related term of a contract for the supply of essential goods or services to a company is a provision of the contract under which—
(a) the contract or the supply would terminate, or any other thing would take place, because the company enters administration or the voluntary arrangement takes effect, (b) the supplier would be entitled to terminate the contract or the supply, or to do any other thing, because the company enters administration or the voluntary arrangement takes effect, or(c) the supplier would be entitled to terminate the contract or the supply because of an event that occurred before the company enters administration or the voluntary arrangement takes effect. (8) In this section, “insolvency office-holder” means—
(a) in a case where a company enters administration, the administrator;(b) in the case where a voluntary arrangement under Part 1 of the Insolvency Act 1986 takes effect in relation to a company, the supervisor of the voluntary arrangement.”
“Individual insolvency: power to give further protection to essential supplies
(1) The Secretary of State may by order make provision for insolvency-related terms of a contract for the supply of essential goods or services to an individual to cease to have effect where—
(a) a voluntary arrangement proposed by the individual is approved under Part 8 of the Insolvency Act 1986, and(b) any conditions specified in the order are met.(2) The order must include a condition that ensures that an insolvency-related term of a contract for the supply of essential goods or services to an individual does not cease to have effect unless the supply is for the purpose of a business that is or has been carried on by the individual or with which the individual has or had another connection of a kind specified in the order.
(3) The order must include provision for securing that, where an insolvency-related term of a contract ceases to have effect under the order, the contract may be terminated by the supplier if—
(a) the supervisor of the voluntary arrangement consents to the termination,(b) a court grants permission for the termination, or(c) any charges in respect of the supply that are incurred after the voluntary arrangement proposed by the individual is approved are not paid within the period of 28 days beginning with the day on which payment is due.(4) The order must include provision for securing that, where an insolvency-related term of a contract ceases to have effect under the order, the supplier may terminate the supply unless the supervisor of the voluntary arrangement personally guarantees the payment of any charges in respect of the continuation of the supply.
(5) The order may provide for exceptions to the right of a supplier to terminate a supply under provision made by virtue of subsection (4).
(6) The order must (in addition to the provision mentioned in subsections (3) and (4)) include such other provision as the Secretary of State considers appropriate for securing that the interests of suppliers are protected.
(7) A contract for the supply of essential goods or services is a contract for a supply mentioned in section 372(4) of the Insolvency Act 1986.
(8) An insolvency-related term of a contract for the supply of essential goods or services to an individual is a provision of the contract under which—
(a) the contract or the supply would terminate, or any other thing would take place, because the voluntary arrangement proposed by the individual is approved, (b) the supplier would be entitled to terminate the contract or the supply, or to do any other thing, because the voluntary arrangement proposed by the individual is approved, or(c) the supplier would be entitled to terminate the contract or the supply because of an event that occurred before the voluntary arrangement proposed by the individual is approved.”
“Sections (Corporate insolvency: power to give further protection to essential supplies) and (Individual insolvency: power to give further protection to essential supplies): supplemental
(1) The power to make an order under section (Corporate insolvency: power to give further protection to essential supplies) or (Individual insolvency: power to give further protection to essential supplies) includes—
(a) power to make different provision for different cases;(b) power to provide for a person to exercise a discretion in a matter;(c) power to make incidental, supplementary, consequential, transitional or saving provision;(d) power to make any provision that may be made by the order by amending the Insolvency Act 1986 or any other enactment.(2) An order under either of those sections may not be made so as to have effect in relation to contracts entered into before the order come into force.
(3) An order under either of those sections must be made by statutory instrument.
(4) A statutory instrument containing an order under either of those sections may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”
(5) In this section, “enactment” has the same meaning as in section (Power to add to supplies protected under Insolvency Act 1986).”
NHS: Mid Staffordshire NHS Foundation Trust
(11 years, 9 months ago)
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Lord Patel
To ask Her Majesty’s Government what plans they have to implement the recommendations of the Francis report into the Mid-Staffordshire Hospitals NHS Foundation Trust.
Lord Patel
My Lords, even though the hour is late, the weather is inclement and the speaking time allocated to each noble Lord is short, I am grateful to all noble Lords who are to take part in this debate. I recognise that, although the Minister will have to reply to the debate on behalf of the Government and that the Government will eventually respond to the Francis report, the report spans several previous years. I hope the Minister can tell us when the Government will produce their full response and what form it will take. Will they make a financial assessment of the implementation of the recommendations?
Compassion, care and co-operation are the magic of the NHS; so said the leader of the Opposition at, I am led to believe, a Labour Party conference. The report by Robert Francis on Mid Staffs Hospital suggests that that magic is gone, not only from Mid Staffs, but, judging by the daily reports from more and more hospitals of poor quality care, from other hospitals too. The culture that brought about the disaster at Mid Staffs may well be more widespread. At the same time, there are hospitals that provide excellent, high quality, compassionate care, and we must not forget that.
None the less, Francis has to be right when he says that a cultural change is required. We need a culture that cares for patients and puts the quality of patient care and safety first, with a shift from compliance to targets and from financial probity to patient care. The words “patient safety” appear on virtually every page of the report. That such a degree of harm and suffering was inflicted on patients and that doctors and nurses were part of the culture is hard to comprehend. As a doctor who worked in the NHS only, I recognise the words of another clinician, the noble Lord, Lord Darzi, who wrote in the Times on 4 March that for doctors, nurses and other clinical professions, professional pride defines who they are. That clinicians had become part of a culture of bullying, secrecy and gagging is difficult to fathom. To change this culture, the Francis report, which extends to 1,800 pages, makes 290 recommendations covering the spectrum of the regulation of healthcare, including patient and public involvement and complaints handling. If the recommendations are implemented in full, what effect does the Minister think it will have on the reforms in the Health and Social Care Act?
One of the key recommendations of the report, which the Government rejected from the outset, is to merge the financial regulator Monitor and the quality regulator CQC, both of which failed in Mid Staffs. Experience has been that the two organisations have not been able to work together in a co-operative way, so why have the Government been so quick to reject the Francis recommendation? Francis expects that all organisations, including the Department of Health, should report annually on progress towards implementing his recommendations. Will the Minister say who in the Department of Health will have the responsibility of making sure that that happens? I cannot help but feel that patients and the public will expect the Government to take the lead.
In the Statement that followed publication of the report the Government announced the establishment of a post of chief inspector of hospitals. The CQC in its response added a chief inspector of social care. Does this fundamentally change the function, nature and the management of the CQC? What is the role of its board and chief executive vis-à-vis the chief inspector and his army of inspectors?
The Secretary of State is inviting other regulators to inform him how they will make the processes and system of accountability more stringent. From the many briefs your Lordships have received in advance of today’s debate, all the regulators and the so-called quasi-regulators see themselves as having a key role in making sure that high-quality patient care is delivered and is safe. They all also suggest that they may carry this out by inspections. If they and their managers now see the Francis report and its recommendations as the new targets, then they miss the point. I hope the Government do not. No amount of inspections by expert inspectors and regulators on their own will provide the safeguards needed, nor improve patient care. The culture change that is required will allow well trained health professionals to provide the patient care that the majority of them are capable of providing and let others provide the support that enables them to do so. Of course their performance should be monitored and their shortcomings dealt with.
On a personal note, last week I came across brilliant, compassionate, world-class quality care when I had surgery to restore my sight. Now I can see noble Lords in their full glory—some of it is a pleasant sight. All the professionals and non-professionals I came across in that hospital—I do not mind naming it; it was Moorfields Eye Hospital—were world class and brilliant. The culture that was exposed at Mid Staffs does not exist everywhere else and the response therefore must be proportionate. I did not see any of the Mid Staffs culture in that hospital.
I would be concerned if all the regulators, commissioners and others—I counted 21 organisations whose briefs I read as a response to the Francis report—now wish to monitor and inspect hospitals. Bureaucrats only increase bureaucracy. Does the Minister agree that a clear direction is required from the top as to the role of each organisation in the implementation of the recommendations of the Francis report?
I come now to the patient safety recommendations in the report. Two words appear frequently. Francis felt failures at Mid Staffs were a result of systems failures. Others have agreed, if only to absolve themselves or their organisations from blame. Other industries such as the airline, nuclear, transport and offshore industries are familiar with the concept of systems failures. They also know that the same system is operating throughout the industry and if it fails in one place it is likely to fail elsewhere too. For example, the 787 Dreamliner was grounded because two planes showed faults. The next step in any systems failure is to carry out root cause analysis, implement the learning and make changes to make the system safer. If the Francis report is a root cause analysis of a systems failure, then a systems change is required.
Francis also recommended establishing a national system of reporting and learning from patient safety incidents. Who will be responsible for making sure that this is done? The Government are also asking Sir Don Berwick to advise them on the implementation of a strategy of no harm in the NHS. Sir Don Berwick, previously administrator of US Medicare and Medicaid, is a friend, and we worked together previously. Can the Minister confirm or say otherwise that the advice Sir Don Berwick gives will be published in full and will be implemented?
The Francis recommendations are far reaching with very wide implications. Unless the Government take a lead and give clear direction on the way forward, we run the risk of chaos reigning. I look forward to the Government’s studied and considered response in due course and hope that then we will have a longer debate at an earlier time.
Viscount Eccles
My Lords, it is a great pleasure to follow the noble Lord, Lord Patel. Of course, I must defer to him, as he knows far more about the National Health Service than I do. I have been a patient but do not have anything like his depth of knowledge.
There is not much that we do not know about Mid Staffs. A lot of it dates back a fair number of years. The Francis findings were amazing, and the taking and recording of the evidence was truly a wonderful job done. There was a complete failure of management. Nobody had any confidence in anybody else there. However, time has gone by and things have been done since, and I feel quite cautious about how much we should generalise out of the experience of one hospital. I think we should treat this with caution.
Much has been done since. There have been changes in the management and governors of the trust. It is well recorded that there have been significant improvements from a very bad position. Of course there is always more to be done, but that is a condition of all our lives; there is no end to continuous improvement and never will be.
This takes me to the 290 recommendations in the Francis report. I do not feel at all capable of dealing with those. As the noble Lord said, we await the Government’s response. In fact, there are rather more than 290 recommendations, if you add in the bullet points. There are some 10 bullet points within some recommendations. To me, the trust’s most important decision and most important choice is who to appoint as its chief executive, with the necessary knowledge and the team-building skills that go with that knowledge. Hospitals are complicated and continuous operations. No two patients present in the same way. Mid Staffs provides 48 distinct services.
The new chief executive has her chairman and his governors, six executive directors and four heads of clinical directorates: 10 people in executive positions. Of these 48 services, 40 are medical and the other eight finance, administration, and so on. I must be careful to point out that the trust and Mid Staffs are not exactly the same thing. The trust employs close to 3,000 employees, so the 48 services, with the 3,000 employees, are the management responsibility of the 10: the executive directors and the heads of the clinical directorates. Clearly with that number of employees and that number of services, there is a need for a detailed and well understood middle management structure. After all, there are 120 consultants, all professionally qualified and all of a certain seniority.
I will end with one example of how one needs to look at the middle management—the 800 in admin and estates—and the person within that system who is responsible for bed linen. That person needs to hold a budget, and needs to be sure that the supplies of bed linen are as they should be, that the laundry works as it should, and that the linen is available. If one looks back to the Francis report and tries to find how the reports that have been done have tackled these very detailed problems of middle management—MRI, ultrasound, X-ray, or what you will—there is not much to be found. I therefore urge us to concentrate our minds on the management, the staffing, and the leadership of individual hospitals, and not to widen our look too greatly.
Lord Turnberg
My Lords, I, too, thank the noble Lord, Lord Patel, for introducing this debate with his usual panache.
As Roy Griffiths said in 1983, when he was looking to change the management structure of the NHS,
“if Florence Nightingale were carrying her lamp through the corridors of the NHS today she would almost certainly be searching for the people in charge”.
I think she would have been more concerned today about finding someone in charge of the care of the patients in the corridors of the Mid Staffs hospital. She would have been looking for anyone able to explain what had been happening to the patients for so long and would have found no one.
The Francis report outlines a huge number of recommendations that include changes in the culture and much about policing the service to detect poor behaviour, but to my mind, beefing up the complaints system, while very important, comes a bit too late. We need to think more about preventing the need for the complaints, and there is one crucial omission; while there is a strong focus on the responsibilities of the managers and the board, none of these people, try as they might, can be on the wards all the time, every day of the week. They visit from time to time. The doctors, too, come and go as they rush to their clinics or operating theatres. The people on the wards all the time are the nurses, and this is where we have to focus hard.
I am in no position to criticise the nurses themselves—they do a fantastic job, and I have personal reasons for being enormously grateful for what they do. My aim in pointing at the nurses is much more to do with the way in which nursing careers are organised. This is where I believe some changes are needed. We need to bring back the old-style career-grade sister who was in charge of the ward. Many years ago when I was a young doctor—I am sorry that I sound like an old fogey—the sister in charge really was in charge. She was usually a mature woman—there were few men in those roles—and she ran her ward with a rod of iron. Both the patients and the doctors ran scared and were loath to cross her, but she knew everything about every patient, and the doctors relied on her implicitly. She would not have countenanced the sorts of behaviour that were described so vividly in the Francis report.
What has happened to that post? Now the role of ward sister is not regarded as a career post at all. It is simply a rung on a ladder, and after a year or so they are promoted to teaching or more managerial roles. It is just a stepping stone to bigger and better things that are not so closely engaged with the patients.
Consultant friends tell me that it is unusual for them to find a nurse, let alone the sister, to accompany them on their ward rounds, or indeed to find anyone to tell them what has been happening to their patients. The solution, to my mind, is not the heavy hand of top-down monitoring and punitive complaints procedures, but the placing on each ward of sisters or charge nurses in clinical career posts—I stress clinical posts—who are given full responsibility for what goes on in their wards and are awarded accordingly. My view is that they should be given exactly the same salary as a consultant, since that would be commensurate with their level of responsibility. It would be a post that commands all the respect that you would expect of someone in such an important position. I recognise that this idea might not meet with the approval of the nursing professional bodies, but I ask the Minister to consider this proposal sympathetically. It seems to me to be the only way in which Florence Nightingale and her lamp may be able to find someone in charge of the patients’ well-being.
Baroness Jolly
My Lords, I, too, thank the noble Lord, Lord Patel, for bringing this important issue to the attention of this House, and for so eloquently outlining all the areas of concern shared by all noble Lords.
The negligent treatment of patients at the Mid Staffordshire hospital is inexcusable. To an extent, we are all culpable, as we let a culture develop across the NHS that fails to keep the patient central. I know that, as noble Lords have said, this is not the same everywhere, but there are certainly quarters in some hospitals where one can identify this still. We are now obliged to build a system to prevent its repetition. Given the time restrictions, I will limit my comments to a specific viewpoint. I am taking the perspective of the patient.
Our systems should be more proactive in seeking out patient perspectives and more responsive in addressing their complaints. At Mid Staffs, the patients were speaking out about the abusive environment and many warning signs were apparent, yet no one was listening, these signs went unnoticed and any criticism was oppressed. Not only was the abuse suffered intolerable but it is unacceptable that this inquiry would not have happened without significant public pressure over several years. The inability of the hospital and the Government to act swiftly when presented with these conditions of appalling care must be reflected upon.
Putting patients and their needs at the core of our health service is one step that we can take towards correcting this. Many changes need to take place. We must stop designing our patient safety systems on what fits well with our institutions. Instead, the core of how we protect patients should be built around the patients themselves. Three areas of focus are needed to make this happen.
We need to ensure that patients, families and carers are empowered to speak out when they receive negligent care. I support the swift adoption of the recommendations to create an accessible complaints system. I note the point made by the noble Lord, Lord Turnberg, that we should not need a complaints system, and I hope to goodness that we will soon be in a position in which we will not need one, but until that time I believe that we do. Every patient should know how they can have a voice and should be secure in knowing that there will be recourse for any problems that they raise. I ask my noble friend the Minister to commit to a complaints system that is responsive and responsible, that all patients are aware of, and where complaints are thoroughly investigated and will be received by the board. Will the Minister confirm that such a system could be implemented anywhere that NHS money is spent: private, not-for-profit and NHS trusts alike?
Patients should automatically be given all information regarding the level of care that they have received, including information about any lapses in the quality of care or mistakes made. I therefore welcome the recommendation of the establishment of a statutory duty of candour. Health workers, be they senior consultants or junior nursing assistants, must feel that they can talk with their patients if something goes wrong. This creates an open dialogue between patients and their carers and ensures that mistakes are addressed in an open, well informed manner. Will the Minister confirm that there will be a statutory duty of candour?
In addition, patient organisations must be listened to and action taken. Local Healthwatches should use the tools they have been given to work on behalf of patients to make sure that negligent care is caught early and corrected. They need to ensure that Healthwatch England and the CQC are informed immediately where systemic abuse and intolerable care are identified.
Even if every one of the 290 Francis recommendations were to be instituted immediately, a more fundamental culture change must happen throughout health and social care facilities. Noble Lords have already referred to this cultural issue. Solutions, as seen through the perspective of patients themselves, should be core to the strategy. Through efforts to give patients information about their care, empowering them to speak out and then listening to their voice, we will be able to help prevent these tragedies in care repeating themselves.
The Earl of Listowel
My Lords, I am most grateful to my noble friend Lord Patel for calling this timely and important debate. As vice-chair of the parliamentary group for children and young people in care and leaving care, I am aware of some of the issues around caring for vulnerable people.
Indeed, in reading the Francis report, I recalled another report by my noble friend Lord Laming at the beginning of the past decade into the death of Victoria Climbié. A member of staff of Haringey social services said that they were providing a conveyor-belt service for children and families and were overwhelmed. The principal social worker for Victoria Climbié, Lisa Arthurworrey, was a young, inexperienced, newly qualified social worker with an excessive case load who was poorly supervised. Alas, she and her colleagues were not able to take the necessary steps to prevent the death of that eight year-old child.
In my experience, particularly of child and family social work and of staff in children’s homes, it is vital to value those who work directly with such vulnerable people and to provide them with the training and support they need to do the right job. If one wishes to create a culture of care, many factors are involved. However, a crucial element of that is providing a caring environment in which one takes care of and values one’s workforce. One needs to select the right people and offer good continuous professional development, including training and supervision, and ensure that the voice of that workforce is listened to. I was particularly pleased to see the Francis report emphasise this need for a strategy for the workforce. I was also pleased to note the detail regarding the regulation of healthcare assistants. I would be grateful to the Minister if he could say a little about progress towards registering these assistants. It is encouraging that there is now talk about registering staff in children’s homes. This has already happened in Wales and Scotland and plays an important part in protecting vulnerable people in those settings.
As for the vital necessity of caring for the workforce, I would be grateful if the Minister would indicate what more might be done to make more public the state of morale within the NHS workforce, including, for instance, easily accessible information on staff turnover and sickness and absence rates. Having read the Francis report, if I go into hospital the first thing I will try to find out is the state of staff morale in that hospital. In discussions on the Health and Social Care Bill, we were given information from the King’s Fund or the Nuffield Trust indicating the wide disparity in workforce morale in different trusts. This needs to be addressed if we are to change the culture to one of more consistent care.
Finally, and I say this hesitantly, my sense of what is sometimes the most dispiriting thing for people working in the health service, having spoken with them over the years, is the sense that there is another huge reform coming through. It can seem that each time there is a new Government or a new Secretary of State, there is a new transformation of the health service. Respectfully, therefore, I request that the Minister perhaps encourages his colleagues to think twice before embarking on any major new reforms of the health service. I would respectfully say the same thing to the opposition Front Bench. Given that experience of the concerns expressed in the past, I would be grateful if they would attend to that.
Lord Cormack
My Lords, I am particularly grateful to the noble Lord, Lord Patel. For 40 years I was a Staffordshire Member of Parliament, and for the first 27 of those years, the Stafford Hospital looked after a large part of my constituency. It was a good hospital; I do not remember receiving a single serious complaint in those 27 years, and I visited regularly. In 1997 we had boundary changes, and from then on only a handful—relatively speaking—of my constituents went to Stafford; the others went to Wolverhampton, Walsall and Dudley.
I was devastated when I, as chairman of the Staffordshire MPs, took colleagues whose constituents had been affected, to see successive Secretaries of State. The terrible, tragic stories would have moved the stoniest of hearts. It is an indictment going far beyond Stafford that in his report, Mr Francis had to put at the top of his list of recommendations what we should all automatically take for granted: that it is the duty of the health service to put patients first. We should not need to be told that.
In his report, Mr Francis makes a number of comments about leadership. He recommends that there should be a staff college—I hope that my noble friend will agree that that will happen. He also talks about governors being given proper training. He is not quite so explicit when it comes to board members, and I did raise that subject when we had a brief question and answer when the Statement was given a few weeks ago. Everyone concerned with the running of the hospital, and with being part of the leadership needs to have proper and adequate training for that role.
I have to touch on a rather contentious matter, because the fact is, if leadership is going to be effective, it has to command confidence and respect, and it has to enjoy the support—not merely official, but explicit and implicit—of all those people over whom leadership is being exercised. There is, of course, a famous phrase that the buck has to stop somewhere. One has to recognise that during part of this terrible period, Sir David Nicholson was in charge in the Midlands. We have to accept that he is the chief executive of the National Health Service now. I have to ask the question, and I think it would be wrong if this question was not raised in the Chamber this evening: can we have trust and confidence in Sir David Nicholson to deliver a health service that is truly worthy of our great country? I believe that he should be examining his position very carefully. This happened on his watch. We are told that 1,200, or thereabouts, died unnecessarily. Somebody, Charles Moore I think it was, wrote in the Telegraph the other day about the Prime Minister going to Amritsar where fewer than 400 people were killed; 1,200 died during that period. I have to say to your Lordships: is this really the man to carry forward our health service for the next few years?
Lord Rea
My Lords, I had not originally intended to take part in this short debate but on Friday I was encouraged to do so by the Royal College of Physicians—incidentally, after I had gone away for the weekend without any briefing material. As the noble Earl knows, that college has made detailed comments and recommendations related to the inquiry, along with a number of other professional bodies, including the BMA, the Royal College of Nursing and many others, as the noble Lord, Lord Patel, said.
I want to consider just a few ways in which the blatant failures of care at Mid Staffs might have been prevented or at least brought into the public domain much earlier. These suggestions relate mostly to points made by the professional organisations that the noble Lord, Lord Patel, has just mentioned, as well as by the Francis report itself. First, GPs could be more involved by listening to their patients or their relatives, and thus be more in touch with their in-patient experience. GPs can act as strong advocates for their patients through their contact with consultants and managers. If they are aware of the reality of patients’ experience, clinical commissioning bodies will be more discriminating.
Secondly, clinical and managerial staff with concerns should be encouraged to come forward and not be intimidated. Whistleblowers should be encouraged to speak out at regular open meetings where innovative ideas by NHS staff could also be put forward and discussed. There is a wealth of ideas waiting to be tapped among staff at all levels, which could be used to improve patient experience and outcomes, and often cut costs at the same time.
Thirdly, auxiliary staff should be registered. This would mean that they had to receive training of a set adequate standard. This would improve not only the quality of their work but their morale, and give them vocational pride and recognition. Those who wished should be given the opportunity of career advancement through gaining further qualifications.
Fourthly, the best features of community health councils should be brought back. Current arrangements through the CQC, or its equivalent in 2008, for voicing patient concerns clearly did not function in Mid Staffs. An up-to-date CHC-like organisation would give patients and their relatives ready access to a representative, truly independent, body where they could freely voice any concerns that they had about their hospital experience. CHCs had the right to speak directly to NHS authorities, to visit any NHS entities and attend trust meetings. CHCs’ own meetings were open and transparent, and were often reported in the local, and sometimes national, press. CHCs were of course of uneven quality and received barely adequate funding. However, they could prove to be an embarrassment to NHS administrators when unwelcome truths were openly discussed. Perhaps it is understandable why they were abolished by the previous Government in 2003. As the noble Earl will remember well, I strongly opposed their closure at the time. I remind him that he also opposed their abolition. As I recollect, we were then in agreement, although from opposite sides of the House.
Lord Willis of Knaresborough
My Lords, I, too, thank the noble Lord, Lord Patel, for introducing this debate and for the measured way in which he did so. It behoves us not to begin a blame game but rather to pick up the recommendations of this superb report and act upon them. It is far more profitable. A few of us who were sat in another place during the time that this was going on raised the sorts of concerns that are now being raised with hindsight.
In the time available, I should like to concentrate on recommendations 185 to 213, which affect nursing and healthcare support workers. What concerns me about this report—and indeed these recommendations—is how we can prioritise and implement them, because trying to prioritise and implement 290 at the same time is, quite frankly, an impossible task. As was said by the noble Viscount, Lord Eccles, time has not stood still since Mid Staffs. The Nursing and Midwifery Council has produced new standards for pre-registration nursing training, which are widely welcomed by patient groups, by the higher education institutions, by professionals and by providers.
As we move to a fully graduate nursing profession, I trust we will not waste time re-opening the issue of a graduate nurse workforce, as indicated by Ann Clwyd in another place. Francis quite rightly recommends a greater emphasis on recruiting caring as well as intelligent students, but believing these two qualities to be mutually exclusive is disingenuous. With less than 25% of current nurses being graduates, it was not graduate training that caused a lack of care at Mid Staffs. The quality of the placements where nurses receive their practical training requires urgent attention, as does the quality of mentorship they receive.
The 50% practical placement is fundamental to the development of a well trained workforce, yet far too often students are dissatisfied with the quality of the experience they receive on their placements. Fewer placements are now in hospital settings, particularly acute hospital settings, and staff are often too busy to give of their time. Learning is not seen as a corporate activity and, more worryingly, core competencies are sometimes neither practised or observed before being signed off. At the core of this problem is the outdated view that all registered nurses can be good mentors, and that somehow mentorship can be added to very busy schedules with little training or additional time. That must change. If we want our nurses to be inspired to be more patient-centred, then the practical learning settings must be of the highest possible standard. Mentors must care for their students, and be valued by their employers.
Francis also recognised that throughout our health and care system more and more care is delivered by untrained and unregulated healthcare assistants. Regulation 209 is perhaps the most powerful statement made by Francis, stating that,
“no unregistered person should be permitted to provide for reward direct physical care to patients currently under the care and treatment of a registered nurse or a registered doctor”.
We do not in fact allow anyone to work on a gas fire without proper training, yet we allow people to work on those who are in the greatest need.
The first step—I hope the Minister would agree—is to have mandatory training by the end of this Parliament, with standards for all healthcare support workers who provide direct physical care approved by the NMC, or another body which the Secretary of State approves. Without mandatory training, it will be unlawful for employers to engage these workers. To the Minister, who is worried about registration, I suggest that an immediate step toward independent registration would be that by the end of this Parliament every employer who provides direct physical care will be required to keep a register of all their employees who deliver care. Their training records should be available for inspection by the CQC, Monitor and Healthwatch England, or its regional equivalents. Surely patients and their families have the right to know at least that those who care for them are at least appropriately trained, and that their employers will be held responsible for their deployment.
Lord Kakkar
My Lords, I join other noble Lords in thanking my noble friend Lord Patel for having secured this important debate. I declare my own interest as professor of surgery at University College, consultant surgeon at University College Hospital, and a member of the General Medical Council. There can only be one north star guiding the way we operate in the National Health Service and the way we deliver care, and that must be our patients. In his report, Sir Robert Francis refers to a deterioration in cultures and values. We must find ways to ensure that the cultures and the values that must attend the delivery of healthcare are rapidly restored in our healthcare system.
One way that this may be achieved is by revisiting the question of professionalism. All of us in the health service today work in multidisciplinary teams and, quite rightly, those teams are comprised of clinicians, nurses, other therapists, healthcare assistants and indeed managers who help us to utilise effectively the resources available for healthcare. Those teams can work only if there is mutual respect, but there must also be professionalism.
With regard to clinicians—and I talk here particularly about consultants in hospitals—we need to move to a position where once again consultants are accountable for the management of, and delivery of care for, the patients for whom they have responsibility. They must have the authority to deliver that responsibility for care, and with that responsibility and authority they must be held accountable for the outcomes of their patients. That is very clear. Ultimately, it is vital that patients and the public generally recognise, and are able to have confidence in, the fact that when they are admitted into hospital they will be managed and be under the care of a named healthcare professional—a consultant—who will take that responsibility, have that authority and be held accountable.
In terms of the management of the ward environment, it seems sensible to return to the ward being under the leadership of a named senior nurse—a sister or a charge nurse. Their name might appear at the entrance to the ward, and the name of the consultant responsible for the individual patient’s care might appear under the name of that patient at the head of the bed, so that there is no doubt about who has responsibility for both the ward setting and the individual care of the patient.
In the Francis report, we also see reference to broader questions of culture and values. Part of restoring professionalism will be revisiting once again the contract of employment for healthcare professionals—both consultants in hospitals and general practitioners in primary care. We need to move away from the consultant contract being principally one of contractual obligation and take it back to a place where it is one of vocational commitment, where patients can be absolutely certain that there will be continuity of care and that those with named responsibility for their care will be available to ensure that that is discharged.
The other important area for restoring the culture and values in our healthcare system is leadership. In this regard, in his report Sir Robert Francis has paid attention to the possibility of the staff college model. At University College London Partners, where I have an involvement, I am patron of the UCLP staff college. There, we have taken a model built on the Army staff college at Shrivenham, and we have a faculty from that institution attending our staff college to help to develop the leaders in our healthcare system. The model is simple. It focuses, first, on the self-reflection of those offering themselves for leadership positions so that they might question whether they have the ability to do that, and it then develops a leadership culture that puts at its head responsibility for those whom one is leading to ensure that they are developed to deliver the necessary care for the patients.
The development of leadership, culture and values must also attend the entire period of postgraduate training for all healthcare professionals. In this regard, I should like to ask the Minister what role the local education training boards will play in particular, in conjunction with the medical royal colleges and the General Medical Council, in ensuring that the curriculum for postgraduate training includes appropriate emphasis on culture, values and the development of leadership.
Baroness Masham of Ilton
My Lords, I thank my noble friend for securing this debate but I have to say that, with such an emotive and tragic subject, the time given is totally inadequate.
Some time ago, I had the honour to chair a meeting in your Lordships’ House of some of the next of kin of those who had died in Mid Staffordshire hospital in such distressing circumstances. They were honourable people, who told us of their experiences. The Patients Association, of which I am a member, was involved in organising this meeting. I hope that the Members of your Lordships’ House who attended were as convinced as I am that hospitals should not be places of fear and bullying but that patient safety should be the top priority, with patients being the focal point and with enough trained staff to care for them with understanding and compassion.
With the ongoing system of cruelty for so long a period at Mid Staffordshire, I wonder what the hospital chaplains were doing. They should be a support to both patients and staff. Why did they not notice the inadequate patient care and speak out? Perhaps they, too, were silenced and shunned.
The Francis report states the need for a “duty of candour”. There should be transparency, the need to report wrongdoings, and communication with patients and their next of kin when things have gone wrong. I brought amendments concerning this during the passage of the Health and Social Care Bill. Now, with the recommendation in the Francis report, I ask the Minister: what is going to happen about this? The report must not become just a talking exercise; action is needed. The NHS, throughout the country, must have the highest standards for all patients.
Sixteen babies and two mothers died at University Hospitals of Morecambe Bay NHS Foundation Trust. As stated in the Sunday Times,
“In both cases”—
of Stafford and Morecambe Bay—
“managers are accused of covering up patient deaths as they chased the prize of foundation trust status”.
Many people have lost confidence in the NHS. Patients should be treated with dignity, kindness, compassion, courtesy, respect, understanding and honesty. In addition, they want safety and clean hospitals at all times.
I ask the Minister: is the NHS in safe hands? There is much to do to restore the public’s confidence in the NHS so that it can flourish. We need it.
Lord Ribeiro
My Lords, like other noble Lords, I express my gratitude to the noble Lord, Lord Patel, for introducing this debate so eloquently. I would like to address some of the recommendations in the Francis report that relate to education and training.
Recommendation 155 requires the General Medical Council to set out a standard requirement for routine visits to acute hospitals that train doctors. It asks for postgraduate deans to assume responsibility for managing the process, for royal colleges to support visits and provide relevant specialty expertise, and for the presence of lay and patient representatives on visits—something that the Royal College of Surgeons has done since 2006. Such visits should be co-ordinated with the work of the Care Quality Commission.
There is a sense of déjà vu about some of these recommendations, because before 2005 hospitals were visited regularly by colleges—some would say too regularly. None the less, the purpose of visits was to inspect and accredit training posts. After each inspection, the visiting team met with the chief executive, the medical director and the clinical tutor and talked about any deficiencies that it had found on its visit and the impact that these would have on service provision. Where problems were discovered the trust was advised that a follow-up visit would be required to ensure that the recommendations were implemented.
I was president of the Royal College of Surgeons in 2007 when the college was asked by Mid Staffordshire NHS Trust to undertake an invited review of its surgical services. Our report did not offer “false assurances” to the trust, as it suggested. Rather, the report identified a lack of leadership, an absence of essential protocols, and issues around attitude and the competence of at least one surgeon. These were all issues likely to impact on patient safety and were just the sort of concerns that could have been picked up in the old-style college visits, where face-to-face interviews of trainees were carried out, with the assurance of confidentiality. The trainees were thus able to speak freely about their training and to flag up any concerns they had. That process did not prevent the tragedy of Bristol, but we have learnt lessons since then.
In his evidence to Francis, Mr John Black, my successor as president, said:
“In the course of such a visit the nature of the service would be investigated as much as the training, because we cannot provide a high standard of training unless there is a good service”.
One junior trainee in his final year in accident and emergency medicine, Dr Turner, said that the pernicious effect of the four-hour waiting target created substandard care in the A&E department. Nurses were bullied into moving patients before they breached the four-hour target, often transferring patients to inappropriate wards and some without their medication. Reports of nurses emerging from management meetings in tears were all too common. Dr Turner’s complaints to his educational supervisor in the trust got nowhere. He identified a lack of commitment to education in a department which had only one consultant despite a college recommendation for four. The ability to express concerns to an external visiting body in confidence is essential if whistleblowing on substandard care is to have any effect.
Restoration of properly structured and co-ordinated college visits are long overdue and I welcome recommendation 155, which seeks to link the regulation of hospitals using professionals and the quality assurance of education and training. Triangulating data about the quality of education and the quality of care would help to paint a fuller picture of the patient’s experience in hospital. The first report of the Royal College of Surgeons on Mid Staffordshire in 2007 mentioned a lack of leadership. In his evidence to the House of Commons Health Select Committee on the Francis report on 5 March last week, Sir Bruce Keogh made this observation:
“I have been on the council of the RCS on two occasions and I have watched the leadership organisations of various tribes...and interest groups slowly feeling that they have been relegated to the position of commentators rather than participants”.
My question to my noble friend is: what steps do the Government propose for bringing these leaders back into the mainstream of NHS delivery and how can we ensure that the doctors and nurses rediscover their voices and act as advocates for patients?
Baroness Tyler of Enfield
My Lords, I also pay tribute to the noble Lord, Lord Patel, for raising this critical issue. What happened at Mid Staffs was a terrible violation of the trust that the public invest in our NHS. Appalling accounts of patients being left to lie in soiled sheets for long periods of time, unable to reach their water or feed themselves, and being denied privacy and dignity even in death, reveal a frightening gulf between what we have the right to expect from our NHS and what patients there were exposed to. What underpins this disgraceful treatment of patients is the failure of the Mid Staffs foundation trust board which, in Robert Francis’s words,
“failed to tackle an insidious negative culture involving a tolerance of poor standards and disengagement from managerial and leadership responsibilities”.
Focusing on finance, figures and top-down operational targets, the trust board neglected its patients’ well-being and overlooked its most basic duty. In the short time available I would like to focus on the issue of governance and the critical role that it plays in bringing about the change in culture so desperately needed.
First, to outline very briefly the failings of the trust and the trust board, despite clear warning signs, the board and other trust members did not take in the severity of what was happening and gave little attention to the concerns coming from patients and staff. On top of a poor complaints system, those in charge ignored issues and were slow to react to matters, if they reacted at all. According to the report—I find this one of the most damning and chilling phrases—the trust’s culture was one of,
“self-promotion rather than critical analysis and openness”.
The perverse values and priorities of the senior leadership resonated throughout the organisation, generating a culture characterised by a lack of openness to criticism, a lack of consideration for patients and defensiveness.
The trust board and trust members had a responsibility to cultivate and uphold a positive culture that places patient care, high clinical standards and quality of practice as paramount priorities. Their blatant failure to do so is a clear signal that action must be taken and I give my full support to the recommendations in the Francis report. In particular, I highlight the importance of ensuring that governors receive proper training and guidance in their roles, with greater emphasis on their personal accountability. Quality accounts, which Francis talks about, with complete and accurate information on a trust’s level of compliance with the fundamental and enhanced standards of care should be made openly available on its website, be audited by the CQC and be accompanied by a signed declaration of all directors certifying the accounts’ validity.
I will draw very briefly on my own experience of chairing a public body. What I have learnt to be critical to effective corporate governance is that all board members should go out, be curious, ask questions and above all listen. All board members should go out on visits, talk directly to front-line practitioners without the management being present, ask to see service-user feedback, and ask what has been done about the issues raised which fall short of expected standards. The board recently reviewed all the service-user feedback to assess its adequacy, and looked at all the complaints, their nature as well as their number, how they were dealt with and how they were being fed in to a cycle of continuous improvement. I make this point simply to emphasise that this is not an add-on or a nice to-do. This is at the very heart of effective corporate governance. An interesting article from the King’s Fund, which was published just before the Francis inquiry report, looked at the way in which boards operate in the NHS. It concluded that behaviour in the boardroom is key to the effective management of quality.
It is only through efforts to create an open, transparent and accountable system of governance that a sustainable and fundamental change in culture will come about. I urge the Government to accept the report’s recommendations, and to take urgent action to instigate these much needed changes.
Baroness Hayman
My Lords, like others I congratulate my noble friend Lord Patel on initiating this debate. I declare an interest as a member of the General Medical Council, like the noble Lord, Lord Kakkar. That interest, of course, translates into a responsibility. So many organisations, including the GMC, have a responsibility to study Francis, to understand what went wrong, and to play their part in putting it right for other parts of the National Health Service. In particular, the GMC needs to consider its own leadership role in driving standards up; it must be not just the policeman but the coach of professionalism and high standards. It must address that tremendously dangerous disengagement from management that we saw illustrated and which defines professionalism, not as the noble Lord, Lord Kakkar did, but very narrowly as care of one’s own patient rather than responsibility for the whole clinical environment. One of the chilling things about Francis was how many people who were not bad people felt either disempowered or “aresponsible” in terms of what they could see going on elsewhere in the hospital.
The noble Lord, Lord Willis, said that as parliamentarians we had some responsibilities, too, in not having discussed the issues of values and cultures. We may not have spent many hours on that. However, we have certainly spent many hours on structures and funding systems—thousands of hours of debates in both Houses. I contend that much of the energy that has gone into reorganisations has sapped energy from the absolute fundamentals of what the NHS is about. Francis gives us the opportunity not to turn this into 290 new boxes to be ticked, but to look at the fundamental purpose and values of healthcare that need to be subscribed to, understood by and championed by those responsible for governance and professional leadership and those responsible as managers. I was brought into the NHS 30 years ago by a hugely talented and committed NHS manager, Alasdair Liddell, who died tragically and suddenly on New Year’s Eve last year. The commitment of managers to the values of the NHS, as well as to cost-effectiveness, efficiency and everything else, is hugely important.
There are other two things that I will say quickly about my first experience in the NHS in Bloomsbury. One is to echo what has been said about complaints. I chaired a complaints panel that looked at every complaint that came into those hospitals. It was a goldmine in improving service and efficiency. To ignore that goldmine is hugely damaging. There are very few heroes in the Francis report, but the complainants are heroes. They gave the opportunity to put things right beforehand.
Secondly, of course we have to look at death rates, but we have to look, too, at those doctors and whether they would recommend a hospital to their colleagues. We had a unit at UCL with pretty well the highest death rates in the country. It was the unit in which every doctor in London would have wanted their family treated, because it took the patients who would otherwise have gone to a hospice.
Lord Walton of Detchant
My Lords, my noble friend Lord Patel opened this debate with a characteristically thoughtful and compelling contribution highlighting many of the recommendations of the Francis report.
In the early days of the NHS, the administrative responsibilities in major hospitals were often undertaken by the hospital secretary, with a small but dedicated staff, reaching decisions based on the advice of senior medical, clinical and nursing staff, including matron. Do any of your Lordships remember when matrons, respected and admired, visited each ward in the hospital at least weekly?
Plainly, massive technological developments in medical and nursing care, the problems of an ageing population and the escalating cost of new effective drugs and procedures have imposed heavy financial, administrative and clinical burdens on hospitals, so that costs have risen exponentially. Hence, consecutive Governments have introduced increasing numbers of managers to the service in the hope of promoting efficiency and financial control but, sadly, some of them have treated the NHS as if it were a business, which it is not.
I have worked with some very able NHS managers. Many in the higher echelons have been individuals of vision, merit and exceptional capability, but at lower tiers, I have met with some unfortunate management-speak, leading to circumlocution, obfuscation and confusion, with failure to identify and promote clinical priorities. The Francis report plainly showed that managerial pressures, in efforts to obtain foundation status and to meet targets, gravely diluted standards of care.
Clearly, some clinical staff failed to fulfil their primary professional responsibilities, and their standards must have been gravely eroded. Who knows, perhaps the obsessional managerial virus pervading at higher levels infected some of the doctors and nurses. The accumulated evidence of much unacceptable—indeed, disgraceful—performance is compelling. A critical message to emerge from this inquiry is that the safety of patients and the maintenance of fundamental standards of care are obligations that must transcend particular policies and must permeate all activities within the system.
Would things have been different with a powerful, respected and authoritative chairman of medical staff and a matron able to bring the managers into line? Clearly, too, the public were never adequately consulted. Community health councils, widely respected, were abolished for obscure reasons, to be replaced by failed local patient and public health forums, and then by LINks, which were even less effective.
Will Healthwatch be any better? Would Healthwatch have prevented the horrors that we learnt about through the Francis inquiry? Somehow, in Staffordshire, obsessional managerial attention on artificially generated governmental targets betrayed patients and, perhaps, clinical staff, confounding the hallowed founding principles of the NHS.
How I agree with other noble Lords who have said how crucial it is to have the authoritative role of the nursing sister and well qualified nurses, but also how necessary it is to have qualified and properly trained supporting staff carrying out nursing services under the supervision of nurses.
Does the Minister agree that the overriding principle of the service must be to provide high-quality, medical investigation, treatment and care, delivered with skill, competence, compassion and full personal support, with competent management, even when in times of financial constraint, insistence upon such fundamental principles leads to a failure to achieve targets? Whenever, for pressing financial reasons, services need to be reduced or withdrawn, such changes must be achieved with the informed consent of healthcare professionals, so that the overriding principle of providing high-quality healthcare is maintained. This is the most important recommendation at the core of the splendid Francis report. Our patients, their families and the nation deserve nothing less.
Lord Warner
My Lords, I recognise that Robert Francis performed an important public service in his first report by identifying appalling failures at the Mid Staffordshire trust. However, as others have said, things have moved on since then. Frankly, I found Francis’s second report much more of a curate’s egg. His call for candour and more transparency in the NHS deserves our support, as does identifying board members and managers who are not fit and proper persons. The CQC needs to improve its effectiveness, especially in its use of provider registration, but I hope the Government will see the 290 recommendations as an à la carte menu from which they can select judiciously.
I want to raise three key questions. First, is there good evidence in this second report that the behaviour at Mid Staffordshire was widespread? I have read very carefully the 115-page executive summary—probably the largest executive summary I have read in my life. I did not find in that summary compelling evidence about the widespread failings that have been identified across the NHS. After the expenditure of £13 million on producing this second report, I would have expected to be more convinced than I was. Without appearing complacent, we must avoid tarring 1.3 million NHS staff with the Mid Staffordshire brush, particularly if we do not have the evidence to do so.
Secondly, is it right to concentrate such huge new efforts on monitoring and regulating hospital care? We know that too many people in acute hospitals should not be there. The estimates vary from 25% to 40%. The NHS operating framework has identified this problem for some time. I found nothing in the Francis report touching on this issue. If we now put huge amounts of regulatory effort into hospital care, presided over by a new, shiny chief hospital inspector, we miss a critical point for the future sustainability of the NHS. If we really want to hold David Nicholson to account, we should concentrate on what is being done to change the commissioning of services so that many fewer elderly people are admitted to and moulder in the medical wards of acute hospitals. That is the real systemic failure.
Lastly, I would like us to question whether the answer to failed regulation is more regulation. I question the good sense of new criminal sanctions for staff and board members. We already struggle to get good board members for what can seem a rather thankless task. Will there really be more whistleblowing if staff think they might send a colleague to jail? We need a better rating system for hospitals, but also for GPs and community services, with more publicly available standardised comparable data for the NHS service providers. This is a topic that the Government rejected amendments on during the passage of the Health and Social Care Bill. Perhaps they might like to think again on this issue.
The case for merging the CQC and Monitor has not been made out. Let us use the bits of this report that improve the NHS for patients and their families, but avoid a political virility contest on how many of the 290 recommendations are accepted.
Baroness Emerton
My Lords, I, too, thank my noble friend Lord Patel for raising this debate, especially for the way in which he introduced the positive side of his recent care to show how it is possible to have a patient pathway that results in high-quality care.
The 294 recommendations demonstrate the depth of the inquiry that has taken place, which must provide some comfort to the relatives and friends who witnessed the very distressing care that was given. The Government now have the responsibility to respond as to how these recommendations are to be met. The relatives, public and professions will be interested in the outcomes, for nobody could wish the same situation to happen again. This is said after any inquiry, of course, but this in-depth report requires commitment to meet the recommendations and necessary changes that will result in safe, high-quality care being given with compassion and respect. It is true that the nursing profession has emerged under a cloud, which means that the 20-plus recommendations relating to nursing require intense scrutiny and consideration for implementation.
My first point is to focus on a patient-centred culture. Having researched previous inquiries, very little or nothing is mentioned about culture. However, as has already been said this evening, unless everyone from the top of the organisation—the chairman and the board—to the ward sister who is in charge of the ward, is aware of the values and standards that are set, and unless they are open, transparent and activated, we will have another Mid Staffs. To avoid this, there must be strong cultural leadership. Do the Government intend to grasp this specific recommendation, which requires more than written codes and standards? It requires practical, behavioural and experiential learning in a multi-professional context within bespoke learning environments.
High-quality and safe care delivery is dependent on nurses who are well prepared, in theory and in practice, with enough time to deliver holistic care with compassion and respect. This is possible only if the workforce plans are such that there are sufficient numbers of registered nurses to supervise the non-registered support workers, as the report clearly shows. Recognising that workforce planning has to be contained within budgetary constraints, it would nevertheless be helpful if minimum staffing ratios of registered nurses to non-registered nursing support workers could be established, along with, I hope, the recommendation that NICE be charged with the responsibility for assisting in this development. I trust that the Government will agree.
It is a long overdue recommendation that every person giving personal care should be trained, which was also taken up by the noble Lord, Lord Willis, in his report. Work in progress for the training of healthcare support workers, which is soon to be published for consultation, will be a welcome step towards, I hope, mandatory training programmes that will lead to registration.
The report also recommended the regular updating through post-registration training following appraisals for registered nurses, which is a necessity. While examining the recommendations from this report, we must also remember that there is an army of excellent nurses, midwives and health visitors spread over the country who are delivering high-quality and safe care, day after day, to the satisfaction of those for whom they care. However, it is vital that there is regular updating though post-registration training, as this is of such importance in this time of rapid developments in medical science. Moving into the integration of health and social care requires understanding the patient pathway from the beginning to the end, with nurses playing a vital part in that smooth transition from one part of the service to the other.
Lord Hunt of Kings Heath
My Lords, this has been an excellent debate. No one reading this report or its predecessor could be in any doubt about the suffering caused to many patients and their families by neglect and the lack of a caring attitude. I want to use my brief four minutes to make one plea to the Government, which is for a considered response. Mr Francis has produced a very large report, which I suspect in reality will be read by very few people, with a huge number of recommendations. I am afraid that he has fallen into the trap of so many inquiries, where instead of going for a few focused recommendations we have this huge canvas to consider.
Like the noble Lord, Lord Patel, my great fear is that we may be in danger of creating a massive bureaucratic edifice in dealing with what essentially was a failure in one trust. It is worth repeating that Mr Francis said that what happened in Mid Staffordshire was caused by a serious failure on the part of a provider trust, which did not listen sufficiently to its patients and staff or ensure the correction of deficiencies brought to the trust’s attention. Like my noble friend Lord Warner, I find it difficult to see the threads between what happened in Mid Staffordshire and the general attack that seems to be taking place on the NHS.
I understand the points made about whether the target-based performance approach impacted on quality of care and, indeed, on the involvement of clinicians in their organisation. I defend targets. I remind noble Lords that in 1997 we had the spectre of very long waiting lists. There was a patient charter that said patients should be treated within 18 months—even that was not being met. The result of the target approach has been to reduce waiting time limits to 18 weeks. When one had long waiting times, patients suffered and some people died. I do not think we should ignore it.
Equally, I have listened to the very eloquent speeches made by noble Lords tonight, who have spoken of the changes that need to be made in the NHS. They are valid comments. However, I am struck by the fact that noble Lords have really rather ignored the reality of everyday life in the NHS at the moment; the imposition of another massive structural change and an unprecedented squeeze on resources.
I declare an interest as a foundation trust chair and can say that, seen from the front line at the moment, we have a system under extraordinary pressure. Patient numbers are up, primary care accessibility is problematic and cuts in local government services reduce their ability to take patients out of hospitals and into their homes or care homes. Everywhere systems are under huge pressure. I think it is grossly unfair to ignore those pressures while, as the Secretary of State has consistently done in speech after speech, pointing out to the NHS its alleged deficiencies, without acknowledging the impact of the resource cuts or the uncertainties of the changes being brought about. As my noble friend Lord Warner pointed out, they will do nothing to deal with the big issue we all face, which is the number of frail elderly in our hospitals who ought not to be there.
Therefore, my plea to the noble Earl, Lord Howe, is that rather than thinking that the Government have to respond to each of those recommendations, they think seriously about the essential leadership they can give to allow for caring attitudes to be free in the health service, and to ensure that impossible pressures are not put on the system, from which it can only fail.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)
My Lords, in thanking the noble Lord, Lord Patel, for his excellent and incisive introduction to the debate, it is right for me to begin by reiterating the Government’s apology to the patients and families of Stafford Hospital for their suffering and for the way that the system allowed such horrific events to go on unchecked and unchallenged for so long. It is also right to remember that the vast majority of staff in the NHS are dedicated and committed to providing high-quality and compassionate care for patients. I, for one, have much admiration for the work that they do.
We are very grateful to Robert Francis QC and his team for their hard work. It is now our responsibility to use these findings to improve the NHS and the way that we work. We are currently giving careful thought to the key messages in the report and reflecting deeply on what we need to do. I regard this debate as an important ingredient in that process. I listened particularly to the salutary warnings from the noble Lords, Lord Warner and Lord Hunt of Kings Heath, in this area.
The overriding theme of the report is about culture and the need for everyone across the health and care system to reflect on the report’s findings and recommendations and act to challenge and change the culture of the NHS to place patients and compassionate care at its heart. We are absolutely clear that this report needs to be a catalyst for change. We need to ensure that the quality of a patient’s care is given as much weight as their clinical treatment.
We are also in a far better position than before to prevent the sort of catastrophic failures of care seen at Mid Staffs because we now have a system which is working together to protect the patient in a way that did not happen before. Francis’s report outlines the serious consequences that occur when regulators do not communicate with each other properly and work in silos rather than in partnership. The reforms will enable us to allow for stronger and better regulation. From April 2013, Monitor will be the sector regulator for healthcare in England, and with the Care Quality Commission it will jointly license providers of NHS-funded care. Both have new duties to work more closely together and promote the interests of people who use healthcare services. The Care Quality Commission will have a new chief inspector of hospitals with powers to ensure that the system acts quickly to tackle unacceptable care. We are currently considering Francis’s specific recommendations on regulation in more detail, including their legal and financial implications. I say to the noble Lord, Lord Patel, that we have not rejected Francis’s recommendations to merge Monitor and CQC; that is still being considered.
We intend to provide an initial response to the report by the end of this month. The intention is that it will be a collective response across the system to demonstrate that we are working together with partners about the way in which we are doing that. It will focus on themes rather than being a line-by-line response to each of the recommendations. It will reflect the importance of the focus on culture and patient voice. It will begin to demonstrate that national partners, including the Department of Health and arm’s-length body partners, are acting together and taking action to ensure a greater focus on quality of care as well as quality of treatment, greater clinical input into policy making and a closer connect to patients. The whole system needs to put patients at the heart of what it does above all else.
In Francis’s letter to the Secretary of State, he states that the failings at Mid Staffs were,
“primarily caused by a serious failure on the part of a provider Trust Board”.
My noble friend Lady Tyler was right that the role of the trust board should not and cannot be underestimated. The board is key to ensuring that staff have the right support to be able to provide the very best care for patients. Board members need to provide good leadership and be able to model compassionate care so that it can be felt throughout the organisation. Members of the board therefore have an integral and challenging role in making sure that quality and safety is at the forefront while ensuring the care is patient-centred.
It is not surprising that the theme of safety has been prominent in this debate. Patient safety is paramount, but managing safety and developing a culture around this is a real challenge given the number of people the NHS treats on a daily basis. We are looking at how we need to do things differently. The patient safety expert Don Berwick will review our approach to patient safety and advise on how we can create the zero-harm safety culture that Francis was talking about and indeed, Cure the NHS, the patient group instrumental to ensuring that Mid Staffs was looked at in the first place, has also championed ideas on this.
It is clear from this report that during previous times of change in the NHS patient care and safety have suffered. What is also clear from the Francis report is that the system needed to be restructured precisely because patient safety was falling through gaps. I take the point made by a number of noble Lords about regulatory burdens, and we have commissioned a review by the NHS Confederation to consider how bureaucratic burdens on providers of NHS care can be reduced. The focus of the review is to consider how to reduce the burden of inspection and data collection on the providers of care so that they can focus more on the delivery of safe and effective compassionate care. That is why one of core objectives for the NHS Commissioning Board, as set out in the mandate, is to ensure the NHS provides safe care for patients, and it will be developing a new patient safety strategy to deliver on this.
The noble Lord, Lord Patel, talked about safety to a large extent and referred to Don Berwick’s work. The national reporting and learning system, as he knows, is now owned by the NHS Commissioning Board and allows the board to fulfil its legal duty in the 2012 Act to establish and operate systems for collecting and analysing information relating to the safety of the services provided by the health service. I think that is integral to its role. Don Berwick will review our approach to patient safety and the Francis report, and his job is to advise the NHS on the delivery of a sustained and robust patient safety culture.
The noble Baroness, Lady Hayman, to whom I listened with great care, spoke very appropriately about people recommending a hospital to their relatives. That was a point well made. The friends and family test, which has been designed, is a simple and comparable test that provides a mechanism to identify poor performance. It is designed to encourage staff to make improvements where services do not live up to expectations. It should prove a useful mechanism.
The noble Lord, Lord Patel, asked in what respect the work of the chief inspector would impact on the CQC. The CQC has already said that it will move to a differential approach to inspection, with the better use of experts and with more attention paid to what patients say. The chief inspector post will focus this work so that performance is better understood and more easily identified and then acted upon quickly, which is particularly important.
The noble Lord, Lord Rea, spoke about whistleblowing. The Government’s reforms will deliver an emphasis on local clinical leadership and oversight, clinically led commissioning, greater transparency on outcomes, and oversight by local health and well-being boards and local Healthwatch. These reforms will make it much less likely that trusts will either want or be able to behave in a way that does not promote the highlighting of concerns or issues by staff, patients or the public. In turn, that should promote a culture where concerns are not just raised but acted upon.
This theme was picked up by my noble friend Lord Ribeiro. We recognise that there is work to be done to ensure that all staff are empowered to speak out and protect patients without the fear of victimisation for doing so. The noble Baroness, Lady Masham, reminded the House of her championing of a duty of candour. We are looking very carefully at that recommendation.
My noble friend Lady Tyler made the very good point that board members have to be engaged on this and to the fullest extent. My right honourable friend the Secretary of State has written to all trust chairs highlighting the seriousness of the report and asking them to hold listening events with all staff to talk about the lessons that we can learn from Francis.
The noble Baroness, Lady Hayman, emphasised the important role of managers, and I listened with equal respect to my noble friend Lord Eccles on that score. The Professional Standards Authority for Health and Social Care recently published national standards of behaviour and competence and a code of conduct for top NHS managers. I believe that patients and the public expect them to embrace those standards and indeed to live by them.
The theme of leadership was picked up by many noble Lords. Good leadership in the NHS embraces many things such as compassion and care and places quality and safety at the heart of all decisions. Leaders are needed at all levels. We are doing more to ensure that all staff have the opportunities to become leaders or to demonstrate leadership skills in their existing roles. The government reforms will deliver an emphasis on local clinical leadership and oversight, as I have mentioned.
My noble friend Lord Cormack and the noble Lord, Lord Kakkar, also picked up the theme of leadership. The Leadership Academy is one organisation that has been established to train and develop new leaders and to run a number of core programmes to support clinicians, nurses and managers in leadership roles. I hope the noble Baroness, Lady Emerton, will take comfort from the fact that, as we consider Francis’s 290 recommendations, we are engaging with a range of key stakeholders, including the professional bodies, such as the royal colleges, to identify what more we need to do in response to Francis, including the values that pertain to good leadership.
We will consider very carefully the recommendations of the inquiry in the area of nurse training. We are particularly keen to establish whether more vocational ways of becoming a nurse can enrich the nursing workforce while maintaining the high academic standards that modern nursing requires. I say to my noble friend Lord Willis that we want to be guided by the profession. The country’s top two nurses, Jane Cummings and Viv Bennett, will do two things in this area: they will make sure that recruitment to university undergraduate programmes is based on values and behaviours, as well as technical and academic skills, and will work with national organisations to agree stronger arrangements to ensure effective training and recruitment.
My time is up, although I have much more to say. If noble Lords will allow, I will follow up this debate with letters to those noble Lords whose points I have not had time to address. Meanwhile, once again I thank all speakers for some extremely important contributions, which will in form the Government’s thinking over the weeks ahead.